<SUBMISSION>
<ACCESSION-NUMBER>0000950123-04-005518
<TYPE>10-K/A
<PUBLIC-DOCUMENT-COUNT>8
<PERIOD>20031231
<FILING-DATE>20040430
<FILER>
<COMPANY-DATA>
<CONFORMED-NAME>BARNESANDNOBLE COM INC
<CIK>0001069665
<ASSIGNED-SIC>5735
<IRS-NUMBER>134048787
<STATE-OF-INCORPORATION>DE
<FISCAL-YEAR-END>0131
</COMPANY-DATA>
<FILING-VALUES>
<FORM-TYPE>10-K/A
<ACT>34
<FILE-NUMBER>000-26063
<FILM-NUMBER>04770634
</FILING-VALUES>
<BUSINESS-ADDRESS>
<STREET1>76 NINTH AVE
<STREET2>11TH FL
<CITY>NEW YORK
<STATE>NY
<ZIP>10011
<PHONE>2124146000
</BUSINESS-ADDRESS>
<MAIL-ADDRESS>
<STREET1>76 NINTH AVE
<STREET2>11TH FL
<CITY>NEW YORK
<STATE>NY
<ZIP>10011
</MAIL-ADDRESS>
</FILER>
<DOCUMENT>
<TYPE>10-K/A
<SEQUENCE>1
<FILENAME>y96865e10vkza.htm
<DESCRIPTION>BARNESANDNOBLE.COM INC.: AMENDMENT #2 TO 10-K
<TEXT>
<HTML>
<HEAD>
<TITLE>BARNESANDNOBLE.COM INC.: AMENDMENT #2 TO 10-K</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="center" style="font-size: 14pt"><B>UNITED STATES SECURITIES AND EXCHANGE COMMISSION</B>

<DIV align="center" style="font-size: 12pt"><B>Washington, D.C. 20549</B>
</DIV>

<P align="center" style="font-size: 18pt"><B>Form&nbsp;10-K/A</B>


<P align="center" style="font-size: 10pt"><B>AMENDMENT NO. 2</B>



<P align="center" style="font-size: 12pt"><B>FOR ANNUAL AND TRANSITION REPORTS<BR>
PURSUANT TO SECTIONS 13 OR 15(d) OF THE</B>



<P align="center" style="font-size: 12pt"><B>SECURITIES EXCHANGE ACT OF 1934</B>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="15%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="66%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top" align="center" nowrap><DIV style="margin-left:0px; text-indent:-0px">(Mark One)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 12pt">
    <TD valign="top" align="center"><DIV style="margin-left:0px; text-indent:-0px"><FONT face="Wingdings">&#254;</FONT>
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><B>ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)<BR>
OF THE SECURITIES EXCHANGE ACT OF 1934<BR><FONT size="2">
For the fiscal year ended December&nbsp;31, 2003</FONT></B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><B>or</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 12pt">
    <TD valign="top" align="center"><DIV style="margin-left:0px; text-indent:-0px"><FONT face="Wingdings">&#111;</FONT>
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><B>TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)<BR>
OF THE SECURITIES EXCHANGE ACT OF 1934<BR><FONT size="2">
For the transition period from&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; to</FONT></B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt"><B>Commission File Number: 0-26063</B>


<P align="center" style="font-size: 24pt"><B>barnesandnoble.com inc.</B>

<DIV align="center" style="font-size: 10pt"><I>(Exact Name of Registrant as Specified in Its Charter)</I></DIV>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="65%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="47%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="47%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD align="center" valign="top"><B>Delaware</B><BR>
<I>(State or Other Jurisdiction of<BR>
Incorporation or Organization)</I>
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><B>13-4048787</B><BR>
<I>(I.R.S. Employer<BR>
Identification No.)</I></TD>
</TR>

<TR valign="bottom">
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD align="center" valign="top"><B>76 Ninth Avenue,<BR>
New York, NY</B><BR>
<I>(Address of Principal Executive Offices)</I>
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><B>10011</B><BR>
<I>(Zip Code)</I></TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt"><B>(212)&nbsp;414-6000</B><BR>
<I>(Registrant&#146;s Telephone Number, Including Area Code)</I>



<P align="center" style="font-size: 10pt"><B>Securities registered pursuant to Section&nbsp;12(b) of the Act:<BR>
NONE</B>



<P align="center" style="font-size: 10pt"><B>Securities registered pursuant to Section&nbsp;12(g) of the Act:</B>



<P align="center" style="font-size: 10pt"><B>Class&nbsp;A Common Stock, $.001 par value per share</B>



<P align="left" style="font-size: 10pt">
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Indicate by check mark whether the registrant: (1)&nbsp;has filed all reports
required to be filed by Section&nbsp;13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12&nbsp;months (or for such shorter period that the
registrant was required to file such reports), and (2)&nbsp;has been subject to such
filing requirements for the past 90&nbsp;days. Yes&nbsp;<FONT face="Wingdings">&#254;</FONT>&nbsp;&nbsp;&nbsp;No<FONT face="Wingdings">&#111;</FONT>



<P align="left" style="font-size: 10pt">
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation&nbsp;S-K is not contained herein, and will not be contained, to
the best of the registrant&#146;s knowledge, in definitive proxy or information
statements incorporated by reference in Part&nbsp;III of this Form 10-K or any
amendment to this Form 10-K&nbsp;&nbsp;&nbsp;<FONT face="Wingdings">&#254;</FONT>


<P align="left" style="font-size: 10pt">
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule&nbsp;12b-2). Yes <FONT face="Wingdings">&#254;</FONT>&nbsp;&nbsp;&nbsp;No <FONT face="Wingdings">&#111;</FONT>


<P align="left" style="font-size: 10pt">
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The aggregate market value of the Common Stock held by non-affiliates of
the registrant, based upon the closing sale price of the Common Stock on June
30, 2003 as reported on the NASDAQ National Market System, was approximately
$87,842,624.


<P align="left" style="font-size: 10pt">
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Number of shares of $.001 par value Class&nbsp;A Common Stock, Class&nbsp;B Common
Stock and Class&nbsp;C Common Stock outstanding as
of March&nbsp;1, 2004 was 52,476,325,
one and one, respectively.

<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<!-- TOC -->
</DIV>
<DIV align="left">
<A name="tocpage"></A>
</DIV>

<P align="center" style="font-size: 10pt"><B>barnesandnoble.com inc.</B>



<P align="center" style="font-size: 10pt"><B>Index to Form&nbsp;10-K/A</B>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="10%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="70%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Page No.</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD colspan="3" valign="top" align="left"><A href="#101">EXPLANATORY NOTE</A></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">1</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px"><A href="#102"> <B>PART I</B></A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD align="left" valign="top"><A href="#103">Item&nbsp;1.
</A></TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><A href="#103">Business
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">2</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD align="left" valign="top"><A href="#104">Item&nbsp;2.
</A></TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><A href="#104">Properties
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">9</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD align="left" valign="top"><A href="#105">Item&nbsp;3.
</A></TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><A href="#105">Legal Proceedings
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">10</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD align="left" valign="top"><A href="#106">Item&nbsp;4.
</A></TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><A href="#106">Business
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">11</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px"><A href="#107"> <B>PART II</B></A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD align="left" valign="top"><A href="#108">Item&nbsp;5.
</A></TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><A href="#108">Market for Registrant&#146;s Common Equity and Related Stockholder
Matters
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">12</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD align="left" valign="top"><A href="#109">Item&nbsp;6.
</A></TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><A href="#109">Selected Financial Data</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">13</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD align="left" valign="top"><A href="#110">Item&nbsp;7.
</A></TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><A href="#110">Management&#146;s Discussion and Analysis of Financial Condition and Results of Operations
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">14</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD align="left" valign="top"><A href="#111">Item&nbsp;7A.
</A></TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><A href="#111">Quantitative and Qualitative Disclosures About Market Risk
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">22</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD align="left" valign="top"><A href="#112">Item&nbsp;8.
</A></TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><A href="#112">Financial Statements and Supplementary Data
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">24</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD align="left" valign="top"><A href="#113">Item&nbsp;9.
</A></TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><A href="#113">Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">48</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD align="left" valign="top"><A href="#114">Item&nbsp;9A.
</A></TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><A href="#114">Controls and Procedures
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">48</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px"><A href="#115"> <B>PART III</B></A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD align="left" valign="top"><A href="#116">Item&nbsp;10.
</A></TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><A href="#116">Directors and Executive Officers of the Registrant
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">50</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD align="left" valign="top"><A href="#117">Item&nbsp;11.
</A></TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><A href="#117">Executive Compensation
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">52</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD align="left" valign="top"><A href="#118">Item&nbsp;12.
</A></TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><A href="#118">Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">58</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD align="left" valign="top"><A href="#119">Item&nbsp;13.
</A></TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><A href="#119">Certain Relationships and Related Transactions
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">62</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD align="left" valign="top"><A href="#120">Item&nbsp;14.
</A></TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><A href="#120">Principal Accountant Fees and Services
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">65</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px"><A href="#121"><B>PART IV</B></A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD align="left" valign="top"><A href="#122">Item&nbsp;15.
</A></TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><A href="#122">Exhibits, Financial Statement Schedules, Reports on Form&nbsp;8-K
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">66</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD colspan="3" valign="top" align="left"><A href="#123">Signatures</A></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">71</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>

<!-- End Table Body -->
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="y96865exv21w1.htm">EX-21.1: LIST OF SUBSIDIARIES</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="y96865exv23w1.txt">EX-23.1: CONSENT OF BDO SEIDMAN LLP</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="y96865exv31w1.htm">EX-31.1: CERTIFICATION OF CHIEF EXECUTIVE OFFICER</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="y96865exv31w2.htm">EX-31.2: CERTIFICATION OF CHIEF FINANCIAL OFFICER</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="y96865exv32w1.htm">EX-32.1: CERTIFICATION OF CHIEF EXECUTIVE OFFICER</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="y96865exv32w2.htm">EX-32.2: CERTIFICATION OF CHIEF FINANCIAL OFFICER</A></FONT></TD></TR>
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">-i-
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left">
<!-- /TOC -->
</DIV>
<DIV align="left">
<A name="101"></A>
</DIV>

<P align="center" style="font-size: 10pt"><B>EXPLANATORY NOTE</B>


<P align="left" style="font-size: 10pt">This Amendment No.&nbsp;2 on Form 10-K/A amends the Company&#146;s Annual Report on Form
10-K for the fiscal year ended December&nbsp;31, 2003 originally filed with the
Securities and Exchange Commission on March&nbsp;15, 2004 and subsequently amended
by Amendment No.&nbsp;1 on Form 10-K/A filed with the Securities and Exchange
Commission on April&nbsp;27, 2004. The Company is filing this Form 10-K/A to
include information required by Items 10, 11, 12, 13 and 14 of Part&nbsp;III because
the Company&#146;s proxy statement will not be filed within 120&nbsp;days after the end
of its fiscal year.



<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left">
<A name="102"></A>
</DIV>

<P align="left" style="font-size: 10pt"><B>PART I</B>


<DIV align="left">
<A name="103"></A>
</DIV>

<P align="left" style="font-size: 10pt"><B>Item&nbsp;1. </B><B><I>Business</I></B>



<P align="left" style="font-size: 10pt"><B>General</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;barnesandnoble.com inc. (the &#147;Company&#148;) is a holding company whose sole
asset is its 29.6% interest in barnesandnoble.com llc (&#147;B&#038;N.com&#148;), and whose
sole business is acting as sole manager of B&#038;N.com. Through direct membership
interests in B&#038;N.com and ownership of common stock in the Company, as of March
1, 2004 Barnes &#038; Noble, Inc. (&#147;Barnes &#038; Noble&#148;) owned a 72.9% economic interest
in B&#038;N.com and a 96.3% voting interest in the Company. Barnes &#038; Noble
increased its interest to that level on September&nbsp;15, 2003 by acquiring the
entire 36.8% equity interest of Bertelsmann AG (&#147;Bertelsmann&#148;) in B&#038;N.com and
the Company for $2.80 per share or membership unit in B&#038;N.com (&#147;Membership
Unit&#148;), payable in a combination of cash and notes. On January&nbsp;8, 2004, the
Company entered into an Agreement and Plan of Merger (the &#147;Merger Agreement&#148;),
which sets forth the terms and conditions of the proposed acquisition of the
Company by a wholly owned subsidiary of Barnes &#038; Noble. The Merger Agreement
provides that at the closing of the merger, the holders of the Company&#146;s
outstanding common stock, other than Barnes &#038; Noble and its subsidiaries, will
receive $3.05 per share in cash for their shares, and the Company will become a
privately held company, wholly owned by Barnes &#038; Noble. The closing of the
merger is expected to occur in the second quarter of fiscal 2004.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;B&#038;N.com is a leading internet-based retailer of books, music, DVD/video
and online courses. Since opening its online store (www.bn.com) in March&nbsp;1997,
B&#038;N.com has attracted more than 17.0&nbsp;million customers in 230 countries.
B&#038;N.com&#146;s bookstore includes the largest in-stock selection of in-print book
titles with access to approximately one million titles for immediate delivery,
supplemented by more than 30&nbsp;million listings from its nationwide network of
out-of-print, rare and used book dealers. The Company now receives commissions
on sales of used and out of print books, through BookQuest LLC (&#147;BookQuest&#148;), a
service that allows independent book dealers to sell their used books on the
B&#038;N.com Web site. B&#038;N.com offers its customers fast delivery, easy and secure
ordering and rich editorial content.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;According to Jupiter Media Metrix, in December&nbsp;2003, B&#038;N.com&#146;s Web site
was the eleventh most-trafficked shopping site and was among the top 65 largest
Web properties on the Internet. Co-marketing agreements with major Web portals
such as America Online (&#147;AOL&#148;), Google<SUP>TM</SUP> and Microsoft Network (&#147;MSN&#148;) as well
as content sites have extended B&#038;N.com&#146;s brand recognition and increased
consumer exposure to its site. B&#038;N.com has also established a network of
remote virtual storefronts across the Internet by creating direct links with
more than 189,000 affiliate Web sites.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company believes that B&#038;N.com&#146;s relationships with Barnes &#038; Noble, the
nation&#146;s largest bookseller, provides B&#038;N.com with meaningful advantages
relative to other online retailers in its category, including:


