BEYOND COM CORP, POS AM, 1999-04-30

BEYOND COM CORP
POS AM, 1999-04-30
PREPACKAGED SOFTWARE

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<PAGE> 1

FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 30, 1999

REGISTRATION NO. 70957
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
------------------------

POSTEFFECTIVE AMENDMENT NO. 1

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------------

BEYOND.COM CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S> <C> <C>
DELAWARE 7375 94-3212136
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER IDENTIFICATION
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) NUMBER)
</TABLE>

1195 WEST FREMONT AVENUE
SUNNYVALE, CALIFORNIA 94087
(408) 616-4200
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

MARK L. BREIER
PRESIDENT AND CHIEF EXECUTIVE OFFICER
BEYOND.COM CORPORATION
1195 WEST FREMONT AVENUE
SUNNYVALE, CALIFORNIA 94087
(408) 616-4200

COPIES OF ALL COMMUNICATIONS, INCLUDING ALL COMMUNICATIONS SENT TO THE AGENT FOR
SERVICE, SHOULD BE SENT TO:

RICHARD SCUDELLARI
JUSTIN L. BASTIAN

DAVID P. VALENTI

MORRISON & FOERSTER LLP
755 PAGE MILL ROAD
PALO ALTO, CALIFORNIA 94304
(650) 813-5600

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [X];
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: [ ];
If this Form is a post effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ];
If this Form is a post effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ];
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]

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- --------------------------------------------------------------------------------
<PAGE> 2

LOGO

7 1/4% Convertible Subordinated Notes and Common Stock
------------------

This prospectus relates to the resale of the following securities of
Beyond.com Corporation, a Delaware corporation, by the present holders of such
securities:

- $63,250,000 aggregate principal amount of 7 1/4% Convertible Subordinated
Notes Due December 1, 2003;

- 3,448,745 shares of our common stock into which our 7 1/4% Convertible
Subordinated Notes may convert;

- 247,531 shares of our common stock; and

- 358,423 shares of our common stock issuable upon exercise of an
outstanding warrant.

Our 7 1/4% Convertible Subordinated Notes and the shares of our common
stock will be offered and sold by their present holders. We will not receive any
proceeds from any resale by the present holders.

Shares of our common stock are listed for trading on The Nasdaq Stock
Market's National Market under the symbol "BYND". On March 22, 1999, the last
reported sales price for our common stock on The Nasdaq National Market was
$24 1/8. Our 7 1/4% Convertible Subordinated Notes are eligible for trading on
The PORTAL(SM) ("PORTAL") Market of The Nasdaq Stock Market.

INVESTING IN OUR COMMON STOCK OR OUR 7 1/4% CONVERTIBLE SUBORDINATED NOTES
INVOLVES CERTAIN RISKS. SEE "RISK FACTORS" ON PAGE 9.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION
HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS
IS
TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

Prospectus dated April 29, 1999

<PAGE> 3

TABLE OF CONTENTS

<TABLE>
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PAGE
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<S> <C>
SUMMARY............................. 3
RISK FACTORS........................ 9
USE OF PROCEEDS..................... 29
RATIO OF EARNINGS TO FIXED
CHARGES........................... 29
DIVIDEND POLICY..................... 29
PRICE RANGE OF COMMON STOCK......... 29
CORPORATE INFORMATION............... 29
CAPITALIZATION...................... 30
SELECTED CONSOLIDATED FINANCIAL
DATA.............................. 32
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS..................... 35
BUSINESS............................ 49
</TABLE>

<TABLE>
<CAPTION>
PAGE
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<S> <C>
MANAGEMENT.......................... 71
CERTAIN TRANSACTIONS................ 83
PRINCIPAL AND SELLING NOTEHOLDERS
AND STOCKHOLDERS.................. 87
DESCRIPTION OF CAPITAL
STOCK............................. 94
DESCRIPTION OF NOTES................ 100
CERTAIN UNITED STATES FEDERAL INCOME
TAX CONSIDERATIONS................ 119
PLAN OF DISTRIBUTION................ 125
LEGAL MATTERS....................... 126
EXPERTS............................. 127
ADDITIONAL INFORMATION.............. 127
INDEX TO FINANCIAL STATEMENTS....... F-1
</TABLE>

-------------------------

YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY BE USED ONLY WHERE IT IS LEGAL
TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE
ON THE DATE OF THIS DOCUMENT.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements that have been made
pursuant to the provisions of the Private Securities Litigation Reform Act of
1995. These forward-looking statements are not historical facts, but rather are
based on our current expectations, estimates and projections about our industry,
our beliefs and assumptions. Words such as "anticipates," "expects," "intends,"
"plans," "believes," "seeks," "estimates" and similar expressions are intended
to identify forward-looking statements. These statements are not guarantees of
future performance and are subject to certain risks, uncertainties and other
factors, some of which are beyond our control, are difficult to predict and
could cause actual results to differ materially from those expressed or
forecasted in the forward-looking statements. These risks and uncertainties are
described in "Risk Factors" and elsewhere in this prospectus. We caution you not
to place undue reliance on these forward-looking statements, which reflect our
management's view only as of the date of this prospectus. We are not obligated
to update these statements or publicly release the result of any revisions to
them to reflect events or circumstances after the date of this prospectus or to
reflect the occurrence of unanticipated events.

2
<PAGE> 4

SUMMARY

You should read the following summary together with the more detailed
information regarding our company and the common stock being sold in this
offering and our consolidated financial statements and related notes appearing
elsewhere in this prospectus. Because this is only a summary, you should read
the rest of this prospectus before you invest in our common stock or our 7 1/4%
Convertible Subordinated Notes. Read the entire prospectus carefully, especially
the risks described under "Risk Factors."

BEYOND.COM CORPORATION

- one of the largest selections of brand name, high quality software
available online; and

- the convenience of shopping from the home or the office,
twenty-four-hours-a-day, seven-days-a-week with technical support
available.

We believe the Internet is an ideal medium for the sale and delivery of
software for several reasons:

- the demographics of Internet users overlap one-to-one with the
demographics of potential software purchasers;

- we can provide instant gratification because we can deliver many software
titles and their related stock keeping units via digital download; and

- large enterprise customers can use digital download to achieve efficient
and cost effective distribution of software.

We have based our business on scaleable technology that permits the sale,
order processing and delivery of software with limited human intervention. With
our technology and significant operational experience, we can address the
complex process of real time digital download. Approximately 350 leading
software publishers have granted us the right to distribute approximately 5,600
software stock keeping units via digital download.

We also have established strategic marketing alliances with America Online,
Inc., Excite, Inc., Netscape Communications Corporation, Network Associates,
Inc. and Yahoo! Inc. These alliances promote our Web site and services on the
Web sites of these strategic partners.

The software reselling industry is large and growing. According to
International Data Corporation, end-user spending on software through indirect
channels is expected to increase at a compounded annual rate of 17.2%, from
$23.9 billion in 1997 to $52.9 billion in 2002. Jupiter Communications, Inc.
estimates that online PC software sales revenue in 1998 were $259 million and
projects these revenues will grow to $2.4 billion in 2002.
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<PAGE> 5

We intend to extend our momentum as a "first mover" in online software
reselling to deliver outstanding value to our customers and to leverage our
online store model to achieve economies of scale. Since we launched our Web site
in November 1994, we have delivered software products to approximately 634,000
cumulative customers (including individual desktops for corporate and government
customers and users to whom we have distributed freeware and trial download
products). Our sales increased from approximately $5.9 million in 1996 to
approximately $36.7 million in 1998.

Recent Developments. On March 30, 1999, we completed a transaction whereby
one of our wholly-owned subsidiaries merged with and into BuyDirect.com, Inc., a
leading online software retailer for consumers and business customers. In
connection with this merger we will issue approximately 4,943,767 shares of our
common stock to BuyDirect.com's stockholders in exchange for their outstanding
shares of BuyDirect.com common and preferred stock. We also reserved for
issuance upon the exercise of options we assumed in connection with the merger
approximately 281,988 shares of our common stock.

Our address is 1195 West Fremont Avenue, Sunnyvale, California 94087 and
our telephone number is (408) 616-4200.

THE OFFERING

In November and December 1998, we sold $63,250,000 aggregate principal
amount of our 7 1/4% Convertible Subordinated Notes due December 1, 2003. As
part of that offering, we agreed to register our 7 1/4% Convertible Subordinated
Notes and the shares of common stock into which our 7 1/4% Convertible
Subordinated Notes may be converted on behalf of the purchasers. To comply with
that agreement, we are filing a registration statement with the Securities and
Exchange Commission of which this prospectus is a part.

In a series of privately negotiated transactions between January 1995 and
April 1998, we issued and sold shares of our common stock and shares of our
Series A, Series B, Series C and Series D preferred stock to private purchasers.
Under the terms of those transactions, the purchasers have the right to include
their shares in the registration statement of which this prospectus is a part.
All of the outstanding shares of our preferred stock automatically converted
into shares of our common stock immediately prior to the initial public offering
of our common stock in June 1998. One stockholder has elected to include an
aggregate of 8,582 shares of common stock in this registration statement.

In June 1998, we issued and sold 238,949 shares of our common stock in a
privately negotiated transaction. Concurrent with the sale of these shares, we
issued a warrant to purchase 358,423 shares of our common stock. The
registration statement of which this prospectus is a part, also registers such
238,949 shares of our common stock and the 358,423 shares of our common stock
that may be issued pursuant to the warrant previously issued.

Under this registration statement, holders of our 7 1/4% Convertible
Subordinated Notes may sell our 7 1/4% Convertible Subordinated Notes, holders
of our common stock, or the holder of a warrant to acquire shares of our common
stock, registered under this registration statement may sell such notes or
common stock in one or more offerings. We must keep the registration statement
effective for a period of two years from the date of this prospectus. This
prospectus provides you with a general description of our 7 1/4% Convertible
Subordinated Notes and the shares of our common stock that may be sold. For more
detailed information, you should read the exhibits filed with the registration
statement of which this prospectus is a part.
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<PAGE> 6

OUR 7 1/4% CONVERTIBLE SUBORDINATED NOTES

Amount Offered................ $63,250,000 principal amount of 7 1/4%
Convertible Subordinated Notes Due December 1,
2003.

Maturity Date................. December 1, 2003.

Interest Payment Dates........ June 1 and December 1 of each year, commencing
June 1, 1999.

Conversion Rights............. You may convert our 7 1/4% Convertible
Subordinated Notes into shares of our common
stock at any time prior to maturity at a
conversion price of $18.34 per share, subject
to adjustment under certain conditions.
However, the right to convert a 7 1/4%
Convertible Subordinated Note called for
redemption terminates on the business day
immediately preceding the redemption date or
such earlier date as the holder presents any of
our 7 1/4% Convertible Subordinated Notes for
redemption.

Optional Redemption of Notes
by the Company................ We cannot redeem our 7 1/4% Convertible
Subordinated Notes prior to December 6, 2001.
On and after December 6, 2001, we may redeem
our 7 1/4% Convertible Subordinated Notes in
whole or in part, at any time at the redemption
prices listed in the section "Description of
Notes" under the heading "Optional Redemption."

Sinking Fund.................. None.

Change in Control............. If we sell certain assets or experience
specific kinds of changes in control, we must
offer to repurchase our 7 1/4% Convertible
Subordinated Notes (if any remain outstanding)
at the prices listed in "Description of Notes."
If we experience an event that triggers this
obligation, we cannot assure that we will have
enough cash to pay the purchase price for our
7 1/4% Convertible Subordinated Notes, or that
we could do so without violating the terms of
other agreements.

Subordination................. Our 7 1/4% Convertible Subordinated Notes are
general unsecured obligations of ours and rank
behind all of our existing and future senior
indebtedness. As of December 31, 1998, we had
no senior indebtedness outstanding that would
have been senior in right of payment to our
7 1/4% Convertible Subordinated Notes. Our
7 1/4% Convertible Subordinated Notes rank
behind all existing and future indebtedness and
other liabilities (including trade payables) of
any current subsidiaries and any subsidiaries
which we may acquire or establish. The
Indenture with LaSalle National Bank governing
our 7 1/4% Convertible Subordinated Notes does
not limit our ability to take on senior or
other indebtedness.
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<PAGE> 7

Use of Proceeds............... We will not receive any proceeds from the sale
of our 7 1/4% Convertible Subordinated Notes or
common stock offered hereby.

Trading....................... Our 7 1/4% Convertible Subordinated Notes are
designated for trading on The PORTAL(SM)
Market. However, we cannot assure that there
will be any liquidity or trading market for our
7 1/4% Convertible Subordinated Notes.

Liquidated Damages............ We have agreed to file this registration
statement with respect to the resale of our
7 1/4% Convertible Subordinated Notes and the
shares of our common stock issuable upon
conversion of our 7 1/4% Convertible
Subordinated Notes and to keep this
registration statement effective until two
years after the filing date. If the Securities
and Exchange Commission does not declare the
registration statement of which this prospectus
is a part effective within 120 days after
November 23, 1998, or if the Securities and
Exchange Commission issues a stop order
suspending this registration statement or
initiates proceedings therefor under the
Securities Act, or if this prospectus is
unavailable in excess of certain time periods,
we have agreed to pay liquidated damages to the
holders of our 7 1/4% Convertible Subordinated
Notes and the common stock issued upon
conversion of our 7 1/4% Convertible
Subordinated Notes.

Minimum Denominations......... Our 7 1/4% Convertible Subordinated Notes are
issued in amounts of $1,000 principal amount
and integral multiples thereof.

DTC Eligibility............... Except under the limited circumstances
described herein, our 7 1/4% Convertible
Subordinated Notes will be issued only in fully
registered book entry form and will be
represented by one or more permanent Global
Notes without coupons deposited with a
custodian for, and registered in the name of, a
nominee of Depository Trust Company. Beneficial
interests in any such Global Notes will be
shown on, and transfers thereof will be
effected only through, records maintained by
Depository Trust Company and its direct and
indirect participants.

Settlement for our 7 1/4% Convertible
Subordinated Notes will be in same day funds.
Except under limited circumstances, neither we
nor LaSalle National Bank as trustee will
consider owners of beneficial interests in the
Global Notes to be entitled to have any of our
7 1/4% Convertible Subordinated Notes
registered in their names, to be entitled to
receive physical delivery of our 7 1/4%
Convertible Subordinated Notes in certificated
form nor to be the registered owners or holders
of our 7 1/4% Convertible Subordinated Notes
under our Indenture with LaSalle National Bank
for any purpose.
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OUR COMMON STOCK

Amount Offered................ Up to 4,054,699 shares of our common stock.
This total includes: up to 3,448,745 shares
issuable upon conversion of our 7 1/4%
Convertible Subordinated Notes, at a conversion
price of $18.34 per share, 358,423 shares of
our common stock issuable upon exercise of a
previously issued warrant; and 247,531 shares
sold to purchasers in earlier transactions.

Nasdaq National Market
Symbol........................ BYND
7
<PAGE> 9

SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
PRO FORMA
1996 1997 1998 1998(2)
------- ------- -------- ---------
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA
Net revenues...................................... $ 5,858 $16,806 $ 36,650 $ 41,279
Gross profit...................................... 721 1,933 5,576 6,884
Operating expenses:
Research and development........................ 431 1,060 4,201 6,047
Sales and marketing............................. 704 1,696 27,568 32,748
General and administrative...................... 450 1,087 4,943 6,733
Goodwill and deferred compensation
amortization................................. -- -- -- 49,086
------- ------- -------- --------
Total operating expenses................ 1,585 3,843 36,712 94,614
Loss from continuing operations................... (779) (1,743) (31,073) (87,738)
Net loss.......................................... $(1,515) $(5,359) $(31,073) $(87,738)
======= ======= ======== ========
Basic and diluted net loss per share(1)........... $ (0.18) $ (0.61) $ (1.65) $ (3.66)
======= ======= ======== ========
Pro forma basic and diluted net loss per
share(2)........................................ $ (0.30) $ (1.28) $ (2.99)
======= ======== ========
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------------------------------------
PRO FORMA
ACTUAL PRO FORMA(2) (AS ADJUSTED)(2)(3)
-------- ------------ -------------------
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA
Cash and cash equivalents......................... $ 81,548 $ 81,889 $180,389
Working capital................................... 80,128 72,437 170,937
Total assets...................................... 109,904 252,124 350,624
Long-term obligations, net of current portion..... 63,250 69,042 69,042
Stockholders' equity.............................. 24,723 152,216 250,716
</TABLE>

- ---------------
(1) For an explanation of the calculation of per share amounts, see Note 1 of
Notes to Consolidated Financial Statements and Note 8 of Notes to Unaudited
Pro Forma Condensed Combined Financial Information.

(2) The pro forma 1998 consolidated statement of operations data and
consolidated balance sheet data and the pro forma as adjusted 1998
consolidated balance sheet data give effect to the BuyDirect.com merger. See
the Unaudited Consolidated Pro Forma Combined Condensed Financial
Information and Notes thereto included elsewhere herein.

(3) The pro forma as adjusted data gives effect as of December 31, 1998, to the
issuance and sale by us of 3,000,000 shares of our common stock in an
underwritten public offering that we closed on April 14, 1999 (after
deduction of the estimated offering expenses and the underwriters'
discount).

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RISK FACTORS

You should carefully consider the risks described below before making a
decision to invest in Beyond.com. If any of the following risks actually occur,
our business, financial condition or results of future operations could be
materially adversely affected. In such case, the trading price of our common
stock or our 7 1/4% Convertible Subordinated Notes could decline, and you may
lose all or part of your investment. This prospectus contains forward-looking
statements that involve risks and uncertainties. Our actual results could differ
materially from those anticipated in the forward-looking statements as a result
of many factors, including the risks faced by us described below and elsewhere
in this prospectus.

WE HAVE A LIMITED OPERATING HISTORY AND HAVE INCURRED NET LOSSES SINCE INCEPTION
AND EXPECT FUTURE LOSSES.

We began selling software on our Web site in November 1994. As a result, we
have only a limited operating history upon which you may evaluate our business
and prospects. We incurred net losses of approximately $38.7 million from
inception of our business through 1998. As of December 31, 1998, we had an
accumulated deficit of approximately $42.4 million. We expect to continue to
incur significant net operating losses for the foreseeable future.

WE ANTICIPATE SIGNIFICANT LOSSES AND NEGATIVE CASH FLOW.

We expect significant operating losses and negative cash flow to continue
for the foreseeable future. We anticipate our losses will increase significantly
from current levels because we expect to incur additional costs and expenses
related to:

- brand development, marketing and promotion;

- Web site content development;

- strategic relationship development and maintenance; and

- technology and operating infrastructure development, including improved
digital download capabilities.

In addition, as a result of the BuyDirect.com merger, we expect that our
losses will increase even more significantly due to additional costs and
expenses related to:

- increased headcount;

- additional facilities and infrastructure; and

- assimilation of operations and personnel.

In addition, as a result of the BuyDirect.com merger we will record a
significant amount of goodwill, the amortization of which will adversely affect
our earnings and profitability for the foreseeable future. We expect to record
goodwill and other intangible assets of approximately $140 million, to be
amortized through 2002. We believe it is likely that we will not generate
additional earnings sufficient to recover the amount of goodwill and other
intangible assets recorded during the period in which they are amortized.

Because we have relatively low gross margins, our ability to become
profitable given our planned expenses depends on our ability to generate and
sustain substantially higher net revenues. If we do achieve profitability, we
cannot be certain that we can sustain or increase profitability on a quarterly
or annual basis in the future.

We base our current and future expense levels, which are largely fixed, on
our operating plans and estimates of future revenues. We find sales and
operating results difficult to forecast, because

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<PAGE> 11

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. A shortfall in revenues will significantly
harm our business and operating results. In view of the rapidly evolving nature
of our business, proposed and possible future acquisitions and our limited
operating history of selling software online, we have little experience
forecasting our revenues. Therefore, we believe that period-to-period
comparisons of our financial results are not necessarily meaningful and you
should not rely upon them as an indication of our future performance. If we
cannot achieve and sustain operating profitability or positive cash flow from
operations, we may be unable to meet our debt service obligations or working
capital requirements, which would adversely affect our business.

OUR FUTURE OPERATING RESULTS ARE UNPREDICTABLE.

Our revenues and operating results may fluctuate significantly from quarter
to quarter due to a number of factors, not all of which are in our control.
These factors include:

- our ability to attract and retain new customers and maintain customer
satisfaction;

- new Web sites, services and products introduced by us or by our
competitors;

- price competition;

- decreases in the level of growth, use of or consumer acceptance of the
Internet and other online services for the purchase of consumer products;

- our ability to upgrade and develop our systems and infrastructure and
attract new personnel in a timely and effective manner, and our ability
to integrate BuyDirect.com's systems and personnel;

- traffic levels on our Web site and our ability to convert that traffic
into customers;

- the amount and timing of operating costs and capital expenditures
associated with integrating BuyDirect.com's personnel and operations into
our business, including but not limited to, BuyDirect.com's financial
obligations under its strategic marketing alliance agreements;

- the termination of any strategic marketing alliances such as those we
have with America Online, Excite, Network Associates or Yahoo!, pursuant
to which we receive exposure to traffic on third party Web sites, the
termination of existing agreements between BuyDirect.com and At Home
Corporation ("@Home"), CNET, Inc., Xoom.com, ZDNet, a division of ZD,
Inc. and other partners;

- the termination of contracts with major purchasers, particularly United
States government agencies;

- technical difficulties or system downtime affecting the Internet or
online services, generally, or the operation of our Web site;

- the failure of Internet bandwidth to increase significantly over time
and/or an increase in the cost to consumers of obtaining or using
Internet bandwidth;

- the amount and timing of operating costs and capital expenditures
relating to the expansion of our business, operations and infrastructure;

- the number of popular software titles introduced;

- government regulations related to use of the Internet for commerce or
sales and distribution of software; and

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<PAGE> 12

- general economic conditions and economic conditions specific to the
Internet, online commerce and the software industry.

We must increase software sales through Web sites and online sites by
increasing the number of visitors to our online sites or by increasing the
percentage of visitors to our online sites who purchase software. We must also
increase the number of repeat purchasers of software through our online sites,
increase revenues from sales to consumer purchasers and digital download
software product sales in absolute dollars and as a percentage of our total net
revenues. In addition, we must successfully establish, maintain and enhance the
Beyond.com brand. We have implemented strategies we hope will achieve these
goals, such as entering into our strategic relationships with America Online,
Excite, Netscape, Network Associates and Yahoo!. We cannot be certain that we
can accomplish these objectives or that our business strategy will be
successful.

Seasonal fluctuations in the software industry, Internet and commercial
online service usage, and traditional retail, government and corporate seasonal
spending patterns and advertising expenditures may affect our business. In
particular, Internet and online service usage and its rate of growth may decline
in the summer. These seasonal patterns may cause quarterly fluctuations in our
operating results and could adversely and materially affect our financial
performance.

Our gross margins are likely to fluctuate over time. A number of factors
may impact our gross margins, including:

- the mix of revenues from sales to government, corporate, consumer and
publisher channels;

- the mix of revenues from sales of shrink-wrap products and products
delivered through digital download;

- the mix of revenues from sales of software products and computer
peripheral products (such as joysticks, personal organizers and related
products);

- the mix of revenues we derive from our relationships with strategic
partners such as America Online, @Home, CNET, Excite, Netscape, Network
Associates, Xoom, Yahoo! and ZDNet and from our Web site; and

- the amount of advertising or promotional revenues we receive.

We realize higher gross margins from:

- advertising and promotional revenues than from software products sales;

- product sales through digital download than from sales of shrink-wrap
software products;

- sales of specialty software products than from sales of widely available
commodity software products; and

- sales to consumer purchasers than from sales to government or corporate
purchasers.

We believe that the size of new software products will continue to increase
and that they will be suitable for digital download only if network bandwidth
increases significantly. This trend may limit our ability to distribute such
software products via digital download and may limit our ability to realize the
higher gross margins associated with digital download software product sales.
Any change in one or more of these factors could adversely and materially affect
our gross margins and operating results in future periods.

Due to the foregoing factors, we believe that quarter-to-quarter
comparisons of our operating results are not a good indicator of our future
performance. It is likely that 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 fall significantly.

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<PAGE> 13

WE NEED ADDITIONAL CAPITAL TO PAY DEBT SERVICE ON THE 7 1/4% CONVERTIBLE
SUBORDINATED NOTES AND FOR OTHER PURPOSES.

We require substantial working capital to fund our business. We expect
operating losses and negative cash flow to continue for the foreseeable future.
We anticipate that the net proceeds we receive from the issuance and sale by us
of 3,000,000 shares of our common stock in a proposed underwritten public
offering that we expect to close in April 1999, together with our existing
capital resources, will meet our capital requirements through at least the next
18 months. However, we may have additional capital needs before this period
ends. Thereafter, we will likely have to raise additional funds, in part to make
interest payments to holders of our 7 1/4% Convertible Subordinated Notes, and
in part to meet our obligations to America Online, @Home, CNET, Excite,
Netscape, Network Associates, Xoom, Yahoo!, ZDNet and other partners. We may
elect to seek additional funds at any time.

The actual amount and timing of our future capital requirements may differ
materially from our estimates. In particular, our estimates may be inaccurate as
a result of changes and fluctuations in our revenues, operating costs and
development expenses. Our revenues, operating costs and development expenses
will be negatively affected by any inability to:

- effectively and efficiently manage the expansion of our operations,
including the integration of BuyDirect.com's systems and personnel;

- obtain favorable co-branding or Internet marketing agreements with third
parties similar to those with America Online, @Home, CNET, Excite,
Network Associates, Xoom, Yahoo! or ZDNet;

- negotiate favorable contracts with suppliers, including large volume
discounts on purchases of software; and

- improve brand recognition, attract sufficient numbers of customers or
increase the volume of our software sales.

Our revenues and costs also depend upon factors that we cannot control.
These factors include changes in technology and regulations, increased
competition and factors such as Web integrity, seasonality, and performance by
third parties in connection with our operations. Because of these factors, our
actual revenues and costs are uncertain and may vary considerably. These
variations may significantly affect our future need for capital. Also, if we
accelerate the expansion of our operations or complete any acquisitions, we will
require more funding sooner than we currently expect. We may be unable to raise
financing sufficient for our needs, either on suitable terms or at all. This
will hinder our ability to satisfy our obligations to holders of our 7 1/4%
Convertible Subordinated Notes. This result would substantially harm the trading
price of our common stock and materially harm our business.

WE ARE SIGNIFICANTLY LEVERAGED; WE REQUIRE SUBSTANTIAL AMOUNTS OF CAPITAL FOR
DEBT SERVICE.

By selling the 7 1/4% Convertible Subordinated Notes in November and
December 1998, we incurred $63,250,000 principal amount of indebtedness. This
resulted in a ratio of long-term debt to total capitalization at December 31,
1998 of approximately .72 to 1 and approximately .34 to 1 as adjusted for the
issuance and sale by us of 3,000,000 shares of our common stock in an
underwritten public offering that we closed on April 14, 1999. Our increased
leverage could limit or reduce our ability to obtain financing for working
capital, acquisitions or other purposes and could make us more vulnerable to
industry downturns and competitive pressures.

We will likely require substantial amounts of cash to fund scheduled
payments of principal and interest on our 7 1/4% Convertible Subordinated Notes,
future capital expenditures and any increased

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<PAGE> 14

working capital requirements. We believe we may be unable to meet our cash
requirements out of cash flow from operations and available borrowings. We also
may be unable to obtain alternative financing. A lack of adequate financing may
adversely affect our ability to:

- respond to changing business and economic conditions;

- make future acquisitions;

- absorb negative operating results; or

- fund capital expenditures or increased working capital requirements.

We could attempt to refinance our 7 1/4% Convertible Subordinated Notes if
our cash flow from operations is insufficient to repay them at maturity.
However, a refinancing might not be available on terms acceptable to us, or at
all. If we fail to make necessary payments on our 7 1/4% Convertible
Subordinated Notes, we will be in default under the terms of our 7 1/4%
Convertible Subordinated Notes, and may also be in default under agreements
controlling our other indebtedness, if any. Any default by us under our 7 1/4%
Convertible Subordinated Notes or on other indebtedness could adversely affect
our financial condition and operating results.

OUR 7 1/4% CONVERTIBLE SUBORDINATED NOTES WILL RANK BELOW EXISTING AND
FUTURE INDEBTEDNESS. Our 7 1/4% Convertible Subordinated Notes are unsecured and
subordinated in right of payment to all of our existing and future senior
indebtedness. As of December 31, 1998, we had no senior indebtedness
outstanding. Because our 7 1/4% Convertible Subordinated Notes are subordinate
to our senior indebtedness, in the event of our bankruptcy, liquidation,
reorganization or certain other events, we will pay obligations on our 7 1/4%
Convertible Subordinated Notes only after we satisfy all senior indebtedness.
Therefore, we may have insufficient assets remaining to pay amounts on our
7 1/4% Convertible Subordinated Notes. Our 7 1/4% Convertible Subordinated Notes
will be subordinate to all existing and future indebtedness and other
liabilities (including trade payables) of our existing subsidiaries and any
subsidiaries which we may in the future acquire or establish. Our right to
receive assets of our subsidiaries upon their liquidation or reorganization (and
the consequent right of the holders of our 7 1/4% Convertible Subordinated Notes
to share in those assets) would be subordinate to the claims of that
subsidiary's creditors (including trade creditors).

Our Indenture with LaSalle National Bank does not limit our ability, or
that of any of our existing or future subsidiaries, to incur senior
indebtedness, indebtedness and liabilities. We may have difficulty paying our
obligations under our 7 1/4% Convertible Subordinated Notes if we, or any of our
existing or future subsidiaries, incur indebtedness or liabilities, or if we
agree to guarantee the indebtedness of any existing or future subsidiaries. We
anticipate that we will incur additional indebtedness and liabilities, including
senior indebtedness. For more detailed information you should review the section
of this prospectus entitled "Description of Notes -- Subordination of Notes."

Our 7 1/4% Convertible Subordinated Notes will be our obligation
exclusively. Our cash flow and our ability to pay our debt, including our 7 1/4%
Convertible Subordinated Notes, may depend upon our existing or future
subsidiaries' operating results and their ability to provide cash (in the form
of dividends, loans or otherwise) to pay amounts due on our obligations. Each of
our current subsidiaries is, and any future subsidiary will be, a separate and
distinct legal entity and will have no obligation to pay any amounts due on our
7 1/4% Convertible Subordinated Notes. In addition, dividends, loans or other
distributions from any subsidiary to us may be subject to contractual or other
restrictions, would depend upon the subsidiary's operating results and may be
subject to other business considerations.

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<PAGE> 15

Our Indenture with LaSalle National Bank does not contain any financial
covenants or restrict our ability to do any of the following:

- pay dividends;

- incur indebtedness, including senior indebtedness; or

- issue or repurchase our securities or those of any subsidiary.

The terms of our Indenture with LaSalle National Bank do not prohibit us
from engaging in a highly leveraged transaction or a change in our control,
except to the extent described under "Description of Notes -- Purchase of Notes
at the Option of Holders Upon a Change in Control." The term "change in control"
is limited in our Indenture with LaSalle National Bank to a small number of
specified transactions.

Although we must offer to repurchase our 7 1/4% Convertible Subordinated
Notes upon a change in control, this fact does not necessarily protect holders
of our 7 1/4% Convertible Subordinated Notes if we conduct a highly leveraged
transaction, reorganization, merger or similar transaction. Similarly,
transactions other than a change in control might adversely affect our financial
condition and leave holders of our 7 1/4% Convertible Subordinated Notes without
protection.

WE MAY BE UNABLE TO REPURCHASE OUR NOTES. If we experience a change in
control, a holder of our 7 1/4% Convertible Subordinated Notes may request that
we buy back all or a portion of our 7 1/4% Convertible Subordinated Notes. If a
change in control occurs, we may be unable to pay the purchase price for all our
7 1/4% Convertible Subordinated Notes tendered to us. We would likely need
additional financing to repurchase our 7 1/4% Convertible Subordinated Notes
tendered to us upon a change in control. We may enter into future agreements
that prohibit us from purchasing your notes, or that consider a change in
control an event of default. If a change in control occurs when we cannot
purchase our 7 1/4% Convertible Subordinated Notes, we could seek our lenders'
consent to purchase our 7 1/4% Convertible Subordinated Notes or attempt to
refinance the borrowings that contain this prohibition. We will be unable to
purchase our 7 1/4% Convertible Subordinated Notes if we do not obtain this
consent or repay these borrowings. In that case, our failure to repurchase any
tendered 7 1/4% Convertible Subordinated Notes would constitute an event of
default under our Indenture with LaSalle National Bank, which may constitute a
further default under the terms of our other indebtedness. In those
circumstances, the subordination provisions in our Indenture with LaSalle
National Bank would likely prohibit us from purchasing our 7 1/4% Convertible
Subordinated Notes.

WE MUST ESTABLISH OUR NEW BRAND.

A growing number of Internet sites, many of which already have
well-established brands, offer products and services that compete with ours. As
a result, we believe we must establish, maintain and enhance our "Beyond.com"
brand. We have been operating under the "Beyond.com" name since August 1998. Our
success in promoting and maintaining our new brand or any other brand that we
may use in the future will depend largely on our ability to provide a high
quality online experience supported by dedicated customer service. We cannot
assure that we will be able to meet these goals. In addition, to attract and
retain online users and to promote and maintain our new brand or future brands,
we may need to substantially increase our marketing expenditures to create and
maintain strong brand loyalty among our customers. Our business could be
adversely affected if our marketing efforts are unproductive or if we cannot
increase our brand awareness.

OUR MARKETS ARE HIGHLY COMPETITIVE.

The online commerce market is new, rapidly evolving and intensely
competitive. We expect competition to intensify in the future because barriers
to entry are minimal, and current and new

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<PAGE> 16

competitors can launch new Web sites at a relatively low cost. In addition, the
software reselling industry is intensely competitive. We currently compete
primarily with traditional software resellers, other online software resellers
and other vendors.

In the online market, we compete with many online software resellers and
vendors that maintain similar commercial Web sites (including CompUSA,
Outpost.com, Egghead.com and Buy.com). We also compete with the growing number
of software publishers that sell their software products directly online. We
also anticipate that we may soon compete with other software publishers,
including Microsoft, that plan to sell their products directly to customers
online, and indirect competitors that specialize in online commerce or derive
significant revenues from online commerce, including America Online, Amazon.com,
barnesandnoble.com, Netscape and Yahoo!.

We also compete with:

- mail order and/or direct marketers of computer products (including
cataloguers such as Micro Warehouse and CDW Computer Centers and
manufacturers such as Dell Computer, Compaq Computer Corporation and
Gateway 2000 Incorporated); and

- major store-based retailers of software and other related products, such
as CompUSA, OfficeMax, Staples, Office Depot and Wal-Mart.

Further, these traditional store-based retailers and mail order and/or
direct marketers of computer products have established or may soon establish,
commercial Web sites offering software and computer products.

Competitive pressures created by any one of these current or future
competitors, or by competitors collectively, could have a material adverse
affect on our business.

We believe that the principal competitive factors in our market are:

- brand recognition;

- selection;

- convenience;

- price;

- speed and accessibility;

- customer service;

- quality of site content; and

- reliability and speed of fulfillment.

In addition to those factors, competition in the large enterprise market is
also based on:

- compatibility of products;

- administration and reporting;

- single source supply;

- security; and

- cost-effective deployment.

Many of our current and potential competitors have longer operating
histories and larger customer bases than we do. In addition, many of our current
and potential competitors have greater brand recognition and significantly
greater financial, marketing and other resources than we do.

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<PAGE> 17

In addition, as more people use the Internet and other online services,
larger, well established and well financed entities may:

- acquire online competitors or software publishers or suppliers;

- invest in online competitors or software publishers or suppliers; or

- form joint ventures with online competitors or software publishers or
suppliers.

Certain of our actual or potential competitors, such as Ingram Micro and
Tech Data, may be able to:

- secure merchandise from vendors on more favorable terms;

- devote greater resources to marketing and promotional campaigns;

- adopt more aggressive pricing or inventory availability policies; and

- devote substantially more resources to Web site and systems development
than we do.

Competitors such as Software Spectrum, Government Technology Services,
Inc., ASAP Software Express Inc. and Corporate Software & Technology have
greater experience in selling software to the large enterprise market than we
do. In addition, new technologies and expansion of existing technologies, such
as price comparison programs that select specific titles from a variety of Web
sites, may direct customers to online software resellers which compete with us
and may increase competition. Increased competition may reduce our operating
margins, as well as cause a loss to both our market share and brand recognition.
Further, to strategically respond to changes in the competitive environment, we
may sometimes make pricing, service or marketing decisions or acquisitions that
could materially hurt our business. In addition, companies controlling access to
Internet transactions through network access or Web browsers could promote our
competitors or charge us a substantial fee for inclusion in their product or
service offerings. We cannot assure that we can compete successfully against
current and future competitors. Failure to compete successfully against our
current and future competitors could materially hurt our business.

WE RELY ON SOFTWARE PUBLISHERS AND DISTRIBUTORS.

We are entirely dependent upon the software publishers and distributors
that supply us with software and computer products for resale, and the
availability of these software and computer products is unpredictable. In 1997
and 1998, sales of software provided by Microsoft and by a major software
distributor accounted for a substantial majority of our revenues. As is common
in the industry, we have no long term or exclusive arrangements with any
publishers or distributors that guarantee the availability of software for
resale. For example, our agreement with Microsoft automatically renews for
successive one year periods but is terminable for any reason by 30 days written
notice prior to the expiration of the given term. Although we believe that we
can replace our relationship with this major software distributor without much
difficulty, if this relationship terminates then the publishers or distributors
that currently supply us with software might cease to continue to supply us and
we might be unable to establish new relationships with other publishers and
distributors.

We also rely on software distributors to ship shrink-wrap software to
customers that do not use digital download. We have limited control over the
shipping procedures of our distributors and shipments by these distributors have
in the past been, and may in the future be, subject to delays. Although most
software we sell carries a warranty from its publisher, publishers or
distributors occasionally fail to reimburse us for returns from customers.
Furthermore, our contract with Microsoft allows Microsoft to review and approve
our creditworthiness. If Microsoft determines that

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<PAGE> 18

we are not creditworthy or not in compliance with payment or reporting terms, it
may require us to post security acceptable to them which could negatively impact
our financial condition.

OUR CUSTOMERS ARE CONCENTRATED; WE ARE SUBJECT TO RISKS ASSOCIATED WITH RELIANCE
ON U.S. GOVERNMENT CONTRACTS.

We have three contracts with U.S. government agencies. Two of these
agreements accounted for approximately 29% of our revenues in 1997 and 28% of
our revenues in 1998. These agreements expired in June 1998 and July 1998. We
renewed the first of these contracts for an additional one-year term that
expires in June 1999. We replaced the second contract with a new contract with
the same government agency on substantially similar terms. We signed the third
agreement in January 1999 and it will expire in January 2000. We expect that
these existing contracts will continue to account for a substantial portion of
our revenues for the foreseeable future. Each of these contracts is subject to
annual review and renewal by the government, and may be terminated at any time.
Each government contract, option and extension is only valid if the government
appropriates enough funds for expenditure on such contracts, options or
extensions. Accordingly, we might fail to derive any revenue from sales of
software to the U.S. government in any given future period. If the U.S.
government fails to renew or terminates any of these contracts it would
adversely affect our business and results of operations.

OUR COMMON STOCK PRICE IS VOLATILE.

The market price for our common stock is volatile and has fluctuated
significantly to date. The trading price of our common stock is likely to
continue to be highly volatile and subject to wide fluctuations in response to
factors including the following:

- actual or anticipated variations in our quarterly operating results;

- announcements of technological innovations, new sales formats or new
products or services by us or our competitors;

- changes in financial estimates by securities analysts;

- conditions or trends in the Internet and online commerce industries;

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

- announcements by us of significant acquisitions, strategic partnerships,
joint ventures or capital commitments;

- additions or departures of key personnel; and

- sales of common stock.

In addition, the securities market has experienced extreme price and volume
fluctuations and the market prices of the securities of Internet-related and
technology companies have been especially volatile. These broad market and
industry factors may adversely affect the market price of our common stock,
regardless of our actual operating performance. In the past, following periods
of volatility in the market price of stock, many companies have been the object
of securities class action litigation. If we were to be sued in a securities
class action, it could result in substantial costs and a diversion of
management's attention and resources.

THERE MAY BE NO PUBLIC MARKET FOR OUR 7 1/4% CONVERTIBLE SUBORDINATED
NOTES. Prior to the effectiveness of the registration statement of which this
prospectus is a part, our 7 1/4% Convertible Subordinated Notes have traded on
The PORTAL(SM) Market. We cannot predict whether any public market for our
7 1/4% Convertible Subordinated Notes will develop or, if one does develop, that
it will

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<PAGE> 19

be maintained. The trading price of our 7 1/4% Convertible Subordinated Notes
could be adversely affected if an active market for our 7 1/4% Convertible
Subordinated Notes fails to develop or be sustained.

WE ARE SUBJECT TO RISKS ASSOCIATED WITH DEPENDENCE ON THE INTERNET AND INTERNET
INFRASTRUCTURE DEVELOPMENT.

Our success will depend in large part on continued growth in, and the use
of, the Internet. There are critical issues concerning the commercial use of the
Internet which remain unresolved. The issues concerning the commercial use of
the Internet which we expect to affect the development of the market for our
services include:

- security;

- reliability;

- cost;

- ease of access;

- quality of service; and

- necessary increases in bandwidth availability.

The adoption of the Internet for information retrieval and exchange,
commerce and communications, particularly by those enterprises that have
historically relied upon traditional means of commerce and communications,
generally will require that these enterprises accept a new medium for conducting
business and exchanging information. These entities likely will accept this new
medium only if the Internet provides them with greater efficiency and an
improved area of commerce and communication.

Demand and market acceptance of the Internet are subject to a high level of
uncertainty and are dependent on a number of factors, including the growth in
consumer access to and acceptance of new interactive technologies, the
development of technologies that facilitate interactive communication between
organizations and targeted audiences and increases in user bandwidth. If the
Internet fails to develop or develops more slowly than we expect as a commercial
or business medium, it will adversely affect our business.

WE ARE SUBJECT TO RISKS ASSOCIATED WITH ONLINE COMMERCE SECURITY AND CREDIT CARD
FRAUD.

A significant barrier to online commerce and communications is the secure
transmission of confidential information over public networks. To securely
transmit confidential information, such as customer credit card numbers, we rely
on encryption and authentication technology that we license from third parties.

To the extent that our activities or those of third party contractors
involve the storage and transmission of proprietary information (such as credit
card numbers), security breaches could damage our reputation and expose us to a
risk of loss or litigation and possible liability. Our business may be adversely
affected if our security measures do not prevent security breaches and we cannot
assure that we can prevent all security breaches. In addition, we have suffered
losses as a result of orders placed with fraudulent credit card data even though
the associated financial institution approved payment of the orders. Under
current credit card practices, a merchant is liable for fraudulent credit card
transactions where, as is the case with the transactions we process, that
merchant does not obtain a cardholder's signature. Fraudulent use of credit card
data in the future could adversely affect our business.

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<PAGE> 20

WE ARE SUBJECT TO RISKS ASSOCIATED WITH DIGITAL DOWNLOAD.

Our success will depend in large part on our customers accepting digital
download as a method of buying software. We typically derive higher gross
margins from software sales via digital download than we do on shrink-wrap
software sales. Therefore, our success also depends on our ability to increase
the revenues we derive from product sales through digital download in absolute
dollars and as a percentage of our net revenues. Digital download is a
relatively new method of selling software products and its growth and market
acceptance is highly uncertain and subject to a number of factors, including:

- the availability of sufficient network bandwidth to enable purchasers to
rapidly download software;

- the impact of time-based Internet access fees;

- the number of software titles that are available for purchase through
digital download as compared to those available through traditional
methods;

- the level of consumer comfort with the process of downloading software;
and

- the relative ease of this process and transaction security concerns.

We believe there is a maximum size of a software product that most
consumers are willing to purchase via digital download. We also believe that the
size of new software products will continue to increase and that these software
products will be unsuitable for digital download without significant increases
in network bandwidth. It will adversely affect our business if digital download
fails to achieve widespread market acceptance. Even if digital download achieves
widespread acceptance, we might not overcome the substantial existing and future
technical challenges associated with electronically delivering software reliably
and consistently on a long-term basis. This would also adversely affect our
business.

WE RELY ON STRATEGIC MARKETING ALLIANCES.

Pursuant to our current strategic alliance agreements, we are obligated to
pay a total of $27.9 million from December 31, 1998 through December 31, 2001,
of which approximately $13.8 million must be paid during 1999, excluding the
BuyDirect.com agreements we assumed as a result of the BuyDirect.com merger.

Under the terms of our agreement with America Online, we are the exclusive
reseller of software on certain screens on the America Online service and
America Online's Web site, aol.com. We are a semi-exclusive reseller of software
on certain other screens on the America Online service. America Online also must
deliver to us minimum numbers of impressions (screen views with links to our Web
site). Pursuant to our agreement with America Online, we must make fixed
payments totaling approximately $21 million. In addition, we must pay America
Online a percentage of certain transactional advertising revenues we earn above
specified minimum amounts. Our agreement with America Online terminates in
August 2001, or earlier if there is a material breach.

Under the terms of our agreement with Excite, we may display banner
advertisements and links to our Web site on certain screens on Excite Web sites,
and Excite cannot display paid promotional links or banner advertisements of any
other software reseller on specified screens of the Excite Web site related to
software. Excite also must deliver minimum numbers of impressions to us. We must
make substantial payments to Excite during the three year term of that
agreement. Also, we must pay Excite a percentage of certain transactional
revenues we earn. Our agreement with Excite terminates when Excite meets certain
obligations relating to the delivery of impressions, but no earlier than April
2001, unless there is a material breach. We are not aware of how the proposed
acquisition of Excite by @Home will impact our relationship with Excite under
this agreement or otherwise.

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<PAGE> 21

In June 1997, we entered into an agreement with Netscape for a term of 24
months. Under this agreement, we created and manage a Web site, the "Netscape
Software Depot by Beyond.com." This Web site is an online software store
accessible through Netscape's Internet site, created to market and distribute
software products which are compatible with the Netscape ONE platform. Under the
terms of this agreement, we and Netscape allocate sales and advertising revenues
generated from this online store in accordance with negotiated percentages. In
connection with this agreement, we made a substantial initial prepayment to
Netscape for a license to use certain Netscape trademarks. Our agreement with
Netscape terminates on July 31, 1999. However, either party may terminate this
agreement at any time if specific impression and net revenue milestones are not
met. Pursuant to the terms of the agreement, Netscape has notified us that it
does not intend to renew this contract after termination. We do not expect that
the non-renewal of this agreement will have a material effect on our business.

We also entered into three contracts with Network Associates. In September
1997, we were authorized to electronically distribute Network Associates'
products on our Web site. In September 1998, we agreed to co-host Web sites with
Network Associates and agreed to resell Network Associates' products on Network
Associates' Web site at www.mcafeestore.com. Under these agreements, we must
make substantial payments to Network Associates for exclusive positioning of
links to our Web site on certain screens on Network Associates' Web sites, and
rights to resell Network Associates products.

In February 1999, we entered into an agreement with Yahoo!, a global
Internet media company that offers a branded network of comprehensive
information, communication and shopping services. Under this agreement, Yahoo!
will promote and advertise Beyond.com as a premier software merchant by
delivering page views across Yahoo!'s branded network of sites, including the
Yahoo! home page, My Yahoo!, Yahoo! Shopping, Yahoo! Games and relevant
categories and search result pages in the Yahoo! directory. Over the 18 month
term of the agreement, we will make fixed payments, which may be augmented by
certain performance-based payments.

Traffic levels on our Web site and sales we generate from that traffic
might be insufficient to justify our significant fixed financial obligations to
America Online, Excite, Network Associates or Yahoo!, or to satisfy our
contractual obligations necessary to prevent termination of these agreements. In
addition, the America Online, Excite, Netscape, Network Associates and Yahoo!
agreements do not provide us with automatic renewal rights upon expiration.
Therefore, we may be unable to renew these agreements on commercially acceptable
terms, or at all. Furthermore, we based our significant investment in the
America Online, Excite, Netscape, Network Associates and Yahoo! relationships on
a number of factors, including:

- the continued positive market presence of these parties;

- the reputation and anticipated growth of these parties; and

- the commitment of America Online, Excite and Yahoo! to deliver specified
numbers of screen views with links to our Web site.

Although we expect our agreements with America Online, Excite, Network
Associates and Yahoo! to represent significant distribution channels for our
software, we cannot assume that these agreements will meet this expectation. In
addition, any termination of any or all of our agreements with these companies
would likely have a material adverse affect on our business.

As a result of the BuyDirect.com merger, we have assumed BuyDirect.com's
agreements with @Home, CNET, Xoom and ZD Net. The total amount that we are
obligated to pay over the next four years pursuant to these and other contracts
is $26.7 million, approximately $13.9 million of which will be paid in 1999.
Sales we generate from these contracts may be insufficient to justify our
significant fixed financial obligations to @Home, CNET, Xoom, ZDNet. Each of
these agreements

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<PAGE> 22

may be terminated prior to the completion of their terms in the event of a
material breach. We may be unable to renew these agreements on commercially
acceptable terms, or at all.

WE NEED TO MANAGE POTENTIAL GROWTH; OUR MANAGEMENT TEAM IS NEW.

We have rapidly and significantly expanded our operations, and anticipate
this trend will continue. On March 31, 1999, we had a total of 249 employees,
including approximately 70 managerial, technical and operations personnel added
in connection with the BuyDirect.com merger. This expansion has placed, and we
expect will continue to place, a significant strain on our managerial,
operational and financial resources. The majority of our senior management,
including our President and Chief Executive Officer and our Chief Financial
Officer, joined us within the last twelve months, and three directors joined our
board of directors in March 1999. The Chairman of our Board of Directors,
William S. McKiernan, also serves as the President and Chief Executive Officer
of CyberSource Corporation and, accordingly, plays a limited role in our
management. Our new employees include a number of key managerial, technical and
operations personnel who we have not yet fully integrated into our operations,
and we expect to add additional key personnel in the near future. To manage the
expected growth of our operations and personnel, we will need to improve
existing and implement new transaction processing, operational and financial
systems, procedures and controls.

WE ARE SUBJECT TO RISKS ASSOCIATED WITH ACQUISITIONS.

There can be no assurance that we will successfully assimilate the
additional personnel, operations, acquired technology and products of
BuyDirect.com into our business, or retain key personnel. In particular, as a
result of the merger, we will have operations in multiple facilities. We are not
experienced in managing facilities in geographically distant areas. Accordingly,
this physical expansion may result in disruptions that adversely affect our
business. Further, there is no assurance that the BuyDirect.com merger will not
have a negative impact on our business and financial condition. We expect to
record goodwill on and other intangible assets of approximately $140 million to
be amortized through 2002. We believe it is likely that we will not generate
additional earnings sufficient to recover the amount of goodwill and other
intangible assets recorded during the period in which they are amortized.

In addition, we intend to continue to make investments in complementary
companies, products or technologies. If we buy a company, we could have
difficulty in assimilating that company's personnel and operations. In addition,
the key personnel of the acquired company may decide not to work for us. If we
make other types of acquisitions, we could have difficulty in assimilating the
acquired technology or products into our operations. These difficulties could
disrupt our ongoing business, distract our management and employees and increase
our expenses. In addition, future acquisitions could have a negative impact on
our business, financial condition and results of operations. Furthermore, we may
have to incur debt or issue equity securities to pay for any future acquisition,
the issuance of which would be dilutive to our existing stockholders.

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<PAGE> 23

WE ARE DEPENDENT ON KEY PERSONNEL AND NEED ADDITIONAL PERSONNEL.

Our future success depends on the continued service and performance of our
senior management and other key personnel, particularly William S. McKiernan,
Chairman of our Board of Directors, Mark L. Breier, our President and Chief
Executive Officer, and John P. Pettitt, our Executive Vice President and Chief
Technology Officer. In connection with the BuyDirect.com merger, we added
approximately 70 new employees including managerial, technical and operations
personnel. Our performance also depends on our ability to retain and motivate
our other officers and key employees. Our success will also depends on a
successful transition of BuyDirect.com's management responsibility to our senior
management team. The loss of the services of any of our executive officers or
other key employees could adversely affect our business. We do not have long
term employment agreements with any of our key personnel. Our future success
also depends on our ability to identify, attract, hire, train, retain and
motivate other highly skilled technical, managerial, editorial, merchandising,
marketing and customer service personnel. Competition for these individuals is
intense, particularly in the Silicon Valley area, and we may be unable to
successfully attract, assimilate or retain sufficiently qualified personnel in
the future.

WE ARE SUBJECT TO CAPACITY CONSTRAINT RISKS; RELIANCE ON INTERNALLY DEVELOPED
SYSTEMS AND SYSTEM DEVELOPMENT RISKS.

A key element of our strategy is to generate a high volume of traffic on,
and use of, our Web site. Our revenues depend on the number of customers who use
our Web site to purchase software. Accordingly, our Web site, transaction
processing systems and network infrastructure performance, reliability and
availability are critical to our operating results. These factors are also
critical to our reputation and our ability to attract and retain customers and
maintain adequate customer service levels. The volume of goods we sell and the
attractiveness of our product and service offerings will decrease if there are
any systems interruptions that affect the availability of our Web site or our
ability to fulfill orders. We have experienced periodic systems interruptions,
which we believe may continue to occur. We are continually enhancing and
expanding our technology and transaction processing systems, and network
infrastructure and other technologies, to accommodate a substantial increase in
the volume of traffic on our Web site. We may be unsuccessful in these efforts
or we may be unable to accurately project the rate or timing of increases in the
use of our Web site. We may also fail to timely expand and upgrade our systems
and infrastructure to accommodate these increases. In addition, we cannot
predict whether additional network capacity will be available from third party
suppliers as we need it. Also, our network or our suppliers' network might be
unable to timely achieve or maintain a sufficiently high capacity of data
transmission to timely process orders or effectively conduct digital downloads,
especially if our Web site traffic increases. Our failure to achieve or maintain
high capacity data transmission could significantly reduce consumer demand for
our services.

