<SUBMISSION>
<ACCESSION-NUMBER>0001026506-01-500004
<TYPE>10-Q
<PUBLIC-DOCUMENT-COUNT>2
<PERIOD>20010331
<FILING-DATE>20010514
<FILER>
<COMPANY-DATA>
<CONFORMED-NAME>EGGHEAD COM INC/DE
<CIK>0001026506
<ASSIGNED-SIC>5961
<IRS-NUMBER>770408319
<STATE-OF-INCORPORATION>DE
<FISCAL-YEAR-END>1231
</COMPANY-DATA>
<FILING-VALUES>
<FORM-TYPE>10-Q
<ACT>34
<FILE-NUMBER>000-29184
<FILM-NUMBER>1631602
</FILING-VALUES>
<BUSINESS-ADDRESS>
<STREET1>1350 WILLOW ROAD
<STREET2>SUITE 100
<CITY>MENLO PARK
<STATE>CA
<ZIP>94025
<PHONE>6504702400
</BUSINESS-ADDRESS>
<MAIL-ADDRESS>
<STREET1>1350 WILLOW ROAD
<CITY>MENLO PARK
<STATE>CA
<ZIP>94025
</MAIL-ADDRESS>
<FORMER-COMPANY>
<FORMER-CONFORMED-NAME>ONSALE INC
<DATE-CHANGED>19961216
</FORMER-COMPANY>
<FORMER-COMPANY>
<FORMER-CONFORMED-NAME>ONSALE
<DATE-CHANGED>19961216
</FORMER-COMPANY>
</FILER>
<DOCUMENT>
<TYPE>10-Q
<SEQUENCE>1
<FILENAME>form10q.htm
<DESCRIPTION>BODY
<TEXT>

<HTML>
<head>
<TITLE>10Q Q1 2001 DOC</TITLE>
</head>

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<p align="center"><font size="4"><strong>UNITED STATES<br>
SECURITIES AND EXCHANGE COMMISSION<br>
Washington, D.C. 20549</strong></font></p>


<HR align=center SIZE=2 width="25%">
<br>
<p align="center"><font size="5"><strong>FORM 10-Q</strong></center></font></p>
<HR align=center SIZE=2 width="25%">

<p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<i>(Mark One)</i>

<p align="center"><font size="4"><strong>
   [X]&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
             SECURITIES EXCHANGE ACT OF 1934
</strong></font></p>

<p align="center"><font size="3" color="FF0000"><strong>
             For the quarterly period ended <u><strong>March 31, 2001</strong></u> or
</strong></font></p>
 <br>

<p align="center"><font size="4"><strong>
[&nbsp;&nbsp;]&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934
</strong></font></p>

<p align="center"><font size="3"><strong>
 For the transition period from ________to _________
</strong></font></p>
<p align="center"><font size="3"><strong>
             Commission file number&nbsp;&nbsp;&nbsp; <u>0-29184</u>
</strong></font></p>
<p align="center"><font size="5" color="#0000FF"><strong>
                               <u>EGGHEAD.COM, INC.</u>
</strong></font><br>
<font size="2">
            <i>(Exact name of registrant as specified in its charter)</i>
</font></p>

<P>&nbsp;
<TABLE COLS=2 WIDTH="100%" >
<TR>
<TD>
<font size="3"><strong>
<CENTER><u>Delaware</u></CENTER>
</font></strong>
</TD>
<TD>
<font size="3"><strong>
<CENTER><u>77-0408319</u></CENTER>
</font></strong>
</TD>
</TR>
<TR>
<TD>
<font size="2">
<CENTER>&nbsp;<i>(State or other jurisdiction of incorporation or organization)&nbsp;</i></CENTER>
</font>
</TD>

<TD>
<font size="2">
<CENTER><i>(IRS Employer Identification Number)</i></CENTER>
</font>
</TD>
</TR>
</TABLE>
<BR>



<p align="center"><font size="3"><strong>
                                1350 Willow Road<br>
                      <u>Menlo Park, California &nbsp;&nbsp;  94025
</strong></font></u><br>

<font size="2">
       <i> (Address of principal executive offices including zip code)</i>
</font></p>

<p align="center"><font size="3"><strong><u>
                                (650) 470-2400
</strong></font></u><br>

<font size="2">
               <i>  (Registrant's telephone number, including area code)</i>
</font></p>

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</DIV>
<DIV align=left>
<HR align=left SIZE=2 width="100%">
</DIV>

<p>&nbsp;&nbsp;&nbsp;
<font size="3">
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [&nbsp;&nbsp;],</p>

<p>&nbsp;&nbsp;&nbsp;
As of April 30, 2001, there were 42,932,669 shares of the Registrant's common stock outstanding.

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</DIV>

<br>
<br>
<br>
<br>
<br>
<br>
<br>
<br>
<br>

<p align="center"><strong>
                                EGGHEAD.COM, INC.
<br>
                                TABLE OF CONTENTS
</strong></p>

<P ALIGN="LEFT"><TABLE BORDER=0 CELLSPACING=1 CELLPADDING=2 WIDTH=700>
  <TR vAlign=bottom>
<TD WIDTH="90%">
<font size="3"><strong>
    PART I.   Financial Information
</font></strong>
</TD>

<TD WIDTH="10%">
<font size="3"><strong>
<u>Page No.</u>
</font></strong>
</TD>
</TR>

<TR>
<TD>
&nbsp;&nbsp;
</TD>
<TD>
&nbsp;&nbsp;
</TD>
</TR>

  <TR vAlign=top>
<TD>
<font size="3">
Item 1.   Financial Statements
</font>
</TD>

<TD>
<font size="3">
<CENTER>&nbsp;</CENTER>
</font>
</TD>
</TR>

<TR>
<TD>
&nbsp;&nbsp;
</TD>
<TD>
&nbsp;&nbsp;
</TD>
</TR>

  <TR vAlign=top>
<TD>
<font size="3">
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    Consolidated Balance Sheets as of<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    March 31, 2001 and December 31, 2000 (Unaudited)
</font>
</TD>

<TD>
<font size="3">
<CENTER><A HREF="#bs">3</A></CENTER>
</font>
</TD>
</TR>

<TR>
<TD>
&nbsp;&nbsp;
</TD>
<TD>
&nbsp;&nbsp;
</TD>
</TR>

  <TR vAlign=top>
<TD>
<font size="3">
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    Consolidated Statements of Operations Income for the three months<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    ended March 31, 2001 and 2000 (Unaudited)
</font>
</TD>

<TD>
<font size="3">
<CENTER><A HREF="#ops">4</A></CENTER>
</font>
</TD>
</TR>

<TR>
<TD>
&nbsp;&nbsp;
</TD>
<TD>
&nbsp;&nbsp;
</TD>
</TR>

  <TR vAlign=top>
<TD>
<font size="3">
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    Consolidated Statements of Cash Flows for the three months<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    ended March 31, 2001 and 2000 (Unaudited)
</font>
</TD>

<TD>
<font size="3">
<CENTER><A HREF="#flows">5</A></CENTER>
</font>
</TD>
</TR>


<TR>
<TD>
&nbsp;&nbsp;
</TD>
<TD>
&nbsp;&nbsp;
</TD>
</TR>

  <TR vAlign=top>
<TD>
<font size="3">
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    Notes to Consolidated Financial Statements (Unaudited)
</font>
</TD>

<TD>
<font size="3">
<CENTER><A HREF="#notes">6</A></CENTER>
</font>
</TD>
</TR>

<TR>
<TD>
&nbsp;&nbsp;
</TD>
<TD>
&nbsp;&nbsp;
</TD>
</TR>

  <TR vAlign=top>
<TD>
<font size="3">
        Item 2.   Management's Discussion and Analysis of Financial
                      Condition and Results of Operations
</font>
</TD>

<TD>
<font size="3">
<CENTER><A HREF="#mda">8</A></CENTER>
</font>
</TD>
</TR>

<TR>
<TD>
&nbsp;&nbsp;
</TD>
<TD>
&nbsp;&nbsp;
</TD>
</TR>

  <TR vAlign=top>
<TD>
<font size="3">
Item 3.   Quantitative and Qualitative Disclosures About Market Risk
</font>
</TD>

<TD>
<font size="3">
<CENTER><A HREF="#market">22</A></CENTER>
</font>
</TD>
</TR>

<TR>
<TD>
&nbsp;&nbsp;
</TD>
<TD>
&nbsp;&nbsp;
</TD>
</TR>

  <TR vAlign=top>
<TD>
<font size="3"><strong>
        PART II.  Other Information
</font></strong>
</TD>

<TD>
<font size="3">
<CENTER>&nbsp;</CENTER>
</font>
</TD>
</TR>


<TR>
<TD>
&nbsp;&nbsp;
</TD>
<TD>
&nbsp;&nbsp;
</TD>
</TR>

  <TR vAlign=top>
<TD>
<font size="3">
        Item 1.   Legal Proceedings
</font>
</TD>

<TD>
<font size="3">
<CENTER><A HREF="#item1">23</A></CENTER>
</font>
</TD>
</TR>


<TR>
<TD>
&nbsp;&nbsp;
</TD>
<TD>
&nbsp;&nbsp;
</TD>
</TR>

  <TR vAlign=top>
<TD>
<font size="3">
Item 2: Changes in Securities and Use of Proceeds
</font>
</TD>

<TD>
<font size="3">
<CENTER><A HREF="#item2">23</A></CENTER>
</font>
</TD>
</TR>

<TR>
<TD>
&nbsp;&nbsp;
</TD>
<TD>
&nbsp;&nbsp;
</TD>
</TR>

  <TR vAlign=top>
<TD>
<font size="3">
Item 3: Defaults Upon Senior Securities
</font>
</TD>

<TD>
<font size="3">
<CENTER><A HREF="#item3">23</A></CENTER>
</font>
</TD>
</TR>

<TR>
<TD>
&nbsp;&nbsp;
</TD>
<TD>
&nbsp;&nbsp;
</TD>
</TR>

  <TR vAlign=top>
<TD>
<font size="3">
Item 4: Submission of Matters to a Vote of Security Holders
</font>
</TD>

<TD>
<font size="3">
<CENTER><A HREF="#item4">23</A></CENTER>
</font>
</TD>
</TR>

<TR>
<TD>
&nbsp;&nbsp;
</TD>
<TD>
&nbsp;&nbsp;
</TD>
</TR>

  <TR vAlign=top>
<TD>
<font size="3">
Item 5: Other Information
</font>
</TD>

<TD>
<font size="3">
<CENTER><A HREF="#item5">14</A></CENTER>
</font>
</TD>
</TR>

<TR>
<TD>
&nbsp;&nbsp;
</TD>
<TD>
&nbsp;&nbsp;
</TD>
</TR>

  <TR vAlign=top>
<TD>
<font size="3">
        Item 6.   Exhibits and Reports on Form 8-K
</font>
</TD>

<TD>
<font size="3">
<CENTER><A HREF="#item6">23</A></CENTER>
</font>
</TD>
</TR>


<TR>
<TD>
&nbsp;&nbsp;
</TD>
<TD>
&nbsp;&nbsp;
</TD>
</TR>

  <TR vAlign=top>
<TD>
<font size="3"><strong>
        Signatures
</font></strong>
</TD>

<TD>
<font size="3">
<CENTER><A HREF="#sign">23</A></CENTER>
</font>
</TD>
</TR>
</TABLE>

<br>
<br>
<br>
<HR WIDTH="85%">
<br>
<br>
<br>


<B><FONT SIZE=2><P ALIGN="CENTER">PART I</P>
<P>Item 1. <I>Financial Statements</I>.</P>

<br>
<br>
<br>
<HR WIDTH="85%">
<br>
<br>
<br>
<A NAME="bs"></A>
<P ALIGN="CENTER">EGGHEAD.COM, INC.</P>
<P ALIGN="CENTER">CONSOLIDATED BALANCE SHEETS</P>
<P ALIGN="CENTER">(In thousands, except per share data)</P>
</B><FONT SIZE=2><P ALIGN="CENTER">(unaudited)</P></FONT>
<P ALIGN="CENTER"><CENTER><TABLE BORDER CELLSPACING=2 CELLPADDING=7 WIDTH=612>
<TR><TD WIDTH="60%" VALIGN="TOP" HEIGHT=9>
<P></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=9>
<FONT SIZE=2><P ALIGN="CENTER">March 31,</FONT></TD>
<TD WIDTH="4%" VALIGN="TOP" HEIGHT=9><P></P></TD>
<TD WIDTH="19%" VALIGN="TOP" HEIGHT=9>
<FONT SIZE=2><P ALIGN="CENTER">December 31,</FONT></TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="TOP" HEIGHT=9><P></P></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=9>
<FONT SIZE=2><P ALIGN="CENTER">2001</FONT></TD>
<TD WIDTH="4%" VALIGN="TOP" HEIGHT=9><P></P></TD>
<TD WIDTH="19%" VALIGN="TOP" HEIGHT=9>
<FONT SIZE=2><P ALIGN="CENTER">2000</FONT></TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="TOP" HEIGHT=11>
<B><FONT SIZE=2><P ALIGN="JUSTIFY">ASSETS</B></FONT></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=11><P></P></TD>
<TD WIDTH="4%" VALIGN="TOP" HEIGHT=11><P></P></TD>
<TD WIDTH="19%" VALIGN="TOP" HEIGHT=11><P></P></TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="TOP" HEIGHT=8>
<FONT SIZE=2><P>Current assets:</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=8><P></P></TD>
<TD WIDTH="4%" VALIGN="TOP" HEIGHT=8><P></P></TD>
<TD WIDTH="19%" VALIGN="TOP" HEIGHT=8><P></P></TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="TOP" HEIGHT=25>
<FONT SIZE=2><P>Cash and cash equivalents*</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=25>
<FONT SIZE=2><P ALIGN="RIGHT">$ 14,437</FONT></TD>
<TD WIDTH="4%" VALIGN="TOP" HEIGHT=25><P></P></TD>
<TD WIDTH="19%" VALIGN="TOP" HEIGHT=25>
<FONT SIZE=2><P ALIGN="RIGHT">$ 31,466</FONT></TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="TOP" HEIGHT=8>
<FONT SIZE=2><P>Short-term investments</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=8>
<FONT SIZE=2><P ALIGN="RIGHT">1,161</FONT></TD>
<TD WIDTH="4%" VALIGN="TOP" HEIGHT=8><P></P></TD>
<TD WIDTH="19%" VALIGN="TOP" HEIGHT=8>
<FONT SIZE=2><P ALIGN="RIGHT">1,166</FONT></TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="TOP" HEIGHT=8>
<FONT SIZE=2><P>Accounts receivable, net of allowances of $1,938 and
$1,953</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=8>
<FONT SIZE=2><P ALIGN="RIGHT">13,663</FONT></TD>
<TD WIDTH="4%" VALIGN="TOP" HEIGHT=8><P></P></TD>
<TD WIDTH="19%" VALIGN="TOP" HEIGHT=8>
<FONT SIZE=2><P ALIGN="RIGHT">15,490 </FONT></TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="TOP" HEIGHT=8>
<FONT SIZE=2><P>Merchandise inventory</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=8>
<FONT SIZE=2><P ALIGN="RIGHT">5,628</FONT></TD>
<TD WIDTH="4%" VALIGN="TOP" HEIGHT=8><P></P></TD>
<TD WIDTH="19%" VALIGN="TOP" HEIGHT=8>
<FONT SIZE=2><P ALIGN="RIGHT">6,123</FONT></TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="TOP" HEIGHT=8>
<FONT SIZE=2><P>Prepaid expenses and other current assets</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=8>
<U><FONT SIZE=2><P ALIGN="RIGHT">2,449</U></FONT></TD>
<TD WIDTH="4%" VALIGN="TOP" HEIGHT=8><P></P></TD>
<TD WIDTH="19%" VALIGN="TOP" HEIGHT=8>
<U><FONT SIZE=2><P ALIGN="RIGHT">3,658</U></FONT></TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="TOP" HEIGHT=8>
<FONT SIZE=2><P>Total current assets</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=8>
<FONT SIZE=2><P ALIGN="RIGHT">37,338</FONT></TD>
<TD WIDTH="4%" VALIGN="TOP" HEIGHT=8><P></P></TD>
<TD WIDTH="19%" VALIGN="TOP" HEIGHT=8>
<FONT SIZE=2><P ALIGN="RIGHT">57,903</FONT></TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="TOP" HEIGHT=8><P></P></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=8><P></P></TD>
<TD WIDTH="4%" VALIGN="TOP" HEIGHT=8><P></P></TD>
<TD WIDTH="19%" VALIGN="TOP" HEIGHT=8><P></P></TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="TOP" HEIGHT=8>
<FONT SIZE=2><P>Property and equipment, net</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=8>
<FONT SIZE=2><P ALIGN="RIGHT">13,743</FONT></TD>
<TD WIDTH="4%" VALIGN="TOP" HEIGHT=8><P></P></TD>
<TD WIDTH="19%" VALIGN="TOP" HEIGHT=8>
<FONT SIZE=2><P ALIGN="RIGHT">13,294 </FONT></TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="TOP" HEIGHT=8>
<FONT SIZE=2><P>Other assets</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=8>
<U><FONT SIZE=2><P ALIGN="RIGHT">733</U></FONT></TD>
<TD WIDTH="4%" VALIGN="TOP" HEIGHT=8><P></P></TD>
<TD WIDTH="19%" VALIGN="TOP" HEIGHT=8>
<U><FONT SIZE=2><P ALIGN="RIGHT">772</U></FONT></TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="TOP" HEIGHT=8>
<FONT SIZE=2><P>Total assets</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=8>
<U><FONT SIZE=2><P ALIGN="RIGHT">$ 51,814</U></FONT></TD>
<TD WIDTH="4%" VALIGN="TOP" HEIGHT=8><P></P></TD>
<TD WIDTH="19%" VALIGN="TOP" HEIGHT=8>
<U><FONT SIZE=2><P ALIGN="RIGHT">$ 71,969</U></FONT></TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="TOP" HEIGHT=8><P></P></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=8><P></P></TD>
<TD WIDTH="4%" VALIGN="TOP" HEIGHT=8><P></P></TD>
<TD WIDTH="19%" VALIGN="TOP" HEIGHT=8><P></P></TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="TOP" HEIGHT=8>
<B><FONT SIZE=2><P ALIGN="JUSTIFY">LIABILITIES AND STOCKHOLDERS'
EQUITY</B></FONT></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=8><P></P></TD>
<TD WIDTH="4%" VALIGN="TOP" HEIGHT=8><P></P></TD>
<TD WIDTH="19%" VALIGN="TOP" HEIGHT=8><P></P></TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="TOP" HEIGHT=8>
<FONT SIZE=2><P>Current liabilities:</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=8><P></P></TD>
<TD WIDTH="4%" VALIGN="TOP" HEIGHT=8><P></P></TD>
<TD WIDTH="19%" VALIGN="TOP" HEIGHT=8><P></P></TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="TOP" HEIGHT=8>
<FONT SIZE=2><P>Accounts payable</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=8>
<FONT SIZE=2><P ALIGN="RIGHT">$ 18,765</FONT></TD>
<TD WIDTH="4%" VALIGN="TOP" HEIGHT=8><P></P></TD>
<TD WIDTH="19%" VALIGN="TOP" HEIGHT=8>
<FONT SIZE=2><P ALIGN="RIGHT">$ 26,330</FONT></TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="TOP" HEIGHT=8>
<FONT SIZE=2><P>Accrued expenses</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=8>
<FONT SIZE=2><P ALIGN="RIGHT">&#9; 18,052</FONT></TD>
<TD WIDTH="4%" VALIGN="TOP" HEIGHT=8><P></P></TD>
<TD WIDTH="19%" VALIGN="TOP" HEIGHT=8>
<FONT SIZE=2><P ALIGN="RIGHT">&#9; 21,292</FONT></TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="TOP" HEIGHT=8>
<FONT SIZE=2><P>Deferred revenue </FONT></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=8>
<U><FONT SIZE=2><P ALIGN="RIGHT">&#9; 1,991 </U></FONT></TD>
<TD WIDTH="4%" VALIGN="TOP" HEIGHT=8><P></P></TD>
<TD WIDTH="19%" VALIGN="TOP" HEIGHT=8>
<U><FONT SIZE=2><P ALIGN="RIGHT">&#9; 3,108 </U></FONT></TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="TOP" HEIGHT=9>
<FONT SIZE=2><P>Total current liabilities</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=9>
<U><FONT SIZE=2><P ALIGN="RIGHT">38,808</U></FONT></TD>
<TD WIDTH="4%" VALIGN="TOP" HEIGHT=9><P></P></TD>
<TD WIDTH="19%" VALIGN="TOP" HEIGHT=9>
<U><FONT SIZE=2><P ALIGN="RIGHT">50,730</U></FONT></TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="TOP" HEIGHT=8><P></P></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=8><P></P></TD>
<TD WIDTH="4%" VALIGN="TOP" HEIGHT=8><P></P></TD>
<TD WIDTH="19%" VALIGN="TOP" HEIGHT=8><P></P></TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="TOP" HEIGHT=8>
<FONT SIZE=2><P>Long-term liabilities</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=8>
<U><FONT SIZE=2><P ALIGN="RIGHT">&#9; 2,167</U></FONT></TD>
<TD WIDTH="4%" VALIGN="TOP" HEIGHT=8><P></P></TD>
<TD WIDTH="19%" VALIGN="TOP" HEIGHT=8>
<U><FONT SIZE=2><P ALIGN="RIGHT">&#9; 2,348</U></FONT></TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="TOP" HEIGHT=8><P></P></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=8><P></P></TD>
<TD WIDTH="4%" VALIGN="TOP" HEIGHT=8><P></P></TD>
<TD WIDTH="19%" VALIGN="TOP" HEIGHT=8><P></P></TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="TOP" HEIGHT=8><P></P></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=8><P></P></TD>
<TD WIDTH="4%" VALIGN="TOP" HEIGHT=8><P></P></TD>
<TD WIDTH="19%" VALIGN="TOP" HEIGHT=8><P></P></TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="TOP" HEIGHT=8>
<FONT SIZE=2><P>Stockholders' equity:</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=8><P></P></TD>
<TD WIDTH="4%" VALIGN="TOP" HEIGHT=8><P></P></TD>
<TD WIDTH="19%" VALIGN="TOP" HEIGHT=8><P></P></TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="TOP" HEIGHT=8>
<FONT SIZE=2><P>Convertible preferred stock, $0.001 par value;
2,000,000</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=8><P></P></TD>
<TD WIDTH="4%" VALIGN="TOP" HEIGHT=8><P></P></TD>
<TD WIDTH="19%" VALIGN="TOP" HEIGHT=8><P></P></TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="TOP" HEIGHT=8>
<FONT SIZE=2><P>shares authorized: no shares issued and outstanding</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=8>
<FONT SIZE=2><P ALIGN="RIGHT">-</FONT></TD>
<TD WIDTH="4%" VALIGN="TOP" HEIGHT=8><P></P></TD>
<TD WIDTH="19%" VALIGN="TOP" HEIGHT=8>
<FONT SIZE=2><P ALIGN="RIGHT">-</FONT></TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="TOP" HEIGHT=8>
<FONT SIZE=2><P>Common stock, $0.001 par value; 98,000,000 shares</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=8><P></P></TD>
<TD WIDTH="4%" VALIGN="TOP" HEIGHT=8><P></P></TD>
<TD WIDTH="19%" VALIGN="TOP" HEIGHT=8><P></P></TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="TOP" HEIGHT=8>
<FONT SIZE=2><P>authorized; 42,932,669 and 42,857,483 shares issued</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=8><P></P></TD>
<TD WIDTH="4%" VALIGN="TOP" HEIGHT=8><P></P></TD>
<TD WIDTH="19%" VALIGN="TOP" HEIGHT=8><P></P></TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="TOP" HEIGHT=8>
<FONT SIZE=2><P>and outstanding, respectively</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=8>
<FONT SIZE=2><P ALIGN="RIGHT">43</FONT></TD>
<TD WIDTH="4%" VALIGN="TOP" HEIGHT=8><P></P></TD>
<TD WIDTH="19%" VALIGN="TOP" HEIGHT=8>
<FONT SIZE=2><P ALIGN="RIGHT">42</FONT></TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="TOP" HEIGHT=8>
<FONT SIZE=2><P>Additional paid-in capital</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=8>
<FONT SIZE=2><P ALIGN="RIGHT">349,690</FONT></TD>
<TD WIDTH="4%" VALIGN="TOP" HEIGHT=8><P></P></TD>
<TD WIDTH="19%" VALIGN="TOP" HEIGHT=8>
<FONT SIZE=2><P ALIGN="RIGHT">349,625</FONT></TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="TOP" HEIGHT=8>
<FONT SIZE=2><P>Accumulated deficit</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=8>
<U><FONT SIZE=2><P ALIGN="RIGHT">(338,894</U>)</FONT></TD>
<TD WIDTH="4%" VALIGN="TOP" HEIGHT=8><P></P></TD>
<TD WIDTH="19%" VALIGN="TOP" HEIGHT=8>
<U><FONT SIZE=2><P ALIGN="RIGHT">(330,776</U>)</FONT></TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="TOP" HEIGHT=8>
<FONT SIZE=2><P>Total stockholders' equity</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=8>
<U><FONT SIZE=2><P ALIGN="RIGHT">10,839</U></FONT></TD>
<TD WIDTH="4%" VALIGN="TOP" HEIGHT=8><P></P></TD>
<TD WIDTH="19%" VALIGN="TOP" HEIGHT=8>
<U><FONT SIZE=2><P ALIGN="RIGHT">18,891</U></FONT></TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="TOP" HEIGHT=8>
<FONT SIZE=2><P>Total liabilities and stockholders' equity</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=8>
<U><FONT SIZE=2><P ALIGN="RIGHT">$ 51,814</U></FONT></TD>
<TD WIDTH="4%" VALIGN="TOP" HEIGHT=8><P></P></TD>
<TD WIDTH="19%" VALIGN="TOP" HEIGHT=8>
<U><FONT SIZE=2><P ALIGN="RIGHT">$ 71,969</U></FONT></TD>
</TR>
<TR><TD WIDTH="60%" VALIGN="TOP" HEIGHT=8>
<FONT SIZE=2><P>_____________________________</P>
<P>* </FONT><FONT SIZE=1>Includes restricted cash of approximately $1.2 million
as of March 31,2001 and December 31, 2000</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP" HEIGHT=8><P></P></TD>
<TD WIDTH="4%" VALIGN="TOP" HEIGHT=8><P></P></TD>
<TD WIDTH="19%" VALIGN="TOP" HEIGHT=8><P></P></TD>
</TR>
<TR><TD VALIGN="TOP" COLSPAN=4 HEIGHT=8>
<FONT SIZE=2><P>See notes to consolidated financial statements.</FONT></TD>
</TR>
</TABLE>
</CENTER></P>