<P>
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    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The superior brand recognition of the Barnes &#038; Noble trade name,
which is a strong factor in attracting customers;</TD>
</TR>

</TABLE>


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    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The use of Barnes &#038; Noble&#146;s distribution center as its primary
product supplier, which enables B&#038;N.com to offer approximately one
million in-stock book titles for immediate delivery, representing the
largest standing inventory of any online bookseller; B&#038;N.com is also
able to benefit from the supplier relationships maintained by Barnes &#038;
Noble with every significant book publisher;</TD>
</TR>

</TABLE>


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<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The use of Barnes &#038; Noble&#146;s book database as the primary source of
bibliographic data, which enables B&#038;N.com to provide its customers with
the most authoritative and accurate book data available;
</TD>
</TR>
</TABLE>

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    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The enterprise value of Barnes &#038; Noble, including its network of 842
retail bookstores nationwide, provides significant advantages in
attracting strategic partnerships;</TD>
</TR>

</TABLE>


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<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Ongoing access to the substantial book selling and direct marketing
knowledge and experience of the management of Barnes &#038; Noble; and</TD>
</TR>

</TABLE>


<P>
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    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Participation with Barnes &#038; Noble to create and maintain a book
buyers&#146; membership loyalty program, the Barnes &#038; Noble Membership
Program (formerly the &#147;Readers&#146; Advantage&#153; card&#148;), which offers
discounts and other benefits to members. For a $25 annual membership
fee, participating customers receive 10% additional discounts at Barnes
&#038; Noble stores and 5% additional discounts at B&#038;N.com. In addition to
discounts, member benefits include sign-up premiums and member-only
events.</TD>
</TR>

</TABLE>


<P align="left" style="font-size: 10pt"><B>Industry Background</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>E-Commerce. </I>The arena of e-commerce provides retailers with the
opportunity to serve a rapidly growing market, fueled by increased consumer
acceptance of the Internet as an alternative shopping channel. According to
the January&nbsp;2004 Forrester US eCommerce report, online shopping for 2003 was
$107.0&nbsp;billion. Online shopping is expected to reach $176.8&nbsp;billion in the year
2006 (Forrester July&nbsp;2003 US eCommerce report). In Jupiter Research&#146;s January
2004 population model, the U.S. online buying population will grow by 14
percent in 2004 over 2003, representing 30&nbsp;percent of the U.S. population.
According to Jupiter Research, by 2008, one-half of the U.S. population will
make purchases online.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>The Book Industry. </I>The size of the U.S. consumer book market, according
to Veronis Suhler &#038; Associates, an investment banking firm specializing in,
among other things, the publishing industry, was $18.8&nbsp;billion in 2002, and is
expected to grow to $21.6&nbsp;billion by 2007. According to the National
Association of College Stores, Inc., the college textbook market for the 2001
to 2002 academic year was $7.7&nbsp;billion with used textbooks representing 14.9%.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Online Shopping Forecast. </I>Forrester Research forecasts accelerating
acceptance of the Internet as a channel that consumers will use to purchase a
wide range of products. Within the categories of B&#038;N.com&#146;s focus of books,
music and DVD/video, Forrester Research forecasts significant growth in online
sales for all the categories. Forrester Research estimates that North American
online sales of books will grow from $2.8&nbsp;billion in 2003 to $5.5&nbsp;billion by
2008. In addition, Forrester Research estimates online sales in 2008 for music
and DVD/video to be $2.5&nbsp;billion up from $1.2&nbsp;billion in 2003 and $5.6&nbsp;billion
up from $1.8&nbsp;billion in 2003, respectively.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Products that are Well Suited for E-Commerce. </I>The book, music and video
businesses are particularly well suited for e-commerce because an online store
has virtually unlimited shelf space and can offer consumers anywhere the
convenience of browsing through large product information databases. The use
of sophisticated search and browse engines enables users to find books and
music with convenience and speed and to get advance notice about new titles in
their areas of personal interest. Editorial content, such as synopses,
excerpts, reviews and recommendations, downloadable music sound samples and
over 10,000 movie trailers, make for a more educated and entertaining
purchasing decision. In addition, B&#038;N.com&#146;s core categories, books, music and
DVD/video, are popular and economical gift items. According to the December
2003 eSpending Report from Goldman Sachs &#038; Co., Harris Interactive, and
Nielsen/Net Ratings, during the holiday 2003 season (November&nbsp;1, 2003 to
December&nbsp;12, 2003) the books category increased by 33% over holiday 2002 to
comprise $1.0&nbsp;billion in sales or 7.7&nbsp;percent of U.S. online spending; and
DVD/video sales increased by 89% over holiday 2002 to comprise $1.2&nbsp;billion in
sales or 9.2% of U.S. online spending.


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<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Broadband vs. Dial-up. </I>Currently most households access the Internet
through a dial-up connection, which requires use of a phone line and modem,
with maximum speeds of 56 kbps. Broadband access does not use a phone line and
has speeds up to ten times faster than dial-up connections, which makes the
online shopping experience much faster. A December&nbsp;2003 Report by ComScore
Media Metrix reports that the number of home broadband users has increased by
more than 30% in the past year, with 34% of home users now using a high-speed
connection. ComScore research has shown that broadband users are at least 50%
more likely than narrowband users to complete an online purchase in a given
month.


<P align="left" style="font-size: 10pt"><B>Business Strategy</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;B&#038;N.com has aggressively pursued its strategy to be an e-commerce leader
in the sale of books, music and DVD/video. It is B&#038;N.com&#146;s goal to be
recognized as the most innovative and customer-focused of e-commerce merchants,
making online purchasing a simple, secure and gratifying experience that
results in the highest levels of customer loyalty. B&#038;N.com has made
significant investments to achieve the highest possible levels of value and
service, which it believes are reflected in the completeness of its product
selection, the ease-of-use of its Web site, the price of its products and the
speed of delivery it can offer its customers.



<P align="left" style="margin-left:3%; font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;B&#038;N.com&#146;s goals are to increase its customers and revenue base by:



<P align="left" style="margin-left:3%; font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Continually Enhancing the User Experience. </I>B&#038;N.com is committed to
making every aspect of browsing and shopping on its Web site an easy and
intuitive experience. It makes continual efforts to improve the design,
layout and navigation of all elements of its Web site, as well as to ensure
that the site&#146;s performance metrics are competitive, especially with regard
to page download times and the speed of all search functions. Introduced in
2002, BookBrowser&#153;, powered by a licensed navigation technology, allows users
to easily browse millions of books in more than 400,000 categories using a
host of criteria including subject, author, format, price range, award
winners, recommended books, bestsellers and more. Additionally, BookBrowser&#153;
enables users to select and combine categories that best match their
interests to quickly arrive at a list of very specific and relevant books.
B&#038;N.com also strives to make the ordering and checkout process easy,
intuitive, fast and secure. In 2002 and 2003, the Company implemented a
number of enhancements to both the order checkout process and to the account
maintenance function. These improvements continue to assist customers in
quickly completing their orders and enable them to easily modify information
in their customer accounts. During the first half of 2003, special
processing and systems capacity were allocated to handle the hundreds of
thousands of pre-orders for the fifth installment in the Harry Potter series.



<P align="left" style="margin-left:3%; font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Providing Rich Editorial Content. </I>B&#038;N.com strives to provide its users
with the most accurate and authoritative online database about books and
authors. B&#038;N.com&#146;s online database includes editorial content such as
excerpts, synopses, book reviews, author biographies and user reviews on more
than one million titles. Included in this content are book reviews from many
respected industry sources, such as The New Yorker, Publisher&#146;s Weekly, and
the Kirkus Reviews. B&#038;N.com&#146;s in-house editorial experts also write and
commission feature articles, columns and interviews with popular authors.



<P align="left" style="margin-left:3%; font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2003, B&#038;N.com introduced the Book Clubs Center, where customers can
find reading group recommendations and free, printable reading group guides
for thousands of titles. The Book Clubs Center features a book club &#147;Pick of
the Week,&#148; and exclusive free online reading groups with contemporary authors
and other literary experts.



<P align="left" style="margin-left:3%; font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2003, B&#038;N.com expanded &#147;Meet the Writers&#148;, the exclusive author
showcase where users can find comprehensive biographical information, author
profiles and interviews, book recommendations and lists of current and
forthcoming publications. Meet the Writers also features exclusive audio and
video interviews with select authors and a &#147;Writer Alert&#148; program that tells users by
e-mail when their favorite authors have published new books.


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<P align="left" style="margin-left:3%; font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Offering a Large Product Selection and Fast Delivery. </I>B&#038;N.com has
access to the largest in-stock selection of in-print book titles available
for immediate delivery, supplemented by more than 30&nbsp;million listings from
its nationwide network of out-of-print, rare and used book dealers. This
includes an extensive selection of English-language books in print as well as
millions of out-of-print, rare and used books. B&#038;N.com&#146;s online databases
act as a highly searchable catalogue for the full spectrum of
English-language books. The Company&#146;s distribution network ensures speedy
delivery. B&#038;N.com&#146;s search engine and BookBrowser&#153; navigation engine allow
consumers to search and browse through the Company&#146;s database of
approximately one million titles available for immediate delivery.



<P align="left" style="margin-left:3%; font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Extensive Product Offering. </I>B&#038;N.com is focused on becoming the best
place to buy books online as well as the most authoritative source for
information about books and authors. While B&#038;N.com&#146;s major focus is and will
be selling books, the Company believes that offering complementary
information products such as music, DVDs/videos and online courses is a
natural extension of bookselling. B&#038;N.com&#146;s Music Store features hundreds of
thousands of titles, as well as artist biographies, artist interviews and
music reviews. The site also offers free music downloads on selected songs
and &#147;The Listening Wall&#148;, where users can listen to song samples. B&#038;N.com&#146;s
Video Store features tens of thousands of movie titles available in both DVD
and VHS formats. Powered by the comprehensive All-Movie Guide database, and
organized into 500 genres and more than 800 sub-categories, B&#038;N.com&#146;s Video
Store offers an extensive selection of DVD/videos. Users can also access the
B&#038;N.com Screening Room featuring over 10,000 of the newest full-length video
previews. The Company&#146;s Barnes &#038; Noble University&#174; offers hundreds of
non-accredited online free and paid courses each year. Each online course
covers a specific book or text and is taught by an author or expert in the
field. The course topics include a wide range of subjects from technology
and computer skills to literature, writing, business, foreign language and
self-help.



<P align="left" style="margin-left:3%; font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In February&nbsp;2002, the Company launched Barnes &#038; Noble, Jr., featuring a
wide selection of books for children of all ages. Barnes &#038; Noble, Jr. also
has extensive video and music selections. Streamlining the shopping
experience, the new store features clear links between product lines and
age-based recommendations within each product line. The fully
cross-merchandised Barnes &#038; Noble, Jr. focuses on new releases, celebrated
award winners and classics. New in 2003 was an expansion of non-book
products for children, which included games, activity kits, puzzles, plush
toys, and interactive reading devices.



<P align="left" style="margin-left:3%; font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In May&nbsp;2003, the Company launched a Gift Center, featuring gifts, games,
plush toys, and non-book products. The Gift Center was expanded in September
2003 with over 600 items, including exclusive gift and toy products. The
wide selection of gift items has been organized to allow easy browsing, with
sections for gifts for readers, scrap booking, and children&#146;s gifts. The
Gift Center also features several specialty boutiques for gifts by recipient,
such as &#147;Gifts for Travelers&#148; and &#147;Gifts for Newborns and Mothers&#148;.



<P align="left" style="margin-left:3%; font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In September&nbsp;2003, the Company introduced a Business &#038; Technology and a
Medicine &#038; Science store, which merchandise all book titles in these
categories. This new feature enables customers to easily find and purchase a
comprehensive selection of books especially targeted to professionals. These
stores are merchandised by a team of subject category experts in the fields
of business, computers, engineering and professional science, law, education,
medicine and other health-related professions. Specialized merchandising of
these subjects also includes subscription newsletters in medicine, business
and computers.



<P align="left" style="margin-left:3%; font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In September&nbsp;2003 the Company significantly expanded its selection of
books in Spanish and launched <I>Libros en Espa&#241;ol. </I>Customers can browse
Spanish-language titles in thousands of categories by subject, format and
price, and get detailed information including first chapters and excerpts.
<I>Libros en Espa&#241;ol </I>also offers thousands of Latin-music CDs, DVDs and video titles produced in
Spanish or with Spanish language tracks.


