BEYOND COM CORP, 10-K/A, 2000-05-01

BEYOND COM CORP
10-K/A, 2000-05-01
PREPACKAGED SOFTWARE

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FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 1, 2000
================================================================================

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549

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

FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____ TO _____

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
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>

3200 PATRICK HENRY DRIVE
SANTA CLARA, CALIFORNIA 95054
(408) 855-3000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

<TABLE>
<CAPTION>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
<S> <C>
Common Stock, $.001 Par Value per Share Nasdaq Stock Market
</TABLE>

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]

The approximate aggregate market value of voting and non-voting common
equity held by non-affiliates of the registrant as of March 24, 2000 was
155,120,319 (based on closing sale price of $5.1875 per share as reported by
the Nasdaq Stock Market on that date).

The number of shares of the registrant's common stock, $.001 par value per
share, outstanding as of March 24, 2000 was 37,790,979.

<PAGE> 2

ITEM 1: BUSINESS

INTRODUCTION

Beyond.com Corporation ("Beyond.com" or "Company") is an e-commerce services
provider that builds and manages websites for businesses and sells software and
computer related products to the government, corporate and consumer markets.
Additionally, Beyond.com operates its own online store <http://www.beyond.com/>,
where customers can find an extensive selection of software and computer related
products and services.

eStore Group

Beyond.com's eStore Group offers software publishers, hardware manufacturers
and systems OEMs full-service Web stores that can be rapidly implemented more
economically than if they had developed a similar website internally. Businesses
can choose from an array of services, including website design and construction,
transaction processing, physical and electronic order fulfillment, customer
support, marketing, and merchandising support. Our current eStore customers
include CADopia, Compaq Computer, Executive Software, HP Shopping Village (a
subsidiary of Hewlett Packard), IntelliGolf, McAfee, Palm Computing, Symantec,
Systran Software, Telex and Trend Micro.

Government Systems Group

Beyond.com's Government Systems Group provides digitally downloadable
software and related services to a growing list of United States Government
agencies including the Internal Revenue Service (IRS), Office of the Comptroller
of the Currency (OCC), Bureau of Engraving and Printing (BEP), Office of Thrift
Supervision (OTS), Defense Logistics Agency (DLA), National Imagery and Mapping
Agency (NIMA), Patent and Trademark Office (PTO), and the Department of Defense
(DoD).

Website

Beyond.com's online store (www.beyond.com), offers customers a comprehensive
selection of software and computer related products, customer reviews, customer
service, and competitive prices. We deliver software to customers by physically
delivering the shrink-wrap software package or over the Internet via digital
download. We carry approximately 177,000 software stock keeping units;
approximately 13,000 of these stock keeping units can be delivered to customers
via digital download.

Strategic Refocus

INDUSTRY BACKGROUND

Growth of the Internet and Electronic Commerce

Forrester Research estimates that the total value of goods and services
purchased over the Web in the U.S. will increase from approximately $20 billion
in 1999 to approximately $184 billion by 2004. Further, Forrester Research
predicts that as firms attempt to reach more online consumers they will heavily
invest in the U.S. e-commerce services market, pushing it from $10.6 billion in
1999 to $64.8 billion in 2003.

A number of factors contribute to the growth of the Internet and its
increased commercial use, including:

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- improvements in network infrastructure and bandwidth;

- easier and cheaper access to the Internet;

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

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

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

According to Jupiter Communications Inc., the number of Web users in the
U.S. will increase from approximately 100 million at the end of 1999 to
approximately 157 million by the end of 2003. Jupiter further estimates that the
percentage of U.S. Web users buying goods and services on the Internet will
increase from approximately 29% at the end of 1999 to approximately 54% by the
end of 2003. Our eStore product serves this expanding market by offering
full-service Web stores that can be rapidly implemented.

Electronic Commerce and the Retail Software Industry

The Internet is rapidly becoming a popular medium for purchasing and
distributing software. Jupiter Communications estimates that online sales of PC
software in 1999 were $900 million and projects that these sales will grow to
$3.5 billion in 2003.

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;

- digital download allows large enterprise customers, such as corporations,
government agencies and universities, to achieve improved total cost of
ownership via efficient and cost-effective distribution of software; and

- delivery via digital download of many software titles provides the
customer with instant gratification, convenience and security.

PRODUCTS, SERVICES AND SOLUTIONS

E-COMMERCE OUTSOURCING SOLUTIONS AND ESTORE SERVICE

Beyond.com is a leading e-commerce services provider that builds and manages
Web stores for numerous businesses, including, CADopia, Compaq Computer,
Executive Software Inc., HP Shopping Village (a subsidiary of Hewlett Packard),
IntelliGolf, McAfee, Palm Computing, Symantec, Systran Software Inc., Telex and
Trend Micro. Revenues from our eStore Group grew from $1.7 million in 1998 to
$25.0 million in 1999. We believe our eStore Group provides a superior economic
model that enables software publishers, OEM's and other businesses to sell
directly on the Web. Our eStore group offers cost-effective solutions that
address the inefficiencies inherent in traditional marketing models. Key
components of our solution include:

WEB STORE DEVELOPMENT AND DESIGN. Our Web store solution can be customized to
meet the characteristics of the customer's product or industry. We leverage the
extensive experience we have gained by running our own website as well as
numerous eStores since 1998.

MERCHANDISING AND MARKETING SOLUTIONS. By operating our own online software
store, which has consistently been cited by Media Metrix as a top Internet
shopping site, we have gained significant experience selling and merchandising
products over the Web. We have successfully transferred our expertise in the
North American market to other global markets including Europe, Asia and
Australia. This global merchandising and marketing experience is important to
companies wanting to engage in e-commerce, as well as companies currently
engaged in e-commerce that need help maximizing their sales on the Internet. Our
marketing and merchandising solutions include affiliate programs, rebate and
gift certificate programs, direct marketing and sales support expertise.

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ORDER MANAGEMENT AND FULFILLMENT. We have established a number of order
fulfillment partnerships that provide cost effective order fulfillment services
for our eStore customers as well as our own website. These solutions include
reseller models, consignment models, and electronic data interface to our eStore
customers or their third-party order fulfillment partners. These solutions
ensure that the retail customer has a highly reliable and seamless procurement
experience.

CUSTOMER SUPPORT. In conjunction with the operation of our eStores, we have
developed customer service capabilities in North America, Europe, Asia and
Australia. We utilize both internal and outsourced customer service solutions,
and tailor our customer service solution to specific customer's needs at cost
effective prices.

SOFTWARE AND COMPUTER PERIPHERAL RESELLER SOLUTIONS

Our Beyond.com website is a leading online reseller of packaged and
digitally downloadable computer software and computer related products and
services to U.S. Government agencies and consumers. We provide customers with
superior value by offering one of the largest selections of brand name high
quality software available online as well as the convenience of shopping from
the home or office, 24-hours-a-day, seven-days-a-week. Since we launched our
retail software website in November 1994, net revenues from our Government
Systems Group and website increased from approximately $5.9 million in 1996, to
approximately $16.8 million in 1997, to approximately $34.9 million in 1998, to
approximately $92.2 million in 1999. Since our launch, we have delivered
software products to more than two million cumulative customers. In 1998 and
1999, we fulfilled 43% and 59%, respectively, of our deliveries to customers
through digital download. In both 1998 and 1999, we fulfilled all of our
deliveries related to our U.S. Government contracts through digital download.

The key benefits of our reseller solutions for the software supply chain
include:

ENTERPRISE BENEFITS. We provide our government and corporate 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.
Additionally, they are able to track and update their software assets more
effectively to ensure consistent use of compatible software across the
enterprise.

SOFTWARE PUBLISHER BENEFITS. As an online reseller of software products,
we are not constrained by the inherent limitations of a physical store. Our
digital download capability reduces software publishers' risk of customer demand
forecasting. Our e-commerce solution reduces administrative costs and mitigates
potential revenue recognition and restatement concerns associated with demand
forecasting. Finally, software publishers can work with us to obtain demographic
and behavioral data about their end users, expanding their opportunities for
marketing and targeted services.

CONSUMERS AND SMALL BUSINESSES. Software publishers primarily sell to
consumer and small business purchasers through a network of distributors and
resellers. We believe our Beyond.com website provides an inherent cost advantage
in this market space over the traditional software resellers.

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STRATEGY

LEVERAGE ECONOMIC MODEL; FOCUS ON E-COMMERCE OPPORTUNITIES. We believe our
e-commerce solutions provide our customers with inherent economic advantages
relative to traditional commercial practices. We have invested significant time
and money developing e-commerce expertise associated with our website and eStore
Group. We intend to aggressively apply this experience to additional software
and technology reseller opportunities and to opportunities that present
themselves in other industries as well. With the forecasted growth of
e-commerce, we believe our acquired expertise in this field will provide
significant value for prospective customers who want to establish an e-commerce
presence.

DEVELOP AND PROMOTE OUR E-COMMERCE VALUE ADD SERVICES. The array of value add
customer services that accompany our eStores present our customers with cost
effective solutions for running their Internet based commerce solution. These
value add services should provide us with an additional revenue source, while
leveraging our existing strengths in marketing, payment processing and order
fulfillment.

UTILIZE OUR INTERNATIONAL E-COMMERCE EXPERIENCE ON BEHALF OF OUR CUSTOMERS.
We conduct e-commerce in more than 20 countries around the world. We believe
this provides our current and prospective customers with experience in markets
where they may not have relevant experience. We believe this breadth of
international coverage provides us with a competitive advantage over other
prospective e-commerce providers that lack our international expertise.

PROMOTE DIGITAL DOWNLOAD. We are a leader in digital downloading of software
with approximately 13,000 software stock keeping units available for delivery to
the end user's personal computer. Digital download offers convenience to
customers and an economic advantage to us and to software publishers over
traditional methods of software delivery.

MAINTAIN TECHNOLOGY FOCUS AND EXPERTISE. We intend to leverage our
scalable, state-of-the-art, interactive commerce platform to enhance the
services we offer and expand the benefits of online software reselling. We also
intend to use our technology platform to further enhance our customer
interaction and support systems to provide us with a competitive advantage. Our
internal development group will continue to develop, purchase, license and make
technological advancements to our website and our transaction processing systems
to enhance our availability, reliability and site uptime.

LEVERAGE OUR DIRECT MARKETING EXPERTISE. We will continue to utilize many
online sales and marketing techniques to increase brand recognition and drive
traffic to our online stores. We have established direct links with certain
software publishers' websites. These links allow a potential customer visiting
that publisher's website to automatically link to our order form and purchase
software. We also have established customer specific email campaigns that notify
customers about new products and promotions they may find of interest.

LEVERAGE OUR AFFILIATES PROGRAM. Our Affiliates Program increases our
market presence by allowing affiliate websites 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

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affiliate's targeted customer 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 arrangements, we pay the affiliate a
small percentage commission based on the sales generated through the affiliate.
As of December 31, 1999, the Company has approximately 54,000 affiliates, a 265%
increase from December 31, 1998.

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 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 management reporting processes as seamless and simple as possible. 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 have integrated these proprietary and commercially available
systems into a unified software sales and reporting system. Research and
development costs in 1999, 1998, and 1997 were $10.4 million, $4.2 million, and
$1.1 million respectively.

SCALABILITY AND FLEXIBILITY. We built our hardware and software architecture
on a transaction processing model that 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 websites
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 including the ability to automatically process orders for
downloadable software to completion, electronically route orders for physical
products to one of our distributors, as well as charge the customer's credit
card after confirmation of shipment, and automatically route orders requiring
human intervention to our customer service representatives.

COMPONENTS OF OUR TECHNOLOGY. We use commercially available and internally
developed software. Our policy is to limit 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 pages of our website 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 website changes, and minimizes the
engineering required to maintain a growing amount of items and content. We use
proprietary technology that allows websites 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 have
developed technology to aid in the distribution of large software products 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(TM) 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 to manage and receive the download. By using a
local cache, the Enterprise Download Manager satisfies most requests for
software updates internally, significantly reducing the amount of network
traffic. We use this technology to deliver products electronically along 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, the Enterprise Download Manager
restarts the transmission and completes the interrupted download without
restarting the entire download.

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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 they purchase 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.

Our transaction processing system incorporates commercially available
database components purchased from leading vendors, proprietary software
products developed internally 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 digitally download the product 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 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, transactions,
and customer information, and perform rapid searching, sorting, viewing and
distribution of a large volume of content. The data warehouse allows us to
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 an
internally developed configuration. 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 could materially adversely affect 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.

SECURITY

CUSTOMER REASSURANCE. To be successful, we must maintain the integrity and
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 we have a
comprehensive security strategy. Our system automatically monitors each
purchase, confirms each order by email to the customer within minutes of order
placement and advises customers by email shortly after our distributors ship
physical orders.

FAULT TOLERANCE AND SCALABLE INTERNET ACCESS. We have designed our systems
for automatic transfer to back-up systems in the event of a failure. We have
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 redistributes 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

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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 hosting provider that specializes in providing scalable
business solutions to high volume Internet sites for mission critical Internet
connectivity. We contract with the hosting provider to deliver a secure platform
for server hosting with non-interruptible power supply and back up generators,
fire suppression, raised floors, heating ventilation and air-conditioning,
separate cooling zones, seismically braced racks, 24-hours-a-day,
seven-days-a-week operations and high levels of physical security. We connect
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 disruption could lead to
interruptions or delays in service, loss of data, or inability to accept and
fulfill customer orders. Any of these events may materially affect our business,
results of operations and financial condition.

COMPETITION

Beyond.com faces competition primarily on three fronts: e-commerce service
vendors of various types, government resellers and systems integrators, and
online resellers of software and computer peripherals.

E-Commerce Service Vendors

The e-commerce business-to-business outsourcing marketplace for building and
managing Web stores is new, rapidly evolving and intensely competitive. We
expect competition to intensify in the future as current and new competitors
potentially launch new e-commerce services that offer a variety of outsourcing
options to businesses. eStore competitors include Digital River, ReleaseNow,
NetSales and ShopNow. These companies provide similar solutions to Beyond.com's
eStore Group offering. Like Beyond.com, they target the software and hardware
industry and similar customers ranging from small to large businesses. Other
competitors include Escalate, BuyNow and Sykes Enterprises. Escalate and BuyNow
are still new to the market but could pose a competitive threat once
established. Sykes Enterprises has a solid clientele in the software and
hardware industry and could be a competitive threat if they become an end-to-end
or full-service provider.