<br>
<br>
<br>
<HR WIDTH="85%">
<br>
<br>
<br>
<A NAME="ops"></A>
<B><P ALIGN="CENTER">EGGHEAD.COM, INC.</P>
<P ALIGN="CENTER">CONSOLIDATED STATEMENTS OF OPERATIONS</P>
<P ALIGN="CENTER">(In thousands, except per share data)</P>
</B><FONT SIZE=2><P ALIGN="CENTER">(unaudited)</P></FONT>
<P ALIGN="CENTER"><CENTER><TABLE BORDER CELLSPACING=2 CELLPADDING=7 WIDTH=546>
<TR><TD WIDTH="57%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="43%" VALIGN="TOP" COLSPAN=3>
<FONT SIZE=2><P ALIGN="CENTER">Three Months Ended March 31,</FONT></TD>
</TR>
<TR><TD WIDTH="57%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="19%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">2001</FONT></TD>
<TD WIDTH="5%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="19%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">2000</FONT></TD>
</TR>
<TR><TD WIDTH="57%" VALIGN="TOP">
<FONT SIZE=2><P>Revenue:</FONT></TD>
<TD WIDTH="19%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="5%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="19%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="57%" VALIGN="TOP">
<FONT SIZE=2><P>Online</FONT></TD>
<TD WIDTH="19%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">$ 82,611</FONT></TD>
<TD WIDTH="5%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="19%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">$ 147,375</FONT></TD>
</TR>
<TR><TD WIDTH="57%" VALIGN="TOP">
<FONT SIZE=2><P>Commission and other revenue</FONT></TD>
<TD WIDTH="19%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="RIGHT">2,690</U></FONT></TD>
<TD WIDTH="5%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="19%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="RIGHT">4,674 </U></FONT></TD>
</TR>
<TR><TD WIDTH="57%" VALIGN="TOP">
<FONT SIZE=2><P>Total revenue</FONT></TD>
<TD WIDTH="19%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="RIGHT">85,301</U></FONT></TD>
<TD WIDTH="5%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="19%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="RIGHT">152,049</U></FONT></TD>
</TR>
<TR><TD WIDTH="57%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="19%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="5%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="19%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
</TR>
<TR><TD WIDTH="57%" VALIGN="TOP">
<FONT SIZE=2><P>Cost of online revenue</FONT></TD>
<TD WIDTH="19%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="RIGHT">75,877</U></FONT></TD>
<TD WIDTH="5%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="19%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="RIGHT">143,203</U></FONT></TD>
</TR>
<TR><TD WIDTH="57%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="19%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="5%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="19%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
</TR>
<TR><TD WIDTH="57%" VALIGN="TOP">
<FONT SIZE=2><P>Gross profit:</FONT></TD>
<TD WIDTH="19%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="5%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="19%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
</TR>
<TR><TD WIDTH="57%" VALIGN="TOP">
<FONT SIZE=2><P>Online</FONT></TD>
<TD WIDTH="19%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">6,734</FONT></TD>
<TD WIDTH="5%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="19%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">4,172</FONT></TD>
</TR>
<TR><TD WIDTH="57%" VALIGN="TOP">
<FONT SIZE=2><P>Commission and other revenue</FONT></TD>
<TD WIDTH="19%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="RIGHT">2,690</U></FONT></TD>
<TD WIDTH="5%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="19%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="RIGHT">4,674</U></FONT></TD>
</TR>
<TR><TD WIDTH="57%" VALIGN="TOP">
<FONT SIZE=2><P>Total gross profit</FONT></TD>
<TD WIDTH="19%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"><U>9,424</u></FONT></TD>
<TD WIDTH="5%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="19%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"><u>8,846</u></FONT></TD>
</TR>
<TR><TD WIDTH="57%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="19%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="5%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="19%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
</TR>
<TR><TD WIDTH="57%" VALIGN="TOP">
<FONT SIZE=2><P>Operating expenses:</FONT></TD>
<TD WIDTH="19%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="5%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="19%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
</TR>
<TR><TD WIDTH="57%" VALIGN="TOP">
<FONT SIZE=2><P>Sales and marketing</FONT></TD>
<TD WIDTH="19%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">11,601</FONT></TD>
<TD WIDTH="5%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="19%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">21,907</FONT></TD>
</TR>
<TR><TD WIDTH="57%" VALIGN="TOP">
<FONT SIZE=2><P>General and administrative</FONT></TD>
<TD WIDTH="19%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">3,921</FONT></TD>
<TD WIDTH="5%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="19%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">6,702</FONT></TD>
</TR>
<TR><TD WIDTH="57%" VALIGN="TOP">
<FONT SIZE=2><P>Engineering </FONT></TD>
<TD WIDTH="19%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">2,475</FONT></TD>
<TD WIDTH="5%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="19%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">3,906</FONT></TD>
</TR>
<TR><TD WIDTH="57%" VALIGN="TOP">
<FONT SIZE=2><P>Merger costs</FONT></TD>
<TD WIDTH="19%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="RIGHT">-</U></FONT></TD>
<TD WIDTH="5%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="19%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="RIGHT">2,488 </U></FONT></TD>
</TR>
<TR><TD WIDTH="57%" VALIGN="TOP">
<FONT SIZE=2><P>Total operating expenses</FONT></TD>
<TD WIDTH="19%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="RIGHT">17,997</U></FONT></TD>
<TD WIDTH="5%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="19%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="RIGHT">35,003 </U></FONT></TD>
</TR>
<TR><TD WIDTH="57%" VALIGN="TOP">
<FONT SIZE=2><P>Loss from operations</FONT></TD>
<TD WIDTH="19%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">(8,573)</FONT></TD>
<TD WIDTH="5%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="19%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">(26,157)</FONT></TD>
</TR>
<TR><TD WIDTH="57%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="19%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="5%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="19%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
</TR>
<TR><TD WIDTH="57%" VALIGN="TOP">
<FONT SIZE=2><P>Equity in net loss of joint venture</FONT></TD>
<TD WIDTH="19%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">- </FONT></TD>
<TD WIDTH="5%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="19%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">(200)</FONT></TD>
</TR>
<TR><TD WIDTH="57%" VALIGN="TOP">
<FONT SIZE=2><P>Interest and other income, net</FONT></TD>
<TD WIDTH="19%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="RIGHT">452</U></FONT></TD>
<TD WIDTH="5%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="19%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="RIGHT">1,298</U></FONT></TD>
</TR>
<TR><TD WIDTH="57%" VALIGN="TOP">
<FONT SIZE=2><P>Net loss</FONT></TD>
<TD WIDTH="19%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="RIGHT">$ (8,121</U>)</FONT></TD>
<TD WIDTH="5%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="19%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="RIGHT">$ (25,059</U>)</FONT></TD>
</TR>
<TR><TD WIDTH="57%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="19%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="5%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="19%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
</TR>
<TR><TD WIDTH="57%" VALIGN="TOP">
<FONT SIZE=2><P>Net loss per share - basic and diluted</FONT></TD>
<TD WIDTH="19%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="RIGHT">$ (0.19)</U></FONT></TD>
<TD WIDTH="5%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="19%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="RIGHT">$ (0.67)</U></FONT></TD>
</TR>
<TR><TD WIDTH="57%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="19%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="5%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="19%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
</TR>
<TR><TD WIDTH="57%" VALIGN="TOP">
<FONT SIZE=2><P>Weighted average common shares outstanding for </FONT></TD>
<TD WIDTH="19%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="5%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="19%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
</TR>
<TR><TD WIDTH="57%" VALIGN="TOP">
<FONT SIZE=2><P>purposes of computing:</FONT></TD>
<TD WIDTH="19%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="5%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="19%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
</TR>
<TR><TD WIDTH="57%" VALIGN="TOP" HEIGHT=25>
<FONT SIZE=2><P>Basic and diluted</FONT></TD>
<TD WIDTH="19%" VALIGN="TOP" HEIGHT=25>
<U><FONT SIZE=2><P ALIGN="RIGHT">42,897</U></FONT></TD>
<TD WIDTH="5%" VALIGN="TOP" HEIGHT=25><P></P></TD>
<TD WIDTH="19%" VALIGN="TOP" HEIGHT=25>
<U><FONT SIZE=2><P ALIGN="RIGHT">37,496</U></FONT></TD>
</TR>
<TR><TD VALIGN="TOP" COLSPAN=4>
<FONT SIZE=2><P>See notes to consolidated financial statements.</FONT></TD>
</TR>
</TABLE>
</CENTER></P>

<br>
<br>
<br>
<HR WIDTH="85%">
<br>
<br>
<br>
<A NAME="flows"></A>
<B><FONT SIZE=2>
<P ALIGN="CENTER">EGGHEAD.COM, INC. </P>
<P ALIGN="CENTER">CONSOLIDATED STATEMENTS OF CASH FLOWS</P>
<P ALIGN="CENTER">(In thousands) </P>
</B><FONT SIZE=2><P ALIGN="CENTER">(unaudited)</P></FONT>
<P ALIGN="CENTER"><CENTER><TABLE BORDER CELLSPACING=2 CELLPADDING=7 WIDTH=564>
<TR><TD WIDTH="57%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="43%" VALIGN="TOP" COLSPAN=3>
<FONT SIZE=2><P ALIGN="CENTER">Three Months Ended</FONT></TD>
</TR>
<TR><TD WIDTH="57%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="43%" VALIGN="TOP" COLSPAN=3>
<FONT SIZE=2><P ALIGN="CENTER">March 31,</FONT></TD>
</TR>
<TR><TD WIDTH="57%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="18%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="CENTER">2001</U></FONT></TD>
<TD WIDTH="6%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="19%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">2000</FONT></TD>
</TR>
<TR><TD WIDTH="57%" VALIGN="TOP">
<FONT SIZE=2><P>Cash flows from operating activities:</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="6%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="19%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="57%" VALIGN="TOP">
<FONT SIZE=2><P>Net loss</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">$ (8,121)</FONT></TD>
<TD WIDTH="6%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="19%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">$ (25,059)</FONT></TD>
</TR>
<TR><TD WIDTH="57%" VALIGN="TOP">
<FONT SIZE=2><P>Adjustments to reconcile net loss to net cash</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="6%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="19%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
</TR>
<TR><TD WIDTH="57%" VALIGN="TOP">
<FONT SIZE=2><P>used in operating activities:</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="6%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="19%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
</TR>
<TR><TD WIDTH="57%" VALIGN="TOP">
<FONT SIZE=2><P>Equity in net loss of joint venture</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">-</FONT></TD>
<TD WIDTH="6%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="19%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">200</FONT></TD>
</TR>
<TR><TD WIDTH="57%" VALIGN="TOP">
<FONT SIZE=2><P>Interest on long-term liabilities</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">6</FONT></TD>
<TD WIDTH="6%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="19%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">-</FONT></TD>
</TR>
<TR><TD WIDTH="57%" VALIGN="TOP">
<FONT SIZE=2><P>Unrealized gains on short-term available-for- </P>
<P>sale investments </FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">3</FONT></TD>
<TD WIDTH="6%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="19%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">-</FONT></TD>
</TR>
<TR><TD WIDTH="57%" VALIGN="TOP">
<FONT SIZE=2><P>Foreign currency translation gains</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">(187)</FONT></TD>
<TD WIDTH="6%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="19%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">-</FONT></TD>
</TR>
<TR><TD WIDTH="57%" VALIGN="TOP">
<FONT SIZE=2><P>Depreciation and amortization</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">1,246 </FONT></TD>
<TD WIDTH="6%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="19%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">924 </FONT></TD>
</TR>
<TR><TD WIDTH="57%" VALIGN="TOP">
<FONT SIZE=2><P>Changes in assets and liabilities:</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="6%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="19%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
</TR>
<TR><TD WIDTH="57%" VALIGN="TOP">
<FONT SIZE=2><P>Accounts receivable, net</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">1,827</FONT></TD>
<TD WIDTH="6%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="19%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">(5,342)</FONT></TD>
</TR>
<TR><TD WIDTH="57%" VALIGN="TOP">
<FONT SIZE=2><P>Merchandise inventory</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">495</FONT></TD>
<TD WIDTH="6%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="19%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">3,898</FONT></TD>
</TR>
<TR><TD WIDTH="57%" VALIGN="TOP">
<FONT SIZE=2><P>Prepaid expenses and other assets</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">1,248</FONT></TD>
<TD WIDTH="6%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="19%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">(1,021)</FONT></TD>
</TR>
<TR><TD WIDTH="57%" VALIGN="TOP">
<FONT SIZE=2><P>Accounts payable</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">(7,565)</FONT></TD>
<TD WIDTH="6%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="19%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">(11,636)</FONT></TD>
</TR>
<TR><TD WIDTH="57%" VALIGN="TOP">
<FONT SIZE=2><P>Accrued expenses</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">(3,240)</FONT></TD>
<TD WIDTH="6%" VALIGN="TOP">&nbsp;</TD>
<TD WIDTH="19%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">(3,850)</FONT></TD>
</TR>
<TR><TD WIDTH="57%" VALIGN="TOP">
<FONT SIZE=2><P>Deferred revenue</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">(1,117)</FONT></TD>
<TD WIDTH="6%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="19%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">(1,890)</FONT></TD>
</TR>
<TR><TD WIDTH="57%" VALIGN="TOP">
<FONT SIZE=2><P>Reserves and liabilities related to restructuring</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="RIGHT">-</U></FONT></TD>
<TD WIDTH="6%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="19%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="RIGHT">(224)</U></FONT></TD>
</TR>
<TR><TD WIDTH="57%" VALIGN="TOP">
<FONT SIZE=2><P>Net cash used in operating activities </FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="RIGHT">(15,405</U>)</FONT></TD>
<TD WIDTH="6%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="19%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="RIGHT">(44,000</U>)</FONT></TD>
</TR>
<TR><TD WIDTH="57%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="18%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="6%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="19%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
</TR>
<TR><TD WIDTH="57%" VALIGN="TOP">
<FONT SIZE=2><P>Cash flows from investing activities:</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="6%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="19%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
</TR>
<TR><TD WIDTH="57%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="18%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="6%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="19%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
</TR>
<TR><TD WIDTH="57%" VALIGN="TOP">
<FONT SIZE=2><P>Proceeds from sales of short-term available-for-sale </P>
<P>investments</FONT></TD>
<TD WIDTH="18%" VALIGN="BOTTOM">
<FONT SIZE=2><P ALIGN="RIGHT">-</FONT></TD>
<TD WIDTH="6%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="19%" VALIGN="BOTTOM">
<FONT SIZE=2><P ALIGN="RIGHT">5,646 </FONT></TD>
</TR>
<TR><TD WIDTH="57%" VALIGN="TOP">
<FONT SIZE=2><P>Purchase of property and equipment</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="RIGHT">(1,690</U>)</FONT></TD>
<TD WIDTH="6%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="19%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="RIGHT">(894</U>)</FONT></TD>
</TR>
<TR><TD WIDTH="57%" VALIGN="TOP">
<FONT SIZE=2><P>Net cash provided by (used in) investing activities</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="RIGHT">(1,690) </U></FONT></TD>
<TD WIDTH="6%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="19%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="RIGHT">4,752</U></FONT></TD>
</TR>
<TR><TD WIDTH="57%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="18%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="6%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="19%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
</TR>
<TR><TD WIDTH="57%" VALIGN="TOP">
<FONT SIZE=2><P>Cash flows from financing activities:</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="6%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="19%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
</TR>
<TR><TD WIDTH="57%" VALIGN="TOP">
<FONT SIZE=2><P>Proceeds from issuance of common stock </FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="RIGHT">66</U></FONT></TD>
<TD WIDTH="6%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="19%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="RIGHT">23,554</U></FONT></TD>
</TR>
<TR><TD WIDTH="57%" VALIGN="TOP">
<FONT SIZE=2><P>Net cash provided by financing activities</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="RIGHT">66</U></FONT></TD>
<TD WIDTH="6%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="19%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="RIGHT">23,554</U></FONT></TD>
</TR>
<TR><TD WIDTH="57%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="18%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="6%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="19%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
</TR>
<TR><TD WIDTH="57%" VALIGN="TOP">
<FONT SIZE=2><P>Net decrease in cash and cash equivalents</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">(17,029)</FONT></TD>
<TD WIDTH="6%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="19%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">(15,694)</FONT></TD>
</TR>
<TR><TD WIDTH="57%" VALIGN="TOP">
<FONT SIZE=2><P>Cash and cash equivalents at beginning of period</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="RIGHT">31,466</U></FONT></TD>
<TD WIDTH="6%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="19%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="RIGHT">68,223</U></FONT></TD>
</TR>
<TR><TD WIDTH="57%" VALIGN="TOP">
<FONT SIZE=2><P>Cash and cash equivalents at end of period</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="RIGHT">$ 14,437</U></FONT></TD>
<TD WIDTH="6%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="19%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="RIGHT">$ 52,529</U></FONT></TD>
</TR>
<TR><TD WIDTH="57%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="18%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="6%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="19%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD VALIGN="TOP" COLSPAN=4>
<P>&nbsp;</TD>
</TR>
<TR><TD VALIGN="TOP" COLSPAN=4>
<FONT SIZE=2><P>See notes to consolidated financial statements.</FONT></TD>
</TR>
</TABLE>
</CENTER></P>

<br>
<br>
<br>
<HR WIDTH="85%">
<br>
<br>
<br>
<A NAME="notes"></A>
<B><FONT SIZE=2><P ALIGN="CENTER">&nbsp;</P>
<P ALIGN="CENTER">EGGHEAD.COM, INC.</P>
<P ALIGN="CENTER">NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</P>
<P ALIGN="CENTER">March 31, 2001</P>
<P ALIGN="CENTER">(unaudited)</P>
<P>1.&#9; BASIS OF PRESENTATION</P>
</B><P>We have prepared the accompanying unaudited financial statements in
accordance with generally accepted accounting principles and, in the opinion of
management, these financial statements reflect all adjustments, consisting only
of normal recurring adjustments, that are necessary to fairly present financial
position, results of operations and cash flows of Egghead.com, Inc. for the
periods presented. These financial statements should be read in conjunction with
our audited financial statements and notes included in our Annual Report on
Form&nbsp;10-K for the year ended December 31, 2000. The results of operations
for the three-month period ended March 31, 2001 are not necessarily indicative
of the results to be expected for any subsequent period.</P>
<B><P>2. &#9;Cash and cash equivalents and short-term investments</P>
</B><P>Cash and cash equivalents consist of cash on deposit with banks and
highly liquid investments with an original maturity of three months or less from
the date of purchase. Our short-term investments consist of certificates of
deposit, commercial paper and debt securities with remaining maturities between
90 and 365 days. We classify all short-term investments as available-for-sale in
accordance with Statement of Financial Accounting Standards No. 115, "Accounting
for Certain Investments in Debt and Equity Securities", which requires us to
account for our investments at fair market value as of the balance sheet date
and record unrealized gains and losses in stockholders' equity. Realized gains
and losses and permanent declines in value, if any, on available-for-sale
securities are reported in other income or expense as incurred. Of our cash
balances as of March 31, 2001 and December 31, 2000, approximately $1.2 million
was restricted, primarily to serve as collateral for the leases of our
Vancouver, Washington office and warehouse. </P>
<P>&nbsp;</P>
<B><P>3.&#9;BASIC AND DILUTED NET LOSS PER SHARE</P>
</B><P>Net loss per share is calculated in accordance with the provisions of
SFAS 128, "Earnings Per Share" which requires us to report both basic earnings
per share and diluted earnings per share. Basic earnings per share is computed
using the weighted average number of common shares outstanding during the
period. Diluted earnings per share is computed using the weighted average number
of common and potentially dilutive common equivalent shares outstanding during
the period. Common equivalent shares are excluded from the computation if their
effect is antidilutive. </P>
<P>&#9;During the quarters ended March 31, 2001 and 2000, options to purchase
approximately 6.6 million and 5.4 million shares, respectively, were outstanding
but were not included in the computation because they are antidilutive.</P>

<B><P>4. &#9;INVENTORY FINANCING</P>
</B><P>&#9;In February 2001, we entered into a $20 million secured inventory
financing credit line with IBM Credit Corporation. This credit facility
terminates in February 2002, unless renewed by both parties. This financing line
is secured by our inventory and equipment, accounts and accounts receivable, general
intangibles and other collateral. This agreement requires us to make payments to
IBM on a tri-monthly basis for amounts borrowed under this credit line, and
imposes several requirements and restrictions on the company, including
restrictions on our ability to sell our assets, merge with other entities, incur
most forms of additional debt and make specified forms of investments, among
others. As of March 31, 2001 $42,000 was outstanding under this line and
included in Accounts Payable.</P>
<B><P>5. &#9;2000 EQUITY INCENTIVE PLAN</P>
</B><P>In March 2001, our Board of Directors amended our 2000 Equity Incentive
Plan to increase the number of shares authorized and reserved for issuance under
the plan from 1.0 million shares to 2.5 million shares. We awarded stock options
representing the right to purchase nearly all of the additional 1.5 million
shares, as well as options to purchase approximately 1.4 million shares under
our 1995 Equity Incentive Plan on April 12, 2001, to employees of Egghead as of
April 7. These options have a term of 10 years, and vest and become exercisable
in full on April 12, 2004</FONT><FONT SIZE=2 COLOR="#ff0000">.</FONT><FONT
SIZE=2> However, these options will vest and become exercisable at an earlier
date, in the following amounts, if we achieve the following financial
performance goals:</P>

<UL>

<LI><P>&#9;if we become
profitable (if we have positive net income measured in accordance with GAAP)
during a fiscal quarter, then the option will vest and become exercisable with
respect to 50% of the covered shares on the day we publicly announce these
quarterly results;</LI></P>

<LI><P>&#9;if we achieve a
positive operating income, excluding one-time non-operating charges, of at least
2% of total revenue during a fiscal quarter, then the option will vest and
become exercisable with respect to the additional 25% of the shares on the day
we publicly announce these quarterly results;</LI> </P>

<LI><P> &#9;if we achieve a
positive operating income, excluding one-time non-operating charges, of at least
3% of total revenue during a fiscal quarter, then the option will vest and
become exercisable with respect to an additional 25% of the shares on the day we
publicly announce these quarterly results.</LI> </P>