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<P align="left" style="margin-left:3%; font-size: 10pt"> The area
also features weekly
bestseller lists for Spanish-language adult and children&#146;s books, and its
&#147;Meet the Writers&#148; section will feature profiles and interviews of Hispanic
authors.



<P align="left" style="margin-left:3%; font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During the 2003 holiday season, the Company featured its annual Holiday
Gift Guide. This comprehensive guide featured nearly 3,000 guaranteed
in-stock products organized into hundreds of subject and interest categories
including art and photography, food and wine, fiction and literature, home
and garden, religion and science and nature. Also featured were special,
handpicked collections, including Christmas and holiday books, coffee table
books and gift books. Music and video selections included music and DVD box
sets, bestsellers and holiday selections. Children and teen selections were
categorized by age and included special interest collections. New in 2003
was an expanded non-book section featuring products in categories such as
games, puzzles, plush toys, home and office, and yoga and wellness.



<P align="left" style="margin-left:3%; font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Building Brand Awareness and Driving Customer Acquisition Through Online
Advertising and Promotion. </I>B&#038;N.com will continue to invest in building its
online brand through its key relationships. The Company began 2003 with 13.6
million customers and grew this base to more than 17.0&nbsp;million by year-end.
In its advertising and promotion initiatives, B&#038;N.com seeks to continuously
drive down the new customer acquisition cost, as well as to get customers to
return to the site more frequently and to increase the size of their average
purchase per visit. B&#038;N.com has formed significant strategic marketing
relations with Google<SUP>TM</SUP>, AOL and MSN and has established an extensive
affiliate network, all designed to build brand awareness and increase
customer acquisition.



<P align="left" style="margin-left:3%; font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Maintaining High Levels of Customer Service. </I>The Company believes that
high levels of customer service and support are crucial to retaining and
expanding B&#038;N.com&#146;s customer base. For the fourth quarter of 2003, B&#038;N.com
received one of the top two scores in customer satisfaction of the 70
companies contained in the latest American Customer Satisfaction Index
(ACSI), a quarterly survey of consumer attitudes by the University of
Michigan. In addition, B&#038;N.com&#146;s score of 86 out of a possible 100 is an
increase of nearly 12.0% since the survey&#146;s inception in 2000. This
represents one of the largest gains of any company in the survey. B&#038;N.com
monitors orders from the time they are placed through delivery by providing
numerous points of electronic, telephonic and personal communication to its
customers.


<P align="left" style="font-size: 10pt"><B>Marketing and Promotion</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Online Strategic Alliances. </I>Since inception, B&#038;N.com has aggressively
pursued strategic alliances with premier online companies and high-traffic Web
sites to drive traffic to its own site. The Company has major affiliations
with Google<SUP>TM</SUP> as well as with AOL&#146;s proprietary service and MSN which are among
the world&#146;s largest online shopping destinations.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Affiliate Network. </I>In addition to securing alliances with the nation&#146;s
three highest-trafficked Internet properties, B&#038;N.com has established an
affiliate network of more than 189,000 Web sites operated by third parties,
whereby Web site operators can earn referral fees by linking users from their
sites to the B&#038;N.com site.


<P align="left" style="font-size: 10pt"><B>Technology</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;B&#038;N.com believes that it has built a leading interactive e-commerce
platform, and plans to continue to invest in technologies that will enable
B&#038;N.com to offer its customers the most convenient and user-friendly online
shopping experience. B&#038;N.com has licensed existing commercial technology when
available and has focused its internal development efforts on those proprietary
systems necessary to provide the highest level of value and service to its
customers. The overall mix of technologies and applications in use by B&#038;N.com
allows it to support a distributed, scalable and secure e-commerce environment.


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<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;B&#038;N.com uses Intel-based server technology in a fully redundant
configuration to power its Web site, which is hosted in two locations. At
these locations, B&#038;N.com maintains computers that store its Web pages in
electronic form and transmits them to requesting users. Such storage and
transmittal is called hosting. B&#038;N.com operates two hosting locations. Each
of the hosting locations is &#147;co-located&#148; within leading edge hosting facilities
that are maintained by two different hosting vendors. Either site has
sufficient capacity to support the volume of traffic directed toward B&#038;N.com
during peak periods. Both hosting locations are configured with excess
Internet telecommunications capacity to ensure quick response time and three
separate Internet service providers are used. By maintaining redundant host
locations, B&#038;N.com has significantly reduced its exposure to downtime and
service outages. Additionally, the Company believes its technology investments
are scalable.



<P align="left" style="margin-left:3%; font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;B&#038;N.com&#146;s integrated systems and tools provide functionality in the
following areas:



<P align="left" style="margin-left:3%; font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Book Database and Search Functionality. </I>B&#038;N.com has seamlessly
incorporated the Barnes &#038; Noble book database into the Web site. The Barnes
&#038; Noble book database is a comprehensive synthesis of multiple sources of
data and content that feeds from publishers and third party sources. B&#038;N.com
has also developed a powerful proprietary search engine. Search results can
be sorted by user-defined sequences including &#147;bestseller&#148;, &#147;date published&#148;,
or in alphabetical sequence. In addition, in 2002 B&#038;N.com introduced
BookBrowser&#153;, a navigation technology that allows customers to easily browse
millions of books in more than 400,000 categories. BookBrowser&#153; also enables
customers to select and combine categories that best match their interests to
quickly arrive at a list of very specific and relevant books. B&#038;N.com uses
licensed technology to power BookBrowser&#153;.



<P align="left" style="margin-left:3%; font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>e-Commerce. </I>B&#038;N.com has developed its e-commerce applications using the
Microsoft Windows 2000 Server Architecture. B&#038;N.com has created a set of
server applications that allow customers to securely establish accounts and
to store address books, credit cards and ordering preferences. A customer
needs to set up an account only once and then has the ability to easily
modify the components of their account setup. When the account has been
established, the customer can shop the traditional &#147;e-commerce&#148; path by
adding items to their shopping cart. Gift certificates, gift cards,
gift-wrap, gift message and the ability to select from a variety of shipping
methods are available options.



<P align="left" style="margin-left:3%; font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Order Processing. </I>B&#038;N.com has created a proprietary application to
expedite orders into the fulfillment process. This application has real-time
connectivity to B&#038;N.com&#146;s and Barnes &#038; Noble&#146;s distribution centers as well
as other third party suppliers. In addition to immediately securing the
inventory for customers, application logic determines the best possible
choice of shipping warehouse by evaluating purchase margin, postage cost and
customer delivery time.



<P align="left" style="margin-left:3%; font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Order Fulfillment and Customer Service. </I>B&#038;N.com has developed
proprietary applications that enable it to receive products and assign them
to customers based upon various ordering, handling and shipping criteria.
B&#038;N.com utilizes licensed technology and has also developed proprietary
applications that are used for customer service.



<P align="left" style="margin-left:3%; font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Sales Tracking and Analysis. </I>B&#038;N.com licenses technology to support its
affiliate program. The software provides sophisticated sales tracking for
the members of the affiliate network with real time reporting and analysis
tools. B&#038;N.com has built a comprehensive data warehouse to store and analyze
customer sales and online activity data.



<P align="left" style="margin-left:3%; font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Leveraging Technology. </I>B&#038;N.com invested extensively in its Web site,
order processing, and fulfillment and customer service technologies through
2000. While the Company continues to invest in technology to maintain its industry-leading technological infrastructure, since 2001 a
lower rate of investment has been required, providing opportunities to
leverage fixed technology expenses and capital investments.


<P align="center" style="font-size: 10pt">-7-
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<DIV style="font-family: 'Times New Roman',Times,serif">


<P align="left" style="font-size: 10pt"><B>Competition</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Both the e-commerce market and retail bookselling business are highly
competitive. Following the introduction of e-commerce to the Internet, a
significant number of e-commerce Web sites were launched. Despite recent
failures in other areas of the e-commerce sector, the Company expects online
bookselling competition to remain intense. The Company believes that the
primary differentiating factors in e-commerce are brand recognition, ease of
use, price, fulfillment speed, customer support, product availability, web site
reliability and site content. The Company believes that B&#038;N.com&#146;s success will
depend heavily upon its ability to provide a compelling and satisfying shopping
experience. The Company believes the other factors that will affect B&#038;N.com&#146;s
success include B&#038;N.com&#146;s continued ability to attract experienced marketing,
technology, operations and management talent. The nature of the Internet as an
electronic marketplace (which may, among other things, facilitate competitive
entry and comparison-shopping) may render it inherently more competitive than
traditional retailing formats. Despite the Company&#146;s ability to gain market
share, increased competitiveness among online retailers may result in reduced
operating margins and a potential loss of market share.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;With respect to the sale of books, which constitutes B&#038;N.com&#146;s largest
source of revenue, B&#038;N.com currently competes with numerous booksellers
including other Internet-based companies such as Amazon.com and traditional
book retailers. With respect to the sale of music and DVD/video, B&#038;N.com
competes with numerous merchants including other Internet-based companies, such
as Amazon.com and traditional retailers. B&#038;N.com&#146;s main online competitor,
Amazon.com, has a longer online operating history and a larger existing
customer base than B&#038;N.com. B&#038;N.com is aware that Amazon.com has and may
continue to adopt aggressive pricing and marketing strategies. B&#038;N.com is also
aware of other online retailers that offer substantial discounts on products,
including books, music and DVD/video, which are subsidized by advertising
revenue from their Web sites. An increase in the prevalence of this type of
business model could lead to additional pricing pressures on B&#038;N.com&#146;s
products.


<P align="left" style="font-size: 10pt"><B>Seasonality</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;B&#038;N.com experiences seasonality in its business, reflecting Internet usage
fluctuations and traditional retail holiday patterns.


<P align="left" style="font-size: 10pt"><B>Government Regulation and Legal Uncertainties</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;E-commerce is rapidly changing, and federal and state regulation relating
to the Internet and e-commerce is evolving. Currently there are few laws or
regulations uniquely applicable to the access of the Internet or e-commerce on
the Internet. Laws and regulations may be enacted with respect to the
Internet, covering issues such as user privacy, pricing, taxation, content,
copyrights, distribution, antitrust and quality of products and services.
Additionally, the growth of e-commerce may trigger the development of stricter
consumer protection laws. The adoption of such laws or regulations could
reduce the rate of growth of the Internet, which could potentially decrease the
usage of B&#038;N.com&#146;s Web site or could otherwise have a material adverse effect
on B&#038;N.com&#146;s business. In addition, applicability to the Internet of existing
laws governing issues such as taxation, libel, obscenity and personal privacy
is uncertain. The vast majority of such laws were adopted prior to the advent of the Internet and related technologies and, as a result,
do not contemplate or address the unique issues of the Internet and related
technologies.

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<DIV style="font-family: 'Times New Roman',Times,serif">
<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Further, several telecommunications carriers have requested that the
Federal Communications Commission (&#147;FCC&#148;) regulate telecommunications over the
Internet. Due to the increasing use of the Internet and the burden it has
placed on the current telecommunications infrastructure, telephone carriers
have requested that the FCC regulate Internet service providers and online
service providers and impose fees on those providers. If the FCC imposes
access fees, the costs of using the Internet could increase significantly.
This could result in the reduced use of the Internet as a medium for commerce,
which could have a material adverse effect on B&#038;N.com&#146;s business, financial
condition, results of operations or prospects.


<P align="left" style="font-size: 10pt"><B>Employees</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of February&nbsp;27, 2004, B&#038;N.com employed 1,001 full-time and part-time
employees. B&#038;N.com also employs independent contractors to perform duties in
various departments. B&#038;N.com&#146;s employees are not represented by unions, and
B&#038;N.com considers its relationship with its employees to be excellent. B&#038;N.com
believes that its success is dependent on its ability to attract and retain
qualified personnel in numerous areas.


<P align="left" style="font-size: 10pt"><B>Available Information</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our investor relations Web site is http://www.barnesandnoble.com/ir. We
make available on this Web site under &#147;SEC Filings,&#148; free of charge, our annual
reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form
8-K and amendments to those reports as soon as reasonably practicable after we
electronically file or furnish such material to the U.S. Securities and
Exchange Commission (&#147;SEC&#148;).

<DIV align="left">
<A name="104"></A>
</DIV>

<P>
<TABLE width="100%" border="0" cellpadding="2" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000">
<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>
<TR valign="top">
    <TD nowrap>&nbsp;</TD>
    <TD><B>Item&nbsp;2. </B><B><I>Properties</I></B></TD>
</TR>
</TABLE>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;B&#038;N.com&#146;s principal administrative, marketing and technical facilities are
situated in New York, New York, and are covered by one lease which is for
approximately 90,000 square feet of office space and expires in 2015.
Additionally, we have 64,750 square feet of vacant office space that we remain
obligated under a lease agreement that expires in 2006.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Barnes &#038; Noble leases a 300,000 square foot facility located in Dayton,
New Jersey, of which B&#038;N.com uses approximately 100,000 square feet for its
fulfillment operations. This lease expires in February&nbsp;2005<B>; </B>however, Barnes &#038;
Noble has an option to extend the lease for up to two additional successive
two-year periods.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;B&#038;N.com leases a 380,000 square foot building in Memphis, Tennessee for
distribution purposes. The lease term is five years expiring January&nbsp;2005.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;B&#038;N.com leases 30,000 square feet in Secaucus, New Jersey for its customer
service operations. The lease term is 10&nbsp;years expiring June&nbsp;2009. The lease
may be renewed for one five-year period at an agreed upon prevailing fair
market value rate.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We believe that our properties are suitable and adequate for our present
and anticipated near term needs.