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

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

- skill in building and managing Web stores that offer a wide array of
services, including advertising, merchandising, marketing campaigns,
banner campaigns, market research and strategic planning. Marketing
services include direct emails with personalized messages, e-packaging
solutions that allow customers to rent, demo and download software,
update services that inform clients of new upgrades to their software,
and e-business centers that target business-to-business clients;

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- expertise in Web user interface design;

- proprietary technology and operational experience in digital download;

- rapid website building time;

- operational and service performance excellence in the areas of customer
support and site uptime;

- offering additional services, including fraud elimination services;

- providing a one-stop solution through key partnerships with companies
such as CyberCash, Preview Systems and Ingram Micro that allow companies
to outsource some of their services and alleviate internal resources;
and

- expertise in integrating with a client's infrastructure.

Competitors such as Digital River have longer operating histories and larger
customer bases than we do. In addition, some of our current or potential
competitors have greater financial, marketing and other resources than we do.

In addition, as more businesses turn to e-commerce outsourcers to market and
sell their products online, other entities may:

- acquire online competitors;

- invest in online competitors; or

- form joint ventures with online competitors.

Certain of our actual or potential competitors, such as Digital River,
ReleaseNow, NetSales, ShopNow and BuyNow, may be able to:

- secure key partnerships with vendors that allow them to outsource their
services at a better price we can;

- secure key partnerships that enable them greater access to potential
customers;

- devote greater resources to marketing and promotional campaigns;

- adopt more aggressive pricing or services models to build market share;
or

- devote substantially more resources to grow and improve their e-commerce
outsourcing offerings than we can.

Government Resellers and Systems Integrators

In the government systems marketplace, competitors such as Software Spectrum,
GTSI, ASAP, CDW-G, SoftMart, GMR, MA Federal, SHI.com, and Corporate Software &
Technology have greater experience in selling software to the large enterprise
market than we do. Further, they have more sophisticated infrastructure and
larger sales teams than we do.

Online Resellers of Software and Computer Peripherals

For the Beyond.com website competition, we expect challenges from current
online resellers, such as, Amazon.com, Buy.com, CompUSA, Cyberian Outpost, and
Egghead, which may have longer operating histories, larger customer bases, and
greater financial, marketing, and other resources than we do. In addition, new
technologies or the expansion of existing technologies, such as price comparison

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programs that select specific titles from a variety of websites, may direct
customers to online software resellers that compete with us.

In summary, increased competition may cause us to reduce pricing or increase
service and marketing expenses that could reduce operating margins and funds
available to improve our technology and promote our businesses. 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.

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 processes
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.

EMPLOYEES

As of December 31, 1999, we employed 389 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.

ITEM 2: PROPERTIES

FACILITIES

Beyond's executive office is a subleased property located in Santa Clara,
California. We also lease or sublease additional office space facilities in
certain locations in the United States and France. The following is a summary of
the office space square footage that we are leasing by location:

<TABLE>
<CAPTION>
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Location Business Use Square Footage Lease Expiration
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Santa Clara, California Company Headquarters and 104,540 10/22/05
Primary Administrative,
Engineering, and
Marketing Facility

Sunnyvale, California Customer Service Center 25,000 4/13/00

San Francisco, California Information Technology 12,100 6/30/00
Center

Reston, Virginia Government Sales Office 6,414 1/31/05

Portland, Oregon Customer Service Center 3,233 10/31/00

Nanterre, France European Sales and 4,200 9/30/02
Operations Center
</TABLE>

ITEM 3: LEGAL PROCEEDINGS

From time to time we may be involved in litigation relating to claims
arising from the normal course of our business. The Company is not currently
subject to any material legal proceedings.

ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

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ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Beyond.com Corporation Common Stock is quoted on the Nasdaq Stock Market
under the symbol "BYND". The following table sets forth the range of high and
low closing sales prices for each period indicated:

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<CAPTION>
FISCAL YEAR 1998 HIGH LOW
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<S> <C> <C>
Second Quarter (from June 17,1998) $19.94 $13.19
Third Quarter $19.94 $ 8.38
Fourth Quarter $29.06 $ 6.31
</TABLE>

<TABLE>
<CAPTION>
FISCAL YEAR 1999 HIGH LOW
------ ------
<S> <C> <C>
First Quarter $38.50 $21.80
Second Quarter $35.50 $17.44
Third Quarter $30.00 $12.25
Fourth Quarter $15.25 $ 7.50
</TABLE>

The Company had approximately 464 stockholders of record as of December 31,
1999. The Company has not declared or paid any cash dividends on its common
stock and presently intends to retain its future earnings, if any, to fund the
development and growth of its business and, therefore, does not anticipate
paying any cash dividends in the foreseeable future.

11
<PAGE> 12
ITEM 6: SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------------------------------------------
1999(2) 1998 1997 1996 1995
--------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA
Net revenues ..................................... $ 117,282 $ 36,650 $ 16,806 $ 5,858 $ 1,003
Cost of revenues ................................. 101,290 31,074 14,873 5,137 623
--------- --------- --------- --------- ---------
Gross profit ..................................... 15,992 5,576 1,933 721 380
Operating expenses:
Research and development ....................... 10,385 4,140 1,060 431 388
Sales and marketing ............................ 81,349 27,206 1,696 704 407
General and administrative ..................... 12,319 3,801 1,087 450 103
Goodwill and deferred compensation
amortization ................................. 36,745 1,565 -- -- --
--------- --------- --------- --------- ---------
Total operating expenses ................ 140,798 36,712 3,843 1,585 898
--------- --------- --------- --------- ---------
Loss from operations ............................. (124,806) (31,136) (1,910) (864) (518)
Interest and other income, net ................... 41 63 167 85 7
--------- --------- --------- --------- ---------
Loss from continuing operations .................. (124,765) (31,073) (1,743) (779) (511)

Loss from discontinued operations ................ -- -- (3,616) (736) --
--------- --------- --------- --------- ---------
Net loss ......................................... $(124,765) $ (31,073) $ (5,359) $ (1,515) $ (511)
========= ========= ========= ========= =========
Basic and diluted net loss per
share from continuing operations(1) ............ $ (3.67) $ (1.65) $ (0.21) $ (0.10) $ (0.07)
========= ========= ========= ========= =========
Basic and diluted net loss per
share from discontinued operations(1) .......... -- -- (0.40) (0.08) --
--------- --------- --------- --------- ---------
Basic and diluted net loss per share(l) .......... $ (3.67) $ (1.65) $ (0.61) $ (0.18) $ (0.07)
========= ========= ========= ========= =========
Number of shares used in computing basic and
diluted net loss per share(1) .................. 34,039 18,900 9,000 9,000 9,000
========= ========= ========= ========= =========
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA
Cash, cash equivalents, and short-term investments ..... $ 66,313 $ 81,548 $ 2,571 $ 3,737 $ 255
Working capital (deficiency) ........................... 68,093 80,128 1,093 3,543 (106)
Total assets ........................................... 220,376 109,904 9,586 5,691 579
Long-term obligations, net of current portion .......... 63,260 63,250 99 105 105
Redeemable convertible preferred stock ................. -- -- 12,565 6,395 651
Stockholders' equity (net capital deficiency) .......... $127,512 $ 24,723 $(11,191) $ (2,409) $ (793)
</TABLE>

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

(2) The 1999 results include the results of operations of BuyDirect.com from
its date of acquisition, March 30, 1999.

ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

OVERVIEW

At the end of the third quarter of 1999, Beyond.com made a strategic decision
to refocus the Company's business from a consumer retail focused company to a
business-to-business e-commerce services company. Under this new direction, we
plan to focus our resources and expertise in two areas that we believe have
substantial revenue growth and profit potential: our eStore and Government
Systems Groups. While we will still sell software and computer related products
via the Beyond.com website, we do not intend to spend significant advertising
dollars to attract new customers to the website as we have done in the past.
Instead, we plan to expand our existing consumer customer base through our
affiliates program, and direct email campaigns while leveraging our website to
help promote and grow our eStore and Government Systems Groups. Notwithstanding
our recent shift in focus, we intend to continue to reassess our business and it
is possible that, under certain circumstances, portions of our business maybe
sold to enable us to more narrowly focus on our eStore Group. As part of this
refocus, the Company reduced its workforce by approximately 75 employees in
January 2000, or approximately 20% of its total workforce, and began
consolidating facilities and disposing of excess capital assets. Additionally,
the Company terminated its existing marketing agreements focused on generating
consumer sales with AOL, CNET, Excite, Yahoo! and ZDNet during February and
March 2000 at a cost of approximately $5.8 million in termination fees. In
addition, the Company expects to record a restructuring charge of between $11.0
million to $14.0 million in the first quarter of 2000. Management expects the
workforce reduction, facilities consolidation, and termination of marketing
agreements will lower future operating expenses and reduce cash obligations for
the remainder of fiscal 2000.

12
<PAGE> 13

eStore Group

Beyond.com's eStore Group allows software publishers, hardware manufacturers
and systems OEMs to launch a full-service Web store in at a substantially lower
total cost than they would incur if they developed a similar system internally.
Businesses can choose from an array of services, including website design and
construction, transaction processing, physical and electronic order fulfillment,
customer support, marketing, merchandising support, fraud management, tax
payment, currency conversion and reporting. Our current eStore customers include
CADopia, Compaq Computer, Executive Software, HP Shopping Village (a subsidiary
of Hewlett Packard), McAfee.com, Palm Computing, Symantec, Systran Software,
Telex and Trend Micro.

We will derive revenue for our eStore Group from two different business
models. One model, where we earn revenues by reselling the products of our
eStore customers, is a traditional reseller model that is characterized by
higher per transaction revenue but lower margins. The second model, where we are
paid fees based on the transactions we complete and the services we render, is a
transaction and services model which typically has lower revenue per transaction
but higher potential gross margins. In the near term, we expect our gross
margins will fluctuate around our current levels, depending on the mix
of these two models in any given quarter. We believe in the long term, as we
migrate to a higher percentage of customers under the transaction model and
leverage our merchandising expertise and digital service capabilities, our gross
margins will be higher than current levels.

Government Systems Group

Beyond.com's Government Systems Group provides digitally downloadable
software and related services to a growing list of U.S. Government agencies
including the Internal Revenue Service (IRS), Office of the Comptroller of the
Currency (OCC), Bureau of Engraving and Printing (BEP), Office of Thrift
Supervision (OTS), Defense Logistics Agency (DLA), National Imagery and Mapping
Agency (NIMA), Patent and Trademark Office (PTO), and the Department of Defense
(DoD).

Website

Beyond.com's online store (www.beyond.com), offers customers a comprehensive
selection of software and computer related products, customer reviews, customer
service, and competitive prices. We deliver software to customers by physically
delivering the shrink-wrap software package, or over the Internet via digital
download. We carry approximately 177,000 software stock keeping units and
approximately 13,000 of these stock keeping units can be delivered to customers
via digital download.

<PAGE> 14
General

Each year since inception, we have incurred increasingly larger net losses.
These annual net losses increased from $5.5 million in 1997, to $31.1 million in
1998, to $124.8 million in 1999. We anticipate our operating expenses will
decrease from 1999 levels as a result of our restructuring, lower headcount,
reduced advertising and business model transition. However, our de-emphasis on
advertising to promote our brand and our reallocation of resources to the eStore
Group could result in dramatically reduced revenues and increased losses, if the
market does not accept our eStore product.

As we currently have relatively low gross margins, our ability to become
profitable given our planned expenses depends on our ability to generate and
sustain 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 do not expect to achieve operating "break even" until at
least the fourth quarter of 2002. 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 flows from operations, we may
be unable to meet our debt service obligations or working capital requirements,
which would adversely effect our business.

Acquisition of BuyDirect.com

On March 30, 1999, a wholly owned subsidiary of Beyond.com merged with and
into BuyDirect.com, an online software retailer for consumers and business
customers. Upon the closing of this merger, Beyond.com issued 4,930,123 shares
of its common stock to BuyDirect.com's stockholders in exchange for their
outstanding shares of BuyDirect.com common and preferred stock. Beyond.com
assumed options to purchase 281,757 shares of its common stock in connection
with the merger. We accounted for the merger using the purchase method of
accounting. The purchase price of approximately $138.9 million included the fair
market value of the common stock of $120.5 million, the fair value of the fully
vested options assumed of $2.7 million, liabilities assumed of $13.0 million and
the acquisition costs incurred in connection with the merger. The fair value of
the unvested options assumed of $4.6 million has been recorded as deferred
compensation. The intangible assets resulting from the merger are being
amortized to expense over the estimated useful lives of one to three and one
half years. We recorded approximately $34.1 million in goodwill amortization
expense in 1999.

Acquisition of SoftGallery

On October 20, 1999, Beyond.com acquired SoftGallery SARL, a Paris, France
based online software reseller of digitally downloadable software products.
Under the terms of the acquisition, Beyond.com is required to issue
approximately 48,000 shares of its common stock to SoftGallery stockholders,
paid cash of $500,000 and assumed liabilities of $167,000. In addition, Beyond
is obligated to issue an additional 192,000 shares to SoftGallery stockholders,
subject to SoftGallery meeting specific European revenue targets and employment
contingencies. The European revenue contingencies are only applicable if
Beyond.com meets certain marketing and business development commitments in
Europe. These shares will be held in escrow and will be delivered in various
intervals through October 2003 as SoftGallery meets the revenue targets and
employment contingencies.

The common stock that was issuable on the date of the acquisition and was not
subject to the revenue target or employment contingencies was valued at
approximately $600,000, based on the closing price on the date of the
acquisition. The acquisition was accounted for using the purchase method of
accounting. The total purchase price was approximately $1.4 million and included
the fair value of the common shares issued of approximately $600,000, a cash
payment of $500,000, liabilities assumed of $167,000 and acquisition costs of
approximately $100,000. The purchase price was allocated to intangible assets
and is being amortized over the estimated useful life of four years. On the date
of the acquisition, Beyond did not record the value of the contingent
consideration to be issued because these amounts were not earned and were
subject to the revenue targets and employment contingencies. The value of the
remaining shares subject to the revenue targets and employment contingencies
will be recorded as compensation expense as the shares are earned pursuant to
the terms of the agreement. As of December 31, 1999, no contingent shares had
been earned.