WE MAY HAVE POTENTIAL CONFLICTS OF INTEREST WITH CYBERSOURCE.

In connection with the spin off of our Internet commerce services business
to CyberSource in December 1997, we entered into agreements with CyberSource to
define the ongoing relationship between the two companies. At the time these
agreements were negotiated, all of our directors were also directors of
CyberSource and other members of our management team joined CyberSource as
executive officers. As a result, these agreements may not be deemed the result
of arms' length negotiations. Further, although we and CyberSource are engaged
in different businesses, the two companies currently have no policies to govern
the pursuit or allocation of corporate opportunities between us and CyberSource,
in the event they arise. Our business could be adversely affected if the
overlapping board members of the two companies, of which there are currently
two, pursue

22
<PAGE> 24

CyberSource's interests over ours either in the course of intercompany
transactions or where the same corporate opportunities are available to both
companies.

WE ARE SUBJECT TO RISKS ASSOCIATED WITH DEPENDENCE ON CYBERSOURCE CORPORATION.

We depend upon CyberSource for certain services such as credit card
processing, fraud screening, export control, sales tax computation, electronic
licensing, hosting of electronic downloads and fulfillment messaging. In
addition, under the terms of an Inter-Company Cross License Agreement we have
with CyberSource, we license certain technology, including Sm@rtCert, from
CyberSource. CyberSource also provides these services and licenses this
technology to other customers, including our competitors. It would be disruptive
to our business if any of the following occur:

- any discontinuation of these services;

- any termination of this license;

- any reduction in performance that requires us to replace these services;

- any reduction in performance that causes us to internally develop or
license these technologies from a third party; or

- any failure by CyberSource to ensure that this software complies with
"Year 2000" requirements.

Certain former and current members of our management have joined
CyberSource in executive management positions, including William S. McKiernan,
the Chairman of our Board of Directors, who serves as President and Chief
Executive Officer of CyberSource. Currently two members of our Board of
Directors serve on the CyberSource Board of Directors. Nothing in our agreements
with CyberSource prohibits CyberSource from competing directly with us or
prevents a third party from acquiring CyberSource, either of which could
adversely affect our business.

WE ARE SUBJECT TO RISK OF SYSTEM FAILURE; OUR SYSTEMS ARE LOCATED IN SINGLE
FACILITY.

Our success, in particular our ability to successfully receive and fulfill
orders and provide high quality customer service, largely depends on the
efficient and uninterrupted operation of our computer and communications
systems. Substantially all of our development and management systems are in a
single facility we lease in Sunnyvale, California. Both we and BuyDirect.com
contract with the same third party to host our computer and communications
hardware systems and to maintain our critical connection to the Internet. These
systems are in a single location in Santa Clara, California.

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 no formal disaster recovery plan and carry insufficient
business interruption insurance to compensate us for losses that may occur.
Furthermore, our security mechanisms or those of our suppliers may not prevent
security breaches or service breakdowns. Despite our implementation of security
measures, our servers may be vulnerable to computer viruses, physical or
electronic break-ins and similar disruptions. These events could cause
interruptions or delays in our business, loss of data or render us unable to
accept and fulfill customer orders.

RAPID TECHNOLOGICAL CHANGE MAY ADVERSELY AFFECT US.

To remain competitive, we must continue to enhance and improve the
responsiveness, functionality and features of our online store. The Internet and
the online commerce industry are characterized by rapid technological change,
changes in user and customer requirements and preferences and frequent product
and service introductions. If competitors introduce products and services
embodying new technologies or if new industry standards and practices emerge,
then our

23
<PAGE> 25

existing Web site, proprietary technology and systems may become obsolete. Our
future success will depend on our ability to do the following:

- both license and internally develop leading technologies useful in our
business;

- enhance our existing services;

- develop new services and technology that address the increasingly
sophisticated and varied needs of our prospective customers; and

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

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

YEAR 2000 RISK MAY ADVERSELY AFFECT OUR COMPANY.

Many existing computer programs use only two digits to identify a year.
These programs were designed and developed without addressing the impact of the
upcoming change in the century. If not corrected, many computer software
applications could fail or create erroneous results by, at or beyond the Year
2000. We have assessed our proprietary software and our internally developed
systems which permit the sale, order, processing and delivery of off-the-shelf
software to our customers to determine Year 2000 compliance. We have searched
through software code for each of these applications and believe that we have
identified all instances where date specific information is required. We have
further investigated whether these date fields contain two or four digits. Based
on our review and the results of limited testing, we believe our other
proprietary software and internally developed systems are Year 2000 compliant.

In addition to our proprietary software and internally developed systems,
we utilize software, computer technology and other services internally developed
and provided by third-party vendors that may fail due to the Year 2000
phenomenon. For example, we are dependent on the institutions involved in
processing our members' credit card payments for Internet services. We are also
dependent on telecommunications vendors and leased point-of-purchase vendors to
maintain network reliability.

Our software applications run on several hardware platforms and associated
operating systems, primarily those provided by Sun Microsystems. In addition,
our software operates in accordance with several external Internet protocols,
such as HTTP and NNTP. Our software is therefore dependent upon the correct
processing of dates by these systems and protocols. We have reviewed information
made publicly available by Sun Microsystems and our other hardware platform
providers regarding Year 2000 compliance and researched the date handling
capabilities of applicable Internet protocols. Based on this research, we do not
believe that the underlying systems and protocols that operate in conjunction
with our software applications contain material Year 2000 deficiencies. However,
we have not conducted our own tests to determine to what extent our software
running on any of our hardware platforms and in accordance with any of our
supported Internet protocols fails to properly recognize Year 2000 dates.

24
<PAGE> 26

2000 compliant. However, we have not received affirmative documentation in this
regard from any of these vendors and we have not performed any operational tests
on their internal systems. We anticipate that our systems, including components
thereof provided by third-party vendors, will be Year 2000 compliant by the Year
2000.

However, our software applications and the underlying hardware systems and
protocols running the software may contain undetected errors or defects
associated with Year 2000 date functions. Our software applications directly and
indirectly interact with a large number of other hardware and software systems.
We are unable to predict to what extent our business may be affected if our
software or the systems that operate in conjunction with our software experience
a material Year 2000 failure. Known or unknown errors or defects that affect the
operation of our software could result in delay or loss of revenue, interruption
of shopping services, cancellation of customer contracts, interference with
digital download, diversion of development resources, damage to our reputation,
costs, and litigation costs, any of which could adversely affect our business,
financial condition and results of operation. Further, the spending and
purchasing patterns of customers or potential customers may be affected by the
Year 2000 issue as individuals, corporation and government agencies expend
significant resources to correct or update their current system for Year 2000
compliance or delay purchases of new software until after the Year 2000. At this
time, the expenses associated with our assessment and potential remediation plan
cannot be determined. Further, at this time, we do not have enough information
to determine the most reasonably likely worst case scenario. Therefore, we do
not have a contingency plan in place to handle the most reasonably likely worst
case scenarios, and we do not intend to create one.

WE MAY NOT SUCCESSFULLY PROTECT OUR PROPRIETARY RIGHTS.

We regard our copyrights, service marks, trademarks, trade dress, trade
secrets and similar intellectual property as critical to our success. To protect
our proprietary rights, we rely on trademark and copyright law, trade secret
protection and confidentiality and/or license agreements with our employees,
customers, partners and others. We pursue the registration of our trademarks and
service marks in the U.S., and have applied for the registration of our
trademarks and service marks. We applied for Federal registration of the service
marks "BEYOND.COM" on July 10, 1998, and "BEYOND DOT COM" on July 14, 1998,
although we cannot be certain that federal registration of these service marks
or any other service mark will issue. In addition, effective trademark, service
mark, copyright and trade secret protection may be unavailable in every country
in which our products and services are available online.

We have licensed in the past, and expect to license in the future, certain
of our proprietary rights, such as trademarks or copyrighted material, to third
parties. While we attempt to ensure that these licensees maintain the quality of
our brand, the licensees could take actions that materially harm the value of
our proprietary rights or reputation. Furthermore, the steps we take to protect
our proprietary rights may be inadequate or third parties might infringe or
misappropriate our trade secrets, copyrights, trademarks, trade dress and
similar proprietary rights. In addition, others could independently develop
substantially equivalent intellectual property. We may have to litigate in the
future to enforce our intellectual property rights, to protect our trade secrets
or to determine the validity and scope of the proprietary rights of others. Such
litigation could result in substantial costs and the diversion of our management
and technical resources which could harm our business.

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<PAGE> 27

INTELLECTUAL PROPERTY CLAIMS AGAINST US CAN BE COSTLY AND RESULT IN THE LOSS OF
SIGNIFICANT RIGHTS.

Other parties may assert infringement or unfair competition claims against
us. In the past, other parties have sent us notice of claims of infringement of
proprietary rights, and we expect to receive other notices in the future.

We cannot predict whether others will assert claims of infringement or
other claims against us, or whether any past or future assertions or
prosecutions will adversely affect our business. If we are forced to defend
against any such claims, whether they are with or without merit or are
determined in our favor, then we may face wasted time, costly litigation,
diversion of technical and management personnel, or product shipment delays,
which could adversely affect our business. As a result of such a dispute, we may
have to develop non-infringing technology or enter into royalty or licensing
agreements. Such royalty or licensing agreements, if required, may be
unavailable on terms acceptable to us, or at all. If there is a successful claim
of product infringement against us and we are unable to develop non-infringing
technology or license the infringed or similar technology on a timely basis, it
could adversely affect our business.

WE MAY BECOME SUBJECT TO ADDITIONAL GOVERNMENT REGULATION.

Laws and regulations directly applicable to communications or commerce over
the Internet are becoming more prevalent. The most recent session of the U.S.
Congress resulted in Internet laws regarding children's privacy, copyrights,
taxation and the transmission of sexually explicit material. The European Union
recently enacted its own privacy regulations. The law of the Internet, however,
remains 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 addition, the growth and development of the market for online
commerce may prompt calls for more stringent consumer protection laws, both in
the United States and abroad, that may impose additional burdens on companies
conducting business online. The adoption or modification of laws or regulations
relating to the Internet could adversely affect our business.

WE MAY BE LIABLE FOR INTERNET CONTENT.

We believe that our future success will depend in part upon our ability to
deliver original and compelling descriptive content about the software products
we sell on the Internet. 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. In the past, plaintiffs have brought such claims and
sometimes successfully litigated them against online services. In addition, in
the event that we implement a greater level of interconnectivity on our Web
site, we will not and cannot practically screen all of the content our users
generate or access, which could expose us to liability with respect to such
content. Although we carry general liability insurance, our insurance may not
cover claims of these types or may be inadequate to indemnify us for all
liability that may be imposed on us. If we face liability, particularly
liability that is not covered by our insurance or is in excess of our insurance
coverage, then our reputation and our business may suffer.

WE MAY BE SUBJECT TO SALES AND OTHER TAXES.

We do not currently collect sales or other similar taxes for physical
shipments of goods into states other than California, Virginia and the District
of Columbia. We do not currently collect sales or other similar taxes for
digital download of goods into states other than the District of Columbia.
However, one or more local, state or foreign jurisdictions may seek to impose
sales tax collection obligations on us and other out of state companies which
engage in online commerce. In addition,

26
<PAGE> 28

any new operations in states outside California and the District of Columbia,
including operations assumed in connection with the BuyDirect.com merger, could
subject our shipments into such states to state sales taxes under current or
future laws. If one or more states or any foreign country successfully asserts
that we should collect sales or other taxes on the sale of our merchandise, it
could adversely affect our business.

MANAGEMENT AND CERTAIN STOCKHOLDERS CAN EXERCISE SIGNIFICANT INFLUENCE OVER
BEYOND.COM.

Based upon 27,424,763 shares outstanding as of December 31, 1998, our
current directors and executive officers and their respective affiliates
beneficially own in the aggregate approximately 48.5% of our outstanding common
stock as of the date if this prospectus. In particular, William S. McKiernan,
the Chairman of our Board of Directors, beneficially holds approximately 41.1%
of our outstanding common stock. Therefore, if these stockholders act together,
they will be able to exercise significant influence over all matters requiring
stockholder approval, including the election of directors and approval of
significant corporate transactions. Such concentration of ownership may also
have the effect of delaying, preventing or deterring a change in our control
which could adversely affect the market price of our common stock.

FUTURE PUBLIC SALES OF OUR COMMON STOCK COULD ADVERSELY AFFECT OUR STOCK PRICE.

If our stockholders sell substantial amounts of our common stock in the
public market, the market price of our common stock could fall. Such sales might
also make it more difficult for us to sell equity or equity-related securities
in the future at a time and price that we deem appropriate.

We have outstanding 30,496,035 shares of common stock, based upon shares
outstanding as of December 31, 1998 as adjusted to include 3,000,000 shares of
our common stock sold in an underwritten public offering which closed on April
14, 1999, 71,272 shares of our common stock issued upon exercise of options
subsequent to December 31, 1998 and excluding 5,423,027 shares of our common
stock issuable upon exercise of options held by our employees on December 31,
1998, which shares will be freely tradeable upon exercise of such options. Of
these shares, 16,332,906 are eligible for resale in the public market. The
remaining 14,163,129 shares will be eligible for resale in the public market 90
days from the date of the prospectus relating to the underwritten public
offering.

Furthermore, the holders of the approximately 4,943,767 shares of our
common stock, to be issued in connection with the BuyDirect.com merger, have the
right to require us to file a registration statement prior to July 16, 1999,
with respect to such shares. In addition to such shares related to the
BuyDirect.com merger, we have undertaken to include on such registration
statement an additional 15,504,631 shares of our common stock previously issued
in connection with private financings prior to our initial public offering.

WE ARE SUBJECT TO RISKS ASSOCIATED WITH GLOBAL EXPANSION.

Although we sell software to customers outside the United States, we have
no overseas fulfillment or distribution facility or arrangement. We also have no
Web site content localized for foreign markets. Therefore, we may be unable to
expand our global presence effectively. In addition, international operations
are subject to inherent risks, including:

- regulatory requirements;

- export restrictions;

- tariffs and other trade barriers;

- difficulties in protecting intellectual property rights;

- longer payment cycles;

- problems in collecting accounts receivable;

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<PAGE> 29

- political instability; and

- fluctuations in currency exchange rates.

In addition, the United States imposes export restrictions on certain
software because of its encryption technology and we may face liability if we
violate these restrictions.

WE MAY BE SUBJECT TO RISKS RELATED TO THE INTRODUCTION OF THE EURO CURRENCY.

In January 1999, the new "Euro" currency was introduced in certain European
countries that are part of the European Monetary Union ("EMU"). During 2002, all
EMU countries are expected to completely replace their national currencies with
the Euro. A significant amount of uncertainty exists as to the effect the Euro
will have on the marketplace generally and, additionally, all of the final rules
and regulations have not yet been defined and finalized by the European
Commission with regard to the Euro currency. We list the prices for our
products, accounts, and invoices for sales and collect payments in U.S. dollars,
even for sales outside the U.S. We currently utilize third-party vendor
equipment and software products that may or may not be EMU compliant. Although
we are currently taking steps to address the impact, if any, of EMU
non-compliance for such third-party products, the failure of any critical
component to operate properly during and after the Euro conversion process may
have an adverse effect on our business or results of operations or require us to
incur expenses to remedy such problems.

OUR CHARTER DOCUMENTS AND OTHER AGREEMENTS MAY ADVERSELY AFFECT A POTENTIAL
TAKEOVER.

Provisions of our Amended and Restated Certificate of Incorporation,
Bylaws, option agreements 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. See "Description of Capital Stock."

YOU SHOULD NOT RELY ON FORWARD-LOOKING STATEMENTS IN THIS PROSPECTUS.

This prospectus contains forward-looking statements that involve risks and
uncertainties. We use words such as "anticipates," "believes," "plans,"
"expects," "future," "intends" and similar expressions to identify such
forward-looking statements. This prospectus also contains forward-looking
statements attributed to certain third parties relating to their estimates
regarding the growth of certain electronic-commerce, electronic software
delivery, software and related service markets and spending. You should not
place undue reliance on these forward-looking statements, which apply only as of
the date of this prospectus. Our actual results could differ materially from
those anticipated in these forward-looking statements for many reasons,
including the risks faced by us described above and elsewhere in this
prospectus.

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<PAGE> 30

USE OF PROCEEDS

Our 7 1/4% Convertible Subordinated Notes and the shares of our common
stock will be sold by their present holders. We will not receive any proceeds
from such sale.

RATIO OF EARNINGS TO FIXED CHARGES

(IN THOUSANDS)

<TABLE>
<CAPTION>
1998 1997 1996 1995
-------- ------- ----- -----
<S> <C> <C> <C> <C>
Deficiency of earnings available
to cover fiscal charges........................... $(31,073) $(1,743) $(779) $(227)
</TABLE>

DIVIDEND POLICY

We have never declared or paid any cash dividends. We currently expect to
retain future earnings, if any, to finance the growth and development of our
business.

PRICE RANGE OF COMMON STOCK

Our common stock has been quoted on the Nasdaq National Market since our
initial public offering on June 17, 1998, and is traded under the symbol "BYND."
The following table sets forth, for the periods indicated, the high and low sale
prices per share of our common stock as reported on the Nasdaq National Market.

<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
FISCAL YEAR 1998
Second Quarter (from June 17, 1998)............ $19.938 $13.188
Third Quarter.................................. $19.938 $ 8.375
Fourth Quarter................................. $29.063 $ 6.313
FISCAL YEAR 1999
First Quarter.................................. $41.313 $21.000
Second Quarter (through April 28, 1999)........ $36.938 $23.000
</TABLE>

On April 28, 1999, the reported last sale price of the common stock on the
Nasdaq National Market was $28.75 per share. As of April 28, 1999, there were
approximately 205 stockholders of record of the common stock.

CORPORATE INFORMATION

We were incorporated in California in 1994 as CyberSource Corporation and
changed our name to software.net Corporation in April 1998. In June 1998, we
were reincorporated in Delaware as software.net Corporation. In December, 1998,
we changed our name from software.net Corporation to Beyond.com Corporation.
References in this prospectus to "Beyond.com", "we", "our" and "us" refer to
Beyond.com Corporation, a Delaware corporation and its predecessor, software.net
Corporation, both the California and the Delaware corporation. Our principal
executive offices are located at 1195 West Fremont Avenue, Sunnyvale, California
94087 and our telephone number is (408) 616-4200. We have applied for federal
registration of the service marks "BEYOND.COM" and "BEYOND DOT COM." Each
trademark, trade name or service mark of any other company appearing in this
prospectus belongs to its holder.

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<PAGE> 31

CAPITALIZATION

The following table sets forth as of December 31, 1998, (i) our
consolidated capitalization, (ii) our pro forma consolidated capitalization
giving effect to the BuyDirect.com merger and (iii) our pro forma consolidated
capitalization as adjusted to reflect the issuance and sale by us of 3,000,000
shares of our common stock in an underwritten public offering that we closed on
April 14, 1999, after deduction of estimated offering expenses and underwriting
discounts, at an offering price of $35.00 per share.

<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1998
---------------------------------------
PRO FORMA
ACTUAL PRO FORMA(2) AS ADJUSTED(3)
------- ------------ --------------
(IN THOUSANDS)
<S> <C> <C> <C>
Long term debt:
7 1/4% Convertible Subordinated Notes
due December 1, 2003................ $63,250 $ 63,250 $ 63,250
Other long-term debt................... -- 5,792 5,792
------- -------- --------
Total long-term debt........... 63,250 69,042 69,042
Stockholders' equity:
Preferred stock, $0.001 par value;
15,000,000 shares authorized; no
shares issued and outstanding....... -- -- --
Common stock, $0.001 par value;
50,000,000 shares authorized;
27,424,763 shares issued and
outstanding, actual; 32,528,212
shares authorized and outstanding
pro forma; and 35,599,489 shares
authorized and outstanding, pro
forma as adjusted(1)................ 69,311 201,394 299,894
Deferred compensation.................. (2,226) (6,816) (6,816)
Accumulated deficit.................... (42,362) (42,362) (42,362)
------- -------- --------
Total stockholders' equity..... 24,723 152,216 250,716
------- -------- --------
Total capitalization........... $87,973 $221,256 $319,758
======= ======== ========
</TABLE>

- ---------------

(1) Based on shares outstanding as of December 31, 1998. The actual outstanding
share number as of December 31, 1998 excludes: (i) 4,494,299 shares of
common stock issuable upon exercise of options outstanding under our 1995
and 1998 Stock Option Plans at a weighted average exercise price of $4.16
per share; (ii) 928,728 shares of common stock issuable upon exercise of
outstanding options granted outside of the plans at a weighted average
exercise price of $0.004 per share; (iii) 268,849 shares of common stock
reserved for future issuance under the plans; (iv) 358,423 shares of common
stock reserved for issuance pursuant to the exercise of a warrant issued by
us to America Online at an exercise price of $8.37 per share; (v) 3,448,745
shares of common stock issuable upon conversion of our 7 1/4% Convertible
Subordinated Notes; and (vi) approximately 4,943,767 shares of our common
stock to be issued in exchange for BuyDirect.com common and preferred stock,
and approximately 281,988 shares of our common stock reserved for issuance
upon exercise of options that we assumed in connection with the merger. See
"Description of Capital Stock" and Notes 3, 5, 8 and 12 of Notes to
Consolidated Financial Statements.

(2) Pro forma consolidated capitalization gives effect to the BuyDirect.com
merger and the assumption of $5,792,000 of long-term debt and the issuance
of 4,943,767 shares of our common stock in connection therewith.

(3) Pro forma consolidated capitalization as adjusted gives effect to the
assumption of long-term debt and issuance of shares of our common stock in
connection with the

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<PAGE> 32

BuyDirect.com merger described in footnote (2) above and the net proceeds
from the issuance and sale by us of 3,000,000 shares of our common stock in
an underwritten public offering that we closed on April 14, 1999 and the
issuance of 71,272 shares of our common stock upon the exercise of options
subsequent to December 31, 1998.

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<PAGE> 33

SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated financial data should be read in
conjunction with the Consolidated Financial Statements and Notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus. The consolidated statement of
operations data for the years ended December 31, 1996, 1997 and 1998 and the
consolidated balance sheet data as of December 31, 1997 and 1998 are derived
from our Consolidated Financial Statements which have been audited by Ernst &
Young LLP, independent auditors, and are included elsewhere in this prospectus,
and are qualified by reference to such Consolidated Financial Statements and the
Notes thereto. The consolidated statement of operations data for the period from
August 12, 1994 (date of incorporation) to December 31, 1994 and for the year
ended December 31, 1995 and the consolidated balance sheet data as of December
31, 1995 and 1996 are derived from our Consolidated Financial Statements not
included herein which have been audited by Ernst & Young LLP, independent
auditors. The consolidated balance sheet data as of December 31, 1994, are
derived from our unaudited financial statements not included herein. The
historical results are not necessarily indicative of future results. We have
paid no cash dividends on the common stock.

The unaudited selected consolidated pro forma financial data of Beyond.com
and BuyDirect.com is derived from the unaudited consolidated pro forma combined
condensed financial statements of Beyond.com and BuyDirect.com and should be
read in conjunction with such pro forma statements and notes thereto which are
included elsewhere in this prospectus. For pro forma purposes, Beyond.com's
historical consolidated statement of operations data for the year ended December
31, 1998 have been combined with BuyDirect.com's historical consolidated
statements of operations data for the period from March 31, 1998 (inception of
BuyDirect.com) to December 31, 1998 and the historical financial information of
E-Commerce, a division of CNET, Inc., (predecessor business of BuyDirect.com)
for the three months ended March 31, 1998, giving effect to the BuyDirect.com
merger as if it had occurred as of January 1, 1998. The unaudited consolidated
pro forma condensed combined balance sheet data combines Beyond.com's and
BuyDirect.com's historical consolidated balance sheet data as of December 31,
1998, giving effect to the BuyDirect.com merger as if it had occurred as of
December 31, 1998.

The consolidated pro forma information is presented for illustrative
purposes only and is not necessarily indicative of the operating results or
financial position that would have occurred if the BuyDirect.com merger had been
in effect during the periods presented, nor is it necessarily indicative of
future operating results or financial position. In particular, the actual
adjustments to the valuation of BuyDirect.com's assets and liabilities in
connection

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<PAGE> 34

with the acquisition may vary significantly from the preliminary estimates
reflected in the pro forma financial information.

<TABLE>
<CAPTION>
PERIOD FOR
AUGUST 12, 1994 YEAR ENDED DECEMBER 31,
(DATE OF ----------------------------------------------------
INCORPORATION) TO PRO FORMA
DECEMBER 31, 1994 1995 1996 1997 1998 1998(2)
----------------- ------ ------- ------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA
Net revenues.............. $ 40 $1,003 $ 5,858 $16,806 $ 36,650 $ 41,279
Cost of revenues.......... 3 623 5,137 14,873 31,074 34,395
------ ------ ------- ------- -------- --------
Gross profit.............. 37 380 721 1,933 5,576 6,884
Operating expenses:
Research and
development........... 164 388 431 1,060 4,201 6,047
Sales and marketing..... 57 407 704 1,696 27,568 32,748
General and
administrative........ 43 103 450 1,087 4,943 6,733
Goodwill and deferred
compensation
amortization.......... -- -- -- -- -- 49,086
------ ------ ------- ------- -------- --------
Total operating
expenses......... 264 898 1,585 3,843 36,712 94,614
------ ------ ------- ------- -------- --------
Loss from operations...... (227) (518) (864) (1,910) (31,136) (87,730)
Interest income, net...... -- 7 85 167 63 (8)
------ ------ ------- ------- -------- --------
Loss from continuing
operations.............. (227) (511) (779) (1,743) (31,073) (87,738)
Loss from discontinued
operations.............. -- -- (736) (3,616) -- --
------ ------ ------- ------- -------- --------
Net loss.................. $ (227) $ (511) $(1,515) $(5,359) $(31,073) $(87,738)
====== ====== ======= ======= ======== ========
Basic and diluted net loss
per share from
continuing
operations(1)........... $(0.03) $(0.07) $ (0.10) $ (0.21) $ (1.65) $ (3.66)
====== ====== ======= ======= ======== ========
Basic and diluted net loss
per share from
discontinued
operations(1)........... -- -- (0.08) (0.40) -- --
------ ------ ------- ------- -------- --------
Basic and diluted net loss
per share(l)............ $(0.03) $(0.07) $ (0.18) $ (0.61) $ (1.65) $ (3.66)
====== ====== ======= ======= ======== ========
Number of shares used in
computing basic and
diluted net loss per
share(1)................ 9,000 9,000 9,000 9,000 18,900 24,003
====== ====== ======= ======= ======== ========
Pro forma basic and
diluted net loss per
share from continuing
operations(1)........... $ (0.10) $ (1.28) $ (2.99)
Pro forma basic and
diluted net loss per
share from discontinued
operations(1)........... (0.20) -- --
------- -------- --------
Pro forma basic and
diluted net loss per
share(1)................ $ (0.30) $ (1.28) $ (2.99)
======= ======== ========
Number of shares used in
computing pro forma
basic and diluted net
loss per share(l)....... 17,828 24,276 29,379
======= ======== ========
</TABLE>

33
<PAGE> 35

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------------
PRO FORMA
1994 1995 1996 1997 1998 1998(2)
----- ----- ------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA
Cash and cash equivalents...... $ 12 $ 255 $ 3,737 $ 2,571 $ 81,548 $ 81,889
Working capital (deficiency)... (89) (106) 3,543 1,093 80,128 72,437
Total assets................... 36 579 5,691 9,586 109,904 252,124
Long-term obligations, net of
current portion.............. 105 105 105 99 63,250 69,042
Redeemable convertible
preferred stock.............. -- 651 6,395 12,565 -- --
Stockholders' equity (net
capital deficiency).......... $(181) $(793) $(2,409) $(11,191) $ 24,723 $152,216
</TABLE>

- -------------------------
(1) For explanation of the calculation of per share amounts, see Note 1 of Notes
to Consolidated Financial Statements.

(2) For an explanation of the calculation of pro forma amounts, see Notes to
Unaudited Pro Forma Condensed Combined Financial Statements.

34
<PAGE> 36

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Read the following discussion together with the Consolidated Financial
Statements and related notes included elsewhere in this prospectus. The results
discussed below are not necessarily indicative of the results to be expected in
any future periods. This discussion contains forward-looking statements based on
current expectations and which involve risks and uncertainties. Actual results
and the timing of certain events may differ significantly from those projected
in such forward-looking statements due to a number of factors, including those
set forth herein, in the section entitled "Risk Factors" and elsewhere in this
prospectus.

OVERVIEW

We are a leading online reseller of commercial off-the-shelf computer
software to the consumer, small business and large enterprise markets. Through
our online store (www.beyond.com), we offer customers a comprehensive selection
of software as well as related computer peripheral products, helpful customer
service, a convenient shopping experience and competitive prices. We believe
that our Beyond.com Web site is one of the most widely known and used sites on
the World Wide Web for the purchase of software. We deliver software to
customers one of two ways: either we physically deliver the shrink-wrap software
package or we deliver the software over the Internet through digital download.
We launched our Web site in November 1994 under the name CyberSource Corporation
and maintained a Web site named software.net. In addition to selling software,
we initially charged software publishers a fee to list their products on our Web
site. We stopped charging publishers in 1996. In July 1996, we expanded our
business by entering into our first contract with a U.S. government agency. This
contract, and other later contracts require us to both sell software products
and to provide related services. In July 1997, we expanded our third party sales
channel by entering into an agreement with Netscape which terminates on July 31,
1999. Under this agreement, we created and will continue to manage and maintain
at least through July 31, 1999 the Netscape Software Depot Web site.

In March 1998, we expanded our third party sales channel by entering into
strategic relationships with America Online and Excite, and in February 1999, we
further expanded our third party sales channel by entering into a relationship
with Yahoo!. Under the America Online agreement, we are the exclusive reseller
of software on certain screens on the America Online service and America
Online's Web site, aol.com. On other America Online screens we are a
semi-exclusive reseller of software. Under the Excite and Yahoo! agreements, we
have the right to display banner advertisements and links to our Web site on
certain Excite and Yahoo! screens. In addition, Excite cannot display paid
promotional links or banner advertisements of any other software reseller on
specified Excite screens related to software.

Under these agreements, America Online, Excite and Yahoo! are obligated to
deliver minimum numbers of screen views with links to our Web site. We call
these screen views "Impressions." Under the America Online Agreement, we must
make fixed payments totaling approximately $21 million. In addition, under the
Excite and Yahoo! agreements, we must make certain fixed payments to Excite and
Yahoo!, respectively, over the three-year and 18-month terms of the respective
agreements. We also have agreed to pay America Online and Excite a percentage of
certain transactional revenues and, in the case

35
<PAGE> 37

of America Online, advertising revenues we earn in excess of specified
thresholds. In addition, we have agreed to make certain performance-based
payments to Yahoo!. The America Online agreement terminates in August 2001, the
Excite agreement terminates when Excite has delivered a certain number of
impressions, but no earlier than April 2001 and the Yahoo! agreement terminates
18 months after initial activation.

We expect these arrangements with America Online, Excite and Yahoo! to
represent significant distribution channels for our products. If we or the other
party to any of these agreements elect to terminate any of the agreements it
likely would have a material adverse effect on our business. We cannot assure
that we will achieve sufficient online traffic or generate sufficient revenue to
justify our payment obligations to America Online, Excite and Yahoo!, nor can we
assure that we will achieve sufficient online traffic or generate sufficient
revenue to satisfy our contractual obligations necessary to prevent termination
of the America Online, Excite or Yahoo! agreements.

Pursuant to our agreement with America Online, Excite, Network Associates
and Yahoo! we are obligated to pay a total of approximately $27.9 million from
December 31, 1998 through December 31, 2001, of which approximately $13.8
million must be paid during 1999. In addition, we are obligated to pay
approximately $26.7 million pursuant to BuyDirect.com's current agreements with
@Home, CNET, Xoom, ZDNet and other significant partners over the next 4 years,
approximately $13.9 million of which is due and payable in 1999.

We have entered into various agreements with Network Associates concerning
the online sale of software and the management of Network Associates' Web sites.
Network Associates is a developer of electronic commerce locations and publisher
of certain products marketed under the McAfee and other names. Our agreements
include a Co-Hosting Agreement and a Web Site Services Agreement entered into in
September 1998. Under these agreements, we agreed to co-host Web sites with
Network Associates and agreed to resell Network Associates' products on Network
Associates' Web site at www.mcafeestore.com. We must make substantial payments
to Network Associates for exclusive positioning of links to our Web site on
certain screens on Network Associates' Web sites, and rights to resell Network
Associates products. If we or they terminate one or all of these agreements, it
would likely have a material adverse effect on our business. We cannot guarantee
that the volume of online traffic, customers or revenues we obtain as a result
of this relationship will justify our significant fixed financial obligations to
Network Associates.

In April 1998, we changed our name to software.net Corporation. In June
1998, we completed the initial public offering of our common stock. In August
1998, we began doing business as "Beyond.com" and initiated an aggressive
regional radio and national print advertising campaign to promote the brand. In
November 1998, we completed the offering of $63.25 million aggregate principal
amount of our 7 1/4% Convertible Subordinated Notes. In December 1998, we
initiated a regional television advertising campaign and we changed our legal
corporate name to Beyond.com Corporation. We intend to continue an aggressive
advertising campaign to promote our brand in 1999.

In order to focus on our core business of selling software products online,
in December 1997 we spun-off our Internet commerce services business (which
included credit card processing, fraud screening, export control, territory
management, and electronic fulfillment) to CyberSource Corporation. As a result
of this spin-off, our results of operations reflect a loss from discontinued
operations in the amount of $736,000 during

36
<PAGE> 38

1996 and $3.6 million during 1997. Under the terms of our Internet commerce
services agreement with CyberSource, we use services supplied by CyberSource on
a nonexclusive basis for credit card processing, fraud screening, export
control, sales tax computation, electronic licensing, hosting of electronic
downloads and fulfillment notification. This agreement expires on December 31,
1999, and automatically renews for an additional one year term, unless otherwise
terminated by either party. Under this agreement, we have agreed to indemnify
CyberSource for an amount not to exceed $100,000 against any third party claim
that the software we distribute infringes upon any third party's intellectual
property rights. CyberSource has agreed to indemnify us for an amount not to
exceed $100,000 against any third party claim that the services provided by
CyberSource or the use of any software provided by CyberSource in connection
with the services, infringes any third party's intellectual property rights.

On March 30, 1999, we completed a transaction whereby one of our
wholly-owned subsidiaries merged with and into BuyDirect.com, a leading online
software retailer for consumers and business customers. In connection with this
merger, we will issue approximately 4,943,767 shares of our common stock to
BuyDirect.com stockholders in exchange for their outstanding shares of
BuyDirect.com common stock and preferred stock, and reserve for issuance upon
the exercise of options that we assumed in connection with the merger
approximately 281,988 shares of our common stock. In addition, in connection
with the merger, we will record a significant amount of goodwill that will
adversely affect our earnings and profitability for the forseeable future. We
expect to record goodwill and other intangible assets of approximately $140
million, to be amortized through 2002. We believe it is unlikely that we will
generate additional earnings sufficient to recover the amount of goodwill and
other intangible assets recorded during the period in which they are amortized.
The BuyDirect.com merger will be accounted for using the purchase method of
accounting.

Each year since inception, we have incurred increasingly larger net losses.
These annual net losses increased from $1.5 million in 1996 to $5.4 million in
1997 and $31.1 million in 1998. We anticipate our losses will increase
significantly from current levels because we expect to incur additional costs
and expenses related to:

- brand development, marketing and promotion;

- Web site content development;

- strategic relationship development and maintenance; and

- technology and operating infrastructure development, including improved
digital download capabilities.

In addition, as a result of the BuyDirect.com merger, we expect that our
losses will increase even more significantly due to additional costs and
expenses related to:

- increased headcount;

- additional facilities and infrastructure; and

- assimilation of operations and personnel.

37
<PAGE> 39

assets of approximately $140 million, to be amortized through 2002. We believe
it is likely that we will not generate additional earnings sufficient to recover
the amount of goodwill and other intangible assets recorded during the period in
which they are amortized.

We base our current and future expense levels, which are largely fixed, on
our operating plans and estimates of future revenues. In view of the rapidly
evolving nature of our business, proposed and possible future acquisitions and
our limited operating history of selling software online, we have little
experience forecasting our revenues. Therefore, we believe that period-to-period
comparisons of our financial results are not necessarily meaningful and you
should not rely upon them as an indication of our future performance. If we
cannot achieve and sustain operating profitability or positive cash flow from
operations, we may be unable to meet our debt service obligations or working
capital requirements, which would adversely affect our business.

We derive our revenues primarily from four sources:

- sales of software to customers using credit cards;

- sales of software to corporate customers that are invoiced directly under
credit terms;

- sales of software to various government agencies pursuant to contractual
arrangements; and

- to a lesser extent, amounts received from software publishers for
advertising and promotion.

In addition, we also derive limited revenues from the sale of certain
computer peripherals and accessories. We recognize our revenues from the sale of
software, net of estimated returns, either upon shipment of the physical product
or delivery of the electronic product via digital download. We defer net
revenues associated with the sale of software pursuant to contracts with the
U.S. government that require us to provide continuing service, support, and
performance and recognize these revenues over the period that we provide
service, support, and performance. We recognize revenues derived from software
publishers for advertising and promotional activities as the services are
provided. Our U.S. government contracts are subject to annual review and renewal
by the applicable government agency. Although all such contracts presently
remain in full force and effect, the applicable U.S. government agency may
terminate such contracts without cause or prior notice. Because the government
contracts may be terminated without cause or prior notice, we cannot be certain
that we will generate any revenues from U.S. government contracts in any future
period. We recognize revenue on sales of computer peripherals and accessories
upon the shipment of the physical product, at which time, collectibility is
probable and we have no remaining obligations.

38
<PAGE> 40

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, the percentage
relationship of certain items from our consolidated statement of operations to
total net revenues.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1997 1998
----- ----- -----
<S> <C> <C> <C>
Net revenues................................... 100.0% 100.0% 100.0%
Cost of revenues............................... 87.7 88.5 84.8
----- ----- -----
Gross profit................................... 12.3 11.5 15.2
Operating expenses:
Research and development..................... 7.4 6.3 11.5
Sales and marketing.......................... 12.0 10.1 75.2
General and administrative................... 7.7 6.5 13.5
----- ----- -----
Total operating expense................... 27.1 22.9 100.2
----- ----- -----
Loss from operations........................... (14.8) (11.4) (85.0)
Interest income, net........................... 1.5 1.0 0.2
----- ----- -----
Loss from continuing operations................ (13.3) (10.4) (84.8)
Loss from discontinued operations.............. (12.6) (21.5) --
----- ----- -----
Net loss....................................... (25.9)% (31.9)% (84.8)%
===== ===== =====
</TABLE>

YEARS ENDED DECEMBER 31, 1997 AND 1998

Net Revenues

Our net revenues increased from $16.8 million in 1997 to $36.7 million in
1998. This increase primarily resulted from increased sales to consumer and
corporate customers and as a result of renewed U.S. government contracts.

Cost of Revenues

Our cost of revenues consists primarily of the costs of software and
software licenses sold to consumer and corporate customers, related credit card
processing fees, and the costs of software licenses and software updates
provided to the U.S. government. Our total cost of revenues increased from $14.9
million in 1997 to $31.1 million in 1998. This increase resulted from our
increased software sales.

Gross Margin

Our gross margin (gross profit as a percentage of net revenues) increased
from 11.5% in 1997 to 15.2% in 1998. This increase primarily resulted from a
shift in our revenue mix as we received an increased percentage of higher margin
consumer business, an increased percentage of higher margin digital download
revenues and an increased percentage of higher margin advertising and
promotional revenues from software publishers. In the future, we may expand or
increase the discounts we offer to customers or otherwise alter our pricing
structures and policies. If we take such an action, it may have an adverse
impact on gross margin in future periods. Further, although we intend to
increase the percentage of higher margin consumer business, higher margin
digital download revenues and higher margin advertising and promotional revenues
as a percentage of our total revenues in future periods, we do not expect our
gross margin to increase in future periods

39
<PAGE> 41

as rapidly as it increased between 1997 and 1998. In future periods our gross
margin may decline if the revenues we generate from sales to the U.S. government
or sales to large enterprise customers increase as a percentage of our total net
revenues.

Research and Development Expenses

Our research and development expenses primarily consist of personnel and
other expenses associated with developing and enhancing our Web sites, as well
as associated facilities related expenses. Our research and development expenses
increased from $1.1 million in 1997 to $4.2 million in 1998. These expenses also
increased as a percentage of net revenues from 6.3% in 1997 to 11.5% 1998. This
increase both in absolute dollars and as a percentage of net revenues primarily
was the result of increases in our personnel and depreciation on computer
equipment. We anticipate that our research and development expenses will
continue to increase in absolute dollars in future periods.

Sales and Marketing Expenses

Our sales and marketing expenses consist primarily of promotional
expenditures and costs associated with operating our Web sites, including
personnel and related expenses. In addition, we include the expenditures
associated with our strategic marketing alliances under sales and marketing
expenses. Our sales and marketing expenses increased significantly from $1.7
million in 1997 to $27.6 million in 1998. These expenses also increased
significantly as a percentage of net revenues from 10.1% in 1997 to 75.2% in
1998. This increase both in absolute dollars and as a percentage of net revenues
was primarily the result of costs associated with:

- developing and maintaining our strategic marketing alliances;

- a branding and marketing campaign (including expenses associated with our
re-branding efforts); and

- an increase in personnel to support increased sales and marketing and
advertising expenditures.

We intend to continue to pursue aggressive branding, sales and marketing
campaigns. In addition, our current strategic marketing alliances with America
Online, Excite Network Associates and Netscape require us to make payments
totaling approximately $31.2 million over the terms of those agreements. As of
December 31, 1998, approximately $20.3 million of this amount remained to be
paid. We are expensing the costs associated with the America Online and Netscape
agreements ratably over the terms of the respective agreements. We are expensing
the costs associated with the Excite agreement as costs are incurred and
payments become due. We are expensing the minimum payment amounts over the
three-year term of the Co-Hosting Agreement with Network Associates. We may
enter into similar strategic marketing alliances requiring significant minimum
payments in the future and, as a result, we may substantially increase our sales
and marketing expenditures. Due to our planned aggressive branding, sales and
marketing efforts and our current and potential financial commitments in
connection with our strategic marketing alliances, we expect sales and marketing
expenses to increase significantly in absolute dollars in future periods. In
addition, in connection with the Beyond.com merger, we assumed BuyDirect.com's
obligations under its current strategic alliance agreements with @Home, CNet,
Xoom, ZDNet and other partners, which will also cause our sales and marketing
expense to increase significantly in absolute dollars in future periods.

40
<PAGE> 42

General and Administrative Expenses

Our general and administrative expenses primarily consist of personnel
expenses, legal and accounting expenses, and corporate facility-related
expenses. Our general and administrative expenses increased from $1.1 million in
1997 to $4.9 million in 1998. These expenses also increased, as a percentage of
net revenues, from 6.5% in 1997 to 13.5% in 1998. This increase in both absolute
dollars and as a percentage of net revenues was primarily the result of
increased personnel-related costs and facilities-related expenses associated
with the hiring of additional personnel as well as increased provisions for bad
debts. We anticipate that these expenses will continue to grow in absolute
dollars as we incur additional expenses associated with operating as a public
company and transition from a single site operation to multiple site operations.

Interest Income, Net

Interest income, net, consists of earnings on our cash investments, net of
interest costs related to our financing obligations. Interest income, net,
decreased from $167,000 in 1997 to $63,000 in 1998. This decrease was primarily
a result of increased interest expenses totaling approximately $1.3 million
associated with our credit facility and our 7 1/4% Convertible Subordinated
Notes offset by interest income totaling approximately $1.4 million from higher
average cash balances.

Income Taxes

We incurred a net loss for 1997 and 1998. As a result, no provision for
income taxes has been recorded in these periods. As of December 31, 1998, we had
approximately $37 million of net operating loss carryforwards for federal income
tax purposes, which expire between 2009 and 2018. We anticipate that our total
net operating loss carryforwards will increase as a result of the BuyDirect.com
merger. Given our limited operating history, losses incurred to date and the
difficulty in accurately forecasting our future results, we do not believe that
we meet the criteria required by generally accepted accounting principles to
realize the related deferred income tax assets and, accordingly, we have
recorded a full 100% valuation allowance to reduce the deferred income tax
assets to zero. Furthermore, as a result of changes in ownership of our stock
from our preferred stock financings and our initial public offering, any attempt
by us to use the net operating losses and tax credits may be subject to
substantial annual limitations. These annual limitations may result in the
expiration of net operating losses and tax credits before utilization. See Note
11 of Notes to Consolidated Financial Statements.

Write-Off Goodwill and Other Intangible Assets

In connection with the BuyDirect.com merger, we will record a significant
amount of goodwill that will adversely affect our earnings and profitability for
the forseeable future. We expect to record goodwill and other intangible assets
of approximately $140 million, to be amortized through 2002. We believe it is
unlikely that we will generate additional earnings sufficient to recover the
amount of goodwill and other intangible assets recorded during the period in
which they are amortized.

41
<PAGE> 43

YEARS ENDED DECEMBER 31, 1996 AND 1997

Net Revenues

Our net revenues increased from $5.9 million in 1996 to $16.8 million in
1997. This increase was primarily a result of increased sales to consumer and
corporate customers and new U.S. government contracts.

Cost of Revenues

Our cost of revenues increased from $5.1 million in 1996 to $14.9 million
in 1997. This increase was primarily a result of our entering into additional
U.S. government contracts and achieving increased product sales to consumer and
corporate customers.

Gross Margin

Our gross margin decreased from 12.3% in 1996 to 11.5% in 1997. This
decrease was primarily a result of a shift in our revenue mix. U.S. government
contract revenues bring a lower margin than our other revenue sources. During
1997, our revenues from these lower margin U.S. government contracts increased
as a percentage of total net revenues. The decrease we realized in overall gross
margin was partially offset by an increase in higher margin advertising and
promotional revenues we received from software publishers.

Research and Development Expenses

Our research and development expenses increased from $431,000 in 1996 to
$1.1 million in 1997. Our research and development expenses as a percentage of
net revenues decreased from 7.4% in 1996 to 6.3% in 1997. Our increase in
research and development expenses in absolute dollars from 1996 to 1997
primarily was the result of an increase in personnel related costs. Our decrease
in research and development expenses as a percentage of net revenues was
primarily the result of our substantial increase in net revenues in 1997.

Sales and Marketing Expenses

Our sales and marketing expenses increased from $704,000 in 1996 to $1.7
million in 1997. Our sales and marketing expenses as a percentage of net
revenues decreased from 12.0% in 1996 to 10.1% in 1997. Our increase in sales
and marketing expenses in absolute dollars from 1996 to 1997 primarily was the
result of an increase in our personnel and advertising expenditures, as well as
costs associated with a strategic marketing alliance. The decrease in our sales
and marketing expenses as a percentage of our net revenues primarily was the
result of our substantial increase in net revenues in 1997.

General and Administrative Expenses

Our general and administrative expenses increased from $450,000 in 1996 to
$1.1 million in 1997. Our general and administrative expenses as a percentage of
net revenues decreased from 7.7% in 1996 and 6.5% in 1997. Our increase in
general and administrative spending in absolute dollars in 1997 primarily was
the result of increased salaries and facilities related expenses associated with
our hiring of additional personnel, increased legal expenses associated with our
settlement of a lawsuit, and increased bad debt reserves associated with our
increase in net revenues. Our decrease in general and

42
<PAGE> 44

administrative expenses as a percentage of net revenues primarily was the result
of our substantial increase in net revenues in 1997.

Interest Income, Net

Interest income, net, increased from $85,000 in 1996 to $167,000 in 1997
due to earnings on higher average cash balances in 1997.

Income Taxes

We incurred a net loss in both 1996 and 1997. Accordingly, we did not
record any provision for income taxes in either of these years.

43
<PAGE> 45

QUARTERLY RESULTS OF OPERATIONS

The following table sets forth our unaudited quarterly consolidated
statement of operations data for each of the four quarters during the years
ended December 31, 1997 and 1998. In the opinion of our management, this
information was prepared substantially on the same basis as the audited
Consolidated Financial Statements and the Notes thereto appearing elsewhere in
this prospectus.

In addition, in the opinion of our management, all necessary adjustments,
consisting only of normal recurring adjustments, have been included in the
amounts stated below to present fairly the unaudited quarterly results. You
should read this quarterly data in conjunction with our audited Consolidated
Financial Statements and the Notes thereto appearing elsewhere in this
prospectus. Our operating results for any quarter are not necessarily indicative
of the operating results for any future period.

<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------------------------------------
MAR. 31, JUN. 30, SEPT. 30, DEC. 31, MAR. 31, JUN. 30, SEPT. 30, DEC. 31,
1997 1997 1997 1997 1998 1998 1998 1998
-------- -------- --------- -------- -------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues............................ $3,158 $3,434 $ 4,825 $ 5,389 $ 6,192 $ 7,577 $ 9,742 $ 13,139
Cost of revenues........................ 2,783 2,892 4,295 4,903 5,254 6,408 8,281 11,131
------ ------ ------- ------- ------- ------- ------- --------
Gross profit............................ 375 542 530 486 938 1,169 1,461 2,008
Operating expenses:
Research and
development......................... 155 184 302 419 602 1,120 1,287 1,192
Sales and marketing................... 265 332 442 657 1,953 4,268 8,048 13,299
General and administrative............ 164 247 265 411 635 1,178 1,407 1,723
------ ------ ------- ------- ------- ------- ------- --------
Total operating
expenses....................... 584 763 1,009 1,487 3,190 6,566 10,742 16,214
------ ------ ------- ------- ------- ------- ------- --------
Loss from operations.................... (209) (221) (479) (1,001) (2,252) (5,397) (9,281) (14,206)
------ ------ ------- ------- ------- ------- ------- --------
Interest income, net.................... 40 32 24 71 25 (167) 383 (178)
------ ------ ------- ------- ------- ------- ------- --------
Loss from continuing operations......... (169) (189) (455) (930) (2,227) (5,564) (8,898) (14,384)
Loss from discontinued operations....... (583) (455) (1,036) (1,542) -- -- -- --
------ ------ ------- ------- ------- ------- ------- --------
Net loss................................ $ (752) $ (644) $(1,491) $(2,472) $(2,227) $(5,564) $(8,898) $(14,384)
====== ====== ======= ======= ======= ======= ======= ========
</TABLE>

<TABLE>
<CAPTION>
AS A PERCENTAGE OF TOTAL REVENUE
---------------------------------------------------------------------------------------
MAR. 31, JUN. 30, SEPT. 30, DEC. 31, MAR. 31, JUN. 30, SEPT. 30, DEC. 31,
1997 1997 1997 1997 1998 1998 1998 1998
-------- -------- --------- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues............................ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues........................ 88.1 84.2 89.0 91.0 84.9 84.6 85.0 84.7
----- ----- ----- ----- ----- ----- ----- ------
Gross profit............................ 11.9 15.8 11.0 9.0 15.1 15.4 15.0 15.3
Operating expenses:
Research and
development......................... 4.9 5.4 6.3 7.8 9.7 14.8 13.2 9.1
Sales and marketing................... 8.4 9.7 9.2 12.2 31.5 56.3 82.6 101.2
General and
administrative...................... 5.2 7.2 5.4 7.6 10.3 15.5 14.4 13.1
----- ----- ----- ----- ----- ----- ----- ------
Total operating
expenses....................... 18.5 22.3 20.9 27.6 51.5 86.6 110.2 123.4
----- ----- ----- ----- ----- ----- ----- ------
Loss from operations.................... (6.6) (6.5) (9.9) (18.6) (36.4) (71.2) (95.2) (108.1)
Interest income, net.................... 1.3 0.9 0.5 1.3 0.4 (2.2) 3.9 (1.4)
----- ----- ----- ----- ----- ----- ----- ------
Loss from continuing operations......... (5.3) (5.6) (9.4) (17.3) (36.0) (73.4) (91.3) (109.5)
Loss from discontinued operations....... (18.5) (13.2) (21.5) (28.6) -- -- -- --
----- ----- ----- ----- ----- ----- ----- ------
Net loss................................ (23.8)% (18.8)% (30.9)% (45.9)% (36.0)% (73.4)% (91.3)% (109.5)%
===== ===== ===== ===== ===== ===== ===== ======
</TABLE>

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The net revenues we realized increased significantly in each consecutive
quarter presented due to increased sales to consumers, corporate customers and
the U.S. government. Our gross margins fluctuated on a quarterly basis during
these quarters primarily as a result of changes in our revenue mix. During the
last twelve months, gross margins remained relatively stable. Our gross margins
increased in the second quarter of 1997 and in the first, second and fourth
quarters of 1998 primarily as a result of an increase in our advertising and
promotional revenues as a percentage of our net revenues and as a result of a
shift toward higher gross margin software products. Our gross margins decreased
in the third and fourth quarters of 1997 primarily due to two factors: (1) our
lower margin U.S. government contract revenues increased as a percentage of our
net revenues; and (2) our advertising and promotional revenues decreased as a
percentage of our net revenues. Our research and development and general and
administrative expenses increased in absolute dollars in each quarter presented
primarily as a result of increases in our personnel related costs. We anticipate
higher research and development expenses in absolute dollars for the foreseeable
future as a result of new hires and other personnel related costs. Our sales and
marketing expenses also increased on a quarterly basis in each quarter presented
as a result of increases in our personnel and facility-related costs. Sales and
marketing expenses and general and administrative expenses each increased in
absolute dollars in the third quarter of 1997, but declined as a percentage of
net revenues because our net revenues increased more rapidly during such period.
Sales and marketing expenses increased significantly in the first quarter of
1998 because we made significant payments under our strategic marketing
alliances. These expenses also increased significantly in absolute dollars and
as a percentage of net revenues in the second, third and fourth quarters of 1998
because we significantly increased our spending on branding, advertising,
strategic marketing alliances and personnel. We anticipate higher sales and
marketing expenses in absolute dollars for the foreseeable future as a result of
an increase in our sales and marketing infrastructure, technical support for
advertising, promotional activities and strategic marketing alliances. We
anticipate general and administrative expenses will increase in absolute dollars
due primarily to recruiting activities.