<P align="center" style="font-size: 10pt">-9-
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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left">
<A name="105"></A>
</DIV>

<P>
<TABLE width="100%" border="0" cellpadding="2" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000">
<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>
<TR valign="top">
    <TD nowrap>&nbsp;</TD>
    <TD><B>Item&nbsp;3. </B><B><I>Legal Proceedings</I></B></TD>
</TR>
</TABLE>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In August&nbsp;1998, The Intimate Bookshop, Inc. and its owner, Wallace Kuralt,
filed a lawsuit in the United States District Court for the Southern District
of New York against a predecessor of the Company, Barnes &#038; Noble, Borders
Group, Inc. and others, alleging violation of the Robinson-Patman Act and other
federal law, New York statutes governing trade practices and common law. In
March&nbsp;2000, a Second Amended Complaint was served on the Company and other
defendants alleging a single cause of action for violations of the
Robinson-Patman Act. The Second Amended Complaint claims that The Intimate
Bookshop, Inc. has suffered damages of $11,250,000 or more and requests treble
damages, costs, attorneys&#146; fees and interest, as well as declaratory and
injunctive relief prohibiting the defendants from violating the Robinson-Patman
Act. The Company served an Answer in April&nbsp;2000 denying the material
allegations of the Second Amended Complaint and asserting various affirmative
defenses. On January&nbsp;11, 2002, the Company and the other defendants filed a
motion for summary judgment. A hearing on that motion was held on March&nbsp;22,
2002. On September&nbsp;30, 2003, the court granted defendants&#146; motion and
dismissed all of plaintiff&#146;s claims. Plaintiff filed a notice of appeal of
that decision, which was withdrawn on February&nbsp;10, 2004.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There is a class action lawsuit entitled In Re Initial Public Offering
Securities Litigation pending since April&nbsp;2002 in the United States District
Court for the Southern District of New York (the &#147;Action&#148;). The Action named
over one thousand individuals and 300 corporations, including Fatbrain.com,
Inc. (&#147;Fatbrain&#148;), (a Company subsidiary) and its former officers and
directors. The Amended Complaints in the Action all allege that the initial
public offering registration statements filed by the defendant issuers with the
Securities and Exchange Commission, including the one filed by Fatbrain, were
false and misleading because they failed to disclose that the defendant
underwriters were receiving excess compensation in the form of profit sharing
with certain of its customers and that some of those customers agreed to buy
additional shares of the defendant issuers&#146; common stock in the after market at
increasing prices. The Amended Complaints also allege that the foregoing
constitute violations of: (i)&nbsp;Section&nbsp;11 of the Securities Act of 1933, as
amended (the &#147;1933 Act&#148;) by the defendant issuers, the directors and officers
signing the related registration statements, and the related underwriters; (ii)
Rule&nbsp;10b-5 promulgated under the Securities Exchange Act of 1934 (the &#147;1934
Act&#148;) by the same parties; and (iii)&nbsp;the control person provisions of the 1933
and 1934 Acts by certain directors and officers of the defendant issuers. A
motion to dismiss by the defendant issuers, including Fatbrain, was denied.
After extensive negotiations among representatives of plaintiffs and
defendants, a memorandum of understanding (&#147;MOU&#148;), outlining a proposed
settlement resolving the claims in the Action between plaintiffs and the
defendant issuers, has been entered into. A draft settlement agreement has
been prepared and circulated among the defendants and plaintiffs in the action,
the terms of which are consistent with the MOU and which, after execution, will
be submitted to the court for approval. The proposed settlement is not
expected to have any material adverse impact on the Company.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On August&nbsp;16, 2002, B&#038;N.com, along with 17 other defendants, was sued in
the United States District Court for the Eastern District of Texas by Charles
E. Hill Associates for patent infringement of United States Patent Nos.
5,528,490 (the &#147;490 Patent&#148;), 5,761,649 and 6,029,142. On November&nbsp;7, 2002,
B&#038;N.com and the other defendants answered and filed counterclaims for a
declaratory judgment of non-infringement, invalidity and unenforceability of
all three patents. On November&nbsp;27, 2002, B&#038;N.com joined the other defendants
in filing a motion to change venue to the United States District Court for the
Southern District of Indiana, where an earlier filed case against Compuserve,
one of the defendants in the Texas case, was pending involving only the 490
Patent. On January&nbsp;23, 2003, the court granted the motion to transfer and the
transferred case was assigned to Judge McKinney in Indianapolis. On November
24, 2003, the Indiana court dismissed the case which Hill had filed against
Compuserve alone (Cause no. IP97-0434-C-M/S, Indiana) with prejudice based on
the filing of a covenant not to sue by Hill. Consequently, on November&nbsp;25,
2003, the Indiana court granted Hill&#146;s motion to retransfer the case back to
the U.S. District Court for the Eastern District of Texas. Compuserve has
appealed the dismissal with prejudice and made a motion to stay the retransfer
pending the outcome of the appeal, which motion was denied. The retransferred
case has been reassigned to Judge Ward in the Eastern District of Texas.
B&#038;N.com intends to vigorously defend this action.


<P align="center" style="font-size: 10pt">-10-
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<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On November&nbsp;19, 2002, Half Price Books, Records, Magazine, Inc. filed a
complaint against B&#038;N.com in the United States District Court for the Northern
District of Texas. The complaint alleges trademark infringement and related
claims against B&#038;N.com for its use of the term &#147;Half Price Books&#148; on its Web
site. B&#038;N.com has responded to the complaint denying plaintiff&#146;s claims. The
plaintiff&#146;s motion for preliminary injunction was denied. B&#038;N.com&#146;s motion for
summary judgment for dismissal of all of plaintiff&#146;s claims is currently
pending before the court. Settlement discussions are occurring through a court
appointed mediator. B&#038;N.com intends to vigorously defend itself against this
action.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Following the November&nbsp;7, 2003 announcement of Barnes &#038; Noble&#146;s proposal
to purchase all of the outstanding shares of the Company&#146;s common stock at a
price of $2.50 per share in cash, fifteen substantially similar putative class
action lawsuits were filed by individual stockholders of the Company against
the Company, the Company&#146;s directors and Barnes &#038; Noble in the Delaware Court
of Chancery. The complaints in these actions, which purported to be brought on
behalf of all of the Company&#146;s stockholders excluding the defendants and their
affiliates, generally alleged (i)&nbsp;breaches of fiduciary duty by Barnes &#038; Noble
and the Company&#146;s directors, (ii)&nbsp;that the consideration offered by Barnes &#038;
Noble was inadequate and constituted unfair dealing and (iii)&nbsp;that Barnes &#038;
Noble, as controlling stockholder, breached its duty to the Company&#146;s remaining
stockholders by acting to further its own interests at the expense of the
Company&#146;s remaining stockholders. The complaints sought to enjoin the proposal
or, in the alternative, damages in an unspecified amount and rescission in the
event a merger occurred pursuant to the proposal. The complaints were
eventually consolidated under the caption In re BarnesandNoble.com, Inc.
Shareholders Litigation, Consolidated Civil Action No.&nbsp;042-N.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On January&nbsp;8, 2004, the parties executed a Memorandum of Understanding
reflecting the parties&#146; agreement to settle the action. Pursuant to the terms
of the Memorandum of Understanding, the parties agreed in good faith to execute
as soon as practicable a Stipulation of Settlement providing for, among other
things, the release of all claims of the plaintiffs and other members of the
class against defendants that were or could have been asserted in the action or
in any way arise out of or in connection with the merger. The Stipulation of
Settlement also is to expressly provide that the defendants in the action deny
that they have committed any violation of law whatsoever and are entering into
the Stipulation of Settlement solely to eliminate the burden, expense and
distraction of further litigation and to permit the merger to proceed as
scheduled.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The parties subsequently agreed that plaintiffs&#146; counsel will apply to the
court for an award of attorney&#146;s fees and costs in the amount of $600,000 and
that defendants will not object to a fee award up to that amount. It was
further agreed that defendants would pay or reimburse the costs of mailing.
The settlement is contingent upon, among other things, court approval, the
merger consideration being $3.05 per share in cash and consummation of the
merger.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition to the litigations described above, the Company and B&#038;N.com
are involved in various legal proceedings incidental to the conduct of their
business. The Company does not believe that any of those legal proceedings
will have a material adverse effect on the financial condition, results of
operations or cash flows of the Company or B&#038;N.com.

<DIV align="left">
<A name="106"></A>
</DIV>

<P>
<TABLE width="100%" border="0" cellpadding="2" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000">
<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>
<TR valign="top">

    <TD colspan="2"><B>Item&nbsp;4. </B><B><I>Submission of Matters to a Vote of Security Holders</I></B></TD>
</TR>
</TABLE>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;None.


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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<A name="107"></A>
</DIV>

<P align="center" style="font-size: 10pt"><B>PART II</B>


<DIV align="left">
<A name="108"></A>
</DIV>

<P>
<TABLE width="100%" border="0" cellpadding="2" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000">
<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>
<TR valign="top">

    <TD colspan="2"><B>Item&nbsp;5. </B><B><I>Market for Registrant&#146;s Common Equity and Related Stockholder Matters</I></B></TD>
</TR>
</TABLE>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company&#146;s Class&nbsp;A Common Stock is listed on the NASDAQ National Market
under the symbol &#147;BNBN&#148; and began trading on May&nbsp;25, 1999. On March&nbsp;1, 2004,
the Company had 1,190 shareholders of record for the Class&nbsp;A Common Stock. The
Company&#146;s Class&nbsp;A Common Stock price at the close of business on March&nbsp;1, 2004
was $3.04 per share. The Company&#146;s Class&nbsp;B Common Stock and Class&nbsp;C Common
Stock, owned by Barnes &#038; Noble, are not listed or traded on any securities
exchange.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The table below sets forth the high and low sale prices of the Company&#146;s
Class&nbsp;A Common Stock for the periods indicated, as reported by the NASDAQ
National Market.

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="55%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="56%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>High</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Low</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">2003</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">First Quarter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1.62</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.97</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Second Quarter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.00</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.28</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Third Quarter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.85</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.97</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Fourth Quarter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.95</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.17</TD>
    <TD>&nbsp;</TD>
</TR>


<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">2002</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">First Quarter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">2.44</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1.34</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Second Quarter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.69</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.86</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Third Quarter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.99</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.43</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Fourth Quarter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.20</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.46</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company has not declared or paid any dividends on its Common Stock and
B&#038;N.com has not made any distributions to its members, since their respective
dates of initial contribution. Neither the Company nor B&#038;N.com anticipates
paying any dividends or distributions, except for amounts that may be
distributed by B&#038;N.com to cover income tax liabilities, if any, of its members
arising from the taxable income of B&#038;N.com. Cash distributions by B&#038;N.com may
also be restricted by future debt covenants. The Company has not had any
recent sales of unregistered securities. The Company intends to cause B&#038;N.com
to retain future earnings, if any, to finance the expansion of the business of
B&#038;N.com.


<P align="center" style="font-size: 10pt">-12-
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<A name="109"></A>
</DIV>

<P>
<TABLE width="100%" border="0" cellpadding="2" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000">
<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>
<TR valign="top">
    <TD colspan="2"><B>Item&nbsp;6. </B><B><I>Selected Financial Data</I></B></TD>
</TR>
</TABLE>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The selected financial data set forth below should be read in conjunction
with &#147;Management&#146;s Discussion and Analysis of Financial Condition and Results
of Operations&#148; and the consolidated Financial Statements and consolidated notes
thereto appearing elsewhere in this Form 10-K/A. Historical results are not
necessarily indicative of future results.