</UL>

<B><P>6.&#9;&#9;REDUCTION IN FORCE</P>
</B><P>In March 2001, we announced a reduction in force of 77 people, which
included full-time regular employees, temporary workers and contractors. As a
result, we recorded severance and related costs of approximately $310,000 during
the quarter ended March 31, 2001. </P>
<P>&nbsp;</P>
<B><P>7. &#9; &#9;</FONT><FONT SIZE=2>RECENTLY ISSUED ACCOUNTING
PRONOUNCEMENTS</P>
</B></FONT><FONT SIZE=2><P>Statement of Financial Accounting Standards ("SFAS")
No. 133, Accounting for Derivative Instruments and Hedging Activities, is
effective for all fiscal years beginning after June 15, 2000. SFAS 133, as
amended, establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts and for hedging activities. Under SFAS 133, certain contracts that
were not formerly considered derivatives may now meet the definition of
derivative. The Company adopted SFAS 133 effective January 1, 2001. The adoption
of SFAS 133 did not have a significant impact on the financial position, results
of operations, or cash flows of the Company.</P>
<P>&nbsp;</P>
<B><FONT SIZE=2><P>8.&#9;&#9;SUBSEQUENT EVENTS</P>
</B><P>In April 2001, we announced an across-the-board reduction in force of
approximately 29% of our work force, which included 21 full-time, temporary and
contract workers in our Menlo Park, California offices and 157 full-time,
temporary and contract workers in our Vancouver, Washington facilities. As a
result, we expect to record severance and related costs of approximately
$938,000 during the quarter ending June 30, 2001.</P>

<P>In April 2001, we sublet approximately one-half of our office space in
Menlo Park, California to a third party for the remaining term of our lease,
which expires in November 2002. Under the sublease, we expect to receive rent of
approximately $350,000 per quarter.</P>

<P>In April 2001, we sold the remainder of our equity interest in Onsale Japan
K.K. to Softbank Corp. in exchange for Softbank's agreement to forgive our
principal obligation of $2.0 million, plus all accrued interest, that we owed
under a promissory note that we issued to Softbank to fund our initial
investment in Onsale Japan K.K. Accordingly, we will recognize a gain on this
sale of approximately $2.1 million in the second quarter of 2001.</P>

<A NAME="mda"></A>
<B><P>&nbsp;</P>
<P>Item 2. <I>Management's Discussion and Analysis of Financial Condition and
Results of Operations</I>.</P>
</B><I><P>The following discussion of our financial condition and results of
operations should be read in conjunction with the consolidated financial
statements and the related notes included elsewhere in this report. This
discussion contains forward-looking statements within the meaning of the
Securities Act and the Exchange Act. These statements typically refer to future
events or financial results, including statements in the future tense and
statements indicating that we "believe," "expect," "anticipate" or " intend"
certain events may occur or certain trends may continue, that involve risks and
uncertainties. For example, these forward-looking statements include our
expectations about future levels of revenues, expense, and capital expenditures.
Although these statements reflect the current judgment of our management, we can
only base such statements on facts and factors that we currently know. Our
actual results could differ materially from those anticipated in these forward-
looking statements. Factors that might cause those differences include those set
forth under "Factors That May Affect Future Operating Results." These forward-
looking statements speak only as of the date of this annual report, and we will
not necessarily update information in this report if any forward-looking
statement later turns out to be inaccurate.</P>
</I><B><P>Business Overview </P>
</B><P>We are an Internet-based direct marketer specializing in technology and
related products and services for the office and home. Our target customers are
primarily small and medium businesses, as well as consumers. Through our web
site, we offer a wide assortment of new, excess and closeout products, as well
as business services, both at fixed prices and through our live online auctions.
In addition, our business account management team, which we formed during the
third quarter of 2000, provides account and sales assistance via telephone and
targeted e-mails to our business customers to complement the online shopping
experience that we provide with our web site. </P>
<P>We carry a broad assortment of technology products, office products and
business services, provided primarily by name brand manufacturers and service
providers. Most of these offerings are targeted to meet the needs of the small
and medium sized business market. We also target the consumer market with an
assortment of consumer electronics, sporting goods, vacation packages and other
consumer products. We seek to maintain competitive pricing for our technology
products and office products by utilizing our distribution partners to provide
fulfillment services for a substantial portion of our sales. In addition,
through our on-line Business Solutions Center, we offer leasing, extended
warranties, government and education support, software licensing, on-line
training and a broad offering of business services.</P>
<P>As of March 31, 2001, we had 612 employees, including 153 business account
representatives. By March 31, 2001, we had approximately 3.9 million people
registered to bid or buy, and approximately 228,000 new registrants and 196,000
unique buyers in the first quarter of 2001.</P>
<B><P>Recent Developments</P>
</B><P ALIGN="JUSTIFY">In February 2001, we entered into a $20 million secured
inventory financing credit line with IBM Credit Corporation. This credit
facility terminates in February 2002, unless renewed by both parties. This
financing line is secured by our inventory and equipment, accounts and</FONT><I>
</I><FONT SIZE=2>accounts receivable, general intangibles and other collateral.
This agreement requires us to make payments to IBM on a tri-monthly basis for
amounts borrowed under this credit line, and imposes several requirements and
restrictions on the company, including restrictions on our ability to sell our
assets, merge with other entities, incur most forms of additional debt and make
specified forms of investments, among others. As of March 31, 2001 we had
financed $42,000 of inventory purchases under this credit line. </P>
<P>In April 2001, we announced an across-the-board reduction in force of
approximately 29% of our work force, which included 21 full-time, temporary and
contract workers in our Menlo Park, California offices and 157 full-time,
temporary and contract workers in our Vancouver, Washington facilities. As a
result, we expect to record severance and related costs of approximately
$938,000 during the second quarter of 2001.</FONT> </P>
<FONT SIZE=2><P ALIGN="JUSTIFY">&nbsp;</P>
<B><P ALIGN="JUSTIFY">Results of Operations</B> </P>
<P ALIGN="JUSTIFY">&#9;The following table presents our results of operations
for the quarters ended March 31, 2001 and 2000 in absolute dollars and as a
percentage of total revenue, or in the case of gross profit, as a percentage of
online revenue or commission and other revenue, respectively. The operating
results in any periods are not necessarily indicative of the results to be
expected for any future period. </P></FONT>
<P ALIGN="CENTER"><CENTER><TABLE BORDER CELLSPACING=1 CELLPADDING=6 WIDTH=423>
<TR><TD WIDTH="42%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="58%" VALIGN="TOP" COLSPAN=5>
<FONT SIZE=2><P ALIGN="CENTER">Quarter Ended March 31,</FONT></TD>
</TR>
<TR><TD WIDTH="42%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="58%" VALIGN="TOP" COLSPAN=5>
<FONT SIZE=2><P ALIGN="CENTER">(Dollars in thousands)</FONT></TD>
</TR>
<TR><TD WIDTH="42%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="27%" VALIGN="TOP" COLSPAN=2>
<FONT SIZE=2><P ALIGN="CENTER">2001</FONT></TD>
<TD WIDTH="4%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="27%" VALIGN="TOP" COLSPAN=2>
<FONT SIZE=2><P ALIGN="CENTER">2000</FONT></TD>
</TR>
<TR><TD WIDTH="42%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="15%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="CENTER">Amount</U></FONT></TD>
<TD WIDTH="12%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="CENTER">%</U></FONT></TD>
<TD WIDTH="4%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="15%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="CENTER">Amount</U></FONT></TD>
<TD WIDTH="12%" VALIGN="TOP">
<U><FONT SIZE=2><P ALIGN="CENTER">%</U></FONT></TD>
</TR>
<TR><TD WIDTH="42%" VALIGN="TOP">
<FONT SIZE=1><P>Revenue:</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="12%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="4%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="15%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="12%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="42%" VALIGN="TOP">
<FONT SIZE=1><P>Online</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=1><P ALIGN="RIGHT">$ 82,611</FONT></TD>
<TD WIDTH="12%" VALIGN="TOP">
<FONT SIZE=1><P ALIGN="RIGHT">96.8</FONT></TD>
<TD WIDTH="4%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=1><P ALIGN="RIGHT">$ 147,375</FONT></TD>
<TD WIDTH="12%" VALIGN="TOP">
<FONT SIZE=1><P ALIGN="RIGHT">96.9</FONT></TD>
</TR>
<TR><TD WIDTH="42%" VALIGN="TOP" HEIGHT=19>
<FONT SIZE=1><P>Commission and other revenue</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP" HEIGHT=19>
<U><FONT SIZE=1><P ALIGN="RIGHT">2,690</U></FONT></TD>
<TD WIDTH="12%" VALIGN="TOP" HEIGHT=19>
<U><FONT SIZE=1><P ALIGN="RIGHT">3.2</U></FONT></TD>
<TD WIDTH="4%" VALIGN="TOP" HEIGHT=19><P></P></TD>
<TD WIDTH="15%" VALIGN="TOP" HEIGHT=19>
<U><FONT SIZE=1><P ALIGN="RIGHT">4,674</U></FONT></TD>
<TD WIDTH="12%" VALIGN="TOP" HEIGHT=19>
<U><FONT SIZE=1><P ALIGN="RIGHT">3.1</U></FONT></TD>
</TR>
<TR><TD WIDTH="42%" VALIGN="TOP">
<FONT SIZE=1><P>Total revenue</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<U><FONT SIZE=1><P ALIGN="RIGHT">$ 85,301</U></FONT></TD>
<TD WIDTH="12%" VALIGN="TOP">
<U><FONT SIZE=1><P ALIGN="RIGHT">100.0</U></FONT></TD>
<TD WIDTH="4%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="15%" VALIGN="TOP">
<U><FONT SIZE=1><P ALIGN="RIGHT">$ 152,049</U></FONT></TD>
<TD WIDTH="12%" VALIGN="TOP">
<U><FONT SIZE=1><P ALIGN="RIGHT">100.0</U></FONT></TD>
</TR>
<TR><TD WIDTH="42%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="15%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="12%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="4%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="15%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="12%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
</TR>
<TR><TD WIDTH="42%" VALIGN="TOP">
<FONT SIZE=1><P>Gross profit:</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="12%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="4%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="15%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="12%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
</TR>
<TR><TD WIDTH="42%" VALIGN="TOP">
<FONT SIZE=1><P>Online</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=1><P ALIGN="RIGHT">$ 6,734</FONT></TD>
<TD WIDTH="12%" VALIGN="TOP">
<FONT SIZE=1><P ALIGN="RIGHT">8.2</FONT></TD>
<TD WIDTH="4%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=1><P ALIGN="RIGHT">$ 4,172</FONT></TD>
<TD WIDTH="12%" VALIGN="TOP">
<FONT SIZE=1><P ALIGN="RIGHT">2.8</FONT></TD>
</TR>
<TR><TD WIDTH="42%" VALIGN="TOP" HEIGHT=20>
<FONT SIZE=1><P>Commission and other revenue</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP" HEIGHT=20>
<U><FONT SIZE=1><P ALIGN="RIGHT">2,690</U></FONT></TD>
<TD WIDTH="12%" VALIGN="TOP" HEIGHT=20>
<U><FONT SIZE=1><P ALIGN="RIGHT">100.0</U></FONT></TD>
<TD WIDTH="4%" VALIGN="TOP" HEIGHT=20><P></P></TD>
<TD WIDTH="15%" VALIGN="TOP" HEIGHT=20>
<U><FONT SIZE=1><P ALIGN="RIGHT">4,674</U></FONT></TD>
<TD WIDTH="12%" VALIGN="TOP" HEIGHT=20>
<U><FONT SIZE=1><P ALIGN="RIGHT">100.0</U></FONT></TD>
</TR>
<TR><TD WIDTH="42%" VALIGN="TOP">
<FONT SIZE=1><P>Total gross profit</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<U><FONT SIZE=1><P ALIGN="RIGHT">9,424</U></FONT></TD>
<TD WIDTH="12%" VALIGN="TOP">
<U><FONT SIZE=1><P ALIGN="RIGHT">11.1 </U></FONT></TD>
<TD WIDTH="4%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="15%" VALIGN="TOP">
<U><FONT SIZE=1><P ALIGN="RIGHT">8,846</U></FONT></TD>
<TD WIDTH="12%" VALIGN="TOP">
<U><FONT SIZE=1><P ALIGN="RIGHT">5.8 </U></FONT></TD>
</TR>
<TR><TD WIDTH="42%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="15%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="12%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="4%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="15%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="12%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
</TR>
<TR><TD WIDTH="42%" VALIGN="TOP">
<FONT SIZE=1><P>Operating expenses:</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="12%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="4%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="15%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="12%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
</TR>
<TR><TD WIDTH="42%" VALIGN="TOP">
<FONT SIZE=1><P>Sales and marketing</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=1><P ALIGN="RIGHT">11,601 </FONT></TD>
<TD WIDTH="12%" VALIGN="TOP">
<FONT SIZE=1><P ALIGN="RIGHT">13.6</FONT></TD>
<TD WIDTH="4%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=1><P ALIGN="RIGHT">21,907 </FONT></TD>
<TD WIDTH="12%" VALIGN="TOP">
<FONT SIZE=1><P ALIGN="RIGHT">14.4</FONT></TD>
</TR>
<TR><TD WIDTH="42%" VALIGN="TOP">
<FONT SIZE=1><P>General and  administrative</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=1><P ALIGN="RIGHT">3,921</FONT></TD>
<TD WIDTH="12%" VALIGN="TOP">
<FONT SIZE=1><P ALIGN="RIGHT">4.6</FONT></TD>
<TD WIDTH="4%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=1><P ALIGN="RIGHT">6,702</FONT></TD>
<TD WIDTH="12%" VALIGN="TOP">
<FONT SIZE=1><P ALIGN="RIGHT">4.4</FONT></TD>
</TR>
<TR><TD WIDTH="42%" VALIGN="TOP">
<FONT SIZE=1><P>Engineering </FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=1><P ALIGN="RIGHT">2,475</FONT></TD>
<TD WIDTH="12%" VALIGN="TOP">
<FONT SIZE=1><P ALIGN="RIGHT">2.9</FONT></TD>
<TD WIDTH="4%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=1><P ALIGN="RIGHT">3, 906</FONT></TD>
<TD WIDTH="12%" VALIGN="TOP">
<FONT SIZE=1><P ALIGN="RIGHT">2.6</FONT></TD>
</TR>
<TR><TD WIDTH="42%" VALIGN="TOP" HEIGHT=15>
<FONT SIZE=1><P>Merger-related costs</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP" HEIGHT=15>
<U><FONT SIZE=1><P ALIGN="RIGHT">-</U></FONT></TD>
<TD WIDTH="12%" VALIGN="TOP" HEIGHT=15>
<U><FONT SIZE=1><P ALIGN="RIGHT">-</U></FONT></TD>
<TD WIDTH="4%" VALIGN="TOP" HEIGHT=15><P></P></TD>
<TD WIDTH="15%" VALIGN="TOP" HEIGHT=15>
<U><FONT SIZE=1><P ALIGN="RIGHT">2,488</U></FONT></TD>
<TD WIDTH="12%" VALIGN="TOP" HEIGHT=15>
<U><FONT SIZE=1><P ALIGN="RIGHT">1.6</U></FONT></TD>
</TR>
<TR><TD WIDTH="42%" VALIGN="TOP">
<FONT SIZE=1><P>Total operating expenses</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<U><FONT SIZE=1><P ALIGN="RIGHT">17,997</U></FONT></TD>
<TD WIDTH="12%" VALIGN="TOP">
<U><FONT SIZE=1><P ALIGN="RIGHT">21.1</U></FONT></TD>
<TD WIDTH="4%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="15%" VALIGN="TOP">
<U><FONT SIZE=1><P ALIGN="RIGHT">35,003</U></FONT></TD>
<TD WIDTH="12%" VALIGN="TOP">
<U><FONT SIZE=1><P ALIGN="RIGHT">23.0</U></FONT></TD>
</TR>
<TR><TD WIDTH="42%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="15%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="12%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="4%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="15%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="12%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
</TR>
<TR><TD WIDTH="42%" VALIGN="TOP">
<FONT SIZE=1><P>Loss from operations</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=1><P ALIGN="RIGHT">( 8,573)</FONT></TD>
<TD WIDTH="12%" VALIGN="TOP">
<FONT SIZE=1><P ALIGN="RIGHT">(10.0)</FONT></TD>
<TD WIDTH="4%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=1><P ALIGN="RIGHT">(26,157)</FONT></TD>
<TD WIDTH="12%" VALIGN="TOP">
<FONT SIZE=1><P ALIGN="RIGHT">(17.2)</FONT></TD>
</TR>
<TR><TD WIDTH="42%" VALIGN="TOP" HEIGHT=15><P></P></TD>
<TD WIDTH="15%" VALIGN="TOP" HEIGHT=15><P></P></TD>
<TD WIDTH="12%" VALIGN="TOP" HEIGHT=15><P></P></TD>
<TD WIDTH="4%" VALIGN="TOP" HEIGHT=15><P></P></TD>
<TD WIDTH="15%" VALIGN="TOP" HEIGHT=15><P></P></TD>
<TD WIDTH="12%" VALIGN="TOP" HEIGHT=15><P></P></TD>
</TR>
<TR><TD WIDTH="42%" VALIGN="TOP">
<FONT SIZE=1><P>Equity in net loss of joint venture</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=1><P ALIGN="RIGHT">-</FONT></TD>
<TD WIDTH="12%" VALIGN="TOP">
<FONT SIZE=1><P ALIGN="RIGHT">-</FONT></TD>
<TD WIDTH="4%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=1><P ALIGN="RIGHT">(200)</FONT></TD>
<TD WIDTH="12%" VALIGN="TOP">
<FONT SIZE=1><P ALIGN="RIGHT">(0.1)</FONT></TD>
</TR>
<TR><TD WIDTH="42%" VALIGN="TOP">
<FONT SIZE=1><P>Interest and other income, net</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<U><FONT SIZE=1><P ALIGN="RIGHT">452</U></FONT></TD>
<TD WIDTH="12%" VALIGN="TOP">
<U><FONT SIZE=1><P ALIGN="RIGHT">0.5</U></FONT></TD>
<TD WIDTH="4%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="15%" VALIGN="TOP">
<U><FONT SIZE=1><P ALIGN="RIGHT">1,298</U></FONT></TD>
<TD WIDTH="12%" VALIGN="TOP">
<U><FONT SIZE=1><P ALIGN="RIGHT">0.8</U></FONT></TD>
</TR>
<TR><TD WIDTH="42%" VALIGN="TOP">
<FONT SIZE=1><P>Net loss</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<U><FONT SIZE=1><P ALIGN="RIGHT">$ (8,121)</U></FONT></TD>
<TD WIDTH="12%" VALIGN="TOP">
<U><FONT SIZE=1><P ALIGN="RIGHT">(9.5)</U></FONT></TD>
<TD WIDTH="4%" VALIGN="TOP">
<P ALIGN="RIGHT">&nbsp;</TD>
<TD WIDTH="15%" VALIGN="TOP">
<U><FONT SIZE=1><P ALIGN="RIGHT">$ (25,059)</U></FONT></TD>
<TD WIDTH="12%" VALIGN="TOP">
<U><FONT SIZE=1><P ALIGN="RIGHT">(16.5)</U></FONT></TD>
</TR>
<TR><TD WIDTH="42%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="15%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="12%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="4%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="15%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="12%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
</TABLE>
</CENTER></P>

<B><FONT SIZE=2><P>Revenue</P>
</B><P>Our revenue consists of online revenue and commission and other revenue.
Online revenue consists of sales of merchandise, services and shipping and
handling revenue, net of returns. We generate online revenue on either a
purchase or a consignment basis. In purchased inventory transactions, we
purchase and take title to merchandise up front, process sales, ship the
merchandise to the customer and assume the credit and return risk. In
consignment transactions, we do not take title to merchandise until we sell it
to a customer and charge the customer's credit card. We either directly ship the
merchandise to the customer or arrange for a third party to complete the
delivery, and we assume the credit and return risk. Commission and other revenue
consists of commissions on auction and clearance sales, vendor market
development funds and advertising revenue from vendors and other businesses. In
commission transactions, the supplier charges the customer's credit card,
maintains title to the inventory, ships the merchandise and assumes the credit
and return risk. For a more detailed description of our sources of revenue, the
risks that we bear under each revenue model and the revenue recognition for each
model, see note 1 of the notes to the consolidated financial statements in our
2000 Annual Report on Form 10-K.</P>
<P ALIGN="JUSTIFY">Online revenue decreased $64.8 million, or 43.9%, for the
quarter ended March 31, 2001 compared with the quarter ended March 31, 2000. The
decrease in online revenue was attributable primarily to the following factors:
</P>

<UL>

<LI><P><FONT SIZE=2>
&#9;our decision to eliminate unprofitable sales;</LI></P>


<LI> <P>
&#9;raising prices with the goal of increasing margins; and</LI></P>

<LI><P>
&#9;the downturn in the U.S. economy and weakening demand for technology
products.</LI></P>