14
<PAGE> 15
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,
--------------------------------
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Net revenues ........................... 100.0% 100.0% 100.0%
Cost of revenues ....................... 86.4 84.8 88.5
------ ------ ------
Gross profit ........................... 13.6 15.2 11.5
Operating expenses:
Research and development ............. 8.9 11.3 6.3
Sales and marketing .................. 69.4 74.2 10.1
General and administrative ........... 10.5 10.4 6.5
Goodwill and deferred compensation
amortization ....................... 31.3 4.3 --
------ ------ ------
Total operating expenses ..... 120.1 100.2 22.9
------ ------ ------
Loss from operations ................... (106.5) (85.0) (11.4)
Interest income, net ................... 0.1 0.2 1.0
------ ------ ------
Loss from continuing operations ........ (106.4) (84.8) (10.4)
Loss from discontinued operations ...... -- -- (21.5)
------ ------ ------
Net loss ............................... (106.4)% (84.8)% (31.9)%
====== ====== ======
</TABLE>

YEARS ENDED DECEMBER 31, 1999 AND 1998

NET REVENUES. The Company's revenues are primarily derived from two sources:
the operation of eStores and resale of computer software. Our revenues include
sales of software to customers using credit cards, to corporate customers that
are invoiced directly under credit terms, to 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 when persuasive evidence of an
arrangement exists, either shipment of the physical product or delivery of the
electronic product has occurred, fees are fixed and determinable, and
collectibility is considered probable. Sales of software under contracts with
the U.S. Government require continuing service, support and performance by the
Company. 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. As our
business model shifts away from aggressive advertising promotion of our consumer
business, we may not be able to develop the eStore service to replace potential
lost consumer revenues. This could have an adverse affect on our business and
could impact our ability to meet our debt service payments.

15
<PAGE> 16
Beyond.com's revenues can be categorized into the following three segments:

- eStore revenue was $25.0 million in 1999 compared to $1.7 million in
1998. The increase in 1999 was primarily the result of the addition of
a number of new eStore customers, including Compaq Computer, HP
Shopping Village, My Software and Symantec; and the fact that our
eStore service was relatively new in 1998 with revenue only in the
fourth quarter of 1998. eStore revenue represented 21.4% of total
revenue in 1999 compared to 4.7% of total revenue in 1998.

- Government Systems revenue was $29.7 million in 1999 compared to $10.5
million in 1998. The increase in 1999 was primarily the result of the
addition of a number of new contracts with U.S. Government agencies
including, the BEC, DoD, IRS, and PTO as well as the expansion of
existing contracts. Government systems revenue represented 25.3% of
total revenue in 1999 compared to 28.7% of total revenue in 1998.

- Website revenue was $62.5 million in 1999 compared to $24.4 million in
1998. The increase in 1999 was primarily the result of the acquisition
of BuyDirect and our aggressive marketing and advertising campaign.
Website revenue represented 53.3% of total revenue in 1999 compared to
66.6% of total revenue in 1998.

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.

Beyond.com's cost of revenues can be categorized into the following three
segments:

- eStore's cost of revenues was $20.9 million in 1999 compared to $1.4
million in 1998. The increase in 1999 was primarily the result of the
addition of a number of new eStore customers, including Compaq
Computer, HP Shopping Village, My Software and Symantec; and the fact
that our eStore service was relatively new in 1998 with cost of
revenues only in the fourth quarter of 1998.

- Government Systems cost of revenues was $27.0 million in 1999 compared
to $9.6 million in 1998. The increase in 1999 was primarily the result
of the addition of a number of new contracts with U.S. Government
agencies, including, the BEC, DoD, IRS, and PTO as well as the
expansion of existing contracts.

- Website cost of revenues was $53.4 million in 1999 compared to $20.0
million in 1998. The increase in 1999 was primarily the result of
increases in revenues resulting from the acquisition of BuyDirect and
an aggressive marketing and advertising campaign.

<PAGE> 17
GROSS MARGIN. Our gross margin (gross profit as a percentage of net revenues)
decreased from 15.2% in 1998 to 13.6% in 1999. This decrease primarily resulted
from an increase in consumer rebate programs along with an increase in lower
margin government business during 1999.

RESEARCH AND DEVELOPMENT EXPENSES. Our research and development expenses
primarily consist of personnel and other expenses associated with developing and
enhancing our websites as well as associated facilities related expenses. Our
research and development expenses increased from $4.1 million in 1998 to $10.4
million in 1999, primarily as a result of an increase in personnel related costs
of $7.0 million. These expenses decreased as a percentage of net revenues from
11.2% in 1998 to 8.9% 1999. The increase in absolute spending was the result of
increases in our personnel and depreciation on computer equipment. The decrease
in spending as a percentage of revenue was due to faster growth in revenues
versus expenses. We anticipate that research and development expenses will
decrease in absolute dollar terms in fiscal 2000.

SALES AND MARKETING EXPENSES. Our sales and marketing expenses consist
primarily of advertising expenditures and costs associated with promoting our
websites, including personnel and related expenses. In addition, expenditures
associated with our strategic marketing alliances are included in sales and
marketing expenses. Our sales and marketing expenses increased significantly
from $27.2 million in 1998 to $81.3 million in 1999. These expenses decreased as
a percentage of net revenues from 74.1% in 1998 to 69.4% in 1999. The absolute
dollar spending for these expenses increased as the result of increased costs
associated with strategic marketing alliances of $21.9 million, branding and
marketing campaigns of $19.9 million, and an increase in personnel to support
increased sales and marketing activity of $17.4 million.

During the first quarter of 2000 the Company terminated its existing
marketing agreements with AOL, CNET, Excite, Yahoo!, and ZDNet for approximately
$5.8 million in termination fees. As a result, the Company is no longer
obligated to make payments under these agreements in any future periods. These
agreements represented 27% of the sales and marketing expenses in 1999. Based on
our termination of these agreements and future reductions in advertising
expenditures, we anticipate that sales and marketing expenses will decrease in
absolute dollar terms in fiscal 2000.

GENERAL AND ADMINISTRATIVE EXPENSES. Our general and administrative expenses
consist primarily of personnel expenses, legal and accounting expenses, and
corporate facility-related expenses. Our general and administrative expenses
increased from $3.8 million in 1998 to $12.3 million in 1999. These expenses
decreased as a percentage of net revenues from 10.4% in 1998 to 10.5% in 1999.
The increase in absolute dollars was primarily the result of increased
personnel-related costs of $7.4 million and facilities-related expenses of $1.3
million associated with the hiring of additional personnel, as well as legal and
accounting fees of $2.1 million associated with strategic initiatives conducted
during the year. We anticipate that general and administrative expenses will
decrease in absolute dollar terms in fiscal year 2000.

GOODWILL AND DEFERRED COMPENSATION AMORTIZATION. As a result of the
BuyDirect.com merger on March 30, 1999, we recorded $136.5 million of goodwill.
In 1999 we amortized $34.1 million dollars of this goodwill balance and will
amortize an additional $39.1 million dollars in fiscal year 2000. The goodwill
associated with the BuyDirect acquisition will be fully amortized in fiscal
2002. There may be additional goodwill amortization charges if additional
mergers are completed. We recorded deferred compensation during 1999 of $4.6
million dollars in conjunction with our BuyDirect merger and deferred
compensation in 1998 of $3.8 million in connection with certain stock options
granted prior to our initial public offering. During 1999, we amortized $2.5
million of deferred compensation to expense and recorded a further reduction in
deferred compensation of $2.8 million as a result of employee terminations.

INTEREST INCOME, NET. Interest income, net, consists of earnings on our cash
and short-term investments, net of interest costs related to our financing
obligations. Interest income, net, decreased from $63,000 in 1998 to $41,000 in
1999. In 1999, interest expense totaling approximately $5.1 million primarily
arose from our 7 1/4% Convertible Subordinated Notes. Interest expense in 1999
was offset primarily by interest income totaling approximately $5.0 million
earned on our cash and short-term investment balances. In 1998, interest expense
totaling approximately $1.3 million arose from our 7 1/4% Convertible
Subordinated Notes, offset by interest income totaling approximately $1.4
million from our cash balances.

INCOME TAXES. We incurred a net operating loss for 1998 and for 1999, with no
current tax benefit. As a result, in these periods no provision for income taxes
has been recorded. As of December 31, 1999, for federal income tax purposes we
had approximately $135,000,000 of net operating loss carryforwards, which expire
between 2002 and 2019. Based on application of criteria outlined in Statement of
Financial Accounting Standards No. 109 (FAS 109) to our limited operating
history, losses incurred to date, and the difficulty in accurately predicting
our future operating results, we have recorded a full valuation allowance
against our deferred income tax assets for 1998 and 1999. Additionally, any
attempt by us to utilize such net operating loss carryforwards and any tax
credit carryforwards may be subject to a substantial annual limitation imposed
by ownership change provisions of the Internal Revenue Code of 1986, as amended,
and by similar state provisions. Such annual limitation may result in the
expiration of net operating loss carryforwards and tax credits before
utilization. (See Note 12 of Notes to Consolidated Financial Statements).

17
<PAGE> 18

YEARS ENDED DECEMBER 31, 1998 AND 1997

NET REVENUES. Beyond.com's revenues can be categorized into the following
three segments:

- eStore revenue was $1.7 million, or 4.7% of total revenue, in 1998
with revenue only in the fourth quarter. There were no eStore revenues
in 1997.

- Government Systems revenue was $10.5 million in 1998 compared to $5.6
million in 1997. The increase in 1998 was primarily the result of the
expansion of existing contracts with U.S. Government agencies.
Government Systems revenue represents 28.7% of total revenue in 1998
compared to 33.2% of total revenue in 1997.

- Website revenue was $24.4 million in 1998 compared to $11.2 million in
1997. The increase in 1998 was primarily the result of an aggressive
marketing and advertising campaign. Website revenue represents 66.6% of
total revenue in 1998 compared to 66.8% of total revenue in 1997.

COST OF REVENUES. Beyond.com's cost of revenues can be categorized into the
following three segments:

- eStore's cost of revenues was $1.4 million in 1998 with cost of
revenues only in the fourth quarter. There were no eStore cost of
revenues in 1997.

- Government Systems cost of revenues was $9.6 million in 1998 compared
to $5.1 million in 1997. The increase in 1998 was primarily the result
of the expansion of existing contracts with U.S. Government agencies.

- Website cost of revenues was $20.0 million in 1998 compared to $9.8
million in 1997. The increase in 1998 was primarily the result of an
aggressive marketing and advertising campaign.

GROSS MARGIN. Our gross margin 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.

RESEARCH AND DEVELOPMENT EXPENSES. Our research and development expenses
consist primarily of personnel and other expenses associated with developing and
enhancing our websites as well as associated facilities related expenses. Our
research and development expenses increased from $1.1 million in 1997 to $4.1
million in 1998, primarily as a result of an increase in personnel related costs
of $1.5 million and depreciation on computer equipment of $225,000. These
expenses also increased as a percentage of net revenues from 6.3% in 1997 to
11.3% 1998.

SALES AND MARKETING EXPENSES. Our sales and marketing expenses consist
primarily of promotional expenditures and costs associated with operating our
websites, including personnel and related expenses. In addition, we included 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 $27.2 million in 1998. These expenses also
increased significantly as a percentage of net revenues from 10.1% in 1997 to
74.2% in 1998. This increase both in absolute dollars and as a percentage of net
revenues was primarily the result of costs of:

- $7.2 million for developing and maintaining our strategic marketing
alliances;

18
<PAGE> 19

- $11.3 million for our branding and marketing campaign (including expenses
associated with our re-branding efforts); and

- $3.7 million for an increase in personnel to support increased sales and
marketing and advertising.

GENERAL AND ADMINISTRATIVE EXPENSES. Our general and administrative expenses
consist primarily of personnel expenses, legal and accounting expenses, and
corporate facility-related expenses. Our general and administrative expenses
increased from $1.1 million in 1997 to $3.8 million in 1998. These expenses also
increased, as a percentage of net revenues, from 6.5% in 1997 to 10.4% 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 of $2.3 million.

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 operating loss for 1997 and for 1998, with no
current tax benefit. As a result, in these periods no provision for income taxes
was recorded.

LIQUIDITY AND CAPITAL RESOURCES

From inception through December 31, 1999, we financed our operations
primarily through private sales of preferred stock, our initial public offering
in June 1999 of 5,750,000 shares of our common stock, our second public offering
in April of 1999 of 3,000,000 shares of our common stock, and the sale of
convertible notes in November and December of 1998. We raised cumulative net
cash proceeds totaling $14.8 million through private sales of preferred stock.
In June 1998, we received net proceeds of $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
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. In
April 1999, we received net proceeds of $98.5 million from our second public
offering.

As of December 31, 1999, we had approximately $66.3 million of cash and
short-term investments compared with $81.5 million at December 31, 1998. As a
result of our payments totaling $5.8 million in the first quarter of 2000 for
the termination of marketing agreements, we have no material payment commitments
other than those under our operating leases and contracts with U.S. Government
agencies.

We used net cash of $29.4 million in operating activities in 1998 compared to
net cash of $99.0 million used in operating activities in 1999. Our cash used in
operating activities in 1999 was primarily comprised of the net effect of:

- a net loss of $124.8 million offset by non-cash charges for depreciation
and amortization, including amortization of goodwill and deferred
compensation, of $40.4 million;

- increases in accounts receivable, prepaid expenses and noncurrent assets
totaling $8.5 million primarily related to accounts receivable from U.S.
Government agency contracts;

- an increase in deferred revenue of $3.6 million offset by an increase in
cost of deferred of $4.1 million, related to the execution of new U.S.
Government agency contracts; and

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

We used net cash of $71.7 million in investing activities for net purchases
of short-term investments in 1999 of $54.5 million, acquisitions of leasehold
improvements and computer equipment of $11.7 million and costs of $5.8 million
associated with the acquisition of BuyDirect.

We received net cash of $98.5 million in 1999 from financing activities from
proceeds of our second public offering in April 1999.

19
<PAGE> 20
We believe that our cash, cash equivalents, and short-term investments at
December 31, 1999, will be sufficient to meet our anticipated needs for working
capital and capital expenditures for at least the next 12 months. Thereafter, we
expect that the cash we generate from operations likely will not be sufficient
to satisfy our longer term cash needs. We will need significant amounts of cash
to make a variety of payments, in the longer term including:

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

- continued investment in technical infrastructure; and

- payment of ongoing operating 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 you that financing will be
available in amounts or on terms acceptable to us, if at all.