<DIV align="center">
<TABLE style="font-size: 7pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="20%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="23"><B>barnesandnoble.com inc. and subsidiaries</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="23"><B>(Consolidated)</B></TD>
    <TD>&nbsp;</TD>

    <TD nowrap align="center" colspan="3"><B>barnesandnoble.com llc</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>and its predecessor</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Restated</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Proforma</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>year ended</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Year ended</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Year ended</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Year ended</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>year ended</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>May 25, 1999 to</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>January 1, 1999</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>December 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>December 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>December 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>December 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>December 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>December 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>to May 24,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003<SUP>(6)</SUP></B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2001</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2000</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>1999<SUP>(1)(2)</SUP></B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>1999</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>1999<SUP>(3)</SUP></B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="27"><B>(Thousands of Dollars, Except Share Data)</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Statement of Operations Data:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">424,815</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">422,827</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">404,600</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">320,115</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">193,730</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">139,930</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">53,800</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Cost of sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">320,627</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">327,258</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">313,365</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">261,801</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">159,937</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">117,850</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">42,087</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Gross profit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">104,188</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">95,569</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">91,235</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">58,314</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33,793</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22,080</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,713</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Operating expenses:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Fulfillment and customer
service</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">36,595</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">35,990</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">44,637</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">49,880</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19,395</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,743</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,652</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Marketing, sales and
editorial</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30,390</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">35,760</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">61,418</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">82,620</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">81,682</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">59,181</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24,140</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Technology and web site
development</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30,725</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">35,787</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">45,298</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">40,397</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21,006</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,058</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,948</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">General and
administrative</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,548</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26,265</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">32,362</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">31,270</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,842</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,582</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,622</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Depreciation and
amortization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27,467</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33,502</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">41,981</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">36,088</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,510</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,183</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,327</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Impairments and other
special charges</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">88,213</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">75,051</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Stock-based
compensation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,740</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Equity in net loss of
equity investments
including amortization
of intangibles</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,537</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28,733</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30,728</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Total operating expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">150,725</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">170,841</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">342,642</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">357,774</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">156,435</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">108,747</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">47,689</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Loss from operations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(46,537</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(75,272</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(251,407</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(299,460</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(122,642</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(86,667</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(35,976</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Interest income, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">226</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,615</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,041</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23,737</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,238</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,615</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,623</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Loss before minority
interest</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(46,311</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(73,657</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(244,366</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(275,723</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(102,404</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(68,052</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(34,353</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Minority interest</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">34,965</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">53,525</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">176,980</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">210,320</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">54,253</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">54,253</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net loss &#151; historical</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(11,346</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(20,132</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(67,386</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(65,403</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(48,151</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(13,799</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(34,353</TD>
    <TD nowrap>)</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Proforma adjustment to
minority interest<SUP>(4)</SUP></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27,534</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27,534</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net loss &#151; proforma</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(20,617</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(6,819</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Basic net loss per
common share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.28</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.46</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(1.54</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(2.02</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.72</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.48</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.24</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Basic weighted average
common shares
outstanding<SUP>(5)</SUP></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">40,707</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">43,790</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">43,787</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">32,386</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28,778</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28,797</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28,750</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Basic net
loss per share<SUP>(5)</SUP></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.28</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.46</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(1.54</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(2.02</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.72</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.48</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.24</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Balance Sheet Data:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Cash and cash equivalents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">68,344</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">70,144</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">105,125</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">179,609</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">247,403</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Long-term marketable
securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">71,852</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Working capital (deficit)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(26,747</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,281</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">44,628</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">156,649</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">429,674</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Total assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">347,918</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">209,734</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">287,376</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">528,935</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">679,518</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Minority interest</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">172,516</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">52,305</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">105,845</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">282,804</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">482,896</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Equity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,971</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22,641</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">42,758</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">110,144</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">120,682</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">-13-
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<hr size="1" noshade align="left" width="20%">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Includes the historical results of barnesandnoble.com llc for the entire
year and the historical results of the Company from May&nbsp;25, 1999.
barnesandnoble.com inc. was incorporated on March&nbsp;10, 1999, but had no
activity until the Company&#146;s initial public offering on May&nbsp;25, 1999.</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The proforma amounts do not give effect to the assumed charges to
operating results which might have resulted had the Company&#146;s Initial
Public Offering occurred at the beginning of the respective periods.</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(3)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Includes the historical results of barnesandnoble.com llc and its
predecessor.</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(4)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Represents the approximate 80% interest of Barnes &#038; Noble and Bertelsmann
in the net loss of barnesandnoble.com llc for periods prior to May&nbsp;25,
1999.</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(5)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>For periods prior to May&nbsp;25, 1999, reflects the proforma
effect of the shares issued in the Company&#146;s Initial Public Offering assuming they were
issued at the beginning of 1998.</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(6)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>As of September&nbsp;15, 2003 the financial statements reflect push down
accounting. The proportionate assets acquired and liabilities assumed
have been adjusted to reflect Barnes &#038; Noble&#146;s basis.</TD>
</TR>

</TABLE>

<DIV align="left"><A name="110"></A></DIV>

<P>
<TABLE width="100%" border="0" cellpadding="2" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000">
<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>
<TR valign="top">

    <TD colspan="2"><DIV align="left"><A name="110"></A></DIV><B>Item&nbsp;7. </B><B><I>Management&#146;s Discussion and Analysis of Financial Condition and Results
of Operations</I></B></TD>
</TR>
</TABLE>


<P align="left" style="font-size: 10pt"><B>Forward-Looking Statement</B>s



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This report (including but not limited to factors discussed below, in the
&#147;Management&#146;s Discussion and Analysis of Financial Condition and Results Of
Operations,&#148; as well as those discussed elsewhere in this Annual Report on Form
10-K) may contain certain forward-looking statements (within the meaning of
section 27A of the Securities Act of 1933 and section 21E of the Securities
Exchange Act of 1934) and information relating to the Company and B&#038;N.com that
are based on the beliefs of the management of the Company as well as
assumptions made by and information currently available to the management of
the Company. When used in this report, the words &#147;anticipate,&#148; &#147;believe,&#148;
&#147;estimate,&#148; &#147;expect,&#148; &#147;intend,&#148; &#147;plan&#148; and similar expressions, as they relate
to the Company, B&#038;N.com or the management of the Company, identify
forward-looking statements. Such statements reflect the current views of the
Company with respect to future events, the outcome of which is subject to
certain risks, including among others general economic and market conditions,
changes in product demand, the growth rate of Internet usage and e-commerce,
possible disruptions in the Company&#146;s or B&#038;N.com&#146;s computer or telephone
systems, possible increases in shipping rates or interruptions in shipping
service, the Company&#146;s ability to maintain strategic alliances with AOL,
Google<SUP>TM</SUP> and MSN, effects of competition, possible work stoppages or increases
in labor costs or labor shortages, unanticipated adverse litigation results or
effects, the performance of B&#038;N.com&#146;s current and future investments and new
product initiatives, unanticipated costs associated with B&#038;N.com&#146;s warehouse or
the failure to successfully integrate that warehouse into B&#038;N.com&#146;s
distribution network, the level and volatility of interest rates, the
successful integration of acquired businesses, the factors described below
under &#147;Results of Operations,&#148; changes in tax and other governmental rules and
regulations applicable to the Company or B&#038;N.com, the successful imposition by
state tax authorities of sales or use taxes on products sold by B&#038;N.com to
customers in such states, and other factors that may be outside of the
Company&#146;s control. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual results
or outcomes may vary materially from those described herein as anticipated,
believed, estimated, expected, intended or planned. Subsequent written and
oral forward-looking statements attributable to the Company, B&#038;N.com or persons
acting on their behalf are expressly qualified in their entirety by the
cautionary statements in this paragraph and elsewhere described in this report
and other reports filed by the Company with the SEC.


<P align="left" style="font-size: 10pt">Overview



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company is a holding company whose sole asset is its 29.6% equity
interest in B&#038;N.com and whose sole business is acting as sole manager of
B&#038;N.com. B&#038;N.com launched its initial online store in
March&nbsp;1997 and is currently ranked the eleventh most-trafficked shopping site, based
on the Jupiter Media Metrix December&nbsp;2003 report.

<P align="center" style="font-size: 10pt">-14-
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;B&#038;N.com has pursued a strategy of focusing on the sale of books, music,
DVD/video and online courses. Since opening its online store (www.bn.com) in
March&nbsp;1997, B&#038;N.com has sold products to more than 17.0&nbsp;million customers in
230 countries. B&#038;N.com&#146;s online bookstore includes the largest in-stock
selection of in-print book titles, supplemented by more than 30&nbsp;million
listings from its nationwide network of out-of-print, rare and used book
dealers. B&#038;N.com offers its customers fast delivery, easy and secure ordering
and rich editorial content.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The results of operations discussed hereafter include the results of the
Company and B&#038;N.com for the years ended December&nbsp;31, 2003, 2002 and 2001. In
view of the rapidly changing nature of B&#038;N.com&#146;s business and its limited
operating history, the Company believes that period-to-period comparisons of
the operating results of B&#038;N.com, including gross profit margin and operating
expenses as a percentage of net sales, are not necessarily meaningful and
should not be relied upon as an indication of future performance.


<P align="left" style="font-size: 10pt">Critical Accounting Estimates



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SEC Financial Reporting Release No.&nbsp;60 requires all companies to include
in this item a discussion of critical accounting policies or methods used in
the preparation of financial statements. Note 2 of the Notes to Consolidated
Financial Statements includes a summary of the significant accounting policies
and methods used by the Company in the preparation of its Consolidated
Financial Statements. The following is a brief discussion of the more critical
of these accounting policies and methods.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Revenue Recognition. </I>The Company&#146;s product sales, including outbound
shipping and handling charges, are recognized, net of estimated returns and
discounts, at the time the products are shipped to customers. Commissions
received on sales of magazine subscriptions are recorded at the net amount
earned as the Company is acting as an agent in such transactions. The Company
continuously monitors and tracks product returns and records a provision for
the estimated amount of future returns, based on historical experience. While
returns have historically been within the Company&#146;s expectations and the
provisions established, the Company cannot guarantee that it will continue to
experience the same return rates that it has in the past. Any significant
increase in product return rates could have a material adverse impact on the
Company&#146;s operating results for the period or periods in which such returns
materialize.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of April&nbsp;2003, the Company now receives commissions on sales of used
and out of print books, through BookQuest, a service that allows independent
book dealers to sell their used books on the B&#038;N.com Web site. In accordance
with EITF Issue No.&nbsp;99-19, &#147;Reporting Revenue Gross as a Principal Versus Net
as an Agent,&#148; revenues are recorded at the net amount earned as the Company is
acting as an agent in such transactions.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Impairment of Goodwill and Other Long-Lived Assets. </I>The Company&#146;s
long-lived assets include fixed assets and goodwill. At December&nbsp;31, 2003, the
Company had $61.9&nbsp;million of fixed assets, net of accumulated depreciation, and
$102.1&nbsp;million of net goodwill, accounting for approximately 47.1% of the
Company&#146;s total assets. B&#038;N.com reviews its fixed assets for impairment
whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable in accordance with Statement of Financial
Accounting Standards (&#147;SFAS&#148;) No.&nbsp;144 &#147;Accounting for the Impairment or
Disposal of Long-Lived Assets&#148; (&#147;SFAS No.&nbsp;144&#148;). In valuation, assets held and
used are measured by a comparison of the carrying amount of an asset to
undiscounted pre-tax future net cash flows. Future events could cause B&#038;N.com
to conclude that impairment indicators exist and that long-lived assets may be
impaired. Any resulting impairment loss could have a material adverse impact
on the Company&#146;s financial condition and results of operations. As required by
the Financial Accounting Standards Board (&#147;FASB&#148;), SFAS No.&nbsp;142, &#147;Goodwill and
Other Intangible Assets&#148; (&#147;SFAS No.&nbsp;142&#148;), which the Company implemented in 2002, the Company
completed its annual impairment test on the goodwill as of November&nbsp;30, 2003
and deemed that no impairment charge was necessary.


<P align="center" style="font-size: 10pt">-15-
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<P align="left" style="font-size: 10pt">The Company has noted no
subsequent indicators of impairment. In 2001, the Company recorded an
impairment and special charges of $88.2&nbsp;million of which $29.9&nbsp;million was
related to the impairment of goodwill and $24.8&nbsp;million was related to the
impairment of long-lived assets.



<P align="left" style="font-size: 10pt">Results of Operations



<P align="left" style="font-size: 10pt"><I>Net Sales</I>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="65%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="20%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="19"><B>Year ended December 31,</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="19"><B>(in thousands of dollars)</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>% Change</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>% Change</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2001</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">424,815</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">0.5</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">422,827</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">4.5</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">404,600</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net sales are comprised of sales of books, music, DVD/video and online
courses including outbound shipping and handling charges, net of returns and
discounts. In 2003 net sales increased 0.5% to $424.8&nbsp;million from $422.8
million in 2002. The Company has been recording used and out-of-print sales on
a net commission basis since April&nbsp;2003 due to the launch of a new business
arrangement for the used and out-of-print business whereby the Company acts as
an agent on those sales. Comparable sales reflect the gross amount of used and
out-of-print sales, consistent with how these sales were recorded in the prior
year. Full-year comparable sales for 2003 were $437.2&nbsp;million, a 3.4 %
increase compared to the prior year. In 2002 sales increased 4.5% to $422.8
million from $404.6&nbsp;million in the previous year as a result of incremental
units sold to new customers as well as repeat purchases from B&#038;N.com&#146;s existing
customer base. International sales represented 3.3%, 4.1% and 5.2% of net
sales for the years ended December&nbsp;31, 2003, 2002 and 2001, respectively. The
Company expects net sales to range between $435.0&nbsp;million and $475.0&nbsp;million
for the year ended December&nbsp;31, 2004.