In the future our operating results may fall below the expectations of
securities analysts and investors. In such event, the trading price of our
common stock would likely be materially adversely affected.

LIQUIDITY AND CAPITAL RESOURCES

From inception through December 31, 1998, we financed our operations
primarily through private sales of preferred stock and our initial public
offering of 5,750,000 shares of our common stock. We raised cumulative net cash
proceeds totaling $14.8 million through private sales of preferred stock. In
June 1998, we received net proceeds of $46.8 million from our initial public
offering. We raised an additional $2.0 million at the closing of our initial
public offering through the sale of common stock to America Online pursuant to a
Common Stock and Warrant Subscription Agreement entered into in March 1998. In
May 1998, we received $4.8 million through a credit agreement that we entered
into with Deutsche Bank AG. We repaid all monies borrowed under our credit
agreement in November 1998. In November and December 1998, we raised net cash
proceeds totaling approximately $63.3 million through the sale of our 7 1/4%
Convertible Subordinated Notes.

As of December 31, 1998, we had approximately $81.5 million of cash
compared with $2.6 million at December 31, 1997. Our current strategic marketing
alliances provide for payments of approximately $13.8 million in 1999,
approximately $13.0 million in 2000 and

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<PAGE> 47

approximately $1.2 million in the 2001. Currently, we have no other material
commitments other than those under our operating leases and the U.S. government
contracts.

We used net cash of $299,000 in operating activities in 1997, and we used
net cash of $29.4 million in operating activities in 1998. Our cash used in
operating activities in 1998 was primarily comprised of the net effect of:

- a net loss of $31.1 million;

- increases in accounts receivable and prepaid expenses totaling $19.1
million related to accounts receivable from government contracts and
prepaid partnership agreements;

- an increase in deferred revenue related to the execution of the new U.S.
government contract; and

- increases in accounts payable and accrued liabilities related to our
growth.

We used net cash in investing activities in 1998 of $3.6 million for
acquisitions of leasehold improvements and computer equipment.

We received net cash of $112.0 million in 1998 from financing activities,
primarily from our sale of Series D redeemable convertible preferred stock to
certain private investors in March and April 1998, from the credit agreement
with Deutsche Bank AG in May 1998, proceeds from our initial public offering in
June 1998 and from the sale of 7 1/4% Convertible Subordinated Notes in November
and December 1998.

We believe that our cash at March 31, 1999, including the net proceeds from
the issuance and sale by us of 3,000,000 shares of our common stock effected in
an underwritten public offering that we closed on April 14, 1999, will be
sufficient to meet our anticipated needs for working capital and capital
expenditures for at least the next eighteen months. Thereafter, we expect that
the cash we generate from operations likely will not be sufficient to satisfy
our cash needs. We will need significant amounts of cash to make a variety of
payments, including:

- payment of the principal and interest on 7 1/4% Convertible Subordinated
Notes when due;

- payment of our financial obligations to America Online, @Home, CDNet,
Excite, Network Associates, Xoom, Yahoo!, ZDNet and others; and

- payment of increasing sales and marketing expenses.

We may need to sell additional equity or debt securities to raise cash to
meet these obligations. Such sales likely would result in additional dilution to
our stockholders. In addition, we cannot assure that financing will be available
in amounts or on terms acceptable to us, if at all.

BUYDIRECT.COM -- RESULTS OF OPERATIONS

Since inception, BuyDirect.com has incurred significant operating losses.
During the nine months ended December 31, 1998, BuyDirect.com recorded net
revenues of $1.8 million, primarily from the online sale of software, and, at
December 31, 1998, BuyDirect.com had a net loss of approximately $7.2 million.
In addition, at December 31, 1998, BuyDirect.com had a working capital deficit
of approximately $6.2 million and a total stockholder deficit of approximately
$9.3 million. During the nine months ended December 31, 1998, BuyDirect.com
incurred total operating expenses of $8.1 million. Of

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the total operating expenses, approximately $5.1 million consisted of sales and
marketing expenses, $1.5 million consisted of research and development expenses
and $1.5 million consisted of general and administrative expenses. BuyDirect.com
sales and marketing expenses consisted primarily of expenditures associated with
its strategic marketing alliances with @Home, CNET, Xoom and ZDNet. Current
agreements with these and other significant partners require BuyDirect.com to
make payments totaling approximately $26.7 million over the next four years,
$13.9 million of which is due and payable in 1999. There can be no assurance our
results of operations will not be adversely affected for the foreseeable future
as a result of the BuyDirect.com merger.

YEAR 2000 RISK MAY ADVERSELY AFFECT OUR COMPANY

Many existing computer programs use only two digits to identify a year.
These programs were designed and developed without addressing the impact of the
upcoming change in the century. If not corrected, many computer software
applications could fail or create erroneous results by, at or beyond the Year
2000. We have assessed our proprietary software and our internally developed
systems which permit the sale, order, processing and delivery of off-the-shelf
software to our customers to determine Year 2000 compliance. We searched through
software code for each of these applications and believe that we identified all
instances where date specific information is required. We further investigated
whether these date fields contain two or four digits. Based on our review and
the results of limited testing, we believe our other proprietary software and
internally developed systems are Year 2000 compliant.

Our software applications run on several hardware platforms and associated
operating systems, primarily those provided by Sun Microsystems. In addition,
our software operates in accordance with several external Internet protocols,
such as HTTP and NNTP. Our software is therefore dependent upon the correct
processing of dates by these systems and protocols. We reviewed information made
publicly available by Sun Microsystems and our other hardware platform providers
regarding Year 2000 compliance and researched the date handling capabilities of
applicable Internet protocols. Based on this research, we do not believe that
the underlying systems and protocols that operate in conjunction with our
software applications contain material Year 2000 deficiencies. However, we have
not conducted our own tests to determine to what extent our software running on
any of our hardware platforms and in accordance with any of our supported
Internet protocols fails to properly recognize Year 2000 dates.

We use multiple software systems for our internal business purposes,
including accounting, e-mail, development, human resources, customer service and
support, and sales tracking systems. All of these applications have been
purchased within the preceding 12 months. We have made inquiries of vendors of
the systems that we believe are mission critical to our business regarding their
Year 2000 readiness. Each of these vendors has indicated to us that it believes
its applications are Year 2000 compliant. However, we have not received
affirmative documentation in this regard from any of these vendors, and we have
not performed any operational tests on its internal systems. We anticipate that
our

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systems, including components thereof provided by third-party vendors, will be
Year 2000 compliant by the Year 2000.

However, our software applications and the underlying hardware systems and
protocols running the software may contain undetected errors or defects
associated with Year 2000 date functions. Our software applications directly and
indirectly interact with a large number of other hardware and software systems.
We are unable to predict to what extent our business may be affected if our
software or the systems that operate in conjunction with our software experience
a material Year 2000 failure. Known or unknown errors or defects that affect the
operation of our software could result in delay or loss of revenue, interruption
of shopping services, cancellation of customer contracts, interference with
digital download, diversion of development resources, damage to our reputation,
costs, and litigation costs, any of which could adversely affect our business,
financial condition and results of operation. Further, the spending and
purchasing patterns of customers or potential customers may be affected by the
Year 2000 issue as individuals, corporation and government agencies expend
significant resources to correct or update their current system for Year 2000
compliance or delay purchases of new software until after the Year 2000. At this
time, the expenses associated with our assessment and potential remediation plan
cannot be determined. Further, at this time, we do not have enough information
to determine the most reasonably likely worst case scenario. Therefore, we do
not have in place a contingency plan to handle the most reasonably likely worst
case scenarios. We do not intend to create one.

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BUSINESS

INTRODUCTION

Beyond.com Corporation is a leading online reseller of commercial
off-the-shelf computer software. Through our online store (www.beyond.com), we
offer customers a comprehensive selection of software as well as related
computer peripheral products, helpful customer service, a convenient shopping
experience and competitive prices. We also offer our enterprise and government
customers the convenience of rapid software procurement and installation, and
continuous maintenance. We believe that the Beyond.com site is one of the most
widely known and used Web sites for the purchase of software. We deliver
software to customers one of two ways: either we physically deliver the
shrink-wrap software package, or we deliver the software over the Internet
through digital download. We believe we provide our customers with superior
value because we offer one of the largest selections of brand-name high quality
software available online as well as the convenience of shopping from home or
office, twenty-four-hours-a-day, seven-days-a-week.

We believe that the Internet is an ideal medium to sell and deliver
software for several reasons:

- the demographics of Internet users overlap one-to-one with the
demographics of potential software purchasers;

- delivery via digital download of many software titles provides the
customer with instant gratification; and

- digital download allows large enterprise customers, such as corporations,
government agencies and universities, to achieve efficient and
cost-effective distribution of software.

We have based our business on scaleable technology that permits the sale,
order processing and delivery of software with limited human intervention. With
our technology, and our significant operational experience, we can address the
complex process of reliable real time digital download. We have developed
relationships with approximately 350 leading software publishers. These
publishers have granted us the right to distribute approximately 5,600 software
stock keeping units to customers via digital download.

We also entered into agreements with America Online, Excite, Netscape,
Network Associates and Yahoo!. Our agreements with these companies provide us
with prominent display space on certain screens on each of these companies' Web
sites. In addition, as a result of the BuyDirect.com merger, we have similar
relationships with @Home, CNET, Xoom, ZDNet and other partners. We believe these
alliances have helped us to further consolidate our position as a leading online
software reseller. In 1997 and 1998, we fulfilled 66% and 43%, respectively, of
our deliveries to paying consumers through digital download. In addition, in
1997 and 1998, we fulfilled all of our deliveries pursuant to our U.S.
government contracts through digital download. Our net revenues increased from
approximately $5.9 million in 1996 to approximately $16.8 million in 1997 and
have further increased to approximately $36.7 million in 1998.

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INDUSTRY BACKGROUND

Growth of the Internet and Online Commerce

The Web and commercial online services such as America Online allow
millions of people to share information and conduct business electronically.
International Data Corporation estimates that the total value of goods and
services purchased over the Web will increase from approximately $32.4 billion
in 1998 to approximately $425.7 billion by 2002. A number of factors contribute
to the growth of the Internet and its increased commercial use, including:

- large and growing numbers of personal computers in the home and
workplace;

- improvements in network infrastructure and bandwidth;

- easier and cheaper access to the Internet;

- increased awareness of the Internet among consumer and business users;
and

- the rapidly expanding availability of online content and commerce which
increases the value to users of being connected to the Internet.

According to International Data Corporation, the number of Web users
worldwide will increase from approximately 97.3 million at the end of 1998 to
approximately 319.8 million by the end of 2002. International Data Corporation
further estimates that the percentage of Web users buying goods and services on
the Internet will increase from approximately 28% at the end of 1998 to
approximately 40% by the end of 2002.

The Internet also is a popular medium for purchasing and distributing
software. Jupiter Communications, Inc. estimates that revenues from online sales
of PC software in 1998 were $259 million and projects that these sales will grow
to $2.4 billion in 2002.

Traditional Software Industry

According to International Data Corporation, end-user spending on software
through indirect channels is expected to increase at a compounded annual rate of
17.2%, from $23.9 billion in 1997 to $52.9 billion in 2002.

In addition, we believe that the software reselling industry is highly
fragmented. Industry participants include regional and national chains of
superstores, cataloguers, systems integrators, value-added resellers and small
single location stores. We believe this fragmentation provides us an opportunity
to increase our marketshare.

The two primary categories of software purchasers are consumers and small
businesses, and large enterprises such as corporations, government agencies and
universities. These two market segments have different requirements, and
software resellers use different channels to meet the differing needs of these
purchasers.

Consumers and Small Businesses

Software publishers primarily sell their software to these purchasers
through a network of distributors and resellers and, to a lesser extent,
directly to consumers. There are many software resellers in the United States
which serve the consumer and small business market. These resellers vary in
size. Some resellers are large regional and national chains of superstores, such
as CompUSA, ComputerCity and Office Depot, which may carry hundreds of software
titles in a single store. Some resellers are cataloguers, such as Micro

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Warehouse and CDW Computer Centers, offering several thousand software titles.
Other resellers are small, single location stores carrying only a limited number
of software titles.

Large Enterprise Consumers

Publishers typically sell software to large enterprise consumers directly
or through large corporate and value added resellers, including Software
Spectrum, GTSI, ASAP and Corporate Software and Technology. Large distributors,
such as Ingram Micro, Merisel and Tech Data, serve as the primary suppliers for
most resellers and carry a variety of software.

The traditional software reselling industry is inefficient. In the consumer
and small business market, physical store based resellers must make significant
investments in real estate, inventory (due to both space constraints and costs)
and personnel for each retail location.

Cataloguers are constrained by limits on the size of their catalogs (on
both the number of products and the information on those products that can be
included in the catalog), printing expenses, mailing costs and inherent delays
in reacting rapidly to price and product changes. In each case, these
constraints limit the software product selection available to consumers. The
traditional software reselling model also creates inefficiencies for
participants in the large enterprise market. Publishers, resellers and the
purchasing enterprises are all challenged by the logistical complexity,
financial costs, administrative burden and the difficulties of distributing and
tracking software, titles and updates across a large and dispersed user base.
Under the traditional model, publishers also face additional inefficiencies,
including:

- the limited amount and type of software products sold in retail stores
and catalogs;

- the need to grant resellers and distributors generous rights of return to
cover costs of inventory and risks that the software would no longer be
used;

- the risk of predicting what software customers will demand in the future;
and

- the risk of significant revenue recognition and restatement issues
associated with any difference between projected and actual sales.

Finally, publishers, distributors and traditional software resellers all
face difficulty in obtaining demographic and behavioral information about
software customers, making it hard for software publishers to offer personalized
services and to directly market their products to certain consumer groups.

THE BEYOND.COM SOLUTION

Beyond.com is a leading online reseller of software to consumers, small
businesses and large enterprise customers. We offer a solution to many of the
inefficiencies inherent in the traditional software reselling model. Key
components of our solution include:

Customer Convenience

We offer convenient services to customers because we enable them to
purchase software online twenty-four-hours-a-day, seven-days-a-week, from home
or the office. Additionally, we are flexible on how we can distribute software:
in shrink-wrap packages or by using digital download. We are also developing
ways to simplify digital download for individual consumers to improve the
quality and ease-of-use of our on-line shopping service.

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Selection

We have the capacity for unlimited online shelf space. We offer our
customers an extensive selection of software titles as well as related stock
keeping units and product information. However, we do not face the expense of
monitoring a physical store-based infrastructure. We carry approximately 41,000
software stock keeping units and approximately 5,600 stock keeping units that
can be delivered to customers via digital download.

Customized Service

We capture significant customer preference data during each customer
session on our Web site. With this information, we can customize a user's
shopping experience on subsequent visits. As an online reseller, we can better
educate the customer about software products through:

- online product reviews and customer rankings;

- product recommendations;

- trial downloads;

- additional product information; and

- online customer support.

Publisher Benefits

As an online reseller of software products, we are not constrained by the
inherent limitations of a physical store. Therefore, we can allow publishers to
offer all of their available titles to customers in our online store. In
addition, because we offer products for digital download, publishers reduce the
risk of customer demand forecasting. As a result, we reduce the administrative
costs and mitigate the significant revenue recognition and restatement concerns
publishers face when they forecast demand. Finally, publishers can work with us
to obtain demographic and behavioral data about end users. This data expands
publishers' opportunities for marketing and targeted services.

Digital Download

We are currently a leading provider of digitally downloaded software. This
technology enables us to offer our customers convenient delivery of software
products at a reduced purchase price, creating a significant competitive
advantage. Additionally, digital downloading offers us a more profitable method
of delivering software products to our customers. We also believe that digital
downloading enhances our ability to provide ongoing updates and upgrades to our
customers' software, thereby enabling us to derive additional revenues following
the initial software purchase. Using digital download, we are able to use the
Internet not just as a sales and marketing tool, but also as a product delivery
mechanism.

Enterprise Benefits

We provide our corporate and government customers with significant savings
in the purchase, delivery, installation and maintenance of their software
assets. Using digital download, our enterprise customers are able to deploy
their software purchases rapidly, efficiently and securely. In addition, they
are able to more effectively track and update their software assets following
purchase, in order to better ensure the consistent use of compatible software
across the enterprise.

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STRATEGY

Our objective is to be the dominant reseller of software to consumers,
small businesses and large enterprises. We intend to capitalize on and extend
our market position as one of the first movers in online software reselling
through the following key strategies:

Enhance New Brand Recognition

We must build awareness of our Web site to attract and expand our Internet
customer base. In August 1998, we began doing business under the name
Beyond.com. Simultaneously, we also redesigned our Web site to improve our
offerings to consumers and make our online store easier to use. We intend to
promote, advertise and increase recognition of our brand through a variety of
marketing and promotional techniques, including:

- co-marketing agreements with major online sites and services;

- expanding online content and ease of use of our Web site;

- enhanced customer service and technical support (including issues unique
to software reselling);

- advertising on radio, television, leading web sites and other media;

- conducting an ongoing public relations campaign; and

- developing other business alliances and partnerships.

Promote Digital Download

We are currently a leader in digital download with approximately 5,600
software stock keeping units available for digital download from our online
store direct to the end user's personal computer. Digital download offers
convenience to customers and economic advantage to us and to software publishers
that we believe are superior to those offered by traditional methods of software
delivery. We intend to increase the number of software stock keeping units
available for purchase by digital download and the number of customers who use
digital download by:

- simplifying the use of digital download for consumers by reducing the
number of consumer actions required to complete a transaction and by
clearly displaying the location of digitally downloaded software on the
consumer's computer desktop;

- working with software publishers on digital download initiatives;

- enhancing our own technology and systems; and

- implementing digital download promotional activities.

Leverage and Further Develop Strategic Relationships

We believe developing strategic relationships with a diverse set of
partners including on-line portals, broadband access providers, computer
hardware vendors, on-line content providers and software publishers is critical
to our success. We intend to continue to leverage our strategic marketing
alliances with America Online, Excite, Netscape, Network Associates and Yahoo!,
and to leverage BuyDirect.com's strategic relationships with @Home, CNET, Xoom,
ZDNet and other partners, to enhance our brand recognition and to increase
customer acquisitions and sales. We also intend to expand our online visibility.
As a result, we may enter into relationships with additional leading software
publishers, Internet access providers, search engines and other high traffic Web
sites. For example, in

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September 1998, we entered into agreements with Network Associates, granting us,
among other things, the right, with several limitations, to be the exclusive
reseller of certain retail software products on certain Network Associates' Web
sites.

Capitalize on Large Enterprise Opportunities

In addition to targeting consumer and small business customers, we also
will market our services to large enterprise customers, such as major
corporations, government agencies and universities. We believe that the speed,
convenience and cost advantages of digital download make digital download an
attractive alternative method of purchasing software for large enterprises. We
intend to become the online reseller of choice for large enterprise customers by
capitalizing on our success in meeting the needs of our government customers.

Maintain Technology Focus and Expertise

We intend to leverage our scaleable, state of the art, interactive commerce
platform to enhance the services we offer and to expand the benefits of online
software reselling. We also intend to use our technology platform to further
enhance our customer interaction and support systems which we believe offer us a
competitive advantage. Our internal development group will continue to expend
substantial efforts to develop, purchase, license and make technological
advancements to our Web site and our transaction processing systems to enhance
our availability, reliability and site up-time.

Leverage Superior Economic Model; Focus on Online Environment

We believe we have inherent economic advantages relative to software
resellers operating through stores or catalogs because we are not burdened with
the personnel costs or overhead of operating a physical store or the costs and
limitations of selling through printed catalogs. We can also effectively target
potential software customers because the demographics of Internet users overlap
one-to-one with the demographics of potential software purchasers. We intend to
leverage our online model and focus on delivering an increasing number of
software products through digital download. Leveraging our online model and
delivering products through digital download will allow us to achieve cost and
margin advantages compared to traditional software resellers.

Strengthen First Mover Advantages

We believe significant barriers exist that make it increasingly difficult
to enter the online software marketplace in a cost effective manner. These
barriers include:

- the necessary up front investment in technology and technical
infrastructure, such as that required for real time processing of both
payment and order fulfillment;

- the time and expense required to develop an online store that effectively
draws customers to a Web site;

- the time, expense and expertise necessary to develop publisher and
distributor relationships;

- the need to develop strategic alliances with high traffic, high profile
Web sites; and

- the need to maintain and develop brand awareness.

We intend to extend our first mover advantage in each of these areas.

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OUR ONLINE SOFTWARE STORE

In August 1998, we redesigned our Web site. We incorporated additional
features to enhance our Web site's search, recommendation, and customization
functionality. We believe these improvements, along with our new advertising and
promotional activities and enhancements to our digital download process, will
enhance the shopping experience for potential software purchasers.

Customers enter our online store through our simple, intuitive and easy to
use Web site. Our Web site instantly recognizes the customer's browser type and
tailors the format of our online store to that system with customized pages for
particular browsers. Our goal is to make the shopping process as easy as
possible for customers. Users accessing our online store generally fall into one
of two categories: individuals who know what product they want to buy and seek
to purchase it immediately in a highly convenient manner; or individuals who
browse the store, seeking an entertaining and informative shopping experience.
We designed our online store to satisfy both types of users in a simple,
intuitive fashion.

Presently, customers who use our online store can:

- conduct targeted searches through a catalog of approximately 41,000
software stock keeping units;

- browse among featured software titles and special offers;

- read customer reviews and customer productions ratings;

- participate in promotions;

- check the status of their orders;

- access our customer support representatives by telephone and fax during
regular business hours and by e-mail twenty-four-hours-a-day,
seven-days-a-week;

- read about a variety of highlighted subject areas and special features,
including current event features and features arranged by topic, such as
the Microsoft Showcase, the Macintosh Center and the Games Center; and

- preview new or upcoming releases.

We expect to further improve our online store to include specialty sections
within the site, product reviews, greater interactivity and product
presentations that we design based on customer preferences.

Shoppers purchase products by simply clicking on a button to add products
to their virtual shopping baskets. Just as in a physical store, customers can
add and subtract products from their shopping baskets as they browse prior to
making a final purchase decision. To execute orders, customers click on the buy
button. A message on the screen prompts customers to supply shipping and, in the
case of consumers, credit card details, either by e-mail or by telephone. Our
store design allows customers to buy several products at once rather than having
to repeat the same purchase process for each desired product. All customer
information is stored on our secure server. We furnish customized order forms
for repeat customers. Our system automatically confirms each physically shipped
order by e-mail to the customer within minutes after the customer places the
order and advises customers by e-mail shortly after our distributors ship the
product. Our representatives handle customer service and support, answer general
questions and provide product information by telephone, fax and e-mail.

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We believe that our representatives provide valuable feedback regarding
customer satisfaction which we use to improve our services. We do not currently
charge our customers for service and support services.

PRODUCTS

We offer approximately 41,000 software stock keeping units from leading
software publishers for physical delivery. Because of the efficiencies related
to online inventory, we can offer a broad selection of hard to find and
specialty software titles which may not be available in traditional software
stores. A single software title often has multiple stock keeping units depending
upon:

- operating systems (i.e., Macintosh, Windows, Windows NT);

- media (i.e., CD Rom, floppy disk); or

- license type (i.e., single or multi-user licenses).

We also offer approximately 5,600 stock keeping units from approximately
350 publishers for immediate delivery via digital download. These stock keeping
units include popular titles by Adobe, Cybermedia, Electronic Arts, FileMaker
Pro Inc. (formerly Claris), IBM, JavaSoft, Lotus, Microsoft, Network Associates,
QUALCOMM, Sun Microsystems and Symantec.

We have focused on offering as many major software titles as practical
through digital download. Because of the limited bandwidth and relatively slow
modem speeds now available, the size of many popular software titles currently
prevents them from being delivered via digital download. We believe that ten
megabytes is the maximum size of a software stock keeping unit that most
consumers currently will purchase through digital download. A ten megabyte
software stock keeping unit, such as Norton Utilities for Windows NT, takes
approximately one hour for a complete digital download at 28.8 Kpbs. We believe
that the size of new software products will continue to increase. Unless there
is a significant increase in network bandwidth, customers may not want to
download new software products because they are too large. However, we believe
that as improvements in Internet infrastructure and bandwidth emerge, such as
cable modems and digital subscriber line technologies, customer demand for
products delivered through digital download and the speed at which we can
electronically deliver them will increase. However, if digital download is not
accepted by most customers, then our business will suffer. Even if most
consumers use and accept digital download, the substantial existing and future
technical challenges of electronically delivering software reliably and
consistently in the long term may persist. Failure to overcome these challenges
would materially hurt our business.

We use traditional distributors to distribute our products for physical
delivery. To distribute our products via digital download, we download the
substantive majority of the product directly from the software publishers. We do
not carry significant inventory and we primarily rely on distributors rapidly to
distribute physical products directly to customers. When a customer places an
order for shrink-wrap software, we promptly transmit the order information to
the distributor for processing and rapid distribution to customers. We have
developed customized information systems and automated ordering processes to
allow us to pursue our goals:

- to offer an extensive selection of products;

- to avoid the high costs and capital requirements associated with owning
and warehousing product inventory; and

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- to escape the significant operational effort associated with same day
processing and shipment.

A single major software distributor supplied us with software that
accounted for a substantial portion of our total software sales in 1997 and
1998. Although we believe that we can replace our relationship with this major
software distributor without much difficulty, if this relationship terminates
and publishers or distributors that currently supply us with software also cease
to supply us, we cannot be assured that we will be able to establish new
relationships with other publishers and distributors to replace such existing
relationships. We cannot assure that our current vendors will continue to supply
stock keeping units to us.

We have three contracts with departments of U.S. government agencies. The
first two of these agreements accounted for approximately 29% of our revenues in
1997 and approximately 28% in 1998. Microsoft supplies us with a substantial
majority of the software sold under these agreements. These agreements with the
U.S. government are renewable on an annual basis and may be terminated for any
reason at any time. Therefore, we may not receive any revenue from sales of
software to the U.S. government in the future. Our contract with Microsoft may
be terminated for any reason by providing written notice at least 30 days before
a given term expires. If the U.S. government terminates or fails to renew any
one of these agreements or if Microsoft fails to supply its software products to
us for resale, our business would suffer materially. Furthermore, our contract
with Microsoft permits Microsoft to approve our credit worthiness by evaluating
publicly available information. In addition, as long as the request is
reasonable, Microsoft may reasonably require us to provide sufficient additional
information to determine our credit worthiness. If Microsoft determines that we
are no longer creditworthy or that we failed to comply with the payment or
reporting terms of our agreement, then it may require us to post security that
it deems acceptable. We have also entered into an agreement with GTSI pursuant
to which we perform digital download of certain software resold by GTSI to the
U.S. government. We have no other customers who accounted for more than 10% of
our revenues in 1997 or in 1998.

MARKETING AND SALES

Strategic Relationships

We pursue strategic relationships to expand our online presence, increase
our access to online customers and build our brand recognition. In pursuing
these relationships, we seek to be the exclusive or semi-exclusive reseller of
software on key screens of major Web sites. To date, we have entered into the
following relationships:

Yahoo!. In February 1999, we entered into an agreement with Yahoo! Inc., a
global Internet media company that offers a branded network of comprehensive
information, communication and shopping services. Over the 18 month term of this
agreement, we will make fixed payments, which may be augmented by certain
performance-based payments. Under the agreement, Yahoo! will:

- promote and advertise Beyond.com as a premier software merchant by
delivering page views across Yahoo!'s branded network of sites;

- place promotions and advertisements, which will provide links to our Web
site, on the Yahoo! home page (the Web page currently located at
http://www.yahoo.com), My Yahoo! (Web pages personalized by Yahoo!
users), Yahoo! Shopping (Web pages that enable Yahoo! users to locate,
compare and buy products), Yahoo!

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Games (Web pages that enable Yahoo! users to interact and play games) and
relevant categories and search result pages in the Yahoo! directory (Web
pages that appear in response to a user's particular search request).

America Online. In March 1998, we entered into an agreement with America
Online, the leading online service provider with approximately 14 million
members, for a term of 42 months. Under the agreement, America Online will:

- promote our Web site as the exclusive and semi-exclusive reseller of
software products on certain screens in the America Online service and
America Online's Web site;

- deliver a specified number of screen views with links to our Web site
over the term of our agreement;

- advertise Beyond.com as the exclusive software reseller on certain
screens included in the Computing Channel, the America Online Personal
Finance Channel, and the Games Channel, subject to certain limitations or
payment adjustments required of us; and

- promote Beyond.com as a software reseller on a semi-exclusive basis on
certain screens on the Computing Channel, and the Entertainment Web
Channel, among others.

There are important exceptions to the exclusivity rights discussed above,
including software products sold by or on behalf of publishers and by America
Online through "pop up" advertisements.

Under the agreement with America Online, we must make minimum payments
totaling $21 million to America Online by March 1, 2000. In addition, we must
pay a percentage of revenues that we earn on software sales to America Online
members above specified minimum amounts. We can sell advertising on our
promotional screens on the America Online service and Web site as long as we pay
a percentage of certain advertising revenues above specified minimum amounts to
America Online.

Under the agreement, America Online in its sole discretion may reduce or
cease placements of our promotions. America Online also may restrict access from
its service to our Web site in certain circumstances if the functional integrity
of the America Online service is compromised or America Online's ability to
provide service to its users is adversely affected. America Online also may
change its business model so that a substantially larger number of America
Online members pay hourly charges for general access and use of the America
Online service, which may have a material adverse effect on the sale of the
Company's products. If America Online changes its business model in this way, we
will adjust the payments we make to America Online. Our agreement with America
Online expires in August 2001, or earlier in the event of a material breach, and
America Online has the right to renew this agreement for two successive one-year
terms, during which time America Online has no exclusivity obligations to us.

Excite. In March 1998, we entered into an agreement with Excite, a leading
search engine provider with over fifty million page views a day, for a term of
at least 36 months. Under the agreement, Excite agreed not to display paid
promotional links or advertisements of other specified types of software
resellers on certain screens within certain channels of Excite's "excite.com"
Web site. These screens include certain screens in Excite's Computers and
Internet Channel and the Computers and Software Department of its Shopping
Channel. In addition, we have the right to display links to our Web site on

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certain other screens on Excite's Web site. Over the term of this agreement,
Excite must deliver a specified number of screen views with links to our Web
site. Over the first three years of this agreement we must make substantial
payments to Excite and pay a percentage of certain transactional revenues that
we earn above specified minimum amounts. Our agreement with Excite ends when
Excite satisfies its obligations to deliver screen views with links to our Web
site. However, the agreement will not terminate before April 2001, except if
either party materially breaches the contract.

Netscape. In June 1997, we entered into an agreement with Netscape, a
leading provider of open software for linking people and information over
intranets, extranets and the Internet, for a term of 24 months from August 1,
1997. Under the agreement, we created an online store -- the "Netscape Software
Depot by Beyond.com" -- to market and distribute software products which are
compatible with the Netscape ONE platform Internet site. Under the agreement, we
allocate sales and advertising revenues generated from this online store based
on specified percentages. Under the agreement, we paid Netscape for a license to
use certain Netscape trademarks. The agreement terminates on July 31, 1999, and
either party also can terminate this agreement if either the specified screen
views with links to our Web site or net revenue milestones have not been met.
Pursuant to the terms of the agreement, Netscape has notified us that it does
not intend to renew this contract after termination. We do not expect that the
non-renewal of this agreement will have a material adverse effect on our
business.

Network Associates. Since September 1997, we have entered into various
agreements with Network Associates, a developer of electronic commerce locations
and producer of certain products marketed under the McAfee name. These
agreements concern the online sale of software and the management of certain web
sites. Under these agreements, we act as a reseller of Network Associates'
products on our Web site and co-host of certain Internet sites developed by
Network Associates.

We cannot assure that enough people will visit our online store or that we
will make enough sales to meet our financial obligations to America Online,
Excite, Network Associates or Yahoo!. We continue to maximize benefits derived
from each of these agreements. However, we are also uncertain whether we will
satisfy our obligations under our strategic contracts so that America Online,
Excite, Network Associates or Yahoo! will not terminate our agreements. Our
failure to do any of the above will likely have a material adverse effect on our
business. In addition, we may not automatically renew our agreements with
America Online, Excite, Network Associates and Yahoo! when they expire. We
cannot assure renewal of the agreements at all or on terms that are acceptable
to us. Furthermore, we based our significant investment in our strategic
relationships on several factors, including:

- the continued positive market presence of Excite, Network Associates and
Yahoo!;

- the reputation and anticipated growth of America Online, Excite,
Netscape, Network Associates and Yahoo!; and

- the commitment by each of America Online, Excite and Yahoo! to deliver
specified numbers of screen views with links to our Web site.

If the significant market presence, business or reputation of our strategic
partners declines, or America Online, Excite or Yahoo! fail to deliver the
specified numbers of screen views with links to our Web site, then our
agreements with them will be less valuable. A significant decrease in the value
of these agreements will likely have a material adverse effect on our business.
In addition, we, along with America Online, may separately

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pursue and sell advertising in our content areas distributed through America
Online. We cannot assure that America Online will not compete with us for
limited software reseller advertising revenues. We expect our agreements with
America Online, Excite, Network Associates and Yahoo! to represent significant
distribution channels for our software sales. The termination of any of these
agreements would likely have a material adverse effect on our business.

Traditional Advertising

In August 1998, we began to promote our online stores through a proactive
advertising program. This program initially targeted potential customers through
national media outlets such as magazines, newspapers and radio broadcasts. In
December 1998, we began advertising on television. We have continued our
expenditures for advertisements in traditional media during the first quarter of
fiscal 1999 and expect to do so in the future. We believe our ongoing
advertising program will facilitate the continued growth of our brand, increase
the reach of our name recognition and drive new customers to our online store.

Online Advertising

In addition to our strategic agreements and traditional advertising, we use
many online sales and marketing techniques to increase brand recognition and
drive traffic to our online stores. These include purchasing banner advertising
on search engine Web sites and Internet directories and direct links from
publisher home pages.

We can display banner advertisements for certain periods of time or when a
user searches for information relating to certain keywords (such as "software")
and programs, as well as the names of publishers. We also have established
direct links with the Web sites for certain software publishers. These links
allow a potential customer visiting that publisher's Web site to automatically
link to our order form and purchase software.

Direct Marketing

We believe that the demographics of Internet users overlap one-to-one with
the demographics of potential software purchasers and that the Internet provides
additional opportunities for direct marketing to the Company's customers through
a variety of mechanisms. We are exploring such direct marketing opportunities as
store customization to present each customer with a customized merchandise
assortment based on historic purchasing patterns and equipment type. We use
direct marketing techniques to target new and existing customers with customized
offers such as an e-mail newsletter that includes purchase recommendations based
on demonstrated customer preferences or prior purchases. We intend to enhance
such techniques in the future.

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Affiliates Program

Our Affiliates Program increases our market presence by allowing affiliate
Web sites to offer software to their audience for which we provide fulfillment.
The affiliate embeds a hyperlink to our site, together with software recommended
for that affiliate's targeted customers base. This hyperlink automatically
connects the customer to our online store where the affiliate's customer may
place an order. The affiliate can offer enhanced services and recommendations,
while avoiding ordering and fulfillment costs. Under these short term
arrangements, we must pay the affiliate a small percentage of the sales they
generate. We can terminate these agreements with limited notice.

Customer Service and Support

We believe that we can establish and maintain long-term relationships with
our customers and encourage repeat visits and purchases if, among other things,
we have good customer support and service. We believe that the online resale and
digital download of software present complex customer service and support
challenges that we have the expertise to address. We further believe that our
ability to address these challenges for our large and growing customer base
represents a significant competitive advantage for us. Our customer support and
service personnel handle general customer inquiries and basic technical
questions, answer customer questions about the ordering process, and investigate
the status of orders, shipments and payments. They also work with customers
unfamiliar with the digital download process to ensure proper online delivery of
software directly to our customers' computers. We have automated certain of the
tools used by our customer support and service staff, such as tracking screens
that let our support staff track a transaction by any of a variety of
information sources. At any time in the purchasing process, a customer can
access our support staff by fax or e-mail by following prompts located
throughout our online store, or by calling our toll free telephone line.
Customers who do not wish to enter their credit card numbers through the Web
site also may use the toll free line for purchases. We currently employ a staff
of customer support and service personnel available twenty-four-hours-a-day,
seven-days-a-week. We outsource our first level of customer support and services
through a leading provider of customer support services.

The U.S. government and corporate consumers purchase a substantial portion
of our software sales. Therefore, we maintain specialized support staffs for
these departments. Also, our government and corporate support staffs provide
standard support services as well as targeting particular government and
corporate customers for specific new products and version enhancements. We
intend to increase our sales and marketing efforts with respect to both
government and corporate purchasers.

We Maintain a Structured Return Policy

A customer may return products for replacement or credit if we authorize
the credit. A customer may return shrink-wrap product with a return material
authorization number. We issue the customer a corresponding credit when we
receive a credit from the appropriate distributor indicating receipt of the
returned product. We issue the customer a credit for electronically distributed
products only when we receive by facsimile a signed "letter of destruction" from
the customer.

TECHNOLOGY

We use complex proprietary and commercially licensed technology to simplify
and enhance the customer experience by developing ways to simplify the use of
digital

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download by reducing the number of customer actions required to complete a
transaction and by clearly displaying the location of digitally downloaded
software on the consumer's desktop. We are also using our technology to make our
management reporting process as seamless and simple as possible. To this end, we
developed technologies and systems to support scaleable, flexible and simple
online reselling in a secure and easy to use manner. By using a combination of
proprietary solutions and commercially available licensed technologies, we have
developed systems for online content dissemination, online transaction
processing, customer service, market analysis and electronic data interchange.
We integrated these proprietary and commercially available systems into a
unified software sales and reporting system. Research and development costs in
1996, 1997 and 1998 were $431,000, $1.1 million and $4.2 million, respectively.
We expect these expenses to continue to increase during 1999.

Scalability and Flexibility

We built our hardware and software architecture on a transaction-processing
model which allows us to distribute the processing load among multiple parallel
servers. This architecture allows us to scale by either adding new servers or
increasing the capacity of existing servers. We designed our hardware and
software configuration to scale to support growth while maintaining user
performance and minimizing the cost per transaction. In the rapidly changing
Internet environment, it is important that we are able to update our system to
stay current with new technologies. Our system's template technology and modular
database design allow us to easily add or replace software components, page
layout templates and search and retrieval engines with minimal effort and
disruption. We designed our hardware and software architecture to allow us to
inexpensively and rapidly add co-branded Web sites that integrate with our
online store.

Seamlessness

Our multiple hardware and software systems are designed to integrate
seamlessly to manage real time transactions with limited human intervention. Our
systems are designed to automatically process orders for downloadable software
to completion, route electronically orders for products that we must ship to one
of our distributors as well as charge the customer's credit card after there is
confirmation that one of our distributors shipped the products and automatically
route orders requiring human intervention to our customer service
representatives.

Components of Our Technology

We use commercially available software as well as software we developed
internally. We have a policy of limiting the number of hardware and software
vendors whose products are used in our production systems. This policy
facilitates integration, maintenance, performance and upgrades.

Store Engine Architecture

We base our hardware and software systems on a distributed
transaction-processing model. This model allows us to distribute applications
and data among multiple parallel servers. We developed many of the software
components and the pages of our Web site in a manner that lets us separate the
page look and feel from the individual data elements and their associated
database lookups. This separation permits frequent changes to product pricing
information, reduces software updates for Web site changes and minimizes the
engineering required to maintain a growing amount of items and content. We use

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proprietary technology that allows Web sites with different formats to integrate
our online store elements, such as search, vendor and product pages. This
technology allows us to maintain several Web storefronts over a single order
processing and customer service system.

Enterprise Download Manager

For the large enterprise environment, we developed technology to aid in the
distribution of large software products (in terms of number of bytes) and large
numbers of software products. This technology includes server software, which
maintains a cache of software downloaded to key locations behind a customer's
firewall and an enhanced version of the Sm@rtCert technology licensed on a
non-exclusive basis from CyberSource which we offer as an integrated service. We
call this integrated service the "Enterprise Download Manager." By distributing
caches of software (many of which may be too large to download) to key locations
within an enterprise, a large enterprise can ensure that the current release of
software is available to its staff with minimal supervision. We can overcome
problems of failed download and lost connections by providing a dedicated server
with our Enterprise Download Manager service to manage and receive the download.
By using a local cache, the Enterprise Download Manager satisfies most requests
for software updates internally. This significantly reduces the amount of
network traffic. We use this technology to deliver products electronically
together with marketing and promotional information. In addition, our Enterprise
Download Manager service tracks the transmission of software via digital
download. If there is a disruption of the transmission, Enterprise Download
Manager restarts the transmission and completes the interrupted download without
the need to restart the entire download.

Back Office Processing

The real time nature of fulfilling downloaded software orders adds
significant complexity to the design of our back office system. Typical
transaction processing systems assume that a physical process must take place to
deliver the product. The time required for physical delivery eliminates the need
to process orders in real time (as well as the customer's expectation of real
time processing). When a customer wants to download the software it purchases
via digital download, the customer expects to be able to start downloading
within seconds of confirming the transaction. This need for almost instant
initiation of delivery impacts the design and operation of our entire back
office system. We must automate every element of a sale because we do not have
the time needed for human intervention.

We believe that our sophisticated back office transaction processing
system, which successfully processes, manages and fulfills software orders for
digital download with limited human intervention in real time, is a significant
competitive advantage. Our transaction processing system incorporates
commercially available database components purchased from leading vendors,
proprietary software products we developed and Internet commerce services
supplied by CyberSource. This system accepts orders captured by the store engine
and processes them according to pre-coded rules, validates each order, screens
the order for possible fraud, authorizes the payment method and transmits an
electronic message to our distributors for physical delivery or allows the
customer to download the product through digital download following approval of
an order. Our customer service representatives can access the entire history of
any order or customer online through a Web-based interface. Representatives also
can manage an order entirely from within this

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interface. Our system logs all actions by a customer service representative
including the identity of the representative, the actions taken and a time stamp
of the action.

Data Warehouse

We use a database management system to index, retrieve and manipulate
product information, content, product catalogs, orders and transactions,
customer information and perform rapid searching, sorting, viewing and
distribution of a large volume of content. The data warehouse lets us access
detailed transaction and customer interaction data and perform proprietary
market analysis. Our data warehouse incorporates commercially available hardware
and software combined with our proprietary software in a configuration that we
developed. This data warehouse provides a unified platform for our store engine
and back office systems. Any reduction in performance, disruption in Internet
access or discontinuation of services provided to us by CyberSource might
materially hurt our business. We cannot assure that we will:

- accommodate increases in network traffic in the future;

- accurately project the rate or timing of such increases;

- upgrade our systems and infrastructure to accommodate future traffic
levels on our online sites;

- effectively upgrade and expand our transaction processing systems;

- successfully integrate any newly developed or purchased modules with our
existing systems;

- successfully use new technologies; or

- successfully adapt our online sites, proprietary technology and
transaction processing systems to meet customer requirements or emerging
industry standards.

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SECURITY

Customer Reassurance

To be a successful online retailer, we must maintain the integrity of
information, particularly the security of information such as credit card
numbers. We believe that our existing security systems are at least as secure as
those used for traditional transactions (i.e., in store or mail order
purchases). We also believe that we have a comprehensive security strategy. Our
system automatically monitors each purchase, confirms each order by e-mail to
the customer within minutes after the customer places the order and advises
customers by e-mail shortly after our distributors ship physical orders.

Fault Tolerance and Scaleable Internet Access

We designed our systems for automatic transfer to "hot" spare systems in
the event of a failure. We also equipped our systems with fully automated
reporting tools. These tools provide automated trouble notification and detailed
event logging. We maintain a minimum of two of each critical production system.
For distributed systems such as web servers, as many as 30 systems may be
active. A load distribution system monitors traffic to each server. Should a
system fail to respond to a request, the automated distribution system will
redistribute traffic among the remaining machines with no loss of user
functionality. Standby systems that monitor the health of the live machine
automatically take over in the event of a failure of our firewall and load
distribution system. After correcting the problem, these automated systems then
notify technical staff by pager so our staff can replace or repair the failed
system.

We contract with a Web site provider that specializes in providing
scaleable business solutions to high volume Internet sites for mission critical
Internet connectivity. We contracted with the provider to deliver a secure
platform for server hosting with uninterruptible power supply and back up
generators, fire suppression, raised floors, heating ventilation and
air-conditioning, separate cooling zones, seismically braced racks, operations
twenty-four-hours-a-day, seven-days-a-week and high levels of physical security.
We connected our systems to a high speed Internet connection with multiple,
redundant interconnects to key backbone locations.

Notwithstanding these precautions, we cannot assure that the security
mechanisms used by us, our suppliers or our Internet provider will prevent
security breaches or service breakdowns. Despite the network security measures
we have implemented, our servers may be vulnerable to computer viruses, physical
or electronic break-ins and similar disruptions. Such a description could lead
to interruptions or delays in our service, loss of data, or our inability to
accept and fulfill customer orders. Any of these events would materially hurt
our business, results of operations and financial condition.

THE BUYDIRECT.COM MERGER

On March 30, 1999, we completed a transaction whereby one of our
wholly-owned subsidiaries merged with and into BuyDirect.com, a leading online
software retailer for consumers and business customers. The following is a
summary of certain aspects of the BuyDirect.com merger agreement, the merger and
related transactions and is qualified in its entirety by reference to the
amended and restated merger agreement dated as of March 15, 1999.

In connection with this merger, we will issue approximately 4,943,767
shares of our common stock to BuyDirect.com's stockholders in exchange for their
outstanding shares of

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BuyDirect.com common and preferred stock. We have also reserved for issuance
upon exercise of options we assumed in connection with the merger approximately
281,988 shares of our common stock. Each option we assumed will continue to
have, and be subject to, the same terms and conditions as set forth in the
BuyDirect.com 1998 Stock Option Plan and in the respective option or warrant
agreements governing such option immediately prior to the merger except that
such options will be exercisable for shares of our common stock. We will account
for the merger using the purchase method of accounting. Upon completion of the
offering, the shares of our common stock issued in connection with the merger
will constitute approximately 14% of our outstanding common stock.

The BuyDirect.com merger agreement contains customary representations and
warranties on the part of BuyDirect.com and its principal stockholders regarding
such matters as BuyDirect.com's corporate good standing, capital structure,
intellectual property ownership, pending litigation, assets and liabilities,
employee relations, material contracts, tax good standing, compliance with laws
and regulations, customers and internet traffic. We also made certain
representations and warranties to BuyDirect.com and its principal stockholders
regarding certain of such matters.

Pursuant to the merger agreement and subject to a threshold and certain
limitations and exceptions, each of the BuyDirect.com principal stockholders
agreed to indemnify us and each of our officers, directors, employees, agents
and representatives with respect to breaches of any representations, warranties,
covenants or other agreements made by BuyDirect.com or the BuyDirect.com
stockholders in the merger agreement or any damages suffered by us by reason of
any third-party claims existing prior to the merger.

Fifteen percent of the shares to be issued to the BuyDirect.com
stockholders are being held in escrow for a period not to exceed fifteen months
after the date of the closing of the merger to secure the indemnification
obligations of the BuyDirect.com stockholders.

The holders of our common stock issued in connection with the merger have
the right to require us to file a registration statement by July 16, 1999, with
respect to approximately 4,943,767 shares of our common stock which will be
issued in connection with the merger in exchange for BuyDirect.com common and
preferred stock. We have the right to delay the filing of this registration
statement until 30 days after the completion of the sale of securities under
this prospectus, as well as under certain other circumstances. We are also
obligated to file a registration statement within 15 days of the closing of the
merger to register approximately 281,988 shares of our common stock reserved for
issuance upon the exercise of options we assumed in connection with the merger.

RELATIONSHIP WITH CYBERSOURCE CORPORATION

In December 1997, in order to focus on our core business of selling
software over the Internet, we spun off our Internet commerce services business
to a new Delaware corporation, now called CyberSource. In connection with this
spin off, we entered into certain agreements with CyberSource to define the
ongoing relationship between our two companies. At the time of the spin off, all
of our directors were directors of CyberSource and other members of our
management team joined CyberSource as executive officers. Accordingly, these
agreements may not be deemed the result of arm's length negotiations.

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Under our conveyance agreement with CyberSource dated December 31, 1997, we
transferred to CyberSource:

- technology (including rights to patent applications, trademarks and other
of our intellectual property rights);

- contracts and licenses with third parties; and

- certain tangible assets that we use for credit card processing, fraud
screening, export control, territory management and electronic
fulfillment notification.

In addition, we transferred employees who worked on our Internet commerce
services business to CyberSource.

Under the terms of our inter-company cross license agreement with
CyberSource, which we entered into in April 1998 and amended in May 1998, we
granted to CyberSource a non-exclusive, worldwide, perpetual, irrevocable,
royalty-free license to internally use our Cache Manager technology, and use and
sublicense our customer database for certain limited purposes relating to fraud
verification and detection. In exchange, CyberSource granted us a worldwide,
perpetual, irrevocable, royalty-free license to internally use CyberSource's
Sm@rtCert technology with the right to modify the technology so we may embed
such technology into our Cache Manager (either alone or in combination with
other software) for subsequent sublicense and for use by enterprises and
government agencies. This agreement also provides that we jointly own certain
utility tools. It allocates between us and CyberSource ownership of certain
inventions made by each party on or before June 30, 1998, and ownership of
certain improvements, enhancements and modifications by the parties to the
Sm@rtCert and Cache Manager technologies made through 1999. Each party agreed to
indemnify the other against any third party claim against the licensor resulting
from the licensee using the licensed technology, except to the extent such a
third-party claim is based upon a claim that the licensed technology infringes
upon its intellectual property rights.

We also entered into an Internet commerce services agreement with
CyberSource. Under this agreement, CyberSource agreed to provide certain
services to us including credit card processing, fraud screening, export
control, territory management and electronic fulfillment, in a "back office"
capacity. CyberSource agreed to indemnify us for an amount not to exceed
$100,000 if a third party claims that the services CyberSource provides to us,
or the use of any software that CyberSource provides in connection with the
services, infringes upon the third party's intellectual property rights. We
agreed to indemnify CyberSource for an amount not to exceed $100,000 if a third
party claims that the software we distribute infringes upon its intellectual
property rights. This services agreement expired on December 31, 1998, and
automatically renewed for an additional one-year term, unless either party
terminates it.

Based on our relationship with CyberSource, our business would be disrupted
if:

- CyberSource discontinues any of the services that it provides to us under
the services agreement;

- either party terminates the cross license agreement; or

- CyberSource reduces its performance so we must replace such services or
internally develop or license such technology from a third party.

CyberSource provides to other customers, including our competitors, the
same services that it provides to us. Under our agreements with CyberSource,
CyberSource may compete

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directly with us, acquire a third party which competes with us, or be acquired
by a third party which competes with us. Any of those actions could materially
hurt our business.

COMPETITION

The online commerce market is new, rapidly evolving and intensely
competitive. We expect competition to intensify in the future because barriers
to entry are minimal, and current and new competitors can launch new Web sites
at relatively low cost. In addition, the software reselling industry is
intensely competitive. We currently compete primarily with traditional software
resellers, other online software resellers and other vendors.

In the online market, we compete with online software resellers and vendors
that maintain commercial Web sites (including CompUSA, Outpost.com, Egghead.com
and Buy.com). We also compete with the growing number of software publishers
that sell their software products directly online. barnesandnoble.com and
Amazon.com also resell software online. We also anticipate that we may soon
compete with other software publishers, including Microsoft, that plan to sell
their products directly to customers online, and indirect competitors that
specialize in online commerce or derive significant revenues from online
commerce, including America Online, Netscape, Amazon.com and Yahoo!.

In addition, the following entities have established, or may soon
establish, commercial Web sites offering software products:

- major retailers of other related products, such as OfficeMax, Staples,
Office Depot and Wal-Mart.

Competitive pressures created by any one of these current or future
competitors, or by our competitors collectively, could materially hurt our
business.

We believe that the principal competitive factors in our market are:

- brand recognition;

- selection;

- convenience;

- price;

- speed and accessibility;

- customer service;

- quality of site content; and

- reliability and speed of fulfillment.

In addition to those factors, the large enterprise market also focuses on:

- compatibility of products;

- administration and reporting;

- single source supply;

- security; and

- cost-effective deployment.

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<PAGE> 70

In addition, as more people use the Internet and other online services,
larger, well established and well financed entities may:

- acquire online competitors or software publishers or suppliers;

- invest in online competitors or software publishers or suppliers; or

- form joint ventures with online competitors or software publishers or
suppliers.

Certain of our actual or potential competitors, such as Ingram Micro and
Tech Data, may be able to:

- secure merchandise from vendors on more favorable terms;

- devote greater resources to marketing and promotional campaigns;

- adopt more aggressive pricing or inventory availability policies; and

- devote substantially more resources to Web site and systems development
than we do.

Competitors such as Software Spectrum, GTSI, ASAP and Corporate Software &
Technology have greater experience in selling software to the large enterprise
market than we do. In addition, new technologies and expansion of existing
technologies, such as price comparison programs that select specific titles from
a variety of Web sites, may direct customers to online software resellers which
compete with us and may increase competition. Increased competition may reduce
our operating margins, as well as cause a loss to both our market share and
brand recognition. Further, to strategically respond to changes in the
competitive environment, we may sometimes make pricing, service or marketing
decisions or acquisitions that could materially hurt our business. In addition,
companies controlling access to Internet transactions through network access or
Web browsers could promote our competitors or charge us a substantial fee for
inclusion in their product or service offerings. We cannot assure that we can
compete successfully against current and future competitors. Failure to compete
successfully against our current and future competitors could materially hurt
our business.

LEGAL PROCEEDINGS

From time to time, we are involved in litigation arising in the ordinary
course of our business. We do not believe that we are presently subject to any
material legal proceedings.