YEAR 2000

Many existing computer programs use only two digits to identify a year. These
programs were designed and developed without addressing the impact of the recent
change in the century. If not corrected, many computer software applications
could fail or create erroneous results beyond the Year 2000. We 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 identified all instances where date specific information
is required. We further investigated whether these date fields contain two or
four digits. 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. 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 our hardware platform
providers regarding Year 2000 compliance and researched the date handling
capabilities of applicable Internet protocols. We do not believe that the
underlying systems and protocols that operate in conjunction with our software
applications contain material Year 2000 deficiencies.

We use multiple software systems for our internal business purposes,
including accounting, email, development, human resources, customer service and
support, and sales tracking systems. 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, although we have not received
affirmative documentation in this regard from any of these vendors. To date, we
have not experienced any material Year 2000 problems with regards to our
proprietary software, internally developed systems, and hardware or software
platforms developed by external vendors.

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 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.

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CAUTIONARY STATEMENTS

The statements contained in this Report on Form 10-K that are not purely
historical are forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934. These include, without limitation, statements regarding the Company's
expectations, objectives, anticipations, plans, hopes, beliefs, intentions or
strategies regarding the future. Forward-looking statements include, without
limitation, the statements regarding (a) the demand for e-commerce services,
such as the Company's eStore product which allows companies to set up a
full-service Web store on the Internet; (b) the demand for the Company's
proprietary Enterprise Download Manager service which allows information
technology managers to rapidly deploy, maintain, and update software throughout
a large enterprise; (c) the Company's belief that the e-commerce services market
is growing and that businesses will want to expand their product offerings on
the Web using the Company's eStore product; (d) the Company's belief that its
long-term success will depend on its ability to grow its eStore and Government
Systems Groups under the heading "Item 7 - Management's Discussion and Analysis
of Financial Condition and Results of Operations - Overview"; (e) the Company's
belief that its current facilities will be adequate through 2000 under the
heading "Item 2, Properties"; (f) the statements regarding the Company's
expectation that research and development, sales and marketing, and general and
administrative expenses in absolute dollars will likely decrease in future
periods under the heading "Item 7 - Management's Discussion and Analysis of
Financial Condition and Results of Operations - Results of Operations"; (g) the
Company's belief that its existing resources, together with cash generated from
its operations, will be sufficient to meet its capital requirements for at least
the next twelve months under the heading "Item 7 - Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources"; (h) the Company's belief that the adoption of FAS 133 will
not have a significant impact on its operating results or cash flows, under the
heading "Consolidated Financial Statements - Notes to Consolidated Financial
Statements - Note 1 Summary of Significant Accounting Policies - Recent
Accounting Pronouncements"; (i) the Company's belief that its current
recognition policy complies with SAB 101, under the heading "Consolidated
Financial Statements - Notes to Consolidated Financial Statements - Note 1.
Summary of Significant Accounting Policies - Recent Accounting Pronouncements";
(j) the Company's expectation that the sale of software products to U.S.
Government agencies may continue to account for a high percentage of revenues
for the foreseeable future under the heading "Consolidated Financial Statements
- - Notes to Consolidate Financial Statements - Note 1. Summary of Significant
Accounting Policies - Concentration of Credit Risk and Other Risks";

All forward-looking statements included in this document are based on
information available to the Company on the date hereof, and the Company assumes
no obligation to update any such forward-looking statements. It is important to
note that the Company's actual results could differ materially from those
included in such forward-looking statements. These cautionary statements should
be considered in the context of the factors listed below, as well as those
disclosed from time to time in the Company's Reports on Forms 10-Q and 8-K.

Additional risks and uncertainties that could cause actual results to differ
materially from those described herein include the following:

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<PAGE> 22

RISK FACTORS -

WE MUST ESTABLISH OUR NEW BUSINESS MODEL

We must launch and operate our eStore business model successfully and
generate adequate revenue and gross margin to replace an expected decrease in
revenue we may incur in the consumer market as we scale back on our consumer
branding efforts. We have limited experience in operating our eStore business
and cannot give any assurances that we will be able to fully build this
business.

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

We began selling software on our website in November 1994. As a result, we
have only a limited operating history upon which you may evaluate our business
and prospects. Additionally, as we refocus the company to an e-commerce services
provider model from a consumer oriented business model our prior operating
history does not offer significant information upon which you may evaluate our
business and prospectus as we proceed into fiscal 2000 and beyond. We incurred
net losses of approximately $163.5 million from inception of our business
through 1999. As of December 31, 1999, we had an accumulated deficit of
approximately $167.1 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. Because we have relatively low gross margins, our
ability to become profitable given our planned expenses depends on our ability
to generate and sustain 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 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;

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<PAGE> 23

- new websites, 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 online services or consumer acceptance of the Internet and
other online services for the purchase of consumer products;

- the termination of contracts with major purchasers, particularly U.S.
Government agencies;

- technical difficulties or system downtime affecting the Internet or online
services, generally, and eStore websites for customers or the operation of
our website;

- 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;

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

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

We must successfully execute our new eStore strategy. This includes adding
significant new eStore clients in the software and computer peripherals markets
while adding additional high margin services that are valued by our customers.
We must also increase the number of repeat purchasers of software through our
online sites and increase revenues from purchasers of digitally downloadable
software products. In addition, we must successfully maintain the Beyond.com
brand. 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 between our eStores Group, Government Systems Group
and our website;

- the mix of transaction versus reseller revenue in our eStore business;

- 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 amount of advertising or promotional revenues we receive; and

- our ability to rapidly grow value added services for our eStore business.

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;

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<PAGE> 24

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

- consulting and marketing services for eStores, than from transaction fees.

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.

WE NEED ADDITIONAL CAPITAL TO FUND OUR BUSINESS

We require substantial working capital to fund our business in the longer
term. We expect operating losses and negative cash flow to continue for the
foreseeable future. We will likely have to raise additional funds, in part to
make interest payments to holders of our 7 1/4% Convertible Subordinated Notes.
We may elect to seek additional funds at any time. The actual amount and timing
of our longer term 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 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. 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 WILL REQUIRE SUBSTANTIAL AMOUNTS OF CAPITAL FOR DEBT SERVICE AND POTENTIAL
REPAYMENT OF THE 7 1/4% CONVERTIBLE SUBORDINATED NOTES IN 2003

By selling the 7 1/4% Convertible Subordinated Notes in November and December
1998, we incurred $63,250,000 principal amount of indebtedness. 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 working capital requirements. We will not be able
to meet our cash requirements out of cash flow from operations. 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.

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<PAGE> 25

OUR MARKETS ARE HIGHLY COMPETITIVE

E-Commerce Service Vendors

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

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

- expertise in Web user interface design;

- proprietary technology and operational experience in digital download;

- rapid website building time;

- operational and service performance excellence in the areas of customer
support and site uptime;

- offering additional services, including fraud elimination services;

- expertise in integrating with a client's infrastructure.

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<PAGE> 26

In addition, as more businesses turn to e-commerce outsourcers to market and
sell their products online, well established and well financed entities may:

- acquire online competitors;

- invest in online competitors; or

- form joint ventures with online competitors.

Certain of our actual or potential competitors, such as Digital River,
ReleaseNow, NetSales, ShopNow and BuyNow, may be able to:

- secure key partnerships with vendors that allow them to outsource their
services at a better price we can;

- secure key partnerships that enable them greater access to potential
customers;

- devote greater resources to marketing and promotional campaigns;

- adopt more aggressive pricing or services models to build market share;
or

- devote substantially more resources to grow and improve their e-commerce
outsourcing offerings than we can.

Government Resellers and Systems Integrators

In the government services marketplace, competitors such as Software
Spectrum, GTSI, ASAP, CDW-G, SoftMart, GMR, MA Federal, SHI.com, and Corporate
Software & Technology have greater experience in selling software to the large
enterprise market than we do. Further, they have more sophisticated
infrastructure and larger sales teams than we do.

Online Resellers of Software and Computer Peripherals

For the Beyond.com website competition, we expect challenges from current
online resellers, such as, Amazon.com, Buy.com, CompUSA, Cyberian Outpost, and
Egghead, which may have longer operating histories, larger customer bases, and
greater financial, marketing and other resources 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 websites, may direct
customers to online software resellers that compete with us and may increase our
competition.

In summary, increased competition may cause us to reduce pricing or increase
service and marketing expenses that could reduce operating margins and funds
available to improve our technology and promote our business. 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 1999 and 1998,
sales of software provided by

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<PAGE> 27
Microsoft and by a major software distributor accounted for a substantial
portion of our revenues. As is common in the industry, we have no long term or
exclusive arrangements with any software 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
the 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 software 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 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 CONTRACTS WITH U.S. GOVERNMENT AGENCIES

We have several contracts with U.S. Government agencies which accounted for
approximately 14% of our net revenues in 1999. 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.

<PAGE> 28
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 will 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.

WE ARE SUBJECT TO RISKS ASSOCIATED WITH DIGITAL DOWNLOAD

Our success will depend in part on our customers accepting digital download
as a method of buying software. We typically derive higher gross margins from
software sales to consumers via digital download than we do on shrink-wrap
software sales. 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;

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<PAGE> 29

- 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 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, and C. Richard Neely, Jr., our Interim Chief
Executive Officer and Chief Financial Officer. Competition for qualified
management personnel 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

An element of our strategy is to generate a high volume of traffic on, and
use of, our website. Our revenues depend in part, on the number of customers who
use our website to purchase software. Accordingly, our website, 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 website 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 website. 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 website. 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 download,
especially if our website 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 and subsequent agreements may not be
deemed the result of arm's length negotiations. Further, although CyberSource
and Beyond.com are engaged in different businesses, the two companies currently
have no policies to govern the pursuit or allocation of corporate opportunities
between CyberSource and Beyond.com in the event they arise. Our business could
be adversely affected if the overlapping board members of the two companies
pursue 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 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 Santa Clara, California.

<PAGE> 30

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 new
product and service introductions. If competitors introduce products and
services embodying new technologies or if new industry standards and practices
emerge, then our existing Website, 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 website and other proprietary technology entails significant
technical and business risks. We may use new technologies ineffectively, or we
may fail to adapt our website, 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 then our
customers may forego the use of our services and use those of our competitors.

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.

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 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. As a result of such a

30
<PAGE> 31

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, contracts 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 U.S. 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 website,
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, any new operations in states outside
California and the District of Columbia, including operations assumed in
connection with the proposed 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

As of March 24, 2000, based upon 36,490,133 shares outstanding as of
December 31, 1999, William S. McKiernan, the Chairman of our Board of Directors,
and his respective affiliates beneficially own in the aggregate approximately
21.6% of our outstanding common stock. Therefore, if William S. McKiernan and
his respective affiliates 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.

31
<PAGE> 32

WE ARE SUBJECT TO RISKS ASSOCIATED WITH GLOBAL EXPANSION

Although we sell software to customers outside the U.S., we have no overseas
fulfillment or distribution facility or arrangement. We also have no website
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;

- 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.

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<PAGE> 33

ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to the impact of interest rate changes, foreign currency
fluctuations, and change in the market values of our investments.

Interest Rate Risk. Our exposure to market rate risk for changes in interest
rates relate primarily to our investment portfolio. We have not used derivative
financial instruments in our investment portfolio. We invest our excess cash in
debt instruments of the U.S. Government and its agencies, and in high-quality
corporate issuers and, by policy, limit the amount of credit exposure to any one
issuer. We protect and preserve our invested funds by limiting default, market
and reinvestment risk. Investments in both fixed rate and floating rate interest
earning instruments carry a degree of interest rate risk. Fixed rate securities
may have their fair market value adversely impacted due to a rise in interest
rates, while floating rate securities may produce less income than expected if
interest rates fall. Due in part to these factors, our future investment income
may fall short of expectations due to changes in interest rates. We may suffer
losses in principal if forced to sell securities that have declined in market
value due to changes in interest rates. We have no cash flow exposure due to
rate changes for our $63.3 million Convertible Subordinated Notes.

Foreign Currency Risk. To date we have not experienced material risks
associated with foreign currencies as a result of our operations. However, with
our expansion internationally, we will be exposed to risks associated with
fluctuations in foreign currencies during fiscal 2000.

Investment Risk. To date, we have not invested in equity instruments of
companies.

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<PAGE> 34

ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
BEYOND.COM CORPORATION
Consolidated Financial Statements

Report of Ernst & Young LLP, Independent Auditors......................... 35
Consolidated Balance Sheets............................................... 36
Consolidated Statements of Operations..................................... 37
Consolidated Statements of Stockholders' Equity (Net Capital Deficiency).. 38
Consolidated Statements of Cash Flows..................................... 39
Notes to Consolidated Financial Statements................................ 40
</TABLE>

34
<PAGE> 35

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, 1999 and 1998, and the related consolidated
statements of operations, stockholders' equity (net capital deficiency), and
cash flows for each of the three years in the period ended December 31, 1999.
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 auditing standards generally
accepted in the United States. 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, 1999 and 1998, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.

ERNST & YOUNG LLP

San Jose, California
January 14, 2000, except for the
third paragraph of Note 13, as
to which the date is March 27, 2000.

35
<PAGE> 36

BEYOND.COM CORPORATION

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

DECEMBER 31,
------------------------
1999 1998
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ................................................... $ 11,539 $ 81,548
Short-term investments ....................................................... 54,774 --
Accounts receivable, net of allowances of $992 and $878 at
December 31, 1999 and 1998 ................................................. 13,843 8,785
Note receivable from a director .............................................. -- 270
Prepaid partnership agreements ............................................... 5,151 4,091
Prepaid expenses and other current assets .................................... 3,002 2,110
Cost of deferred revenue ..................................................... 9,388 5,255
--------- ---------
Total current assets ................................................. 97,697 102,059
Property and equipment, net .................................................... 13,077 3,150
Goodwill and other intangible assets ........................................... 102,229 --
Other noncurrent assets ........................................................ 7,373 4,695
--------- ---------
Total assets ......................................................... $ 220,376 $ 109,904
========= =========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................................................. $ 12,579 $ 14,443
Accrued employee expenses .................................................... 2,046 575
Other accrued liabilities .................................................... 5,468 1,169
Current obligations under capital leases ..................................... 118 --
Deferred revenue ............................................................. 9,393 5,744
--------- ---------
Total current liabilities ............................................ 29,604 21,931
Noncurrent obligations under capital leases .................................... 10 --
Convertible notes payable ...................................................... 63,250 63,250
Commitments and contingencies
Stockholders' equity:
Common stock, no par value:
Authorized shares -- 70,000,000 in 1999 and 50,000,000 in 1998
Issued and outstanding shares -- 36,490,133 in 1999 and 27,424,763 in
1998 ....................................................................... 295,814 69,311
Deferred compensation ........................................................ (1,444) (2,226)
Accumulated other comprehensive income ....................................... 269 --
Accumulated deficit .......................................................... (167,127) (42,362)
--------- ---------
Total stockholders' equity ........................................... 127,512 24,723
--------- ---------
Total liabilities and stockholders' equity ........................... $ 220,376 $ 109,904
========= =========
</TABLE>

See accompanying notes.