</UL>

<P>Commission and other revenue decreased $2.0 million, or 42.4%, for the
quarter ended March 31, 2001 compared with the quarter ended March 31, 2000, due
primarily to weakened demand for online advertising.</P>
<P>Due to current economic slowdown in the U.S. economy, there is increased
uncertainty with respect to our expected revenues for the balance of 2001. We
are seeking to increase our product margins and manage our expenses to achieve
profitability, rather than seeking to grow revenues without regard to margins.
We also expect the average transaction size for customer purchases to increase
as we continue to shift our focus towards sales to small and medium size
business customers and away from consumers. See "Factors That May Affect Future
Operating Results -- Our operating results may fluctuate significantly and may
be difficult to predict."</P>
<I><P>New goods vs. closeout and excess goods</I>. During the first quarter of
2001, revenue from sales of new goods constituted 39% of our total revenue
versus 44% during the first quarter of 2000. Sales of excess and refurbished
goods constituted 58% of our total revenue during the first quarter of 2001
versus 53% during the first quarter of 2000. Sales by our business account
representatives accounted for approximately 35% of our overall sales in the
first quarter of 2001, compared with 25% during the fourth quarter of 2000. The
decrease in the percentage of revenue from the sale of new goods was due
primarily to the effect of raising prices of new goods to achieve higher
margins. We expect the percentage of revenue produced by sales of new goods to
increase as we continue to shift our marketing focus towards the small to
medium-sized business market. </P>
<B><P ALIGN="JUSTIFY">Gross Profit</P>
</B><P>Gross profit is total revenue minus cost of revenue. Cost of online
revenue consists of the cost of the merchandise sold to customers, inventory
reserve adjustments and shipping and handling expense. There is no significant
cost of commission and other revenue. Gross margin is gross profit as a
percentage of total revenue. The following table presents gross margins for
online revenue and commission and other revenue for the quarters ended March 31,
2000 through March 31, 2001:</P></FONT>
<P ALIGN="CENTER"><CENTER><TABLE BORDER CELLSPACING=1 CELLPADDING=7 WIDTH=558>
<TR><TD WIDTH="29%" VALIGN="TOP" HEIGHT=15>
<P></TD>
<TD WIDTH="71%" VALIGN="TOP" COLSPAN=9 HEIGHT=15>
<FONT SIZE=2><P ALIGN="CENTER">Quarter Ended</FONT></TD>
</TR>
<TR><TD WIDTH="29%" VALIGN="TOP" HEIGHT=15><P></P></TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=15>
<FONT SIZE=2><P ALIGN="CENTER">3/31/01</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" HEIGHT=15><P></P></TD>
<TD WIDTH="12%" VALIGN="TOP" HEIGHT=15>
<FONT SIZE=2><P ALIGN="CENTER">12/31/00</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" HEIGHT=15><P></P></TD>
<TD WIDTH="12%" VALIGN="TOP" HEIGHT=15>
<FONT SIZE=2><P ALIGN="CENTER">9/30/00</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" HEIGHT=15><P></P></TD>
<TD WIDTH="12%" VALIGN="TOP" HEIGHT=15>
<FONT SIZE=2><P ALIGN="CENTER">6/30/00</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" HEIGHT=15><P></P></TD>
<TD WIDTH="12%" VALIGN="TOP" HEIGHT=15>
<FONT SIZE=2><P ALIGN="CENTER">3/31/00</FONT></TD>
</TR>
<TR><TD WIDTH="29%" VALIGN="TOP" HEIGHT=15><P></P></TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=15>
<U><FONT SIZE=2><P ALIGN="CENTER">%</U></FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" HEIGHT=15><P></P></TD>
<TD WIDTH="12%" VALIGN="TOP" HEIGHT=15>
<U><FONT SIZE=2><P ALIGN="CENTER">%</U></FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" HEIGHT=15><P></P></TD>
<TD WIDTH="12%" VALIGN="TOP" HEIGHT=15>
<U><FONT SIZE=2><P ALIGN="CENTER">%</U></FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" HEIGHT=15><P></P></TD>
<TD WIDTH="12%" VALIGN="TOP" HEIGHT=15>
<U><FONT SIZE=2><P ALIGN="CENTER">%</U></FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" HEIGHT=15><P></P></TD>
<TD WIDTH="12%" VALIGN="TOP" HEIGHT=15>
<U><FONT SIZE=2><P ALIGN="CENTER">%</U></FONT></TD>
</TR>
<TR><TD WIDTH="29%" VALIGN="TOP" HEIGHT=15>
<FONT SIZE=1><P>Gross margin:</FONT></TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=15><P></P></TD>
<TD WIDTH="3%" VALIGN="TOP" HEIGHT=15><P></P></TD>
<TD WIDTH="12%" VALIGN="TOP" HEIGHT=15><P></P></TD>
<TD WIDTH="3%" VALIGN="TOP" HEIGHT=15><P></P></TD>
<TD WIDTH="12%" VALIGN="TOP" HEIGHT=15><P></P></TD>
<TD WIDTH="3%" VALIGN="TOP" HEIGHT=15><P></P></TD>
<TD WIDTH="12%" VALIGN="TOP" HEIGHT=15><P></P></TD>
<TD WIDTH="3%" VALIGN="TOP" HEIGHT=15><P></P></TD>
<TD WIDTH="12%" VALIGN="TOP" HEIGHT=15><P></P></TD>
</TR>
<TR><TD WIDTH="29%" VALIGN="TOP" HEIGHT=15>
<FONT SIZE=1><P>Online</FONT></TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=15>
<FONT SIZE=1><P ALIGN="RIGHT">8.2</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" HEIGHT=15><P></P></TD>
<TD WIDTH="12%" VALIGN="TOP" HEIGHT=15>
<FONT SIZE=1><P ALIGN="RIGHT">6.07</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" HEIGHT=15><P></P></TD>
<TD WIDTH="12%" VALIGN="TOP" HEIGHT=15>
<FONT SIZE=1><P ALIGN="RIGHT">6.8</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" HEIGHT=15><P></P></TD>
<TD WIDTH="12%" VALIGN="TOP" HEIGHT=15>
<FONT SIZE=1><P ALIGN="RIGHT">3.7</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" HEIGHT=15><P></P></TD>
<TD WIDTH="12%" VALIGN="TOP" HEIGHT=15>
<FONT SIZE=1><P ALIGN="RIGHT">2.8</FONT></TD>
</TR>
<TR><TD WIDTH="29%" VALIGN="TOP" HEIGHT=13>
<FONT SIZE=1><P>Commission and other revenue</FONT></TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=13>
<U><FONT SIZE=1><P ALIGN="RIGHT">100.0</U></FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" HEIGHT=13><P></P></TD>
<TD WIDTH="12%" VALIGN="TOP" HEIGHT=13>
<U><FONT SIZE=1><P ALIGN="RIGHT">100.0</U></FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" HEIGHT=13><P></P></TD>
<TD WIDTH="12%" VALIGN="TOP" HEIGHT=13>
<U><FONT SIZE=1><P ALIGN="RIGHT">100.0</U></FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" HEIGHT=13><P></P></TD>
<TD WIDTH="12%" VALIGN="TOP" HEIGHT=13>
<U><FONT SIZE=1><P ALIGN="RIGHT">100.0</U></FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" HEIGHT=13><P></P></TD>
<TD WIDTH="12%" VALIGN="TOP" HEIGHT=13>
<U><FONT SIZE=1><P ALIGN="RIGHT">100.0</U></FONT></TD>
</TR>
<TR><TD WIDTH="29%" VALIGN="TOP" HEIGHT=15>
<FONT SIZE=1><P>Total gross margin</FONT></TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=15>
<U><FONT SIZE=1><P ALIGN="RIGHT">11.1</U></FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" HEIGHT=15><P></P></TD>
<TD WIDTH="12%" VALIGN="TOP" HEIGHT=15>
<U><FONT SIZE=1><P ALIGN="RIGHT">10.0</U></FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" HEIGHT=15><P></P></TD>
<TD WIDTH="12%" VALIGN="TOP" HEIGHT=15>
<U><FONT SIZE=1><P ALIGN="RIGHT">10.0</U></FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" HEIGHT=15><P></P></TD>
<TD WIDTH="12%" VALIGN="TOP" HEIGHT=15>
<U><FONT SIZE=1><P ALIGN="RIGHT">6.8</U></FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" HEIGHT=15><P></P></TD>
<TD WIDTH="12%" VALIGN="TOP" HEIGHT=15>
<U><FONT SIZE=1><P ALIGN="RIGHT">5.8</U></FONT></TD>
</TR>
<TR><TD WIDTH="29%" VALIGN="TOP" HEIGHT=15><P></P></TD>
<TD WIDTH="11%" VALIGN="TOP" HEIGHT=15><P></P></TD>
<TD WIDTH="3%" VALIGN="TOP" HEIGHT=15><P></P></TD>
<TD WIDTH="12%" VALIGN="TOP" HEIGHT=15><P></P></TD>
<TD WIDTH="3%" VALIGN="TOP" HEIGHT=15><P></P></TD>
<TD WIDTH="12%" VALIGN="TOP" HEIGHT=15><P></P></TD>
<TD WIDTH="3%" VALIGN="TOP" HEIGHT=15><P></P></TD>
<TD WIDTH="12%" VALIGN="TOP" HEIGHT=15><P></P></TD>
<TD WIDTH="3%" VALIGN="TOP" HEIGHT=15><P></P></TD>
<TD WIDTH="12%" VALIGN="TOP" HEIGHT=15><P></P></TD>
</TR>
</TABLE>
</CENTER></P>

<FONT SIZE=2><P ALIGN="JUSTIFY">Gross margin for online revenue was 8.2% and
2.8%, respectively, for the quarters ended March 31, 2001 and March 31, 2000.
Two factors are primarily responsible for the increase in gross margin:</P>


<UL>
<LI>The increase in gross margin resulted primarily from raising prices on new
and excess and closeout merchandise sold in fixed price formats.</LI>
<LI>We limited the quantity of auction merchandise available for bid at any one
time, which tends to lead to higher auction sale prices. In addition, a flat fee
shipping charge was added on new merchandise orders.</LI>
</UL>

<P>We intend to continue our efforts to improve gross margins. However, intense
ongoing industry-wide competitive price pressures may compel us to reduce prices
on some of our products and, from time to time, we may engage in promotional
activities which could reduce overall gross margins.</P>
<B><P>Operating Expenses</P>
</B><P>Our operating expenses as a percentage of revenue, excluding merger
costs, were 21.1% and 21.4% for the quarters ended March 31, 2001 and March 31,
2000 respectively. The dollar amount of the decrease, before merger costs, was
$14.5 million. We expect our operating expenses to decrease further in the
second quarter of 2001 as a result of our reductions in force in February and
April 2001 and other measures that we are undertaking to streamline the
business.</P>
<I><P>Sales and Marketing</I>. Sales and marketing expenses consist primarily of
advertising expenditures, payroll and related expenses for sales, customer
service, marketing and merchandise acquisition personnel, distribution and
credit card processing costs. Sales and marketing expenses as a percentage of
revenue were 13.6% and 14.4% for the quarters ended March 31, 2001 and March 31,
2000 respectively. The dollar amount of the decrease was $10.3</FONT><U><FONT
SIZE=2 COLOR="#ff0000"> </U></FONT><FONT SIZE=2>million. This decrease is
primarily a result of reductions in advertising costs due to our shift in focus
from building brand awareness to marketing directly to our existing customers
through telemarketing, direct mail and e-mail. We expect sales and marketing
expense to continue to decrease in the second quarter of 2001 due to our
previously announced workforce reductions and further cost cutting measures.</P>
<I><P>General and Administrative</I>. General and administrative expenses
consist primarily of payroll and related expenses for executive, accounting and
administrative personnel, bad debt expense, facilities expenses, recruiting and
other general corporate expenses. General and administrative expenses as a
percentage of revenue were 4.6% and 4.4%, respectively, for the quarters ended
March 31, 2001 and March 31, 2000. This increase was due primarily to the higher
volume of sales in the quarter ended March 31, 2000 compared with the quarter
ended March 31, 2001. The dollar amount of this expense decreased by $2.8
million. We expect general and administrative costs to decrease in the second
quarter of 2001 due to our previously announced workforce reduction and lower
facilities expenses through consolidation of office space. </P>
<I><P>Engineering</I>. Engineering expenses consist primarily of payroll and
related expenses for engineering personnel and consultants who develop, enhance,
manage, operate and monitor our web site and related systems, as well as related
equipment costs, other than those that are capitalized. Engineering expenses as
a percentage of total revenue were 2.9% in the quarter ended March 31, 2001
compared with 2.6% in the quarter ended March 31, 2000. This increase was due
primarily to higher volume of sales in the quarter ended March 31, 2000 compared
with the quarter ended March 31, 2001. The dollar amount of this expense
decreased by $1.4 million. We expect engineering expenses to decrease in the
second quarter due to our previously announced workforce reductions and further
cost cutting measures.</P>
<P>In 1998, we adopted the American Institute of Certified Public Accountants'
Statement of Position 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use" and, accordingly, capitalized some
engineering costs related to internally-developed software. In the quarter ended
March 31, 2001 we capitalized approximately $1.3 million of software, of which
$1.1 million was related to engineering costs for internally-developed software,
compared with $565,000 and $265,000, respectively, during the quarter ended
March 31, 2000.</P>
<I><P>Merger-Related Costs.</I> In connection with the acquisition of Old
Egghead, we recorded merger-related expenses of approximately $2.5 million
during the quarter ended March 31, 2000. These expenses primarily consist of
costs related to the abandonment of some Old Egghead advertising agreements,
severance benefits and additional merger costs.  No merger
related expenses were recorded during the quarter ended March 31, 2001.</P>

<B><FONT SIZE=2><P ALIGN="JUSTIFY">Equity in Net Loss of Joint
Venture</P>
</B><P ALIGN="JUSTIFY">On May 15, 1998, we entered into a joint venture
agreement with Softbank Corp. to perform on-line auctions for the Japanese
market, resulting in the formation of Onsale Japan K.K., which commenced
operations in the third quarter of 1998. Our share of the initial investment in
Onsale Japan K.K., approximately $2.0 million, was funded through an unsecured
promissory note payable to Softbank. Through the second quarter of 2000, we
owned a 40% interest in the joint venture and accounted for this interest using
the equity method of accounting. Accordingly, we recognized our share of net
profits or losses of the joint venture as an adjustment to our initial
investment amount. Our share of the net loss of the joint venture was $200,000
for the quarter ended March 31, 2000. On July 3, 2000 we sold 52.5% of our
interest in Onsale Japan K.K. to Indigo Corporation for approximately $2.5
million, representing a gain of approximately $2.3 million on our investment. In
April 2001, we sold the remainder of our equity interest in Onsale Japan K.K. to
Softbank in exchange for Softbank's agreement to forgive all principal and
accrued interest that we owed under this promissory note. </P>
<B><P ALIGN="JUSTIFY">Interest and Other Income, Net</P>
</B><P ALIGN="JUSTIFY">Our interest and other income, net, was $0.5 million and
$1.3 million for the quarters ended March 31, 2001 and 2000, respectively. This
decrease was due primarily to lower cash balances.</P>
<B><P ALIGN="JUSTIFY">Income Taxes</P>
</B><P ALIGN="JUSTIFY">We had net losses of $8.1 million and $25.1 million for
the quarter ended March 31, 2001 and 2000 respectively. Therefore, we did not
record any provision for income taxes for these periods. </P>
<B><P ALIGN="JUSTIFY">Liquidity and Capital Resources</P>
<I><P ALIGN="JUSTIFY">Cash Inflows and Outflows</P>
<P>&#9;&#9;</B>Operating Activities</I>. Net cash used in operating activities
for the quarter ended March 31, 2001 was approximately $15.4 million, primarily
consisting of our net loss of $8.1 million and decreases in accounts payable,
accrued expenses and deferred revenue of $7.6 million, $3.2 million and $1.1
million, respectively. These uses of cash were partially offset by reductions in
accounts receivable, merchandise inventory and prepaid expenses and other assets
of $1.8 million, $495,000 and $1.2 million, respectively. Net cash used in
operating activities for the quarter ended March 31, 2000 was approximately
$44.0 million, primarily consisting of our net loss of $25.1 million, an
increase of $5.3 million in accounts receivable and decreases in accounts
payable and accrued expenses of $11.6 million and $3.9 million, respectively.
These uses of cash were partially offset by a $3.9 million reduction in
inventory. The reductions in accounts payable and accrued expenses reflect the
payment of approximately $6.0 million in merger-related costs and approximately
$8.0 million of non-recurring pay downs of accounts payable.</P>
<I><P>Investing Activities</I>. Net cash used by investing activities of $1.7
million for the quarter ended March 31, 2001 consisted primarily of an
investment in property and equipment. Net cash provided by investing activities
of $4.8 million for the quarter ended March 31, 2000 resulted from proceeds from
short-term marketable securities of approximately $5.7 million, offset by an
investment of $894,000 in property and equipment. </P>
<I><P>Financing Activities.</I> Net cash provided by financing activities of
$66,000 for the quarter ended March 31, 2001 resulted from the issuance of
common stock under our stock option and employee stock purchase plans. Net cash
provided by financing activities of approximately $23.6 million for the quarter
ended March 31, 2000 resulted primarily from the issuance of common stock under
an equity financing agreement with Acqua Wellington, which resulted in net
proceeds of approximately $23 million.</P>
<B><I><P ALIGN="JUSTIFY">Cash, Cash Equivalents and Commitments</P>
</B><P>Cash and Cash Equivalents</I>. As of March 31, 2001, we had approximately
$14.4 million of cash and cash equivalents and $1.2 million of short-term
available-for-sale investments, compared to $52.5 million of cash and cash
equivalents and $12.4 million of short-term available-for-sale investments as of
March 31, 2000.</P>

<I><P>Commitments</I>. Our principal capital commitments as of March 31, 2001
consisted of:</P>

<UL>
<LI>We had obligations under operating leases for our corporate offices and
warehouses of $6.6 million in the aggregate, under which we currently pay
approximately $200,000 per month, and obligations under additional operating
leases of $355,000 in the aggregate. These amounts do not include obligations
related to retail store leases which have been fully provided for. </LI>

<LI>We have no material commitments for capital expenditures, but we anticipate
spending approximately $1.4 million on various capital items during the balance
of 2001. </LI>
<LI>We had commitments for advertising and promotional arrangements of
approximately $1.5 million. In addition, we had entered into sponsorship
agreements which allow us to appear as the sponsor on specific web sites. These
agreements, which expire at various times up to June 2001, require future
payments of up to approximately $175,000 and incremental fees based on the
volume of traffic to our web site. </LI>
<LI>Of our cash balance, approximately $1.2 million is restricted, primarily to
serve as collateral for the lease of our Vancouver, Washington office and
warehouse. </LI>
<LI>We are party to an agreement with Affiliated Corporate Services, Inc. to
finance our intended purchase of software licenses for our new transaction
processing system. This agreement provides for payments of up to $2.0 million.
We are currently negotiating to terminate this agreement since we do not intend
to purchase these additional licenses.</LI></UL>

<I><P ALIGN="JUSTIFY">Credit Line.</I> In February 2001, we entered into an
inventory financing agreement with IBM Credit Corporation. We may borrow up to
$20 million under this credit line to finance our purchases of inventory. IBM
has obtained a security interest in our inventory and equipment, accounts and
accounts receivable and general intangibles as collateral for amounts that we
borrow under this agreement. Because we may only obtain financing for purchases
of inventory from approved vendors and only up to the amount of inventory and
other collateral that we currently possess, we may not be able to borrow the
maximum amount under this agreement. As of March 31, 2001, we had financed
$42,000</FONT><U><FONT SIZE=2 COLOR="#ff0000"> </U></FONT><FONT SIZE=2>of
inventory purchases</FONT><U><FONT SIZE=2 COLOR="#ff0000"> </U></FONT><FONT
SIZE=2>under this line. This agreement requires us to make payments to IBM on a
tri-monthly basis for amounts borrowed under this credit line, and imposes
several requirements and restrictions on us, including restrictions on our
ability to sell our assets, merge with other entities, incur most forms of
additional debt and make specified forms of investments, among others. This
credit facility expires in February 2002. </P>
<P>We currently offer credit to business customers on our web site. During the
quarter ended March 31, 2001, 15% of our online revenue was financed by our
customers through our credit services. We expect this percentage to grow as we
continue to increase our focus to the small and medium business market. As a
result, we expect our accounts receivable to grow and our immediate cash intake
from sales to decrease.</P>
<P>We expect to continue to incur net losses, and we will have to use our
existing cash resources to support our operations. We believe that our current
cash and cash equivalents, together with amounts available to us under our
financing credit line with IBM, will meet our anticipated cash needs for working
capital expenditures for the remainder of the fiscal year. However, if we are
unable to execute on our operating plan to achieve positive cash flow by the
fourth quarter of 2001 and sustain profitability thereafter, by failing to
achieve target revenues, to reduce expenses in line with these reduced revenues,
or otherwise, or if our vendors or IBM cease to do business with us or tighten
the terms of our credit arrangements with them, we will need to obtain
additional financing to support our operations. See "Factors That May Affect
Future Operating Results - If we fail to achieve positive operating cash flow in
line with our operating plan or to sustain profitability, we may experience a
cash shortfall which could cause our business to fail." The trading price of our
common stock, and economic conditions facing Internet companies generally, make
it more difficult for us to obtain financing through the issuance of equity or
convertible debt securities. Other financing, including vendor financing, may
become more difficult to obtain on terms favorable to us, or may not be
available to us at all, due to our financial position and continuing losses.
Therefore, additional financing may not be available on terms favorable to us,
or may not be available to us at all. </P>
<B><P>New Accounting Pronouncements</P>
</B><P>Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting
for Derivative Instruments and Hedging Activities, is effective for all fiscal
years beginning after June 15, 2000. SFAS 133, as amended, establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts and for hedging activities.
Under SFAS 133, certain contracts that were not formerly considered derivatives
may now meet the definition of derivative. We adopted SFAS 133 effective January
1, 2001. The adoption of SFAS 133 did not have a significant impact on our
financial position, results of operations, or cash flows.</P>
</FONT><FONT SIZE=1><P>&nbsp;</P>
</FONT><B><FONT SIZE=2><P ALIGN="CENTER">Factors That May Affect Future
Operating Results</P>
</B><I><P>You should consider the risks described below and the other
information in this report carefully before deciding to buy or sell shares of
our common stock. The risks described below are not the only ones we face.
Additional risks that we are aware of or that we currently believe are
immaterial may become important factors that affect our business. If any of the
following risks occur, or if others occur, our business, operating results and
financial condition could be seriously harmed. The trading price of our common
stock could decline due to any of these risks.</P>
<B><P>If we fail to achieve</B> <B>positive operating cash flow in line with our
operating plan or to sustain profitability, we may experience a cash shortfall
which could cause our business to fail. </P>
</B></I><P>We previously announced that we expect to become profitable during
the fourth quarter of 2001. We have adopted a revised operating plan that is
designed to reduce our operating expenses in line with our lower projected
revenues during 2001 in order to meet this goal. However, our operating plan is
based on underlying revenue and gross margin targets, and if we are unable to
achieve our targeted revenues while maintaining or increasing gross margins and
managing our expenses, we may be unable to achieve positive operating cash flow
in line with our projection, or at all. We have incurred net losses since
inception, and as of March 31, 2001 we had a net accumulated deficit of
approximately $338.9 million. Our revenues decreased during each quarter in 2000
and in the quarter ended March 31, 2001. We expect to continue to incur net
losses, and our ability to achieve positive operating cash flow in the future is
subject to many risks and uncertainties, including those described in this
report. Even if we do achieve profitability, we may not be able to sustain or
increase profitability on a quarterly or annual basis in the future. If we are
unable to execute on our operating plan or otherwise fail to achieve
profitability, we may experience a cash shortfall and may not have enough cash
to support our operations. Failure to achieve profitability in line with our
projection, and to sustain and increase profitability thereafter, may also
result in a decline in the trading price of our common stock and may subject us
to securities litigation.</P>
<B><I><P>We may need to secure financing to support our operations during 2001,
and financing may not be available to us on favorable terms or at all. </P>
</B></I><P>Despite our revised operating plan, we may still need to seek
financing, such as selling equity or debt securities or obtaining an additional
credit facility, to support our operations through the balance of 2001. It is
possible that we could incur unexpected costs and expenses, that we may be
unable to maintain the support of our vendors, or that sales may be even lower
than our reduced projections due to the downturn in the U.S. economy and reduced
demand for technology products, inability to secure new customers or keep
existing customers as a result of our reduced workforce and expenses, or other
reasons. The trading price of our common stock and the downturn in the U.S.
stock and debt markets generally make it more difficult for us to obtain
financing through the issuance of equity or debt securities. Other financing,
including vendor financing, may become more difficult to obtain on terms
favorable to us, or may not be available to us at all, due to our financial
position and continuing losses. We currently do not have any commitments for
additional financing and we cannot be certain that additional financing will be
available when and to the extent required, or that, if available, it will be on
acceptable terms. If adequate funds are not available on acceptable terms, we
may not be able to fund our operations, in which case our business would fail.
Further, if we issue additional equity or debt securities, stockholders may
experience additional dilution or the new equity securities may have rights,
preferences or privileges senior to those of existing holders of our common
stock. </P>
<B><I><P>In light of our financial condition, our business partners may decide
not to do business with us or may tighten the terms of their relationships with
us, which could impact our cash reserves and our ability to purchase inventory
and generate revenue.</P>
</B></I><P>We have agreements and relationships with several third party vendors
that are integral to conducting our operations, particularly with respect to
purchases of inventory and sales to customers. These vendors may perceive that
there is increased risk in doing business with us due to the downturn in the
U.S. economy and our current financial position. If these third parties elect to
tighten the terms of their relationships with us, or cease to do business with
us, they could make it more difficult for us to do business. These relationships
include the following: </P>
<I><P>Financing</I>. We finance a significant portion of the inventory that we
purchase from our vendors on credit offered by these vendors. Over the past
year, some of these vendors have tightened the terms of our credit arrangements
by decreasing the amount of time we have to pay off this credit. The terms of
these credit relationships may be tightened further in the future, and if these
credit terms become too restrictive, or if these vendors cease to do business
with us, this could diminish our cash reserves and make it harder for us to
purchase inventory for sale. </P>
<I><P>Payment processing</I>. We rely on primarily one credit card transaction
processor, Wells Fargo. Our agreement with Wells Fargo allows it to withhold a
reserve from the amounts it pays to us in connection with processing our credit
card transactions. During the fourth quarter of 2000, Wells Fargo began
withholding a reserve of $4.0 million. If they elect to increase this reserve,
this would further limit our cash inflow from credit card transactions and could
negatively impact our cash position.</P>
<P>Finally, due to concerns regarding our financial condition and our perceived
ability to fulfill our financial and other obligations, our customers may choose
to do less business with us. If this occurs, we may not be able to execute on
our operating plan, and we may experience a cash shortfall which could cause our
business to fail.</P>

<B><I><P>If we default under our inventory financing agreement, or if it is not
renewed, we may experience a cash shortfall.</P>
</B></I><P>In February 2001, we entered into an inventory financing credit line
under which we may borrow up to $20 million to finance our purchases of
inventory. We granted the lender a security interest in substantially all of our
assets as collateral for amounts that we borrow under this agreement. Because we
may only obtain financing for purchases of inventory from approved vendors and
only up to the amount of inventory and other collateral that we currently
possess, we may not be able to borrow the maximum amount under this agreement.
As of April 30, 2001, we had financed approximately $3.9 million of inventory
purchases under this credit line. This agreement requires us to make payments to
IBM on a tri-monthly basis for amounts borrowed under this credit line, and
imposes restrictions on our ability to sell our assets, merge with other
entities, incur most forms of additional debt and make specified forms of
investments. The agreement provides that any of the following events, as well as
others specified in the agreement, may constitute a default by us under the
agreement:</P>

<UL>

<LI><P>&#9;Failure to make
payments under this agreement on time;</LI></P>

<LI><P>&#9;Failure to comply
with the requirements and restrictions imposed on us by this agreement;</LI></P>

<LI><P>&#9;Default under our
other obligations;</P>

<LI><P>&#9;Receipt of a
"going concern" qualification by the auditors in connection with their audit or
opinion; and</P>

<LI><P>&#9;Other events
which could have a material adverse effect on our company.</LI> </P>