PROPRIETARY RIGHTS

We rely on a combination of copyright, trademark, patent and trade secret
laws and contractual restrictions to establish and protect our technology and
proprietary rights and information. We require employees and consultants to sign
confidentiality agreements. However, we cannot assure you that our steps will be
sufficient to prevent misappropriation of our technology and proprietary rights
and information or that our competitors will not independently develop
technologies that are substantially equivalent or superior to ours.

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<PAGE> 71

EMPLOYEES

As of March 31, 1999, we employed 249 employees. We also employ independent
contractors and other temporary employees. Labor unions do not represent any of
our employees. We consider our employee relations to be good. Competition for
qualified personnel in our industry is intense, particularly for software
development and other technical staff. We believe that we need to continue to
attract, hire and retain qualified personnel to be successful in the future.

FACILITIES

Our principal administrative, engineering, marketing and customer service
facilities total approximately 75,197 square feet. We sublease these facilities,
which are located in Sunnyvale, California. Our sublease expires in September
2003, unless terminated sooner. We made a security deposit payment of $892,000
cash. We must also make monthly payments of approximately $149,000 increasing to
$174,000 over the term of the sublease. We do not have an option to renew or
extend the sublease. In addition, in connection with the BuyDirect.com merger,
we assumed two subleases, one for approximately 12,100 square feet in San
Francisco, California expiring in June 2000, and another for approximately 3,233
square feet in Portland, Oregon, expiring in October 2000, pursuant to which we
are required to make monthly basic rent payments of $32,267 and $2,964,
respectively.

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<PAGE> 72

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The following table sets forth certain information about our executive
officers and directors.

<TABLE>
<CAPTION>
NAME AGE POSITION WITH COMPANY
---- --- ---------------------
<S> <C> <C>
William S. McKiernan...... 42 Chairman of the Board of Directors
Mark L. Breier............ 39 President, Chief Executive Officer and Director
John P. Pettitt........... 36 Executive Vice President and Chief Technology
Officer
James R. Lussier.......... 42 Vice President, Business Operations and Corporate
Strategy
Michael J. Praisner....... 52 Vice President, Finance & Administration and Chief
Financial Officer
Alan C. DeClerck.......... 44 Vice President, Worldwide Sales
Brian J. Sroub............ 39 Vice President, Marketing
Mala Anand................ 31 Vice President, Engineering
John D. Vigouroux......... 39 Vice President, Business Development
Douglas Carlston(2)....... 51 Director
John S. Chen(2)........... 43 Director
Bert Kolde(1)............. 44 Director
Ronald S. Posner(1)....... 56 Director
</TABLE>

- ---------------
(1) Member of Audit Committee
(2) Member of Compensation Committee

WILLIAM S. MCKIERNAN is a co-founder of Beyond.com and has served as
Chairman of our Board of Directors since March 1998. From Beyond.com's inception
in 1994 to March 1998, Mr. McKiernan served as our President and Chief Executive
Officer. Mr. McKiernan also currently serves as a director, President and Chief
Executive Officer of CyberSource Corporation. From 1992 to 1994, Mr. McKiernan
held a number of positions at McAfee Associates, Inc. (now known as Network
Associates), including President and Chief Operating Officer, the positions he
held during its initial public offering in October 1992. Prior to joining McAfee
Associates in 1992, Mr. McKiernan was Vice President of Princeton Venture
Research, Inc., an investment banking and venture consulting firm from 1990 to
1992. Mr. McKiernan has also held management positions with IBM/ROLM and Price
Waterhouse. Mr. McKiernan holds an M.B.A. from the Harvard Business School.

MARK L. BREIER joined Beyond.com in March 1998, as a director and our
President and Chief Executive Officer. From January 1997 until he joined
Beyond.com, Mr. Breier served as Vice President of Marketing of Amazon.com, Inc.
From April 1995 to January 1997, Mr. Breier served as Vice President of
Marketing of Cinnabon World Famous Cinnamon Rolls. Mr. Breier was involved in
product management and introduction at Dreyer's Grand Ice Cream from 1990 to
April 1995, at Kraft Foods, Inc., a multinational consumer products company,
from April 1986 to October 1988, and at Parker Brothers, a worldwide
manufacturer of toys and games, from August 1985 to March 1986. Mr. Breier holds
a B.A. in Economics from Stanford University and an M.B.A. from the Stanford
University Graduate School of Business.

JOHN P. PETTITT is a co-founder of Beyond.com and has served as our
Executive Vice President and Chief Technology Officer since its inception in
1994. From 1992 to 1994,

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<PAGE> 73

Mr. Pettitt consulted on a number of Internet and intranet projects, including a
national medical imaging network. From 1986 to 1992, Mr. Pettitt served as Group
Vice President and Technical Director of Specialix PLC, a leading supplier of
communications controllers for UNIX systems. While at Specialix, Mr. Pettitt
received the 1992 British Design Award for designing a new distributed, fault
tolerant data switch. Mr. Pettitt also co-founded the United Kingdom Internet
Consortium.

JAMES R. LUSSIER joined Beyond.com in April 1998 as our Vice President,
Business Operations and Corporate Strategy. From September 1993 to April 1998,
Mr. Lussier served as an Associate Partner of Andersen Consulting where he was
responsible for the Electronics and High Technology Strategy Practice Group and
was a member of the Commerce Core Team. Mr. Lussier holds a B.S. in Finance from
the Wharton School, University of Pennsylvania, an M.A. in Sociology, with an
emphasis in Statistics, from the University of California at Berkeley and an
M.B.A. from the Stanford University Graduate School of Business.

MICHAEL J. PRAISNER joined Beyond.com as our Vice President, Finance and
Administration and Chief Financial Officer in April 1998. From 1995 to February
1998, Mr. Praisner served as Vice President, Finance and Administration, Chief
Financial Officer and Secretary of Silicon Storage Technology, Inc., a supplier
of flash memory devices. From 1994 to 1995, he served as Vice President, Finance
and Chief Financial Officer of MicroModule Systems, Inc., a manufacturer of
multichip modules for computer and telecommunications applications. From 1992 to
1993, he served as Vice President, Finance and Chief Financial Officer of
Electronics for Imaging, Inc., a manufacturer of color desktop publishing
computer systems. During part of 1991, he served as Vice President, Finance and
Chief Financial Officer of Digital Link Corp., a computer communications
equipment company. From 1989 to 1991, he served as Corporate Controller of
Applied Materials Inc., a manufacturer of semiconductor wafer fabrication
equipment. Mr. Praisner holds a B.A. in Liberal Arts and an M.B.A. from Southern
Methodist University and is a Certified Public Accountant.

ALAN C. DECLERCK joined Beyond.com in April 1998 as our Vice President,
Sales. From August 1995 until he joined Beyond.com, Mr. DeClerck served as
International Director, ISVs & Integrators, for Sun Microsystems Computer
Corporation. From January 1990 until August 1995, Mr. DeClerck served in other
roles at Sun Microsystems, including Director, Corporate Business Development,
Director of Marketing and Business Development at FirstPerson, a Sun
Microsystems subsidiary that developed the initial Java technology, and various
sales and sales management roles. Mr. DeClerck was involved in marketing and
sales roles from 1980 until 1989 at Network Equipment Technologies, Industrial
Networking, Inc. and General Motors Corporation. Mr. DeClerck holds an A.B. in
International Relations from Brown University, a M. Phil. in International
Relations from Oxford University and an M.B.A. from the Stanford University
Graduate School of Business.

BRIAN J. SROUB joined Beyond.com in April 1998 as our Vice President,
Marketing. From June 1995 to April 1998, Mr. Sroub served as Vice President,
Marketing of Hearst New Media & Technology, a worldwide media company. From
October 1993 to May 1995, Mr. Sroub served as Vice President, Sales & Marketing
of Sony Electronics. Prior to October 1993, Mr. Sroub co-founded Home
Environmental Products, a start up horticultural corporation, and was a Brand
Manager at Procter & Gamble Company. Mr. Sroub holds a B.A. in Liberal Arts from
Boston College, an M.A. in Economics from Boston College and an M.B.A. from the
Stanford University Graduate School of Business.

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<PAGE> 74

MALA ANAND joined Beyond.com in June 1998 as our Vice President,
Engineering. From January 1995 until she joined Beyond.com, Ms. Anand served as
Director of Product Development with the Internet application services division
at Oracle Corporation. From 1990 to 1995, Ms. Anand was a technical architect
and a principal engineer of Digital Equipment Corporation's software supply
business. Ms. Anand holds an M.S. in Computer Science from Brown University and
a B.S. in Computer Science from the University of Massachusetts.

JOHN D. VIGOUROUX joined Beyond.com in October 1998 as our Vice President,
Business Development. From June 1997 until he joined Beyond.com, Mr. Vigouroux
served as Vice President of Business Development of Net Objects, Inc. From
August 1996 to June 1997, Mr. Vigouroux served as a Director of Business
Development of Cisco Systems, Inc. From August 1993 to August 1996, Mr.
Vigouroux served as Manager of Strategic Opportunities of Adobe Systems, Inc.
Mr. Vigouroux holds an M.B.A. from New Hampshire College and a B.S. in
Organizational Behavior and Development from Averett College.

DOUGLAS CARLSTON, a director of Beyond.com since March 1999, was the
founder of Broderbund Software, Inc. and served as its Chairman of the Board and
Chief Executive Officer from 1989 through 1998, when Broderbund was sold to The
Learning Company, Inc. Mr. Carlston currently serves on the Board of Directors
of Expert Software, Inc., ePit and Mpath Interactive, Inc. He also currently
serves on the Boards of several non-profit organizations, including Public Radio
International (PRI), the Santa Fe Institute, the Long Island Foundation,
Ceasefire and the John Hopkins School of Advanced International Studies. Mr.
Carlston received his B.A. from Harvard College in 1970.

JOHN S. CHEN, a director of Beyond.com since March 1999, has served as a
director and President, Chief Executive Officer and Chairman of Sybase, Inc.
since August 1997. Mr. Chen also serves as a board member for Niku Corporation.
In February 1998, Sybase formed the Office of the Chief Executive, and Mr. Chen
began to share the position of Chief Executive Officer with Mr. Kertzman.
Between August 1997 and February 1998, Mr. Chen also held the position of Chief
Operating Officer. Before joining Sybase, Mr. Chen served between March 1995 and
July 1997 as the President of the Open Enterprise Computing Division of Siemens
Nixdorf, a computer and electronics company, and as Chief Executive Officer and
Chairman of the Siemens Pyramid subsidiary of Siemens Nixdorf. Before its
acquisition by Siemens Nixdorf in March 1995, Mr. Chen served in various
executive capacities with Pyramid Technology Corporation, a computer company,
where he became Chief Operating Officer in October 1992 and President in June
1993. Mr. Chen holds a B.S. in electrical engineering from Brown University and
a M.S. in electrical engineering from California Institute of Technology.

BERT KOLDE, a director of Beyond.com since July 1996, serves as a director,
Vice President, Treasurer and Secretary of Vulcan Ventures Inc., Vice Chairman
of the Portland Trail Blazers, Seattle Seahawks, Oregon Arena Corporation and
First and Goal Corporation. In addition, Mr. Kolde serves as President of the
Paul G. Allen Virtual Education Foundation and the Paul G. Allen Forest
Protection Foundation. Mr. Kolde co-founded Asymetrix Learning Systems, Inc. in
1985, and serves as Chairman of its Board of Directors. Mr. Kolde also serves as
a director of MetaCreations Corporation and CyberSource Corporation. Mr. Kolde
holds a B.A. in Business Administration from Washington State University and an
M.B.A. from the University of Washington.

RONALD S. POSNER, a director of Beyond.com since March 1999, serves as
Chairman of PS Capital, a venture capitalist firm based in San Francisco, New
York and London.

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<PAGE> 75

Mr. Posner has held or currently holds key advisory roles within a number of
startups and public companies. In addition, he was an active board member and on
the executive committee of CyberMedia Corporation, a systems software company
that was acquired by Network Associates, Asymetrix and Select S/W.

Linda Fayne Levinson, Steven P. Novak and Richard Scudellari resigned from
our board of directors as of March 9, 1999, March 11, 1999 and March 11, 1999,
respectively. Mr. Scudellari remains our Secretary.

BOARD OF DIRECTORS AND COMMITTEES

Beyond.com currently has authorized six directors. Our executive officers
are appointed by, and serve at the discretion of, our board of directors. Each
of our officers and directors, excluding non-employee directors and Mr.
McKiernan, who serves as Chief Executive Officer of CyberSource, devotes
substantially full time to our affairs. Our non-employee directors devote such
time to our affairs as is necessary to discharge their duties. There are no
family relationships among any of our directors, officers or key employees. Two
members of our board of directors also serve as directors of CyberSource.

Our audit committee reviews, acts on and reports to our board of directors
with respect to various auditing and accounting matters, including the selection
of our independent accountants, the scope of the annual audits, fees to be paid
to the independent accountants, the performance of our independent accountants
and our accounting practices.

Our compensation committee establishes salaries, incentives and other forms
of compensation for officers and other employees. This committee also
administers our incentive compensation and benefit plans.

DIRECTOR COMPENSATION

We have not historically paid directors cash compensation for their
services as directors or members of committees of the board of directors. We
have, however, reimbursed them for their reasonable expenses incurred in
attending meetings of our board of directors. In the future, non-employee
directors will receive an annual directors' fee in the amount of $10,000,
commencing with our 1999 annual meeting of our stockholders, which fees will be
paid in quarterly installments.

In January 1997, we granted Bert Kolde an option to purchase 10,000 shares
of common stock at an exercise price of $0.1125 per share. In January 1998, we
granted Mr. Kolde an option to purchase 10,000 shares of common stock at an
exercise price of $0.50 per share. In March 1998, we granted Mr. Breier an
option to purchase 1,000,000 shares of common stock at an exercise price of
$2.60 per share. In January 1999, we granted Mr. Kolde an option to purchase
10,000 shares of common stock at an exercise price of $20.75 per share.

Until April 4, 1998, under the terms of our 1995 Stock Option Plan, we
granted each non-employee director options to purchase 10,000 shares of common
stock upon initial election or appointment to the board of directors and
thereafter annually on January 1 of each year. After April 4, 1998, our 1998
Stock Option Plan continued these grants. However, upon approval by our
stockholders of the 1999 Stock Incentive Plan, automatic grants will occur only
as provided in the 1999 Stock Incentive Plan. The proposed 1999 Stock Incentive
Plan provides for initial grants of options to acquire 20,000 shares of our
common stock upon appointment to the board of directors and subsequent grants of
options to acquire 5,000 shares of our common stock shares following the
conclusion of

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<PAGE> 76

each annual meeting of stockholders, commencing with the 2000 annual
stockholders' meeting. These options would vest over four years.

In March 1999, we granted each of Messrs. Carlston, Chen and Posner
nonqualified stock options to purchase 20,000 shares of common stock at an
exercise price of $23.75 per share under the 1998 Stock Option Plan. These
options vest over four years with 25% of the total shares granted vesting in
March 2000 and the remaining shares vesting monthly thereafter through March
2003, contingent upon continuous service as a director.

EXECUTIVE COMPENSATION

The following table sets forth certain information concerning compensation
of and stock options granted to our Chief Executive Officer and each of our four
other most highly compensated executive officers (collectively, the "Named
Executive Officers"). In March 1998, Mr. McKiernan resigned as our President and
Chief Executive Officer and commenced service as the Chairman of our board of
directors, where he presently earns a salary of $91,500 per annum. In March
1998, Mr. Breier was hired as our President and Chief Executive Officer.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG TERM
COMPENSATION AWARDS
--------------------------
ANNUAL COMPENSATION SECURITIES
----------------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#) COMPENSATION
- --------------------------- ---- --------- -------- ---------- ------------
<S> <C> <C> <C> <C> <C>
William S. McKiernan..... 1998 $ 91,500 -- -- --
Chairman of the Board 1997 165,000 -- -- --
Mark L. Breier(1)........ 1998 150,000 $37,500 1,000,000 $65,000(2)
President and Chief
Executive Officer
John P. Pettitt.......... 1998 141,000 -- -- --
Executive Vice President
and 1997 130,000 100 -- --
Chief Technical Officer
Michael J. Praisner(3)... 1998 120,000 -- 200,000 --
Vice President, Finance
and Administration and
Chief Financial Officer
Brian J. Sroub(3)........ 1998 127,000 -- 180,000 --
Vice President, Marketing
James R. Lussier(3)...... 1998 126,000 -- 180,000 --
Vice President Business
Operations and Corporate
Strategy
</TABLE>

- ---------------
(1) Mr. Breier was hired in March 1998.

(2) Represents a relocation allowance payment to Mr. Breier in 1998.

(3) Messrs. Praisner, Sroub and Lussier were each hired in April 1998.

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EMPLOYMENT AGREEMENTS

We entered into an employment agreement with Mark L. Breier, dated March
23, 1998. Under this agreement, Mr. Breier's annual base salary is $200,000,
subject to good faith adjustment by our board of directors. In addition, Mr.
Breier is eligible to participate in our executives' benefit plans and to earn
an annual bonus in the amount of $50,000, payable quarterly, based on
achievement of objectives mutually determined by Mr. Breier and our board of
directors at the beginning of each year of his employment. According to our
agreement with Mr. Breier, we guaranteed $25,000 of Mr. Breier's possible bonus
for 1998 and paid this guaranteed amount to Mr. Brier in equal quarterly
installments.

Pursuant to our agreement with Mr. Breier, we granted him an option to
purchase 1,000,000 shares of our common stock on March 30, 1998, under our 1995
Stock Option Plan. This option has an exercise price of $2.60 per share and is
governed generally by the terms of our 1995 plan, with certain limited
exceptions including acceleration of the vesting in connection with a change of
control (which is defined in our agreement with Mr. Breier). Mr. Breier has the
right to receive severance pay in an amount equal to his base salary at the time
of such termination for the lesser of twelve months or that number of months
before which he obtains a position with another firm, if we terminate Mr. Breier
at any time, for any reason other than fraud or willful malfeasance or willful
and continuing (after notice) neglect of his duties. Further, we agreed that if
we terminate Mr. Breier with or without cause prior to the first anniversary of
the date his employment started, we would accelerate the vesting of his option
such that 125,000 shares vest immediately, or if such termination is after the
first anniversary of the date his employment started but prior to 18 months
after such date, such that the vesting of all shares accelerates by six months.

STOCK OPTION INFORMATION

The following table sets forth certain information with respect to stock
options granted in fiscal 1998 to the Named Executive Officers.

OPTION GRANTS IN FISCAL 1998

<TABLE>
<CAPTION>
OPTION GRANTS IN FISCAL 1998
INDIVIDUAL GRANTS(1) POTENTIAL REALIZABLE
---------------------------------------------- VALUE AT ASSUMED
NUMBER OF ANNUAL RATES OF
SECURITIES % OF TOTAL STOCK APPRECIATION
UNDERLYING OPTIONS GRANTED FOR OPTION TERM(4)
OPTIONS TO EMPLOYEES EXERCISE PRICE EXPIRATION -----------------------
NAME GRANTED(#) DURING PERIOD(2) ($/SHARE)(3) DATE 5% 10%
---- ---------- ---------------- -------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
William S.
McKiernan.......... -- -- -- -- -- --
Mark L. Breier....... 1,000,000 25.8% $2.60 03/30/2008 $4,235,126 $6,743,730
John P. Pettitt...... -- -- -- -- -- --
Michael J.
Praisner........... 200,000 5.2% $4.36 04/07/2008 $1,420,396 $2,261,743
Brian J. Sroub....... 180,000 4.7% $5.44 04/25/2008 $1,595,014 $2,539,793
James R. Lussier..... 180,000 4.7% $5.44 04/25/2008 $1,595,014 $2,539,793
</TABLE>

- ---------------
(1) Options granted to the Named Executive Officers set forth in this table vest
25% upon the first anniversary of each individual's grant date,
respectively, and 1/48 each month thereafter.

(2) Based on an aggregate of 3,868,946 options granted by Beyond.com during the
fiscal year ended 1998 to employees of and consultants to Beyond.com,
including the Named Executive Officers.

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<PAGE> 78

(3) The exercise price per share of each option was equal to the fair market
value of the common stock on the date of grant as determined by our board of
directors.

(4) The potential realizable value is calculated based on the term of the option
at its time of grant (ten years). It is calculated assuming that the fair
market value of the common stock on the date of grant appreciates at the
indicated annual rate compounded annually for the entire term of the option
and that the option is exercised and sold on the last day of its term for
the appreciated stock price.

The following table sets forth certain information regarding stock options
held as of December 31, 1998 by the Named Executive Officers.

OPTION VALUES AS OF DECEMBER 31, 1998

<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-THE-
OPTIONS AS OF MONEY OPTIONS AS OF
DECEMBER 31, 1998(#) DECEMBER 31, 1998($)(1)
---------------------------- -----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
William S. McKiernan....... -- -- -- --
Mark L. Breier............. -- 1,000,000 -- $18,150,000
John P. Pettitt............ 1,250,000 -- $25,932,500 --
Michael J. Praisner........ -- 200,000 -- 3,278,000
Brian J. Sroub............. -- 180,000 -- 2,755,800
James R. Lussier........... -- 180,000 -- 2,755,800
</TABLE>

- ---------------
(1) The value of unexercised "in-the-money" options represents the difference
between the exercise price of stock options and $20.75, the closing sales
price of the common stock on December 31, 1998.

STOCK OPTION PLANS

In January 1995, we adopted our 1995 Stock Option Plan and reserved
3,000,000 shares of common stock for stock option grants under the plan. In
addition, in April 1998, we adopted our 1998 Stock Option Plan and reserved
2,000,000 shares of common stock for stock option grants under the plan.
Further, in March 1999, we adopted our 1999 Nonqualified Stock Option Plan and
reserved 750,000 shares of common stock for stock option grants under the plan.
In March 1999, our board of directors approved the submission for approval at
our 1999 annual stockholders meeting our 1999 Stock Incentive Plan. We have
reserved 2,000,000 shares of our common stock for issuance upon exercise of
options granted under this plan. The purpose of each plan is to enhance our
long-term stockholder value by offering our employees, consultants, agents,
advisors, independent contractors and, in the case of the 1995 and 1998 plans
and the 1999 Stock Incentive Plan, our directors and officers, the opportunity
to promote and participate in our growth and success, and to encourage these
people to remain in our service and acquire and maintain stock ownership in us.

As of December 31, 1998, options to purchase 4,494,299 shares of common
stock were outstanding under the 1995 and 1998 Stock Option Plans with exercise
prices ranging from $0.004 to $29.06 per share. As of December 31, 1998, options
to purchase 268,849 shares were available for grant under the 1995 and 1998
Stock Option Plans and options for 236,852 shares had been exercised.

Our board of directors or a committee appointed by the board may administer
the plans. With respect to grants to officers and directors under the 1999 Stock
Incentive Plan,

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<PAGE> 79

the committee shall be constituted in such a manner as to satisfy applicable
laws, including Rule 16b-3 promulgated under the Securities Exchange Act of
1934, as amended. The board of directors may authorize one or more officers to
grant awards under the 1999 Stock Incentive Plan, subject to certain
limitations, to employees or consultants who are neither directors nor officers.

1999 Nonqualified Plan

The administrator has the authority to select individuals who are to
receive options under the 1999 Nonqualified Stock Option Plan, excluding
officers and directors, and to specify the terms and conditions of options
granted, the number of shares subject to each option granted, the vesting
provisions, the option term and the exercise price. The 1999 plan provides that
we may grant nonstatutory stock options to employees, excluding employee
directors, independent contractors and consultants.

The exercise price of options shall be equal to the fair market value on
the date of grant. Option holders may pay for an exercise in cash, shares of our
common stock or other consideration, including a promissory note, as approved by
the administrator.

Unless a shorter time period is otherwise provided by the administrator, an
option granted under the 1999 plan generally expires 10 years from the date of
grant. Options granted under our 1999 plan are not generally transferable by the
optionee except by will or the laws of descent and distribution and generally
are exercisable during the lifetime of the optionee only by such optionee.

Subject to an individual's option agreement, all outstanding options under
the 1999 plan will terminate in the event of, and immediately prior to, any
person becoming the beneficial owner of 50% or more of our then outstanding
common stock, or our stockholders approving (i) a merger or consolidation which
would result in the holders of our voting securities prior to the transaction
holding shares representing less than 50% of the surviving entity's voting
securities after giving effect to the transaction, or (ii) the liquidation or
dissolution of our business or an agreement for the sale of 50% or more of our
assets, unless the 50% beneficial owner or the successor corporation, as
applicable, assumes the options or substitutes options of substantially equal
value.

1999 Stock Incentive Plan

The 1999 Stock Incentive Plan provides for the grant of options, SARs,
dividend equivalent rights, restricted stock, and awards which may be earned in
whole or in part upon attainment of performance criteria established by the
administrator. The maximum number of shares with respect to which options and
SARs may be granted to an employee during any fiscal year is 2,000,000 shares.

Stock options granted under the 1999 Stock Incentive Plan may be either
incentive or nonqualified stock options. Incentive stock options may be granted
only to our employees or the employees of any parent or subsidiary corporation
of Beyond.com. Awards other than ISOs may be granted to employees, directors and
consultants. Under the 1999 Stock Incentive Plan, awards may be granted to such
employees, directors or consultants who are residing in foreign jurisdictions as
the administrator may determine from time to time.

Under the 1999 Stock Incentive Plan, incentive stock options may not be
sold, pledged, assigned, hypothecated, transferred or disposed of in any manner
other than by

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will or by the laws of descent or distribution and may be exercised during the
lifetime of the grantee only by the grantee. However, the 1999 Stock Incentive
Plan permits the designation of beneficiaries by holders of incentive stock
options. Other awards are transferable to the extent provided in the award
agreement.

The administrator determines the exercise price and selects the employees,
directors and consultants to whom awards may be granted and to determine the
terms and conditions of any award; however, the term of an incentive stock
option may not be for more than 10 years (or 5 years in the case of incentive
stock options granted to any grantee who owns stock representing more than 10%
of our combined voting power or of any parent or subsidiary corporation). In the
case of incentive stock options, the exercise price cannot be less than 100% (or
110%, in the case of incentive stock options granted to any grantee who owns
stock representing more than 10% of our combined voting power or of any parent
or subsidiary corporation) of the fair market value of the common stock on the
date the option is granted. Similarly, in the case of non-qualified stock
options, the price cannot be less than 100% of the fair market value of the
common stock on the date the option is granted. The exercise price is generally
payable in cash, check, or, in certain circumstances, with a promissory note,
with such documentation as the administrator and the broker, if applicable,
shall require to effect an exercise of an award and delivery to us of the sale
or loan proceeds required to pay the exercise price, or with shares of common
stock. The aggregate fair market value of the common stock with respect to any
incentive stock options that are exercisable for the first time by an eligible
employee in any calendar year may not exceed $100,000.

The awards may be granted subject to vesting schedules and restrictions on
transfer and repurchase or forfeiture rights in favor of us as specified in each
individual's agreement. The vesting schedule is accelerated by 50% of the number
of shares covered by the option upon a "covered termination" (as further
described in the plan). A covered termination results if an optionee's
employment is terminated without cause or there is a "constructive termination"
(as defined in the plan) within 12 months of "change of control" (as defined in
the plan). The options become exercisable 10 business days before consummation
of such change of control. Effective upon the consummation of the change of
control, all outstanding awards under the plan shall terminate unless assumed by
the successor company or its parent.

The administrator may establish one or more programs under the 1999 Stock
Incentive Plan to permit selected grantees the opportunity to elect to defer
receipt of consideration payable under an award. The administrator also may
establish separate programs for the grant of particular forms of awards to one
or more classes of grantees. In addition, non-employee directors are granted an
initial grant to purchase 20,000 shares upon their appointment to the board and
follow-on grants in the amount of 5,000 shares at the conclusion of each annual
meeting of stockholders commencing with our stockholders' 2000 annual meeting.
The initial grants and follow-on grants become exercisable over four years with
25% of the shares subject to the grant vesting one year from the date of grant
and the remaining shares vesting monthly thereafter.

1998 Plan

The administrator has the authority to select individuals who are to
receive options under the 1998 Stock Option Plan and to specify the terms and
conditions of options granted (including whether or not such options are
incentive or nonstatutory stock

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<PAGE> 81

options), the vesting provisions, the option term and the exercise price. The
1998 plan provides that we may grant incentive stock options within the meaning
of Section 422 of the Internal Revenue Code of 1986 to employees, including our
officers and employee directors, and we may grant nonstatutory stock options to
employees and consultants, including non-employee directors.

The exercise price of incentive stock options granted under the 1998 plan
shall equal the fair market value of our common stock on the date of grant
(except in the case of grants to any person holding more than 10% of the total
combined voting power of all classes of our, or any of our parent's or
subsidiary's, stock in which case the exercise price shall equal 110% of the
fair market value on the date of grant). The exercise price of nonqualified
stock options shall not be less than 85% of the fair market value on the date of
grant. Option holders may pay for an exercise in cash or other consideration,
including a promissory note, as approved by the administrator. The administrator
may not grant options under the 1998 plan to an individual in any one fiscal
year which would permit that individual to purchase more than 1,000,000 shares
of common stock. However, the administrator may grant a newly-hired optionee a
one-time grant of an option to purchase up to an additional 500,000 shares of
common stock.

Generally, options granted under the 1998 plan (other than those granted to
non-employee directors) vest at a rate of 25% of the shares underlying the
option after one year and the remaining shares vest in equal portions over the
following 36 months, such that all shares are vested after four years. Unless
otherwise provided by the administrator, an option granted under the 1998 plan
generally expires 10 years from the date of grant (five years in the case of an
incentive stock option granted to any person holding more than 10% of the total
combined voting power of all classes of our, or any of our parent's or
subsidiary's, stock in which case the exercise price shall equal 110% of the
fair market value on the date of grant) or, if earlier, 30 days after the
optionee's termination of employment or service with us or any of our affiliates
for any reason other than termination for death or disability, or one year after
termination for death or total and permanent disability and six months in the
case of other types of disability. Options granted under our 1998 plan are not
generally transferable by the optionee except by will or the laws of descent and
distribution and generally are exercisable during the lifetime of the optionee
only by such optionee.

In the event of (i) the merger or consolidation as a result of which the
holders of our voting securities prior to the transaction hold shares
representing less than 51% of our voting securities after giving effect to the
transaction (other than a merger or consolidation with a wholly-owned subsidiary
or where there is no substantial change in our stockholders and the options
granted under the 1998 plan are assumed by the successor corporation), or (ii)
the sale of all or substantially all of our assets the successor corporation
will assume or substitute the options we have granted under the 1998 plan or
shall provide substantially similar consideration to optionees as is provided to
the stockholders. In the event the successor corporation refuses to assume or
substitute outstanding options as provided above, or in the event of our
dissolution or liquidation, outstanding options shall expire on a date specified
in a written notice the compensation committee shall send to all optionees
(which date shall be at least 20 days after the date of such notice).

The 1998 plan also provides for automatic grants to non-employee directors.
Each non-employee director, upon initial election or appointment to the board of
directors, is entitled to receive options to purchase 10,000 shares of common
stock, provided that such election or appointment does not occur within the last
quarter of a given year. Thereafter,

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<PAGE> 82

each non-employee director is entitled to receive options to purchase 10,000
shares of common stock annually on January 1 of each year, provided he or she is
a non-employee director on the date of grant and has continuously been an active
member of the board of directors for the year prior to the grant date. Options
granted to non-employee directors pursuant to the automatic grant provisions of
the 1998 plan are nonqualified stock options with an exercise price equal to the
fair market value of our common stock as of the date of grant and fully vest
nine months after the date of grant. Grants to non-employee directors are
subject to the general requirements of the 1998 plan.

1995 Plan

The terms of options which we may grant under the 1995 plan are generally
the same as those we may grant under the 1998 plan. However, the 1995 plan
imposes a maximum number of shares subject to an option we grant to any
individual of 1,000,000 shares. In addition, under the 1995 plan, in the event
of our merger or consolidation in which we are not the surviving corporation, or
a sale of all or substantially all of our assets, the successor corporation will
assume or substitute the options outstanding under the 1995 plan. However, in
the event the successor corporation refuses to assume or substitute the options
or in the event of our dissolution or liquidation, outstanding options shall
expire on a date specified in a written notice sent by the compensation
committee to all optionees (which date shall be at least 20 days after the date
of such notice). We expect that after the approval by our stockholders of the
1999 Stock Incentive Plan, we will not issue any future options under the 1995
plan.

Stock options previously granted under the plans to the executives and
directors are described above under "Executive Compensation." At this time we
cannot determine the number of shares of common stock that may be subject to
options we grant in the future to our executive officers and other officers, key
employees and directors.

BuyDirect.com Options

In connection with the BuyDirect.com merger we assumed all options to
purchase BuyDirect.com common stock outstanding on the closing date of the
merger, whether or not such options were exercisable or vested. Each
BuyDirect.com option assumed by us continues to be subject to the terms and
conditions of the BuyDirect.com 1998 Stock Option Plan and individual option
agreements thereunder, but are exercisable, each option in accordance with the
vesting schedule applicable thereto, for that number of shares of our common
stock equal to the number of shares of BuyDirect.com common stock issuable upon
exercise thereof multiplied by the "exchange ratio," as defined in the merger
agreement between the parties. We have reserved approximately 281,988 shares of
our common stock for issuance upon exercise of options we assumed in the merger.

RETENTION INCENTIVE AGREEMENTS

In February 1999 our board of directors approved a form of "Retention
Incentive Agreement," which generally provides that, in the event of a change in
our control and the termination (including "constructive termination" as defined
therein) of an officer or employee who has entered into such an agreement with
us, 50% of the then unvested shares subject to options held by such terminated
officer or employee will accelerate and become exercisable. As of the date of
this prospectus, we are party to such Retention

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<PAGE> 83

Incentive Agreements with certain of our key officers, and intend to enter into
such agreements with all employees.

401(K) RETIREMENT PLAN

Effective January 1997, we established a 401(k) defined contribution
retirement plan covering all salaried/full-time employees with greater than one
months' service. The retirement plan provides for voluntary employee
contributions from 1% to 15% of annual compensation, subject to a maximum limit
allowed by Internal Revenue Service guidelines ($10,000 for 1998). We may
contribute such amounts to the accounts of participants' in the retirement plan
as our board of directors determines. To date, we have not contributed any
amounts to the 401(k) Plan.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

None of the members of our compensation committee is an officer or employee
of Beyond.com. Two members of our board of directors also serve as members of
the board of directors of CyberSource. Other than with respect to CyberSource,
no interlocking relationship exists between our board of directors or
compensation committee and the board of directors or compensation committee of
any other company, nor has such an interlocking relationship existed in the
past.

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<PAGE> 84

CERTAIN TRANSACTIONS

STOCK AND WARRANT ISSUANCES

Since January 1, 1996, we have issued shares of common stock to certain
insiders and shares of preferred stock in private placement transactions each as
set forth below.

In February 1996, we issued shares of Series A preferred stock in private
placements to certain investors including 253,131 shares to C.E. Unterberg
Towbin Capital Partners I, L.P. at a purchase price of $0.76 per share. In this
section of this prospectus, we refer to C.E. Unterberg Towbin Capital Partners
I, L.P. as "Unterberg Partners I." The shares of Series A preferred stock held
by Unterberg Partners I converted into 506,262 shares of common stock upon
consummation of our initial public offering. Steven P. Novak, formerly a member
of our board of directors, is a Managing Director of C. E. Unterberg, Towbin, an
affiliate of the general partner of Unterberg Partners I.

In July 1996, we issued shares of Series B preferred stock in a private
placement to certain investors, including 925,926 shares to Vulcan Ventures
Inc., at a purchase price of $2.25 per share. In this section of this prospectus
we refer to Vulcan Ventures Incorporated as "Vulcan." Bert E. Kolde, one of our
directors, serves as a director, Vice President, Treasurer and Secretary of
Vulcan, as well as President of the Paul G. Allen Virtual Education Foundation
and the Paul G. Allen Forest Protection Foundation, and as a director of several
other companies controlled by Mr. Allen, who maintains a controlling interest of
Vulcan. Mr. Kolde disclaims beneficial ownership of the shares of common stock
issued to Vulcan, except for his proportional interest therein, if any. All of
the outstanding shares of Series B preferred stock converted on a two-for-one
basis into 4,074,076 shares of common stock upon the consummation of our initial
public offering.

In September and December 1997, we issued shares of Series C preferred
stock in private placements to certain investors at a purchase price of $1.70
per share. We issued Series C preferred stock to the following entities:

<TABLE>
<CAPTION>
NUMBER OF
PURCHASER SHARES
--------- ---------
<S> <C>
GRP................................................. 1,470,588
UT Capital Partners International, LDC.............. 59,914
UT Technology Partners, LDC......................... 185,184
Unterberg Harris Private Equity Partners, LP........ 201,961
Unterberg Harris Private Equity Partners, CV........ 43,137
Vulcan.............................................. 716,666
</TABLE>

In this section of this prospectus we refer to UT Capital Partners
International, LDC, UT Technology Partners, LDC, and Unterberg Harris Private
Equity Partners, CV collectively as the "Unterberg Affiliates." In this section
of this prospectus we collectively refer to Global Retail Partners Funding, Inc.
and its affiliates (each an affiliate of Donaldson, Lufkin & Jenrette Securities
Corporation) that are stockholders of Beyond.com as "GRP." Linda Fayne Levinson,
formerly a member of our board of directors, is a principal of Global Retail
Partners, L.P., an affiliate of Donaldson, Lufkin & Jenrette Securities
Corporation. All shares of Series C preferred stock converted into 3,000,000
shares of common stock upon consummation of our initial public offering.

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<PAGE> 85

In March and April 1998, we issued shares of Series D preferred stock in
private placements to certain investors at a purchase price of $2.60 per share.
We issued Series D preferred stock to the following entities:

<TABLE>
<CAPTION>
NUMBER OF
PURCHASER SHARES
--------- ---------
<S> <C>
GRP................................................. 458,106
Certain of the Unterberg Affiliates................. 229,052
Vulcan.............................................. 458,106
</TABLE>

These shares converted into an aggregate of 1,145,264 shares of common
stock upon the consummation of our initial public offering.

In November and December 1998, we issued $63.25 million aggregate principal
amount of our 7 1/4% Convertible Subordinated Notes due December 1, 2003 to
certain parties, including C.E. Unterberg Towbin and Donaldson, Lufkin &
Jenrette Securities Corporation, as two of the initial purchasers of such notes.

OPTION GRANTS AND AGREEMENTS WITH EXECUTIVE OFFICERS AND DIRECTORS

Under the terms of an oral agreement between us and William S. McKiernan,
the Chairman of our board of directors, we repaid, in two installments in
December 1997 and January 1998, an aggregate of $105,000 for unpaid salary that
we had accrued on Mr. McKiernan's behalf for services Mr. McKiernan provided to
us from the date of our inception through December 1997.

In July 1998, we loaned Brian J. Sroub, our Vice President, Marketing,
$300,000 to assist Mr. Sroub's relocation to the Silicon Valley area. This loan
is memorialized in a promissory noted issued by Mr. Sroub to us, which provides
for repayment on or before January 31, 1999, and bears interest at a rate of
6.5% compounded annually. As of December 31, 1998, Mr. Sroub had repaid $270,000
of the principal amount and a balance of $30,000 remained outstanding. In
addition, in April 1998, we granted Brian J. Sroub, our Vice President,
Marketing, an option to purchase 180,000 shares of common stock under the 1998
Stock Option Plan. These options have an exercise price of $5.44 per share and
are governed generally by the terms of the 1998 Stock Option Plan.

RELATIONSHIP WITH CYBERSOURCE CORPORATION

In December 1997, in order to focus on our core business of selling
software over the Internet, we spun-off our Internet commerce services business
to a new Delaware corporation, now called CyberSource Corporation. In connection
with the spin-off, CyberSource issued its capital stock to our stockholders such
that, following consummation of the spin-off, each of our stockholders held
shares of capital stock of CyberSource in equal number and ownership proportion
and with the same rights as such stockholder had as our stockholder. On the date
of the spin-off, our employees maintained their outstanding options to purchase
our common stock and were granted additional stock options in CyberSource based
on the extent to which the employees' original options were vested. Employees of
CyberSource immediately following the spin-off maintained their outstanding
vested stock options to purchase our common stock and were granted additional
stock options in CyberSource. The exercise prices of the original and additional
option grants were adjusted to reflect the allocation of the current fair market
per share price between

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<PAGE> 86

our and CyberSource's common stock, respectively, at the time of the spin-off.
Options held by the CyberSource employees that had not vested as of the date of
the spin-off were canceled.

We have entered into certain agreements with CyberSource for the purpose of
defining the ongoing relationship between the two companies. At the time of the
spin-off of CyberSource, all of our directors were also directors of CyberSource
and other members of our management team joined CyberSource as executive
officers. As a result, our agreements with CyberSource may not be deemed the
result of arm's length negotiations. We qualify the following description of
these agreements in their entirety by reference to the agreements, which have
been filed as exhibits hereto.

Under our Conveyance Agreement dated December 31, 1997, we transferred to
CyberSource:

- technology (including rights to all patent applications, trademarks and
other of our intellectual property rights) relating to the Internet
commerce services business;

- contracts and licenses with third parties relating to the Internet
commerce services business; and

- certain tangible assets in connection with credit card processing, fraud
screening, export control, territory management and electronic
fulfillment services.

In addition, our employees engaged in the Internet commerce services
business were transferred to CyberSource.

In connection with such transfer, we entered into an InterCompany
Cross-License Agreement with CyberSource in April 1998, which was amended in May
1998, pursuant to which we granted CyberSource a non-exclusive, worldwide,
perpetual, irrevocable, royalty-free license to (1) internally use our Cache
Manager technology, and (2) use and sublicense our customer database for certain
limited purposes in connection with fraud detection and verification. Under this
agreement, CyberSource granted us a worldwide, perpetual, irrevocable,
royalty-free license to internally use CyberSource's Sm@rtCert technology. We
also received the right to modify such technology for purposes of embedding it
into our Cache Manager technology (either alone or in combination with other
software) for subsequent sublicense to enterprises and governmental agencies.
The Cross License Agreement further provides that the parties shall have joint
ownership of certain utility tools made by the parties and allocates between us
and CyberSource the ownership of improvements, enhancements and modifications
made by the parties to the Sm@rtCert and Cache Manager Technology during 1999.
The Cross License Agreement also allocates between us and CyberSource the
ownership of certain inventions each party made on or before June 30, 1998. Each
party has agreed to indemnify the other against any third party claims regarding
such licensee's use of the licensed technology that results in a claim against
the licensor, except to the extent that such claim is based upon a claim that
the licensed technology infringes upon any third party's intellectual property
rights.

We also entered into an Internet Commerce Services Agreement with
CyberSource, pursuant to which CyberSource has agreed to provide certain
services including credit card processing, fraud screening, export control,
territory management and electronic fulfillment, in a "back office" capacity.
This Agreement expired on December 31, 1998, and automatically renewed for an
additional one-year term, unless otherwise terminated by either party. Pursuant
to the terms of this agreement, we have agreed to indemnify CyberSource for an
amount not

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<PAGE> 87

to exceed $100,000 against any claim based upon an allegation that the software
we distributed infringes upon any third party's intellectual property rights.
CyberSource has agreed to indemnify us for an amount not to exceed $100,000
against any claim based upon an allegation that CyberSource's services, or the
use of any software it provided in connection with its services, infringes any
third party's intellectual property rights.

In connection with the spin-off, we approved loans in amounts equal to the
adverse incremental income tax any stockholder incurred as a result of the
spin-off and the transactions contemplated thereby. In April 1998, we loaned
$270,000 to William S. McKiernan, the sole stockholder incurring such adverse
tax consequences, so as to offset Mr. McKiernan's incremental 1997 income tax.
The loan to Mr. McKiernan is secured by 129,808 shares of common stock held by
Mr. McKiernan and will be due and payable no later than December 17, 1999.
Interest accrues on the loan to Mr. McKiernan at the rate of six and two
hundredths percent (6.02%), compounded annually, and shall be payable only at
such time the principal is due and payable.

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<PAGE> 88

PRINCIPAL AND SELLING NOTEHOLDERS AND STOCKHOLDERS

7 1/4% CONVERTIBLE SUBORDINATED NOTES

We originally issued and sold our 7 1/4% Convertible Subordinated Notes to
the initial purchasers in a transaction exempt from the registration
requirements of the Securities Act. Subsequently, the initial purchasers of our
7 1/4% Convertible Subordinated Notes may have sold some or all of our 7 1/4%
Convertible Subordinated Notes to persons reasonably believed to be Qualified
Institutional Buyers as defined in Rule 144A under the Securities Act. The
present holders of our 7 1/4% Convertible Subordinated Notes may from time to
time offer and sell pursuant to this prospectus any or all of our 7 1/4%
Convertible Subordinated Notes and common stock into which our 7 1/4%
Convertible Subordinated Notes may convert.

Set forth below is the name of each selling holder of our 7 1/4%
Convertible Subordinated Notes, the nature of any position, office, or other
material relationship it has had with us or any of our predecessors or
affiliates within the past three years, the principal amount of our 7 1/4%
Convertible Subordinated Notes that it may offer and sell pursuant to this
prospectus and (if one percent or more) the percentage of our 7 1/4% Convertible
Subordinated Notes the holder owned as of April 14, 1999, the number of shares
that it may offer and sell pursuant to this prospectus and (if one percent or
more) the percentage of common stock represented by the common stock after
conversion of our 7 1/4% Convertible Subordinated Notes.

The selling holders identified in this Prospectus may have sold,
transferred or otherwise disposed of all or a portion of their Notes since the
date on which they provided the information regarding their Notes, and requested
registration thereof, in transactions exempt from the registration requirements
of the Securities Act. Accordingly, since certain other selling holders may have
purchased such Notes and also requested registration thereof, the aggregate
amount of securities listed under the caption "Selling Noteholders and
Stockholders" in the Prospectus may exceed the total amount of securities issued
or issuable by us. See "Plan of Distribution."

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<PAGE> 89

<TABLE>
<CAPTION>
SHARES ISSUABLE
UPON CONVERSION
OF THE NOTES PERCENTAGE OF
PRINCIPAL AMOUNT PERCENT THAT MAY BE COMMON STOCK
OF NOTES THAT OF NOTES SOLD PURSUANT TO AFTER CONVERSION
NAME MAY BE SOLD($) OUTSTANDING THIS PROSPECTUS(1) OF THE NOTES(2)
---- ---------------- ----------- -------------------- -----------------
<S> <C> <C> <C> <C>
Mercantile-Safe Deposit &
Trust Company............... 1,360,000 2.15% 74,155 *
766 Old Hammonds Ferry Road
Lihthicum, MD 21890
PHC Bank, National
Association................. 95,000 * 5,180 *
1055 Market Street
11 Penn Center, 15th Floor
Philadelphia, PA 19103
Morgan Stanley & Co.
Incorporated................ 1,972,000 3.1% 107,525 *
One Pierdepont Plaza, 7th
Floor
Brooklyn, NY 11201
State Street Bank and Trust
Company..................... 21,345,000 33.8% 1,163,850 4.2%
Global Corp. Action Dept.
JA85H
P.O. Box 1631
Boston, MA 02105
The Bank of New York.......... 2,430,000 3.8% 132,497 *
925 Patterson Plank Road
Secaucus, N.J. 07094
Boston Safe Deposit and Trust
Company..................... 1,520,000 2.4% 82,879 *
c/o Mellon Bank, N.A.
Three Mellon Bank Center,
Room 153-3015
Pittsburg, PA 15259
Credit Suisse First Boston
Corporation................. 6,110,000 9.7% 333,152 1.2%
c/o ADP Proxy Services
51 Mercedes Way
Eddehood, NY 11717
Donaldson, Lufkin & Jenrette
Securities Corporation...... 500,000 * 27,263 *
1 Pershing Plaza
Jersey City, NJ 07399
Investors Bank & Trust/M.F.
Custody..................... 285,000 * 15,540 *
200 Clarendon Street
15th Floor Hancock Tower
Boston, MA 02116
PaineWebber Incorporated...... 500,000 * 27,263 *
101 Hudson Street
Jersey City, NJ 07302
</TABLE>

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<PAGE> 90

<TABLE>
<CAPTION>
SHARES ISSUABLE
UPON CONVERSION
OF THE NOTES PERCENTAGE OF
PRINCIPAL AMOUNT PERCENT THAT MAY BE COMMON STOCK
OF NOTES THAT OF NOTES SOLD PURSUANT TO AFTER CONVERSION
NAME MAY BE SOLD($) OUTSTANDING THIS PROSPECTUS(1) OF THE NOTES(2)
---- ---------------- ----------- -------------------- -----------------
<S> <C> <C> <C> <C>
Prudential Securities
Incorporated................ 100,000 * 5,453 *
c/o ADP Proxy Services
51 Mercedes Way
Eddehood, NY 11717
Merrill Lynch Professional
Clearing Corp. ............. 958,000 1.5% 52,236 *
1000 Harbor Blvd.
Weehanken, NJ 07302
Chase Manhattan Bank.......... 1,000,000 1.6% 54,526 *
4 New York Plaza, 15th Floor
New York, NY 10084
SoundShore Opportunity Holding
Fund Ltd. .................. 2,520,000 4.0% 137,405 *
1281 East Main Street
Stamford, CT 06902
SoundShore Holdings Ltd. ..... 2,920,000 4.6% 159,215 *
1281 East Main Street
Stamford, CT 06902
Susquehana Capital Group...... 3,083,000 3.2% 110,851 *
401 City Line Ave.
Suite 220
Bala Cynwd, PA 19004
Highbridge Capital
Corporation................. 2,300,000 3.6% 125,409 *
P.O. Box Seven Mile Beach
Grand Cayman, Cayman
Islands, B.W.I.
Jackson Investment Fund
Ltd. ....................... 1,785,000 2.8% 97,328 *
c/o Citidel Limited
Partnership
225 West Washington St.
9th Floor
Chicago, IL 60606
Oppenheimer Funds, Inc. ...... 1,000,000 1.6% 54,526 *
Two World Trade Center
34th Floor
New York, NY 10048
</TABLE>

- -------------------------
* Less than one percent.

(1) Assumes conversion of the full amount of our 7 1/4% Convertible Subordinated
Notes held by the holder at the initial conversion price of $18.34 per
share.

(2) Based on shares outstanding as of December 31, 1998. Excludes at December
31, 1998: (i) 4,495,299 shares of common stock issuable upon exercise of
options outstanding under our 1995 and 1998 stock Option Plans at a weighted
average exercise price of $4.16 per share; (ii) 928,728 shares of common
stock issuable upon exercise of outstanding options granted outside of the
plans at a weighted average exercise price of $0.004 per share; (iii)
268,849 shares of common stock reserved for future issuance under the plans;
(iv) 358,423 shares of common stock reserved for issuance pursuant to the
exercise of a warrant issued by us to America Online at an

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<PAGE> 91

exercise price of $8.37 per share; (v) 3,448,745 shares of common stock
issuable upon conversion of our 7 1/4% Convertible Subordinated Notes; and
(vi) approximately 5,103,449 shares of our common stock, subject to
adjustment, to be issued in exchange for BuyDirect.com common stock and
preferred stock and approximately 296,551 shares of our common stock subject
to adjustment, to be reserved for issuance upon the exercise of options we
are assuming in connection with the proposed BuyDirect.com merger. See
"Description of Capital Stock" and Notes 3, 5, 8 and 12 of Notes to
Consolidated Financial Statements.

In connection with any transaction involving the sale of securities offered
hereby, broker-dealers or others may receive from holders thereof compensation
in the form of commissions, discounts or concessions in amounts to be negotiated
at the time.

Our 7 1/4% Convertible Subordinated Notes are a new issue of securities
with no established trading market. We have been advised by one of the initial
purchasers of our 7 1/4% Convertible Subordinated Notes, Credit Suisse First
Boston Corporation, that it intends to make a market in our 7 1/4% Convertible
Subordinated Notes. However, Credit Suisse First Boston Corporation is not
obligated to do so and may stop or interrupt doing so without notice at any
time.

Credit Suisse First Boston Corporation also may engage in certain
activities that stabilize, maintain or otherwise affect the price of our 7 1/4%
Convertible Subordinated Notes and the common stock. Credit Suisse First Boston
Corporation is not required to engage in these activities and may stop any of
these activities at any time. Its actions in this regard are subject to certain
limitations imposed by the Securities Act and the Exchange Act. Neither we nor
any initial purchaser of our 7 1/4% Convertible Subordinated Notes makes any
representation or prediction as to the direction or magnitude of any effect that
the transactions described above may have on the price of our 7 1/4% Convertible
Subordinated Notes or the common stock. In addition, neither we nor Credit
Suisse First Boston Corporation makes any representation that Credit Suisse
First Boston Corporation will engage in such transactions or that such
transactions, once commenced, will not be discontinued without notice.

We have agreed to indemnify Credit Suisse First Boston Corporation against
certain liabilities, including liabilities under the Securities Act. We have
also agreed to contribute to payments Credit Suisse First Boston Corporation may
be required to make in that regard.

Any or all of the sales or other transactions involving the securities
described above, whether effected by the security holders, any broker dealer or
others, may be made pursuant to this prospectus. In addition, any shares of
common stock that qualify for sale pursuant to Rule 144 under the Securities Act
may be sold under Rule 144 rather than under this prospectus.

In order to comply with the securities laws of certain states, if
applicable, the securities may be sold in these states only through registered
or licensed brokers or dealers. In addition, the holders may not sell these
securities unless the securities have been registered or qualified for sale or
an exemption from registration or qualification requirements is available and is
complied with under applicable state securities laws.