36
<PAGE> 37

BEYOND.COM CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Net revenues ..................................................... $ 117,282 $ 36,650 $ 16,806
Cost of revenues ................................................. 101,290 31,074 14,873
--------- --------- ---------
Gross profit ..................................................... 15,992 5,576 1,933
Operating expenses:
Research and development ....................................... 10,385 4,140 1,060
Sales and marketing ............................................ 81,349 27,206 1,696
General and administrative ..................................... 12,319 3,801 1,087
Goodwill and deferred compensation amortization ................ 36,745 1,565 --
--------- --------- ---------
Total operating expenses ............................... 140,798 36,712 3,843
--------- --------- ---------
Loss from operations ............................................. (124,806) (31,136) (1,910)
Interest and other income ........................................ 5,131 1,356 173
Interest expense ................................................. (5,090) (1,293) (6)
--------- --------- ---------
Loss from continuing operations .................................. (124,765) (31,073) (1,743)
Loss from discontinued operations ................................ -- -- (3,616)
--------- --------- ---------
Net loss ......................................................... (124,765) (31,073) (5,359)
Accretion of premium on redemption of redeemable convertible
preferred stock in excess of purchase price .................... -- (51) (101)
--------- --------- ---------
Net loss applicable to common stockholders ....................... $(124,765) $ (31,124) $ (5,460)
========= ========= =========
Basic and diluted net loss per share from continuing
operations ..................................................... $ (3.67) $ (1.65) $ (0.21)
Basic and diluted net loss per share from discontinued
operations ..................................................... -- -- (0.40)
--------- --------- ---------
Basic and diluted net loss per share ............................. $ (3.67) $ (1.65) $ (0.61)
========= ========= =========
Weighted average shares of common stock outstanding used in
computing basic and diluted net loss per share ................. 34,039 18,900 9,000
========= ========= =========
</TABLE>

See accompanying notes.

37
<PAGE> 38

BEYOND.COM CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (NET CAPITAL DEFICIENCY)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
TOTAL
STOCKHOLDERS
ACCUMULATED EQUITY
COMMON STOCK OTHER (NET
----------------------- DEFERRED COMPREHENSIVE ACCUMULATED CAPITAL)
SHARES AMOUNT COMPENSATION INCOME DEFICIT DEFICIENCY)
---------- ---------- ------------ ------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 ..................... 9,000,000 $ 45 $ -- $ -- $ (2,454) $ (2,409)
Issuance of common stock upon exercise of
options under employee stock option plans ...... 70,000 2 -- -- -- 2
Spin-off of CyberSource to stockholders
on December 31, 1997 ........................... -- -- -- -- (3,324) (3,324)
Net loss and comprehensive loss .................. -- -- -- -- (5,359) (5,359)
---------- ---------- ---------- ---------- ---------- ----------
9,070,000 47 -- -- (11,238) (11,191)
Balance at December 31, 1997
Issuance of common stock upon exercise of
options under employee stock option plans ..... 166,852 28 -- -- -- 28
Conversion of redeemable convertible
preferred stock to common stock upon the
initial public offering ....................... 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 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 loss .................. -- -- -- -- (31,073) (31,073)
---------- ---------- ---------- ---------- ---------- ----------
Balance at December 31, 1998 ..................... 27,424,763 69,311 (2,226) -- (42,362) 24,723
Issuance of common stock upon exercise of
options under employee stock option plans ..... 1,087,175 2,360 -- -- -- 2,360
Common shares issued in second public
offering, net .................................. 3,000,000 98,499 -- -- -- 98,499
Shares issued upon merger with
BuyDirect.com, net ............................. 4,930,123 123,267 -- -- -- 123,267
Deferred compensation resulting from the
assumption of BuyDirect.com options............. -- 4,590 (4,590) -- -- --
Write-off of deferred compensation for
terminated employees ........................... -- (2,826) 2,826 -- -- --
Shares issued upon purchase of
SoftGallery, net ............................... 48,072 613 -- -- -- 613
Amortization of deferred compensation ............ -- -- 2,546 -- -- 2,546

Unrealized gain on short-term investments ........ -- -- -- 269 -- 269
Net loss ......................................... -- -- -- -- (124,765) (124,765)
----------
Comprehensive loss ............................... -- -- -- -- -- (124,496)
---------- ---------- ---------- ---------- ---------- ----------
Balance at December 31, 1999 ..................... 36,490,133 $ 295,814 $ (1,444) $ 269 $ (167,127) $ 127,512
========== ========== ========== ========== ========== ==========
</TABLE>

38
<PAGE> 39

BEYOND.COM CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss ................................................................ $(124,765) $ (31,073) $ (5,359)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization ......................................... 2,825 510 79
Amortization of goodwill and deferred compensation .................... 36,745 1,565 --
Amortization of debt issuance costs ................................... 803 113 --
Net loss of discontinued operations ................................... -- -- 3,616
Changes in assets and liabilities:
Accounts receivable ................................................... (4,888) (7,604) (750)
Prepaid partnership agreements ........................................ 579 (3,695) (396)
Prepaid expenses and other current assets ............................. (177) (1,990) (44)
Cost of deferred revenue .............................................. (4,133) (317) (4,120)
Other noncurrent assets ............................................... (3,462) (770) --
Accounts payable ...................................................... (3,042) 12,187 1,720
Accrued employee expenses ............................................. 1,361 525 20
Other accrued liabilities ............................................. (4,489) 949 152
Deferred revenue ...................................................... 3,646 175 4,602
Cash provided by discontinued operations .............................. -- -- 181
--------- --------- ---------
Net cash used in operating activities ................................... (98,997) (29,425) (299)
INVESTING ACTIVITIES
Purchases of property and equipment ..................................... (11,657) (3,280) (333)
Purchases of short-term investments ..................................... (57,659) -- --
Sale of short-term investments .......................................... 3,154 -- --
Issuance of note receivable to director ................................. -- (270) --
Costs associated with the acquisition of BuyDirect.com .................. (5,839) -- --
Repayment of note receivable to director ................................ 270 -- --
Cash used for discontinued operations ................................... -- -- (4,611)
--------- --------- ---------
Net cash used in investing activities ................................... (71,731) (3,550) (4,944)
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 .............................. -- (60) (45)
Repayment of capital lease obligations .................................. (140) (57) (3)
Proceeds from sale of redeemable convertible preferred stock, net ....... -- 2,924 6,069
Proceeds from sale of common stock, net ................................. 98,499 48,830 --
Proceeds from exercise of stock options ................................. 2,360 28 2
Cash used for discontinued operations ................................... -- -- (1,946)
--------- --------- ---------
Net cash provided by financing activities ............................... 100,719 111,952 4,077
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents .................... (70,009) 78,977 (1,166)
Cash and cash equivalents at beginning of period ........................ 81,548 2,571 3,737
--------- --------- ---------
Cash and cash equivalents at end of period .............................. $ 11,539 $ 81,548 $ 2,571
========= ========= =========
SUPPLEMENTAL SCHEDULES OF CASH FLOW INFORMATION
Interest paid ........................................................... $ 4,693 $ -- $ 6
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES
Issuance of Warrant to AOL .............................................. $ -- $ 1,075 $ --
Deferred compensation related to stock options .......................... $ 4,590 $ 3,791 $ --
Issuance of common stock upon conversion of preferred stock ............. $ -- $ 15,540 $ --
Issuance of common stock in conjunction with acquisitions ............... $ 123,880 $ -- $ --
</TABLE>

See accompanying notes.

39
<PAGE> 40

BEYOND.COM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Beyond.com Corporation ("Beyond.com" or 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. 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
reflect CyberSource as a discontinued operation (see Note 3).

Basis of Presentation

The accompanying consolidated financial statements reflect the financial
position and results of operations of the Company and its wholly owned
subsidiaries and include the results of operations of BuyDirect.com and
SoftGallery from the date of acquisition (see Note 2). All intercompany
transactions and balances have been eliminated.

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 two sources: the operation
of eStores and resale of computer software. The Company's revenues include sales
of software to customers using credit cards, to corporate customers that are
invoiced directly under credit terms, to 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 when persuasive evidence of an arrangement
exists, either shipment of the physical product or delivery of the electronic
product has occurred, fees are fixed and determinable and collectibility is
considered probable. Sales of software under contracts with U.S. Government
agencies require continuing service, support and performance by the Company.
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.

The American Institute of Certified Public Accountants Statement of Position,
"Software Revenue Recognition" (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. The
application of SOP 97-2 has not had a material impact on the Company's results
of operations.

Foreign Currency Translation

The financial statements of the Company's subsidiaries are translated into
U.S. dollars in accordance with the Statement of Financial Accounting Standards
No. 52, "Foreign Currency Translation." Assets and liabilities of the Company's
subsidiaries are translated using exchange rates on the last day of the
reporting period. Revenues and expenses are translated using the average
exchange rates in effect during the period. Gains and losses from foreign
currency translation were not material through December 31, 1999.

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

40
<PAGE> 41

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, 1999, 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, 1999, 1998, and 1997 were approximately $19,956,000 , $8,500,000,
and $178,000, respectively. Amounts capitalized for future advertising were
$515,000 at December 31, 1998. There were no amounts capitalized for future
advertising at December 31, 1999.

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, 1999 and 1998, cash equivalents consist primarily of investments in
money market accounts for which 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.

Short-Term Investments

Short-term investments are classified as available-for-sale and are carried
at fair market value. Short-term investments are comprised primarily of
commercial paper and corporate notes with an original maturity greater than
three months and less than one year. Unrealized gains and losses on short-term
investments, which represent the difference between the fair market value and
the amortized or original cost, are approximately $269,000 as of December 31,
1999 and are included in accumulated other comprehensive income. There were no
realized gains or losses from the sale of short-term investments during fiscal
1999.

The following is a summary of available for sale securities at December 31,
1999:

<TABLE>
<CAPTION>
Gross
Amortized Unrealized Fair
Cost Gains/(Losses) Value
---------- -------------- ----------
<S> <C> <C> <C>
Obligations of government agencies $11,498,000 $ (18,000) $11,480,000
Corporate obligations, principally commercial
paper and corporate notes 43,007,000 287,000 43,294,000
----------- ---------- -----------
Total $54,505,000 $ 269,000 $54,774,000
=========== ========== ===========
</TABLE>

The Company held no short-term investments at December 31, 1998.

Concentration of Credit Risk and Other Risks

Financial instruments that potentially subject the Company to concentrations
of credit risk consist primarily of cash equivalents, short-term investments,
and accounts receivable. The Company operates in three business segments 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, 1999, 1998 and 1997, U.S. Government agencies accounted for 25%, 29%, and
33% of revenues, respectively. As of December 31, 1999, the Company had three
U.S. Government agency customers that accounted for 65% of gross accounts
receivable. No customer accounted for greater than 10% of the receivable balance
at December 31, 1998.

The Company's contracts with U.S. Government agencies 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

41
<PAGE> 42

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,
-------------------------
1999 1998
-------- --------
<S> <C> <C>
Computer equipment and software ...................... $ 12,779 $ 2,450
Furniture and fixtures ............................... 2,146 1,010
Office equipment ..................................... 401 77
Leasehold improvements ............................... 1,169 221
-------- --------
16,495 3,758
Less accumulated depreciation and amortization ....... (3,418) (608)
-------- --------
$ 13,077 $ 3,150
======== ========
</TABLE>

Long-Lived Assets

The Company reviews its long-lived assets, including its goodwill and other
intangible assets, for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.

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 9, 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 9.

Net Loss Per Share

Net loss per share is presented under Statement of Financial Accounting
Standards No. 128, "Earnings Per Share" (FAS 128). Basic earnings per share is
computed using the weighted average number of common shares outstanding during
the period and excludes any dilutive effects of options, warrants and
convertible securities. Diluted earnings per share is computed using the
weighted average number of common and dilutive common shares outstanding during
the period. Due to the Company's net loss for the fiscal years ended December
31, 1999, 1998, and 1997, potentially dilutive securities have been excluded
from the computation as their effect is antidilutive.

If the Company had reported net income, diluted net income per share would
have included the shares used in the computation of net loss per share as well
as the effect of approximately 7,120,000, 4,853,000, and 1,016,000 shares
purchasable under outstanding options and warrants not included above for the
years ended December 31, 1999, 1998, and 1997, respectively. The number of
common equivalent shares from options and warrants would be determined on a
weighted average basis using the treasury stock method. The convertible notes
outstanding in 1999 and 1998 were also excluded from the common equivalent share
calculation, as it would have been antidilutive.

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 effects of temporary differences between financial and taxable amounts of
assets and liabilities.

42
<PAGE> 43

Internally Used Software

In fiscal 1999, the Company adopted 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 to all non-governmental entities for software which
is internally developed, acquired, or modified solely to meet the entity's
internal needs. SOP 98-1 did not have a material effect on the Company's
financial statements or results of operations.

Comprehensive Loss

Statement of Financial Accounting Standards No. 130 (SFAS 130), "Reporting
Comprehensive Income" establishes rules for the reporting and display of
comprehensive income and its components. SFAS 130 requires unrealized gains or
losses on the Company's available-for-sale securities, which were previously
reported separately in stockholders' equity, to be included in other
comprehensive loss. Comprehensive loss consists of the Company's net loss and
other comprehensive income.

New Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities," (SFAS 133). SFAS 133 establishes accounting and
reporting for derivative instruments, including certain derivative instruments
embedded in other contracts and for hedging activities. SFAS 133 requires all
companies to recognize derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
This statement is effective for all fiscal quarters of fiscal years beginning
after July 1, 2000. The Company is currently assessing the potential impact SFAS
133 will have on the Company's statement of financial position.

In December 1999, the SEC issued Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements" (SAB 101). The Company is required to adopt
SAB 101 no later than its quarter ended June 30, 2000. The Company does not
believe that the adoption of SAB 101 will have a material effect on its
financial position or results of operations.

Reclassifications

Certain prior year balances have been reclassified to conform with current
year's presentation.