<P align="left" style="font-size: 10pt"><I>Gross Profit</I>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="65%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="27%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="19"><B>Year ended December 31,</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="19"><B>(in thousands of dollars)</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>% Change</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>% Change</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2001</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Gross profit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">104,188</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">9.0</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">95,569</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">4.8</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">91,235</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Gross margin</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">24.5</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">22.6</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">22.5</TD>
    <TD nowrap>%</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Gross profit is net sales less the cost of sales, which consists of the
cost of merchandise sold to customers, and outbound and inbound shipping costs.
In 2003 gross profit increased to $104.2&nbsp;million from $95.6&nbsp;million as a
result of the Company&#146;s net sales increase and decrease in cost of sales. The
Company&#146;s gross margin improved to 24.5% from 22.6% due to increased
efficiencies realized from internal fulfillment operations, the change in the
model for used and out-of-print books, as well as less promotional activity
during the holiday season. In 2002 gross profit increased to $95.6&nbsp;million
from $91.2&nbsp;million as a result of the Company&#146;s 4.5% increase in net sales.
The gross margin for 2002 was 22.6% as compared with 22.5% for 2001. The
Company&#146;s gross margin improved due to an increase in internal fulfillment
which was offset by the full year impact of the Company&#146;s &#147;free shipping&#148;
promotion, which began in July&nbsp;2001, and resulted in a reduction to shipping
revenue as a percentage of net sales.


<P align="center" style="font-size: 10pt">-16-
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<P align="left" style="font-size: 10pt"><I>Fulfillment and Customer Service</I>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="85%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="50%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="19"><B>Year ended December 31,</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="19"><B>(in thousands of dollars)</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>% Change</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>% Change</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2001</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Fulfillment and customer service</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">36,595</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">1.7</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">35,990</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(19.4</TD>
    <TD nowrap>)%</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">44,637</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Percentage of net sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">8.6</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">8.5</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">11.0</TD>
    <TD nowrap>%</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Fulfillment and customer service expenses consist primarily of the cost of
operating and staffing distribution and customer service centers. In 2003
fulfillment and customer service expenses increased 1.7% to $36.6&nbsp;million or
8.6% of net sales from $36.0&nbsp;million or 8.5% of net sales in 2002. The slight
increase in fulfillment and customer service expenses was more than offset by
the improved profit margin achieved through internal product sourcing. During
2002 fulfillment and customer service expenses decreased 19.4% to $36.0&nbsp;million
from $44.6&nbsp;million and improved as a percentage of net sales to 8.5% from
11.0%, respectively, as the Company maximized efficiencies from the
consolidation of its operations while increasing net sales year over year.
B&#038;N.com anticipates that its fulfillment and customer service costs will
decrease as a percentage of net sales in 2004 based on anticipated further
productivity improvements and expected sales growth.


<P align="left" style="font-size: 10pt"><I>Marketing, Sales and Editorial</I>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="85%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="45%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="19"><B>Year ended December 31,</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="19"><B>(in thousands of dollars)</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>% Change</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>% Change</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2001</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Marketing, sales and editorial</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">30,390</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(15.0</TD>
    <TD nowrap>)%</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">35,760</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(41.8</TD>
    <TD nowrap>)%</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">61,418</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Percentage of net sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">7.2</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">8.5</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">15.2</TD>
    <TD nowrap>%</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Marketing, sales and editorial expenses consist primarily of advertising
and promotional expenditures, as well as payroll and related expenses for
personnel engaged in marketing and selling activities. In 2003, marketing,
sales and editorial expenses decreased in absolute dollars to $30.4&nbsp;million or
7.2% of net sales from $35.8&nbsp;million or 8.5% of net sales in 2002 primarily due
to the improvement in terms of online marketing deals. In 2002, marketing,
sales and editorial expenses decreased in absolute dollars to $35.8&nbsp;million
from $61.4&nbsp;million, and as a percentage of net sales to 8.5% from 15.2%, due to
the Company&#146;s increased focus on more targeted and measurable marketing
programs as well as the renegotiation of many of the Company&#146;s online marketing
deals at more advantageous terms. The Company expects to continue to reduce
these expenses as a percentage of net sales in 2004.


<P align="left" style="font-size: 10pt"><I>Technology and Web Site Development</I>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="85%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="35%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="19"><B>Year ended December 31,</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="19"><B>(in thousands of dollars)</B><HR size="1" noshade></TD>

</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>% Change</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>% Change</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2001</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Technology and web site
development</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">30,725</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(14.1</TD>
    <TD nowrap>)%</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">35,787</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(21.0</TD>
    <TD nowrap>)%</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">45,298</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Percentage of net sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">7.2</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">8.5</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">11.2</TD>
    <TD nowrap>%</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Technology and web site development expenses consist principally of
payroll and related expenses for Web page production, network operations
personnel and consultants, and costs of infrastructure related to systems and
telecommunications. In 2003, technology and web site development expenses
decreased to $30.7&nbsp;million or 7.2% of net sales from $35.8&nbsp;million or 8.5% of
net sales due to a reduction in personnel, lower infrastructure costs and less
reliance on consultants for on-going operations. In 2002, technology and web
site development expenses decreased to $35.8&nbsp;million or 8.5% of net sales from
$45.3&nbsp;million or 11.2% of net sales, due to increased infrastructure
efficiencies, the elimination of expenses associated with operating Fatbrain&#146;s
Web site, and rate reductions in many expense categories. B&#038;N.com expects
technology and web site development expenses to decrease slightly as a
percentage of net sales in 2004.



<P align="center" style="font-size: 10pt">-17-
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>



<P align="left" style="font-size: 10pt"><I>General and Administrative</I>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="85%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="42%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="19"><B>Year ended December 31,</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="19"><B>(in thousands of dollars)</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>% Change</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>% Change</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2001</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">General and administrative</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">25,548</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2.7</TD>
    <TD nowrap>)%</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">26,265</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(18.8</TD>
    <TD nowrap>)%</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">32,362</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Percentage of net sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">6.0</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">6.2</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">8.0</TD>
    <TD nowrap>%</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;General and administrative expenses primarily consist of payroll and
related expenses for executive, finance and administrative personnel,
recruiting, professional fees and other general corporate expenses, including
costs to process credit card transactions. In 2003, general and administrative
expenses decreased to $25.5&nbsp;million or 6.0% of net sales from $26.3&nbsp;million or
6.2% of net sales primarily due to improved efficiencies. In 2002, the
decrease in general and administrative expenses, to $26.3&nbsp;million or 6.2% of
net sales from $32.4&nbsp;million or 8.0% of net sales, was a result of the
Company&#146;s efforts to consolidate operations as well as the result of its
continued effort to improve efficiency.


<P align="left" style="font-size: 10pt"><I>Depreciation and Amortization</I>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="85%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="35%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="19"><B>Year ended December 31,</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="19"><B>(in thousands of dollars)</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Restated</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>% Change</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>% Change</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2001</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Depreciation and
amortization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">27,467</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(18.0</TD>
    <TD nowrap>)%</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">33,502</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(20.2</TD>
    <TD nowrap>)%</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">41,981</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Percentage of net sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">6.5</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">7.9</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">10.4</TD>
    <TD nowrap>%</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The depreciation and amortization expenses decreased in 2003 due to assets
purchased in 2000 being fully depreciated throughout the year. The decrease in
depreciation and amortization expenses in 2002 is the result of lower capital
expenditures in fiscal 2002 and 2001 as compared with fiscal 2000. In 2002 the
Company no longer amortized goodwill due to the adoption of SFAS No.&nbsp;142.
Accordingly, the carrying balance of goodwill is assessed for recoverability on
an annual basis. Capital expenditures for 2004 are expected to be within the
range of $15&nbsp;million to $20&nbsp;million.


<P align="left" style="font-size: 10pt"><I>Impairments and Other Special Charges</I>


<div align="center">
<TABLE style="font-size: pt" cellspacing="0" border="0" cellpadding="0" width="55%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Year ended December 31,</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>(in thousands of dollars)</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2001</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD nowrap align="left">Impairments and other special charges</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD nowrap align="right">88,213</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD nowrap align="left">Percentage of net sales</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">21.8</TD>
    <TD align="left">%</TD>
</TR>

</TABLE>
</div>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the fourth quarter of 2001, B&#038;N.com recorded an impairment of assets
and other special charges of $88.2&nbsp;million ($0.56 per share assuming conversion
of Membership Units) as a component of operating expenses. These charges are
primarily related to the following:



<P align="left" style="margin-left:3%; font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Closure of Facilities- B&#038;N.com consolidated administrative and
functional operations by closing Fatbrain&#146;s Santa Clara, California office.
Fatbrain&#146;s two retail stores in San Jose and Sunnyvale, California were also
closed. Charges include exit costs related to the remaining term of
non-cancelable lease obligations of the retail and Santa Clara facilities,
related severance costs, as well as the abandonment of related fixed assets
that will not be suited for future use in other remaining B&#038;N.com facilities.
Furthermore, B&#038;N.com determined it could not effectively utilize the full
capacity of its Reno, Nevada distribution center. Accordingly, following
Board approval on January&nbsp;29, 2002, B&#038;N.com agreed to transfer the Reno warehouse lease and sell the Company&#146;s inventory
located in Reno to Barnes &#038; Noble.


<P align="center" style="font-size: 10pt">-18-


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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="margin-left: 3%; text-indent: 0%; margin-right: 0%; font-size: 10pt">The Board of Barnes &#038; Noble also approved
Barnes &#038; Noble&#146;s assumption of the lease obligation and the hiring of all the
employees at the Reno facility. The Reno lease assignment and the transfer
of the operations of the Reno facility to Barnes &#038; Noble was completed in
April&nbsp;2002. Charges related to the Reno facility include the abandonment of
fixed assets that are not suitable for use at other B&#038;N.com facilities.



<P align="left" style="margin-left:3%; font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Impairment of Fixed Assets- As of December&nbsp;31, 2001, B&#038;N.com wrote-off
certain fixed assets that were no longer used in operations.



<P align="left" style="margin-left:3%; font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Impairment of Other Non-Current Assets- B&#038;N.com concluded that the
carrying amount of certain equity investments, including Powered.com,
goodwill and other investments exceeded their fair value and that the decline
was other than temporary. The impairment loss was precipitated by the
significant decline in the value of Internet sector entities, material
changes in business models, and significant, recurring operating losses.



<P align="left" style="margin-left:0%; font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The consolidation of the Fatbrain administrative and functional operations
was completed in the first half of 2002, although the lease on the Santa Clara
office expires in 2006.


<P align="left" style="font-size: 10pt"><I>Equity in Net Loss of Equity Investments Including Amortization of Intangibles</I>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="65%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="57%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11"><B>Year ended December 31,</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11"><B>(in thousands of dollars)</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>% Change</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2001</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Equity in net loss of equity
investments including
amortization of intangibles</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">3,537</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(87.7</TD>
    <TD nowrap>)%</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">28,733</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Percentage of net sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">0.8</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">7.1</TD>
    <TD nowrap>%</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Equity in net loss of equity investments consists of losses from the
Company&#146;s equity investments in enews, inc. (&#147;enews&#148;), a retailer of magazine
subscriptions on the Internet. In July&nbsp;2002, the Board of Directors and
stockholders of enews approved a Plan of Complete Liquidation (the &#147;Liquidation
Plan&#148;). As of December&nbsp;31, 2003, the implementation of the Liquidation Plan
had been substantially completed and was concluded by February&nbsp;29, 2004. As of
December&nbsp;31, 2002, the Company had written off its entire investment in enews
of $3.3&nbsp;million. Equity in net loss of equity investments decreased in 2002 in
comparison with the prior year period as enews ceased operations in the fourth
quarter of 2002. In addition, the 2001 period included other equity
investments, which the Company no longer holds, as well as goodwill related to
those investments. As of December&nbsp;31, 2003, there was no remaining goodwill
related to equity investments.


<P align="left" style="font-size: 10pt"><I>Interest Income, Net</I>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="75%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="19"><B>Year ended December 31,</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="19"><B>(in thousands of dollars)</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>% Change</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>% Change</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2001</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Interest income, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">226</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(86.0</TD>
    <TD nowrap>)%</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,615</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(77.1</TD>
    <TD nowrap>)%</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">7,041</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Percentage of net sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">0.1</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">0.4</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">1.7</TD>
    <TD nowrap>%</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">-19-
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<P align="left" style="margin-left:0%; font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Interest income has continued to decrease year over year from 2002 and
throughout 2003 when compared to 2001 as cash and marketable securities
balances decreased on average due to their use as a source of funding the
Company&#146;s operations. In addition, all through 2003, 2002 and 2001, interest
rates on investments significantly decreased compared to rates earned in 2000.
Currently, available cash is invested in money market funds containing highly
liquid U.S. Treasury Securities, U.S. government agency securities and
investments in high quality corporate issuers.


<P align="left" style="font-size: 10pt"><I>Income Taxes</I>




<P align="left" style="margin-left:0%; font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company has not generated any taxable income to date and therefore has
not paid any federal income taxes since inception. The Company has provided a
full valuation allowance on the deferred tax asset, consisting primarily of net
operating loss carryforwards, because of uncertainty regarding its
realizability.