</UL>

<P>If we default under this agreement, and the default is not cured by us or
waived by the lender, it may elect to accelerate all amounts due and terminate
the credit line, foreclose on the collateral subject to a security interest
under this agreement, and sue us for other amounts due and other damages. Any of
these results could force us to cease operations or could result in a shortfall
of cash for the company. Moreover, this inventory financing agreement expires in
February 2002, unless it is renewed by both parties. If the lender does not
renew this agreement, and we do not achieve and sustain profitability
beforehand, then our need to pursue additional financing to support our
operations will increase. </P>
<B><I><P>General economic conditions and reduced demand for computers and
related products and services may prevent us from achieving targeted revenues
and profitability.</P>
</B></I><P>Our revenues and our ability to achieve and sustain profitability
depends significantly on the overall demand for personal computers and related
products and services. Our customers' decisions to purchase our products and
services are to some extent discretionary and subject to their internal budgets
and purchasing processes. The slowdown in the U.S. economy may cause customers
to defer or alter purchasing decisions, and accordingly could reduce demand for
our products and services. Softening demand for these products and services
caused by worsening economic conditions has resulted and may result in the
future in decreased revenues. As a result, there is increased uncertainty with
respect to our expected revenues for the balance of 2001, and further delays or
reductions in business and consumer spending on personal computers and related
products and services could have a material adverse effect on our revenues and
operating results. </P>
<B><I><P>If our common stock is delisted by Nasdaq, the trading price of our
common stock could drop and it may be more difficult to trade our common
stock.</P>
</B></I><P>Our common stock trades on the Nasdaq National Market, which imposes
requirements to maintain continued listing of common stock on this market. One
of these requirements is that we must maintain a minimum bid price of $1.00 per
share for our common stock. Failure to meet this requirement for 30 consecutive
business days results in a delisting notice from Nasdaq. On April 10, 2001 we
received a delisting notice from Nasdaq. The notice informed us that we have 90
calendar days to comply, and during this period the minimum closing bid price
per share must increase above $1.00 per share for 10 consecutive business days
during this period to comply. Following this period, we could appeal to Nasdaq
for a hearing regarding the determination to delist our common stock from the
Nasdaq National Market.</P>
<P>Delisting could reduce the ability of holders of our common stock to purchase
or sell shares as quickly and as inexpensively as they have done historically.
This reduced liquidity would make it more difficult for us to raise capital in
the future. In addition, the trading price of our common stock could decline due
to the change in liquidity and reduced exposure resulting from being delisted
from the Nasdaq National Market.<B> </P>
<I><P>Our new direct marketing efforts may not be successful, and this shift in
our business strategy may make our business more difficult to evaluate.</P>
</B></I><P>To execute on our direct marketing strategy, we face several
challenges, including:</P>

<UL>

<LI>managing risks
associated with accounts receivable expansion and collection;

<LI>maintaining and
improving existing operational, financial and inventory systems, procedures and
controls, and implementing new systems, procedures and controls;

<LI>integrating new
key managerial and technical employees into our existing management team;
and

<LI>hiring, training and retaining knowledgeable and skilled sales
personnel.</LI>
</UL>

<P>Recently hired business account managers will require time to learn our
business, and once they become assimilated into our organization we do not know
whether they will be able to generate revenues at the same rate as our existing
business account managers. Our business account management team may suffer from
inefficiencies arising from the recent growth of this team. Turnover and
workforce reductions may also make it more difficult for our business account
management team to operate efficiently. If our direct marketing efforts prove
unsuccessful, we may not achieve targeted revenues and may not achieve
profitability in line with our projected schedule, or at all. In addition,
because we have refocused our business model, our operating history prior to the
third quarter of 2000 does not provide meaningful information upon which you may
evaluate our business and prospects. Because we are to some extent changing our
target customer base, and because our direct marketing strategy is new and
unproven, our business may be more difficult to evaluate going forward.</P>
<B><I><P>We rely on merchandise vendors for supply and shipping of products.</P>
</B><P>Supply</I>. We rely on vendors to supply our merchandise. During the
quarter ended March 31, 2001, purchases from Tech Data, a distributor of
computers and related products, accounted for approximately 29% of our aggregate
merchandise purchases. For the past two years, we have operated under a contract
with Tech Data, but this contract has expired. We are currently operating under
the terms of the expired agreement and are negotiating an additional one-year
extension of this contract. We cannot assure you that we will be able to renew
this contract on terms favorable to us, or at all. Neither this agreement nor
any other agreements that we have with our vendors guarantee the availability of
merchandise. As a result, we may not be able to obtain sufficient quality and
quantities of merchandise at competitive prices. Also, the quality of service
provided by such parties may fall below the standard needed to enable us to
conduct our business effectively. We cannot assure you that our current vendors
will continue to supply merchandise or that we will be able to establish new
vendor relationships that will ensure that merchandise will be available.</P>
<I><P>Customer service--shipping and returns.</I> We rely on some of our vendors
to ship merchandise directly to customers. Consequently, we have limited control
over the goods shipped by these vendors, and shipments of goods may be subject
to delays and shipment errors. We have experienced delays and errors in the
past. Delays in fulfilling orders could result in a loss of customers, and may
subject us to litigation or regulatory scrutiny. The FTC informed us that it
believes our shipping practices violate the FTC's Mail and Telephone Order
Rules, and as a result has proposed that we pay a fine and adopt new systems and
procedures regarding our shipping practices. Shipping delays, unexpected
inventory shortfalls or other problems with third party fulfillment of orders in
the future could subject us to litigation or further regulatory scrutiny. In
addition, we sometimes accept returns from customers for which we receive no
reimbursement from the manufacturer or vendor. If the level of returns exceeds
expectations, this could materially harm our operating results. </P>
<B><I><P>Our operating results may fluctuate significantly and may be difficult
to predict.</P>
</B></I><P>We expect our operating results to fluctuate over time due to a
number of factors, many of which are outside our control. These factors
include:</P>

<UL>

<LI><P>&#9;economic
conditions generally and demand for technology products in particular;</P>


<LI><P>&#9;our ability to
decrease expenses in line with revenues;</P>


<LI><P>&#9;our ability to
maintain the support of our vendors, and the terms on which they finance our
purchase of inventory for sale;</P>


<LI><P>&#9;the effectiveness
of our direct marketing efforts, and the level of traffic at our web
site;</P>

<LI><P>&#9;decreases in
revenues as we phase out sales of unprofitable products;</P>

<LI><P>&#9;pricing
competition, and the availability and pricing of merchandise from our
vendors;</P>

<LI><P>&#9;the introduction
of new types of merchandise, service offerings or customer services by us or our
competitors, and our ability to manage our inventory mix and the mix of products
offered for auction; </P>

<LI><P>&#9;seasonal
fluctuations in sales of new, closeout and excess merchandise and in the
availability of closeout and excess merchandise; and</P>

<LI><P>&#9;the impact of
workforce reductions.</P>

</UL>

<P>Due to these factors, factors discussed elsewhere in this document, or
unforeseen factors, in some future quarter our operating results may not meet
the expectations of securities analysts and investors, in which event the
trading price of our common stock may decline.</P>


<B><I><P>Our future success depends on our ability to retain and motivate
highly skilled employees.</P></B></I>

<P>We face several challenges associated with retaining our key
employees. Competition for qualified employees is strong. We grant stock options
as a method of attracting and retaining employees, to motivate performance and
to align the interests of management with those of our stockholders. Due to the
decline in the trading price of our common stock during 2000 and early 2001, a
substantial portion of the stock options held by our employees have an exercise
price that is higher than the current trading price of our common stock. In
April 2001, we issued new stock options to our employees which vest based on the
profitability of the company, but because we expect to incur operating losses
for the next few quarters, these options may not be effective in retaining
employees in the near term. In addition, we announced reductions in force in
February and April 2001, and this may create concern about job security among
existing employees that could lead to increased turnover. As a result of these
factors, we may have difficulties in retaining current highly skilled
employees.</P>
<P>In particular, we believe that our future performance depends upon
contributions from members of our senior management, particularly Jeff Sheahan,
our Chief Executive Officer and President. In addition, other key employees
possess marketing, technical and other expertise that is important to the
operations of our business. All of our executive officers and other employees
serve "at-will" and may elect to pursue other opportunities at any time. If
these employees leave, we may not be able to replace them with employees
possessing comparable skills.</P>

<B><I><P>Reductions in force may negatively impact our business operations and
may require us to incur additional non-recurring expenses which could impact our
cash reserves and results of operations. </P>
</B></I><P>Reductions in force may interfere with our ability to conduct
business, either directly by reducing customer service and vendor service
levels, or indirectly by causing concern among our vendors, third party
advertisers and other critical corporate relationships. We expect to record a
charge of $938,000 in the second quarter of 2001 due to our reduction in force
in April 2001, and we may incur other expenses in connection with workforce
reductions. Workforce reductions may also subject us to the requirements of the
Worker Adjustment and Retrainment Notification Act, in which event we would have
to either provide 60 days' notice prior to a reduction in force or pay salary
and benefits to each terminated employee for each day of this 60-day period for
which notice was not provided. Finally, workforce reductions also may subject us
to risks of litigation, which could be expensive to defend, divert the attention
of management, and subject us to possible liability for damages. Any of these
expenses could materially harm our results of operations or deplete our cash
reserves.</P>
<B><I><P>Our management team has several new members, and if they are unable to
work together successfully to manage our operations, our business will not be
successful.</P>
</B></I><P>We face challenges in managing our operations due to the addition of
several new members to our management team and due to our recent reduction in
force. In March 2001, we hired several new officers, including a new Chief
Financial Officer, Controller, Senior Vice President of Marketing and Vice
President of Direct Sales. These new officers will take time to learn the
business, and we cannot assure you that they will work effectively together and
with existing management to manage our operations. In addition, as a result of
our recent reduction in force we will need to operate with fewer employees and
existing employees will have to perform new tasks previously performed by former
employees.</P>
<B><I><P>We operate in a highly competitive market and we could lose revenue and
customers to our competitors.</P>
</B></I><P>We compete with many companies that offer the same types of
merchandise that we do, many through both Internet and traditional sales
channels. It is not difficult to enter the online commerce market, and current
and new competitors can launch new online commerce web sites at relatively low
cost. We anticipate that competition in online commerce will increase further as
more traditional retailers, suppliers, manufacturers and direct marketers begin
to sell computer products and consumer goods directly to consumers through the
Internet. Increased competition may result in price reductions, fewer customer
orders, reduced gross margins, increased marketing costs, loss of market share,
or any combination of these problems.</P>
<P>Many of our current and potential competitors have greater financial,
marketing, customer support, technical and other resources than we do. As a
result, they may be able to secure merchandise from suppliers on more favorable
terms than us, and they may be able to respond more quickly to changes in
customer preference or to devote greater resources to the development, promotion
and sale of their merchandise than we can. If we are not able to compete
successfully, our revenues and margins will decrease and our business will be at
risk. </P>
<B><I><P>We face risks associated with purchasing and carrying our own
inventory.</P>
</B></I><P>We purchase inventory from vendors. Risks of carrying inventory
include:</P>

<UL>

<LI><P>&#9;potential
declines in the market value of the goods that we purchase;</P>

<LI><P>&#9;difficulties
managing customer returns and credits associated with merchandise to be returned
to vendors;</P>

<LI><P>&#9;shrinkage
resulting from theft, loss or inaccurate inventory recording; and</P>

<LI><P>&#9;unpredictable
sale prices due to the nature of our auction process.</P>

</UL>

<P>If we manage our inventory poorly, our costs will increase and our operating
results will be materially harmed.</P>
<B><I><P>We rely on other third parties in conducting our operations.</P>
</B></I><P>In conducting our operations, we depend on various other vendor and
distribution partners, including the following:</P>
<UL>

<LI><P>
&#9;<I>Distribution</I>. Third parties distribute a significant portion of our
sales. Any service interruptions experienced by our partner's distribution
centers as a result of labor problems or otherwise could disrupt or prevent
fulfillment of customer orders. Delays in fulfilling orders could result in a
loss of customers, and may subject us to litigation or regulatory scrutiny.</P>

<LI><P>&#9;<I>Payment
processing</I>. We rely on primarily one credit card transaction processor. If
computer systems failures or other problems were to prevent them from processing
our credit card transactions, we would experience delays and business
disruptions. </P>

<LI><P>&#9;<I>Shipping</I>.
We use one or two primary delivery services to ship our products. Our business
would suffer if labor problems or other causes prevented these or any other
major carriers from delivering our products for significant time periods. Delays
in shipping in the future could result in a loss of customers, or could subject
us to litigation. </P>
</UL>

<P>We may not be able to maintain satisfactory relationships with any of the
above parties on acceptable commercial terms, and the quality of services that
they provide may not remain at the levels needed to enable us to conduct our
business effectively.</P>
<B><I><P>Risks associated with online commerce security, credit card fraud and
the security of our online operations could subject us to litigation or
expenses, and could result in a loss of customers.</P>
</B></I><P>A significant barrier to online commerce and communications is the
secure transmission of confidential information, such as customer credit card
numbers, over public networks and the security of customer databases. To
transmit confidential information securely we rely on encryption and
authentication technology that we license from third parties. In addition, we
have a customer database in which we store proprietary information about our
customers, including their credit card numbers. To the extent that our
activities involve the storage and transmission of this proprietary information,
security breaches could damage our reputation and expose us to a risk of loss or
litigation and possible liability. For example, in December 2000 we experienced
a security breach of our computer systems by computer hackers. Our business may
be harmed if our security measures do not prevent security breaches, and we
cannot assure you that we can prevent all security breaches. </P>
<P>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
that we process, the merchant does not obtain a cardholder's signature.
Fraudulent use of credit card data in the future could harm our business.</P>
<P>VISA U.S.A. and our credit card processor have notified us of their decision
to adopt a new standard for cardholder information security for e-commerce
merchants. We are taking steps to enhance our systems to comply with this
standard. If we fail to comply, this could result in a disruption of our
operations, or VISA U.S.A. or our credit card processor may assess fines against
us. </P>
<B><I><P>Our online commerce systems are vulnerable to interruption.</P>
</B></I><P>Customer access to our web site directly affects the volume of orders
and our revenues. System interruptions may make our web site unavailable or
prevent us from fulfilling orders efficiently, reducing the volume of goods we
sell and the attractiveness of our products and services. We may need to add
hardware and software and further develop and upgrade our existing technology,
transaction- processing systems and network infrastructure. We currently
maintain substantially all of our computer and communications hardware at two
facilities, in Menlo Park, California and Vancouver, Washington. However, we
intend to relocate our web site operations from Menlo Park to Vancouver in 2001.
Customer access to our web site could be interrupted during this transition,
which could result in a loss of customers and revenues.</P>
<P>Our systems and operations could be damaged or interrupted by fire, flood,
power loss, telecommunications failure, network break-ins, earthquake and
similar events. In particular, California is experiencing an energy shortage and
some regions have experienced blackouts. Our backup systems and disaster
recovery plan may not be adequate, and we may not have sufficient business
interruption insurance to compensate us for losses from a major interruption.
Computer viruses, physical or electronic break-ins, deliberate attempts by third
parties to exceed the capacity of our systems and similar disruptions could
cause system interruptions, delays and loss of critical data, and could prevent
us from providing services and accepting and fulfilling customer orders.</P>
<B><I><P>We depend on the performance of our web site and transaction processing
systems, and if these systems do not perform well, we could lose customers and
revenues.</P>
</B></I><P>Our web site must be able to handle a large volume of customers and
orders. Accordingly, we rely on the performance of our web site and our
transaction processing systems, as well as our network infrastructure and the
continued improvement of the Internet infrastructure. These factors also are
critical to our reputation and our ability to attract and retain customers and
maintain adequate customer service levels. We currently use a combination of
proprietary technology and commercially available licensed technology to execute
sales and conduct auctions. We are in the process of developing a new e-commerce
engine and configuring and customizing a new commercially available software
package to replace our existing sales management applications, e-commerce engine
and order processing applications. We may incur unanticipated expenses in
completing these system implementations. Failure to successfully complete these
systems implementations in a timely and effective manner may result in the
disruption of our operations, slower response times, degradation in levels of
customer service, or impaired quality and speed of order fulfillment, any of
which could result in a loss of customers and could materially harm our
operating results.</P>
<I><STRONG><P>Our business may face increased government regulation.</STRONG>
</P>
<P>Auctioneering and other laws.</I> Several states have laws that regulate
auctions and auction companies within their jurisdiction. Some states may
interpret their statutes to apply to our transactions with consumers in such
states. The burdens of complying with auctioneering laws could materially
increase our cost of doing business. Similarly, states may construe their
existing laws governing issues such as property ownership, sales tax, libel and
personal privacy to apply to Internet companies servicing consumers within their
boundaries. Resolution of whether or how these laws will be applied is uncertain
and may take years to resolve. </P>

<I><P>Consumer protection laws.</I> We could be subject to regulation under
consumer protection laws in various states. Several states, including California
and Washington, have laws regulating the disclosure of pricing information by
wholesalers and comparable businesses. In the future, governments of California,
Washington and other states could require additional disclosure in order to
comply with other regulations. There are also other federal and state consumer
protection laws that may be applied to the sales of goods over the Internet.
From time to time, we receive inquiries from federal and state agencies about
our advertising, product offerings and sales fulfillment practices. The
application of federal and state laws may increase our cost of doing business or
materially affect the method by which we provide products to our customers.</P>
<I><P>Tax laws.</I> The tax treatment of the Internet and electronic commerce is
currently unsettled. A number of proposals have been made at the federal, state
and local level and by certain foreign governments that could impose taxes on
the sale of goods and services and certain other Internet activities. Our
business may be harmed by the passage of laws in the future imposing taxes or
other burdensome regulations on online commerce. </P>
<I><P>New Internet laws.</I> Due to the increasing popularity and use of the
Internet, it is possible that a number of laws and regulations may be adopted
with respect to the Internet generally, covering issues such as user privacy,
pricing and characteristics and quality of products and services. Similarly, the
growth and development of the market for Internet commerce may prompt calls for
more stringent consumer protection laws that may impose additional burdens on
those companies conducting business over the Internet. The adoption of any
additional laws or regulations may decrease the growth of commerce over the
Internet, increase our cost of doing business or otherwise harm our business.
</P>
<I><P>We may have to qualify to do business in other jurisdictions</I>. Because
our service is available over the Internet in multiple states and foreign
countries, and we sell to consumers resident in such states and foreign
countries, such jurisdictions may claim that we are required to qualify to do
business as a foreign corporation in each of these states and foreign countries.
If we fail to qualify as a foreign corporation in a jurisdiction where we are
required to do so, we could be subject to taxes and penalties.</P>
<B><I><P>Our business activities have and may subject us to litigation.</P>
</B><P>Intellectual property rights</I>. Our business activities may infringe
upon the proprietary rights of others, and we have in the past received, and may
in the future receive, notices from third parties claiming infringement by our
software or other aspects of our business. Any of these claims, with or without
merit, could result in significant litigation costs and diversion of resources
and management attention, and could require us to enter into royalty and
licensing agreements (which may not be available on terms acceptable to us or at
all). Successful litigation could result in invalidation of our proprietary
rights or significant liability for damages, which could harm our business.</P>
<I><P>Products liability and consumer protection</I>. Our sale of products
through our web sites subjects us to federal and state consumer protection laws,
and could subject us to product liability claims. For instance, the FTC has
informed us that it believes our shipping practices violate the FTC's Mail and
Telephone Order Rules, and has proposed that we enter into a consent decree that
would require us to pay a fine and adopt new shipping systems and procedures.
States and other jurisdictions may interpret their products liability or
consumer protection laws to apply to Internet commerce providers such as us that
enter into transactions with their residents. While we carry liability
insurance, this may not be adequate to compensate for substantial claims, and
these claims, or changes to our business practices that are required by or
penalties resulting from such laws, could have a harmful effect on our
business.</P>
<I><P>Liability for information transmitted over our online services</I>. The
law relating to the liability of online services companies for information
carried on or disseminated through our services is currently unsettled. Claims
could be made against us under both United States and foreign law for
defamation, libel, invasion of privacy, negligence, copyright or trademark
infringement, or other theories based on the nature and content of the materials
disseminated through our services. Several private lawsuits seeking to impose
such liability on other online services companies are currently pending. In
addition, legislation has been proposed that imposes liability for or prohibits
the transmission over the Internet of certain types of information. The
potential imposition of liability on online services companies for information
carried on or disseminated through their services could require us to alter our
service offerings.</P>
<B><I><P>We expect our stock price to be volatile, which could lead to losses by
investors and securities litigation</P>
</B></I><P>The market price of the shares of our common stock declined
significantly during 2000 and early 2001, and we expect it to continue to be
subject to fluctuations in response to several factors, such as:</P>

<UL>

<LI><P>&#9;actual or
anticipated variations in our results of operations;</P>

<LI><P>&#9;potential de-listing from the Nasdaq National Market;</P>


<LI><P>&#9;press reports
about us, and changes in financial estimates by securities analysts; and</P>

<LI><P>&#9;conditions and
trends in the U.S. economy in general and the Internet and computer industries
in particular. </P>

</UL>

<P>In recent years the stock markets generally, and the Nasdaq National Market
in particular, have experienced extreme price and volume fluctuations, and in
recent periods the stock prices of equity securities of many technology
companies have declined dramatically. These market developments, as well as
general economic, political and market conditions such as recessions, interest
rates or international currency fluctuations, may adversely affect the market
price of our common stock. In the past, stockholders have instituted securities
class action litigation against several companies following periods of
volatility in the market price of their securities. Such litigation, if
instituted against us, could result in diversion of our management's attention
and resources and substantial financial costs.</P>
<P>&nbsp;</P>
<P>&nbsp;</P>

<A NAME="market"></A>
<B><P>Item 3. <I>Quantitative and Qualitative Disclosures About Market
Risk</I>.</P>
</B><P ALIGN="JUSTIFY">Our exposure to market risk, for changes in interest
rates, relates primarily to our investment portfolio and long term debt. We do
not use derivative financial instruments in our investment portfolio. We
consider investments in highly liquid instruments purchased with an original
maturity of 90 days or less to be cash equivalents. We place our investments in
instruments that meet high credit quality standards, as specified in our
investment policy guidelines; the policy also limits the amount of credit
exposure to any one issue, issuer, and type of investment. All of our cash
equivalents and short-term investments, consisting principally of commercial
paper, debt securities and governmental securities, are classified as available-
for-sale as of March 31, 2001. We do not expect any material loss with respect
to our investment portfolio.</P>
<P>The table below presents principal (or notional) amounts and related weighted
average interest rates by year of maturity for our investment portfolio. All
investments mature in 2001.</P>


<P ALIGN="CENTER"><CENTER><TABLE BORDER CELLSPACING=1 CELLPADDING=7 WIDTH=425>
<TR><TD WIDTH="75%" VALIGN="TOP"><FONT SIZE=2>
<P></TD>
<TD WIDTH="25%" VALIGN="TOP"><FONT SIZE=2>
<P ALIGN="CENTER"><U>2001</U></FONT></TD>
</TR>

<TR><TD WIDTH="75%" VALIGN="TOP"><FONT SIZE=2>
<P>Cash Equivalents<br>
&nbsp;&nbsp;&nbsp;&nbsp;Fixed Interest Rate<br>
<br>
<P>Investments<br>
&nbsp;&nbsp;&nbsp;&nbsp;Fixed Interest Rate<br>
</TD>
<TD WIDTH="25%" VALIGN="TOP"><FONT SIZE=2>
<P ALIGN="CENTER">
$ 11,249,000<br>
5.23%<br>
<br>
$ 1,161,000<br>
9.50%<br>
<br>
</FONT></TD>
</TR>
</CENTER>
</TABLE>
</P>

<P>In April 2001, we sold the remainder of our equity interest in Onsale Japan
K.K. to SOFTBANK Corp. in exchange for Softbank's agreement to forgive all
principal and accrued interest that we owed under the promissory note that we
issued to Softbank to fund our initial investment in Onsale Japan K.K.
Therefore, we no longer bear any market risk for this security. </P>



<B><P ALIGN="CENTER">PART II</P>

<A NAME="item1"></A>
<P ALIGN="JUSTIFY">Item 1. <I>Legal Proceedings</I>.</P>
</B><P>In connection with its investigation of the shipping and return practices
of several e-commerce companies, in December 2000, the Federal Trade Commission
informed us<B> </B>that it believed we had violated the FTC's Mail and Telephone
Order Rules and proposed that we enter into a consent decree. The FTC alleges
that we solicited orders for products when we did not have a reasonable basis to
expect that we could timely ship those products, that we failed to notify
customers about delayed shipments adequately, and that we failed to offer
customers appropriate options to remedy delayed shipments.&nbsp; The consent
decree proposed by the FTC would require us to pay a fine and to adopt new
systems and procedures regarding our shipping practices, many of which we are
implementing voluntarily. We are currently negotiating a settlement of the FTC's
claims and a proposed consent decree. The FTC had not filed any formal action as
of the date of this report, and in the event that it does, we intend to defend
ourselves vigorously.</P>
<P>From time to time, we are subject to litigation in the ordinary course of our
business. We believe that none of the currently pending litigation will have a
material adverse effect on our business, results of operations or financial
condition.</P>

<A NAME="item2"></A>
<B><P>Item 2. <I>Changes in Securities and Use of Proceeds</I>.</P>
</B><P>Not applicable.</P>

<A NAME="item3"></A>
<B><P>Item 3. <I>Defaults upon Senior Securities.</P>
</B></I><P>Not applicable.</P>

<A NAME="item4"></A>
<B><P ALIGN="JUSTIFY">Item 4. <I>Submission of Matters to a Vote of Security
Holders</I>.</P>
</B><P>Not applicable.</P>

<A NAME="item5"></A>
<B><P>Item 5. <I>Other Information.</P>
</B></I><P>In March 2001, Mark Shepherd became our new Chief Financial Officer,
replacing John Labbett.</P>