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<PAGE> 92

COMMON STOCK

The following table contains information concerning (i) those persons whom
we know own beneficially more than 5% of our outstanding common stock, (ii) our
directors, (iii) the Named Executive Officers, (iv) all of our directors and
officers as a group, and (v) the selling stockholders.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO SHARES BEING OWNED AFTER
THIS OFFERING(1) SOLD THIS OFFERING(1)
OFFICERS, DIRECTORS AND -------------------------- ------------ --------------------------
5% STOCKHOLDERS NUMBER PERCENT(2)(3) NUMBER PERCENT(2)(3)
- ----------------------- ---------- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C>
William S.
McKiernan(4).......... 8,996,154 32.8% -- 8,996,154 32.8%
Bert Kolde(5)........... 3,051,624 11.1 -- 3,051,624 11.1
Vulcan Ventures Inc..... 3,026,624 11.0 -- 3,026,624 11.0
110 110th Avenue NE,
Suite 550
Bellevue, WA 98004
Entities affiliated with
C.E. Unterberg,
Towbin(6)............. 2,225,510 8.1 -- 2,225,510 8.1
Swiss Bank Tower
10 East 50th Street,
22nd Floor
New York, New York
10002
Global Retail Partners,
L.P. and its
affiliates(7)......... 1,928,694 7.0 -- 1,928,694 7.0
2121 Avenue of the
Stars, Suite 1630
Los Angeles, CA 90067
John P. Pettitt(8)...... 1,250,000 4.4 -- 1,250,000 4.4
Mark L. Breier.......... -- * -- -- *
Douglas Carlston........ -- * -- -- *
John S. Chen............ -- * -- -- *
James R. Lussier........ -- * -- -- *
Ronald S. Posner........ -- * -- -- *
Michael J. Praisner..... -- * -- -- *
Brian J. Sroub.......... -- * -- -- *
All Directors and
Executive Officers as
a Group (13
persons)(9)........... 13,297,778 46.3 -- 13,297,778 46.3
SELLING STOCKHOLDERS
Pacific Asset
Partners.............. 134,400 * 8,582 125,818 *
222 Kerney St.,
Suite 204
San Francisco, CA
94108
America Online(10)...... 597,372 2.2% 597,372 -- *
22000 AOL Way,
Dulles, Virginia 20166
</TABLE>

- ---------------
* Represents beneficial ownership of less than 1% of our common stock.

(1) Number of shares beneficially owned is determined based on 27,423,763
shares outstanding as of December 31, 1998. Beneficial ownership is
determined in accordance with the rules of the Securities and Exchange
Commission. The number of shares beneficially owned by a person includes
shares of common stock subject to

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<PAGE> 93

options held by that person that are currently exercisable or exercisable
within 60 days of the date of this prospectus. Such shares issuable
pursuant to such options are deemed outstanding for computing the
percentage ownership of the person holding such options but not deemed
outstanding for the purposes of computing the percentage ownership of each
other person. Further, shares of our common stock issuable upon exercise of
America Online's warrant are deemed outstanding for computing the
percentage ownership of America Online but not deemed outstanding for
purposes of computing the percentage ownership of each other person. To our
knowledge, the persons named in this table have sole voting and investment
power with respect to all shares of common stock shown as owned by them,
subject to community property laws where applicable and except as indicated
in the other footnotes to this table. Unless otherwise indicated, the
address of each of the individuals named above is: c/o Beyond.com
Corporation, 1195 West Fremont Avenue, Sunnyvale, California 94087.

(2) Based on shares outstanding as of December 31, 1998. The as of December 31,
1998 outstanding shares number excludes: (i) 4,495,299 shares of common
stock issuable upon exercise of options outstanding under our 1995 and 1998
stock Option Plans at a weighted average exercise price of $4.16 per share;
(ii) 928,728 shares of common stock issuable upon exercise of outstanding
options granted outside of the plans at a weighted average exercise price
of $0.004 per share; (iii) 268,849 shares of common stock reserved for
future issuance under the plans; (iv) 358,423 shares of common stock
reserved for issuance pursuant to the exercise of a warrant issued by us to
America Online at an exercise price of $8.37 per share; (v) 3,448,745
shares of common stock issuable upon conversion of our 7 1/4% Convertible
Subordinated Notes; and (vi) approximately 5,103,449 shares of our common
stock, subject to adjustment, to be issued in exchange for BuyDirect.com
common stock and preferred stock and approximately 296,551 shares of our
common stock subject to adjustment, to be reserved for issuance upon the
exercise of options we are assuming in connection with the proposed
BuyDirect.com merger. See "Description of Capital Stock" and Notes 3, 5, 8
and 12 of Notes to Consolidated Financial Statements.

(3) Assumes that the issuance and sale by us of 3,000,000 shares of our common
stock to be offered in a proposed underwritten public offering, that we
expect to close in April 1999, has not been completed.

(4) Includes 8,938,464 shares held by William S. McKiernan and 57,690 shares
held by members of Mr. McKiernan's immediate family. Mr. McKiernan
disclaims beneficial ownership of the shares held by his immediate family.

(5) Represents 5,000 shares of common stock and options to purchase 30,000
shares of common stock, of which 20,000 are exercisable immediately, held
by Bert Kolde, one of our directors and a director, the Vice President,
Secretary and Treasurer of Vulcan Ventures, Inc., and 3,026,624 shares held
by Vulcan Ventures, Inc. Mr. Kolde disclaims beneficial ownership of the
shares owned by Vulcan Ventures, Inc., except for his proportional interest
therein, if any.

(6) Includes 59,914 shares of common stock held by UT Capital Partners
International, LDC (formerly UH Capital Partners International, LDC),
368,426 shares held by UT Technology Partners, LDC (formerly UH Technology
Partners, LDC); 1,506,262 shares held by C. E. Unterberg Towbin Capital
Partners I, L.P. (formerly Unterberg Harris Capital Partners I, L.P.);
239,708 shares held by Unterberg Harris

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<PAGE> 94

Private Equity Partners, L.P. and 51,200 shares held by Unterberg Harris
Private Equity Partners, CV (collectively, the "Unterberg Affiliates").

(7) Represents 1,928,694 shares of common stock held by Global Retail Partners,
Inc. and its affiliates (each an affiliate of Donaldson, Lufkin & Jenrette
Securities Corporation).

(8) Represents options to purchase 1,250,000 shares of common stock,
exercisable immediately.

(9) Includes options to purchase 20,000 shares of common stock that vest within
60 days of December 31, 1998, held by all directors and officers as a
group. Excludes shares held by Ms. Levinson, Messrs. Novak and Scudellari,
who resigned from our board of directors as of March 9, 1999, March 11,
1999 and March 11, 1999, respectively.

(10) Includes 358,423 shares of common stock issuable upon exercise of an
outstanding warrant.

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<PAGE> 95

DESCRIPTION OF CAPITAL STOCK

AUTHORIZED AND OUTSTANDING CAPITAL STOCK

We are authorized to issue up to 50,000,000 shares of common stock and
15,000,000 shares of preferred stock. We intend to seek stockholder approval at
our 1999 annual stockholders' meeting to amend our charter to increase the
number of shares of common stock we are authorized to issue from 50,000,000
shares to 70,000,000 shares. The following description of our capital stock is
not complete and is qualified in its entirety by our certificate of
incorporation and bylaws, both of which are included as exhibits to the
registration statement of which this prospectus forms a part, and by applicable
Delaware laws.

COMMON STOCK

As of December 31, 1998, there were 27,424,763 shares of common stock
outstanding held of record by approximately 107 stockholders. Subject to
preferences that may be applicable to any outstanding shares of preferred stock,
our board of directors may declare a dividend out of funds legally available and
the holders of common stock are entitled to receive ratably any such dividends.
In the event of our liquidation, dissolution or winding up, holders of our
common stock are entitled to share ratably in all of our assets remaining after
we pay our liabilities and liquidation preferences of any outstanding shares of
preferred stock. Holders of our common stock have no preemptive rights or other
subscription rights to convert their shares into any other securities. There are
no redemption or sinking fund provisions applicable to the common stock. All
outstanding shares of common stock and the shares of common stock to be issued
upon conversion of our 7 1/4% Convertible Subordinated Notes will be fully paid
and nonassessable.

PREFERRED STOCK

Our board of directors has the authority, without further action by our
stockholders, to issue up to 15,000,000 shares of preferred stock in one or more
series and to fix the privileges and rights of each series. These privileges and
rights may be greater than those of the common stock. Our board of directors,
without further stockholder approval, can issue preferred stock with voting,
conversion or other rights that could adversely affect the voting power and
other rights of the holders of common stock. This type of "blank check preferred
stock" makes it possible for us to issue preferred stock quickly with terms
calculated to delay or prevent a change in our control or make removal of our
management more difficult. Additionally, if we issue this preferred stock, then
the market price of common stock may decrease, and voting and other rights may
decrease. We currently have no plans to issue any of this preferred stock.

WARRANTS

Concurrent with the purchase of 238,949 shares of our common stock at a
price per share equal to the initial public offering price (less underwriters'
discounts) by America Online in June 1998, we issued to America Online a
non-forfeitable warrant for 358,423 shares of common stock at a per share
exercise price of $8.37, which vests in increments of 1/36 per month commencing
March 1, 1998.

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CONVERTIBLE NOTES

In November and December 1998, we issued $63.25 million aggregate principal
amount of 7 1/4% Convertible Subordinated Notes. Our 7 1/4% Convertible
Subordinated Notes:

- are general unsecured obligations;

- mature on December 1, 2003;

- bear interest at a rate of 7 1/4% per year commencing November 23, 1998;

- are convertible, at any time prior to the close of business on December
1, 2003, into shares of our common stock at the conversion price of
$18.34 per share, subject to certain adjustments;

- may be redeemed at our option on or after December 6, 2001, in whole or,
from time to time, in part, upon not less than 30 nor more than 60 days
notice by mail at the following prices (expressed as a percentage of
principal amount) during the periods set forth below:

<TABLE>
<S> <C>
December 6, 2001 through November 30, 2002................ 101.813%
December 1, 2002 through December 1, 2003................. 100.000%
</TABLE>

- rank behind all existing and future senior indebtedness of ours and any
of our subsidiaries in right of payment;

- were issued in denominations of $1,000 principal amount and integral
multiples thereof; and

- were issued only in fully registered book entry form, without coupons,
and are represented by a permanent global 7 1/4% Convertible Subordinated
Note.

Upon the occurrence of certain events which constitute a "change of
control" (as defined in the 7 1/4% Convertible Subordinated Note), we may, at
the election of a holder of our 7 1/4% Convertible Subordinated Notes, be
required to purchase all or any part of such holder's notes.

LaSalle National Bank has agreed to serve as the Trustee under the
Indenture. LaSalle National Bank will be permitted to deal with us and any of
our affiliates with the same rights as if it were not Trustee; provided,
however, that under the Trust Indenture Act, if LaSalle National Bank acquires
any conflicting interest (as defined in the Trust Indenture Act) and there
exists a default with respect to our 7 1/4% Convertible Subordinated Notes, it
must eliminate such conflict or resign.

We, together with LaSalle National Bank, may amend or supplement the terms
of our 7 1/4% Convertible Subordinated Notes with the written consent of the
holders of at least a majority in principal amount of the then outstanding
notes. However, we may not, without the consent of the holder of each 7 1/4%
Convertible Subordinated Note affected thereby, amend the notes to alter the
rights of such holders in a materially adverse manner.

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<PAGE> 97

The occurrence of any of the following events would constitute a default
(such events are referred to as "Events of Default") under our Indenture with
LaSalle National Bank and our 7 1/4% Convertible Subordinated Notes:

- our failure to pay any interest on our 7 1/4% Convertible Subordinated
Notes for 30 days after the same is due or our failure to pay any
principal of or premium, if any, on our 7 1/4% Convertible Subordinated
Notes when due;

- our failure to comply with any of our other agreements contained in our
7 1/4% Convertible Subordinated Notes or our Indenture with LaSalle
National Bank for 60 days after receipt of notice of such failure from
LaSalle National Bank or the holders of not less than 25% in aggregate
principal amount of our 7 1/4% Convertible Subordinated Notes then
outstanding;

- our default under any bond, debenture, note or other evidence of
indebtedness for money borrowed or that of any subsidiary of ours having
an aggregate outstanding principal amount in excess of $10 million, which
default shall have resulted in such indebtedness being accelerated,
without such indebtedness being discharged, or such acceleration having
been rescinded or annulled, within ten days from the date of such
acceleration; and

- certain events of bankruptcy, insolvency or reorganization with respect
to us or any subsidiary of ours.

If an event of default (other than an Event of Default resulting from
bankruptcy, insolvency or reorganization with respect to us or any subsidiary of
ours) occurs and is continuing, LaSalle National Bank may, by notice to us,
declare all unpaid principal of and accrued interest to the date of acceleration
on our 7 1/4% Convertible Subordinated Notes then outstanding to be due and
payable immediately. Also, in such event, the holders of at least 25% in
principal amount of our 7 1/4% Convertible Subordinated Notes then outstanding
may, by notice to us and LaSalle National Bank, declare all unpaid principal of
and accrued interest to the date of acceleration on our 7 1/4% Convertible
Subordinated Notes then outstanding to be due and payable immediately. If an
Event of Default resulting from certain events of bankruptcy, insolvency or
reorganization with respect to us or subsidiary of ours occurs, all unpaid
principal of and accrued interest on our 7 1/4% Convertible Subordinated Notes
then outstanding shall become and be immediately due and payable without any
declaration or other act on the part of LaSalle National Bank or any holder.

Our Indenture with LaSalle National Bank provides that the holders of a
majority in principal amount of our outstanding 7 1/4% Convertible Subordinated
Notes may on behalf of all holders waive any existing default or Event of
Default and its consequences except a default or Event of Default in the payment
of principal of or accrued interest on our 7 1/4% Convertible Subordinated Notes
or any default in respect of any provision of the Indenture that cannot be
modified or amended without the consent of the holder of each 7 1/4% Convertible
Subordinated Note affected.

LaSalle National Bank shall, within 90 days after the occurrence of any
default known to it, give to the holders of our 7 1/4% Convertible Subordinated
Notes notice of such default; provided that, except in the case of a default in
the payment of principal of or interest on any of our 7 1/4% Convertible
Subordinated Notes, LaSalle National Bank may withhold such notice if it in good
faith determines that the withholding of such notice is in the interests of such
holders.

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No holder of our 7 1/4% Convertible Subordinated Notes may pursue any
remedy under our Indenture with LaSalle National Bank or our 7 1/4% Convertible
Subordinated Notes against us (except actions for payment of overdue principal
or interest or for the conversion of our 7 1/4% Convertible Subordinated Notes),
unless:

- the holder gives to LaSalle National Bank written notice of a continuing
Event of Default;

- the holders of at least 25% in principal amount of our outstanding 7 1/4%
Convertible Subordinated Notes make a written request to LaSalle National
Bank to pursue the remedy;

- such holder or holders offer satisfactory indemnity to LaSalle National
Bank against any loss, liability or expense;

- LaSalle National Bank does not comply with the request within 60 days
after receipt of the request and the offer of indemnity; and

- LaSalle National Bank shall not have received during such 60 day period a
contrary direction from the holders of at least a majority in principal
amount of our outstanding 7 1/4% Convertible Subordinated Notes.

We must deliver an officers' certificate to LaSalle National Bank within 90
days after the end of each fiscal year as to the signers' knowledge of our
compliance with all conditions and covenants contained in our Indenture with
LaSalle National Bank, and stating whether or not the signers know of any
default or Event of Default. If any such signer knows of such a default or Event
of Default, the officers' certificate shall describe the default or Event of
Default and the efforts to remedy the same.

The holders of a majority in principal amount of all our outstanding 7 1/4%
Convertible Subordinated Notes will have the right to direct the time, method
and place of conducting any proceeding for exercising any remedy or power
available to LaSalle National Bank, provided that such direction does not
conflict with any law or the Indenture, is not unduly prejudicial to the rights
of another holder or LaSalle National Bank and does not involve liability for
LaSalle National Bank.

CERTAIN CHARTER AND BYLAW PROVISIONS

We are subject to the "business combination" statute of the Delaware
General Corporation Law. This statute prohibits a publicly-held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless the business
combination is approved in a prescribed manner, such as the approval of a
majority of certain members of the board of directors. The term "business
combination" includes mergers and stock and asset sales. An "interested
stockholder" is a person who, together with affiliates and associates, owns (or
within three years, did own) 15% or more of the corporation's voting stock. The
effect of this statute could, among other things, make it more difficult for a
third party to gain control of us, discourage bids for the common stock at a
premium or otherwise adversely affect the market price of the common stock.

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LIMITATION OF DIRECTORS' AND OFFICERS' LIABILITY; INDEMNIFICATION

Our certificate of incorporation includes provisions that limit the
personal liability of our officers and directors for monetary damages for breach
of their fiduciary duties as directors, except for liability that cannot be
eliminated under the Delaware General Corporation Law. Our certificate of
incorporation provides that, to the fullest extent provided by the Delaware
General Corporation Law, our directors will not be personally liable for
monetary damages for breach of their fiduciary duty as directors. The Delaware
General Corporation Law does not permit a provision in a corporation's
certificate of incorporation that would eliminate such liability (i) for any
breach of their duty of loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or that involve intentional misconduct or a
knowing violation of law, (iii) for any unlawful payment of a dividend or
unlawful stock repurchase or redemption, as provided in Section 174 of the
Delaware General Corporation Law, or (iv) for any transaction from which the
director derived an improper personal benefit.

While these provisions provide directors with protection from awards for
monetary damages for breaches of their duty of care, they do not eliminate such
duty. Accordingly, these provisions will have no effect on the availability of
equitable remedies such as an injunction or rescission based on a director's
breach of his or her duty of care. The provisions described above apply to an
officer of a corporation only if he or she is a director of such corporation and
is acting in his or her capacity as director, and do not apply to the officers
of the corporation who are not directors.

Our bylaws provide that, to the fullest extent permitted by the Delaware
General Corporation Law, we may indemnify our directors, officers and employees.
Our bylaws further provide that we may similarly indemnify our agents. In
addition, we anticipate that each director will enter into an indemnification
agreement pursuant to which we will indemnify such director to the fullest
extent permitted by the Delaware General Corporation Law. At present, there is
no pending litigation or proceeding involving any of our directors or officers
in which indemnification is required or permitted, and we are not aware of any
threatened litigation or proceeding that may result in a claim for such
indemnification.

REGISTRATION RIGHTS

As of December 31, 1998 the holders of an aggregate of approximately
20,266,652 shares of common stock, had rights with respect to the registration
of such shares under the Securities Act. These registration rights have been
waived in connection with our underwritten public offering of shares of common
stock we closed on April 14, 1999 in exchange for the inclusion of an aggregate
of 928,728 of certain holders' shares of common stock in the registration
statement relating to such proposed offering.

Further, in connection with the BuyDirect.com merger, the holders of our
common stock issued in connection with the merger have the right to require us
to file a registration statement prior to July 16, 1999, with respect to
approximately 4,943,767 shares of our common stock to be issued in exchange for
BuyDirect.com common and preferred stock. We have the right to delay the filing
of any such registration statement until 30 days after completion of this
offering as well as under certain other circumstances. In addition, we have
undertaken to register 15,504,631 shares of our currently outstanding common
stock, either by including such shares on the registration statement filed in
connection with the BuyDirect.com merger, or on another registration statement
to be filed, in any case, on or

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<PAGE> 100

about July 16, 1999. We are further obligated to file a registration statement
on Form S-8 within 15 days of the closing of the merger to register
approximately 281,988 shares of our common stock reserved for issuance upon the
exercise of options we are assuming in connection with the merger.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for our common stock is EquiServe. The
transfer agent's address is 150 Royall Street, Canton, Massachusetts 02021 and
telephone number is (781) 575-2000.

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DESCRIPTION OF NOTES

You can find the definitions of certain terms used in this description
under the subheading "Certain Definitions." In this Section, "Beyond.com" only
refers to us and not to any subsidiaries we may establish. We are registering
our 7 1/4% Convertible Subordinated Notes for resale under the registration
statement of which this prospectus forms a part. We issued our 7 1/4%
Convertible Subordinated Notes under our Indenture with LaSalle National Bank,
as trustee. The terms of our 7 1/4% Convertible Subordinated Notes include those
stated in our Indenture with LaSalle National Bank and those made part of our
Indenture with LaSalle National Bank by the Trust Indenture Act of 1939. Our
7 1/4% Convertible Subordinated Notes are subject to all such terms, and you
should review our Indenture with LaSalle National Bank for a statement of its
terms. We will give you a copy of our Indenture with LaSalle National Bank and
the form of certificate evidencing our 7 1/4% Convertible Subordinated Notes
upon request.

The following description is a summary of material provisions of our
Indenture with LaSalle National Bank and our 7 1/4% Convertible Subordinated
Notes. This summary is not complete and we qualify it in its entirety by
reference to the forms of our 7 1/4% Convertible Subordinated Notes and our
Indenture with LaSalle National Bank. We urge you to read our Indenture with
LaSalle National Bank and our 7 1/4% Convertible Subordinated Notes because
they, and not this description, define the rights of a holder of our 7 1/4%
Convertible Subordinated Notes. We have filed copies of our Indenture with
LaSalle National Bank and our 7 1/4% Convertible Subordinated Notes as exhibits
to the registration statement of which this prospectus is a part.

GENERAL

Our 7 1/4% Convertible Subordinated Notes:

- are general unsecured obligations of ours;

- mature on December 1, 2003;

- bear interest at a rate of 7 1/4% per year from November 23, 1998;

- rank behind all existing and future senior indebtedness (as defined
below) of Beyond.com and any of our subsidiaries in right of payment;

- will be issuable in denominations of $1,000 principal amount and integral
multiples thereof; and

- have been issued only in fully registered book entry form, without
coupons, and will be represented by one or more permanent Global Notes
(referred to in this Section as "Global Notes").

A holder of our 7 1/4% Convertible Subordinated Notes may serve notices and
demands to or upon us in respect of our 7 1/4% Convertible Subordinated Notes
and our Indenture with LaSalle National Bank at our office or agency maintained
for that purpose in Chicago, Illinois. In the event that Depository Trust
Company issues physical or "definitive" notes (referred to in this Section as
"Definitive Notes"), holders of our 7 1/4% Convertible Subordinated Notes may
surrender their 7 1/4% Convertible Subordinated Notes for payment, conversion,
registration of transfer or exchange at our office or agency maintained for that
purpose in Chicago, Illinois. In addition, in our Indenture with LaSalle
National Bank we have agreed to, if Definitive Notes are issued, maintain an
office or

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agency for the foregoing purposes in the Borough of Manhattan, The City of New
York. In our Indenture with LaSalle National Bank, we agreed to at all times
maintain a paying agent, Conversion Agent and Registrar for our 7 1/4%
Convertible Subordinated Notes in Chicago, Illinois, and, if Definitive Notes
are issued under the limited circumstances described below, in the Borough of
Manhattan, The City of New York. The Trustee will initially act as paying agent,
Conversion Agent (as defined below) and Registrar (as defined below) in Chicago,
Illinois.

INTEREST

$63,250,000 principal amount of our 7 1/4% Convertible Subordinated Notes
bear interest from November 23, 1998 at 7 1/4% per year. We will pay interest
semi-annually on December 1 and June 1 of each year, commencing June 1, 1999. We
will make interest payments to holders of record at the close of business on
November 15 or May 15 preceding each interest payment date. We will compute the
interest on the basis of a 360 day year composed of twelve 30 day months. We
will pay principal of and interest on our 7 1/4% Convertible Subordinated Notes
at the office of the paying agent. The Trustee will initially act as the paying
agent. At our option, we may pay interest either by check mailed to the address
of the person entitled thereto as it appears in the Note register or by transfer
to an account located in the United States such person maintains. However, we
will make any payments to The Depository Trust Company, New York, New York by
wire transfer of immediately available funds to the account of the Depository
Trust Company or its nominee. For purposes of this discussion, we refer to the
Depository Trust Company as "DTC" and LaSalle National Bank as "Trustee."

FORM, DENOMINATION AND REGISTRATION

Except under the limited circumstances described below, the Trustee will
issue our 7 1/4% Convertible Subordinated Notes only in fully registered book
entry form which will be represented by one or more permanent Global Notes
without coupons deposited with a custodian for and registered in the name of a
nominee of DTC. Our 7 1/4% Convertible Subordinated Notes will be issuable in
denominations of $1,000 principal amount and integral multiples thereof. The
records of DTC will reflect holdings of beneficial interests in any Global Note.
DTC will effectuate any transfer of a beneficial interest through its records,
or through records of DTC's direct and indirect participants. Beneficial
interests may not be exchanged for Definitive Notes except under the limited
circumstances described below. Except as described below, the record ownership
of Global Notes may be transferred, in whole or in part, only to DTC, another
nominee of DTC, or to a successor of DTC or its nominee.

We will not charge for any registration of transfer or exchange of our
7 1/4% Convertible Subordinated Notes but we may require you to pay an amount
sufficient to cover any applicable tax or other governmental charge.

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In case any of our 7 1/4% Convertible Subordinated Notes you own becomes
mutilated or defaced, we will execute and, on our request, the Trustee will
authenticate and deliver a new substantially identical 7 1/4% Convertible
Subordinated Note, dated the date of its authentication in exchange and
substitution for your canceled original 7 1/4% Convertible Subordinated Note. In
case any of our 7 1/4% Convertible Subordinated Notes you own becomes destroyed,
lost or stolen:

- you must give us and the Trustee such security or indemnity as we may
require to hold us both harmless; and

- you must furnish to us satisfactory evidence of the destruction, loss or
theft of such 7 1/4% Convertible Subordinated Note and your ownership
thereof.

When we issue any substituted 7 1/4% Convertible Subordinated Note, we may
require you to pay us an amount sufficient to cover applicable fees and
expenses.

BOOK ENTRY NOTES

If and when DTC issues Global Notes, DTC will credit, on its internal
system, the respective principal amounts of the individual beneficial interests
represented by such Global Notes to the accounts of persons who have accounts
with DTC. Only the following persons may own beneficial interests in a Global
Note:

- persons who have accounts with DTC;

- persons who hold beneficial interests through participants; or

- certain banks, brokers, dealers, trust companies and other parties that
clear their transactions through or maintain a custodial relationship
with a participant, either directly or indirectly, and have indirect
access to the DTC system.

Ownership of beneficial interests in the Global Notes will be shown on, and
the transfer of these ownership interests will be effected through, records DTC
maintains (with respect to interests of participants) and the records of
participants (with respect to interests of persons other than participants).

So long as DTC or its nominee is the registered owner or holder, as defined
on our Indenture with LaSalle National Bank, of a Global Note, DTC or the
nominee will be considered the sole owner or holder of our 7 1/4% Convertible
Subordinated Notes represented by the Global Note for all purposes under our
Indenture with LaSalle National Bank and our 7 1/4% Convertible Subordinated
Notes. With limited exceptions, if you own beneficial interests in the Global
Notes, then you:

- will not be entitled to have certificates registered in your name;

- will not receive or be entitled to receive physical delivery of
certificates in definitive form; and

- will not be considered the owner or holder of our 7 1/4% Convertible
Subordinated Notes represented by such Global Notes.

If you are the beneficial owner of an interest in a Global Note, you will
not be able to transfer that interest except in accordance with DTC's applicable
procedures (in addition to those under our Indenture with LaSalle National
Bank).

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DTC may discontinue providing its services as depository with respect to
our 7 1/4% Convertible Subordinated Notes at any time. As an owner of beneficial
interests in the Global Note, you will be entitled to receive physical delivery
of Definitive Notes in certificated form under the following limited
circumstances:

- DTC or any successor depository notifies us that it is unwilling or
unable to continue as depository for a Global Note;

- DTC ceases to be a "clearing agency" registered under the Exchange Act
and we do not appoint a successor depository within 90 days; or

- an Event of Default, as defined on our Indenture with LaSalle National
Bank, has occurred and is continuing

If DTC issues Definitive Notes in certificated form under such
circumstances, then the certificates shall be registered in the names DTC shall
direct. We expect that such instructions will be based upon directions received
by DTC from its participants.

We will make payments on Global Notes to DTC or its nominee as the
registered owner thereof. Neither we, the Trustee nor any paying agent will have
any responsibility or liability for:

- any aspect of the records relating to beneficial ownership interest in
the Global Notes;

- payments made on account of beneficial ownership interests in the Global
Notes; or

- maintaining, supervising or reviewing any records relating to such
beneficial ownership interests.

We expect that DTC or its nominee, upon receipt of any payment regarding a
Global Note held by it or its nominee, will credit participants' accounts with
payments in amounts proportionate to their respective beneficial interests in
the principal amount of such Global Note as shown on the records of DTC or its
nominee. We also expect that payments by participants to indirect participants
and by participants and indirect participants to owners of beneficial interests
in such Global Note will be governed by standing instructions and customary
practices, as is now the case with securities held for the accounts of customers
registered in the names of nominees. Such payments, however, will be the
responsibility of the applicable participants and indirect participants.

To convert your beneficial ownership of interests in Global Notes into
common stock, you should contact your broker or other participant or indirect
participant through whom you hold beneficial interests. Your broker, participant
or indirect participant, as the case may be, shall provide you with information
on procedures, including proper forms and cut off times, for submitting requests
for conversion.

DTC will effect transfers between participants in accordance with DTC rules
and will settle these transfers in same day funds. However, the laws of some
states may require that certain persons take physical delivery of securities in
definitive form. Such laws may impair your ability to transfer or pledge your
beneficial interests in the Global Notes.

DTC will take any action a holder of our 7 1/4% Convertible Subordinated
Notes is permitted to take (including the presentation of our 7 1/4% Convertible
Subordinated Notes for conversion) only at the direction of one or more
participants to whose account DTC has credited the interests in the Global
Notes. DTC will only take such action in respect

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of that portion of principal amount of our 7 1/4% Convertible Subordinated Notes
as to which the participant, or participants, has given direction.

DTC has advised us as follows: DTC is a limited purpose trust company
organized under the laws of the State of New York, a member of the Federal
Reserve System, a "clearing corporation" within the meaning of the Uniform
Commercial Code and a "clearing agency" registered pursuant to the provisions of
Section 17A of the Exchange Act. DTC was created to hold securities for its
participants and to facilitate the clearance and settlement of securities
transactions between participants through electronic book entry changes to
accounts of its participants, thereby eliminating the need for physical movement
of certificates. Participants in DTC include securities brokers and dealers,
banks, trust companies and clearing corporations and may include certain other
organizations such as the initial purchasers of our 7 1/4% Convertible
Subordinated Notes. Some participants (or their representatives), together with
other entities, own DTC. Other entities such as banks, brokers, dealers and
trust companies that clear through, or maintain a custodial relationship with, a
participant, either directly or indirectly have indirect access to the DTC
system.

Conveyance of notices and other communications by DTC to participants, by
participants to indirect participants and indirect participants to beneficial
owners will be governed by arrangements among them, subject to any statutory or
regulatory requirements that may be in effect from time to time. If we intend to
redeem our 7 1/4% Convertible Subordinated Notes, we will send redemption
notices with respect to Global Notes to DTC or its nominee. If we intend to
redeem less than all of our 7 1/4% Convertible Subordinated Notes evidenced by a
Global Note, DTC will reduce the amount of the interest of each participant in
such 7 1/4% Convertible Subordinated Notes in accordance with its procedures.

Although voting with respect to our 7 1/4% Convertible Subordinated Notes
is limited, in those cases that require a vote, neither DTC nor its nominee will
itself consent or vote with respect to Global Notes. Under its usual procedures,
DTC would mail an omnibus proxy to us as soon as possible after the record date.
The omnibus proxy assigns DTC or its nominee consenting or voting rights to
those participants to whose accounts our 7 1/4% Convertible Subordinated Notes
are credited on the record date listed in the omnibus proxy. We believe that the
arrangements among DTC, its participants and indirect participants, and
beneficial owners will enable the beneficial owners to exercise rights
equivalent in substance to the rights that can be directly exercised by a holder
of our 7 1/4% Convertible Subordinated Notes.

We obtained the information in this section concerning DTC and DTC's book
entry system from sources we believe to be reliable, but we take no
responsibility for the accuracy of this information.

CONVERSION RIGHTS

You may, at any time prior to the close of business on December 1, 2003,
convert the principal amount of any of our 7 1/4% Convertible Subordinated Notes
(or any portion thereof equal to $1,000 or any integral multiple thereof) into
shares of our common stock at the conversion price of $18.34 per share, subject
to adjustment as described below. However, your right to convert a 7 1/4%
Convertible Subordinated Note previously called for redemption will terminate at
the close of business on the business day immediately preceding the redemption
date for the 7 1/4% Convertible Subordinated Notes. Your right to

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convert a 7 1/4% Convertible Subordinated Note also will terminate on any
earlier date on which you present the 7 1/4% Convertible Subordinated Note for
redemption (unless we have defaulted in making the redemption payment when due,
in which case your conversion right shall terminate at the close of business on
the date the default is cured and the 7 1/4% Convertible Subordinated Note is
redeemed).

If you exercise your option to require us to purchase any of our 7 1/4%
Convertible Subordinated Notes and you deliver a "change in control purchase
notice," you may convert your 7 1/4% Convertible Subordinated Note only if you
withdraw your notice by a "written notice of withdrawal" delivered to a paying
agent prior to the close of business on the business day prior to the change in
control purchase date in accordance with our Indenture with LaSalle National
Bank.

We will make no payment or adjustment for dividends or distributions with
respect to shares of our common stock issued upon conversion of a 7 1/4%
Convertible Subordinated Note. Except as otherwise provided in our Indenture
with LaSalle National Bank, we will not pay interest accrued on converted 7 1/4%
Convertible Subordinated Notes. However, we will pay interest accrued to but
excluding December 6, 2001, on any of our 7 1/4% Convertible Subordinated Notes
called for redemption and converted on or before the close of business on the
business day immediately preceding December 6, 2001. If you surrender any of our
7 1/4% Convertible Subordinated Notes for conversion between the record date for
the payment of an installment of interest and the related interest payment date,
then notwithstanding such conversion, we will pay the person in whose name such
7 1/4 Convertible Subordinated Note was registered at the close of business on
the record date. In such event, unless your Note has been called for redemption,
when you surrender your 7 1/4 Convertible Subordinated Note for conversion you
must also pay us an amount equal to the interest payable on such interest
payment date on the principal amount of your converted 7 1/4% Convertible
Subordinated Note. We will not issue fractional shares upon conversion, but we
will pay cash for any fractional interest based upon the closing price (as
defined in our Indenture with LaSalle National Bank) of the common stock on the
trading day immediately prior to the date of conversion.

We will adjust the conversion price our 7 1/4% Convertible Subordinated
Notes if certain events occur. These events include:

- our issuance of shares of common stock as a dividend or distribution on
our common stock;

- our subdivision or combination of our outstanding common stock;

- our issuance to all or substantially all holders of our common stock of
rights or warrants entitling them to subscribe for or purchase our common
stock at a price per share less than the then current market price per
share (as defined in our Indenture with LaSalle National Bank);

- our distribution to all or substantially all of our common stockholders
of shares of our capital stock (other than common stock), evidence of
indebtedness, or other non cash assets;

- our distribution to all or substantially all of our common stockholders
of rights or warrants to subscribe for our securities (other than those
rights and warrants referred to above and other limited rights);

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- our distribution to all or substantially all of our common stockholders
of cash in an aggregate amount that exceeds an amount equal to 12.5% of
our market capitalization (determined as provided in our Indenture with
LaSalle National Bank); and

- our purchase of common stock pursuant to a tender offer made by us, or
any of our Subsidiaries, to the extent that the tender offer involves
aggregate consideration that exceeds an amount equal to 12.5% of our
market capitalization (determined as provided in our Indenture with
LaSalle National Bank) on the expiration date of the tender offer.

Notwithstanding the foregoing, we will not adjust the conversion price for a
transaction of the nature described above if all holders of our 7 1/4%
Convertible Subordinated Notes are entitled to participate in the transaction on
a basis and with notice that the Board of Directors determines to be fair and
appropriate in light of the basis and notice on which common stockholders
participate in the transaction.

We need not adjust the conversion price for any issuance of common stock
pursuant to a plan for reinvestment of dividends or interest or for a change in
the par value of common stock. To the extent that our 7 1/4% Convertible
Subordinated Notes become convertible into the right to receive cash, we need
not adjust the conversion price thereafter as to the cash, and interest will not
accrue on the cash. From time to time we may reduce the conversion price by any
amount for any period of time if the period is at least 20 days or such longer
period as may be required by law and if the reduction is irrevocable during the
period.

However, in no event may we reduce the conversion price to less than the
par value of a share of common stock. We need not adjust the conversion price
until the cumulative adjustments require an increase or decrease of at least 1%
in the conversion price as last adjusted.

We or our successor, purchaser or transferee corporation must execute a
supplemental indenture if we experience any of the following:

- a reclassification or change of shares of common stock (other than a
change in par value, or as a result of a subdivision or combination, or
any other change for which a conversion price adjustment is provided in
our Indenture with LaSalle National Bank);

- a consolidation or merger to which we are a party other than a merger in
which we are the continuing corporation and which does not result in any
reclassification of, or change (other than a change in name or par value,
or as a result of a subdivision or combination) in, outstanding shares of
common stock; or

- a sale or conveyance of all or substantially all of our property and
assets to any person.

This supplemental indenture must provide that the holders of our 7 1/4%
Convertible Subordinated Notes shall have the right to convert such 7 1/4
Convertible Subordinated Note into the kind and amount of shares of stock and
other securities and property (including cash) receivable upon such transaction
by a holder of the number of shares of common stock deliverable upon conversion
of such 7 1/4 Convertible Subordinated Note immediately prior to such
transaction. This provision is subject to any applicable right of the holders
upon a Change in Control (as defined below). Such supplemental indenture

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shall provide for adjustments to the conversion price which shall be as nearly
equivalent as may be practicable to the adjustments of the conversion price
provided by our Indenture with LaSalle National Bank.

The term "all or substantially all" as used in the previous two paragraphs
will likely be interpreted under applicable state law and will be dependent upon
particular facts and circumstances, and there may be a degree of uncertainty in
interpreting such phrase. As a consequence, in the event the holders of our
7 1/4% Convertible Subordinated Notes were to assert that an adjustment to the
conversion price, or the conversion privilege of our 7 1/4% Convertible
Subordinated Notes or the execution of a supplemental indenture was required
under our Indenture with LaSalle National Bank, and we were to contest such
assertion, then we cannot assure you as to how a court would interpret the
phrase. This uncertainty may prevent the Trustee or the holders of our 7 1/4%
Convertible Subordinated Notes from successfully asserting that the conversion
price or the conversion privilege is subject to adjustment, or our 7 1/4%
Convertible Subordinated Notes are convertible into other shares of stock and
other securities and property that the holders would have owned immediately
after the transaction if the holders had converted our 7 1/4% Convertible
Subordinated Notes immediately before the effective date of the transaction.

If we issue certain rights, warrant, evidences of indebtedness, securities
or other property (including cash) to holders of the common stock and we make a
corresponding adjustment to the conversion price, then you may face a
constructive distribution taxable as a dividend.

OPTIONAL REDEMPTION

We may redeem our 7 1/4% Convertible Subordinated Notes at our option on or
after December 6, 2001, in whole or, from time to time, in part, upon not less
than 30 nor more than 60 days' notice by mail.

PERIOD REDEMPTION PRICE

The redemption prices (expressed as a percentage of principal amount) are
as follows for our 7 1/4% Convertible Subordinated Notes we redeem during the
periods set forth below:

<TABLE>
<S> <C>
December 6, 2001 through November 30, 2002............ 101.813%
December 1, 2002 and thereafter....................... 100.000%
</TABLE>

In each case these redemption amounts include accrued interest up to but not
including the redemption date. However, we will pay installments of interest
which are due and payable on interest payment dates falling on or before the
relevant redemption date to holders in whose names such 7 1/4% Convertible
Subordinated Notes are registered at the close of business on the relevant
record dates.

If we redeem less than all of our outstanding 7 1/4% Convertible
Subordinated Notes, the Trustee shall select our 7 1/4% Convertible Subordinated
Notes to be redeemed in principal amounts of $1,000 or multiples thereof by lot,
pro rata or by another method the Trustee considers fair and appropriate. If a
portion of a holder's 7 1/4% Convertible Subordinated Notes is selected for
partial redemption and such holder converts a portion of our 7 1/4% Convertible
Subordinated Notes, the converted portion shall be deemed to be of the portion
selected for redemption.

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All of our 7 1/4% Convertible Subordinated Notes which we or any of our
Subsidiaries redeem or otherwise acquire prior to maturity will be immediately
canceled and may not be held, reissued or resold.

PURCHASE OF NOTES AT THE OPTION OF HOLDERS UPON A CHANGE IN CONTROL

In the event of a Change in Control, each holder will have the option,
subject to the terms and conditions of our Indenture with LaSalle National Bank,
to require us to purchase all or any part of such holder's 7 1/4% Convertible
Subordinated Notes. However, the principal amount of our 7 1/4% Convertible
Subordinated Notes we repurchase must be $1,000 or an integral multiple thereof.
We must then purchase the holder's 7 1/4% Convertible Subordinated Notes as of
the date that is 30 business days after the occurrence of such Change in Control
(referred to in this Section as the "Change in Control Purchase Date"). The
purchase price we pay must be equal to 100% of the principal amount thereof,
plus accrued interest up to but not including the Change in Control Purchase
Date.

Within 10 business days after the occurrence of a Change in Control, we
shall mail to the Trustee and to each holder and cause to be published a written
notice of the Change in Control, setting forth, among other things, the terms
and conditions, and the procedures required for exercise of, such holder's right
to require the purchase of such holder's 7 1/4% Convertible Subordinated Notes.

To exercise the purchase right upon a Change in Control, a holder must
deliver written notice of such exercise to a paying agent at any time prior to
the close of business on the business day prior to the Change in Control
Purchase Date, specifying our 7 1/4% Convertible Subordinated Notes with respect
to which the purchase right is being exercised. The holder may withdraw such
notice of exercise by a written notice of withdrawal delivered to a paying agent
at any time prior to the close of business on the business day prior to the
Change in Control Purchase Date.

A Change in Control shall be deemed to have occurred if any of the
following occurs after the initial sale of our 7 1/4% Convertible Subordinated
Notes:

- any "person" or "group" is or becomes the "beneficial owner" (as such
terms are defined below), directly or indirectly, of shares of our Voting
Stock representing 50% or more of the total voting power of all
outstanding classes of our Voting Stock (as defined below) or has the
power, directly or indirectly, to elect a majority of the members of the
Board of Directors, or

- we consolidate with, or merge with or into, another person or we sell,
assign, convey, transfer, lease or otherwise dispose of all or
substantially all of our assets, or any person consolidates with, or
merges with or into us, in any such event other than pursuant to a
transaction in which the persons that "beneficially owned" directly or
indirectly, shares of our Voting Stock immediately prior to such
transaction "beneficially own," directly or indirectly, shares of our
Voting Stock representing at least a majority of the total voting power
of all outstanding classes of Voting Stock of the surviving or transferee
person; or

- we liquidate or dissolve.

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For purposes of this definition:

(1) "person" and "group" have the meanings given such terms under Sections
13(d) and 14(d) of the Exchange Act, and the term "group" includes any
group acting for the purpose of acquiring, holding or disposing of
securities within the meaning of Rule 13d 5-(b)(I) under the Exchange
Act;

(2) a "beneficial owner" shall be determined in accordance with Rule 13d-3
under the Exchange Act, except that the number of shares of our Voting
Stock shall be deemed to include, in addition to all outstanding shares
of our Voting Stock and unissued shares deemed to be held by the
"person" or "group" (as such terms are defined above) or other person
with respect to which the Change in Control determination is being
made, all unissued shares deemed to be held by all other persons;

(3) the term "beneficially owned" shall have a meaning correlative to that
of beneficial owner; and

(4) "unissued shares" means shares of Voting Stock not outstanding that are
subject to options, warrants, rights to purchase or conversion
privileges exercisable within 60 days of the date of determination of a
Change in Control.

Notwithstanding the foregoing, we will deem a Change in Control not to have
occurred if:

- the closing price (as defined in our Indenture with LaSalle National
Bank) of our common stock for any five trading days during the ten
trading days immediately preceding the Change in Control is at least
equal to 105% of the conversion price in effect immediately preceding the
Change in Control;

- at least 90% of the consideration (excluding cash payments for fractional
shares or cash payments for appraisal rights) in the transaction or
transactions constituting the Change in Control consists of shares of
common stock or securities convertible into shares of common stock that
are, or upon issuance will be, traded on a national securities exchange
in the United States of America or through the Nasdaq National Market.

We believe the term "all or substantially all" as used in the definition of
Change in Control will likely be interpreted under applicable state law and its
meaning will be dependent upon particular facts and circumstances. We believe
there may be a degree of uncertainty in interpreting such phrase. As a
consequence, in the event that holders of our 7 1/4% Convertible Subordinated
Notes elect to exercise their rights under our Indenture with LaSalle National
Bank following the occurrence of a transaction which they believe constitutes a
transfer of "all or substantially all of the assets" within the meaning above
and we elect to contest such attempted exercise, there can be no assurance as to
how a court would interpret the phrase. This uncertainty may prevent the Trustee
or the holders of our 7 1/4% Convertible Subordinated Notes from successfully
asserting that a Change in Control has occurred.

We will comply with the provisions of Rule 13e-4 and Rule 14e-1, if
applicable, under the Exchange Act, will file Schedule 13E-4 or any successor or
similar schedule if required thereunder, and will otherwise comply with all
federal and state securities laws in connection with any offer we make to
purchase Notes at the option of the holders upon a Change in Control.

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The Change in Control purchase feature of our 7 1/4% Convertible
Subordinated Notes may in certain circumstances make more difficult or
discourage a takeover of Beyond.com and the removal of incumbent management. We
are not aware of any specific effort to accumulate shares of common stock or to
obtain control of Beyond.com by means of a merger, tender offer, solicitation or
otherwise, nor is the Change in Control purchase feature part of a plan by
management to adopt a series of anti-takeover provisions. Instead, the Change in
Control purchase feature is a result of negotiations between us and the initial
purchasers of our 7 1/4% Convertible Subordinated Notes.

Subject to the limitation on mergers and consolidations discussed below, we
could, in the future, enter into transactions, including recapitalizations, that
would not constitute a Change in Control under our Indenture with LaSalle
National Bank, but that would increase the amount of indebtedness (including
Senior Indebtedness) outstanding or otherwise adversely affect the holders of
our 7 1/4% Convertible Subordinated Notes. The Indenture does not restrict our
ability, or that of our subsidiaries, to create additional indebtedness
(including Senior Indebtedness). If we take on significant amounts of additional
indebtedness, it could have an adverse effect on our ability to repay the
principal and interest on our indebtedness, including our 7 1/4% Convertible
Subordinated Notes.

If a Change in Control were to occur, we cannot assure that we would have
sufficient funds to pay the Change in Control Purchase Price for the tendered
7 1/4% Convertible Subordinated Notes. In addition, other indebtedness which we
may incur in the future may have similar change of control provisions permitting
the holders thereof to accelerate or require us to repurchase such indebtedness
upon the occurrence of events similar to a Change in Control. If we fail to
repurchase our 7 1/4% Convertible Subordinated Notes when required following a
Change in Control, it will result in an Event of Default under our Indenture
with LaSalle National Bank whether or not such repurchase is permitted by the
subordination provisions thereof.

Other than granting holders the option to require us to purchase all or
part of their 7 1/4% Convertible Subordinated Notes upon the occurrence of a
Change in Control as described above, our Indenture with LaSalle National Bank
does not contain any covenants or other provisions designed to afford holders
protection in the event of takeovers, recapitalizations, highly leveraged
transactions or similar restructurings we may undertake.

In the event that DTC issues Definitive Notes under the limited
circumstances herein, holders electing to exercise the option to have their
Notes repurchased following a Change in Control must surrender such Definitive
Notes, together with such additional documents as are required by our Indenture
with LaSalle National Bank, at the office of a paying agent. Where not all of
our 7 1/4% Convertible Subordinated Notes represented by a Definitive Note are
submitted for purchase, a new Definitive Note in respect of the principal amount
of our 7 1/4% Convertible Subordinated Notes that have not been so submitted for
purchase will be issued to the holder.

SUBORDINATION OF NOTES

As set forth in our Indenture with LaSalle National Bank, our 7 1/4%
Convertible Subordinated Notes are subordinated in right of payment to the prior
payment in full of all Senior Indebtedness of Beyond.com, whether outstanding on
the date of our Indenture with LaSalle National Bank or thereafter created,
assumed or guaranteed. If we pay or distribute any assets in any dissolution,
winding up, liquidation or reorganization (whether

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in insolvency or bankruptcy proceedings or otherwise), we must repay all Senior
Indebtedness in full before we make any payment in respect of our 7 1/4%
Convertible Subordinated Notes. In the event we default in payment (whether at
maturity or at a date fixed for prepayment or by acceleration or otherwise) of
principal, premium, if any, or interest on Senior Indebtedness, we cannot make
any payment in respect of our 7 1/4% Convertible Subordinated Notes until we
have paid in full the Senior Indebtedness then due or the cure, waiver or
cessation of the default. Unless and until such default has been cured, waived
or has ceased to exist, we may not make any payment on our 7 1/4% Convertible
Subordinated Notes if an event of default occurs with respect to any Senior
Indebtedness (other than a default in the payment of principal, premium, if any,
or interest on Senior Indebtedness) which permits a holder thereof to accelerate
its maturity, and the holder delivers written notice of such default to the
Trustee and to us. However, nothing in the sentence will prevent us from making
previous payment (which is not otherwise prohibited) on our 7 1/4% Convertible
Subordinated Notes for a period of more than 180 days after the date such
written notice of default is given unless the maturity of such Senior
Indebtedness has been accelerated. If the holder accelerates the Senior
Indebtedness, we cannot make any payment on our 7 1/4% Convertible Subordinated
Notes until such acceleration has been waived, rescinded or annulled or such
Senior Indebtedness has been paid in full. Notwithstanding the provisions
described in the preceding sentences, not more than one written notice of
default shall be given with respect to the same issue of Senior Indebtedness
within a period of 360 consecutive days, and no event of default which existed
on the date of any written notice of default and was known to the holders of any
issue of Senior Indebtedness shall be made the basis for the giving of a
subsequent written notice of default by the holders of such issue of Senior
Indebtedness.

We may not make any payment or distribution of assets of any kind to the
Trustee, any paying agent or any holder of our 7 1/4% Convertible Subordinated
Notes in violation of any of the subordination provisions of our Indenture with
LaSalle National Bank, whether in cash, property or securities, in respect of
our 7 1/4% Convertible Subordinated Notes before we have repaid all Senior
Indebtedness in full. If we do so, then such payment or distribution will be
held by the recipient in trust for the benefit of holders of Senior Indebtedness
or their representatives to the extent necessary to make payment in full of all
Senior Indebtedness remaining unpaid, after giving effect to any concurrent
payment or distribution to or for the holders of Senior Indebtedness.

Because of the subordination provisions described above, in the event of
our bankruptcy, dissolution or reorganization, holders of Senior Indebtedness
may receive more ratably, and holders of our 7 1/4% Convertible Subordinated
Notes may receive less ratably, than our other creditors. Such subordination
will not prevent the occurrence of any Event of Default under our Indenture with
LaSalle National Bank.

The Indenture does not limit the amount of indebtedness, including Senior
Indebtedness, that Beyond.com, or any subsidiary, can create, incur, assume or
guarantee. As of December 31, 1998, we had no Senior Indebtedness outstanding.

CERTAIN DEFINITIONS

For purposes of this description, the following terms have the meanings set
forth below.

"Capitalized Lease Obligation" means any obligation under a lease of (or
other agreement conveying the right to use) any property (whether real, personal
or mixed) that

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is required to be classified and accounted for as a capital lease obligation
under GAAP, and the amount of such obligation at any date shall be the
capitalized amount thereof at such date, determined in accordance with GAAP.

"Conversion Agent" means an office or agency that we maintain where
securities may be presented for conversion.

"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect us
against fluctuations in currency values.

"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and the statements and pronouncements
of the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States of America, which are applicable from time to
time and are consistently applied.

"Indebtedness" means, with respect to any person, without duplication, (a)
all liabilities of such person for borrowed money or for the deferred purchase
price of property or services, excluding any trade accounts payable and other
current liabilities incurred in the ordinary course of business; (b) all
obligations of such person evidenced by bonds, notes, debentures, or other
similar instruments; (c) all Capitalized Lease Obligations of such person; (d)
all guarantees of Indebtedness referred to in this definition by such person;
(e) all obligations of such person under or in respect of Currency Agreements
and Interest Rate Protection Obligations of such person; and (f) any amendment,
supplement, modification, deferral, renewal, extension or refunding of any
liability of the types referred to in clauses (a) through (e) above.

"Interest Rate Protection Agreement" means any arrangement between us and
any other person whereby, directly or indirectly, such person is entitled to
receive from time to time periodic payments calculated by applying either a
floating or a fixed rate of interest on a stated notional amount in exchange for
periodic payments made by such person calculated by applying a fixed or a
floating rate of interest on the same notional amount and shall include, without
limitation, interest rate swaps, caps, floors, collars and similar agreements.

"Interest Rate Protection Obligations" means the obligations we have
pursuant to an Interest Rate Protection Agreement.

"paying agent" means an office or agency that we maintain where securities
may be presented for payment.

"Registrar" means an office or agency that we maintain where securities may
be presented for registration of transfer or for exchange.

"Senior Indebtedness" means the principal of and premium, if any, interest
and other amounts payable on or in respect of any of our Indebtedness, whether
outstanding on the date of our Indenture with LaSalle National Bank or
thereafter created, incurred or assumed, unless, in the case of any particular
Indebtedness, the instrument creating or evidencing the same or pursuant to
which the same is outstanding expressly provides that such Indebtedness shall
not be senior in right of payment to, or shall be junior in right of payment to,
or shall be pari passu in right of payment with, our 7 1/4% Convertible
Subordinated Notes. Notwithstanding the foregoing, "Senior Indebtedness" shall
not

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include (a) Indebtedness evidenced by our 7 1/4% Convertible Subordinated Notes,
(b) Indebtedness which, when incurred and without respect to any election under
Section 1111(b) of Title 11, United States Code (or any successor provision
thereto), is without recourse to us, (c) trade accounts payable or other current
liabilities incurred in the ordinary course of business, (d) Indebtedness of or
amounts we owe for compensation to employees or for services rendered to us, (e)
any liability for federal, state, local or other taxes owed or owing by us, (f)
our Indebtedness to a Subsidiary of ours and (g) amounts owing under leases
(other than Capitalized Lease Obligations).