2. ACQUISITIONS

BuyDirect.com

On March 30, 1999, a wholly owned subsidiary of Beyond.com merged with and
into BuyDirect.com, an online software retailer for consumers and business
customers. BuyDirect.com was originally launched as a service of CNET and became
a wholly owned subsidiary of Beyond.com in March 1998. Upon the closing of this
merger, Beyond.com issued 4,930,123 shares of its common stock to
BuyDirect.com's stockholders in exchange for their outstanding shares of
BuyDirect.com common and preferred stock. Beyond.com assumed options to purchase
281,757 shares of its common stock in connection with the merger. The common
stock issued was valued at $120.5 million based on the average closing price of
the common stock for the five trading days immediately preceding and the five
trading days following the announcement of the acquisition. The Company
accounted for the merger using the purchase method of accounting. The purchase
consideration of approximately $138.9 million included the fair market value of
the common stock of $120.5 million, the fair value of the fully vested options
assumed of $2.7 million, liabilities assumed of $13.0 million and the
acquisition costs of $5.8 million incurred in connection with the merger. The
fair value of the unvested options assumed of $4.6 million has been recorded as
deferred compensation.

43
<PAGE> 44

The Company has allocated the purchase price to assets and liabilities based
on management's best estimates of the respective fair values with the excess
cost over the net assets acquired allocated to goodwill as follows (amounts in
millions):

<TABLE>
<S> <C>
Current assets $ 1.6
Property and equipment 1.1
Marketing agreements 2.0
Customer base 2.0
Assembled workforce 1.1
Technology 1.6
Covenants not to compete 6.5
Goodwill 123.0
------
<S> <C>
Total purchase price $138.9
======
</TABLE>

The intangible assets are being amortized to expense over the estimated
useful lives of one to three and one half years. Fifteen percent of the shares
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 indemnification obligations of the BuyDirect.com stockholders. At
December 31, 1999 the balance of intangible assets and goodwill was $102.2
million, net of accumulated amortization of $34.1 million.

The unaudited pro forma consolidated statement of operations data for the
years ended December 31, 1999 and 1998 set forth below gives effect to the
acquisition of BuyDirect.com as if it occurred on January 1, 1998. The unaudited
pro forma results for 1999 and 1998 include an adjustment to reflect a full year
of amortization of goodwill, intangible assets and deferred compensation
recorded in conjunction with the acquisition. The basic and diluted net loss per
share amounts are computed using the weighted average number of shares of
common stock outstanding after the issuance of the Company's common stock to
acquire the outstanding shares of BuyDirect.com.

<TABLE>
<CAPTION>
Year Ended
(Unaudited) December 31,
(In thousands, except per share amounts) 1999 1998
---------------------------------------- --------- --------
<S> <C> <C>
Revenues $ 119,731 $ 41,297
Net loss $(176,030) $(86,059)
Basic and diluted net loss per share $ (3.88) $ (3.61)
</TABLE>

SoftGallery SARL

On October 20, 1999, Beyond.com acquired SoftGallery SARL, a Paris, France
based, online software reseller of digitally downloadable software products.
Under the terms of the acquisition, Beyond.com issued approximately 48,000
shares of its common stock to SoftGallery stockholders, paid cash of $500,000
and assumed liabilities of $167,000. In addition, Beyond.com is obligated to
issue an additional 192,000 shares to SoftGallery stockholders, subject to
SoftGallery meeting specific European revenue targets and employment
contingencies. The European revenue contingencies are only applicable if
Beyond.com meets certain marketing and business development commitments in
Europe. These shares will be held in escrow and will be delivered in various
intervals through October 2003 as SoftGallery meets the revenue targets and
employment contingencies.

The common stock issued on the date of the acquisition that was not subject
to the revenue targets or employment contingencies was valued at approximately
$600,000, based on the closing price on the date of the acquisition. The
acquisition was accounted for using the purchase method of accounting. The total
purchase price was approximately $1.4 million and included the fair value of the
common shares issued of approximately $600,000, a cash payment of $500,000,
liabilities assumed of $167,000 and acquisition costs of approximately $100,000.
The purchase price was allocated to intangible assets and is being amortized
over the estimated useful life of four years. On the date of the acquisition,
Beyond.com did not record the value of the contingent consideration to be issued
because these amounts were not earned and were subject to the revenue targets
and employment contingencies. The value of the remaining shares subject to the
revenue targets and employment contingencies will be recorded as compensation
expense as the shares are earned pursuant to the terms of the agreement. As of
December 31, 1999, no contingent shares had been earned. Pro forma information
for the SoftGallery acquisition has not been presented because the effect of the
acquisition was not considered material to the Company's consolidated financial
position, results of operations, or cash flows.

44
<PAGE> 45

3. 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 $1,128,000 for the
year ended December 31, 1997. The results of operation of the discontinued
business have been presented as a loss from discontinued operations.

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>

4. SEGMENT INFORMATION

Under Statement of Financial Accounting Standards No. 131, "Disclosures About
Segments of an Enterprise and Related Information" (FAS 131), operating segments
are identified as components of an enterprise for which separate discrete
financial information is available that is evaluated by the chief operating
decision maker or decision making group to make decisions about how to allocate
resources and assess performance. The Company's chief operating decision maker
is the Chief Executive Officer. At December 31, 1999, the Company reported its
operations as three segments: eStores, Government Systems and website groups.

The following table presents net revenues and cost of revenues of the
Company's three segments for the three years ended December 31, 1999. There were
no inter-business unit sales or transfers. The Company does not report operating
expenses, depreciation and amortization, interest income (expense), income
taxes, capital expenditures, or identifiable assets by its industry segments to
the Chief Executive Officer. The Company's Chief Executive Officer reviews the
revenues from each of the Company's reportable segments, and all of the
Company's expenses are managed by and reported to the Chief Executive Officer on
a consolidated basis. Net revenues and cost of revenues are as follows (in
thousands):

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
NET REVENUES
eStores $ 25,041 $ 1,734 $ --
Government Systems 29,718 10,503 5,573
Website 62,523 24,413 11,233
-------- -------- --------

TOTAL $117,282 $ 36,650 $ 16,806
======== ======== ========

COST OF REVENUES
eStores $ 20,873 $ 1,400 $ --
Government Systems 27,006 9,631 5,053
Website 53,411 20,043 9,820
-------- -------- --------

TOTAL $101,290 $ 31,074 $ 14,873
======== ======== ========
</TABLE>

5. MARKETING AGREEMENTS

During 1997, 1998 and 1999, the Company entered into marketing agreements
with America Online Inc. ("AOL"), Excite Inc. ("Excite"), Netscape
Communications Corporation ("Netscape"), Network Associates Inc. ("Network
Associates") and Yahoo! Inc. (Yahoo!) (See Note 13).

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 is 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 Website from various AOL
Web pages. During the term, AOL is obligated to deliver a cumulative number of

45
<PAGE> 46

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 website.

The Netscape agreement is for a term of 24 months beginning August 1997,
pursuant to which the Company created and managed an online software store
accessible through Netscape's Internet site. In compensation for sales of
product offered by the Company on this online software store, the Company paid a
commission to Netscape. These commissions were charged to sales and marketing
expense. Under the agreement, the Company also paid Netscape a fee to license
its trademarks for use on the Company's co-branded 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 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.

In February 1999, the Company 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, the Company will make fixed payments, which may be
augmented by certain performance-based payments.

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, 1999, 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 and Yahoo!
agreements 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 these agreements are April 1998 to
March 2001 and February 1999 to August 2000 for Excite and Yahoo!, respectively.
The Company has expensed $14,818,000 and $6,700,000 related to these agreements
in 1999 and 1998, respectively. Total amounts capitalized under these agreements
at December 31, 1999 and 1998 were $3,990,000 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 determined the fair value of the IPO Warrant using the Black-
Scholes model with the following assumptions: risk-free interest rate of 6.00%,
no dividend yield, a volatility factor of 0.25, and an expected life of eight
years based on the term of the warrant. The fair value of the IPO Warrant was
determined at the time of issuance to be approximately $1,075,000 and was
recorded 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
$656,000 of the IPO Warrant value to sales and marketing expense through 1999.

46
<PAGE> 47

As a result of the BuyDirect.com merger, the Company assumed marketing
agreements with @Home Corporation (@Home), CNET Networks Inc. (CNET), ZD Inc.
(ZDNet) and other partners (See Note 13).

The @Home agreement is for a term of 36 months beginning in November 1998
and provides for the Company to become the exclusive software store promoted on
the @Home Network. The amounts paid under this agreement are being amortized to
sales and marketing expenses on a straight-line basis over the period from the
launch date to the termination of the services. Additionally, under the terms
of the @Home agreement, the minimum payments made by the Company 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 CNET agreement is for a term of 24 months beginning in October 1998.
Under the CNET agreement, Beyond.com receives Internet and television
promotions and exclusivity from CNET. The amounts paid under this agreement are
being amortized to sales and marketing expenses on a straight-line basis over
the period from the launch date to the termination of the services.
Additionally, the Company is required to pay certain actual click fees owed
for customers delivered to the Company's sites directly from the CNET sites in
the period incurred.

The ZDNet agreement is for a term 36 months beginning in February 1999 and
provides for certain promotion and advertising and on-line software content for
use on the Company's website. The amounts paid under this agreement are being
amortized to sales and marketing expenses on a straight-line basis over the
period from the launch date to the termination of the services. Additionally,
under the terms of the ZDNet agreement, the payments may be increased if gross
revenues by the Company exceed certain levels.

The Company expensed $6,674,000 related to these agreements assumed as a
result of the BuyDirect.com merger in 1999. Total amounts capitalized under
these agreements assumed as a result of the BuyDirect.com merger at December 31,
1999 were $1,161,000.

6. 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, 1999, the fair value of the convertible notes based on quotes from
a major brokerage firm was $37,065,000. There are no financial covenants
associated with the notes payable.

47
<PAGE> 48

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.

7. OPERATING LEASE COMMITMENTS

The Company leases or subleases facilities and certain equipment under
noncancelable operating leases expiring at various dates through 2004. In
October 1999, the Company entered into a new facility lease agreement for
approximately 105,000 square feet of office space in Santa Clara, California.
The new lease expires in 2004. In addition to the base rent, the lease agreement
requires the Company to pay taxes, insurance and maintenance expenses.
Occupation of the new facility commenced in November 1999. Rental expense was
approximately $3,353,000, $1,228,000, and $266,000 for the years ended December
31, 1999, 1998, and 1997, respectively.

In September 1999, the Company issued a $1.0 million letter of credit in
connection with the Company's new facility lease. The letter of credit
designates the landlord as beneficiary and provide that the landlord may draw
down the letter of credit in the amount equal to any default under the lease. As
of December 31, 1999, no amounts have been advanced to the lessor from the
letter of credit.

The annual future minimum lease payments under all noncancelable operating
leases at December 31, 1999, are as follows (in thousands):

<TABLE>
<S> <C>
2000 .......................................... $ 3,385
2001 .......................................... 2,960
2002 .......................................... 2,981
2003 .......................................... 2,803
2004 .......................................... 2,433
-------
Total minimum lease payments ......... $14,562
=======
</TABLE>

8. REDEEMABLE CONVERTIBLE PREFERRED STOCK

In March and April 1998, the Company sold a total of 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. Upon the
Company's initial public offering, all outstanding shares of preferred stock
converted into 12,198,962 shares of common stock.

9. STOCKHOLDERS' EQUITY

Common Shares

The Company is authorized to issue 70,000,000 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.

The Company has reserved shares of common stock for future issuance at
December 31, 1999 as follows:

<TABLE>
<S> <C>
1995, 1998, and 1999 Stock Option Plans (the Plans)
Options outstanding 5,987,994
Options available for future grant 946,008
Options granted outside of the Plans 773,728
Shares reserved for Employee Stock Purchase Plan 1,000,000
Outstanding warrants 358,423
Shares reserved for conversion of convertible notes
payable 3,448,745
----------
12,514,898
==========
</TABLE>

48
<PAGE> 49

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. On March 17, 1999,
the Company's Board of Directors and stockholders adopted the 1999 Non-Qualified
Stock Option Plan and reserved an aggregate of 750,000 shares of common stock
for grants of stock options under such plan. On March 17, 1999, the Company's
Board of Directors and stockholders adopted the 1999 Incentive Stock Option Plan
and reserved an aggregate of 2,000,000 shares of common stock for grants of
stock options under such plan. 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.
Some of the options granted under the Plans vest over one year at the rate of
50% 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, 1997, 1998, and
1999, as 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
Issues Task Force Issue No. 90-9 and, therefore, no compensation expense was
recorded.

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-------------------------------
WEIGHTED
AVERAGE
SHARES NUMBER EXERCISE PRICE
AVAILABLE OF SHARES PER SHARE
----------- ----------- --------------
<S> <C> <C> <C>
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
Additional Shares Reserved 3,031,757 -- --
Options granted (3,528,457) 3,528,457 $ 19.391
Options exercised -- (860,903) $ 2.768
Options canceled 1,455,616 (1,455,616) $ 12.983
Options assumed as a result of the
BuyDirect.com Merger (281,757) 281,757 $ 1.328
---------- ----------
Balance at December 31, 1999 946,008 5,987,994 $ 11.113
========== ==========
</TABLE>

49
<PAGE> 50

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, 1999:

<TABLE>
<CAPTION>
Number of Weighted Number of
Options Weighted Average Options Weighted
Outstanding as of Average Remaining Exercisable as of Average
December 31, Exercise Contractual December 31, Exercise
Exercise Price 1999 Price Life (Years) 1999 Price
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 0.0042 - $ 7.69 2,654,512 $ 2.79 7.90 1,329,078 $ 1.45
$ 7.75 - $ 13.50 1,458,021 $ 9.92 9.51 156,254 $ 9.36
$ 13.75 - $ 26.00 1,377,286 $ 21.51 9.38 94,600 $ 22.37
$ 25.13 - $ 37.00 498,175 $ 29.67 9.31 11,350 $ 28.16
--------- ---------
$ 0.0042 - $ 37.00 5,987,994 $ 11.11 8.67 1,591,282 $ 4.17
========= =========
</TABLE>

As of December 31, 1998 and 1997, 647,341 and 666,448 options were
exercisable at a weighted average price of $0.09 and $0.03, respectively.

Options Granted Outside of the Stock Options 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. A total of 226,272 option
shares have been exercised as of December 31, 1999. As of December 31, 1999, the
remaining life of the options is approximately two years, and all options are
exercisable.