<A NAME="item6"></A>
<B><P>Item 6. <I>Exhibits and Reports on Form 8-K.</P>
<OL TYPE="a">

</B></I><LI>The following exhibits are filed as part of, or are incorporated by
reference into, this report:</LI></FONT>
<TABLE CELLSPACING=0 BORDER=0 CELLPADDING=6 WIDTH=654>
<TR><TD WIDTH="8%" VALIGN="TOP">
<P ALIGN="CENTER"><FONT SIZE=1>Exhibit</FONT></TD>
<TD WIDTH="51%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="33%" VALIGN="TOP" COLSPAN=4>
<U><FONT SIZE=1><P ALIGN="CENTER">Incorporated by Reference</U></FONT></TD>
<TD WIDTH="8%" VALIGN="TOP">
<FONT SIZE=1><P ALIGN="CENTER">Filed</FONT></TD>
</TR>
<TR><TD WIDTH="8%" VALIGN="TOP">
<U><FONT SIZE=1><P ALIGN="CENTER">Number</U></FONT></TD>
<TD WIDTH="51%" VALIGN="TOP">
<U><FONT SIZE=1><P ALIGN="CENTER">Exhibit Description</U></FONT></TD>
<TD WIDTH="7%" VALIGN="TOP">
<U><FONT SIZE=1><P ALIGN="CENTER">Form</U></FONT></TD>
<TD WIDTH="8%" VALIGN="TOP">
<U><FONT SIZE=1><P ALIGN="CENTER">File No.</U></FONT></TD>
<TD WIDTH="8%" VALIGN="TOP">
<U><FONT SIZE=1><P ALIGN="CENTER">Exhibit</U></FONT></TD>
<TD WIDTH="10%" VALIGN="TOP">
<U><FONT SIZE=1><P ALIGN="CENTER">Filing Date</U></FONT></TD>
<TD WIDTH="8%" VALIGN="TOP">
<U><FONT SIZE=1><P ALIGN="CENTER">Herewith</U></FONT></TD>
</TR>
<TR><TD WIDTH="8%" VALIGN="TOP" HEIGHT=5><P></P></TD>
<TD WIDTH="51%" VALIGN="TOP" HEIGHT=5><P></P></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=5><P></P></TD>
<TD WIDTH="8%" VALIGN="TOP" HEIGHT=5><P></P></TD>
<TD WIDTH="8%" VALIGN="TOP" HEIGHT=5><P></P></TD>
<TD WIDTH="10%" VALIGN="TOP" HEIGHT=5><P></P></TD>
<TD WIDTH="8%" VALIGN="TOP" HEIGHT=5><P></P></TD>
</TR>
<TR><TD WIDTH="8%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">10.1</FONT></TD>
<TD WIDTH="51%" VALIGN="TOP">
<FONT SIZE=2><P>Amendment to offer letter, dated January 1, 2001, between the
Registrant and Jeffrey F. Sheahan.</FONT></TD>
<TD WIDTH="7%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">10-K</FONT></TD>
<TD WIDTH="8%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="8%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">10.06</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">04/02/01</FONT></TD>
<TD WIDTH="8%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="8%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="51%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="7%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="8%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="8%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="10%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="8%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="8%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">10.2</FONT></TD>
<TD WIDTH="51%" VALIGN="TOP">
<FONT SIZE=2><P>Offer letter, dated January 23, 2001, by the Registrant to
Robert S. Islinger.</FONT></TD>
<TD WIDTH="7%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">10-K</FONT></TD>
<TD WIDTH="8%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="8%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">10.05</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">04/02/01</FONT></TD>
<TD WIDTH="8%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="8%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="51%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="7%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="8%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="8%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="10%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="8%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="8%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">10.3</FONT></TD>
<TD WIDTH="51%" VALIGN="TOP">
<FONT SIZE=2><P>Offer letter, dated March 15, 2001, by the Registrant to Mark C.
Shepherd</FONT></TD>
<TD WIDTH="7%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">10-K</FONT></TD>
<TD WIDTH="8%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="8%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">10.04</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">04/02/01</FONT></TD>
<TD WIDTH="8%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="8%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="51%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="7%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="8%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="8%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="10%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="8%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="8%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">10.4</FONT></TD>
<TD WIDTH="51%" VALIGN="TOP">
<FONT SIZE=2><P>Agreement for Inventory Financing, dated February 29, 2001,
between the Registrant and IBM Credit Corporation.</FONT></TD>
<TD WIDTH="7%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">10-K</FONT></TD>
<TD WIDTH="8%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="8%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">10.11</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">04/02/01</FONT></TD>
<TD WIDTH="8%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="8%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="51%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="7%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="8%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="8%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="10%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="8%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="8%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">10.5</FONT></TD>
<TD WIDTH="51%" VALIGN="TOP">
<FONT SIZE=2><P>Business Equipment Lease, dated as of January 1, 2001, between
the Registrant and Affiliated Corporate Services, Inc.</FONT></TD>
<TD WIDTH="7%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="8%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="8%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="10%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="8%" VALIGN="TOP">
<B><FONT SIZE=2><P ALIGN="CENTER">X</B></FONT></TD>
</TR>
<TR><TD WIDTH="8%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="51%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="7%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="8%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="8%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="10%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="8%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="8%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="51%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="7%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="8%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="8%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="10%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="8%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
</TABLE>

<FONT SIZE=2><LI>Reports on Form 8-K</LI></OL>

<P>We did not file any current reports on Form 8-K during the quarter ended
March 31, 2001.</P>


<br>
<br>
<br>
<HR WIDTH="85%">
<br>
<br>
<br>
<A NAME="sign"></A>
<B><P ALIGN="CENTER">&nbsp;</P>
<P ALIGN="CENTER">SIGNATURES</P>
</B><P ALIGN="JUSTIFY">Pursuant to the requirements of the Securities Exchange
Act of 1934, as amended, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.</P>
<P>&nbsp;</P>
<P ALIGN="JUSTIFY">Date: May 14, 2001

<P>
<TABLE border=0 cellPadding=0 cellSpacing=0 width="100%">
  <TR>
    <TD width="38%"></TD>
    <TD width="2%"></TD>
    <TD width="60%"></TD></TR>
  <TR vAlign=top>
    <TD>&nbsp;</TD>
    <TD><FONT SIZE=2>By:&nbsp;</TD>
    <TD align=left><FONT SIZE=2>
/s/ Mark Shepherd
</TD></TR></TABLE>


<TABLE border=0 cellPadding=0 cellSpacing=0 width="100%">
  <TR>
    <TD width="38%"></TD>
    <TD width="62%"></TD></TR>
  <TR vAlign=top>
    <TD>&nbsp;</TD>
    <TD align=left>
      <HR align=left SIZE=1>
    </TD></TR>
  <TR vAlign=top>
    <TD>&nbsp;</TD>
    <TD align=left><FONT SIZE=2>
    Mark Shepherd
</TD></TR>
  <TR vAlign=top>
    <TD>&nbsp;</TD>
    <TD align=left><FONT SIZE=2><I>
                                   Executive Vice President and Chief
                                    Financial Officer
 </I></TD></TR></TABLE></P>


<br>
<br>
<br>
<HR WIDTH="85%">
<br>
<br>
<br>
<B><P ALIGN="CENTER">&nbsp;</P>
<P ALIGN="CENTER">EXHIBIT INDEX</P>

<TABLE CELLSPACING=0 BORDER=0 CELLPADDING=6 WIDTH=654>
<TR><TD WIDTH="8%" VALIGN="TOP">
<P ALIGN="CENTER"><FONT SIZE=1>Exhibit</FONT></TD>
<TD WIDTH="51%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="33%" VALIGN="TOP" COLSPAN=4>
<U><FONT SIZE=1><P ALIGN="CENTER">Incorporated by Reference</U></FONT></TD>
<TD WIDTH="8%" VALIGN="TOP">
<FONT SIZE=1><P ALIGN="CENTER">Filed</FONT></TD>
</TR>
<TR><TD WIDTH="8%" VALIGN="TOP">
<U><FONT SIZE=1><P ALIGN="CENTER">Number</U></FONT></TD>
<TD WIDTH="51%" VALIGN="TOP">
<U><FONT SIZE=1><P ALIGN="CENTER">Exhibit Description</U></FONT></TD>
<TD WIDTH="7%" VALIGN="TOP">
<U><FONT SIZE=1><P ALIGN="CENTER">Form</U></FONT></TD>
<TD WIDTH="8%" VALIGN="TOP">
<U><FONT SIZE=1><P ALIGN="CENTER">File No.</U></FONT></TD>
<TD WIDTH="8%" VALIGN="TOP">
<U><FONT SIZE=1><P ALIGN="CENTER">Exhibit</U></FONT></TD>
<TD WIDTH="10%" VALIGN="TOP">
<U><FONT SIZE=1><P ALIGN="CENTER">Filing Date</U></FONT></TD>
<TD WIDTH="8%" VALIGN="TOP">
<U><FONT SIZE=1><P ALIGN="CENTER">Herewith</U></FONT></TD>
</TR>
<TR><TD WIDTH="8%" VALIGN="TOP" HEIGHT=5><P></P></TD>
<TD WIDTH="51%" VALIGN="TOP" HEIGHT=5><P></P></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=5><P></P></TD>
<TD WIDTH="8%" VALIGN="TOP" HEIGHT=5><P></P></TD>
<TD WIDTH="8%" VALIGN="TOP" HEIGHT=5><P></P></TD>
<TD WIDTH="10%" VALIGN="TOP" HEIGHT=5><P></P></TD>
<TD WIDTH="8%" VALIGN="TOP" HEIGHT=5><P></P></TD>
</TR>
<TR><TD WIDTH="8%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">10.1</FONT></TD>
<TD WIDTH="51%" VALIGN="TOP">
<FONT SIZE=2><P>Amendment to offer letter, dated January 1, 2001, between the
Registrant and Jeffrey F. Sheahan.</FONT></TD>
<TD WIDTH="7%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">10-K</FONT></TD>
<TD WIDTH="8%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="8%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">10.06</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">04/02/01</FONT></TD>
<TD WIDTH="8%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="8%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="51%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="7%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="8%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="8%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="10%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="8%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="8%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">10.2</FONT></TD>
<TD WIDTH="51%" VALIGN="TOP">
<FONT SIZE=2><P>Offer letter, dated January 23, 2001, by the Registrant to
Robert S. Islinger.</FONT></TD>
<TD WIDTH="7%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">10-K</FONT></TD>
<TD WIDTH="8%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="8%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">10.05</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">04/02/01</FONT></TD>
<TD WIDTH="8%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="8%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="51%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="7%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="8%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="8%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="10%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="8%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="8%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">10.3</FONT></TD>
<TD WIDTH="51%" VALIGN="TOP">
<FONT SIZE=2><P>Offer letter, dated March 15, 2001, by the Registrant to Mark C.
Shepherd</FONT></TD>
<TD WIDTH="7%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">10-K</FONT></TD>
<TD WIDTH="8%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="8%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">10.04</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">04/02/01</FONT></TD>
<TD WIDTH="8%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="8%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="51%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="7%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="8%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="8%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="10%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="8%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="8%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">10.4</FONT></TD>
<TD WIDTH="51%" VALIGN="TOP">
<FONT SIZE=2><P>Agreement for Inventory Financing, dated February 29, 2001,
between the Registrant and IBM Credit Corporation.</FONT></TD>
<TD WIDTH="7%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">10-K</FONT></TD>
<TD WIDTH="8%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="8%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">10.11</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">04/02/01</FONT></TD>
<TD WIDTH="8%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="8%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="51%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="7%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="8%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="8%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="10%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="8%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="8%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">10.5</FONT></TD>
<TD WIDTH="51%" VALIGN="TOP">
<FONT SIZE=2><P>Business Equipment Lease, dated as of January 1, 2001, between
the Registrant and Affiliated Corporate Services, Inc.</FONT></TD>
<TD WIDTH="7%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="8%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="8%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="10%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="8%" VALIGN="TOP">
<B><FONT SIZE=2><P ALIGN="CENTER">X</B></FONT></TD>
</TR>
<TR><TD WIDTH="8%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="51%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="7%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="8%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="8%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="10%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="8%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
<TR><TD WIDTH="8%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="51%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="7%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="8%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="8%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="10%" VALIGN="TOP">
<P>&nbsp;</TD>
<TD WIDTH="8%" VALIGN="TOP">
<P>&nbsp;</TD>
</TR>
</TABLE>

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<HR WIDTH="85%">
<br>
<br>
<br>

</BODY>
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</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.5
<SEQUENCE>2
<FILENAME>exh105.htm
<DESCRIPTION>EXHIBIT
<TEXT>

<HTML>
<HEAD>
<TITLE>10Q Q1 2001 EXH10.11</TITLE>
</HEAD>
<BODY LINK="#0000ff" VLINK="#800080">

<p align="right"><B>
                                                                   Exhibit 10.11</B>

<P ALIGN="CENTER"><CENTER><TABLE BORDER CELLSPACING=1 CELLPADDING=7 WIDTH=624>
<TR><TD WIDTH="21%" VALIGN="TOP" COLSPAN=4 ROWSPAN=4 HEIGHT=11>
<FONT FACE="Arial Narrow" SIZE=7><P>ACS</FONT><FONT FACE="Arial Narrow"
SIZE=7>i</FONT></TD>
<TD WIDTH="38%" VALIGN="TOP" COLSPAN=8 ROWSPAN=2 HEIGHT=11>
<U><FONT FACE="Arial Narrow" SIZE=1><P
ALIGN="RIGHT">&nbsp;&nbsp;&nbsp;&nbsp;AFFILIATED CORPORATE SERVICES,
INC.</U></FONT></TD>
<TD WIDTH="11%" VALIGN="TOP" ROWSPAN=2 HEIGHT=11>
<FONT FACE="Arial Narrow" SIZE=1><P>(LESSOR)</FONT></TD>
<TD WIDTH="30%" VALIGN="TOP" COLSPAN=7 HEIGHT=11><P></P></TD>
</TR>
<TR><TD WIDTH="30%" VALIGN="TOP" COLSPAN=7>
<FONT FACE="Arial Narrow"><P>D-03456</FONT></TD>
</TR>
<TR><TD WIDTH="38%" VALIGN="TOP" COLSPAN=8 ROWSPAN=2 HEIGHT=20>
<FONT FACE="Arial Narrow" SIZE=1><P ALIGN="RIGHT">1550 Waters Ridge Drive
Lewisville, Texas 75057</P>
<P ALIGN="RIGHT">(972) 221-7335   Fax (972) 221-7336</P>
<P ALIGN="RIGHT">www.acsitx.com</FONT></TD>
<TD WIDTH="11%" VALIGN="TOP" ROWSPAN=2 HEIGHT=20><P></P></TD>
<TD WIDTH="30%" VALIGN="TOP" COLSPAN=7 HEIGHT=20>
<FONT FACE="Arial Narrow"><P ALIGN="CENTER">LEASE NUMBER</FONT></TD>
</TR>
<TR><TD WIDTH="30%" VALIGN="TOP" COLSPAN=7 HEIGHT=15><P></P></TD>
</TR>
<TR><TD VALIGN="TOP" COLSPAN=20 BGCOLOR="#000000">
<B><FONT FACE="Arial Narrow" COLOR="#ffffff"><P ALIGN="CENTER">BUSINESS
EQUIPMENT LEASE</B></FONT></TD>
</TR>
<TR><TD VALIGN="TOP" COLSPAN=20 BGCOLOR="#c0c0c0">
<B><FONT FACE="Arial Narrow" SIZE=2><P>LESSEE NAME</B></FONT></TD>
</TR>
<TR><TD WIDTH="74%" VALIGN="TOP" COLSPAN=15>
<FONT FACE="Arial Narrow" SIZE=2><P>Egghead.Com, Inc.</FONT></TD>
<TD WIDTH="26%" VALIGN="TOP" COLSPAN=5>&nbsp;</TD>
</TR>
<TR><TD WIDTH="27%" VALIGN="TOP" COLSPAN=6 BGCOLOR="#c0c0c0">
<B><FONT FACE="Arial Narrow" SIZE=2><P>LESSEE ADDRESS</B></FONT></TD>
<TD WIDTH="28%" VALIGN="TOP" COLSPAN=4 BGCOLOR="#c0c0c0">
<B><FONT FACE="Arial Narrow" SIZE=2><P>CITY</B></FONT></TD>
<TD WIDTH="19%" VALIGN="TOP" COLSPAN=5 BGCOLOR="#c0c0c0">
<B><FONT FACE="Arial Narrow" SIZE=2><P>COUNTY</B></FONT></TD>
<TD WIDTH="14%" VALIGN="TOP" COLSPAN=4 BGCOLOR="#c0c0c0">
<B><FONT FACE="Arial Narrow" SIZE=2><P ALIGN="CENTER">STATE</B></FONT></TD>
<TD WIDTH="12%" VALIGN="TOP" BGCOLOR="#c0c0c0">
<B><FONT FACE="Arial Narrow" SIZE=2><P ALIGN="RIGHT">ZIP</B></FONT></TD>
</TR>
<TR><TD WIDTH="27%" VALIGN="TOP" COLSPAN=6>
<FONT FACE="Arial Narrow" SIZE=2><P>1350 Willow Road</FONT></TD>
<TD WIDTH="28%" VALIGN="TOP" COLSPAN=4>
<FONT FACE="Arial Narrow" SIZE=2><P>Menlo Park</FONT></TD>
<TD WIDTH="19%" VALIGN="TOP" COLSPAN=5>
<FONT FACE="Arial Narrow" SIZE=2><P>San Mateo</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP" COLSPAN=4>
<FONT FACE="Arial Narrow" SIZE=2><P ALIGN="CENTER">CA</FONT></TD>
<TD WIDTH="12%" VALIGN="TOP">
<FONT FACE="Arial Narrow" SIZE=2><P ALIGN="RIGHT">94025</FONT></TD>
</TR>
<TR><TD WIDTH="27%" VALIGN="TOP" COLSPAN=6 BGCOLOR="#c0c0c0">
<B><FONT FACE="Arial Narrow" SIZE=2><P>SUPPLIER/VENDOR NAME</B></FONT></TD>
<TD WIDTH="28%" VALIGN="TOP" COLSPAN=4 BGCOLOR="#c0c0c0">
<B><FONT FACE="Arial Narrow" SIZE=2><P>ADDRESS</B></FONT></TD>
<TD WIDTH="19%" VALIGN="TOP" COLSPAN=5 BGCOLOR="#c0c0c0">
<B><FONT FACE="Arial Narrow" SIZE=2><P>CITY</B></FONT></TD>
<TD WIDTH="14%" VALIGN="TOP" COLSPAN=4 BGCOLOR="#c0c0c0">
<B><FONT FACE="Arial Narrow" SIZE=2><P ALIGN="CENTER">STATE</B></FONT></TD>
<TD WIDTH="12%" VALIGN="TOP" BGCOLOR="#c0c0c0">
<B><FONT FACE="Arial Narrow" SIZE=2><P ALIGN="RIGHT">ZIP</B></FONT></TD>
</TR>
<TR><TD WIDTH="27%" VALIGN="TOP" COLSPAN=6>
<FONT FACE="Arial Narrow" SIZE=2><P>Ecometry</FONT></TD>
<TD WIDTH="28%" VALIGN="TOP" COLSPAN=4>
<FONT FACE="Arial Narrow" SIZE=2><P>1615 S. Congress Avenue</FONT></TD>
<TD WIDTH="19%" VALIGN="TOP" COLSPAN=5>
<FONT FACE="Arial Narrow" SIZE=2><P>Delray Beach</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP" COLSPAN=4>
<FONT FACE="Arial Narrow" SIZE=2><P>FL</FONT></TD>
<TD WIDTH="12%" VALIGN="TOP">
<FONT FACE="Arial Narrow" SIZE=2><P ALIGN="RIGHT">33445-3368</FONT></TD>
</TR>
<TR><TD WIDTH="15%" VALIGN="TOP" COLSPAN=2 BGCOLOR="#000000">
<B><FONT FACE="Arial Narrow" SIZE=2 COLOR="#ffffff"><P
ALIGN="CENTER">QUANTITY</B></FONT></TD>
<TD WIDTH="67%" VALIGN="TOP" COLSPAN=15 BGCOLOR="#000000">
<B><FONT FACE="Arial Narrow" SIZE=2 COLOR="#ffffff"><P
ALIGN="CENTER">DESCRIPTION: MODEL No., Serial No., or other
identification</B></FONT></TD>
<TD WIDTH="18%" VALIGN="TOP" COLSPAN=3 BGCOLOR="#000000">
<B><FONT FACE="Arial Narrow" SIZE=2 COLOR="#ffffff"><P
ALIGN="CENTER">COST</B></FONT></TD>
</TR>
<TR><TD WIDTH="15%" VALIGN="MIDDLE" COLSPAN=2 HEIGHT=48>
<FONT FACE="Arial Narrow" SIZE=2><P ALIGN="CENTER">750</FONT></TD>
<TD WIDTH="67%" VALIGN="MIDDLE" COLSPAN=15 HEIGHT=48>
<FONT FACE="Arial Narrow" SIZE=2><P>HP984 Ecometry Online Software Licenses with
associated licenses for Outbound Telemarketing and E-mail Executive</FONT></TD>
<TD WIDTH="18%" VALIGN="MIDDLE" COLSPAN=3 HEIGHT=48>
<FONT FACE="Arial Narrow" SIZE=2><P ALIGN="CENTER">2,000,000.00</FONT></TD>
</TR>
<TR><TD WIDTH="24%" VALIGN="TOP" COLSPAN=5 BGCOLOR="#c0c0c0">
<B><FONT FACE="Arial Narrow" SIZE=2><P>EQUIPMENT LOCATION</B></FONT></TD>
<TD WIDTH="15%" VALIGN="TOP" COLSPAN=3 BGCOLOR="#c0c0c0">
<B><FONT FACE="Arial Narrow" SIZE=2><P>STREET</B></FONT></TD>
<TD WIDTH="21%" VALIGN="TOP" COLSPAN=4 BGCOLOR="#c0c0c0">
<B><FONT FACE="Arial Narrow" SIZE=2><P>CITY</B></FONT></TD>
<TD WIDTH="21%" VALIGN="TOP" COLSPAN=4 BGCOLOR="#c0c0c0">
<B><FONT FACE="Arial Narrow" SIZE=2><P>STATE</B></FONT></TD>
<TD WIDTH="20%" VALIGN="TOP" COLSPAN=4 BGCOLOR="#c0c0c0">
<B><FONT FACE="Arial Narrow" SIZE=2><P>ZIP</B></FONT></TD>
</TR>
<TR><TD WIDTH="11%" VALIGN="TOP">
<B><FONT FACE="Arial Narrow" SIZE=1><P>If Other Than Billing
Address</B></FONT></TD>
<TD WIDTH="28%" VALIGN="TOP" COLSPAN=7>
<FONT FACE="Arial Narrow" SIZE=2><P>1350 Willow Road</FONT></TD>
<TD WIDTH="21%" VALIGN="TOP" COLSPAN=4>
<FONT FACE="Arial Narrow" SIZE=2><P>Menlo Park</FONT></TD>
<TD WIDTH="21%" VALIGN="TOP" COLSPAN=4>
<FONT FACE="Arial Narrow" SIZE=2><P>CA</FONT></TD>
<TD WIDTH="20%" VALIGN="TOP" COLSPAN=4>
<FONT FACE="Arial Narrow" SIZE=2><P>94025</FONT></TD>
</TR>
<TR><TD WIDTH="19%" VALIGN="TOP" COLSPAN=3 BGCOLOR="#000000">
<B><FONT FACE="Arial Narrow" SIZE=1 COLOR="#ffffff"><P>PAYMENT DUE
DATE</B></FONT></TD>
<TD WIDTH="18%" VALIGN="TOP" COLSPAN=4 BGCOLOR="#000000">
<B><FONT FACE="Arial Narrow" SIZE=1 COLOR="#ffffff"><P>RENT
PAYMENTS</B></FONT></TD>
<TD WIDTH="19%" VALIGN="TOP" COLSPAN=4 BGCOLOR="#000000">
<B><FONT FACE="Arial Narrow" SIZE=1 COLOR="#ffffff"><P>SECURITY
DEPOSITS</B></FONT></TD>
<TD WIDTH="15%" VALIGN="TOP" COLSPAN=3 BGCOLOR="#000000">
<B><FONT FACE="Arial Narrow" SIZE=1 COLOR="#ffffff"><P>SALES/USE
TAX</B></FONT></TD>
<TD WIDTH="16%" VALIGN="TOP" COLSPAN=4 BGCOLOR="#000000">
<B><FONT FACE="Arial Narrow" SIZE=1 COLOR="#ffffff"><P>TOTAL
PAYMENT</B></FONT></TD>
<TD WIDTH="14%" VALIGN="TOP" COLSPAN=2 BGCOLOR="#000000">
<B><FONT FACE="Arial Narrow" SIZE=1 COLOR="#ffffff"><P>LEASE
TERM</B></FONT></TD>
</TR>
<TR><TD WIDTH="19%" VALIGN="BOTTOM" COLSPAN=3>
<B><FONT FACE="Arial Narrow" SIZE=2><P ALIGN="RIGHT">Of Each</P>
<P ALIGN="RIGHT">Month</B></FONT></TD>
<TD WIDTH="18%" VALIGN="BOTTOM" COLSPAN=4>
<FONT FACE="Arial Narrow" SIZE=2><P>$ **             Monthly</FONT></TD>
<TD WIDTH="19%" VALIGN="BOTTOM" COLSPAN=4>
<FONT FACE="Arial Narrow" SIZE=2><P ALIGN="CENTER">(if any)</P>
<P>$&#9;0.00</FONT></TD>
<TD WIDTH="15%" VALIGN="BOTTOM" COLSPAN=3>
<FONT FACE="Arial Narrow" SIZE=2><P>$&#9;**</FONT></TD>
<TD WIDTH="16%" VALIGN="BOTTOM" COLSPAN=4>
<FONT FACE="Arial Narrow" SIZE=2><P>$&#9;**</FONT></TD>
<TD WIDTH="14%" VALIGN="BOTTOM" COLSPAN=2>
<FONT FACE="Arial Narrow" SIZE=2><P ALIGN="CENTER">18       Months</FONT></TD>
</TR>
<TR><TD VALIGN="TOP" COLSPAN=20>
<FONT FACE="Arial Narrow" SIZE=2><P>Advanced Payment of $ <U>      214,650.00
</U> which equals the first <U>  and Second                  </U> payment(s),
the security deposit and a $ <U>        0.00     </U> documentation fee <B>MUST
ACCOMPANY LEASE</B>.   ** See Payment Addendum attached hereto and made a  part
hereof</FONT></TD>
</TR>
<TR><TD VALIGN="TOP" COLSPAN=20>