"Significant Subsidiary" means any Subsidiary of Beyond.com which is a
"significant subsidiary" within the meaning of Rule 1-02 under Regulation SX
promulgated by the Commission, as such Rule is in effect on the date of our
Indenture with LaSalle National Bank, but substituting 50% for 10% in each
instance that 10% appears in such Rule.

"Subsidiary" means, with respect to any person, a corporation a majority of
whose outstanding Voting Stock is at the time of determination thereof, directly
or indirectly, owned by such person, by one or more Subsidiaries of such person
or by such person and one or more of its Subsidiaries, and any other person
(other than a corporation), including, without limitation, a joint venture, in
which such person, one or more Subsidiaries of such person or such person and
one or more of its Subsidiaries, directly or indirectly, at the date of
determination thereof, owns at least a majority of the ownership interests
entitled to vote in the election of directors, managers or trustees thereof (or
other persons performing similar functions). For purposes of this definition,
any directors' qualifying shares or investments by foreign nationals mandated by
applicable law shall be disregarded in determining the ownership of a
Subsidiary.

"Voting Stock" means any class or classes of Capital Stock pursuant to
which the holders thereof under ordinary circumstances have the power to vote in
the election of the board of directors, managers or trustees of any person (or
other persons performing similar functions), irrespective of whether or not, at
the time, Capital Stock of any other class or classes shall have, or might have,
voting power by reason of the happening of any contingency.

EVENTS OF DEFAULT; NOTICE AND WAIVER

If an Event of Default (other than an Event of Default resulting from
bankruptcy, insolvency or reorganization with respect to Beyond.com or any
Significant Subsidiary) occurs and is continuing, the Trustee may, by notice to
us, declare all unpaid principal of and accrued interest to the date of
acceleration on our 7 1/4% Convertible Subordinated Notes then outstanding to be
due and payable immediately. Also, in such event, the holders of at least 25% in
principal amount of our 7 1/4% Convertible Subordinated Notes then outstanding
may, by notice to us and the Trustee, declare all unpaid principal of and
accrued interest to the date of acceleration on our 7 1/4% Convertible
Subordinated Notes then outstanding to be due and payable immediately. If an
Event of Default resulting from certain events of bankruptcy, insolvency or
reorganization with respect to us or any Significant Subsidiary occurs, all
unpaid principal of and accrued interest on our 7 1/4% Convertible Subordinated
Notes then outstanding shall become and be immediately due and payable without
any declaration or other act on the part of the Trustee or any holder.

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default or Event of Default in the payment of principal of or accrued interest
on our 7 1/4% Convertible Subordinated Notes or any default in respect of any
provision of our Indenture with LaSalle National Bank that cannot be modified or
amended without the consent of the holder of each Note affected.

The following will be "Events of Default" under our Indenture with LaSalle
National Bank:

- our failure to comply with any of our other agreements contained in our
7 1/4% Convertible Subordinated Notes or our Indenture with LaSalle
National Bank for 60 days after receipt of notice of such failure from
the Trustee or the holders of not less than 25% in aggregate principal
amount of our 7 1/4% Convertible Subordinated Notes then outstanding;

- our default under any bond, debenture, note or other evidence of
indebtedness for money borrowed or that of any Significant Subsidiary
having an aggregate outstanding principal amount in excess of $10
million, which default shall have resulted in such indebtedness being
accelerated, without such indebtedness being discharged, or such
acceleration having been rescinded or annulled, within ten days from the
date of such acceleration; and

- certain events of bankruptcy, insolvency or reorganization with respect
to us or any Significant Subsidiary.

The Trustee shall, within 90 days after the occurrence of any default known
to it, give to the holders notice of such default; provided that, except in the
case of a default in the payment of principal of or interest on any of our
7 1/4% Convertible Subordinated Notes, the Trustee may withhold such notice if
it in good faith determines that the withholding of such notice is in the
interests of the holders.

No holder may pursue any remedy under our Indenture with LaSalle National
Bank or our 7 1/4% Convertible Subordinated Notes against us (except actions for
payment of overdue principal or interest or for the conversion of our 7 1/4%
Convertible Subordinated Notes), unless:

- the holder gives to the Trustee written notice of a continuing Event of
Default;

- the holders of at least 25% in principal amount of the outstanding Notes
make a written request to the Trustee to pursue the remedy;

- such holder or holders offer satisfactory indemnity to the Trustee
against any loss, liability or expense;

- the Trustee does not comply with the request within 60 days after receipt
of the request and the offer of indemnity; and

- the Trustee shall not have received during such 60 day period a contrary
direction from the holders of at least a majority in principal amount of
the outstanding Notes.

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We must deliver an Officers' Certificate to the Trustee within 90 days
after the end of each fiscal year as to the signers' knowledge of our compliance
with all conditions and covenants contained in our Indenture with LaSalle
National Bank, and stating whether or not the signers know of any default or
Event of Default. If any such signer knows of such a default or Event of
Default, the Officers' Certificate shall describe the default or Event of
Default and the efforts to remedy the same.

AMENDMENT

We, together with the Trustee, may amend or supplement our Indenture with
LaSalle National Bank or our 7 1/4% Convertible Subordinated Notes with the
written consent of the holders of at least a majority in principal amount of the
outstanding Notes. The holders of a majority in principal amount of the
outstanding Notes may waive our compliance in a particular instance with any
provision of our Indenture with LaSalle National Bank or our 7 1/4% Convertible
Subordinated Notes without notice to any holder. However, without the consent of
the holder of each Note affected thereby, an amendment, supplement or waiver may
not:

- reduce the percentage of the principal amount of outstanding Notes whose
holders must consent to an amendment, supplement or waiver;

- reduce the rate of or change the time for payment of interest on any
Note;

- reduce the principal of or premium on or change the fixed maturity of any
of our 7 1/4% Convertible Subordinated Notes, or change the definition of
"Change in Control" or "Change in Control Purchase Date" applicable to
any of our 7 1/4% Convertible Subordinated Notes or the amount payable by
us to the holder of any Note upon a Change in Control, or alter any of
the other Change in Control provisions or any of the redemption
provisions in a manner adverse to the holder of any of our 7 1/4%
Convertible Subordinated Notes;

- alter the conversion provisions with respect to any of our 7 1/4%
Convertible Subordinated Notes in a manner adverse to the holder thereof;

- waive a default in the payment (whether at maturity, upon redemption, on
an interest payment date, on a Change in Control Purchase Date or
otherwise) of the principal of or premium or interest on any Note;

- reduce the percentage of our 7 1/4% Convertible Subordinated Notes
necessary to waive defaults or Events of Default;

- modify any of the subordination provisions in our Indenture with LaSalle
National Bank in a manner adverse to the holders of our 7 1/4%
Convertible Subordinated Notes; or

- make any of our 7 1/4% Convertible Subordinated Notes payable in money
other then that stated in our 7 1/4% Convertible Subordinated Notes.

We, together with the Trustee, may amend or supplement our Indenture with
LaSalle National Bank or our 7 1/4% Convertible Subordinated Notes without
notice to or consent of any holder in certain events, such as to comply with the
conversion, adjustment, liquidation and merger provisions described in our
Indenture with LaSalle National Bank, to cure any ambiguity, defect or
inconsistency or to make any other change that does not adversely

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affect the rights of the holders, to comply with the provisions of the Trust
Indenture Act or to appoint a successor Trustee.

No amendment may be made that adversely affects the rights under the
provisions described under "Subordination of Notes" above of a holder of an
issue of our Senior Indebtedness unless the holders of that issue, pursuant to
its terms, consent to such amendment.

REGISTRATION RIGHTS

On the initial sale of our 7 1/4% Convertible Subordinated Notes, we
entered into a registration rights agreement with the initial purchasers of our
7 1/4% Convertible Subordinated Notes. Under this agreement, we must register
for resale under the Securities Act our 7 1/4% Convertible Subordinated Notes
and the shares of common stock into which our 7 1/4% Convertible Subordinated
Notes are convertible within 60 days of the latest date of original issuance of
the Notes. This registration statement was declared effective by the staff of
the Commission on March 23, 1999. We will use our reasonable efforts to keep it
effective until the earliest of:

- two years after the filing date;

- the date when all the applicable securities have been registered under
the Securities Act and disposed of; and

- the date on which all the applicable securities have been sold to the
public pursuant to Rule 144 under the Securities Act.

If you hold securities and sell them under this registration statement, you
will be required to provide certain information with respect to yourself and the
specifics of the sale. You will be subject to certain of the civil liability
provisions under the Securities Act in connection with such sales and be bound
by the provisions of the registration rights agreement which are applicable to
you (including certain indemnification obligations). At least five business days
prior to any intended resale you must notify us of such intention and provide us
with such information with respect to such holder and the intended distribution
as may be reasonably required to amend the shelf registration statement or
supplement the prospectus.

We may suspend the use of this prospectus which is a part of the
registration statement for limited periods under certain circumstances relating
to pending corporate developments, public filings with the Commission and
similar events. Subject to certain limitations, we have agreed to pay liquidated
damages to all holders of our 7 1/4% Convertible Subordinated Notes or common
stock into which our 7 1/4% Convertible Subordinated Notes may convert that have
requested to sell pursuant to this registration statement if the registration
statement is not timely filed or declared effective, or if a stop order
suspending this registration statement or proceedings therefor have been
initiated under the Securities Act, or if the related prospectus is unavailable
for periods in excess of those set forth in the registration rights agreement.
We have further agreed, if such failure to file or unavailability continues for
an additional 30 day period, to pay liquidated damages to all such holders,
whether or not such holder has requested to sell pursuant to this registration
statement. Liquidated damages will accrue until such time as there are no
triggering events which have occurred and are continuing at a rate equal to one
half of one percent (0.50%) per annum of the principal amount of our 7 1/4%
Convertible Subordinated Notes and will be payable on the interest payment dates
for our 7 1/4% Convertible

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Subordinated Notes to the persons in whose names the relevant securities were
registered at the close of business on the immediately preceding regular record
dates for our 7 1/4% Convertible Subordinated Notes.

With respect to each holder, our obligations to pay liquidated damages
remains in effect only so long as our 7 1/4% Convertible Subordinated Notes and
the common stock issuable upon the conversion of our 7 1/4% Convertible
Subordinated Notes held by such holder are "Registrable Securities" within the
meaning of the registration rights agreement. We will pay all expenses of this
registration statement and provide each holder that is selling hereunder copies
of this prospectus and take certain other actions as are required to permit,
subject to the foregoing, unrestricted resales of the applicable securities.

This summary of certain provisions of the registration rights agreement is
not complete, and we qualify it in its entirety by reference to all the
provisions of the registration rights agreement, a copy of which is available
upon request.

SATISFACTION AND DISCHARGE

If all of our 7 1/4% Convertible Subordinated Notes have been delivered to
the Trustee for cancellation (subject to certain limited exceptions) or if all
of our 7 1/4% Convertible Subordinated Notes not theretofore delivered to the
Trustee for cancellation have become due and payable or will become due and
payable within one year at their stated maturity or upon redemption, then we may
terminate all of our obligations under our Indenture with LaSalle National Bank,
other than our obligation to pay the principal of and interest on our 7 1/4%
Convertible Subordinated Notes and certain other obligations (including our
obligation to deliver shares of common stock upon conversion of our 7 1/4%
Convertible Subordinated Notes and our obligation to purchase our 7 1/4%
Convertible Subordinated Notes following a Change in Control), at any time, by
depositing with the Trustee or a paying agent other than us, money sufficient to
pay the principal of and interest on our 7 1/4% Convertible Subordinated Notes
then outstanding to maturity or redemption.

MERGERS AND CONSOLIDATIONS

Subject to the right of the holders to require us to purchase our 7 1/4%
Convertible Subordinated Notes in the event of a Change in Control, we may
consolidate or merge with or into any other corporation, and we may sell, lease,
convey, assign or otherwise transfer all or substantially all our property and
assets to any other corporation, provided:

- either we are the resulting or surviving corporation, or the successor
corporation is organized and existing under the laws of the United States
of America, any state thereof or the District of Columbia which expressly
assumes, by supplemental indenture executed and delivered to the Trustee,
payment of the principal of and interest on our 7 1/4% Convertible
Subordinated Notes and performance and observance of every covenant of
ours in our Indenture with LaSalle National Bank and our 7 1/4%
Convertible Subordinated Notes (including, without limitation, the
agreement to deliver shares of common stock upon conversion of our 7 1/4%
Convertible Subordinated Notes);

- immediately after giving effect to such transaction, no default or Event
of Default shall have occurred and be continuing; and

- certain other conditions are met.

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Thereafter, in any such transaction (other than a lease) in which we are not the
surviving or resulting corporation, we shall be released from all of our
obligations under our Indenture with LaSalle National Bank and our 7 1/4%
Convertible Subordinated Notes.

CONCERNING THE TRUSTEE

LaSalle National Bank has agreed to serve the Trustee under our Indenture
with LaSalle National Bank. The Trustee will be permitted to deal with us and
any of our Affiliates with the same rights as if it were not Trustee; provided,
however, that under the Trust Indenture Act, if the Trustee acquires any
conflicting interest (as defined in the Trust Indenture Act) and there exists a
default with respect to our 7 1/4% Convertible Subordinated Notes, it must
eliminate such conflict or resign.

The holders of a majority in principal amount of all outstanding of our
7 1/4% Convertible Subordinated Notes will have the right to direct the time,
method and place of conducting any proceeding for exercising any remedy or power
available to the Trustee, provided that such direction does not conflict with
any law or our Indenture with LaSalle National Bank, is not unduly prejudicial
to the rights of another holder or the Trustee and does not involve the Trustee
in personal liability.

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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS

The following is a general discussion of certain U.S. federal income tax
considerations to holders of our 7 1/4% Convertible Subordinated Notes. We have
based this discussion upon the Internal Revenue Code of 1986, as amended,
Treasury Regulations, Internal Revenue Service rulings, and judicial decisions
now in effect, all of which are subject to change (possibly with retroactive
effect) or different interpretations. We cannot assure that the IRS will not
challenge one or more of the tax consequences described herein. We have not
obtained a ruling from the IRS with respect to the U.S. federal income tax
consequences of acquiring or holding our 7 1/4% Convertible Subordinated Notes
or our common stock.

This discussion does not deal with all aspects of U.S. federal income
taxation that may be important to you as a holder of our 7 1/4% Convertible
Subordinated Notes, or common stock into which our 7 1/4% Convertible
Subordinated Notes may cover. This discussion does not deal with tax
consequences arising under the laws of any foreign, state or local jurisdiction.
This discussion is for general information purposes only, and does not purport
to address all tax consequences that may be important to you in light of your
personal circumstances (for example, persons subject to the alternative minimum
tax provisions of the Code). This discussion also does not purport to address
all the tax consequences that may be important to you if you are subject to
special rules such as those applicable to:

- certain financial institutions;

- insurance companies;

- tax exempt entities;

- dealers in securities;

- persons who hold our 7 1/4% Convertible Subordinated Notes or common
stock as part of a hedging or conversion transaction or straddle; or

- persons deemed to sell any of our 7 1/4% Convertible Subordinated Notes
or common stock under the constructive sale provisions of the Code.

This discussion assumes that you hold our 7 1/4% Convertible Subordinated
Notes and that you will hold the common stock received upon conversion thereof
as capital assets under Section 1221 of the Code, and that our 7 1/4%
Convertible Subordinated Notes are properly characterized as debt instruments
for federal income tax purposes.

For the purpose of this discussion, a "U.S. Holder" refers to any holder of
our 7 1/4% Convertible Subordinated Notes that is a U.S. person, and a "Non-U.S.
Holder" refers to any holder of our 7 1/4% Convertible Subordinated Notes who is
not a U.S. person. The term "U.S. person" means any of the following:

- a citizen or resident of the United States;

- a corporation, partnership (or other entity treated as a corporation or a
partnership for U.S. federal income tax purposes) created or organized in
the United States or any state thereof or the District of Columbia;

- an estate the income of which is includible in income for U.S. federal
income tax purposes regardless of is source; or

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- a trust subject to primary supervision by a court in the United States
and control by one or more U.S. persons.

WE URGE YOU TO CONSULT YOUR OWN TAX ADVISORS REGARDING THE FEDERAL STATE,
LOCAL AND FOREIGN TAX CONSEQUENCES OF OWNERSHIP AND DISPOSITION OF OUR 7 1/4%
CONVERTIBLE SUBORDINATED NOTES, INCLUDING CONVERSION OF OUR 7 1/4% CONVERTIBLE
SUBORDINATED NOTES, AND THE EFFECT THAT YOUR PARTICULAR CIRCUMSTANCES MAY HAVE
ON SUCH TAX CONSEQUENCES.

OWNERSHIP OF NOTES

Interest on Notes. The stated interest on our 7 1/4% Convertible
Subordinated Notes generally will be includible in your gross income and taxable
to you as ordinary income in accordance with your method of tax accounting. We
intend to take the position that the possibility that you will be paid
Liquidated Damages is a remote contingency within the meaning of Treasury
Regulations Section 1.1275-4(a)(5). However, our position will not bind the IRS.
If the IRS successfully challenges this position, you could suffer potentially
adverse tax timing consequences. In addition, any gain you recognize on the sale
of our 7 1/4% Convertible Subordinated Notes would constitute ordinary income.
We urge you to consult your tax advisors regarding the foregoing. Special rules
may apply in the case of Non-U.S. Holders. See "--Certain Federal Income Tax
Considerations Applicable to Non-U.S. Holders."

Adjustments to Conversion Price. The conversion price of our 7 1/4%
Convertible Subordinated Notes may change under certain circumstances. In such a
case, Section 305 of the Code and the Treasury Regulations issued thereunder may
treat you as having received a constructive distribution whether or not you ever
exercise your conversion privilege. The constructive distribution will be taxed
as ordinary income (subject to a possible dividends received deduction if you
are a corporate holder) to the extent our current and/or accumulated earnings
and profits, if, and to the extent that, the adjustment in the conversion price
increases your proportionate interest in the fully diluted common stock.
Moreover, common stock holders themselves will generally be treated as having
received a constructive distribution if there is not a full adjustment to the
conversion price of our 7 1/4% Convertible Subordinated Notes to reflect a stock
dividend or other event increasing the proportionate interest of the common
stock holders in our assets or earnings and profits. In such an event, the
constructive distribution will be taxable as ordinary income (subject to a
possible dividends received deduction if you are a corporate holder) to the
extent of our current and/or accumulated earnings and profits.

Sale, Exchange or Retirement of Notes. In general, you will recognize gain
or loss upon the sale, exchange, redemption, retirement or other disposition of
our 7 1/4% Convertible Subordinated Notes. The gain or loss will equal:

(1) the amount realized; minus

(2) your adjusted tax basis in our 7 1/4% Convertible Subordinated Notes.

Your tax basis in our 7 1/4% Convertible Subordinated Notes generally will
equal:

(1) the amount you paid for our 7 1/4% Convertible Subordinated Notes; plus

(2) the amount of any market discount (as discussed below) you previously
recognized; or minus

(3) any amortized bond premium (as discussed below).

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Any such gain or loss you recognize on the sale, exchange, redemption,
retirement or other disposition of any of our 7 1/4% Convertible Subordinated
Notes should be capital gain or loss. Such gain or loss also will generally be
long term capital gain or loss if you held or are deemed to have held the 7 1/4%
Convertible Subordinated Note for more than one year at the time of the sale or
exchange. Special rules may apply in the case of Non-U.S. Holders. See
"-- Certain Federal Income Tax Considerations Applicable to Non-U.S. Holders."

Conversions of Notes into Common Stock. In general, you will not recognize
gain or loss on the conversion of our 7 1/4% Convertible Subordinated Notes into
shares of our common stock, unless you receive cash in lieu of a fractional
share. Your tax basis in the shares of our common stock received upon conversion
of our 7 1/4% Convertible Subordinated Notes will equal your aggregate basis in
our 7 1/4% Convertible Subordinated Notes exchanged therefor (less any portion
thereof allocable to a fractional share). Your holding period of the shares of
common stock you receive upon conversion of our 7 1/4% Convertible Subordinated
Notes generally will include the period during which you held our 7 1/4%
Convertible Subordinated Notes prior to the conversion. Any cash you receive in
lieu of a fractional share of common stock should be treated as a payment in
exchange for such fractional share. Any gain or loss you recognize on the
receipt of cash paid in lieu of a fractional share generally will equal the
difference between the amount of cash you receive and the amount of tax basis
allocable to the fractional share. Special rules may apply in the case of
Non-U.S. Holders. See "-- Certain Federal Income Tax Considerations Applicable
to Non-U.S. Holders."

Our Common Stock. Any distribution paid to you with respect to our common
stock after a conversion of any of our 7 1/4% Convertible Subordinated Notes
will constitute ordinary income (subject to a possible dividends received
deduction if you are a corporate holder) to the extent made from our current
and/or accumulated earnings and profits. The amount of gain or loss you realize
on the sale or exchange of common stock will equal:

(1) the amount you realize on such sale or exchange; minus

(2) your adjusted tax basis in such common stock.

Such gain or loss will generally be long term capital gain or loss if you have
held or are deemed to have held the common stock for more than one year.
However, special rules may apply if you originally purchased our 7 1/4%
Convertible Subordinated Notes at a market discount (as discussed below). In
addition, special rules may apply in the case of Non-U.S. Holders. See
"--Certain Federal Income Tax Considerations Applicable to Non-U.S. Holders."

Market Discount. If you sell any of our 7 1/4% Convertible Subordinated
Notes at a lower price than the price at which you purchased our 7 1/4%
Convertible Subordinated Notes, the purchaser may be affected by the "market
discount" provisions of the Code. Market discount on any of our 7 1/4%
Convertible Subordinated Notes will generally equal:

(1) the principal amount of the 7 1/4% Convertible Subordinated Note; minus

(2) the price at which you sell the 7 1/4% Convertible Subordinated Note.

The market discount provisions generally require the person to which you sell
any of our 7 1/4% Convertible Subordinated Notes to treat as ordinary income any
gain recognized on a subsequent disposition of such Note to the extent of the
"accrued market discount" at the time of subsequent disposition. If any of our
7 1/4% Convertible Subordinated Notes with

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accrued market discount is converted into common stock, the amount of such
accrued market discount generally will be taxable as ordinary income upon
disposition of the common stock. Unless a purchaser of our 7 1/4% Convertible
Subordinated Notes with market discount elects otherwise, market discount on our
7 1/4% Convertible Subordinated Notes will be treated as accruing on a straight
line basis over the term of such Note. In addition, if a purchaser of any of our
7 1/4% Convertible Subordinated Notes with market discount incurs or maintains
indebtedness to purchase or carry the 7 1/4% Convertible Subordinated Note, an
interest deduction attributable to such indebtedness may be disallowed until the
7 1/4% Convertible Subordinated Note is disposed of in a taxable transaction.

Amortizable Premium. If you sell any of our 7 1/4% Convertible Subordinated
Notes at a premium over its stated principal amount, plus accrued interest, the
purchaser generally may elect to amortize such premium ("Section 171 premium")
from the purchase date to the 7 1/4% Convertible Subordinated Note's maturity
date under a constant yield method. Section 171 premium, however, will not
include any premium attributable to any of our 7 1/4% Convertible Subordinated
Notes' conversion feature. The premium attributable to the conversion feature
equals:

(1) the purchase price of the 7 1/4% Convertible Subordinated Note; minus

(2) what the 7 1/4% Convertible Subordinated Note's fair market value would
be if there were no conversion feature.

Amortized Section 171 premium is treated as an offset to interest income on any
of our 7 1/4% Convertible Subordinated Notes and not as a separate deduction.

CERTAIN FEDERAL INCOME TAX CONSIDERATIONS APPLICABLE TO NON-U.S. HOLDERS

Interest on Notes. Generally, if you are a Non-U.S. Holder, stated interest
paid to you on our 7 1/4% Convertible Subordinated Notes will not be subject to
U.S. federal income tax if such interest is not effectively connected with the
conduct of a trade or business by you within the United States, and you meet the
following three requirements:

(1) you do not actually or constructively own 10% or more of the total
voting power of all classes of our stock entitled to vote;

(2) you are not a "controlled foreign corporation" with respect to which we
are a "related person" within the meaning of the Code; and

(3) you certify, under penalty of perjury, that you are not a U.S. person
and such certificate provides your name and address.

If you meet certain requirements, the certification described in paragraph
3 above may be provided by:

- a securities clearing organization;

- a bank, or

- other financial institution that holds customers' securities in the
ordinary course of is trade or business.

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For purposes of paragraph(2) above, the Non-U.S. Holder of our 7 1/4%
Convertible Subordinated Notes would be deemed to own constructively the common
stock into which it could be converted.

A Non-U.S. Holder that is not exempt from tax under the above rules
generally will be subject to U.S. federal income tax withholding at a rate of
30% unless:

(1) the interest is effectively connected with the conduct of a U.S. trade
or business, in which case the interest will be subject to the U.S.
federal income tax on net income that applies to U.S. persons
generally; or

(2) an applicable income tax treaty provides for a lower rate of, or
exemption from, withholding tax.

If you are a foreign corporation, such U.S. trade or business income may also be
subject to the branch profits tax at a 30% rate. (The branch profits tax
generally is imposed on a foreign corporation on the actual or deemed
repatriation from the United States of earnings and profits attributable to U.S.
trade or business income.) The branch profits tax may not apply (or may apply at
a reduced rate) if the foreign corporation is a qualified resident of a country
with which the United States has an income tax treaty.

To claim either (A) the benefit of a tax treaty, or (B) an exemption from
withholding because the income is effectively connected with a U.S. trade or
business, the Non-U.S. Holder must provide a properly executed Form 1001 or
4224, as applicable, prior to the payment of interest. These forms must be
periodically updated. Under new rules that will apply to payments made after
December 31, 1999, the Forms 1001 and 4224 will be replaced by Form W-8. Also,
under the new rules, a Non-U.S. Holder who is claiming the benefits of a treaty
may be required:

(1) to obtain a U.S. taxpayer identification number; and

(2) to prove residence in a foreign country by providing certain
documentary evidence issued by foreign governmental authorities.

In addition, the new rules provide certain special procedures for payments
through qualified intermediaries.

Sale, Exchange or Redemption of Notes or Shares of Common Stock. A Non-U.S.
Holder generally will not be subject to U.S. federal income tax on gain
recognized upon the sale or other disposition of our 7 1/4% Convertible
Subordinated Notes or shares of our common stock received in exchange therefor
unless:

(1) the gain is effectively connected with the conduct of a trade or
business within the United States by the Non-U.S. Holder; or

(2) the Non-U.S. Holder:

(A) is a nonresident alien individual;

(B) holds the common stock as a capital asset; and

However, a Non-U.S. Holder may be subject to federal income tax with respect to
gain realized on the disposition of Notes or shares of common stock if the
Company were to become a "United States real property holding corporation" under
the Code. In that case,

123
<PAGE> 125

such Non-U.S. Holder can credit any withholding tax withheld pursuant to the
rules applicable to dispositions of a "United States real property interest"
against such Non-U.S. Holder's U.S. federal income tax liability, and such
Non-U.S. Holder may be entitled to a refund upon furnishing required information
to the IRS.

Conversion of Notes. A Non-U.S. Holder generally will not be subject to
U.S. federal income tax on the conversion of any of our 7 1/4% Convertible
Subordinated Notes into shares of our common stock. However, a Non-U.S. Holder
may recognize gain to the extent of cash received in lieu of a fractional share
on conversion. Such gain would be subject to the rules described above with
respect to the rules regarding the sale or exchange of any of our 7 1/4%
Convertible Subordinated Notes by a Non-U.S. Holder.

Dividends on Shares of Common Stock. Generally, any distribution on shares
of our common stock to a Non-U.S. Holder will be subject to U.S. federal income
tax withholding at a rate of 30% unless:

(1) the dividend is effectively connected with the conduct of a trade or
business within the United States by the Non-U.S. Holder; or

(2) an applicable income tax treaty provides for a lower rate of, or
exemption from, withholding tax.

If the dividend is effectively connected with the conduct of a trade or business
within the United States by the Non-U.S. Holder, the dividend will be subject
to:

(A) the U.S. federal income tax on net income that applies to U.S.
persons generally; and

(B) with respect to corporate Non-U.S. Holders under certain
circumstances, the branch profits tax.

A Non-U.S. Holder may be required to satisfy certain certification requirements
in order to claim a reduction of or exemption from withholding under the
foregoing rules.

INFORMATION REPORTING AND BACKUP WITHHOLDING

U.S. Holders. Information reporting and backup withholding may apply to
payments of principal, interest or dividends on, or the proceeds from the sale
or other disposition of, our 7 1/4% Convertible Subordinated Notes or common
stock with respect to certain noncorporate U.S. Holders. If you are such a U.S.
Holder, then you generally will be subject to backup withholding at a rate of
31% unless, among other conditions, you supply a taxpayer identification number
and certain other information, certified under penalties of perjury, to the
payer or you otherwise establish an exemption from backup withholding. Any
amount withheld under backup withholding is allowable as a credit against the
U.S. Holder's federal income tax liability.

Non-U.S. Holders. Generally, information reporting will apply to payments
of interest on our 7 1/4% Convertible Subordinated Notes or dividends on our
common stock, and backup withholding at a rate of 31% will apply unless the
payee certifies that it is not a U.S. person or otherwise establishes an
exemption. The 31% backup withholding tax will not apply, however, to interest
or dividends subject to the 30% withholding tax described above. In addition,
information reporting and backup withholding will apply to payments of principal
on our 7 1/4% Convertible Subordinated Notes unless you certify that you are not
a U.S. person or otherwise establish an exemption.

124
<PAGE> 126

The payment of the proceeds from the disposition of any of our 7 1/4%
Convertible Subordinated Notes or common stock to or through the U.S. office of
a U.S. or foreign broker will be subject to information reporting and possible
backup withholding, unless the Non-U.S. Holder certifies as to its Non-U.S.
Holder status or otherwise establishes an exemption, provided that the broker
does not have actual knowledge that the holder is a U.S. person or that the
conditions of any other exemption are not, in fact, satisfied. The proceeds of
the disposition by a Non-U.S. Holder of our 7 1/4% Convertible Subordinated
Notes or common stock to or through a foreign office of a broker generally will
not be subject to information reporting or backup withholding. However, if the
broker is either:

(1) a U.S. person;

(2) a controlled foreign corporation for U.S. tax purposes; or

(3) a foreign person 50% or more of whose gross income from all sources for
certain periods is from activities that are effectively connected with
a U.S. trade or business, information reporting generally will apply
unless the broker has documentary evidence in its files of the Non-U.S.
Holder's foreign status and has no actual knowledge to the contrary.

NEW WITHHOLDING REGULATIONS

The recently finalized withholding rules referred to above (the "New
Regulations") make certain modifications to the withholding and information
reporting rules described above. The New Regulations attempt to unify
certification requirements and modify reliance standards. The New Regulations
generally will be effective for payments made after December 31, 1999, subject
to certain transition rules. We urge you to consult your own tax advisors
regarding the New Regulations.

THE PRECEDING DISCUSSION OF CERTAIN UNITED STATES FEDERAL INCOME TAX
CONSEQUENCES IS FOR GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE. ACCORDINGLY,
YOU SHOULD CONSULT YOUR OWN TAX ADVISER AS TO PARTICULAR TAX CONSEQUENCES TO IT
OF PURCHASING, HOLDING AND DISPOSING OF OUR 7 1/4% CONVERTIBLE SUBORDINATED
NOTES AND OUR COMMON STOCK, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE,
LOCAL OR FOREIGN TAX LAWS, AND OF ANY PROPOSED CHANGES IN APPLICABLE LAWS.

PLAN OF DISTRIBUTION

This prospectus relates to the offer and sale from time to time by the
holders of our 7 1/4% Convertible Subordinated Notes of an aggregate amount of
up to $63,250,000 and shares of our common stock issuable upon conversion of
such 7 1/4% Convertible Subordinated Notes. We issued the 7 1/4% Convertible
Subordinated Notes in a private placement, and this prospectus has been prepared
in connection with registering the 7 1/4% Convertible Subordinated Notes and
shares of our common stock issuable upon conversion of the 7 1/4% Convertible
Subordinated Notes to allow for sales of the 7 1/4% Convertible Subordinated
Notes and shares of our common stock issuable upon conversion of the 7 1/4%
Convertible Subordinated Notes by the applicable holders to the public in
accordance with the terms of the Registration Rights Agreement dated November
23, 1998, by and between us and Credit Suisse First Boston Corporation, C.E.
Unterberg, Towbin and Donaldson, Lufkin & Jenrette Securities Corporation. The
Company has registered these securities for sale pursuant to the terms of the
Registration Rights Agreement, but

125
<PAGE> 127

registration of such securities does not necessarily mean that any of such
securities will be offered and sold by the holders thereof. In addition, this
prospectus relates to the offer and sale by the holders thereof of 8,582 shares
of our common stock issued in a private transaction and 358,423 shares of our
common stock issuable upon exercise of an outstanding warrant. Registration of
these shares of our common stock does not necessarily mean that any of such
shares will be offered and sold by the holders thereof.

All of the securities offered hereby are offered by the selling noteholders
and stockholders. We will not receive any proceeds from the offering by the
selling noteholders and stockholders. The securities may be sold from time to
time to purchasers directly by any of the selling noteholders and stockholders.
Alternatively, the selling noteholders and stockholders may from time to time
offer the securities through dealers or agents, who may receive compensation in
the form of commissions from the selling noteholders and stockholders and/or the
purchasers of securities for whom they may act as agent. The selling noteholders
and stockholders and any dealers or agents that participate in the distribution
of securities may be deemed to be "underwriters" within the meaning of the
Securities Act and any profit on the sale of securities by them and any
commissions received by any such dealers or agents might be deemed to be
underwriting commissions under the Securities Act of 1934.

At the time a particular offer of securities is made, a prospectus
supplement, if required, will be distributed that will set forth the name or
names of any dealers or agents and any commissions and other terms constituting
compensation from the selling noteholders and stockholders and any other
required information. The securities may be sold from time to time at varying
prices determined at the time of sale or at negotiated prices.

In order to comply with the securities laws of certain states, if
applicable, the securities may be sold only through registered or licensed
brokers or dealers. In addition, in certain states, the securities may not be
sold unless they have been registered or qualified for sale in such state or an
exemption from such registration or qualification requirement is available and
is complied with.

The securities may also be sold in one or more of the following
transactions: (a) block transactions (which may involve crosses) in which a
broker-dealer may sell all or a portion of such securities as agent but may
position and resell all or a portion of the block as principal to facilitate the
transaction; (b) purchases by any such broker-dealer as principal and resale by
such broker-dealer for its own account pursuant to a prospectus supplement; (c)
ordinary brokerage transactions and transactions in which any such broker-dealer
solicits purchasers; (d) sales "at the market" to or through a market maker or
into an existing trading market, on an exchange or otherwise, for such
securities; and (e) sales in other ways not involving market makers or
established trading markets, including direct sales to purchasers. In effecting
sales, broker-dealers engaged by the selling noteholders and stockholders may
arrange for other broker-dealers to participate.

LEGAL MATTERS

Certain legal matters will be passed on for us by our counsel, Morrison &
Foerster LLP, Palo Alto, California. As of the date of this prospectus, Richard
Scudellari, a partner in that firm, owns 70,000 shares of our common stock and
holds options to purchase 10,000 shares of our common stock. Certain legal
matters will be passed on for the underwriters by Venture Law Group, A
Professional Corporation, Menlo Park, California. An investment partnership
affiliated with Venture Law Group owns approximately 41,000 shares of our common
stock.

126
<PAGE> 128

EXPERTS

Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements and financial statement schedule as of December 31, 1997
and 1998, and for each of the three years in the period ended December 31, 1998,
as set forth in their report. We have included our consolidated financial
statement in the prospectus and elsewhere in the registration statement in
reliance on Ernst & Young's report, given upon their authority as experts in
accounting and auditing.

The consolidated financial statements of BuyDirect.com, Inc. at December
31, 1998 and for the period from March 31, 1998 (inception) to December 31, 1998
included in this prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.

The financial statements of E-Commerce, a division of CNET, Inc., as of
December 31, 1997 and March 31, 1998 and for the year ended December 31, 1997
and the three months ended March 31, 1998 included in this prospectus have been
so included in reliance on the report of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.

ADDITIONAL INFORMATION

We are subject to the reporting requirements of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), and, in accordance therewith, files
reports, proxy statements and other information with the SEC. Such reports,
proxy statements and other information may be inspected and copied at the public
reference facilities maintained by the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the SEC's regional offices located at the
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, IL
60661 and Seven World Trade Center, 13th Floor, New York, NY 10048. Copies of
such material can be obtained from the Public Reference Section of the SEC upon
payment of certain fees prescribed by the SEC. The SEC's Web site contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the SEC. The address of that site is
http://www.sec.gov. Our common stock is quoted on the Nasdaq National Market and
our reports, proxy state-
ments and other information may also be inspected at the offices of Nasdaq
Operations, 1735 K Street, N.W., Washington, D.C. 20006.

We have filed a Registration Statement on Form S-1 with the SEC under the
Securities Act in respect of the notes and common stock offered hereby. This
prospectus, which is a part of the registration statement, omits certain
information contained in the registration statement as permitted by the SEC's
rules and regulations. For further information with respect to the Company, the
notes, and the common stock offered hereby, please reference the registration
statement, including its exhibits. Statements herein concerning the contents of
any contract or other document filed with the SEC as an exhibit to the
registration statement are not necessarily complete and are qualified in all
respects by such reference. Copies of the registration statement, including all
exhibits and schedules thereto, may be inspected without charge at the public
reference facilities maintained by the SEC, or obtained at prescribed rates from
the Public Reference Section of the SEC at the address set forth above.

127
<PAGE> 129

INDEX TO FINANCIAL STATEMENTS

UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL INFORMATION

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Unaudited Pro forma Condensed Combined Statement of
Operations for the Year Ended December 31, 1998........... F-3
Unaudited Pro forma Condensed Combined Balance Sheet as of
December 31, 1998......................................... F-4
Notes to Unaudited Pro forma Condensed Combined Financial
Statements................................................ F-5

BEYOND.COM CORPORATION
Report of Ernst & Young LLP, Independent Auditors........... F-7
Consolidated Balance Sheets................................. F-8
Consolidated Statements of Operations and Comprehensive
Loss...................................................... F-9
Consolidated Statements of Redeemable Convertible Preferred
Stock and Stockholders' Equity (Net Capital Deficiency)... F-10
Consolidated Statements of Cash Flows....................... F-11
Notes to Consolidated Financial Statements.................. F-12

BUYDIRECT.COM, INC.
Report of Independent Accountants........................... F-27
Consolidated Balance Sheet.................................. F-28
Consolidated Statement of Operations........................ F-29
Consolidated Statement of Stockholders' Deficit............. F-30
Consolidated Statement of Cash Flows........................ F-31
Notes to Consolidated Financial Statements.................. F-32

E-COMMERCE, A DIVISION OF CNET, INC.
Report of Independent Accountants........................... F-45
Balance Sheet............................................... F-46
Statement of Operations..................................... F-47
Statement of Division Equity................................ F-48
Statement of Cash Flows..................................... F-49
Notes to Financial Statements............................... F-50
</TABLE>

F-1
<PAGE> 130

UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL INFORMATION

The unaudited pro forma condensed combined financial information for
Beyond.com set forth below gives effect to the acquisition of BuyDirect.com. The
historical financial information set forth below has been derived from, and is
qualified by reference to, the consolidated financial statements of Beyond.com
and BuyDirect.com, and should be read in conjunction with those financial
statements and the notes thereto included elsewhere herein.

On March 30, 1999, we completed a transaction whereby one of our
wholly-owned subsidiaries merged with and into BuyDirect.com. In connection with
the merger we will issue approximately 4,943,767 shares of our common stock to
BuyDirect.com stockholders in exchange for BuyDirect.com outstanding common and
preferred stock, and reserve for issuance upon exercise of options we assumed in
connection with the BuyDirect.com merger approximately 281,988 shares of our
common stock. The unaudited pro forma condensed combined statement of operations
data for the year ended December 31, 1998 set forth below give effect to the
acquisition as if it occurred on January 1, 1998. The unaudited pro forma
condensed combined balance sheet as of December 31, 1998 set forth below gives
effect to the acquisition of BuyDirect.com as if it occurred on December 31,
1998.

The BuyDirect.com acquisition will be accounted for using the purchase
method of accounting. The Pro Forma Financial Statements have been prepared on
the basis of assumptions described herein.

Beyond.com expects to incur integration costs estimated at $3.5 million,
subsequent to the consummation of the acquisition. The Pro Forma Condensed
Combined Statements of Operations does not include the costs of integration, as
these costs will affect future operations and do not qualify as liabilities in
connection with a purchase business combination under EITF 95-3, "Recognition of
Liabilities in Connection with a Purchase Business Combination."

The unaudited pro forma condensed combined financial information set forth
herein combines the statement of operations of Beyond.com for the year ended
December 31, 1998, the E-Commerce, a division of CNET, Inc. (Predecessor
Business) ("E-Commerce Division") statement of operations for the three months
ended March 31, 1998 and the BuyDirect.com statement of operations for the
period from March 31, 1998 (Inception) through December 31, 1998 and reflects
certain adjustments, including among others, adjustments to reflect
BuyDirect.com product sales and cost of sales as if the amended reseller
agreements had been in place for the entire year and the amortization of
intangible assets and goodwill acquired and deferred compensation related to
assumed options. The information set forth below should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements and notes to the financial statements
of Beyond.com and BuyDirect.com which are included elsewhere herein. The
unaudited pro forma condensed combined financial information set forth below
does not purport to represent what the consolidated results of operations or
financial condition of Beyond.com would actually have been if the BuyDirect.com
acquisition and related transaction had in fact occurred on such date or to
project the future consolidated results of operations or financial condition of
Beyond.com.

F-2
<PAGE> 131

UNAUDITED PRO FORMA CONDENSED COMBINED
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
E-COMMERCE
DIVISION
FOR THE BUYDIRECT.COM
BEYOND.COM THREE FOR THE
FOR THE YEAR MONTHS NINE MONTHS
ENDED ENDED ENDED
DECEMBER 31, MARCH 31, DECEMBER 31, PRO FORMA
1998 1998 1998 COMBINED ADJUSTMENTS TOTAL
------------ ---------- ------------- -------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net revenues......................... $ 36,650 $ 356 $ 1,829 $38,835 $ 2,444(7) $ 41,279
Cost of revenues..................... 31,074 -- 877 31,951 2,444(7) 34,395
-------- ----- ------- -------- -------- ------------
Gross profit......................... 5,576 356 952 6,884 -- 6,884
Operating expenses
Research and development........... 4,201 390 1,456 6,047 -- 6,047
Sales and marketing................ 27,568 54 5,126 32,748 -- 32,748
General and administrative......... 4,943 245 1,545 6,733 -- 6,733
Goodwill and deferred compensation
amortization..................... -- -- -- -- 49,086(6) 49,086
-------- ----- ------- -------- -------- ------------
Total operating expenses....... 36,712 689 8,127 45,528 49,086 94,614
-------- ----- ------- -------- -------- ------------
Loss from operations................. (31,136) (333) (7,175) (38,644) (49,086) (87,730)
Interest and other income............ 1,356 -- 6 1,362 -- 1,362
Interest expense..................... (1,293) -- (77) (1,370) -- (1,370)
-------- ----- ------- -------- -------- ------------
Net loss............................. (31,073) (333) (7,246) (38,652) (49,086) (87,738)
-------- ----- ------- -------- -------- ------------
Accretion of premium on redemption of
redeemable convertible preferred
stock in excess of purchase
price.............................. (51) -- -- (51) -- --
-------- ----- ------- -------- -------- ------------
Net loss applicable to common
stockholders....................... $(31,124) $(333) $(7,246) $(38,703) $(49,086) $ (87,738)
======== ===== ======= ======== ======== ============
Basic and diluted net loss per
share.............................. $ (1.65) $ (3.68)(8)
======== ============
Weighted average shares of common
stock outstanding used in computing
basic and diluted net loss per
share.............................. 18,900 4,944 23,844(8)
======== ======== ============
Pro forma basic and diluted net loss
per share.......................... $ (1.28) $ 3.00(8)
======== ============
Shares used in computing pro forma
basic and diluted net loss per
share.............................. 24,276 4,944 29,220(8)
======== ======== ============
</TABLE>

See accompanying notes to Unaudited Pro Forma Condensed Combined Financial
Information.
F-3
<PAGE> 132

UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF DECEMBER 31, 1998
(IN THOUSANDS)

ASSETS

<TABLE>
<CAPTION>
PRO FORMA
BEYOND.COM BUYDIRECT.COM COMBINED ADJUSTMENTS TOTAL
---------- ------------- -------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents........................... $ 81,548 $ 341 $81,889 $ -- $ 81,889
Accounts receivable, net............................ 8,785 131 8,916 -- 8,916
Note receivable from a director..................... 270 -- 270 -- 270
Prepaid expenses and other current assets........... 6,201 772 6,973 -- 6,973
Cost of deferred revenue............................ 5,255 -- 5,255 -- 5,255
-------- ------- -------- -------- --------
Total current assets.............................. 102,059 1,244 103,303 -- 103,303
Property and equipment, net........................... 3,150 1,049 4,199 -- 4,199
Goodwill and other intangible assets.................. 4,695 1,675 6,370 136,791(3) 144,622
3,500(2)
(2,039)(10)
-------- ------- -------- -------- --------
Total assets...................................... $109,904 $ 3,968 $113,872 $138,252 $252,124
======== ======= ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................... $ 14,443 $ 960 $15,403 $ -- $ 15,403
Payable to related parties.......................... -- 3,804 3,804 -- 3,804
Other accrued liabilities........................... 1,744 462 2,206 3,500(2) 5,706
Convertible promissory notes and accrued interest... -- 2,039 2,039 (2,039)(10)
Current obligations under capital leases............ -- 209 209 -- 209
Deferred revenue.................................... 5,744 -- 5,744 -- 5,744
-------- ------- -------- -------- --------
Total current liabilities......................... 21,931 7,474 29,405 1,461 30,866
Non current obligation under capital leases........... -- 106 106 -- 106
Promissory note and accrued interest payable to
related party....................................... -- 5,686 5,686 -- 5,686
Convertible notes payable............................. 63,250 -- 63,250 -- 63,250
Stockholders' equity (net capital deficiency)
Preferred stock..................................... 1 1 (1)(9)
Common stock........................................ 69,311 0 69,311 124,768(1) 201,394
4,590(5)
2,725(4)
Deferred compensation............................... (2,226) (557) (2,783) (4,590)(5) (6,816)
557(9)
Accumulated deficit................................. (42,362) (8,742) (51,104) 8,742(9) (42,362)
-------- ------- -------- -------- --------
Total stockholders' equity (net capital
deficiency)..................................... 24,723 (9,298) 15,425 136,791 152,216
-------- ------- -------- -------- --------
Total liabilities and stockholders' equity (net
capital deficiency)............................. $109,904 $ 3,968 $113,872 $138,252 $252,124
======== ======= ======== ======== ========
</TABLE>

See accompanying notes to Unaudited Pro Forma Condensed Combined Financial
Information.
F-4
<PAGE> 133

NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL INFORMATION

Pro forma adjustments for the unaudited pro forma condensed combined
balance sheet as of December 31, 1998 and statements of operations for the year
ended December 31, 1998 are as follows:

(1) Represents the issuance of one share of Beyond.com in exchange
for the equivalent number of outstanding shares of BuyDirect.com pursuant
to the merger agreement, excluding common shares reserved for issuance upon
exercise of options assumed, at a per share value of $25.74 (based upon the
average of Beyond.com common stock closing prices for the five trading days
immediately preceding and following the February 19, 1999 announcement of
the merger).

(2) Represents acquisition costs incurred in conjunction with the
merger.

(3) Reflects the preliminary allocation of the purchase price and the
amortization of the cost of intangible assets and goodwill acquired in the
BuyDirect.com acquisition. The preliminary allocation has resulted in
intangible assets, including marketing agreements, customer base, assembled
workforce, technology and covenants not to compete, estimated at
approximately $13 million and estimated goodwill of approximately $127
million, which is being amortized over periods of one to three and one half
years.

The total estimated purchase price for the BuyDirect.com acquisition
has been allocated on a preliminary basis to assets and liabilities based
on management's best estimates of their fair value with the excess costs
over the net assets acquired allocated to intangible assets and goodwill.
This allocation is subject to change pending a final analysis of the value
of the assets acquired and, liabilities assumed, upon closure of the
acquisition. The impact of such changes could be material.

(4) Represents the fair value assigned to assumed vested stock
options of BuyDirect.com as part of the total purchase price.

(5) Represents the deferred compensation assigned to assumed unvested
options of BuyDirect.com, which is being amortized over the vesting period
of the related options.

(6) Reflects the amortization of the intangible assets and goodwill
and deferred compensation referred to in notes 3 and 5 above.

(7) Reflects BuyDirect.com and E-Commerce Division product sales and
cost of sales on a gross basis as if the amended reseller agreements had
been in place for the entire fiscal year. Prior to November 1998, product
sales consisted of electronic copies of software sold pursuant to agency
agreements. Accordingly, revenues prior to November 1998 include only
commissions earned by BuyDirect.com and E-Commerce Division. In November
1998, BuyDirect.com amended its reseller agreements and began recognizing
product sales and cost of sales on a gross basis.

(8) Pro forma net loss reflects the impact of the adjustments above.
Basic and diluted net loss per share (pro forma) is computed using the
weighted-average number of shares of common stock outstanding after the
issuance of Beyond.com Common Stock to acquire the outstanding shares of
BuyDirect.com Common Stock. Pro forma basic and diluted net loss per share
(pro forma) includes the weighted

F-5
<PAGE> 134

average shares described above plus it gives effect to the assumed
conversion of redeemable convertible preferred stock from the date of
issuance through the date of the initial public offering of Beyond.com in
1998. Dilutive options and warrants, and shares related to the convertible
notes payable are excluded from the computation during loss periods as
their effect is antidilutive.

(9) Reflects elimination of BuyDirect.com stockholders' equity.

(10) Reflects the elimination of convertible promissory notes payable
which were converted prior to the acquisition and are included in shares
issued to BuyDirect.com.

F-6
<PAGE> 135

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Directors and Stockholders
Beyond.com Corporation

We have audited the accompanying consolidated balance sheets of Beyond.com
Corporation as of December 31, 1997 and 1998, and the related consolidated
statements of operation and comprehensive loss, redeemable convertible preferred
stock and stockholders' equity (net capital deficiency), and cash flows for each
of the three years in the period ended December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Beyond.com
Corporation at December 31, 1997 and 1998, and the consolidated results of its
operation and comprehensive loss and its cash flows for each of the three years
in the period ended December 31, 1998, in conformity with generally accepted
accounting principles.