Employee Stock Purchase Plan

In April 1999, the Company's Board of Directors and stockholders adopted its
1999 Employee Stock Purchase Plan and reserved 1,000,000 shares of common stock
for issuance under this plan. In accordance with Section 423 of the Internal
Revenue Code, this plan permits eligible employees to authorize payroll
deduction of up to 10% of their base compensation to purchase shares of the
Company's common stock at the lower of 85% of the fair market value of the
common stock on the first day of the offering period or the purchase date. No
shares have been issued under this plan as of December 31, 1999. The first seven
month offering period ends on January 31, 2000.

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 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%, 5.2%, and 6.1% for 1999, 1998, and 1997, respectively, no
dividend yield, no volatility factor for 1997; a volatility factor of 1.35 for
1998; and a volatility factor of 1.23 for 1999, of the expected market price of
the Company's common stock, and a weighted average expected life of the option
of 5.34 years for 1999, 5.43 years for 1998, and 4.0 years for 1997.

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

50
<PAGE> 51

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,
----------------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Pro forma net loss (in thousands) $(142,559) $(32,924) $(5,364)
Pro forma basic and diluted net loss per share $ (4.19) $ (1.36) $ (0.30)
</TABLE>

The weighted average fair value of options granted, which is the value
assigned to the options under FAS 123, was $17.05, $6.48, and $0.04 for options
granted during 1999, 1998 and 1997, respectively.

The pro forma impact of options on the net loss for the years ended December
31, 1999, 1998, and 1997 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 2000.

10. 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, could 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 $1.1 million and $747,000 related
to such services in 1999 and 1998, respectively. As of December 31, 1999 and
1998, amounts owed to CyberSource were approximately $151,000 and $100,000,
respectively. In June 1999, the Company granted a two-year exclusive license of
proprietary risk management system software to Cybersource for a non-refundable
license fee of $600,000.

During the years ended December 31, 1999, 1998, and 1997, legal fees incurred
were approximately, $988,000, $1,300,000, and $304,000, respectively, relating
to a law firm in which the current secretary of the board of directors of the
Company is a partner. As of December 31, 1999 and 1998, amounts owed to the law
firm were approximately $69,000, and $147,000, respectively.

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 accrued on the
outstanding principal at a rate of 6.02% per annum. The note and related accrued
interest was paid in full during 1999.

11. 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.

12. INCOME TAXES

No provision for income taxes has been recorded due to operating losses with
no current tax benefit.

As of December 31, 1999, the Company had federal and state net operating loss
carryforwards of approximately $135,000,000 and $38,000,000, respectively. The
Company also had federal and state research credit carryforwards of
approximately $374,000 and $435,000, respectively. The net operating loss
carryforwards and tax credit carryforwards will expire at various dates
beginning in 2002 through 2019, if not utilized.

51
<PAGE> 52

Utilization of the net operating losses and tax 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
tax 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
our deferred tax assets are as follows:

<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------- -----------------
<S> <C> <C>
DEFERRED TAX ASSETS:
Net operating loss carryforwards $ 48,875,000 $ 14,507,000
Research credit carryforwards 809,000 491,000
Reversals and accruals 1,048,000 807,000
------------ ------------
Total deferred tax assets 50,732,000 15,805,000
Valuation allowance (50,732,000) (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 the laws that will be in effect when the differences are
expected to reverse. In light of FAS 109 and based upon the weight of available
evidence, which includes our historical operating performance, the reported net
operating losses in the period 1997, 1998, and 1999, and the uncertainties
regarding the future results of our operations, we have provided a full
valuation allowance against our net deferred tax assets, as it is not more
likely than not that such deferred tax assets will be realized. The valuation
allowance increased by $12,659,000 during 1998 and increased by $34,927,000
during 1999.

13. EVENTS SUBSEQUENT TO DATE OF AUDITOR'S REPORT

Chairman Grant Program (unaudited)

In January 2000, the Company's Board of Directors adopted the Chairman Grant
Program and reserved 1,000,000 shares of common stock for issuance to selected
full-time employees under this plan. William S. McKiernan, the Company's
Chairman of the Board, agreed to contribute 1,000,000 shares of the Company's
common stock owned by him to the Plan over the one year term of the Plan. Shares
will be issued on a quarterly basis, in the total amount of 250,000 shares per
quarter. The shares shall be awarded to selected full time employees who have
gone beyond normal expectations in their contributions to the Company's success
as a whole.

Restructuring (unaudited)

In the first quarter of 2000, the Company expects to recorded a one-time
restructuring charge of approximately $11.0 million to $14.0 million related to
refocusing the Company's business from a consumer retail focus company to a
business-to-business e-commerce services company. As part of the restructuring,
the Company reduced its workforce by approximately 75 employees in January 2000,
or approximately 20% of its total workforce, and began consolidating facilities
and disposing of excess capital assets. Additionally, the Company terminated its
existing marketing agreements as discussed below.

Termination of Certain Agreements

In February and March 2000, the Company terminated its existing marketing
agreements focused on generating consumer sales with AOL, CNET, Excite, Yahoo!,
and ZDNet for approximately $5.8 million. Under the terms of these termination
agreements, the Company has no further commitments or obligations associated
with AOL, CNET, Excite, Yahoo! or ZDNet.

52
<PAGE> 53

ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

Not applicable.

ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

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........ 43 Chairman of the Board of Directors
C. Richard Neely, Jr. ...... 45 Interim Chief Executive Officer, Senior Vice
President of Finance and Administration and
Chief Financial Officer
Gordon F. Jones............. 52 Senior Vice President, Chief Information Officer
John D. Vigouroux........... 40 Senior Vice President, Sales and Marketing
Kendall M. Fargo............ 30 Vice President, Corporate Operations and Services
Montgomery B. Mars.......... 36 Vice President, Business and Corporate Development
Mark W. Bailey.............. 41 Director
Ronald S. Posner............ 57 Director
Richard Scudellari.......... 43 Director
</TABLE>

WILLIAM S. MCKIERNAN is a co-founder of Beyond.com and has served as
Chairman of its Board of Directors since March 1998. From Beyond.com's inception
in 1994 to March 1998, Mr. McKiernan served as its President and Chief Executive
Officer. Mr. McKiernan also currently serves as Chairman of the Board of
Directors 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 a Master's degree in Business
Administration from the Harvard Business School.

C. RICHARD "RICK" NEELY, JR. serves as Interim Chief Executive Officer,
Senior Vice President of Finance and Administration and Chief Financial Officer
of Beyond.com. Mr. Neely joined Beyond.com in December 1999 as Chief Financial
Officer and was named Interim Chief Executive Officer in January 2000. From 1998
until joining Beyond.com Mr. Neely was Vice President of Finance and Operations
Controller for Synopsys Inc., the leading provider of EDA software tools to the
global electronics market. From 1996 to 1998, Mr. Neely was Vice President of
Finance and Corporate Controller at Heartport Inc., a medical device
manufacturing company. Prior to Heartport Inc., Mr. Neely was Group Controller
and Director of Finance at Advanced Micro Devices Inc. Mr. Neely holds a
Master's degree in Business Administration in Finance and Marketing from the
University of Chicago and a Bachelor of Arts in Economics from Whitman College,
where he graduated summa cum laude.

GORDON F. JONES joined Beyond.com as Chief Information Officer in May 1999.
He oversees the Company's Engineering, Information Systems and Technical
Operations functions. Mr. Jones came to Beyond.com from Franklin Resources Inc.,
where he was Chief Information Officer and Vice President of Information
Services & Technology (IS&T). Prior to Franklin Resources, Mr. Jones was Chief
Information Officer and Vice President of Information Services at Novell Inc., a
leading computer networking company. He has sat on the Advisory Board at the
Haas School of Business at the University of California, Berkeley and on the
Enterprise Customer Advisory Councils for Lucent Technologies and Microsoft
Corp. Mr. Jones earned the equivalent of a Master of Business Administration
degree in Management Studies from the Buckinghamshire College in the United
Kingdom.

JOHN D. VIGOUROUX became the Company's Senior Vice President, Sales and
Marketing in January 2000. Mr. Vigouroux's previous role at Beyond.com was Vice
President of Business and Corporate Development. Prior to joining Beyond.com,
Mr. Vigouroux was Vice President of Business development at NetObjects from June
1997 to October 1998. From August 1996 to June 1997, Mr. Vigouroux was the
Director of Business Development of Cisco Systems Inc. Prior to that, Mr.
Vigouroux served as Manager of Strategic Opportunities of Adobe Systems Inc.
from August 1993 to August 1996. Mr. Vigouroux holds a Masters degree in
Business Administration from New Hampshire College and a Bachelor of Arts degree
in Organizational Behavior and Development from Averett College in Danville, VA.

KENDALL M. FARGO became Vice President, Corporate Operations and Services,
where he is responsible for managing the Company's operations in October 1999.
Mr. Fargo's previous role at Beyond.com was Vice President, Enterprise and
Government Sales, from 1998 to 1999. Prior to the Spin-off of CyberSource
Corporation, Mr. Fargo was the Director of Sales and Marketing. From 1997 to
1999, Mr. Fargo increased sales revenue by more than 250 percent annually within
his sales department. Mr. Fargo was awarded a Bachelor of Arts degree in
Business from the University of California at Santa Barbara (UCSB).

53
<PAGE> 54
MONTGOMERY B. MARS was appointed Vice President of Business and Corporate
Development for Beyond.com in October 1999. Previously, Mr. Mars was Director of
Business Development for Beyond.com. Prior to joining Beyond.com, Mr. Mars ran
his own management consulting business for early stage technology companies and
held Vice President and Director level positions at Mercator Genetics and Ixsys
Inc. Mr. Mars was also a Corporate Attorney at Latham & Watkins. Mr. Mars holds
a Bachelor of Science degree in Biochemistry from UC Davis, a Juris Doctorate
degree from the University of Southern California and a Masters degree in
Business Administration from the Wharton School at the University of
Pennsylvania.

MARK W. BAILEY joined the Company's Board of Directors in April 2000. Mr.
Bailey has been Chief Executive Officer of WebPartner since November 1999 and
Chairman of WebPartner since 1997. Prior to becoming WebPartner's Chief
Executive Officer, Mr. Bailey was Vice President of Business Development at
Healtheon Corporation from July 1998 to October 1999. For six months prior to
joining Healtheon, Mr. Bailey served as general partner of Venrock Associates,
the venture capital arm of the Rockefeller family. From 1989 to 1997, Mr. Bailey
was Senior Vice President of Business Development at Symantec Corporation.

RONALD S. POSNER, a Director of Beyond.com since March 1999, serves as
Chairman of NetCatalyst.com, an internet accelerator firm based in Los Angeles.
Prior to NetCatalyst.com, Mr. Posner was Chairman of PS Capital, a venture
capital firm. Mr. Posner has held or currently holds key advisory roles
within a number of startups and public companies. In addition, he is a
board member of Click2learn.com Inc. and Smallworld.

RICHARD SCUDELLARI was a Director of Beyond.com since the Company's
inception through March 1998. Mr. Scudellari rejoined the board in April 2000.
Mr. Scudellari has been a partner at Morrison & Foerster LLP, a law firm, since
February 1999. From 1990 to January 1999, Mr. Scudellari was a partner at
Jackson Tufts Cole & Black, LLP, a law firm. Mr. Scudellari is also a member of
the board of CyberSource Corporation. Mr. Scudellari holds a Bachelor of Science
degree and Juris Doctorate degree from Boston College.

ITEM 11. EXECUTIVE COMPENSATION.

DIRECTORS

The Company pays non-employee directors an annual director's fee in the
amount of $10,000, in quarterly installments.

In January 1999, the Company granted Mr. Kolde (who resigned from the
Company's Board in April 2000) an option to purchase 10,000 shares of common
stock at an exercise price of $20.75 per share.

The 1999 Stock Incentive Plan provides for initial grants of 20,000 shares
upon appointment to the Board of Directors and subsequent grants of 5,000 shares
following the conclusion of each Annual Meeting of Stockholders commencing with
the 2000 Annual Meeting of Stockholders. These options would vest over four
years.

In March 1999, we granted each of Messrs. Carlston, Chen and Posner
(Messrs. Carlston and Chen each resigned from the Company's Board in April 2000)
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. Each of Messrs. Carlston, Chen and Posner waived his
rights to the initial automatic option grants under the Company's 1998 Stock
Option Plan.

EXECUTIVE OFFICERS

The following table sets forth certain information concerning compensation
of and stock options granted to each of the persons serving as the Company's
Chief Executive Officer and each of the four other most highly compensated
executive officers of the Company (collectively, the "Named Executive Officers")
for the fiscal year ended December 31, 1999.

54
<PAGE> 55

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION SECURITIES
------------------------------ UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#) COMPENSATION
- --------------------------- ---- -------------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Mark L. Breier(1)
President and Chief Executive Officer... 1999 $ 290,000 $ 34,000 250,000 $ --
1998 150,000 37,500 1,000,000 65,000(2)
Gordon F. Jones(3)
Senior Vice President and Chief
Information Officer..................... 1999 145,000 78,000 140,000 --
Mala Anand(4)
Vice President, Engineering............. 1999 205,000 15,000 45,000 --
1998 92,000 -- 180,000 --
Kendall M. Fargo
Vice President, Corporate Operations.... 1999 124,000 91,000 60,000 --
1998 70,000 134,000 40,000 --
1997 45,000 50,000 50,000 --
John D. Vigouroux(5)
Senior Vice President, Sales and 1999 189,000 13,000 36,250 --
Marketing................................ 1998 22,000 -- 145,000 --
</TABLE>
- ----------
(1) Mr. Breier was hired in March 1998
(2) Represents a relocation allowance.
(3) Mr. Jones was hired in May 1999.
(4) Ms. Anand was hired in June 1998 and resigned in March 2000.
(5) Mr. Vigouroux was hired in October 1998.

OPTION GRANTS IN LAST FISCAL YEAR

The following table sets forth certain information with respect to stock
options granted in fiscal 1999 to the Named Executives Officers.