<OL START=7>
<B><FONT FACE="Arial Narrow" SIZE=1><LI>LEASE</B>. Lessee hereby agrees to lease
from Lessor the personal property described above (herein called the
&quot;Equipment&quot;), and requests that Lessor purchase the Equipment from the
Supplier/Vendor named above.  This Lease shall be NON-CANCELABLE DURING THE TERM
STATED ABOVE by Lessee for any reason whatsoever, and Lessee shall be obligated
to pay Lessor all sums called for in this Business Equipment Lease (herein
called the &quot;Lease&quot;).</LI>
<B><LI>COMMENCEMENT AND TERMINATION</B>.  This lease shall be binding on Lessor
only when accepted and signed by a duly authorized officer of Lessor, Lessor may
insert in the space appearing below the &quot;Lease Start Date,&quot; which
shall be the earlier of the date the Equipment (or any portion of it) is
delivered to Lessee or the date Lessor disburses the purchase price (or any
portion of it) to the supplier.  Provided Lessee has successfully performed all
its duties and obligations under the Lease, it shall terminate upon expiration
of the number of months (following the lease Start Date) stated as the Lease
Term. </LI>
<B><LI>RENT AND OTHER PAYMENTS</B>.  Lessee shall pay the advance rentals due
under this Lease, as stated above, upon signing this Lease.  Monthly rent
payments due after the first month's rent shall be payable on the &quot;Payment
Due Date' indicated above or on the first business day thereafter if a Payment
Due Date falls on a non-business day.  The Payment Due Date shall be either the
1<SUP>st</SUP> or the 15th of each month, whichever is next closer to the Lease
Start Date, as determined by Lessor.  In addition to regular rentals, Lessee
shall pay to Lessor interim rent for the use of the Equipment prior to the due
date of the first payment.  Interim rent shall be in an amount equal to
1/30<SUP>th</SUP> of the monthly rental, multiplied by the number of days
elapsing between the date on which the Equipment is accepted by Lessee and the
Lease Start Date of this Lease, together with the number of days elapsing
between the Lease Start Date and the due date of the first payment.  The payment
of interim rent shall be due and payable upon Lessee's receipt of invoice from
Lessor.  Lessee agrees to pay to Lessor a service charge of 5% per month, but
not to exceed the maximum amount permitted by law, on any payment required under
this Lease which is not paid within five days of the due date.  Lessee shall
promptly pay all sales, use, excise, personal property, stamp, documentary, and
ad valorem taxes, licenses and registration fees, assessments, fines, penalties,
and other charges imposed on the ownership, possession, or use of the Equipment
during the term of this Lease, and Lessee shall pay all taxes (except income
taxes imposed on Lessor) with respect to the rental payments hereunder, and
shall, with the next scheduled rent payment reimburse Lessor for any taxes paid
by or advanced by Lessor.  Lessee shall keep the Equipment free from all claims,
liens, security interests, and other charges.  Lessee's obligation to pay such
taxes, fees, assessments, fines, penalties, and other charges shall survive
termination of the Lease.  Lessee agrees the Lessor may adjust the rent payment
proportionally up or down if the actual cost of the Equipment exceeds or is less
than the amount stated in the Lease.  All payments under this Lease shall be
made to Lessor at the address set forth above or at any other address Lessor
subsequently gives to Lessee for purposes of making payment.  In the event of
default, payments made under the Lease may be applied to Lessee's obligations to
Lessor in any order Lessor chooses.  If Lessee has paid advance rentals or any
other amounts prior to the Lease Start Date (collectively, the &quot;Subject
Payments&quot;), but fails for any reason not the fault of Lessor to approve the
applicable supply contract or fails, in any other way, to complete and proceed
with the transaction which is the subject of this Lease, then, in addition to
any other rights or remedies Lessor may have, Lessor may have, Lessor may retain
all of such Subject Payments, it being acknowledged by Lessee that the amount of
same reasonably approximates Lessor's costs and expenses in preparing for and
documenting this Lease transaction and is far less than Lessor's expected profit
form this Lease transaction.</FONT></TD>
</TR>
<TR><TD VALIGN="TOP" COLSPAN=20>
<B><FONT FACE="Arial Narrow" SIZE=1><LI>SELECTION OF EQUIPMENT</B>.  Lessee
acknowledges that Lessor did not participate in the selection, manufacture or
supply of the Equipment, that Lessee has made the selection of the Equipment and
the supplier of such Equipment based upon its own judgment, and that Lessor
acquired or will acquire the Equipment or the right to possession and use of the
Equipment in connection with this Lease.  Lessee agrees to inspect the Equipment
and to execute the &quot;Certificate of Acceptance&quot;, which is attached
hereto, only after the Lessee has had a reasonable opportunity to inspect the
Equipment and is satisfied that the Equipment is satisfactory in every respect.
Lessee hereby authorizes Lessor to insert in the Lease any equipment serial
numbers and other identification data relating to the Equipment needed.</LI>
<B><LI>DISCLAIMER OF WARRANTIES</B>.  <B>BY SIGNING BELOW, LESSEE ACKNOWLEDGES
THAT LESSOR IS LEASING THE EQUIPMENT TO LESSEE &quot;AS IS&quot; AND WITH ALL
FAULTS, LESSOR SHALL NOT BE RESPONSIBLE IF THE EQUIPMENT IS NOT PROPERLY
INSTALLED, DOES NOT OPERATE AS REPRESENTED OR GUARANTEED BY THE SUPPLIER, OR IS
UNSATISFACTORY FOR ANY REASON.  LESSOR MAKES NO REPRESENTATION AND DISCLAIMS ALL
WARRANTIES, EXPRESS OR IMPLIED, CONCERNING THE EQUIPMENT, INCLUDING, WITHOUT
LIMITATION, ANY WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE, MERCHANTABILITY,
ITS SIZE, DESIGN, CAPACITY, CONDITION, QUALITY, COMPLIANCE WITH ANY LAW, RULE,
SPECIFICATION OR CONTRACT, LATENT DEFECTS, ITS QUIET ENJOYMENT, OR WHETHER IT OR
ITS INSTALLATION WILL INFRINGE THE RIGHTS OF ANY PERSON.  LESSEE HEREBY WAIVES
ANY CLAIM (INCLUDING ANY CLAIM BASED ON STRICT OR ABSOLUTE LIABILITY IN TORT) IT
MIGHT HAVE AGAINST LESSOR FOR ANY LOSS, DAMAGE (INCLUDING INCIDENTAL OR
CONSEQUENTIAL DAMAGE) OR EXPENSE RESULTING FROM THE PURCHASE, LEASE, DELIVERY,
INSTALLATION, OPERATION, OR USE (OR FAILURE OR DELAY CONCERNING ANY OF THE
FOREGOING) OF ANY EQUIPMENT OR ANY PRODUCT MANUFACTURED BY OR WITH THE USE OF
THE EQUIPMENT.</B>  Provided Lessee is not in default of this Lease, Lessor
hereby assigns to Lessee and Lessee shall have the benefit of, any and all
manufacturer's warranties, service agreements and patent indemnities, if any,
with respect to the Equipment; provided, however, that Lessee's sole remedy for
breach of any such warranty, indemnification or service agreement shall be
against the manufacturer of such Equipment not against the Lessor, nor shall
such breach have any effect whatsoever on the rights and obligations of Lessor
or Lessee hereunder.  <B>LESSEE ACKNOWLEDGES THAT NEITHER THE SUPPLIER, BROKER
NOR THEIR AGENTS OR EMPLOYEES ARE AGENTS OF LESSOR NOR ARE THEY AUTHORIZED TO
WAIVE OR ALTER ANY TERM OR CONDITION OF THIS LEASE WITHOUT THE WRITTEN CONSENT
OF LESSOR.  NO AGREEMENT, EITHER WRITTEN OR VERBAL, BETWEEN SUPPLIER AND LESSEE
OR BROKER AND LESSEE SHALL BIND LESSOR UNLESS LESSOR SPECIFICALLY CONSENTS TO
SUCH AGREEMENT IN WRITING.</LI>
<LI>AMENDMENTS</B>.  No term or provision of this Lease may be amended, altered,
waived, discharged, rescinded or terminated except by a written instrument
signed by the parties hereto, and, in compliance with UCC 132A-208(2) requiring
a separate signature of this provision, Lessee has signed in the space provided
below.</LI>
<P ALIGN="CENTER">Lessor and Lessee have specifically negotiated and agreed to
the preceding paragraphs 4, 5 and 6 _______________________</P>
<P ALIGN="CENTER">&#9;&#9;&#9;&#9;&#9;&#9;&#9;Lessee's Initial</FONT></TD>
</TR>
<TR><TD WIDTH="48%" VALIGN="TOP" COLSPAN=9 BGCOLOR="#c0c0c0">
<B><FONT FACE="Arial Narrow" SIZE=2><P>ACCEPTED BY</B>:  </FONT><FONT
FACE="Arial Narrow" SIZE=1>AFFILIATED CORPORATE SERVICES, INC.
(LESSOR)</FONT></TD>
<TD WIDTH="52%" VALIGN="TOP" COLSPAN=11 BGCOLOR="#c0c0c0">
<FONT FACE="Arial Narrow" SIZE=1><P>This agreement shall not be effective until
executed by the Lessee and accepted by an authorized representative of Lessor at
its principal place of business.</FONT></TD>
</TR>
<TR><TD WIDTH="48%" VALIGN="TOP" COLSPAN=9 HEIGHT=96>
<FONT FACE="Arial Narrow" SIZE=1><P>BY: <U>&#9;</P>
</U><P>DATE: <U>&#9;</P>
</U><P>LEASE START DATE: <U>&#9;</U></FONT></TD>
<TD WIDTH="52%" VALIGN="TOP" COLSPAN=11 HEIGHT=96>
<FONT FACE="Arial Narrow" SIZE=1><P>LESSEE <U>Egghead.Com, Inc.&#9;&#9;&#9;</P>
</U><P>BY: <U>&#9;&#9;&#9;</P>
</U><P>&#9;TITLE&#9;DATE</P>
<P>BY: <U>&#9;&#9;&#9;</P>
</U><P>&#9;TITLE&#9;DATE</P>
<U><P>&#9;</P>
</U><P>WITNESS:</P>
<U><P>&#9;</P>
</U><P>PRINT NAME:</FONT></TD>
</TR>
</TABLE>
</CENTER></P>
<OL>
<B><FONT SIZE=1><LI>FINANCE LEASE STATUS</B>.  The parties agree that this Lease
is intended to qualify as a &quot;&quot;Finance Lease&quot; under Article 2A of
the Uniform Commercial Code (herein called the &quot;UCC&quot;).  Lessee
acknowledges that (a) Lessee has received a copy of the purchase order or
contract by which Lessor acquired or will acquire the Equipment (herein called
the &quot;Supply Contract&quot;); or (b) Lessee has reviewed and approved and
agreed to be bound by the Supply Contract; or (c) Lessor has informed or advised
Lessee in writing either previously or by this Lease (i) of the identity of the
supplier, (ii) that Lessee is entitled to the promises and warranties, including
those of any third party, provided to Lessor by the Supplier in connection with
or as part of the Supply Contract, and (iii) that the Lessee may contact the
supplier and receive an accurate statement of those promises and warranties,
including any disclaimers of them or of remedies.</LI>
<B><LI>LESSEE INDEMNIFICATION</B>.  Lessee hereby agrees to indemnify and hold
Lessor and Lessor's agents and employees, harmless from any and all liability,
damage, or loss, including attorney's fees and court costs, arising out of the
purchase, sale, ownership, selection, possession, operation, control, use,
maintenance, or delivery or the delivery of the Equipment, including without
limitation any of the foregoing related to claims based on tort or strict
liability or involving latent defects, whether or not discoverable by Lessee or
Lessor, and whether or not occurring during the term of this Lease, and any
patent, trademark and/or copyright infringement claims.</LI>
<B><LI>POWER OF ATTORNEY/FINANCING STATEMENTS</B>.  Lessee hereby makes,
constitutes and appoints Lessor and it assigns its true and lawful attorney and
agent for it and in its name, place and stead to execute, deliver and file any
UCC financing statements and other documents that Lessor deems necessary or
advisable in order to protect Lessor's rights in the Equipment.  This power
being coupled with an interest shall be irrevocable for the term of this Lease.
Lessor and Lessee agree that a carbon, photographic or other reproduction of
this Lease may be filed as a financing statement under the UCC.</LI>
<B><LI>LESSOR TERMINATION BEFORE EQUIPMENT ACCEPTANCE</B>.  If within 60 days
from the date Lessor orders the Equipment, same has not been delivered,
installed and accepted by Lessee (in form satisfactory to Lessor) Lessor may at
Lessor's sole discretion, on 10 days written notice to Lessee, terminate this
Lease and its obligation to Lessee.</LI>
<B><LI>LOCATION AND INSPECTION</B>.  Equipment shall be delivered and thereafter
kept at the location specified above, or, if none is specified, at Lessee's
address set forth above and Lessee shall not remove it or allow it to be removed
therefrom without Lessor's prior written consent.  Any and all costs incurred by
Lessor as a result of such relocation shall be borne by Lessee.  Any charges
hereunder shall not abate during the period the Equipment is out of service due
to any such relocation requested by Lessee.  Lessee shall permit Lessor on its
premises to inspect the Equipment and the business records of Lessee relating to
it during normal business hours.</LI>
<B><LI>USE OF EQUIPMENT</B>.  Lessee shall, at its expense, use, maintain and
keep the Equipment in good operating order in the manner for which it was
designed and intended, SOLELY FOR LESSEE'S BUSINESS PURPOSE, in accordance with
manufacturer's recommendations and in compliance with all applicable laws,
regulations and insurance requirements.  Lessee shall not make any alterations
or additions to the Equipment without the prior written consent of Lessor.  All
additions, attachments, or replacements made to the Equipment, unless otherwise
agreed to in writing by Lessor, shall become part of the Equipment.  Lessee, at
its expense, shall maintain the Equipment in good operating order and repair in
accordance with the manufacturer's recommendations.  Supplies required for use
of the Equipment are to be provided by Lessee at its expense and are to meet
with the Equipment manufacturer's specifications.</LI>
<B><LI>LESSEE REPRESENTATIONS</B>.  Lessee warrants and represents that (a) all
legal action has been taken to permit Lessee to execute and perform this Lease;
(b) its entering into and performance of this Lease will not violate any law or
regulation applicable to Lessee; (c) this Lease constitutes a legal, valid and
binding obligation, enforceable against Lessee in accordance with its terms; (d)
all financial or other statements furnished or made to Lessor or Lessee are true
and correct in all material respects; and (e) Lessee is in good standing in its
state of incorporation and is in good standing and is entitled to own properties
and to carry on a business in the state where the Equipment is to be located.
Lessee and any person signing this Lease for Lessee warrant that such signatory
is duly authorized and empowered by Lessee to do so.</LI>
<B><LI>INSURANCE</B>.  Lessee shall at all times prior to return of the
Equipment to Lessor carry and maintain, at its expense, insurance covering (a)
theft and all other risks of loss or damage from any cause whatsoever for an
amount not less than the replacement value of the Equipment or the unpaid amount
of this Lease, whichever amount is greater, and which names Lessor and its
assigns as an additional insured and loss payee; and (b) public liability, both
personal injury and property damage, covering the maintenance, use and operation
of the Equipment and which names Lessor and its assigns as additional insured
and loss payee.  All such insurance coverage shall be in form, amount, and with
companies satisfactory to Lessor.  Lessee shall deliver certificate of insurance
to Lessor.  All such insurance Shall require 30 days written notice to Lessor
and its assigns prior to alteration or cancellation.  Lessee hereby appoints
Lessor and its assigns as Lessee's attorney-in-fact with respect to endorsement
of all documents, checks, or drafts for loss or damage recoverable under all
such insurance policies.  Lessee agrees that if lessee shall fail to procure,
carry and maintain insurance coverage as set forth in this Lease, Lessor shall
have the right, but not the obligation, to obtain such insurance on behalf of
and at the expense of Lessee.  In the event Lessor does obtain such insurance,
Lessee agrees to pay all costs thereof with interest at the maximum lawful rate,
immediately upon demand.</LI>
<B><LI>RISK OF LOSS</B>.  At all times, Lessee shall bear the entire risk of
loss, damage, theft or destruction to the Equipment or any part thereof, from
any and every cause whatsoever, which shall occur prior to the Lessee's return
of the Equipment as set forth in this Lease and no such loss, damage, theft or
destruction shall relieve Lessee of its obligation to pay rent or to comply with
any other obligation under this Lease.  In the event of such loss, damage,
theft, or destruction, Lessee shall promptly notify Lessor, and Lessee shall
within 30 days repair or replace such Equipment to its original condition, and
shall continue to make all payments required by this Lease.</LI>
<B><LI>RETURN OF EQUIPMENT</B>.  Unless Lessee exercises any purchase or renewal
option specifically provided for in this Lease, upon expiration or earlier
termination of the Lease with respect to the Equipment, or upon demand by Lessor
pursuant to this Lease upon an event of default, Lessee shall immediately, at
its expense, return the Equipment in the same condition as when Lessee received
it, excepting only reasonable wear and tear, to Lessor at any location in the
continental United States specified by Lessor.  Lessee shall pay all costs and
expenses to crate, insure and return the Equipment to the designated location
and Lessee shall pay all then outstanding tax assessments and future tax
liabilities resulting from Lessee's possession of the Equipment prior to its
return to Lessor. After the expiration of the initial Lease term and thereafter
until Lessor actually receives the Equipment at the return location, the Lease
shall automatically renew from month to month, and Lessee agrees to continue to
make all rent and other Lease payments at the last effective rate under the
Lease with the Lessor retaining all payments made up to the time the Equipment
is returned to the specified return location.</LI>
<B><LI>DEFAULT</B>.  The following events shall constitute an event of default
by Lessee under this Lease:  (a) failing to pay when due any amount required to
be paid to Lessor under this Lease in a timely fashion or to timely perform any
covenant, condition, or obligation to be performed by Lessee under this Lease or
under any other agreement with Lessor; (b) selling, transferring, or disposing
of the Equipment or of substantially all of the Lessee's assets or merging or
reorganizing without prior written consent of Lessor; or (c) creating,
incurring, assuming or suffering to exist any mortgage, lien, pledge or other
encumbrance or attachment of any kind whatsoever upon, affecting or with respect
to the Equipment or this Lease or any of the Lessor's interest thereunder; or
(d) providing financial statements or making representations to Lessor which are
incorrect or misleading or inaccurate in any respect; or (e) becoming unable to
pay debts as they become due or otherwise becoming insolvent or suffering an
adverse change in its financial condition; or (f) Lessor reasonably deems itself
insecure in its expectations that Lessee will fully perform all of Lessee's
obligations under this Lease.  If multiple leases exists between Lessor and
Lessee and Lessee defaults on any one or more lease agreements, Lessor has the
option to declare all lease agreements between Lessor and Lessee in
default.</LI>
<B><LI>REMEDIES OF LESSOR</B>.  Upon the occurrence of default by Lessee
hereunder and at any time thereafter (subject to any applicable grace
provisions), Lessor may exercise any one or more of the following remedies
without notice to or demand on Lessee, as Lessor in its sole discretion shall
elect: (a) declare all unpaid rentals under this Lease to be immediately due and
payable, the amount to be due to be computed as hereinafter set forth; (b)
terminate this Lease as to any or all items of Equipment, but no such
termination shall be deemed to occur unless written notice to that express
effect is given by Lessor to Lessee; (c) whether or not this Lease is
terminated, take immediate possession of any or all of the Equipment, without
notice or demand and without court order or process, and for such purpose, enter
upon any premises without liability for so doing; (d) sell, lease or otherwise
dispose of the Equipment, or any item thereof, at a public or private sale or
lease at such time or times and upon such terms as Lessor may determine, free
and clear of any rights of Lessee; (e) proceed by appropriate action either at
law or in equity to enforce performance by Lessee of the applicable covenants of
this Lease or recover damages for the breach thereof; and (f) exercise any and
all rights accruing to a Lessor of personal property under any applicable law
upon a default by Lessee.  In furtherance of the foregoing, Lessor shall be
entitled to recover immediately as liquidated damages and not as a penalty, a
sum equal to the aggregate of the following: (i) all unpaid rentals and other
amounts or other sums which are due and payable for any item of Equipment up to
the date delivered to or repossessed by Lessor; (ii) any expenses paid or
incurred by Lessor in connection with the repossession, holding, repair,
appraisal, transportation and subsequent sale, lease or other disposition of the
Equipment, including attorneys' fees and court costs; and (iii) an amount equal
to the difference between (aa) all unpaid rentals and other amounts, due and to
become due under this Lease, each of which unpaid rentals and other amounts
shall be discounted to present value at an annual rate of 7% (collectively,
&quot;Unpaid Rentals&quot;), together with the amount or percentage of original
cost for which Lessee would have been permitted to purchase the Equipment at the
end of the Lease term hereof, which amount shall be discounted to present value
at an annual rate of 7% (&quot;Purchase Amount&quot;) and (bb) the then fair
market value of any Equipment returned to or repossessed by Lessor (&quot;Return
Value&quot;) as established by Lessor in any manner; provided, however, that in
Lessor's sole discretion the Return Value of each such item of Equipment shall
be deemed to be (i) an amount equal to the proceeds, if any, of any sale or
lease thereof by Lessor, less any costs or expenses incurred by Lessor from such
sale or lease or (ii) zero, if Lessor is unable, after the exercise of
reasonable efforts to sell or lease any such item of Equipment.  If the Return
value of the Equipment exceeds the sum of the Unpaid Rentals plus the Purchase
Amount, Lessor shall be entitled to the excess.  No right or remedy conferred
upon or reserved to Lessor by this Lease shall be exclusive of any other right
or remedy  herein or by law provided; all rights and remedies of Lessor
conferred on Lessor by this Lease or by law shall be cumulative and in addition
to every other right and remedy available to Lessor.  Lessee shall pay all costs
and reasonable attorney's fees incurred by Lessor in collecting any sums owed
under this Lease or in obtaining possession of leased Equipment, including
attorney's fees incurred in seeking relief from stay in bankruptcy court
together with interest at the rate of the lesser of 18% compounded annually, or
the maximum amount permitted by law on each of the foregoing and on all sums not
paid when due under any provision of this Lease.</LI>
<B><LI>LESSEE'S WAIVERS</B>.  To the extent permitted by applicable law, Lessee
hereby waives any and all rights and remedies conferred upon a Lessee by 2A-508
through 2A-522 of the UCC, including without limitation, Lessee's rights to: (a)
cancel this Lease; (b) repudiate this Lease; (c) reject the Equipment; (d)
revoke acceptance of the Equipment; (e) recover damages from Lessor; (f) a
security interest in the Equipment in Lessee's possession or control for any
reason; (g) deduct all or any part of claimed damages resulting from Lessor's
default, if any, under this Lease; (h) recover damages from Lessor for any
breaches of warranty or for any other reason; (i) accept partial delivery of the
Equipment; (j) &quot;cover&quot;; (k) recover any general, special, incidental
or consequential damages for any reason whatsoever; and (l) specific
performance, replevin, detinue, sequestration, claim and delivery or the like
for the Equipment.</LI>
<B><LI>ASSIGNMENT BY LESSOR</B>.  <B>LESSOR MAY ASSIGN OR TRANSFER THIS LEASE OR
LESSOR'S INTEREST IN THE EQUIPMENT WITHOUT NOTICE TO LESSEE</B>.  Any assignee
of Lessor shall have all of the rights, but none of the obligations, of Lessor
under the Lease and Lessee agrees that it will not assert against any assignee
of Lessor any defense, counterclaim or offset that Lessee may have against
Lessor.  Lessee acknowledges that any assignment or transfer by Lessor shall not
materially change Lessee's duties or obligations under this Lease nor materially
increase the burdens or risk imposed on Lessee.  Lessee agrees that Lessor may
assign or transfer this Lease or Lessor's interest in the Equipment even if said
assignment or transfer could be deemed to materially effect the interests of
Lessee.</LI>
<B><LI>NO LESSEE ASSIGNMENT OR SUBLEASE</B>.  LESSEE SHALL NOT ASSIGN,
HYPOTHECATE OR IN ANY WAY DISPOSE OF ALL OR ANY PART OF ITS RIGHTS OR
OBLIGATIONS UNDER THIS LEASE OR ENTER INTO ANY SUBLEASE OF ALL OR ANY PART OF
THE EQUIPMENT WITHOUT THE PRIOR WRITTEN CONSENT OF LESSOR</LI>
<B><LI>CONSENT TO JURISDICTION; VENUE; ARBITRATION</B>.  THIS LEASE CALLS FOR
PERFORMANCE BY LESSEE AT THE LOCATION OF LESSOR OR LESSOR'S ASSIGNEE.  AS PART
OF THE CONSIDERATION FOR LESSOR'S EXECUTING THIS LEASE, LESSEE AGREES THAT,
WITHOUT LIMITING THE RIGHT OF LESSOR OR LESSOR'S ASSIGNEE TO LITIGATE ANY
JUDICIAL ACTION OR PROCEEDING AGAINST LESSEE IN COURTS LOCATED IN OTHER STATES,
ALL JUDICIAL ACTIONS AND PROCEEDINGS ARISING DIRECTLY OR INDIRECTLY FROM THIS
LEASE SHALL (AT THE SOLE  DISCRETION OF LESSOR OR LESSOR'S ASSIGNEE) ONLY BE
LITIGATED IN COURTS IN THE STATE AND THE JURISDICTION WHERE LESSOR IS LOCATED,
OR IF THIS LEASE HAS BEEN ASSIGNED, WHERE LESSOR'S ASSIGNEE IS LOCATED.  LESSEE
HEREBY CONSENTS TO THE JURISDICTION OF ANY LOCAL, STATE OR FEDERAL COURT IN ANY
OF SUCH STATES.  LESSEE FURTHER WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS
UPON LESSEE, AND CONSENTS THAT SERVICE MAY BE MADE BY CERTIFIED MAIL DIRECTED TO
THE LESSEE AT THE ADDRESS SHOWN IN THIS LEASE, AND THAT SERVICE SHALL BE
EFFECTIVE TWO (2) DAYS AFTER MAILING.  LESSOR AND LESSEE ACKNOWLEDGE THE DELAY,
EXPENSE AND UNCERTAINTY ASSOCIATED WITH A JURY TRIAL INVOLVING A COMMERCIAL
LEASE OF THIS NATURE, AND, IN RECOGNITION OF THESE INHERENT PROBLEMS, HEREBY
WAIVE THEIR RIGHTS TO A JURY TRIAL AND AGREE THAT ANY LITIGATION REGARDING THIS
LEASE WILL BE TRIED WITHOUT A JURY.</LI>
<P>All of the foregoing provisions of this Paragraph 22 notwithstanding, at the
sole discretion of Lessor or Lessor's assignee, Lessee agrees that Lessor and
Lessor's assignee may elect to resolve any claim or controversy arising directly
or indirectly from this Lease by arbitration with the American Arbitration
Association, in the state and jurisdiction where Lessor or Lessor's assignee is
located, or where Lessee is located, in accordance with the Commercial
Arbitration Rules (and Procedures For Large Cases), and judgment upon the award
rendered by the arbitrator may be entered in any court of competent
jurisdiction.  In the event Lessor or Lessor's assignee so elects to resolve any
such claim or controversy by arbitration, Lessee agrees to submit in full to
such arbitration proceeding and be bound by its rulings.</P>
<B><LI>OWNERSHIP/PERSONALTY</B>.  The Equipment is, and shall remain, the
property of Lessor, and Lessee shall have no right, title or interest therein or
thereto except as expressly set forth in this Lease.  The Equipment shall remain
personal property regardless of whether affixed to real property, and Lessee
agrees to execute and obtain the execution of all agreements and documents in
recordable form by all parties having an interest in real property  to which the
Equipment may be affixed, as Lessor may request, to protect Lessor's title to
the Equipment.</LI>
<B><LI>SECURITY DEPOSIT</B>. Lessor shall retain the security deposit (if any)
specified as security for performance by Lessee of its obligations under this
Lease.  The security deposit shall be non-interest bearing, and if Lessee shall
default in the performance of its obligations hereunder, Lessor, may at its sole
option, apply the security deposit to such default (regardless of whether or not
such application cures such default).  This application by Lessor shall not be a
defense to any action by Lessee arising out of the default, and upon demand,
Lessee shall restore the security deposit to its full amount.  If Lessee is not
in default of this Lease, the security deposit will be returned to Lessee at the
termination of the Lease, provided Lessee, at its sole expense and cost, shall
have returned the Equipment by delivering it in the same condition as when
delivered to Lessee, reasonable wear and tear excepted, at such place or on
board carrier, packed for shipping, as Lessor may specify.</LI>
<B><LI>MISCELLANEOUS</B>.  (a) Lessor has entered into this Lease in reliance
upon Lessee's representations that this Lease is for commercial, or business
purposes and not for personal, family or household purposes of Lessee; (b) any
action by Lessee against Lessor for any default by Lessor under this Lease shall
be commenced within one (1) year after any such cause of action accrues; (c) if
for any reason this transactions is deemed not to be a Lease, Lessee hereby
grants Lessor a security interest in the Equipment; (d) all notices, consents,
instructions or requests desired or required to be given under this Lease shall
be in writing and shall become effective when delivered, or if mailed, when
deposited in the U.S. mail postage prepaid for certified or registered mail,
return receipt requested, at the address set forth in this Lease or at such
other address as such part shall from time to time designate by proper notice;
(e) no failure on the part of Lessor to exercise, and no delay in exercising,
any right or remedy under this Lease shall operate as a wavier or modify the
terms of this Lease, nor shall any single or partial exercise by Lessor of any
right or remedy preclude any other or further exercise of the same or any other
right or remedy; (f) Lessee shall promptly provide such further documents and
financial reports as Lessor may reasonably require in its normal course of
business including copies of annual financial reports, Securities Exchange
Commission reports, quarterly reports and any other information as Lessor may
reasonably require (g) no provision of this Lease which may be deemed
unenforceable shall in any way invalidate any other provision of this Lease; (h)
if any of the provisions of this Lease or documentation related thereto is
declared to be invalid or unenforceable, such provision shall be severed from
this Lease and the remaining provisions thereof shall remain in full force and
effect; (i) the original of this Lease may be microfilmed or electronically
duplicated and a photostatic copy of such microfilm or electronic duplication
may be used in all judicial and arbitration proceedings in lieu of the original
and without further foundation; (j) this Lease and all documentation executed in
connection therewith represents the entire agreement between the parties hereto
and automatically cancels and supercedes any and all prior verbal or written
understandings with respect thereto.  The Lessor may in its sole discretion
accelerate the full payment of this Lease upon the death of a natural Lessee or
Guarantor.</LI></OL>