/s/ ERNST & YOUNG LLP

San Jose, California
January 11, 1999

F-7
<PAGE> 136

BEYOND.COM CORPORATION

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1998
-------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents.............................. $ 2,571 $ 81,548
Accounts receivable, net of allowances of $275 and $878
at December 31, 1997 and 1998....................... 1,181 8,785
Note receivable from a director........................ -- 270
Prepaid expenses and other current assets.............. 516 6,201
Cost of deferred revenue............................... 4,938 5,255
-------- --------
Total current assets.............................. 9,206 102,059
Property and equipment, net.............................. 380 3,150
Other noncurrent assets.................................. -- 4,695
-------- --------
Total assets...................................... $ 9,586 $109,904
======== ========

LIABILITIES AND STOCKHOLDERS' EQUITY
(NET CAPITAL DEFICIENCY)
Current liabilities:
Accounts payable....................................... $ 2,256 $ 14,443
Other accrued liabilities.............................. 270 1,744
Current obligations under capital leases............... 18 --
Deferred revenue....................................... 5,569 5,744
-------- --------
Total current liabilities......................... 8,113 21,931
Note payable to a shareholder and director............... 60 --
Noncurrent obligations under capital leases.............. 39 --
Convertible notes payable................................ -- 63,250
Commitments and contingencies
Redeemable convertible preferred stock, no par value,
issuable in series:
Authorized shares -- 10,000,000 in 1997
Issued and outstanding shares -- 7,022,558 in 1997..... 12,565 --
Stockholders' equity (net capital deficiency)
Preferred stock, no par value: Authorized
shares -- 15,000,000 in 1998........................ -- --
Common stock, no par value: Authorized
shares -- 30,000,000 in 1997 and 50,000,000 in 1998
Issued and outstanding shares -- 9,070,000 in 1997 and
27,424,763 in 1998.................................. 47 69,311
Deferred compensation.................................... -- (2,226)
Accumulated deficit...................................... (11,238) (42,362)
-------- --------
Total stockholders' equity (net capital
deficiency).................................... (11,191) 24,723
-------- --------
Total liabilities and stockholders' equity (net
capital deficiency)............................ $ 9,586 $109,904
======== ========
</TABLE>

See accompanying notes.
F-8
<PAGE> 137

BEYOND.COM CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1996 1997 1998
------- ------- --------
<S> <C> <C> <C>
Net revenues.................................... $ 5,858 $16,806 $ 36,650
Cost of revenues................................ 5,137 14,873 31,074
------- ------- --------
Gross profit.................................... 721 1,933 5,576
Operating expenses:
Research and development...................... 431 1,060 4,201
Sales and marketing........................... 704 1,696 27,568
General and administrative.................... 450 1,087 4,943
------- ------- --------
Total operating expenses................... 1,585 3,843 36,712
------- ------- --------
Loss from operations............................ (864) (1,910) (31,136)
Interest and other income....................... 96 173 1,356
Interest expense................................ (11) (6) (1,293)
------- ------- --------
Loss from continuing operations................. (779) (1,743) (31,073)
Loss from discontinued operations............... (736) (3,616) --
------- ------- --------
Net loss and comprehensive net loss............. (1,515) (5,359) (31,073)
Accretion of premium on redemption of redeemable
convertible preferred stock in excess of
purchase
price......................................... (101) (101) (51)
------- ------- --------
Net loss applicable to common stockholders...... $(1,616) $(5,460) $(31,124)
======= ======= ========
Basic and diluted net loss per share from
continuing operations......................... $ (0.10) $ (0.21) $ (1.65)
Basic and diluted net loss per share from
discontinued operations....................... (0.08) (0.40) --
------- ------- --------
Basic and diluted net loss per share............ $ (0.18) $ (0.61) $ (1.65)
======= ======= ========
Weighted average shares of common stock
outstanding used in computing basic and
diluted net loss per
share......................................... 9,000 9,000 18,900
======= ======= ========
Pro forma basic and diluted net loss per share
from continuing operations.................... $ (0.10) $ (1.28)
Pro forma basic and diluted net loss per share
from discontinued operations.................. (0.20) --
------- --------
Pro forma basic and diluted net loss per
share......................................... $ (0.30) $ (1.28)
======= ========
Shares used in computing pro forma basic and
diluted net loss per share.................... 17,828 24,276
======= ========
</TABLE>

See accompanying notes.
F-9
<PAGE> 138

BEYOND.COM CORPORATION

CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
REDEEMABLE -----------------------------------------------------------------------
CONVERTIBLE TOTAL
PREFERRED STOCK COMMON STOCK STOCKHOLDERS EQUITY
--------------------- -------------------- DEFERRED ACCUMULATED (NET CAPITAL
SHARES AMOUNT SHARES AMOUNT COMPENSATION DEFICIT DEFICIENCY)
---------- -------- ---------- ------- ------------ ----------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995.... 1,437,500 $ 651 9,000,000 $ 45 $ $(838) $ (793)
Issuance of Series A redeemable
convertible preferred stock at
$0.91 per share............... 164,835 150 -- -- -- -- --
Issuance of Series A redeemable
convertible preferred stock at
$0.91 per share for the
conversion of notes payable
and accrued interest and for
services received............. 383,185 349 -- -- -- -- --
Issuance of Series B redeemable
convertible preferred stock at
$2.70 per share, net.......... 2,037,038 5,144 -- -- -- -- --
Accretion of premium on
redemption of redeemable
convertible preferred stock in
excess of purchase price...... -- 101 -- -- -- (101) (101)
Net loss........................ -- -- -- -- -- (1,515) (1,515)
---------- -------- ---------- ------- ------- -------- --------
Balance at December 31, 1996.... 4,022,558 6,395 9,000,000 45 -- (2,454) (2,409)
Issuance of Series C redeemable
convertible preferred stock at
$2.04 per share, net.......... 3,000,000 6,069 -- -- -- -- --
Issuance of common stock upon
exercise of options under
employee stock option plan.... -- -- 70,000 2 -- -- 2
Accretion of premium on
redemption of redeemable
convertible preferred stock in
excess of purchase price...... -- 101 -- -- -- (101) (101)
Spin-off of CyberSource to
stockholders on December 31,
1997.......................... -- -- -- -- -- (3,324) (3,324)
Net loss........................ -- -- -- -- -- (5,359) (5,359)
---------- -------- ---------- ------- ------- -------- --------
Balance at December 31, 1997.... 7,022,558 12,565 9,070,000 47 -- (11,238) (11,191)
Issuance of common stock upon
exercise of options under
employee stock option plan.... -- -- 165,852 28 -- -- 28
Issuance of Series D redeemable
convertible preferred stock at
$2.60 per share, net.......... 1,153,846 2,924 -- -- -- -- --
Accretion of premium on
redemption of redeemable
convertible preferred stock in
excess of purchase price...... -- 51 -- -- -- (51) (51)
Conversion of redeemable
convertible preferred stock to
common stock upon the initial
public offering............... (8,176,404) (15,540) 12,198,962 15,540 -- -- 15,540
Issuance of warrant to AOL...... -- -- -- 1,075 -- -- 1,075
Shares issued upon the initial
public offering, net.......... -- -- 5,750,000 46,830 -- -- 46,830
Shares issued in a private
placement..................... -- -- 238,949 2,000 -- 2,000
Deferred compensation resulting
from the grant of options..... -- -- -- 3,791 (3,791) -- --
Amortization of deferred
compensation.................. -- -- -- -- 1,565 -- 1,565
Net loss and comprehensive net
loss.......................... -- -- -- -- -- (31,073) (31,073)
---------- -------- ---------- ------- ------- -------- --------
Balance at December 31, 1998.... -- $ -- 27,424,763 $69,311 $(2,226) $(42,362) $ 24,723
========== ======== ========== ======= ======= ======== ========
</TABLE>

See accompanying notes.

F-10
<PAGE> 139

BEYOND.COM CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1996 1997 1998
------- ------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss.................................................... $(1,515) $(5,359) $(31,073)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization............................. 19 79 6,613
Amortization of deferred compensation and other........... 49 -- 1,565
Amortization of debt issuance costs....................... -- -- 113
Net loss of discontinued operations....................... 736 3,616 --
Changes in assets and liabilities:
Accounts receivable....................................... (202) (750) (7,604)
Prepaid expenses and other current assets................. (50) (440) (11,490)
Cost of deferred revenue.................................. (819) (4,120) (317)
Other noncurrent assets................................... -- -- (1,068)
Accounts payable.......................................... 345 1,720 12,187
Other accrued liabilities................................. (28) 172 1,474
Deferred revenue.......................................... 967 4,602 175
Cash provided by (used for) discontinued operations....... (6) 181 --
------- ------- --------
Net cash used in operating activities....................... (504) (299) (29,425)
INVESTING ACTIVITIES
Purchases of property and equipment......................... (16) (333) (3,280)
Issuance of note receivable to director..................... -- -- (270)
Cash used for discontinued operations....................... (1,292) (4,611) --
======= ======= ========
Net cash used in investing activities....................... (1,308) (4,944) (3,550)
FINANCING ACTIVITIES
Proceeds from issuance of convertible notes payable......... -- -- 63,250
Payments for debt issuance costs............................ -- -- (2,963)
Repayment of note payable to related party.................. -- (45) (60)
Repayment of capital leases obligations..................... -- (3) (57)
Proceeds from sale of redeemable convertible preferred
stock, net................................................ 5,294 6,069 2,924
Proceeds from sale of common stock, net..................... -- -- 48,830
Proceeds from exercise of stock options..................... -- 2 28
Cash used for discontinued operations....................... -- (1,946) --
------- ------- --------
Net cash provided by financing activities................... 5,294 4,077 111,952
------- ------- --------
Net increase (decrease) in cash and cash equivalents........ 3,482 (1,166) 78,977
Cash and cash equivalents at beginning of period............ 255 3,737 2,571
------- ------- --------
Cash and cash equivalents at end of period.................. $ 3,737 $ 2,571 $ 81,548
======= ======= ========
SUPPLEMENTAL SCHEDULES OF CASH FLOW INFORMATION
Interest paid............................................... $ -- $ 6 $ --
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES
Issuance of Series A redeemable convertible preferred stock
upon conversion of notes payable.......................... $ 300 $ -- $ --
Issuance of Warrant to AOL.................................. $ -- $ -- $ 1,075
Deferred compensation related to stock option grants........ $ -- $ -- $ 3,791
Issuance of common stock upon conversion of preferred
stock..................................................... $ -- $ -- $ 15,540
</TABLE>

See accompanying notes.

F-11
<PAGE> 140

BEYOND.COM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Beyond.com Corporation (the "Company") was incorporated in the state of
California as CyberSource Corporation on August 12, 1994. In April 1998, the
Company changed its name to software.net Corporation. In June 1998, the Company
reincorporated in Delaware as software.net Corporation. In December 1998, the
Company changed its name to Beyond.com. The Company is engaged in the resale of
commercial off-the-shelf software ("Software") via the Internet. On December 31,
1997, the Company distributed capital stock of its wholly owned subsidiary,
CyberSource Corporation ("CyberSource"), in the form of a dividend to all
existing stockholders of the Company. The accompanying consolidated financial
statements have been prepared to reflect CyberSource as a discontinued operation
(see Note 2).

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements as well as the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Revenue Recognition

The Company's revenues are primarily derived from sales of Software to
customers using credit cards, to corporate customers that are invoiced directly
under credit terms, to various U.S. government agencies pursuant to contractual
arrangements and, to a lesser extent, amounts received from Software publishers
for advertising and promotion. Revenue from the sale of Software, net of
estimated returns, is recognized upon either shipment of the physical product or
delivery of electronic product, at which time, collectibility is probable and
the Company has no remaining obligations. Revenue from the sale of Software
under contracts with the U.S. government require continuing service, support and
performance by the Company, and accordingly, the related revenues and costs are
deferred and recognized over the period the service, support and performance are
provided. Revenues derived from Software publishers for advertising and
promotion are recognized as the services are provided. Costs of deferred revenue
relate to Software licenses purchased from Software publishers for sales to U.S.
government agencies.

In May 1997, the Financial Accounting Standards Board approved the American
Institute of Certified Public Accountants Statement of Position, "Software
Revenue Recognition" (SOP 97-2). SOP 97-2 provides revised and expanded guidance
on software revenue recognition and applies to all entities that earn revenue
from licensing, selling, or otherwise marketing computer software. SOP 97-2 is
effective for transactions entered into in fiscal years beginning after December
15, 1997. The application of SOP 97-2 has not had a material impact on the
Company's results of operations.

During fiscal 1998, the Financial Accounting Standard Board approved the
American Institute of Certified Public Accountants Statements of Position,
"Deferral of the Effective

F-12
<PAGE> 141
BEYOND.COM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Date of a Provision of SOP 97-2, Software Revenue Recognition" (SOP 98-4) and
"Modification of SOP 97-2, Software Revenue Recognition, with Respect to Certain
Transactions" (SOP 98-9) which provide revised and expanded guidance with
respect to vendor specific objective evidence as defined by SOP 97-2. SOP 98-4
and SOP 98-9 are effective for transactions entered into after March 31, 1998
and fiscal years beginning after March 15, 1999, respectively. The application
of SOP 98-4 and SOP 98-9 has not had a material impact on the Company's results
of operations.

Research and Development

Research and development expenditures are generally charged to operations
as incurred. Statement of Financial Accounting Standards No. 86, "Accounting for
the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed,"
requires the capitalization of certain software development costs subsequent to
the establishment of technological feasibility. In the Company's case,
capitalization would begin upon completion of a working model as the Company
does not prepare detailed program designs as part of the development process.
Through December 31, 1998, there were no significant capitalizable software
development costs incurred and, as a result, all such costs have been expensed
as incurred.

Advertising Expense

The costs of advertising are recorded as an expense when incurred or upon
the first showing of the advertisement. Advertising costs for the years ended
December 31, 1996, 1997, and 1998 were approximately $98,000, $178,000, and
$8,500,000, respectively. Amounts capitalized for future advertising were none
and $515,000, at December 31, 1997 and 1998, respectively.

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original
maturity from the date of purchase of three months or less to be cash
equivalents. As of December 31, 1997 and 1998, cash equivalents consist
primarily of investments in money market accounts and cost approximates fair
market value. The Company places its cash and cash equivalents in high-quality
U.S. financial institutions and, to date, has not experienced losses on any of
its investments.

Concentration of Credit Risk and Other Risks

Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash equivalents and accounts
receivables. The Company operates in one business segment and sells Software and
advertising primarily in the United States to consumers, various companies
across several industries and certain U.S. government agencies. The Company
generally does not require collateral. The Company maintains allowances for
credit losses and customer returns, and such losses have been within
management's expectations. For each of the years ended December 31, 1997 and
1998, U.S. government agencies, principally the Defense Logistics Agency,
accounted for

F-13
<PAGE> 142
BEYOND.COM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

33% and 29% of revenues, respectively. There were no government customers
accounting for greater than 10% of revenues in 1996. As of December 31, 1998,
65% and 12% of accounts receivable was comprised of sales to U.S. government
agencies and one corporate customer, respectively.

The Company's contracts with the U.S. government are subject to annual
review and renewal by the applicable government entity, and may be terminated,
without cause, at any time.

The Company's success depends in large part on digital downloading as a
method of selling Software over the Internet. If digital downloading does not
achieve widespread market acceptance, the Company's results of operations will
be materially adversely affected. In addition, there can be no assurance that
the Company will overcome the substantial existing and future technical
challenges associated with digital downloading reliably and consistently on a
long-term basis.

Property and Equipment

Property and equipment are stated at cost and are depreciated on a
straight-line basis over estimated useful lives of three years. Leasehold
improvements are amortized on a straight-line basis over the shorter of the
lease term or the estimated useful lives. Property and equipment consist of the
following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1997 1998
---- ------
<S> <C> <C>
Computer equipment and software........................ $257 $2,450
Furniture and fixtures................................. 122 1,010
Office equipment....................................... 70 77
Leasehold improvements................................. 29 221
---- ------
478 3,758
Less accumulated depreciation and amortization......... (98) (608)
---- ------
$380 $3,150
==== ======
</TABLE>

Accounting for Stock-Based Compensation

The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB Opinion No. 25), and related
interpretations in accounting for its employee stock options because, as
discussed in Note 8, the alternative fair value accounting provided for under
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (FAS 123), requires use of option valuation models that were not
developed for use in valuing employee stock options. Under APB Opinion No. 25,
when the exercise price of the Company's employee stock options equals the
market price of the underlying stock on the date of grant, no compensation
expense is recognized. See pro forma disclosures of applying FAS 123 included in
Note 8.

F-14
<PAGE> 143
BEYOND.COM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Net Loss Per Share and Pro forma Net Loss Per Share

Net loss per share is presented under Statement of Financial Accounting
Standards No. 128, "Earnings Per Share" (FAS 128). FAS 128 replaced the
calculation of primary and fully diluted earnings per share with basic and
diluted earnings per share. Unlike primary earnings per share, basic earnings
per share excludes any dilutive effects of options, warrants, and convertible
securities. Diluted earnings per share is very similar to the previously
reported fully diluted earnings per share. Earnings per share amounts for all
periods have been presented to conform to FAS 128 requirements. Potentially
dilutive securities have been excluded from the computation as their effect is
antidilutive.

Pro forma net loss per share has been computed as described above and also
gives effect, under Securities and Exchange Commission guidance, to the
conversion of redeemable convertible preferred shares not included above that
automatically converted upon completion of the Company's initial offering (using
the if-converted method).

Pro forma basic and diluted net loss per share is as follows (in thousands,
except per share amounts):

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
-------------------
1997 1998
------- --------
<S> <C> <C>
Net loss.......................................... $(5,359) $(31,073)
======= ========
Shares used in computing basic and diluted net
loss per share.................................. 9,000 18,900
Adjustments to reflect the effect of the assumed
conversion of redeemable convertible preferred
stock from the date of issuance through the date
of the initial public offering in 1998.......... 8,828 5,376
Weighted average shares used in computing pro
forma basic and diluted net loss per share...... 17,828 24,276
======= ========
Pro forma basic and diluted net loss per share.... $ (0.30) $ (1.28)
======= ========
</TABLE>

If the Company had reported net income, diluted earnings per share would
have included the shares used in the computation of pro forma net loss per share
as well as an additional approximately 1,577,000, 1,879,000, and 2,965,000
common equivalent shares related to the outstanding options and warrants
(determined using the treasury stock method) for the years ended December 31,
1996, 1997 and 1998, respectively, and an additional 3,449,000 shares in 1998
related to the convertible notes payable not included above (using the "if
converted" method).

Income Taxes

Income taxes are calculated under the provisions of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (FAS 109). Under FAS
109, the liability method is used in accounting for income taxes, which includes
the

F-15
<PAGE> 144
BEYOND.COM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

effects of temporary differences between financial and taxable amounts of assets
and liabilities.

Segment Information

The Company adopted Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information" (FAS 131)
in the fiscal year ended December 31, 1998. FAS 131 establishes standards for
reporting information regarding operating segments in annual financial
statements and requires selected information for those segments to be presented
in interim financial reports issued to stockholders. FAS 131 also establishes
standards for related disclosures about products and services, and geographic
areas. Operating segments are identified as components of an enterprise about
which separate discrete financial information is available for evaluation by the
chief operating decision maker, or decision making group, in making decisions
how to allocate resources and assess performance. The Company's chief decision
maker, as defined under FAS 131, is the Chief Executive Officer. To date, the
Company has viewed the Company's operations as principally one segment, Software
sales. Additionally, the Company derives an immaterial amount of revenue from
non-domestic sources. As a result, the financial information disclosed herein,
materially represents all of the financial information related to the Company's
principal operating segment.

Internally Used Software

In March 1998, the Financial Accounting Standards Board approved American
Institute of Certified Public Accountants Statement of Position, "Accounting for
Computer Software Developed For or Obtained For Internal-Use" (SOP 98-1). SOP
98-1 provides revised guidance for the accounting treatment for software which
is internally developed, acquired, or modified solely to meet the entity's
internal needs. SOP 98-1 applies to all non-governmental entities and is
effective for all activities in fiscal years beginning after December 15, 1998.
The Company does not expect SOP 98-1 to have a material effect on its financial
statements or results of operations.

2. DISCONTINUED OPERATIONS

On December 31, 1997, the Company and its stockholders approved a transfer
of assets and liabilities to its wholly owned subsidiary, CyberSource, and the
distribution of CyberSource capital stock, (the "Spin-off"), in the form of a
dividend to the Company's existing stockholders, on a pro rata basis such that
the stockholders of CyberSource were the same as the stockholders of the Company
at the time of the distribution. Revenues of CyberSource were $170,000 and
$1,128,000 for the years ended December 31, 1996 and 1997, respectively. The
results of operation of the discontinued business have been presented as a loss
from discontinued operations.

F-16
<PAGE> 145
BEYOND.COM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The components of net assets at the time of the Spin-off on December 31,
1997 are summarized as follows (in thousands):

<TABLE>
<S> <C>
Assets:
Cash and cash equivalents............................ $2,000
Accounts receivable.................................. 606
Prepaid expenses and other assets.................... 118
Property and equipment............................... 1,152
Less liabilities:
Accounts payable and accrued liabilities............. 397
Deferred revenue and other........................... 155
------
Net assets............................................. $3,324
======
</TABLE>

3. MARKETING AGREEMENTS

During 1997 and 1998, the Company entered into marketing agreements with
America Online, Inc. ("AOL"), Excite, Inc. ("Excite"), Netscape Communications
Corporation ("Netscape") and Network Associates, Inc. ("Network Associates").

The AOL Agreement is for a term of 42 months beginning March 1998, unless
earlier terminated, and provides for a marketing relationship between AOL and
the Company. Pursuant to this agreement, the Company will be the exclusive
provider of electronically delivered Software on certain screens on the AOL
Service and aol.com to AOL customers through links to the Company's Web site
from various AOL Web pages. During the term, AOL is obligated to deliver a
cumulative number of Impressions (as defined in the agreement), with various
cumulative targets throughout the duration of the agreement term. If AOL does
not provide certain cumulative targeted Impressions, AOL will be required to
refund a portion of the fees paid by the Company under this agreement (or under
some circumstances, as outlined in this agreement, AOL will have the option to
extend the term and deliver the Impressions by the end of that extended term).
Upon conclusion of the initial 42 month term, AOL will have the right to renew
the agreement for two successive one-year terms.

The Excite agreement is for a term of 36 months beginning April 1998
pursuant to which the Company will be the exclusive Software reseller on certain
screens within certain channels of Excite's Web site.

The Netscape agreement is for a term of 24 months beginning August 1997,
pursuant to which the Company created and manages an online Software store
accessible through Netscape's Internet site.

The Company has entered into various contracts with Network Associates in
1997 and 1998. In September 1997, the Company and Network Associates entered
into an agreement whereby the Company agreed to electronically distribute
Network Associates products. In September 1998, the Company and Network
Associates entered into agreements whereby the Company agreed to co-host certain
websites with Network Associates and whereby the Company agreed to operate and
manage certain aspects of Network Associates' website. Pursuant to these
agreements, the Company and Network

F-17
<PAGE> 146
BEYOND.COM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Associates have developed an interdependent relationship whereby the Company
resells Network Associates' products. Furthermore, the Company has significant
fixed financial obligations to Network Associates under the Co-Hosting Agreement
based on certain exclusivity rights.

These marketing agreements provide for payments totaling $8,963,000 in
1999, $10,213,000 in 2000 and $1,163,000 in 2001. During 1998, the Company made
payments totaling $10,613,000 under these agreements.

Under these agreements, once the Company has generated a certain cumulative
net gross margin from Software sales, the Company will pay specified percentages
of the gross transaction margins from all subsequent software sales transactions
and a percentage of certain advertising revenues. As of December 31, 1998, none
of these net gross margin targets have been achieved.

The amounts paid under the AOL, Netscape and Network Associates agreements
are being amortized to sales and marketing expenses on a straight-line basis
over the period from the launch dates to the termination dates of the services.
The periods of amortization are March 1998 to August 2001; August 1997 to July
1999; and September 1998 to August 2001 for AOL, Netscape and Network
Associates, respectively. The amounts paid under the Excite agreement are being
expensed to sales and marketing expenses as the payments become due over the
contract term beginning from the launch date of the services. The period of
amortization for this agreement is April 1998 to March 2001. The Company has
expensed $104,000 and $6,700,000 related to these agreements in 1997 and 1998,
respectively. Total amounts capitalized under these agreements at December 31,
1997 and 1998 were none and $4,100,000, respectively.

The Company also entered into a Common Stock and Warrants Subscription
Agreement which provided for the sale of $2,000,000 of common stock to AOL
immediately prior to the closing of an initial public offering ("IPO") at the
price paid by the Underwriters in the IPO. At the completion of the IPO and the
purchase by AOL of the $2,000,000 of common stock, the Company issued a common
stock warrant (the "IPO Warrant"). The IPO Warrant vests in increments of 1/36
per month commencing March 1, 1998. The IPO Warrant was issued for the purchase
of 358,423 shares of common stock at an exercise price per share of $8.37 and
such shares are non-forfeitable.

The Company has determined the fair value of the IPO Warrant at the time of
issuance to be approximately $1,075,000 in total and recorded this amount as
additional purchase price for the marketing rights under the marketing
agreement. The value of the warrant is being amortized on a consistent basis
with the marketing rights as described above. The Company amortized $298,000 of
the IPO Warrant value to sales and marketing expense in 1998.

4. BORROWINGS

In September 1995, the Company issued notes payable of $300,000. In
February 1996, the $300,000 of principal and $11,000 of accrued interest were
converted into 341,426 shares of Series A preferred stock at a price of $0.91
per share.

F-18
<PAGE> 147
BEYOND.COM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The Company entered into a credit agreement (the "Credit Agreement") with
Deutsche Bank AG ("Deutsche Bank") in May 1998. Pursuant to the Credit
Agreement, on May 21, 1998, Deutsche Bank issued a standby letter of credit to
the Company in the amount of approximately $600,000 (the "Credit Facility") and
loaned the Company approximately an additional $4,200,000 (the "Loan"). The Loan
bore interest at a rate equal to the higher of (i) the daily Federal Funds Rate
plus 0.5% per annum or (ii) Deutsche Bank daily prime lending rate ("Base
Rate"), plus 3.0%, per annum. The Company was also required to pay a standby
letter of credit fee equal to a percentage of the face amount of the Credit
Facility equal to the Base Rate plus 3% less the LIBOR rate for a three-month
loan. In conjunction with the Credit Agreement, the Company also paid Deutsche
Bank an upfront fee of $120,000 and credit line fees equal to 7.5% totaling
$18,000. All amounts borrowed under this agreement were paid by the Company on
November 16, 1998.

5. CONVERTIBLE NOTES PAYABLE

In November and December 1998, the Company issued unsecured convertible
subordinated notes payable with an aggregate principal amount of $63,250,000.
The notes bear an annual interest rate of 7.25% and mature on December 1, 2003.
Interest on the notes is payable semi-annually commencing on June 1, 1999. The
notes are convertible into common stock at the option of the holder at any time
prior to December 2, 2003 at the conversion price of $18.34 per share. As of
December 31, 1998, the difference between the carrying value and the fair value
of the notes payable was immaterial based upon the minimal change in interest
rates from the dates of issuance to fiscal year end. There are no financial
covenants associated with the notes payable.

At any time on or after December 6, 2001 the notes will be redeemable at
the option of the Company at the specified redemption price equal to a
percentage of the principal amount, plus accrued interest. The Company shall
redeem such notes at a price equal to 101.813% of the principal on or before
November 30, 2002. Subsequent to this date the notes shall be redeemed at a
price equal to 100% of the principal amount of the notes.

6. OPERATING LEASE COMMITMENTS

The Company leases or subleases facilities and certain equipment under
noncancelable operating leases expiring at various dates through 2003. The
Company does not have an option to renew or extend the term of the sublease
related to the Company's principal administrative, engineering, marketing and
customer service facility which expires in 2003. Rental expense was
approximately $101,000, $266,000, and $1,228,000 for the years ended December
31, 1996, 1997, and 1998, respectively.

F-19
<PAGE> 148
BEYOND.COM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Future minimum lease payments under noncancelable operating leases are as
follows as of December 31, 1998 (in thousands):

<TABLE>
<S> <C>
1999.......................................... $ 2,461
2000.......................................... 2,484
2001.......................................... 2,277
2002.......................................... 2,285
2003.......................................... 1,043
-------
Total minimum lease payments................ $10,550
=======
</TABLE>

7. REDEEMABLE CONVERTIBLE PREFERRED STOCK

Redeemable convertible preferred stock at December 31, 1997 is as follows
by series:

<TABLE>
<CAPTION>
DESIGNATED SHARES ISSUED
SHARES AND OUTSTANDING
---------- ---------------
<S> <C> <C>
A........................... 1,985,520 1,985,520
B........................... 2,500,000 2,037,038
C........................... 3,000,000 3,000,000
D........................... 1,523,424 --
--------- ---------
Total preferred stock..... 9,008,944 7,022,558
========= =========
</TABLE>

In March and April 1998, the Company sold 1,153,846 shares of Series D
redeemable convertible preferred stock at $2.60 per share.

Each share of preferred stock was convertible at any time at the option of
the holder into shares of common stock at the then effective conversion price.
Each outstanding share of Series A, B, C, and D redeemable convertible preferred
stock was convertible into 2.00, 2.00, 1.00, and 1.00 shares of common stock,
respectively, and was subject to adjustment as specified in the Articles of
Incorporation. Upon the Company's initial public offering, all outstanding
shares of preferred stock converted into 12,198,962 shares of common stock.
There have been no dividends declared or payable by the Company.

8. STOCKHOLDERS' EQUITY

Common Shares

The Company is authorized to issue 50,000,000 shares of common stock.
Holders of common stock are entitled to one vote per share on all matters to be
voted upon by the stockholders of the Company. Subject to the preferences that
may be applicable to any outstanding shares of preferred stock, the holders of
common stock are entitled to receive ratably such dividends, if any, that may be
declared by the Board of Directors.

F-20
<PAGE> 149
BEYOND.COM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The Company has reserved shares of common stock for future issuance at
December 31, 1998 as follows:

<TABLE>
<S> <C>
1995 and 1998 Stock Option Plans:
Options outstanding....................... 4,494,299
Options available for future grant........ 268,849
Options granted outside of the Plan......... 1,000,000
Outstanding warrants........................ 358,423
---------
6,121,571
=========
</TABLE>

Stock Option Plans

The Company's 1995 Stock Option Plan was adopted by the Company on January
5, 1995. There are 3,000,000 shares of common stock authorized for issuance
under such plan. On April 4, 1998, the Company's Board of Directors and
stockholders adopted the 1998 Stock Option Plan and reserved an aggregate of
2,000,000 shares of Common Stock for grants of stock options under such plan.
These plans (collectively "the Plans") provide for the issuance of common stock
and granting of options to employees, officers, directors, consultants,
independent contractors, and advisors of the Company. The exercise price of a
nonqualifying stock option and an incentive stock option shall not be less than
85% and 100%, respectively, of the fair value of the underlying shares on the
date of grant. Options granted under the Plans generally vest over four years at
the rate of 25% one year from the grant date and ratably every month thereafter.

In conjunction with the Spin-off of CyberSource on December 31, 1997,
employees of the Company maintained their outstanding options to purchase common
shares of the Company and were granted additional stock options in CyberSource
based on the extent that the employees original options were vested. Employees
of CyberSource immediately following the Spin-off maintained their outstanding
vested stock options in the Company (although these stock options will now be
treated as nonqualified stock options subsequent to the Spin-off) and were
granted additional incentive stock options in CyberSource. The exercise prices
of the original and additional option grants were adjusted to reflect the
allocation of the current fair market value per share price between the
Company's and CyberSource's common stock based on an independent valuation of
the respective fair market value of such shares of common stock. Options to
purchase common shares of the Company held by the CyberSource employees that had
not vested as of the date of the Spin-off were canceled. The following table
summarizes option activity for the years ended December 31, 1996 and 1997, and
1998, and has been adjusted to retroactively reflect the change in exercise
prices of options to purchase common shares of the Company. The adjustments and
Spin-off of options resulted in nonstapled options to the employees of each
entity and were accounted for and in compliance with the guidelines in Emerging

F-21
<PAGE> 150
BEYOND.COM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Issues Task Force Issue No. 90-9 and, therefore, no compensation expense has
been recorded.

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
---------------------------
WEIGHTED
AVERAGE
NUMBER EXERCISE PRICE
SHARES AVAILABLE OF SHARES PER SHARE
---------------- --------- --------------
<S> <C> <C> <C>
Balance at December 31, 1995.......... 770,000 530,000 $0.010
Additional shares reserved.......... 700,000 -- --
Options granted..................... (618,500) 618,500 $0.052
---------- ---------
Balance at December 31, 1996.......... 851,500 1,148,500 $0.033
Options granted..................... (750,700) 750,700 $0.156
Options exercised................... -- (70,000) $0.031
Options canceled.................... 110,000 (110,000) $0.135
Cancellation of unvested options
held by CyberSource employees.... 702,745 (702,745) $0.097
---------- ---------
Balance at December 31, 1997.......... 913,545 1,016,455 $0.068
Additional shares reserved.......... 3,000,000 -- --
Options granted..................... (3,868,946) 3,868,946 $5.162
Options exercised................... -- (166,852) $0.168
Options canceled.................... 224,250 (224,250) $5.775
---------- ---------
Balance at December 31, 1998.......... 268,849 4,494,299 $4.163
========== =========
</TABLE>

In connection with certain stock options granted in March and April 1998,
the Company recorded deferred compensation for the estimated difference between
the exercise price of the options and the deemed fair value of approximately
$3,800,000 which is being amortized over the four year vesting period of the
options.

The following table summarizes information about options outstanding as of
December 31, 1998:

<TABLE>
<CAPTION>
NUMBER OF WEIGHTED NUMBER OF
OPTIONS WEIGHTED AVERAGE OPTIONS WEIGHTED
OUTSTANDING AS AVERAGE REMAINING EXERCISABLE AS OF AVERAGE
OF DECEMBER 31, EXERCISE CONTRACTUAL DECEMBER 31, EXERCISE
EXERCISE PRICE 1998 PRICE LIFE (YEARS) 1998 PRICE
-------------- ----------------- -------- ------------ ----------------- --------
<S> <C> <C> <C> <C> <C>
$ 0.004 - $ 1.90 1,284,499 $ 0.46 8.05 641,341 $0.04
$ 2.60 - $ 4.00 1,241,600 $ 2.61 9.24 5,000 $4.00
$ 4.36 - $ 8.63 1,246,800 $ 5.52 9.38 -- $ --
$ 9.00 - $29.06 721,400 $11.09 9.56 1,000 $9.00
--------- -------
$ 0.0042 - $29.06 4,494,299 $4.163 647,341 $0.09
========= =======
</TABLE>

As of December 31, 1996, and 1997, 573,498 and 666,448 options were
exercisable at a weighted average exercise price of $0.03 and $0.03,
respectively.

F-22
<PAGE> 151
BEYOND.COM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Options Granted Outside of the Stock Option Plans

On January 5, 1995, the Company granted options outside of the Plans to its
Chief Technical Officer to purchase 1,000,000 shares of common stock of the
Company at an exercise price of $0.004 per share. None of the options have been
exercised as of December 31, 1998. As of December 31, 1998, the remaining life
of the options is approximately three years, and all options are exercisable.

Stock-Based Compensation

Pro forma information regarding net loss is required by FAS 123, which also
requires that the information be determined as if the Company has accounted for
its employee stock options granted during the period from January 5, 1995 (date
of adoption of the Plan) through December 31, 1995 (1995) and the years ended
December 31, 1996, 1997, and 1998 under the fair value method of FAS 123. The
fair value for options granted prior to the IPO were estimated at the date of
grant using the minimum value method. Options granted subsequent to the IPO were
valued using the Black-Scholes model based on the actual stock closing price on
the day previous to the date of grant. The following weighted average
assumptions were used to calculate the value of the options granted: risk-free
interest rate of 5.6%, 6.1% and 5.2% for 1996, 1997, and 1998, respectively, no
dividend yield, no volatility factor for 1996 and 1997 and a volatility factor
of 1.35 for 1998, of the expected market price of the Company's common stock,
and a weighted average expected life of the option of four years for 1996 and
1997 and 5.43 years for 1998.

The option valuation models were developed for use in estimating the fair
value of traded options that have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions, including the expected life of the option. Because the
Company's employee stock options have characteristics significantly different
from those of traded options and because changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.

Had compensation cost for the Company's stock-based compensation plans been
determined using the fair value at the grant dates for awards under those Plans
calculated using the minimum value method and the Black-Scholes model described
above, the Company's net loss and pro forma basic and diluted net loss per share
would have been increased to the pro forma amounts indicated below:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1996 1997 1998
------- ------- --------
<S> <C> <C> <C>
Pro forma net loss (in thousands)....... $(1,515) $(5,364) $(32,924)
Pro forma basic and diluted net loss per
share................................. $ (0.30) $ (1.36)
</TABLE>

The weighted average fair value of options granted, which is the value
assigned to the options under FAS 123, was $0.04, $0.04 and $6.48 for options
granted during 1996, 1997, and 1998 respectively.

F-23
<PAGE> 152
BEYOND.COM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The pro forma impact of options on the net loss for the years ended
December 31, 1996, 1997, and 1998 is not representative of the effects on net
income (loss) for future years, as future years will include the effects of
options vesting as well as the impact of multiple years of stock option grants.
The effect of FAS 123 will not be fully reflected until 1999.

9. RELATED PARTY TRANSACTIONS

Pursuant to the terms of an agreement entered into in connection with the
Spin-off of CyberSource, the Company uses services supplied to the Company by
CyberSource on a non-exclusive basis. These services relate to credit card
processing, fraud screening, export control, sales tax computation, electronic
licensing, hosting of electronic downloads and fulfillment notification. Any
discontinuation of such services, or any reduction in performance that requires
the Company to replace such services, would be disruptive to the Company's
business. The Company also received a non-exclusive license to certain
CyberSource Technology. Under the services agreement, the Company is obligated
to compensate CyberSource on a basis of services used per order or transaction.
The Company recorded expenses of approximately $746,500 related to such services
in 1998. As of December 31, 1998, amounts owed to CyberSource were approximately
$100,000.

During the years ended December 31, 1996, 1997, and 1998, legal fees
incurred were approximately, $112,000, $304,000, and $1,300,000, respectively,
relating to a law firm in which a current director of the Company is a partner.
As of December 31, 1997 and 1998, amounts owed to the law firm were
approximately $89,000, and $147,000, respectively.

On March 18, 1998, the Company borrowed $400,000 from CyberSource. The note
was repaid in June 1998.

On April 15, 1998, the Company issued a promissory note to a director and
stockholder to whom it loaned an aggregate of $270,000. Interest shall accrue on
the outstanding principal at a rate of 6.02% per annum. The note and related
accrued interest are due December 17, 1999. This note remains outstanding as of
December 31, 1998.

10. LITIGATION AND CONTINGENCIES

From time to time, the Company may be involved in litigation relating to
claims arising out of its ordinary course of business. The Company believes that
there are no claims or actions pending or threatened against the Company, the
ultimate disposition of which would have a material impact on the Company's
financial position or results of operations.

In November 1998, a third party that appears to hold a registered United
States trademark for "A Better Way to Buy Software" sent the Company a letter
asserting that its use of that phrase up to such time infringed its trademark
rights. The Company disputes the validity of this assertion. However, this third
party might file a lawsuit against the Company, which could subject the Company
to injunctive relief or money damages, or both. In November 1998, another third
party, based in Australia, sent the Company a letter asserting that the
Company's use of the name "Beyond.com" infringes the trademark and domain name
rights of this third party. The Company disputes the validity of this

F-24
<PAGE> 153
BEYOND.COM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

assertion. However, if the asserting party were to be successful with certain of
its claims, the Company's ability to use the "Beyond.com" mark, name or domain
name could be materially and adversely affected.

11. INCOME TAXES

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

As of December 31, 1998, the Company had federal and state net operating
loss carryforwards of approximately $37,000,000 and $31,000,000, respectively.
The Company also had federal and state research credit carryforwards of
approximately $314,000 and $268,000, respectively. The net operating losses and
credit carryforwards will expire at various dates beginning in 2002 through
2018, if not utilized. The net operating loss carryforwards differ from the
accumulated deficit primarily as a result of the accounting for the Spin-off of
CyberSource to the Company's preferred and common stockholders on December 31,
1997.

Utilization of the net operating losses and credits may be subject to a
substantial annual limitation due to the ownership change limitations provided
by the Internal Revenue Code of 1986, as amended, and similar state provisions.
The annual limitation may result in the expiration of net operating losses and
credits before utilization.

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets are as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1997 1998
---------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss
carryforwards........... $2,952,000 $14,507,000
Research credit
carryforwards........... 43,000 491,000
Reserves and accruals...... 151,000 807,000
---------- -----------
Total deferred tax
assets.......... 3,146,000 15,805,000
Valuation allowance.......... (3,146,000) (15,805,000)
---------- -----------
Net deferred tax assets...... $ -- $ --
========== ===========
</TABLE>

Under Statement of Financial Accounting Standards No. 109, (FAS 109),
deferred tax assets and liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect when the differences
are expected to reverse. Based upon the weight of available evidence, which
includes the Company's historical operating performance, the reported net losses
in 1996, 1997, and 1998, and the uncertainties regarding future results of
operations of the Company, the Company has provided a full valuation allowance
against its net deferred tax assets as it is not more likely than not that the

F-25
<PAGE> 154
BEYOND.COM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

deferred tax assets will be realized. The valuation allowance increased by
$2,204,000 during 1997 and increased by $12,659,000 during 1998.

12. EVENT SUBSEQUENT TO DATE OF AUDITOR'S REPORT (UNAUDITED)

On February 19, 1999, the Company entered into an agreement pursuant to
which one of its wholly-owned subsidiaries will merge with and into
BuyDirect.com. Upon the closing of the merger, BuyDirect.com will become a
wholly-owned subsidiary and the Company will issue or reserve for issuance upon
the exercise of options assumed in the acquisition up to 5.4 million shares of
Common Stock to BuyDirect.com stockholders in exchange for the outstanding
shares of BuyDirect.com common and/or preferred stock. The transaction will be
accounted for using the purchase method of accounting. The BuyDirect.com merger
is subject to a number of contingencies including approval of the merger by the
BuyDirect.com stockholders and customary closing conditions. As a result, there
can be no assurance that the BuyDirect.com merger will be completed.

On April 6, 1999, Digital River, Inc. filed a complaint against the
Company, claiming that certain of its officers made allegedly false and
defamatory statements regarding Digital River's business and interfered with
Digital River's business. The complaint sought temporary and permanent
injunctive relief and unspecified damages. The parties engaged in discovery and
a hearing on the preliminary injunction motion was scheduled for April 21, 1999.
On April 16, 1999, the Company announced that it and Digital River, Inc. had
reached an out-of-court settlement of the defamation and unfair completion
lawsuit.

F-26
<PAGE> 155

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders
of BuyDirect.com, Inc.

In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, stockholders' deficit and of cash flows
present fairly, in all material respects, the financial position of
BuyDirect.com, Inc. and its subsidiary at December 31, 1998 and the results of
their operations and their cash flows for the period from March 31, 1998
(Inception) to December 31, 1998 in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.

The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
1 to the consolidated financial statements, the Company has incurred recurring
losses from operations and has a net capital deficiency that raise substantial
doubt about its ability to continue as a going concern. The Company has recently
entered into a definitive merger agreement to exchange all of its outstanding
capital stock, options and warrants to acquire capital stock of the Company for
shares of the acquiring company. These matters are further described in Note 1.
The consolidated financial statements do not include any adjustments that might
result from the outcome of these matters.

/s/ PRICEWATERHOUSECOOPERS LLP

San Francisco, California
March 5, 1999

F-27
<PAGE> 156

BUYDIRECT.COM, INC.

CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998

<TABLE>
<S> <C>
ASSETS

Current assets:
Cash and cash equivalents................................. $ 341,242
Accounts receivable, net.................................. 130,450
Prepaid expenses and other current assets................. 772,324
-----------
Total current assets.............................. 1,244,016
Property and equipment, net................................. 1,048,549
Goodwill, net............................................... 473,439
Other assets................................................ 1,201,901
-----------
Total assets...................................... $ 3,967,905
===========

LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities:
Accounts payable.......................................... $ 960,936
Payable to related parties................................ 3,804,274
Accrued liabilities....................................... 460,396
Convertible promissory notes and accrued interest
payable................................................ 2,039,008
Current obligations under capital leases.................. 208,962
-----------
Total current liabilities......................... 7,473,576
Promissory note and accrued interest payable to related
party..................................................... 5,686,103
Capital lease obligations, long-term........................ 105,302
-----------
Total liabilities................................. 13,264,981
-----------

Commitments (Notes 4 and 7)

Stockholders' deficit:
Convertible preferred stock: $0.0001 par value,
liquidation preference of $2,957,875:
Series A: 8,100,001 shares authorized, issued and
outstanding........................................... 810
Series B: 10,000,000 shares authorized, 2,621,356
issued and outstanding................................ 262
Series C: 3,000,000 shares authorized, 2,129,631 issued
and outstanding....................................... 213
Common Stock: $0.0001 par value; 60,000,000 shares
authorized; 316,000 shares issued and outstanding...... 32
Additional paid-in capital................................ --
Accumulated deficit....................................... (8,741,666)
Deferred stock compensation............................... (556,727)
-----------
Total stockholders' deficit....................... (9,297,076)
-----------
Total liabilities and stockholders' deficit....... $ 3,967,905
===========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.
F-28
<PAGE> 157

BUYDIRECT.COM, INC.

CONSOLIDATED STATEMENT OF OPERATIONS
PERIOD FROM MARCH 31, 1998 (INCEPTION) TO DECEMBER 31, 1998

<TABLE>
<S> <C>
NET REVENUES (NOTE 2)
Product................................................... $ 1,669,084
Advertising............................................... 159,758
-----------
Total net revenues................................ 1,828,842
Cost of net revenues........................................ 876,973
-----------
Gross profit................................................ 951,869
-----------

OPERATING EXPENSES
Sales and marketing....................................... 5,126,221
Research and development.................................. 1,456,283
General and administrative................................ 1,544,948
-----------
Total operating expenses.......................... 8,127,452
-----------
Loss from operations........................................ (7,175,583)
Interest expense............................................ (76,927)
Interest and other income................................... 6,213
-----------
Net loss.................................................... $(7,246,297)
===========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.
F-29
<PAGE> 158

BUYDIRECT.COM, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
PERIOD FROM MARCH 31, 1998 (INCEPTION) TO DECEMBER 31, 1998

<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK ADDITIONAL DEFERRED TOTAL
------------------- ---------------- PAID-IN STOCK ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION DEFICIT DEFICIT
---------- ------ ------- ------ ----------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of Series A
Convertible
Preferred Stock at $0.073926
per share to the BD
Group..................... 8,100,001 $ 810 -- $-- $ 597,990 $ -- $ -- $ 598,800
Contribution by CNET Inc. of
the CNET E Commerce Division
in exchange for issuance of
Series B Convertible
Preferred Stock and the CNET
Option (Note 1)............. 1,900,000 190 -- -- 1,049,730 -- -- 1,049,920
Issuance of Series C
Convertible Preferred Stock
at $0.826 per share, net for
cash and conversion of
convertible promissory notes
payable..................... 2,129,631 213 -- -- 1,750,287 -- -- 1,750,500
Series B Convertible Preferred
anti-dilution adjustment.... 721,356 72 -- -- (72) -- -- --
Exercise of the CNET Option
Call Provision for
Promissory Note Payable
(Note 1).................... -- -- -- -- (4,129,631) -- (1,495,369) (5,625,000)
Exercise of Common Stock
options..................... -- -- 316,000 32 66,328 -- -- 66,360
Deferred stock compensation... -- -- -- -- 665,368 (665,368) -- --
Stock compensation expense.... -- -- -- -- -- 108,641 -- 108,641
Net loss...................... -- -- -- -- -- -- (7,246,297) (7,246,297)
---------- ------ ------- --- ----------- --------- ----------- -----------
Balance at December 31,
1998........................ 12,850,988 $1,285 316,000 $32 $ -- $(556,727) $(8,741,666) $(9,297,076)
========== ====== ======= === =========== ========= =========== ===========
</TABLE>

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

F-30
<PAGE> 159

BUYDIRECT.COM, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS
PERIOD FROM MARCH 31, 1998 (INCEPTION) TO DECEMBER 31, 1998

<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $(7,246,297)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization.......................... 539,445
Stock compensation expense............................. 108,641
Accrued interest on the promissory note payable to
related party......................................... 61,103
Changes in assets and liabilities:
Accounts receivable.................................. 49,162
Prepaid expenses and other assets.................... (1,917,837)
Accounts payable..................................... 945,135
Payable to related parties........................... 4,126,910
Accrued liabilities.................................. (160,200)
-----------
Net cash used in operating activities............. (3,493,938)
-----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment........................ (502,531)
-----------
Net cash used in investing activities............. (502,531)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of Common Stock.................... 66,360
Proceeds from issuance of Preferred Stock................. 1,198,800
Proceeds from issuance of convertible promissory notes.... 3,182,303
Principal payments on capital lease obligations........... (109,752)
-----------
Net cash provided by financing activities......... 4,337,711
-----------
Net increase in cash and cash equivalents................... 341,242
Cash and cash equivalents at inception...................... --
-----------
Cash and cash equivalents at end of year.................... $ 341,242
===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest.................................... $ 4,000
===========
SUPPLEMENTAL NONCASH INVESTING AND FINANCING ACTIVITY:
Property and equipment acquired under capital leases...... $ 424,000
===========
Exchange of the CNET option for promissory note payable... $ 5,625,000
===========
Conversion of convertible promissory note into Series C
Preferred Stock........................................ $ 1,150,500
===========
Series B Convertible Preferred Stock anti-dilution
adjustment............................................. $ 72
===========
</TABLE>

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

F-31
<PAGE> 160

BUYDIRECT.COM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIOD FROM MARCH 31, 1998 (INCEPTION) THROUGH DECEMBER 31, 1998

1. THE COMPANY

The Company

BuyDirect.com, Inc., (the "Company") is a web-based reseller of software
and computer peripherals. On March 31, 1998, certain employees, management and
investors (collectively the "BD Group") and CNET, Inc. ("CNET") agreed to form a
limited liability company, BuyDirect.com LLC, into which CNET contributed the E
Commerce Division of CNET ("E Commerce Division") in exchange for an ownership
interest in the Company. On August 12, 1998, the Company was reorganized into a
Delaware corporation. All share and per share data have been retroactively
adjusted to reflect the reorganization.

In connection with the formation of the Company, the BD Group and CNET
executed the CNET Equity Agreement, under which the BD Group was required to
contribute $598,800 initially and an aggregate of $2 million (the "BD Group
Commitment") prior to March 31, 1999 in exchange for an 81% ownership interest.
CNET contributed the E Commerce Division in exchange for a 19% ownership
interest and an option to purchase an additional 26% ownership interest for
$750,000 (the "CNET Option"). The CNET Option included a call provision ("CNET
Option Call Provision") whereby the BD Group could acquire up to 22.5% of the
26% ownership interests purchasable under the CNET Option for $5,625,000 from
CNET. The CNET Option Call Provision was exercisable through March 31, 2000. The
CNET Option Call Provision was exercised by the Company (see below). Under the
CNET Equity Agreement, the BD Group Commitment could be met by a qualified
private placement of ownership interests in the Company; however, ownership
interests issued to satisfy the BD Group Commitment would not decrease CNET's
ownership interests (including the CNET Option).

In connection with the reorganization on August 12, 1998, the BD Group's
ownership interests were converted into 8,100,001 shares of Series A Convertible
Preferred Stock, CNET's ownership interest was converted into 1,900,000 shares
of Series B Convertible Preferred Stock and up to 2,600,000 shares of Series B
Convertible Preferred Stock were issuable under the CNET Option. In August 1998,
the Company completed the Series C Preferred Stock Offering which, in
conjunction with the initial capital contribution by the BD Group, resulted in
the satisfaction of the BD Group Commitment. In accordance with the antidilution
provisions of the CNET Equity Agreement, which provided that CNET would maintain
its 19% ownership interest after completion of the BD Group commitment, CNET
received an anti-dilution adjustment (treated as a stock dividend) to increase
its Series B Convertible Preferred Stock holdings to 2,621,356 shares and the
Company executed the Amended and Restated CNET Option Agreement to increase the
number of Series B Convertible Preferred Shares purchasable thereunder to
3,587,402 and the number of shares subject to the CNET Option Call Provision to
3,104,422.

In October 1998, the Company, with the concurrence of both the BD Group and
CNET, exercised the CNET Option Call Provision in exchange for a promissory note
payable to CNET for $5,625,000. Following the exercise, there were 482,980
remaining

F-32
<PAGE> 161
BUYDIRECT.COM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PERIOD FROM MARCH 31, 1998 (INCEPTION) THROUGH DECEMBER 31, 1998

shares of Series B Convertible Preferred Stock purchasable under the CNET Option
at December 31, 1998. The exercise has been accounted for as a treasury stock
transaction.

Accounting for the Initial Capitalization of the Company

The Company has recorded the contribution of the CNET E Commerce Division
as a purchase. Accordingly, the fair value of the equity interests issued to
CNET, including the CNET Option, which aggregated approximately $1,050,000, was
allocated to the fair value of the net assets contribution of approximately
$292,000, with the residual amount of $758,000 recorded as goodwill. The E
Commerce Division net assets consisted of current assets of (principally
accounts receivable) $602,000, computer and other equipment of $334,000 and
current liabilities (principally trade accounts payable) of $644,000.

Need for Additional Capital and Sale of the Company

Since inception, the Company has incurred significant operating losses. In
addition, the Company has a working capital deficit of approximately $6.2
million and has a total stockholder deficit of approximately $9.3 million at
December 31, 1998. On February 19, 1999, the Company executed the Agreement and
Plan of Merger ("Merger Agreement") with Beyond.com, Inc. ("Beyond.com"), a
publicly traded U.S. company engaged in the resale of commercial off-the-shelf
software via the Internet. Under the Merger Agreement, Beyond.com will issue up
to approximately 5.4 million shares of its Common Stock, for all of the
outstanding stock, stock options and warrants of the Company. The closing of the
merger is contingent on a number of conditions. If the merger with Beyond.com is
not consummated, the Company will be required to raise additional capital in
order to satisfy its obligations and continue as a going concern.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

Basis of presentation

The financial statements include the accounts of the Company and its
wholly-owned subsidiary. All significant intercompany balances and transactions
have been eliminated in consolidation.

Revenue recognition

The Company's revenues are primarily derived from sales of third party
software and computer peripherals to customers using credit cards and, to a
lesser extent, amounts

F-33
<PAGE> 162
BUYDIRECT.COM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PERIOD FROM MARCH 31, 1998 (INCEPTION) THROUGH DECEMBER 31, 1998

received for advertising and promotion. Prior to November 1998, the Company's
product sales consisted only of electronic copies of software sold pursuant to
agency agreements between the Company and independent software developers.
Accordingly, revenues for product sales prior to November 1998 include only the
commissions earned by the Company on such sales and are net of the wholesale
cost charged by the software developers. In November 1998, the Company amended
its reseller agreements and began recognizing revenues for product sales on a
gross basis, including wholesale cost. Had the Company recognized all of its
product sales on a gross basis, revenues and cost of sales for the period from
March 31, 1998 (Inception) to December 31, 1998 would have been as follows:

<TABLE>
<S> <C>
Net revenues
Product.......................................... $4,113,250
Advertising...................................... 159,758
----------
Total net revenues....................... 4,273,008
Cost of net revenues............................. 3,321,139
----------
Gross profit..................................... $ 951,869
==========
</TABLE>

Revenue from product sales, net of estimated returns, is recognized either
upon shipment of the physical product or delivery of the electronic product, at
which time collectibility is probable and the Company has no remaining
obligations. Revenues for advertising and promotion are recognized as the
services are provided.

Cash and cash equivalents

The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. Cash
equivalents consist of deposits in money market funds. The Company deposits cash
and cash equivalents with high credit quality financial institutions.

Concentration of credit risk

Financial instruments that potentially subject the Company to a
concentration of credit risk consist of cash, cash equivalents and accounts
receivable. The Company generally requires no collateral from its customers. The
Company maintains an allowance for doubtful accounts receivable based upon the
expected collectibility of accounts receivable.

Property and equipment

Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets,
generally three to five years, or the lease term of the respective assets.
Maintenance and repairs are charged to expense as incurred, and improvements and
betterments are capitalized. When assets are retired or otherwise disposed of,
the cost and related accumulated depreciation is removed

F-34
<PAGE> 163
BUYDIRECT.COM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PERIOD FROM MARCH 31, 1998 (INCEPTION) THROUGH DECEMBER 31, 1998

from the accounts and any resulting gain or loss is reflected in operations in
the period realized.