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS(1) POTENTIAL REALIZABLE VALUE
NUMBER OF ------------------------------------------- AT ASSUMED ANNUAL RATES
SECURITIES % OF TOTAL OF STOCK APPRECIATION
UNDERLYING OPTIONS GRANTED FOR OPTION TERM(4)
OPTIONS TO EMPLOYEES IN EXERCISE PRICE EXPIRATION --------------------------
NAME GRANTED(#) FISCAL YEAR(2) ($/SHARE)(3) DATE 5%($) 10%($)
- ---- ---------- --------------- -------------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Mark L. Breier............... 250,000 7.09% $32.1250 4/22/2009 $13,082,060 $20,830,994
Gordon F. Jones.............. 140,000 3.97% 24.0625 5/07/2009 5,487,339 8,737,670
Mala Anand................... 45,000 1.28% 20.75 6/15/2009 1,520,980 2,421,907
Kendall M. Fargo............. 5,000 0.14% 22.75 4/01/2009 185,287 295,038
55,000 1.56% 7.75 10/27/2009 694,316 1,105,583
John D. Vigouroux............ 36,250 1.03% 7.75 10/27/2009 457,618 728,680
</TABLE>
- ----------
(1) Each of these options vests over four years at a rate of 25% of the shares
subject to the option after one year and the remaining shares subject to
the option at the rate of 1/48th per month thereafter. Each of these
options has a ten-year term.

(2) Based on an aggregate of 3,528,457 options granted by Beyond.com during the
fiscal year ended 1999 to employees of and consultants to Beyond.com,
including the Named Executives.

(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 the 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.

55
<PAGE> 56

AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES

The following table sets forth certain information regarding stock options
held as of December 31, 1999 by the Named Executive Officers.

<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AS OF IN-THE-MONEY OPTIONS AS OF
SHARES DECEMBER 31, 1999(#) DECEMBER 31, 1999($)(1)
ACQUIRED ON VALUE ---------------------------- ---------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Mark L. Breier............... 25,274 $ 427,131 412,226 812,500 $ 2,148,728 $ 2,932,031
Gordon F. Jones.............. -- -- -- 140,000 -- --
Mala Anand................... -- -- 67,500 157,500 -- --
Kendall M. Fargo............. 10,000 269,833 58,458 111,042 388,078 217,544
John D. Vigouroux............ -- -- 42,292 138,958 5,287 15,104
</TABLE>
- ----------
(1) The value of unexercised "in-the-money" options represents the difference
between the exercise price of stock options and $7.8125, the closing sales
price of the common stock on December 31, 1999.

EMPLOYMENT AGREEMENTS

The Company and Mark L. Breier (who was the Company's President and Chief
Executive Officer through January 2000) were parties to an employment agreement
dated March 23, 1998 (the "Breier Agreement"). Mr. Breier's annual base salary
under the Breier Agreement was $200,000, subject to good faith adjustment by the
Company's Board of Directors. In addition, Mr. Breier was eligible to
participate in the Company's executive 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 the Company's Board of Directors at the
beginning of each year of employment. According to the Breier Agreement, $25,000
of Mr. Breier's potential bonus for 1998 was guaranteed and paid to Mr. Brier in
quarterly installments.

Pursuant to the Breier Agreement, the Company granted an option to purchase
1,000,000 shares of common stock to Mr. Breier on March 30, 1998, under the 1995
Stock Option Plan. This option has an exercise price of $2.60 per share and is
governed generally by the terms of the 1995 Stock Option Plan, with certain
limited exceptions including acceleration of the vesting in connection with a
change of control (as defined in the Breier Agreement).

56
<PAGE> 57

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

Beneficial Ownership of Securities

Common Stock

The following table sets forth certain information known to the Company
with respect to beneficial ownership of the Company's common stock as of April
26, 2000 by (a) each stockholder known by the Company to be the beneficial owner
of more than five percent of the Company's common stock, (b) each director and
nominee for director of the Company, (c) each Named Executive Officer and (d)
all executive officers, directors and nominees for director who beneficially own
shares, as a group.

<TABLE>
<CAPTION>
5% BENEFICIAL OWNERS, NUMBER OF SHARES PERCENTAGE OF SHARES
DIRECTORS AND NAMED EXECUTIVE OFFICERS BENEFICIALLY OWNED BENEFICIALLY OWNED(1)
- --------------------------------------------------- ------------------ ---------------------
<S> <C> <C>
William S. McKiernan(2)............................ 7,861,345 20.8%
Mark L. Breier(3).................................. 474,583 1.2%
Kendall M. Fargo(4)................................ 104,125 *
Mala Anand(5)...................................... 78,750 *
John D. Vigouroux(6)............................... 77,813 *
Gordon F. Jones(7)................................. 67,083 *
Richard Scudellari................................. 40,000 *
Ronald S. Posner(8)................................ 7,750 *
Mark W. Bailey(9).................................. 1,792 *
All directors and executive officers as a group
(9 persons)(10).................................. 8,179,075 21.5%
</TABLE>
- ----------
* Represents beneficial ownership of less than 1% of our common stock.

(1) Number of shares beneficially owned is determined based on 37,862,488
shares outstanding as of April 26, 2000. 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 options held by that person that are currently exercisable
or exercisable within 60 days of April 26, 2000. 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. 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, 3200 Patrick Henry Drive, Santa Clara,
California 95054.

(2) Includes 7,830,577 shares held by Mr. McKiernan and 30,768 shares held by
members of Mr. McKiernan's immediate family. Mr. McKiernan disclaims
beneficial ownership of the shares held by his immediate family.

(3) Includes options to purchase 449,309 shares of common stock that vest
within 60 days of April 26, 2000, held by Mr. Breier.

(4) Includes options to purchase 92,625 shares of common stock that vest within
60 days of April 26, 2000, held by Mr. Fargo.

(5) Includes options to purchase 78,750 shares of common stock that vest within
60 days of April 26, 2000, held by Ms. Anand.

(6) Includes options to purchase 77,813 shares of common stock that vest within
60 days of April 26, 2000, held by Mr. Vigouroux.

(7) Includes options to purchase 67,083 shares of common stock that vest within
60 days of April 26, 2000, held by Mr. Jones.

(8) Includes options to purchase 7,750 shares of common stock that vest within
60 days of April 26, 2000, held by Mr. Posner.

(9) Includes options to purchase 1,792 shares of common stock that vest within
60 days of April 26, 2000, held by Mr. Bailey.

(10) Includes options to purchase 276,230 shares of common stock that vest
within 60 days of April 26, 2000, held by all directors and executive
officers of the Company.

57
<PAGE> 58

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

CERTAIN TRANSACTIONS

OPTION GRANTS AND AGREEMENTS WITH EXECUTIVE OFFICERS AND DIRECTORS

In April 1999, the Company loaned Gordon F. Jones, the Company's Senior
Vice President, Chief Information Officer, $117,000 to assist Mr. Jones'
transition to Beyond.com. This loan is memorialized in a promissory note issued
by Mr. Jones to the Company, which provides for repayment by October 1999, and
bears interest at a rate of 6.5% compounded annually. In July 1999, Mr. Jones
had fully repaid the principal plus all interest incurred.

In January 2000, the Company's Board of Directors adopted the Chairman
Grant Program and reserved 1,000,000 shares of common stock for issuance to
selected full-time employees under this plan. William S. McKiernan, the
Company's Chairman of the Board, agreed to contribute 1,000,000 shares of the
Company's common stock owned by him to the Plan over the one year term of the
Plan. Shares will be issued on a quarterly basis, in the total amount of 250,000
shares per quarter. The shares shall be awarded to selected full time employees
who have gone beyond normal expectations in their contributions to the Company's
success as a whole.

In January 2000, Mark L. Breier resigned as President and Chief Executive
Officer of the Company. Per the terms of his employment agreement, the Company
will continue to pay Mr. Breier his base salary from the date of his resignation
until the lesser of twelve months or that number of months before which he
obtains a position with another firm.

In March 2000, James R. Lussier resigned as Vice President, Business
Operations and Corporate Strategy of the Company. Per the terms of his
separation agreement, the Company will continue to pay Mr. Lussier his base
salary for four months after the date of separation agreement.

RELATIONSHIP WITH CYBERSOURCE CORPORATION

Pursuant to the terms of an agreement entered into in connection with the
Spin-off of CyberSource Corporation ("CyberSource"), the Company uses services
supplied 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, could 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. At the time these agreements were negotiated, all of the
Company's directors were also directors of CyberSource and other members of our
management team joined CyberSource as executive officers. As a result, these and
subsequent agreements may not be deemed the result of arm's length negotiations.
Further, although CyberSource and Beyond.com are engaged in different
businesses, the two companies currently have no policies to govern the pursuit
or allocation of corporate opportunities between CyberSource and Beyond.com in
the event they arise. The Company's business could be adversely affected if the
overlapping board members of the two companies pursue CyberSource's interests
over Beyond.com's either in the course of intercompany transactions or where the
same corporate opportunities are available to both companies.

In connection with the CyberSource Spin-off, the Company 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, the Company 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 was due and payable no later
than December 17, 1999. Interest accrued on the loan to Mr. McKiernan at the
rate of six and two hundredths percent (6.02%), compounded annually. In May
1999, Mr. McKiernan had fully repaid the principal plus all interest incurred.

The Company entered into a Software License Agreement with CyberSource in
June 1999, pursuant to which CyberSource purchased a perpetual, transferable,
worldwide license to copy, modify, market and otherwise use technology related
to transaction processing services. Pursuant to the terms of the agreement, the
Company will not license or otherwise distribute the software to any of
CyberSource's competitors through June 2001, and CyberSource will own all
modifications or derivative works of the software. The Company will indemnify
CyberSource against any legal cause of action brought against CyberSource to the
extent that the cause of action is based on a claim that the software infringes
any intellectual property rights of a third party, and CyberSource will
indemnify the Company against any legal cause of action brought against the
Company to the extent that the cause of action is based on a claim that any
modification or derivative of the software infringes any intellectual property
rights of a third party. The purchase price of the license was $600,000.

58
<PAGE> 59

ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) EXHIBITS

The Exhibit Index attached hereto is hereby incorporated by reference to this
Item.

(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, 1997
Accounts receivable allowances ....... 65 240 (30) 275
Allowance for sales returns .......... -- -- -- --
Period ended December 31, 1998
Accounts receivable allowances ....... 275 332 (31) 576
Allowance for sales returns .......... -- 462 (160) 302
Period ended December 31, 1999
Accounts receivable allowances ....... 576 634 (809) 401
Allowance for sales returns .......... 302 310 (21) 591
</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.

59
<PAGE> 60

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the registrant has duly caused this annual
report on Form 10-K to be signed on its behalf by the undersigned, thereunto
duly authorized, in Santa Clara, California, on April 5, 2000.

Beyond.com Corporation

By /s/ C. Richard Neely
-------------------------------------------------------
C. Richard Neely, Jr.
Interim Chief Executive Officer, Senior Vice President
Finance and Administration and Chief Financial Officer

By /s/ William S. McKiernan
-------------------------------------------------------
William S. McKiernan
Chairman of the Board of Directors

By /s/ Douglas Carlston
-------------------------------------------------------
Douglas Carlston
Director

By /s/ Bert Kolde
-------------------------------------------------------
Bert Kolde
Director

By /s/ Ronald S. Posner
-------------------------------------------------------
Ronald S. Posner
Director

By /s/ John S. Chen
-------------------------------------------------------
John S. Chen
Director

60
<PAGE> 61

EXHIBIT INDEX

<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE NO.
------ ----------- ------------
<S> <C> <C>
**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).......................................

**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)......................................................
</TABLE>

61
<PAGE> 62

<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE NO.
------ ----------- ------------
<S> <C> <C>
**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...........................................

**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 Website 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 Software Merchant Program Advertising and Promotion Agreement dated as
of February 5, 1999, by and between the Registrant and Yahoo! Inc.............

23.1 Consent of Ernst & Young LLP, independent auditors............................

27.1 Financial Data Schedule.......................................................
</TABLE>

62
<PAGE> 63

- ----------

+ Certain Portions Of This Exhibit Have Been Granted Confidential
Treatment By The Commission. The Omitted Portions Have Been
Separately Filed With The Commission.

++ Confidential Treatment Has Been Requested Of The Commission For
This Item.

* Incorporated by reference from Beyond.com's Registration Statement
on Form S-1, filed with the Commission on March 17, 1999.

** Incorporated by reference from Beyond.com's Registration Statement
on Form S-1 (Reg. No. 333-51121), as amended, filed with the
Commission on June 17, 1998.

*** Incorporated by reference from Beyond.com's Registration Statement
on Form S-1 (Reg. No. 333-70957) filed with the Commission on
January 21, 1999.

***** Incorporated by reference from Beyond.com's Current Report on Form
8-K filed with the Commission on December 31, 1998, as amended.

****** Incorporated by reference from Beyond.com's Quarterly Report on
Form 10-Q filed with the Commission on August 14, 1998.

******* Incorporated by reference from 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 use of our report dated January 14, 2000, except for the third
paragraph of Note 13, as to which the date is March 27, 2000, included in the
Annual Report on Form 10-K of Beyond.com Corporation for the year ended December
31, 1999, with respect to the consolidated financial statements, as amended,
included in this Form 10-K/A.

Our audit also included the financial statement schedule of Beyond.com
Corporation listed in Item 14(a). 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.

We also consent to the incorporation by reference in the Registration Statements
(Form S-8 No. 333-60739, No. 333-76299, and No. 333-86381) pertaining to the
Stock Option Agreement, 1995 Stock Option Plan, 1998 Stock Option Plan, 1999
Stock Incentive Plan, 1999 Non-Qualified Stock Option Plan, and 1999 Employee
Stock Purchase Plan of Beyond.com Corporation of our report dated January 14,
2000, except for the third paragraph of Note 13, as to which the date is March
27, 2000, with respect to the consolidated financial statements and schedule of
Beyond.com Corporation included in this Annual Report (Form 10-K/A) for the year
ended December 31, 1999.

San Jose, California
April 28, 2000

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
BEYOND.COM CORPORATION FORM 10-K FOR THE PERIOD ENDED DECEMBER 31, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 11,539
<SECURITIES> 54,774
<RECEIVABLES> 14,835
<ALLOWANCES> (992)
<INVENTORY> 745
<CURRENT-ASSETS> 97,697
<PP&E> 16,495
<DEPRECIATION> (3,418)
<TOTAL-ASSETS> 220,376
<CURRENT-LIABILITIES> 29,604
<BONDS> 63,250
0
0
<COMMON> 295,814
<OTHER-SE> 168,302
<TOTAL-LIABILITY-AND-EQUITY> 220,376
<SALES> 117,282
<TOTAL-REVENUES> 117,282
<CGS> 101,290
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 140,798
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 41
<INCOME-PRETAX> (124,765)
<INCOME-TAX> 0
<INCOME-CONTINUING> (124,765)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (124,765)
<EPS-BASIC> (3.67)
<EPS-DILUTED> 0

</TABLE>