<P align="left" style="font-size: 10pt"><I>Results of Operations</I>




<P align="left" style="margin-left:0%; font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company expects that B&#038;N.com may experience significant fluctuations
in its future quarterly operating results due to a variety of factors, many of
which are outside B&#038;N.com&#146;s control. Factors that may adversely affect
B&#038;N.com&#146;s quarterly operating results include: (i)&nbsp;B&#038;N.com&#146;s ability to retain
existing customers, attract new customers at a steady rate and maintain
customer satisfaction; (ii)&nbsp;B&#038;N.com&#146;s ability to acquire product and to manage
fulfillment operations; (iii)&nbsp;B&#038;N.com&#146;s ability to maintain gross margins in
its existing business and in future product lines and markets; (iv)&nbsp;the
development, announcement, or introduction of new sites, services and products
by B&#038;N.com and its competitors; (v)&nbsp;price competition; (vi)&nbsp;B&#038;N.com&#146;s ability
to upgrade and develop its systems and infrastructure; (vii)&nbsp;the level of use
of the Internet and increasing consumer acceptance of the Internet for the
purchase of consumer products such as those offered by B&#038;N.com; (viii)
B&#038;N.com&#146;s ability to attract new and qualified personnel in a timely and
effective manner; (ix)&nbsp;the level of traffic on B&#038;N.com&#146;s online stores; (x)
B&#038;N.com&#146;s ability to manage effectively its development of new business
segments and markets; (xi)&nbsp;B&#038;N.com&#146;s ability to successfully manage the
integration of operations and technology of acquisitions and other business
combinations; (xii)&nbsp;technical difficulties, system downtime or Internet
brownouts; (xiii)&nbsp;the amount and timing of operating costs and capital
expenditures relating to expansion of B&#038;N.com&#146;s business, operations and
infrastructure; (xiv)&nbsp;the level of returns experienced by B&#038;N.com; (xv)
governmental regulation and taxation policies; (xvi)&nbsp;disruptions in service by
common carriers due to strikes or otherwise; (xvii)&nbsp;general economic conditions
including those specific to the Internet, e-commerce and book industry; (xviii)
the ability to secure or continue ongoing relationships with premier online
companies; and (xix)&nbsp;the factors described above under &#147;Forward Looking
Statements.&#148;


<P align="left" style="font-size: 10pt">Liquidity and Capital Resources




<P align="left" style="margin-left:0%; font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company finished 2003 with a debt-free balance sheet. At December&nbsp;31,
2003, the Company&#146;s cash and cash equivalents were $68.3&nbsp;million. At December
31, 2002, the Company&#146;s cash and cash equivalents were $70.1&nbsp;million, compared
with cash, cash equivalents and marketable securities of $115.3&nbsp;million on
December&nbsp;31, 2001. In addition, at December&nbsp;31, 2003, 2002 and 2001 the
Company had no long-term marketable securities.



<P align="left" style="margin-left:0%; font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net cash flows provided by operating activities were $8.0&nbsp;million for the
year ended December&nbsp;31, 2003. Net cash flows used in operating activities were
$39.6&nbsp;million and $85.2&nbsp;million for the years ended December&nbsp;31, 2002 and 2001,
respectively. Cash provided by operating activities in 2003 was due to
depreciation and amortization of $27.2&nbsp;million, an increase in payable to
affiliates of $23.7&nbsp;million, an accrued liabilities increase of $6.7&nbsp;million a
decrease in receivables of $9.3&nbsp;million. This was offset by a net loss of
$11.3&nbsp;million after minority interest of $35.0&nbsp;million. Additionally,
merchandise inventories increased $9.6&nbsp;million, accounts payable decreased $2.8
million and prepaid expenses and other current assets increased $0.1&nbsp;million.
Cash used in 2002 was due to a net loss of $20.1&nbsp;million after minority interest of
$53.5&nbsp;million.


<P align="center" style="font-size: 10pt">-20-
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<P align="left" style="font-size: 10pt">Additionally, accrued liabilities decreased $20.1&nbsp;million and
prepaid expenses and other current assets increased $0.1&nbsp;million. This was
offset by depreciation and amortization of $33.3&nbsp;million, an increase in
payable to affiliates of $4.7&nbsp;million, a decrease in receivables of $1.1
million, a decrease in merchandise inventories of $0.3&nbsp;million, equity in net
loss of equity investments including amortization of intangibles of $3.5
million and an increase in accounts payable of $11.4&nbsp;million. Cash used in
2001 was due to a net loss of $67.4&nbsp;million after minority interest of $177.0
million. Additionally, accounts payable decreased $14.4&nbsp;million, accrued
liabilities decreased $13.9&nbsp;million and merchandise inventories increased $0.3
million. This was offset by depreciation and amortization of $42.0&nbsp;million, an
increase in payable to affiliates of $16.4&nbsp;million, a decrease in receivables
of $10.4&nbsp;million, a decrease in prepaid expenses and other current assets of
$2.0&nbsp;million, impairment and special charges of $88.2&nbsp;million and equity in net
loss of equity investments including amortization of intangibles of $28.7
million.




<P align="left" style="margin-left:0%; font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net cash flows used in investing activities were $15.5&nbsp;million for the
year ended December&nbsp;31, 2003, due to purchases of fixed assets. Net cash flows
from investing activities were $4.6&nbsp;million for the year ended December&nbsp;31,
2002, due to a $10.1&nbsp;million redemption of marketable securities, a decrease in
acquisition and investments of businesses, net of cash acquired of $0.8&nbsp;million
and a decrease in other non-current assets of $0.1&nbsp;million; offset by purchases
of fixed assets of $6.4&nbsp;million. Net cash flows from investing activities
were $10.8&nbsp;million for the year ended December&nbsp;31, 2001, due to a $27.6&nbsp;million
redemption of marketable securities; offset by purchases of fixed assets of
$10.5&nbsp;million, an increase in acquisition and investments of businesses, net of
cash acquired of $4.4&nbsp;million and an increase of $1.9&nbsp;million in other
non-current assets.



<P align="left" style="margin-left:0%; font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net cash flows from financing activities were $5.6&nbsp;million for the year
ended December&nbsp;31, 2003, due to proceeds from the exercise of stock options.
There were no cash flows from financing activities in 2002 and 2001.



<P align="left" style="margin-left:0%; font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At December&nbsp;31, 2003, the Company&#146;s principal sources of liquidity
Consisted of $68.3&nbsp;million of cash and cash equivalents. At December&nbsp;31, 2002,
the Company&#146;s principal sources of liquidity consisted of $70.1&nbsp;million of cash
and cash equivalents. At December&nbsp;31, 2001, the Company&#146;s cash and cash
equivalents totaled $105.1&nbsp;million and $10.1&nbsp;million of short-term marketable
securities. As of December&nbsp;31, 2003 the Company&#146;s remaining principal
commitments consisted of obligations outstanding under operating leases. The
Company expects to gain leverage on previous investments in capital associated
with operations, infrastructure and personnel. The Company has no
unconsolidated majority owned subsidiaries and no interests in special purpose
entities.



<P align="left" style="margin-left:0%; font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following summarizes the Company&#146;s contractual obligations as of
December&nbsp;31, 2003 (in thousands):

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="85%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="42%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center"><B>Contractual Obligations</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="19"><B>Payments due by period</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Less than</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>More than</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Total</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>1 year</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>1-3 years</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>3-5 years</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>5 years</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Long-term debt</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Capital lease obligations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Operating leases <SUP>(1)</SUP></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">40,799</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,041</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,474</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,165</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,119</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Purchase obligations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,252</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,251</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,001</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Service arrangements <SUP>(2)</SUP>.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Other long-term
liabilities reflected on
the Company&#146;s balance
sheet under GAAP</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,367</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,616</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,751</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">51,418</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">10,908</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">16,226</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">7,165</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">17,119</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">-21-
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>




<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The Company has pledged a portion of its cash equivalents as
collateral for stand-by letters of credit that guarantee certain of the
Company&#146;s real property lease obligations. At December&nbsp;31, 2003, the
total amount of collateral pledged under these agreements was $4,353.</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The Company has entered into agreements with service providers, which
are transaction based and have no minimum commitments.</TD>
</TR>

</TABLE>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company believes that current cash and cash equivalent balances will
be sufficient to meet its anticipated cash needs for at least 12&nbsp;months.
However, any projection of future cash needs and cash flows is subject to
substantial uncertainty. If current cash and short-term investments in addition
to cash generated from operations are insufficient to satisfy the Company&#146;s
liquidity requirements, the Company may seek to sell additional equity or debt
securities or to obtain a credit facility. The sale of additional equity or
convertible debt securities could result in additional dilution to the
Company&#146;s stockholders. There can be no assurance that financing will be
available in amounts or on terms acceptable to the Company, if at all. In
addition, the Company will, from time to time, consider the acquisition of or
investment in complementary businesses, products and technologies, which might
increase the Company&#146;s capital requirements or cause the Company to issue
additional equity or debt securities.


<P align="left" style="font-size: 10pt">Off-Balance Sheet Arrangements



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company has no off-balance sheet arrangements (as defined in Item&nbsp;303
of Regulation&nbsp;S-K).

<DIV align="left">
<A name="111"></A>
</DIV>

<P>
<TABLE width="100%" border="0" cellpadding="2" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000">
<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>
<TR valign="top">

    <TD colspan="2"><B>Item&nbsp;7A. </B><B><I>Quantitative and Qualitative Disclosures About Market Risk</I></B></TD>
</TR>
</TABLE>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company previously invested in enews primarily for strategic purposes,
which had been accounted for under the equity method as it gave the Company the
ability to exercise significant influence, but not control, over the investee.
This is generally defined as an ownership interest in voting stock of the
investee between 20% and 50%, although other factors, such as representation on
the investee&#146;s Board of Directors and the impact of commercial arrangements,
are considered in determining whether the equity method is appropriate. The
Company regularly reviews the carrying value of its investments and identifies
and records impairment losses when events and circumstances indicate that such
assets are permanently impaired. In July&nbsp;2002, the Board of Directors and
stockholders of enews approved the Liquidation Plan. As of December&nbsp;31, 2003,
the implementation of the Liquidation Plan had been substantially completed and
was concluded by February&nbsp;29, 2004. As of December&nbsp;31, 2002, the Company had
written off its entire investment in enews of $3.3&nbsp;million and had no remaining
investments accounted for under the equity method.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;B&#038;N.com invests certain of its excess cash in money market funds consisting of
debt instruments of the U.S. Government and its agencies, and of high quality
corporate issuers. All highly liquid instruments with an original maturity of
three months or less are considered cash equivalents; those with original
maturities greater than three months and less than one year are classified as
short-term marketable securities. Long-term marketable securities mature in
periods greater than one year. B&#038;N.com is exposed to interest rate risk on the
debt instruments that it holds. The value of the Company&#146;s marketable
securities is subject to market price volatility. As of December&nbsp;31, 2003, the
Company&#146;s cash and cash equivalents totaled approximately $68.3&nbsp;million.


<P align="center" style="font-size: 10pt">-22-


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<DIV style="font-family: 'Times New Roman',Times,serif">


<P align="center" style="font-size: 10pt"><B>REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS</B>



<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">To the Board of Directors barnesandnoble.com inc.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have audited the accompanying consolidated balance sheets of
barnesandnoble.com inc. and subsidiaries, as of December&nbsp;31, 2003
(post-acquisition) and 2002 (pre-acquisition) and the related consolidated
statements of operations, stockholders&#146; equity, and cash flows for the years
ended December&nbsp;31, 2003, 2002 and 2001. These financial statements are the
responsibility of the Company&#146;s management. Our responsibility is to express an
opinion on these financial statements based on our audits.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
barnesandnoble.com inc. and subsidiaries at December&nbsp;31, 2003
(post-acquisition) and 2002 (pre-acquisition), and the results of their
operations and their cash flows for the years ended December&nbsp;31, 2003, 2002 and
2001 in conformity with accounting principles generally accepted in the United
States of America.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As discussed in Note 2 to the consolidated financial statements, effective
January&nbsp;1, 2002, the Company adopted Financial Accounting Standards Board
Statement No.&nbsp;142, &#147;Goodwill and Other Intangible Assets.&#148;


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As discussed in Note 1 to the consolidated financial statements, the
financial statements have been restated for the application of push down
accounting.


<P align="center" style="font-size: 10pt">BDO SEIDMAN, LLP



<P align="left" style="font-size: 10pt">/S/ BDO SEIDMAN, LLP<BR>
NEW YORK, NEW YORK<BR>
JANUARY 29, 2004,<BR>
Except for Note 1, as to which<BR>
the date is March&nbsp;31, 2004


<P align="center" style="font-size: 10pt">-23-
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<A name="112"></A>
</DIV>

<P align="left" style="font-size: 10pt"><B>Item&nbsp;8. </B><B><I>Financial Statements and Supplementary Data</I></B>



<P align="center" style="font-size: 10pt">barnesandnoble.com inc.<BR>
CONSOLIDATED BALANCE SHEETS


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="75%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="70%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Restated post-</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>acquisition</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Pre-acquisition</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>December 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>December 31,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>(in thousands, except</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>share data)</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD align="center"><DIV style="margin-left:10px; text-indent:-10px"> ASSETS</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Current assets:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Cash and cash equivalents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">68,344</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">70,144</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Receivables, net of allowance $1,892 and $4,048</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,368</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,631</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Merchandise inventories</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">57,900</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">48,303</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Prepaid expenses and other current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,072</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,991</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:50px; text-indent:-10px">Total current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">135,684</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">137,069</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Fixed assets, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">61,874</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">58,871</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Goodwill</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">102,137</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,777</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Trade name</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">44,700</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Intangible assets, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Other non-current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:50px; text-indent:-10px">Total assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">347,918</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">209,734</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center"><DIV style="margin-left:40px; text-indent:-10px"> LIABILITIES AND STOCKHOLDERS&#146; EQUITY</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Current liabilities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Accounts payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">13,277</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">16,071</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Accrued liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">77,197</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">70,456</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Payable to affiliate</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">71,957</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">48,261</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:50px; text-indent:-10px">Total current liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">162,431</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">134,788</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Minority interest</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">172,516</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">52,305</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Commitments and contingencies</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Stockholders&#146; equity:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Preferred Stock: $0.001 par value; 50,000,000 shares
authorized; none issued and outstanding</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Common Stock Series&nbsp;A: $0.001 par value; 750,000,000
shares authorized; 48,280,087 and 43,802,228
shares issued
and outstanding</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">48</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">44</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Common Stock Series&nbsp;B: $0.001 par value; 1,000 shares
authorized; 1 share issued and outstanding</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Common Stock Series&nbsp;C: $0.001 par value; 1,000 shares
authorized; 1 share issued and outstanding</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Paid-in capital</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">190,966</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">189,294</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Accumulated deficit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(178,043</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(166,697</TD>
    <TD nowrap>)</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:50px; text-indent:-10px">Total stockholders&#146; equity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,971</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22,641</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:50px; text-indent:-10px">Total liabilities and stockholders&#146; equity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">347,918</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">209,734</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">See accompanying notes to consolidated financial statements.