Goodwill

The excess of the fair value of the equity interests received by CNET over
the fair value of the net assets contributed at the formation of the Company, of
$758,000, was recorded as goodwill and is being amortized over the estimated
useful life of two years. Accumulated goodwill amortization at December 31, 1998
totaled approximately $285,000.

Long-lived assets

The Company evaluates the recoverability of its long-lived assets in
accordance with Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of ("SFAS 121"). SFAS 121 requires recognition of impairment of long-lived
assets in the event the net book value of such assets exceeds the future
undiscounted cash flows attributable to such assets.

Income Taxes

The Company accounts for income taxes under the liability method, which
requires, among other things, that deferred income taxes be provided for
temporary differences between the tax basis of the Company's assets and
liabilities and their financial statement reported amounts. In addition,
deferred tax assets are recorded for the future benefit of utilizing net
operating losses and research and development carryforwards. A valuation
allowance is provided against deferred tax assets unless it is more likely than
not they will be realized.

Stock-based compensation

The Company accounts for stock-based employee compensation arrangements in
accordance with the provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," ("APB No. 25") and complies with the
disclosure provisions of Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation ("SFAS No. 123").

Segment information

In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related Information."
This statement establishes standards for the way companies report information
about operating segments in annual financial statements. It also establishes
standards for related disclosures about products and services, geographic areas
and major customers. In accordance with the provision of SFAS No. 131, the
Company has determined that it does not have separately reportable operating
segments.

F-35
<PAGE> 164
BUYDIRECT.COM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PERIOD FROM MARCH 31, 1998 (INCEPTION) THROUGH DECEMBER 31, 1998

Recent accounting pronouncements

In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") No. 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use," which
provides guidance on accounting for the cost of computer software developed or
obtained for internal use. SOP No. 98-1 is effective for financial statements
for fiscal years beginning after December 15, 1998. The Company does not expect
that the adoption of SOP No. 98-1 will have a material impact on its
consolidated financial statements.

On April 3, 1998, the AICPA issued SOP No. 98-5, "Reporting on the Costs of
Start-Up Activities," which requires the costs of start-up activities and
organization costs to be expensed as incurred. SOP No. 98-5 is effective for
financial statements for fiscal years beginning after December 15, 1998. As the
Company has not capitalized such costs to date, the Company does not expect the
adoption of SOP No. 98-5 to have a material impact on its consolidated financial
statements.

In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivation
Instruments and Hedging Activities." The Company is required to adopt SFAS 133
in fiscal 2000. SFAS 133 established methods of accounting for derivative
financial instruments and hedging activities related to those instruments as
well as other hedging activities. To date, the Company has not entered into any
derivative financial statements or hedging activities.

3. BALANCE SHEET COMPONENTS

<TABLE>
<S> <C>
ACCOUNTS RECEIVABLE, NET:
Accounts receivable.............................. $ 197,129
Less: Allowance for doubtful accounts............ (66,679)
----------
$ 130,450
==========
PROPERTY AND EQUIPMENT, NET:
Computer equipment and software.................. $1,230,769
Furniture and fixtures........................... 46,351
Leasehold improvements........................... 14,640
Other assets..................................... 12,171
----------
1,303,931
Less: Accumulated depreciation and
amortization.................................. (255,382)
----------
$1,048,549
==========
</TABLE>

F-36
<PAGE> 165
BUYDIRECT.COM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PERIOD FROM MARCH 31, 1998 (INCEPTION) THROUGH DECEMBER 31, 1998

Property and equipment includes $424,000 of computer equipment and
internal-use software under capital leases at December 31, 1998. Accumulated
amortization of assets under capital leases totaled $35,000 at December 31,
1998. Depreciation expense for the period ended December 31, 1998 was $255,382.

<TABLE>
<S> <C>
ACCRUED LIABILITIES:
Payroll and benefits............................... $368,198
Other.............................................. 92,198
--------
$460,396
========
</TABLE>

4. AGREEMENTS WITH RELATED PARTIES

Agreements with CNET

The Company entered into the CNET Marketing Agreement on March 31, 1998,
pursuant to which CNET was to provide content rights and various online and
television promotions in return for guaranteed payments aggregating $5.4 million
over the two year term of the agreement. In October 1998, the Company and CNET
terminated the agreement and entered into the CNET Promotion Agreement. Pursuant
to the termination agreement, the Company is required to pay CNET $1.5 million
for unpaid promotion and other services received by the Company prior to
termination of the CNET Marketing Agreement. The Company recognized an aggregate
of $1.9 million as a sales and marketing expense in connection with the CNET
Marketing Agreement during 1998, of which approximately $900,000 was payable at
December 31, 1998 and is recorded in the amounts payable to related parties.

Under the CNET Promotion Agreement, the Company is required to pay up to
$6.0 million over the two year term for internet and television promotions and
exclusivity rights. Additionally, during the first year the Company is required
to pay the greater of $1.25 million or actual per click fees owed for customers
delivered to the Company's sites directly from the CNET sites. Per click fees
payable after the first year will be based on the actual amount owed. The
Company recognized approximately $1.0 million as a sales and marketing expense
in 1998 related to the CNET Promotion Agreement, and approximately $1.0 million
was payable to CNET at December 31, 1998 and is recorded in the amounts payable
to related parties.

@Home Co-Branded Site Agreement

In November 1998, the Company and @Home, Inc ("@Home"), a provider of
broadband internet subscription services, entered into the @Home Co-Branded Site
Agreement (the "@Home Agreement") pursuant to which the Company became the
exclusive software store promoted on the @Home Network. Under the @Home
Agreement, the Company is required to make aggregate minimum payments of $4.0
million over the three year term, including a non-refundable prepayment of $1.9
million. The minimum payments may be reduced pursuant to an adjustment factor
based on the average annual number of @Home subscribers and may be increased if
gross profits earned by the Company on sales to @Home subscribers exceed certain
levels. The

F-37
<PAGE> 166
BUYDIRECT.COM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PERIOD FROM MARCH 31, 1998 (INCEPTION) THROUGH DECEMBER 31, 1998

Company has accrued the prepayment and is amortizing it to marketing expenses
over the three-year term of the agreement, of which approximately $100,000 was
amortized in 1998. The $1.9 million prepayment is included in amounts payable to
related parties.

@Home Equity Agreement

The Company has entered into the Series D Convertible Preferred Stock
Purchase Agreement (Note 8) with @Home governing the sale of 2,424,242 shares of
Series D Convertible Preferred Stock.

5. INCOME TAXES

No provision for income taxes was recorded due to the net losses for the
period from March 31, 1998 (Inception) to December 31, 1998.

At December 31, 1998, the Company had deferred tax assets of approximately
$2.8 million. Management believes that, based on a number of factors, it is more
likely than not that the deferred tax assets will not be realized, such that a
full valuation allowance has been recorded. Deferred tax assets relate primarily
to net operating loss carryforwards.

At December 31, 1998, the Company had approximately $6.8 million of federal
and state net operating loss carryforwards available to offset future taxable
income which expire in varying amounts beginning in 2018 and 2006, respectively.
Under the Tax Reform Act of 1986, the amounts of and benefits from net operating
loss carryforwards may be impaired or limited in certain circumstances. Events
which cause limitations in the amount of net operating losses that the Company
may utilize in any one year include, but are not limited to, a cumulative
ownership change of more than 50%, as defined, over a three year period.

6. BORROWINGS

Promissory Note Payable to Related Party

Promissory note and accrued interest payable of $5,686,103 at December 31,
1998 consists of amounts payable to CNET pursuant to the Company's exercise of
the CNET Option Call Provision (Note 1). The promissory note bears interest at a
compounded annual rate of 6.5%. No payments of principal or interests are
required until October 31, 2000. Payments thereafter depend on the Company's
ability to secure the note with a letter of credit. In the event that the
Company is unable to secure the promissory note on October 31, 2000, the note
will become due and payable in equal quarterly installments through the fourth
anniversary of the note. If a letter of credit is received, the note will be due
and payable on October 31, 2002. As of December 31, 1998, the difference between
the carrying value and the fair value of the CNET note was immaterial based upon
the minimal change in interest rates between October 31 and December 31, 1998.

F-38
<PAGE> 167
BUYDIRECT.COM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PERIOD FROM MARCH 31, 1998 (INCEPTION) THROUGH DECEMBER 31, 1998

Convertible Promissory Notes Payable

In July and August 1998, the Company issued convertible promissory notes
with aggregate principal of $1,150,500. The notes bore interest at 5.56%,
compounded annually. In August 1998, the notes converted into approximately
1,392,600 shares of Series C Convertible Preferred Stock at a price per share
equivalent to that paid by the Series C Convertible Preferred Stock investors.

In November and December 1998, the Company issued convertible promissory
notes with aggregate principal of $2,031,803 which, together with accrued
interest thereon aggregated $2,039,008 at December 31, 1998. The convertible
promissory notes bear interest at 4.33%, compounded annually. In February 1999,
the notes converted into 1,279,497 shares of Series D Convertible Preferred
Stock at a price per share equivalent to that paid by the Series D Convertible
Preferred Stock investor. As of December 31, 1998, the difference between the
carrying value and the fair value of the convertible notes payable was
immaterial based upon the minimal change in interest rates between the dates of
issuance and December 31, 1998.

7. COMMITMENTS

Marketing Agreements

Under the Company's marketing agreements with @Home and CNET, the Company's
annual payment commitments total $4.1 million, $2.7 million and $1.8 million in
1999, 2000 and 2001, respectively. Such payments are subject to adjustments as
described in Note 4.

Leases

The Company leases office space and equipment under noncancelable operating
and capital leases with various expiration dates through 2001. Rent expense for
the period from March 31, 1998 (Inception) through December 31, 1998 was
$252,000. The terms of the facility lease provide for rental payments on a
graduated scale. The Company recognizes rent expense on a straight-line basis
over the lease period, and has accrued for rent expense incurred but not paid.

F-39
<PAGE> 168
BUYDIRECT.COM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PERIOD FROM MARCH 31, 1998 (INCEPTION) THROUGH DECEMBER 31, 1998

Future minimum lease payments under noncancelable operating and capital
leases are as follows:

<TABLE>
<CAPTION>
YEAR ENDED CAPITAL OPERATING
DECEMBER 31, LEASES LEASES
------------ --------- ---------
<S> <C> <C>
1999.......................................... $ 218,912 $447,830
2000.......................................... 122,365 248,066
2001.......................................... -- 19,002
--------- --------
Total minimum lease payments.................... 341,277 $714,898
========
Less: Amount representing interest.............. (27,013)
---------
Present value of capital lease obligations...... 314,264
Less: Current portion........................... (208,962)
---------
Long-term portion of capital lease
obligations................................... $ 105,302
=========
</TABLE>

8. CONVERTIBLE PREFERRED STOCK

Convertible Preferred Stock at December 31, 1998 consists of the following:

<TABLE>
<CAPTION>
SHARES
------------------------- LIQUIDATION
SERIES AUTHORIZED OUTSTANDING AMOUNT
------ ---------- ----------- -----------
<S> <C> <C> <C>
A........................ 8,100,001 8,100,001 $ 598,800
B........................ 10,000,000 2,621,356 600,000
C........................ 3,000,000 2,129,631 1,759,075
---------- ---------- ----------
21,100,001 12,850,988 $2,957,875
========== ========== ==========
</TABLE>

In November 1998, the Company entered into the Series D Preferred Stock
Purchase Agreement with @Home. Under the terms of the agreement, @Home placed
$4.0 million in escrow to purchase 2,424,242 shares of Series D Convertible
Preferred Stock at $1.65 per share. The closing of the Series D Preferred Stock
Purchase Agreement was contingent upon a number of items. On February 8, 1999,
the Company issued the shares to @Home and the cash proceeds were released from
escrow to the Company.

The holders of Preferred Stock have various rights and preferences as
follows:

Voting

Each share of Preferred Stock has voting rights equal to an equivalent
number of shares of Common Stock into which it is convertible and votes together
as one class with the Common Stock.

As long as shares of Series B, C and D Convertible Preferred Stock remain
outstanding, the Company must obtain approval from a majority of the holders of
Series B, C and D Convertible Preferred Stock in order to alter the articles of
incorporation as related to Convertible Preferred Stock, change the authorized
number of shares of Convertible Preferred Stock, repurchase any shares of Common
Stock other than shares

F-40
<PAGE> 169
BUYDIRECT.COM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PERIOD FROM MARCH 31, 1998 (INCEPTION) THROUGH DECEMBER 31, 1998

subject to the right of repurchase by the Company, change the authorized number
of Directors, authorize a dividend for any class or series other than
Convertible Preferred Stock, create a new class of stock or effect a merger,
consolidation or sale of assets where the existing shareholders retain less than
50% of the voting stock of the surviving entity.

As long as shares of Series A Convertible Preferred Stock remain
outstanding, the Company must obtain the approval from a majority of the holders
of Series A Convertible Preferred Stock to change the rights, preferences,
privileges or authorized number of shares of Series A Convertible Preferred
Stock.

Dividends

Holders of Series A, B, C and D Convertible Preferred Stock are entitled to
receive noncumulative dividends at the per annum rate of $0.0007, $0.0229,
$0.0826 and $0.165 per share, respectively, when and if declared by the Board of
Directors. The holders of Series A, B and C Convertible Preferred Stock will
also be entitled to participate in dividends on Common Stock, when and if
declared by the Board of Directors, based on the number of shares of Common
Stock held on an as-if converted basis. No dividends on Convertible Preferred
Stock or Common Stock have been declared by the Board from Inception through
December 31, 1998.

Liquidation

In the event of any liquidation, dissolution or winding up of the Company,
including a merger, acquisition or sale of assets where the beneficial owners of
the Company's Common Stock and Convertible Preferred Stock own less than 51% of
the resulting voting power of the surviving entity, the holders of Series A, B,
C and D Convertible Preferred Stock are entitled to receive an amount of $0.074,
$0.229, $0.826 and $1.65 per share, respectively, plus any declared but unpaid
dividends prior to and in preference to any distribution to the holders of
Common Stock. The remaining assets, if any, shall be distributed to holders of
Common Stock and Preferred Stock (assuming conversion into equivalent shares of
Common Stock). Should the Company's legally available assets be insufficient to
satisfy the liquidation preferences, the funds will be distributed to the
holders of Series A, B, C and D Convertible Preferred Stock pro-rata based on
their respective liquidation values.

Conversion

Each share of Series A, B, C and D Convertible Preferred Stock is
convertible, at the option of the holder, according to a conversion ratio,
subject to adjustment for dilution. Each share of Series A, B, C and D
Convertible Preferred Stock automatically converts into the number of shares of
Common Stock into which such shares are convertible at the then effective
conversion ratio upon: (1) the closing of a public offering of Common Stock
resulting in an implicit post-money market value of the Company of at least $90
million, (2) a merger, sale of substantially all of the assets or other
transactions which result in a change in control, or (3) the consent of the
holders of the majority of Convertible

F-41
<PAGE> 170
BUYDIRECT.COM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PERIOD FROM MARCH 31, 1998 (INCEPTION) THROUGH DECEMBER 31, 1998

Preferred Stock. At December 31, 1998, each share of Series A, B, C and D
Convertible Preferred Stock was convertible into one share of Common Stock.

At December 31, 1998, the Company reserved 8,100,001, 3,104,276, and
2,129,631 shares of Common Stock for the conversion of Series A, B and C
Convertible Preferred Stock, respectively.

9. COMMON STOCK

The Company's Articles of Incorporation, as amended, authorize the Company
to issue 60,000,000 shares of $0.0001 par value Common Stock. All of the shares
of Common Stock outstanding at December 31, 1998 were issued pursuant to early
exercises provisions of stock option agreements. Such shares are subject to a
right of repurchase by the Company subject to vesting, which is generally over
the original three year period of the option.

10. STOCK OPTION PLANS

In September 1998, the Company adopted the 1998 Stock Option Plan (the
"Plan"). The Plan provides for the granting of stock options to employees and
consultants of the Company. Options granted under the Plan may be either
incentive stock options or nonqualified stock options. Incentive stock options
("ISO") may be granted only to Company employees (including officers and
directors who are also employees). Nonqualified stock options ("NSO") may be
granted to Company employees and consultants. The Company has reserved 2,309,661
shares of Common Stock for issuance under the Plan.

Options under the Plan may be granted for periods of up to ten years and at
prices no less than 85% of the estimated fair value of the shares on the date of
grant as determined by the Board of Directors, provided, however, that (i) the
exercise price of an ISO and NSO shall not be less than 100% and 85% of the
estimated fair value of the shares on the date of grant, respectively, and (ii)
the exercise price of an ISO and NSO granted to a 10% shareholder shall not be
less than 110% of the estimated fair value of the shares on the date of grant,
respectively. Options are exercisable immediately, subject to repurchase options
held by the Company which lapse over the option's original vesting period, and
are exercisable for a maximum period of ten years at such times and under such
conditions as determined by the Board of Directors. To date, options granted
vest 1/3 on each one year anniversary of the vesting commencement date.

During 1998, the Company recorded $665,000 of deferred stock compensation
for the excess of the deemed fair market value over the exercise price at the
date of grant related to certain options granted in 1998. Included in deferred
stock compensation at December 31, 1998, was $149,000 for options granted to a
consultant which were valued using the Black-Scholes model. The Board of
Directors granted the options during September and October 1998. Accordingly,
the deemed fair market values of the Company's Common Stock at those dates was
estimated based on a comparison to the prices in the Series C and Series D
Convertible Preferred Stock Purchase Agreements.

F-42
<PAGE> 171
BUYDIRECT.COM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PERIOD FROM MARCH 31, 1998 (INCEPTION) THROUGH DECEMBER 31, 1998

Stock compensation expense is being recognized over the option vesting period of
three years.

The following table summarizes activity under the Plan:

<TABLE>
<CAPTION>
SHARES PRICE
-------- -----
<S> <C> <C>
Options granted..................................... 888,000 $0.21
Options exercised................................... (316,000) 0.21
Options canceled.................................... -- --
--------
Outstanding at December 31, 1998.................... 572,000 $0.21
========
Options exercisable at December 31, 1998............ 572,000 --
========
</TABLE>

At December 31, 1998, 1,421,661 options remain available for issuance and
316,000 shares of Common Stock acquired pursuant to the early exercise
provisions of stock options are subject to repurchase by the Company over the
remaining vesting period.

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING AT DECEMBER 31, 1998 OPTIONS EXERCISABLE AT
----------------------------------------- DECEMBER 31, 1998
WEIGHTED -----------------------
AVERAGE WEIGHTED WEIGHTED
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICE OUTSTANDING LIFE PRICE OUTSTANDING PRICE
-------- ------------ ------------ --------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.21................ 572,000 9.75 years $0.21 572,000 $0.21
------- -------
572,000 572,000
======= =======
</TABLE>

Fair Value Disclosures

Had compensation cost for the Company's stock-based compensation plan been
determined based on the fair value at the grant dates for the awards under a
method prescribed by SFAS No. 123, the Company's net loss would have been
increased by approximately $13,000.

The Company calculated the fair value of each option grant on the date of
grant using the Black-Scholes pricing method with the following assumptions:
volatility of 0%; dividend yield at 0%; weighted average expected option term of
10 years; risk free interest rate of 5.6%. The weighted average fair value of
options granted during 1998 was $0.82.

11. EMPLOYEE BENEFIT PLANS

The Company sponsors a 401(k) defined contribution plan covering all
employees. Contributions made by the Company are determined annually by the
Board of Directors. Employer contributions under this plan amounted to
approximately $7,000 for the period from March 31, 1998 (Inception) to December
31, 1998.

F-43
<PAGE> 172
BUYDIRECT.COM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PERIOD FROM MARCH 31, 1998 (INCEPTION) THROUGH DECEMBER 31, 1998

12. SUBSEQUENT EVENTS

Employee Stock Options

In February 1999, the Company granted options to purchase an aggregate
620,175 shares of Common Stock for a weighted average exercise price of $0.44.

Co-Branded Software Site Agreement

On February 12, 1999, the Company entered into a Co-Branded Software Site
Agreement with a provider of broadband Internet subscription services pursuant
to which the Company became the exclusive software store promoted on the
provider's service. Under the agreement, the Company is required to make
aggregate minimum payments of $2.225 million over the three year term, payable
in scheduled quarterly installments. The minimum payments may be reduced
pursuant to an adjustment factor based on the average annual number of
subscribers during each year. Additionally, the minimum annual payments may be
increased if gross profits earned by the Company on sales to the provider's
customers exceed certain levels.

Content and Promotion Agreement and Series E Convertible Preferred Stock
Warrant

On February 19, 1999, the Company entered into a Content and Promotion
Agreement with ZD, Inc. pursuant to which the Company will receive certain
promotion and advertising and on-line software content for use on the Company's
web site. The agreement has a three-year term and requires minimum monthly
payments aggregating approximately $9.0 million. The payments may be increased
if gross revenues received by the Company exceed certain levels.

In connection with executing the marketing agreement, the Company issued
ZD, Inc. a warrant to purchase 2,005,400 shares of Series E Convertible
Preferred Stock for $1.65 per share. The warrant is exercisable immediately and
for a term of ten years. The Series E Convertible Preferred Stock ("Series E")
has voting, dividend, liquidation and conversion rights identical to those of
the Series D Convertible Preferred Stock described in Note 9.

F-44
<PAGE> 173

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors
of CNET, Inc.

In our opinion, the accompanying balance sheet and the related statements
of operations, division equity and of cash flows present fairly, in all material
respects, the financial position of E-Commerce, a division of CNET, Inc. at
December 31, 1997 and March 31, 1998, and the results of its operations and its
cash flows for the year ended December 31, 1997 and for the three months ended
March 31, 1998, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.

/s/ PRICEWATERHOUSECOOPERS LLP

San Francisco, California
March 5, 1999

F-45
<PAGE> 174

E-COMMERCE, A DIVISION OF CNET, INC.
(PREDECESSOR BUSINESS)

BALANCE SHEET

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 165,253 $ 22,636
Accounts receivable, net.................................. 141,368 179,612
Prepaid expenses and other current assets................. 58,262 50,451
----------- -----------
Total current assets.............................. 364,883 252,699
Property and equipment, net................................. 342,145 388,527
Other assets................................................ 12,077 5,927
----------- -----------
Total assets...................................... $ 719,105 $ 647,153
=========== ===========

LIABILITIES AND DIVISION EQUITY
Current liabilities:
Accounts payable.......................................... $ 244,349 $ 389,468
Accrued liabilities....................................... 87,567 255,135
----------- -----------
Total liabilities................................. 331,916 644,603
----------- -----------
Commitments (Note 6)
Division equity:
Advances from CNET........................................ 2,672,944 2,621,420
Accumulated deficit....................................... (2,285,755) (2,618,870)
----------- -----------
Total division equity............................. 387,189 2,550
----------- -----------
Total liabilities and division equity............. $ 719,105 $ 647,153
=========== ===========
</TABLE>

The accompanying notes are an integral part of these financial statements.
F-46
<PAGE> 175

E-COMMERCE, A DIVISION OF CNET, INC.
(PREDECESSOR BUSINESS)

STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
1997 1998
------------ ------------
<S> <C> <C>
Net revenues................................................ $ 1,014,429 $ 355,641
----------- -----------
Operating expenses
Sales and marketing....................................... 1,687,962 389,523
Research and development.................................. 109,900 53,667
General and administrative................................ 921,082 245,566
----------- -----------
Total operating expenses.......................... 2,718,944 688,756
----------- -----------
Net loss.................................................... (1,704,515) (333,115)
=========== ===========
</TABLE>

The accompanying notes are an integral part of these financial statements.
F-47
<PAGE> 176

E-COMMERCE, A DIVISION OF CNET, INC.
(PREDECESSOR BUSINESS)

STATEMENT OF DIVISION EQUITY

<TABLE>
<CAPTION>
ADVANCES ACCUMULATED TOTAL
FROM CNET DEFICIT DIVISION EQUITY
---------- ----------- ---------------
<S> <C> <C> <C>
Balance at January 1, 1997..................... $1,026,338 $ (581,240) $ 445,098
Net advances from (payments to) CNET........... 1,646,606 -- 1,646,606
Net loss....................................... -- (1,704,515) (1,704,515)
---------- ----------- -----------
Balance at December 31, 1997................... 2,672,944 (2,285,755) 387,189
Net advances from (payments to) CNET........... (51,524) -- (51,524)
Net loss....................................... -- (333,115) (333,115)
---------- ----------- -----------
Balance at March 31, 1998...................... $2,621,420 $(2,618,870) $ 2,550
========== =========== ===========
</TABLE>

The accompanying notes are an integral part of these financial statements.
F-48
<PAGE> 177

E-COMMERCE, A DIVISION OF CNET, INC.
(PREDECESSOR BUSINESS)

STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
1997 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(1,704,515) $(333,115)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization.......................... 186,476 70,585
Write-off of property and equipment.................... 164,733 53,667
Changes in assets and liabilities:
Accounts receivable.................................. (97,268) (38,244)
Prepaid expenses and other assets.................... (67,941) 13,961
Accounts payable..................................... 244,349 145,119
Accrued liabilities.................................. (23,366) 167,568
----------- ---------
Net cash provided by (used in) operating
activities..................................... (1,297,532) 79,541
----------- ---------
Cash flows from investing activities:
Purchase of property and equipment........................ (289,083) (170,634)
----------- ---------
Net cash used in investing activities............. (289,083) (170,634)
----------- ---------
Cash flows from financing activities:
Net advances from (payments to) CNET...................... 1,646,606 (51,524)
----------- ---------
Net cash provided by (used in) financing
activities..................................... 1,646,606 (51,524)
----------- ---------
Net (decrease)/increase in cash............................. 59,991 (142,617)
Cash and cash equivalents at beginning of the period........ 105,262 165,253
----------- ---------
Cash and cash equivalents at end of period.................. $ 165,253 $ 22,636
=========== =========
</TABLE>

The accompanying notes are an integral part of these financial statements.
F-49
<PAGE> 178

E-COMMERCE, A DIVISION OF CNET, INC.
(PREDECESSOR BUSINESS)

NOTES TO FINANCIAL STATEMENTS

1. THE DIVISION

The accompanying financial statements and related notes reflect the
carve-out historical results of operations and financial position of the
E-Commerce Division ("Division") of CNET, Inc. ("CNET"). The Statement of
Operations include all revenues and costs directly attributable to the Division,
including costs for facilities, functions and services used by the Division at
shared sites and allocations of costs for certain administrative function and
services performed by centralized departments within CNET. Costs have been
allocated to the Division based on CNET management's estimate of costs
attributable to the operations of the electronic commerce business. Such costs
are not necessarily indicative of the costs that would have been incurred if the
Division had been a separate entity.

During the periods presented, the Division relied on cash advances and
services provided by CNET to support its operations.

On March 31, 1998, CNET contributed substantially all of the assets and
liabilities of the Division to BuyDirect.com, Inc. ("BuyDirect"), a new venture,
in exchange for an ownership interest.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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 and
disclosure of contingent assets and liabilities at the dates of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.

Revenue recognition

The Division's revenues are primarily derived from sales of third party
software to customers using credit cards and, to a lesser extent, amounts
received for advertising and promotion. The Division's product sales consisted
of electronic copies of software sold pursuant to agency agreements between the
Division and independent software developers. Accordingly, revenues for product
sales include only the commissions earned by the Division on such sales and are
net of the wholesale cost charged by the software developers. Revenue from
product sales, net of estimated returns, is recognized upon delivery of the
electronic product, at which time collectibility is probable and the Division
has no remaining obligations. Revenues for advertising and promotion are
recognized as the services are provided.

Income taxes

The taxable loss of the Division for the year ended December 31, 1997 and
for the three months ended March 31, 1998 was included in the CNET consolidated
tax returns. Separate tax returns were not prepared or filed for the Division.
For all periods presented, deferred income taxes and related tax expenses have
been recorded by applying the asset and liability approach to each component of
the Division as if it were a separate tax payer. Under this approach, deferred
tax assets and liabilities

F-50
<PAGE> 179
E-COMMERCE, A DIVISION OF CNET, INC.
(PREDECESSOR BUSINESS)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

represent the expected future tax consequences of carryforwards and temporary
differences between the carrying amounts and the tax basis of assets and
liabilities.

Cash and cash equivalents

The Division considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. Cash
equivalents consist of deposits in money market funds. The Division deposits
cash and cash equivalents with high credit quality financial institutions.

Concentration of credit risk

Financial instruments that potentially subject the Division to a
concentration of credit risk consist of cash and accounts receivable. The
Division generally requires no collateral from its customers. The Division
maintains an allowance for doubtful accounts receivable based upon the expected
collectibility of accounts receivable.

Property and equipment

Equipment is stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets, generally
three to five years, or the lease term of the respective assets. Maintenance and
repairs are charged to expense as incurred, and improvements and betterments are
capitalized when assets are retired or otherwise disposed of, the cost and
accumulation are removed from the accounts and any resulting gain or loss is
reflected in operations in the period realized.

Long-lived assets

The Division evaluates the recoverability of its long-lived assets in
accordance with Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of ("SFAS 121"). SFAS 121 requires recognition of impairment of long-lived
assets in the event the net book value of such assets exceeds the future
undiscounted cash flows attributable to such assets.

Stock-based compensation

For CNET stock options granted to the Division's employees, the Division
accounts for stock-based employee compensation arrangements in accordance with
provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees," ("APB No. 25") and complies with the disclosure provisions
of Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation ("SFAS No. 123").

Division Equity

Division equity includes historical investment and advances from CNET,
including net payments to/from CNET, third party, liabilities paid on behalf of
the Division by CNET, amounts due to/from CNET for services for allocated
charges, and current period net loss of the Division.

F-51
<PAGE> 180
E-COMMERCE, A DIVISION OF CNET, INC.
(PREDECESSOR BUSINESS)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

3. BALANCE SHEET COMPONENTS

<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ ---------
<S> <C> <C>
ACCOUNTS RECEIVABLE, NET:
Accounts receivable................................... $201,368 $239,612
Less: Allowance for doubtful accounts................. (60,000) (60,000)
-------- --------
$141,368 $179,612
======== ========

EQUIPMENT, NET:
Computer equipment and software....................... $536,278 $571,278
Furniture and fixtures................................ 2,196 4,257
Other assets.......................................... -- 79,906
-------- --------
538,474 655,441
Less: Accumulated depreciation........................ (196,329) (266,914)
-------- --------
$342,145 $388,527
======== ========

ACCRUED LIABILITIES:
Accrued bank charges.................................. $ 60,733 $144,175
Accrued wages......................................... 7,492 40,675
Deferred revenue...................................... 12,200 13,014
Other................................................. 7,142 57,271
-------- --------
$ 87,567 $255,135
======== ========
</TABLE>

4. RELATED PARTY TRANSACTIONS; ADVANCES FROM CNET

The accompany financial statements include costs for accounting, legal and
network operations that were provided to the Division by CNET, in addition to
allocated costs for facility charges at shared sites, including rent and
equipment usage. Costs for accounting, legal and network operations have been
incorporated into the monthly management fee paid by the Division to CNET. The
costs for facility charges are based on head count. Such allocations are not
necessarily indicative of the costs that would have been incurred if the
Division had been a separate entity. However, management believes the
differences between the allocated costs and cost to obtain such services from an
outside third party would be insignificant.

For the year ended December 31, 1997, allocated charges of $93,408 and
$180,000 were included in sales and marketing and general and administrative
expenses, respectively. For the three months ended March 31, 1998, allocated
charges of $23,400 and $45,000 were included in sales and marketing and general
and administrative expenses, respectively.

Other expenses charged by CNET included in the Statement of Operations
represent actual costs incurred by CNET which were directly attributable to the
Division. These expenses were primarily payroll and related costs, consulting,
commissions, depreciation and technology support. In addition to allocated
expenses and management fees, CNET provided cash advances for equipment
purchases. Cash received from customers, in excess of operating costs was used
to reduce the balance due to CNET.
F-52
<PAGE> 181
E-COMMERCE, A DIVISION OF CNET, INC.
(PREDECESSOR BUSINESS)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

A summary of the activity impacting the net advances from CNET balance for
the year ended December 31, 1997 and the three months ended March 31, 1998 is as
follows:

<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1997 MARCH 31, 1998
----------------- --------------
<S> <C> <C>
Beginning balance............................... $1,026,338 $2,672,944
Allocated charges............................... 273,408 68,400
Net advances/(payments)......................... 1,373,198 (119,924)
---------- ----------
Ending balance.................................. $2,672,944 $2,621,420
========== ==========
</TABLE>

The average balance of the advances from CNET was approximately $1.8
million and $2.6 million for the year ended December 31, 1997 and the three
months ended March 31, 1998, respectively.

No interest has been charged or credited to the Division related to the
above transactions.

5. INCOME TAXES

The operating results of Division were included in the consolidated tax
returns of CNET. The methodology for allocating tax expense to Division is set
forth in Note 2.

No provision for income taxes was recorded due to the net losses for the
year ended December 31, 1997 and for the three months ended March 31, 1998.

The Division had deferred tax assets of $684,158 and $132,694 at December
31, 1997 and March 31, 1998, respectively. Management believes that, based on a
number of factors, it is more likely than not that the deferred tax assets will
not be realized, such that a full valuation allowance has been recorded.
Deferred tax assets related primarily to net operating loss carryforwards which,
following the contribution of the Division to BuyDirect, remained with CNET.

6. COMMITMENTS

Lease

The Division leased office space under a noncancelable operating lease with
expiration date in 2000. Rent expense of $56,971 and $10,700 was incurred for
the year ended December 31, 1997 and for the three months ended March 31, 1998,
respectively.

Future minimum lease payments under the noncancelable operating lease at
March 31, 1998 were as follows:

<TABLE>
<S> <C>
April 1, 1998 through December 31, 1998..................... $26,672
Year ended December 31, 1999................................ 35,563
Year ended December 31, 2000................................ 29,636
-------
Total minimum lease payments................................ $91,871
=======
</TABLE>

F-53
<PAGE> 182
E-COMMERCE, A DIVISION OF CNET, INC.
(PREDECESSOR BUSINESS)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

7. STOCK OPTION PLAN

In 1997, the stockholders of CNET approved the 1997 Stock Option Plan (the
"1997 Plan"). The 1997 Plan authorizes grants of options to purchase up to
1,000,000 shares of authorized but unissued CNET common stock. Stock options for
the Division's employees were granted with an exercise price equal to the
stock's fair market value at the date of grant, had 10-year terms and generally
vested and become fully exercisable three years from the date of grant.

A summary of the status of the CNET stock options granted to the employees
of the Division is presented below:

<TABLE>
<CAPTION>
WEIGHTED AVERAGE
NUMBER EXERCISE
OF SHARES PRICE
--------- --------
<S> <C> <C>
Balance as of December 31, 1996............................. 54,125 $ 7.42
Granted..................................................... 11,250 25.64
Exercised................................................... (1,563) 9.54
Cancelled................................................... (2,062) 10.41
------- ------
Balance as of December 31, 1997............................. 61,750 10.58
Granted..................................................... 3,000 28.81
Exercised................................................... (44,813) 7.54
Cancelled................................................... (19,937) 20.17
------- ------
Balance as of March 31, 1998................................ -- $ --
======= ======
</TABLE>

In connection with the formation of BuyDirect.com, Inc. on March 31, 1998,
all vested options were exercised and all unvested options were cancelled. As of
December 31, 1997, 24,875 options were exercisable and the weighted-average
exercise price of those options was $5.71.

The Division applies Accounting Principles Board (APB) Opinion No. 25 in
accounting for the Plan and, accordingly, no compensation cost has been
recognized for the for the year ended December 31, 1997 and for the three months
ended March 31, 1998. Had the Division determined compensation cost based on the
fair value at the grant date for its stock options under SFAS No. 123, the
Division's net loss for the year ended December 31, 1997 and for the three
months ended March 31, 1998 would have been increased to $1,811,764 and
$399,820, respectively. The weighted-average fair value of options granted in
1997 and 1998 was $20.02 and $17.22, respectively. The fair value of each option
grant was estimated on the date of the grant using the Black Scholes
option-pricing model with the following weighted-average assumptions used for
grants in 1997 and 1998, respectively: no dividend yield, expected volatility of
75%, risk-free interest rate of 6%, and an expected life of five years. The
effects of applying SFAS No. 123 in this pro forma disclosure is not indicative
of the effects on reported results for future years.

F-54
<PAGE> 183
E-COMMERCE, A DIVISION OF CNET, INC.
(PREDECESSOR BUSINESS)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

8. EMPLOYEE BENEFIT PLANS

In 1996, the Division adopted a 401(k) Profit Sharing Plan (the "401(k)
Plan") that is intended to qualify under section 401(k) of the Internal Revenue
Code of 1986, as amended. The 401(k) Plan covers substantially all of the
Division's employees. Participants may elect to contribute a percentage of their
compensation to this plan, up to the statutory maximum amount. The Division may
make discretionary contributions to the 401(k) Plan, but have not done so during
1997 and the three months ended March 31, 1998.

F-55
<PAGE> 184

[BEYOND.COM LOGO]
<PAGE> 185

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by us in connection with the
sale of common stock being registered. All amounts are estimates except the SEC
registration fee and Nasdaq filing fee.

<TABLE>
<S> <C>
Securities and Exchange Commission filing fee............... $ 18,000
Nasdaq National Market listing fee.......................... $ --
Blue Sky fees and expenses.................................. $ --
Printing and engraving expenses............................. $ 50,000
Legal fees and expenses..................................... $ 50,000
Accounting fees and expenses................................ $ 25,000
Transfer Agent and Registrar fees........................... $ 5,000
Miscellaneous............................................... $ 10,000
--------
Total............................................. $158,000
========
</TABLE>

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Section 145 of the Delaware General Corporation Law permits a corporation
to include in its charter documents, and in agreements between the corporation
and its directors and officers, provisions expanding the scope of
indemnification beyond the indemnification specifically provided by the current
law.

Article IX of our Certificate of Incorporation, as amended, provides for
the indemnification of directors to the fullest extent permissible under
Delaware law.

Article VI of our Bylaws provides for the indemnification of officers,
directors and third parties acting on our behalf if such person acted in good
faith and in a manner reasonably believed to be in, and not opposed to, our best
interest and, with respect to any criminal action or proceeding, the indemnified
party had no reason to believe his or her conduct was unlawful.

We have entered into indemnification agreements with our directors and
executive officers, in addition to providing indemnification in our Bylaws, and
intend to enter into indemnification agreements with any new directors and
executive officers in the future.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES; USES OF PROCEEDS FROM SALES OF
UNREGISTERED SECURITIES

During the past three years, we and our predecessors, software.net
Corporation, a Delaware corporation, software.net Corporation, a California
corporation and CyberSource Corporation, a California corporation (collectively,
"Predecessor"), have issued unregistered securities to a limited number of
persons as described below. The information regarding our shares of stock has
been adjusted to give effect to the one-for-two stock split of our common stock
effected in June 1996, and the conversion of all outstanding shares of preferred
stock into common stock in connection with our initial public offering in June
1998.

II-1
<PAGE> 186

(1) On January 9, 1995, Predecessor issued an aggregate of 1,437,500
shares of Series A preferred stock which are convertible into 2,875,000
shares of common stock, to ten investors for a consideration of either
$0.40 per share of Series A preferred stock ($0.33 per share as adjusted
for the spin-off), or an aggregate of $575,000. The purchasers consisted of
one investor, who was related to a director as of that date and purchased
500,000 shares, and nine unaffiliated investors who purchased 937,500
shares.

(2) On February 27, 1996, Predecessor issued an aggregate of 548,020
shares of Series A preferred stock, which are convertible into 1,096,040
shares of common stock, to three investors for a consideration of either
$0.91 per share of Series A preferred stock ($0.76 per share as adjusted
for the spin-off), or an aggregate of $498,697. The purchasers consisted of
one investor, who was related to a director as of that date and purchased
253,131 shares, and two unaffiliated investors who purchased 294,889
shares. Each of the purchasers had previously purchased Series A preferred
stock in January, 1995.

(3) On July 12, 1996, Predecessor issued an aggregate of 2,037,038
shares of Series B preferred stock which are convertible into 4,074,076
shares of common stock, to eleven investors for a consideration of either
$2.70 per share of Series B preferred stock ($2.25 per share as adjusted
for the spin-off), or an aggregate of approximately $5,500,000. The
purchasers consisted of one investor who is presently related to a director
and purchased 925,926 shares, and ten unaffiliated investors who purchased
1,111,112 shares.

(4) On September 26, 1997, September 30, 1997 and December 5, 1997,
Predecessor issued an aggregate of 3,000,000 shares of Series C preferred
stock which are convertible into 3,000,000 shares of common stock, to 19
investors for a consideration of either $2.04 per share of Series C
preferred stock ($1.70 per share as adjusted for the spin-off), or an
aggregate of approximately $6,120,000. The purchasers consisted of eleven
investors, certain of whom were, or are presently, related to one or more
of our directors and purchased 2,677,450 shares, and eight unaffiliated
investors who purchased 322,550 shares.

(5) On March 18, 1998 and April 3, 1998, Predecessor issued an
aggregate of 1,153,846 shares of Series D preferred stock which are
convertible into 1,153,846 shares of common stock, to eleven investors for
a consideration of either $2.60 per share of Series D preferred stock, or
an aggregate of approximately $3,000,000. The purchasers consisted of ten
investors, certain of whom were, or are presently, related to one or more
of our directors and purchased 1,145,264 shares, and one unaffiliated
investor who purchased 8,582 shares.

(6) In March 1998, Predecessor entered in an agreement with America
Online pursuant to which, subject to certain limited exceptions, America
Online agreed to buy shares of common stock at a price per share equal to
the initial public offering price (less the underwriters' discount) for an
aggregate purchase price of $2,000,000. Based on an initial public offering
price of $9.00 per share, America Online purchased 238,949 shares of common
stock on June 19, 1998. Concurrent with the purchase of the shares of
common stock by America Online, we issued to America Online a warrant to
purchase 358,423 shares of the common stock at a per share exercise price
of $8.37, which will vest in increments of 1/36 per month commencing March
1, 1998.

II-2
<PAGE> 187

(7) In March 1998, Predecessor also issued to America Online a warrant
to purchase 369,578 shares of the Series D preferred stock at a price of
$2.60 per share, which vest in increments of 1/36 per month commencing
March 1, 1998; provided, however, that the warrant is not exercisable until
after August 31, 1999, except in the event of a change of control (as
defined herein). This warrant terminated in accordance with its terms
immediately prior to the consummation of our initial public offering.

(8) In May 1998, we issued shares of our capital stock to the
shareholders of the Predecessor in connection with the reincorporation
through a merger of the Predecessor with and into us. We believe this
transaction was exempt from registration under Section 2(3) on the basis
that such transaction did not involve a "sale" of securities.

(9) In November and December 1998, we issued and sold 7 1/4%
Convertible Subordinated Notes Due December 1, 2003 to several initial
purchasers in an aggregate principal amount of $63,250,000 (less discount).
The initial purchasers consisted of two purchasers, who were related to
certain directors as of that date and purchased an aggregate of $2,000
(less discount) of the securities, and an unaffiliated purchaser who
purchased $63,248,000 (less discount).

Except as indicated above, none of the foregoing transactions involved any
underwriters, underwriting discounts or commissions or any public offering, and
we believe that each transaction was exempt from the registration requirements
of the Securities Act by virtue of Section 4(2) thereof, Regulation D
promulgated thereunder or Rule 701 pursuant to compensatory benefit plans and
contracts relating to compensation as provided under such Rule 701. The
recipients in such transactions represented their intention to acquire the
securities for investment only and not with a view to or for sale in connection
with any distribution thereof, and appropriate legends were affixed to the share
certificates and instruments issued in such transactions. All recipients had
adequate access, through their relationships with us and the Predecessor, to
information about us and the Predecessor.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) EXHIBITS

The Exhibit Index attached hereto is hereby incorporated to this item by
reference thereto.

II-3
<PAGE> 188

(b) FINANCIAL STATEMENT SCHEDULES

BEYOND.COM CORPORATION

VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)

<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND DEDUCTION/ END OF
DESCRIPTION OF PERIOD EXPENSES WRITEOFF PERIOD
----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Year ended December 31, 1996
Accounts receivable allowances...... $ -- $ 77 $ (12) $ 65
Year ended December 31, 1997
Accounts receivable allowances...... 65 240 (30) 275
Period ended December 31, 1998
Accounts receivable allowances...... 275 730 (117) 878
</TABLE>

All other schedules are omitted because they are inapplicable or the
requested information is shown in the financial statements of the registrant or
related notes thereto.

ITEM 17. UNDERTAKINGS

We hereby undertake to:

(1) To file, during any period in which offers or sales are being made
of the securities registered hereby, a post-effective amendment to this
registration statement:

(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;

(ii) To reflect in the prospectus any facts or events arising after
the effective date of this registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in this registration statement; and

(iii) To include any material information with respect to the plan
of distribution not previously disclosed in this registration statement
or any material change to such information in this registration
statement;

provided, however, that the undertakings set forth in paragraphs (i) and (ii)
above do not apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in periodic reports
filed by the registrant pursuant to section 13 or section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in this
Registration Statement.

(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.

(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.

II-4
<PAGE> 189

(4) That, for purposes of determining any liability under the
Securities Act, each filing of our annual report pursuant to section 13(a)
or section 15(d) of the Exchange Act (and, where applicable, each filing of
an employee benefit plan's annual report pursuant to section 15(d) of the
Exchange Act) that is incorporated by reference in this registration
statement shall be deemed to be a new registration statement relating to
the securities offered herein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.

II-5
<PAGE> 190

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this amendment to the registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in
Sunnyvale, California, on April 26, 1999.

Beyond.com Corporation

By: /s/ MARK L. BREIER

-----------------------------------
Mark L. Breier
President and Chief Executive
Officer

Pursuant to the requirements of the Securities Act of 1933, as amended,
this amendment to the registration statement has been signed by the following
persons in the capacities indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
PRINCIPAL EXECUTIVE OFFICER:

By: /s/ MARK L. BREIER President, Chief Executive April 26, 1999
---------------------------------------- Officer and Director
Mark L. Breier

PRINCIPAL FINANCIAL OFFICER
AND PRINCIPAL ACCOUNTING
OFFICER:

By: /s/ MICHAEL J. PRAISNER Vice President, Finance & April 26, 1999
---------------------------------------- Administration and Chief
Michael J. Praisner Financial Officer

ADDITIONAL DIRECTORS:

By: * Chairman of the Board of April 26, 1999
---------------------------------------- Directors
William S. McKiernan

By: /s/ DOUGLAS CARLSTON Director April 26, 1999
----------------------------------------
Douglas Carlston

By: Director April 26, 1999
----------------------------------------
John S. Chen

By: * Director April 26, 1999
----------------------------------------
Bert Kolde

By: Director April 26, 1999
----------------------------------------
Ronald S. Posner

*By: /s/ MICHAEL J. PRAISNER
---------------------------------------
Michael J. Praisner
Attorney-in-Fact
</TABLE>

II-6
<PAGE> 191

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
<C> <S>
**2.1 Form of Agreement and Plan of Merger between the Registrant
and software.net Corporation, a California corporation
*****3.1 Form of Certificate of Incorporation, as amended
**3.2 Form of Bylaws of the Registrant
**4.1 Specimen of Certificate for Common Stock
**4.2 Common Stock Warrant issued by Registrant to America Online,
Inc
***4.3 Form of Indenture dated as of November 23, 1998, by and
between the Registrant and LaSalle National Bank
***4.4 Form of Registration Rights Agreement dated as of November
23, 1998, by and between the Company and Credit Suisse First
Boston Corporation, C.E. Unterberg, Towbin and Donaldson,
Lufkin & Jenrette Securities Corporation
***4.5 Purchase Agreement dated as of November 17, 1998, by and
between the Company and Credit Suisse First Boston
Corporation, C.E. Unterberg, Towbin and Donaldson, Lufkin &
Jenrette Securities Corporation
***4.6 Form of Notes (included in Exhibit 4.3)
***5.1 Opinion of Jackson Tufts Cole & Black, LLP
***5.2 Opinion of Winthrop Stimson Putnam & Roberts
***5.3 Opinion of Morrison & Foerster LLP
**10.1 Form of Indemnification Agreement
**10.2 1995 Stock Option Plan, as amended
**10.3 1998 Stock Option Plan
**10.4 Stock Option Agreement dated as of March 31, 1995, by and
between the Registrant and John Pettitt
**10.5 Series A Preferred Stock Purchase Agreement, as amended
**10.6 Series B Preferred Stock Purchase Agreement
**10.7 Series C Preferred Stock Purchase Agreement
**10.8 Series D Preferred Stock Purchase Agreement
**10.9 Common Stock and Warrants Subscription Agreement dated as of
March 18, 1998, by and between the Registrant and America
Online, Inc
**10.10 Conveyance Agreement dated as of December 31, 1997, by and
between the Registrant and Internet Commerce Services
Corporation (now known as CyberSource Corporation)
**10.11 Interactive Marketing Agreement dated as of March 1, 1998,
by and between the Registrant and America Online, Inc
**10.12 Sponsorship Agreement dated as of March 30, 1998, by and
between the Registrant and Excite, Inc
**10.13 Co-Marketing Services Agreement dated as of June 23, 1997,
by and between the Registrant and Netscape Communications
Corporation
**10.14 Trademark License Agreement dated as of June 23, 1997, by
and between the Registrant and Netscape Communications
Corporation
**10.15 Offer letter to Mark Breier
**10.16 Inter-Company Cross License Agreement dated as of April 23,
1998, by and between the Registrant and Internet Commerce
Services (now known as CyberSource Corporation), as amended
on May 19, 1998
**10.17 Promissory Note dated as of April 15, 1998, by and between
the Registrant and William S. McKiernan
</TABLE>

<PAGE> 192

<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
<C> <S>
**10.18 Pledge Agreement as of April 15, 1998, by and between the
Registrant and William S. McKiernan
**10.19 Internet Services and Products Agreement dated as of April
29, 1996, by and between the Registrant and Exodus
Communications, Inc
**10.20 Office Building Lease dated as of July 8, 1997, as amended,
by and between the Registrant and PGP-South Bay Office
Towers, Inc
**10.21 Agreement dated as of December 19, 1995, by and between the
Registrant and the United States Department of Defense, DFAS
(#N00140-96-G-D115)
**10.22 Internet Commerce Services Agreement dated as of April 23,
1998, by and between the Registrant and CyberSource
Corporation, as amended on May 19, 1998
**10.23 Sublease dated as of May 27, 1998 by and between the
Registrant and First Data Merchant Services Corporation
******10.24 Agreement dated as of June 12, 1998, by and between the
Registrant and the United States Department of Defense,
Defense Logistics Agency (#N00140-98-D-1756)
******10.25 Offer Letter from Registrant to Mala Anand, dated as of June
15, 1998
*******10.26 Agreement dated as of September 11, 1998, by and between the
Registrant and the United States National Imaging and
Mapping Agency (NIMA Contract #N00140-98-D-2139)
*******+10.27 Co-hosting Agreement dated as of September 21, 1998, by and
between the Registrant and Network Associates, Inc
*******+10.28 Web Site Service Agreement dated as of September 21, 1998,
by and between the Registrant and Network Associates, Inc
*******+10.29 Electronic Services Distribution Agreement dated as of
September 1, 1997, by and between the Registrant and McAfee
Software, Inc
***10.30 Offer Letter to John D. Vigouroux dated as of October 26,
1998
***10.31 1999 Nonqualified Stock Option Plan
***10.32 1999 Stock Incentive Plan
***12.1 Computation of Ratio of Earnings to Fixed Charges
*23.1 Consent of Ernst & Young LLP, independent auditors
***23.2 Consent of Jackson Tufts Cole & Black, LLP
***23.3 Consent of Morrison & Foerster LLP (included in Exhibit 5.3)
*23.4 Consent of PricewaterhouseCoopers LLP, independent
accountants
*23.5 Consent of PricewaterhouseCoopers LLP, independent
accountants
***24.1 Power of Attorney
***25.1 Statement of Eligibility and Qualification of Trustee on
Form T-1
***27.1 Financial Data Schedule
</TABLE>

- ---------------
+ Certain portions of this exhibit have been granted confidential
treatment by the Commission. The omitted portions have been separately
filed with the Commission.

* Filed herewith.

** Incorporated by reference to Beyond.com's Registration Statement on
Form S-1 (Reg. No. 333-51121), as amended, filed with the Commission on
June 17, 1998.

*** Previously filed with this Registration Statement on Form S-1.

***** Incorporated by reference to Beyond.com's Current Report on Form 8-K
filed with the Commission on December 31, 1998, as amended.
<PAGE> 193

****** Incorporated by reference to Beyond.com's Quarterly Report on Form 10-Q
filed with the Commission on August 14, 1998.

******* Incorporated by reference to Beyond.com's Quarterly Report, as amended,
on Form 10-Q/A filed with the Commission on November 20, 1998.

<PAGE> 1

EXHIBIT 23.1

CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

We consent to the reference to our firm under the captions "Selected
Consolidated Financial Data" and "Experts" and to the use of our report dated
January 11, 1999 in Posteffective Amendment No. 1 to the Registration Statement
(Form S-1) and related Prospectus of Beyond.com Corporation for the registration
of $63,250,000 of 7.25% convertible subordinated notes due December 1, 2003,
3,448,745 shares of common stock, issuable upon conversion of the convertible
subordinated notes, and 605,954 shares of common stock.

Our audits also included the financial statement schedule of Beyond.com
Corporation listed in Item 16(b). This schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.

/s/ Ernst & Young LLP

San Jose, California

April 29, 1999

<PAGE> 1

EXHIBIT 23.4

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated February 5, 1999 relating
to the financial statements of E-Commerce, a division of CNET, Inc., which
appears in such Prospectus. We also consent to the references to us under the
heading "Experts" in such Prospectus.

/s/PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
San Francisco, California

April 29, 1999

<PAGE> 1

EXHIBIT 23.5

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated February 5, 1999 relating
to the consolidated financial statements of BuyDirect.com, Inc., which appears
in such Prospectus. We also consent to the references to us under the heading
"Experts" in such Prospectus.

/s/ PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
San Francisco, California

April 29, 1999