</FONT><P ALIGN="CENTER">THIS IS A NON-CANCELLABLE LEASE</P>
<P ALIGN="RIGHT">____________________</P>
<P ALIGN="RIGHT">LESSEE'S INITIALS</P>

<br>
<br>
<br>
<HR WIDTH="85%">
<br>
<br>
<br>

<FONT SIZE=1>
</FONT><FONT SIZE=2><P>&nbsp;</P></FONT>
<TABLE CELLSPACING=0 BORDER=0 CELLPADDING=7 WIDTH=704>
<TR><TD WIDTH="21%" VALIGN="TOP">
<FONT FACE="Bookman Old Style" SIZE=7><P>ACSi</FONT></TD>
<TD WIDTH="43%" VALIGN="TOP">
<U><FONT FACE="Arial Narrow" SIZE=3><P
ALIGN="RIGHT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;AFFILIATED CORPORATE SERVICES, INC.</P>
</U></FONT><FONT FACE="Arial Narrow" SIZE=2><P ALIGN="RIGHT">1550 Waters Ridge
Drive   Lewisville, Texas 75057</P>
<P ALIGN="RIGHT">(972) 221-7335   Fax (972) 221-7336</P>
<P ALIGN="RIGHT">www.acsitx.com</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP">
<FONT FACE="Arial Narrow" SIZE=2><P ALIGN="RIGHT">(LESSOR)</FONT></TD>
<TD WIDTH="27%" VALIGN="BOTTOM">
<U><FONT FACE="Arial Narrow" SIZE=2><P
ALIGN="RIGHT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;D-03456</U><BR>
LEASE NUMBER</FONT></TD>
</TR>
</TABLE>

<FONT FACE="Bookman Old Style" SIZE=7><P>&#9;</P>
</FONT><FONT FACE="Arial Narrow" SIZE=2></FONT>
<TABLE BORDER CELLSPACING=1 CELLPADDING=7 WIDTH=734>
<TR><TD VALIGN="TOP" BGCOLOR="#000000">
<FONT FACE="Arial Narrow"><P ALIGN="CENTER">CERTIFICATE OF
ACCEPTANCE</FONT></TD>
</TR>
<TR><TD VALIGN="TOP">
<FONT FACE="Arial Narrow" SIZE=2><P>The undersigned hereby acknowledges receipt,
in good condition, of the Equipment described in the Business Equipment Lease or
on any schedule (the &quot;Equipment&quot;), after having had a reasonable
opportunity to inspect the Equipment, and unconditionally accepts the Equipment
in accordance with all of the terms and conditions of that certain Business
Equipment Lease (&quot;Lease&quot;) dated ____________________________.</P>
<P>The Undersigned Lessee has selected, and requested that Lessor purchase the
Equipment under the Lease from one or more Supplier(s)/Vendor(s).  If the
Equipment is not properly installed, does not operate as represented or
warranted by said Supplier(s)/Vendor(s), or is unsatisfactory for any reason,
Lessee shall make any claim on account thereof solely against said
Supplier(s)/Vendor(s) and shall nevertheless pay Lessor all rentals payable
under the above-referenced Lease, and shall not set up against Lessee's
obligations any such claims as Defense, counter-claim, set-off, or
otherwise.</P>
<P>Lessee represents and warrants that none of the Equipment was delivered prior
to the date the undersigned executed the Lease unless Lessor shall have
previously consented thereto, in writing.  Lessee understands that Lessor is
relying upon this certificate as a condition for making payment for the cost of
the Equipment to the Supplier(s)/Vendor(s).  Lessee is hereby notified that
Lessee may have rights under the contract for purchase between the
Supplier(s)/Vendors and Lessor.  Lessee should contact the Supplier(s)/Vendor(s)
for a complete description of any such rights.</P>
<P>LESSEE AGREES THAT THE EQUIPMENT IS LEASED &quot;AS IS&quot; AND THAT LESSOR
HAS MADE NO REPRESENTATION OR WARRANTY WITH RESPECT TO THE SUITABILITY OR
DURABILITY OF THE EQUIPMENT FOR THE PURPOSES AND USES OF LESSEE, OR ANY OTHER
REPRESENTATION OR WARRANTY, EXPRESS, OR IMPLIED, WITH RESPECT THERETO, INCLUDING
THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR
PURPOSE.</P>
<B><P>DO NOT SIGN THIS ACCEPTANCE UNTIL YOU HAVE ACTUALLY RECEIVED ALL THE
EQUIPMENT SET FORTH IN THE ABOVE-REFERENCED LEASE.</P>
<P>I HEREBY AUTHORIZE, ___________________________________________________,</B>
<U>&#9;</P>
</U></FONT><B><FONT FACE="Arial Narrow" SIZE=1><P>&#9;TITLE</P>
</FONT><FONT FACE="Arial Narrow" SIZE=1><P>TO ORALLY VERIFY MY/OUR ACCEPTANCE OF
THE ABOVE REFERENCED EQUIPMENT IN MY ABSENCE.</B> <U>&#9;</P>
</U></FONT><B><FONT FACE="Arial Narrow" SIZE=1><P>&#9;LESSEE INITIALS</P>
</FONT><FONT FACE="Arial Narrow" SIZE=2><P>LESSEE:
</B><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&
nbsp;&nbsp;&nbsp;Egghead.Com, Inc.&#9;</U>&#9;<B>DATE OF ACCEPTANCE:</B>
<U>&#9;</P>
</U><B><P>BY</B> <U>&#9;</U>&#9;<B>TITLE</B> <U>&#9;</P>
</U></FONT></TD>
</TR>
</TABLE>

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<FONT SIZE=2><P>&nbsp;</P>
</FONT><FONT FACE="Garamond" SIZE=3><P ALIGN="CENTER">PAYMENT ADDENDUM</P>
<P ALIGN="CENTER"></P>
<P ALIGN="CENTER">LEASE # <U>D-03456</P>
</U><P ALIGN="CENTER"></P>
<P ALIGN="CENTER">BETWEEN <U>Egghead.Com, Inc </U>(LESSEE)</P>
<P ALIGN="CENTER"></P>
<P ALIGN="CENTER">AND <U>AFFILIATED CORPORATE SERVICES, INC. </U>(LESSOR)</P>

<P>The parties have entered into the above referenced Lease for the Lessee,
equipment, and  terms more fully described in said Agreement. The Payment
Schedule for said Lease is set forth below:</P>

<P>The terms of payment shall be:</P>
<DIR>
<DIR>
<DIR>

<P>Eighteen (18) Monthly Payments as follows:</P>

<P>First payment: $66,000.00 plus applicable taxes</P>
<P>Second payment: $132,750.00 plus applicable taxes</P>
<P>Remaining Sixteen (15) monthly payments: $66,000.00 plus applicable taxes</P>
</FONT><FONT FACE="Times New Roman Condensed,Times New Roman" SIZE=5>
</FONT><FONT FACE="Garamond" SIZE=3><P>One (1) <U>$600,000.00 </U>Irrevocable
Standby Letter of Credit with Automatic</P>
<P>Renewal per the Attached Exhibit "B"</P>
</DIR>
</DIR>
</DIR>

<P>By signing the Addendum, Lessee acknowledges the above changes to the Lease
Agreement and authorizes Lessor to make such changes.</P>


<P>&nbsp;
<TABLE COLS=2 WIDTH="100%" >
<TR>
<TD>
<FONT FACE="Garamond" SIZE=2>
LESSOR:<br>
Affiliated Corporate Services, Inc.<br>
<HR ALIGN="LEFT" WIDTH="31%" SIZE=1>
SIGNATURE<br>
<HR ALIGN="LEFT" WIDTH="31%" SIZE=1>
TITLE<br>
<HR ALIGN="LEFT" WIDTH="31%" SIZE=1>
DATE<br>
</font>
</TD>
<TD>
<FONT FACE="Tahoma" SIZE=2>
LESSEE:<br>
Egghead.Com, Inc.<br>
<HR ALIGN="LEFT" WIDTH="31%" SIZE=1>
SIGNATURE<br>
<HR ALIGN="LEFT" WIDTH="31%" SIZE=1>
TITLE<br>
<HR ALIGN="LEFT" WIDTH="31%" SIZE=1>
DATE<br>
</font>
</TD>
</TR>
</TABLE>


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</FONT><FONT FACE="Tahoma" SIZE=4><P ALIGN="CENTER">COMPUTER SOFTWARE
ADDENDUM</P>

</FONT><FONT FACE="Tahoma" SIZE=3><P>This addendum, is incorporated into and
made a part of this Lease Number <B><U>D-03456 </B></U>by and between Affiliated
Corporate Services, Inc.("Lessor") and <U>Egghead.Com, Inc.</U> ("Lessee")
Capitalized terms used but not defined herein shall have the same meaning given
to them in the Lease.</P>

<P>In order to accommodate the inclusion of certain computer software
("Software") in the lease financing to be provided under the Lease, the parties
hereto agree as follows:</P>
<DIR>
<DIR>

<P>1.&#9;Lessee acknowledges and agrees that Lessor does not have title to the
software but is only providing lease financing for the same.</P>

<P>2.&#9;Lessee has entered into a Software License Agreement ("Agreement") with
the Software's Licensor, ("Licensor") pursuant to which the Licensor has
licensed to Lessee the right to use the software program defined therein.</P>

<P>3.&#9;Lessee acknowledges that lessor makes no warranties, expressed or
implied, including warranties of merchantability or fitness for a particular
purpose or with respect to patent, copyright infringement, title, or the
like.</P>

<P>4.&#9;Lessee agrees that lessor shall not be requires to perform any of the
licensor's obligations under the agreement and that the lessee will look solely
to the licensor for performance of such obligations.</P>

<P>5.&#9;Lessee shall indemnify, hold harmless, and if Lessor requests, defend
Lessor against all claims directly or indirectly arising out of or connected
with the software, the Agreement or any related document or instrument. "Claims"
means all losses liabilities, damages, penalties, expenses (including legal fees
and costs); claims actions and suits, whether in contract or in tort whether
caused by Lessor's negligence or otherwise and whether based on a theory of
strict liability or otherwise, including but not limited to, matters regarding;
(a) the selection, manufacturer, purchase, acceptance, rejection, ownership,
possession, use or condition of the software (b) any latent defects or other
defects in the Software, whether or not discoverable by Lessor; or (c) patent,
trademark or copyright infringements.</P>

<P>6.&#9;Lessee's obligation, to make lease payments and pay lessor all other
amounts owed under the lease, shall remain and continue in full force and in
accordance with the terms and conditions of the lease and in no way shall be
diminished on account of the agreement.</P>
</DIR>
</DIR>

<P>This Addendum supplements and amends the Lease only to the extent and in the
manner set forth, and in all other respects the Lease shall remain in full force
and effect.</P>

<P>IN WITNESS WHEREOF: the parties hereto have caused this Addendum to be
executed
by their duly authorized officers this _______ day of___________________,2001</U>.</P>

<P>&nbsp;
<TABLE COLS=2 WIDTH="100%" >
<TR>
<TD>
<FONT FACE="Tahoma" SIZE=2>
<U>Egghead.Com, Inc.</U><br>
<br>
By:__________________________________<br>
Title:__________________________________<br>
</font>
</TD>
<TD>
<FONT FACE="Tahoma" SIZE=2>
<U>Affiliated Corporate Services, Inc.</U><br>
<br>
By:__________________________________<br>
Title:__________________________________<br>
</font>
</TD>
</TR>
</TABLE>


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</FONT><FONT FACE="Bookman Old Style" SIZE=7><P>ACSi&#9;</FONT><FONT FACE="Arial
Narrow" SIZE=4>AFFILIATED CORPORATE SERVICES, INC.</P>
</FONT><FONT FACE="Arial Narrow" SIZE=2><P ALIGN="RIGHT">1550 Waters Ridge Drive
  Lewisville, TX 75057   972/221-7335   FAX 972/221-7336</P>
<P>&#9;&#9;Web Site: www.acsitx.com   E-mail Address: acsi@acsitx.com</P>
</FONT><FONT FACE="Arial Narrow" SIZE=3>
</FONT><FONT FACE="Garamond" SIZE=2><P ALIGN="CENTER">Purchase Option Rider</P>

<P>Purchase Option Rider to Lease Number <U>D-03456</U> dated _______________,
<U>2001</U> (the "Lease") between the undersigned parties.</P>

<P>So long as no Event of Default has occurred and is continuing under the Lease
and upon not less than 90 days' prior written notice, Lessee shall have the
option, upon expiration of the Lease Term if the above-referenced Lease (the
"Initial Term"), to purchase all, but not less than all, of Lessor's right,
title and interest in and to the Equipment for a purchase price equal to (a) the
greater of (I) the Fair Market Value of the Equipment (hereinafter defined) as
of the end of the Initial Term, or (ii) <U>$1,000,000.00</U> plus (b) any sales,
use, property or excise taxes on or measured by such sale and any other expenses
of transfer (all of the foregoing being collectively referred to herein as the
"Purchase Price") , or (iii) re-negotiate an additional eighteen, (18) month
term acceptable to all parties.</P>

<P>The Fair Market Value of the Equipment shall be determined by agreement of
Lessor and Lessee or, if the parties cannot agree on the Fair Market Value, by
an appraiser selected by Lessee whose appraisal shall be at Lessee's expense and
furnished not later that 30 days prior to the expiration of the Initial Term and
shall be binding on the parties.</P>

<P>All capitalized terms not defined herein shall have meanings set forth in the
Lease.</P>

<P>Dated:_________________,2001.</P>


<P>&nbsp;
<TABLE COLS=2 WIDTH="100%" >
<TR>
<TD>
<FONT FACE="Tahoma" SIZE=2>
AFFILIATED CORPORATE SERVICES, INC<br>
<br>
By:__________________________________<br>
Title:__________________________________<br>
</font>
</TD>
<TD>
<FONT FACE="Tahoma" SIZE=2>
LESSEE: Egghead.Com, Inc.<br>
<br>
By:__________________________________<br>
Title:__________________________________<br>
</font>
</TD>
</TR>
</TABLE>


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</FONT><B><FONT FACE="Arial"><P ALIGN="CENTER">EXHIBIT "B"</P>
</B><P ALIGN="CENTER">LETTER OF CREDIT INFORMATION</P>

<p align="right"> DATE OF ISSUE:</P>


<P>BENEFICIARY:<br>
Affiliated Corporate Services, Inc.<br>
1550 Waters Ridge Drive<br>
Lewisville, Texas 75057-6011</P>

<P>&nbsp;</P>
<P>Amount: $600,000.00</P>

<P ALIGN="JUSTIFY">WE HEREBY ISSUE THIS IRREVOCABLE STANDBY LETTER OF CREDIT IN
YOUR FAVOR WHICH IS AVAILABLE AT SIGHT BY DRAFTS DRAWN ON _________________ BANK
PRIOR TO THE EXPIRATION DATE OF __________________ BEARING THE CLAUSE DRAWN
UNDER IRREVOCABLE STANDBY LETTER OF CREDIT NO:____ ON BEHALF OF _______________
AND ACCOMPANIED BY THE FOLLOWING DOCUMENTS:</P>

<P ALIGN="JUSTIFY">A STATEMENT PURPORTEDLY SIGNED BY AN AUTHORIZED
REPRESENTATIVE OF AFFILIATED CORPORATE SERVICES, INC OR ITS ASSIGNS STATING AS
FOLLOWS:</P>
<DIR>
<DIR>

</FONT><I><FONT FACE="Tahoma"><P ALIGN="JUSTIFY">"The Beneficiary, Affiliated
Corporate Services, Inc. and/or its assigns requires payment of $__________
under this Standyby Letter of Credit dated _________________, 2001.</P>
</I></DIR>
</DIR>

</FONT><FONT FACE="Arial"><P ALIGN="JUSTIFY">IT IS A CONDITION OF THIS LETTER OF
CREDIT THAT IT IS CONSIDERED BY US AS AUTOMATICALLY EXTENDED FOR PERIODS OF ONE
(1) YEAR EACH FROM THE THEN RELEVANT EXPIRATION DATE WITHOUT AMENDMENT UNLESS WE
NOTIFY YOU OR YOUR ASSIGNS BY REGISTERED AIRMAIL AT LEAST THIRTY (30) DAYS PRIOR
TO THE THEN RELEVANT EXPIRATION DATE, THAT WE ELECT NOT TO EXTEND THIS LETTER OF
CREDIT FOR ANY ADDITIONAL PERIOD.</P>

<P ALIGN="JUSTIFY">THIS CREDIT IS TRANSFERABLE AND ASSIGNABLE. SHOULD THIS
CREDIT BE TRANSFERRED OR ASSIGNED WE ARE TO BE NOTIFIED BY REGISTERED MAIL OF
ASSIGNEE AND THEIR ADDRESS.</P>

<P ALIGN="JUSTIFY">WE HEREBY ENGAGE WITH YOU THAT DRAFTS DRAWN IN CONFORMITY
WITH THE TERMS OF THIS CREDIT WILL BE DULLY HONORED ON PRESENTATION TO US ON OR
BEFORE EXPIRY DATE, SUBJECT TO UCP 400. REV. 1983</P></FONT>



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