<P align="center" style="font-size: 10pt">-24-
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="center" style="font-size: 10pt">barnesandnoble.com inc.<BR>
CONSOLIDATED STATEMENTS OF OPERATIONS


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="75%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="50%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Restated</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>year ended</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Year ended</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Year ended</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>December 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>December 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>December 31,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2001</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11"><B>(in thousands, except per share data)</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">424,815</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">422,827</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">404,600</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Cost of sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">320,627</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">327,258</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">313,365</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Gross profit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">104,188</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">95,569</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">91,235</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Operating expenses:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Fulfillment and customer
service</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">36,595</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">35,990</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">44,637</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Marketing, sales and editorial</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30,390</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">35,760</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">61,418</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Technology and web site
development</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30,725</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">35,787</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">45,298</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">General and administrative</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,548</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26,265</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">32,362</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Depreciation and amortization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27,467</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33,502</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">41,981</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Impairments and other special
charges</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">88,213</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Equity in net loss of equity
investments, including
amortization of intangibles</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,537</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28,733</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Total operating expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">150,725</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">170,841</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">342,642</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Loss from operations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(46,537</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(75,272</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(251,407</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Interest income, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">226</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,615</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,041</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Loss before minority interest</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(46,311</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(73,657</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(244,366</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Minority interest</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">34,965</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">53,525</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">176,980</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net loss &#151; historical</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(11,346</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(20,132</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(67,386</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Basic net loss per common share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.28</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.46</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(1.54</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Basic weighted average common
shares outstanding<SUP>(1)</SUP></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">40,707</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">43,790</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">43,787</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>




<P>
<HR size="1" width="18%" align="left" noshade>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top">
    <TD width="1%" nowrap align="right">(1)</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="96%">All periods exclude the assumed conversion of Membership Units and the
elimination of minority interest, as it is not dilutive.</TD>
</TR>

</TABLE>



<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">See accompanying notes to consolidated financial statements.


<P align="center" style="font-size: 10pt">-25-
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="center" style="font-size: 10pt">barnesandnoble.com inc.<BR>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS&#146; EQUITY


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="85%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="69%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Common</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Stock</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Paid-in</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Accumulated</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Series A</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>capital</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>deficit</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11"><B>(in thousands)</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Balance, December&nbsp;31, 2000</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">44</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">189,279</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(79,179</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net loss, for the year, net of $176,980 minority interest</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(67,386</TD>
    <TD nowrap>)</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Balance, December&nbsp;31, 2001</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">44</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">189,279</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(146,565</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Exercise of stock options</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net loss, for the year, net of $53,525 minority interest</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(20,132</TD>
    <TD nowrap>)</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Balance, December&nbsp;31, 2002</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">44</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">189,294</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(166,697</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Exercise of stock options, net of $3,975 minority
interest</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,672</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net loss, for the year, net of $34,965 minority interest</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(11,346</TD>
    <TD nowrap>)</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Balance, December&nbsp;31, 2003</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">48</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">190,966</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(178,043</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">See accompanying notes to consolidated financial statements.


<P align="center" style="font-size: 10pt">-26-
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="center" style="font-size: 10pt">barnesandnoble.com inc.<BR>
CONSOLIDATED STATEMENTS OF CASH FLOWS


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="85%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="61%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Restated</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>year ended</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Year ended</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Year ended</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>December 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>December 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>December 31,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2001</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" colspan="3"><B>(in thousands)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Cash flows provided by (used in) operating
activities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Net loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(11,346</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(20,132</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(67,386</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Adjustments to reconcile net loss to net cash
flows provided by (used in) operating
activities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Depreciation and amortization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27,159</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33,298</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">41,981</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Equity in net loss of equity investments
including amortization of intangibles</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,537</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28,733</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Impairments and other special charges</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">88,213</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Changes in certain assets and liabilities, net of
effects from acquisition:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Decrease in receivables, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,263</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,067</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,431</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Decrease (increase)&nbsp;in merchandise
inventories</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(9,597</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">260</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(343</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Decrease (increase)&nbsp;in prepaid expenses and
other current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(81</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(117</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,011</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Increase (decrease)&nbsp;in accounts payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,794</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,419</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(14,414</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Increase in payable to affiliate</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23,696</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,730</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16,430</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Increase (decrease)&nbsp;in accrued liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,686</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(20,134</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(13,919</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Minority interest in loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(34,965</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(53,525</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(176,980</TD>
    <TD nowrap>)</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:40px; text-indent:-10px">Net cash flows provided by (used in)
operating activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,021</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(39,597</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(85,243</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Cash flows from (used in) investing activities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Purchases of fixed assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(15,462</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(6,413</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(10,529</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Sales of marketable securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,141</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27,554</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Decrease (increase)&nbsp;in acquisition and
investments in businesses, net of cash
acquired</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">763</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(4,408</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Decrease (increase)&nbsp;in other non-current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(6</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">110</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,858</TD>
    <TD nowrap>)</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Net cash flows from (used in) investing
activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(15,468</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,601</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,759</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Cash flows from financing activities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Proceeds from exercise of stock options</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,647</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:40px; text-indent:-10px">Net cash flows from financing activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,647</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net change in cash and cash equivalents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,800</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(34,981</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(74,484</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Cash and cash equivalents at beginning of
period</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">70,144</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">105,125</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">179,609</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Cash and cash equivalents at end of period</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">68,344</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">70,144</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">105,125</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>




<P>
<HR size="1" width="18%" align="left" noshade>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top">
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="96%">See accompanying notes to consolidated financial statements.</TD>
</TR>

</TABLE>


<P align="center" style="font-size: 10pt">-27-
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">






<P align="center" style="font-size: 10pt">barnesandnoble.com inc.<BR>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS<BR>
(in thousands, except per share data)



<P align="left" style="font-size: 10pt"><B>1. Business and organization</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;barnesandnoble.com inc. (the &#147;Company&#148;) is a holding company whose sole
asset is a 29.6% equity interest in barnesandnoble.com llc (&#147;B&#038;N.com&#148;), an
online retailer of books, music and DVD/video, and whose sole business is
currently acting as sole manager of B&#038;N.com. As sole manager of B&#038;N.com, the
Company controls all of the affairs of B&#038;N.com and as a result, B&#038;N.com is
consolidated with the Company. As of December&nbsp;31, 2003, Barnes &#038; Noble, Inc.
(&#147;Barnes &#038; Noble&#148;) beneficially owned an equity interest of 73.0%, (or 115,000
membership units and 4,139 shares of Class&nbsp;A Common Stock) in B&#038;N.com. Barnes &#038;
Noble increased its interest to that level on September&nbsp;15, 2003 by acquiring
the entire 36.8% equity interest of Bertelsmann AG (&#147;Bertelsmann&#148;) in B&#038;N.com
and the Company for $2.80 per share or membership unit, payable in a
combination of cash and notes. Each membership unit in B&#038;N.com (&#147;Membership
Unit&#148;) held by Barnes &#038; Noble is convertible into one share of the Company&#146;s
Class&nbsp;A Common Stock. As reflected in the consolidated statements of
operations, the loss before minority interest represents the total loss for the
period and the net loss represents the portion of the loss attributable to the
Company subsequent to the commencement of its activities.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Prior to October&nbsp;31, 1998, the business of B&#038;N.com was conducted by a
wholly owned subsidiary of Barnes &#038; Noble, which subsidiary was originally
incorporated on January&nbsp;14, 1997 in the State of Delaware under the name Barnes
&#038; Noble Online, Inc. (&#147;B&#038;N Online&#148;). Effective October&nbsp;31, 1998, Barnes &#038; Noble
and Bertelsmann completed a transaction that established B&#038;N.com as the owner
and operator of the business (the &#147;Formation Transaction&#148;). In connection with
the Formation Transaction, B&#038;N Online contributed substantially all of its
assets and liabilities to B&#038;N.com at their historical cost and Bertelsmann
contributed $150,000 and contributed an additional $50,000 in cash prior to the
effective date of the public offering. B&#038;N.com accounted for the investment
made by Bertelsmann in B&#038;N.com as a capital contribution. The completion of the
foregoing transactions resulted in Barnes &#038; Noble and Bertelsmann each having a
50% beneficial interest in B&#038;N.com, and B&#038;N Online changing its name to B&#038;N Sub
Corp.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On March&nbsp;10, 1999, Barnes &#038; Noble caused B&#038;N Sub Corp. to establish the
Company. On May&nbsp;24, 1999, B&#038;N Sub Corp. transferred its ownership of the
Company to B&#038;N.com Holding Corp (&#147;BN.com Holding Corp.&#148;). This resulted in
Barnes &#038; Noble owning 100% of BN.com Holding Corp., which owns 100% of the
Company. Subsequent to that, the Company filed an amended charter that, among
other things, reclassified its outstanding common stock to one share of Class&nbsp;B
Common Stock. The Company then issued one share of Class&nbsp;C Common Stock
constituting a 50% interest in the Company to a wholly owned subsidiary of
Bertelsmann. The completion of the foregoing transactions resulted in Barnes &#038;
Noble and Bertelsmann each having a 50% beneficial interest in the Company
through their ownership of all of the outstanding Class&nbsp;B and Class&nbsp;C Common
Stock.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On May&nbsp;25, 1999 the Company sold 28,750 shares of Class&nbsp;A Common Stock in
a public offering (the &#147;Offering&#148;). The Company used the $484,382 in proceeds
of the Offering to acquire its interest in B&#038;N.com. The acquisition of the
ownership interest in B&#038;N.com was treated as a reorganization of entities under
common control in a manner similar to a pooling of interests, analogous to the
type of transaction described in Emerging Issues Task Force Issue 97-2 (&#147;EITF
97-2&#148;). Accordingly, the net assets of B&#038;N.com contributed by Barnes &#038; Noble
were reported in the consolidated financial statements at Barnes &#038; Noble&#146;s
historical cost, and the minority interests in B&#038;N.com were based on the net
book equity of B&#038;N.com (after contribution of the proceeds from the Offering)
multiplied by the ownership percentages of Barnes &#038; Noble and Bertelsmann.


<P align="center" style="font-size: 10pt">-28-
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Subsequent to the Offering, the Company issued a total of 12,474 shares in
connection with an acquisition by merger of Fatbrain.com, Inc. (&#147;Fatbrain&#148;).
In the first half of 2002, Fatbrain&#146;s operations were consolidated into
B&#038;N.com. In October&nbsp;2002, Barnes &#038; Noble and Bertelsmann initiated a stock
acquisition program to acquire up to $10,000 of the Company&#146;s Class&nbsp;A Common
Stock.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On September&nbsp;15, 2003 Barnes &#038; Noble completed its acquisition of all of
Bertelsmann&#146;s interest in the Company and B&#038;N.com resulting in Barnes &#038; Noble
increasing its beneficial equity interest in the Company from approximately
38.0% to approximately 74.7% and its voting interest from approximately 48.4%
to approximately 96.6%. The purchase price paid by Barnes &#038; Noble was $165,406
(including acquisition costs of $1,253), equivalent to $2.80 per share or
Membership Unit. As a result of the substantial change in ownership from this
transaction, push down accounting has been applied to the Company&#146;s financial
statements. Accordingly, the proportionate share of the Company&#146;s assets
acquired and liabilities assumed have been adjusted to reflect Barnes &#038; Noble&#146;s
basis. The $151,260 step-up resulting from the purchase price allocation was
credited to the minority interest attributable to Barnes &#038; Noble.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Based upon a preliminary assessment of the fair values, the allocation of
the purchase price to the approximately 36.8% proportionate amount of assets
acquired and the liabilities assumed by Barnes &#038; Noble was as follows:

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="55%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="78%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">35,370</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Hardware and software</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23,600</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Other tangible assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,973</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Customer list and relationships</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,800</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Trade name</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">44,700</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Goodwill</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">93,372</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Total assets acquired</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">208,815</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Liabilities assumed</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">43,409</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Total purchase price</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">165,406</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Hardware and software have been assigned preliminary estimated useful
lives of four years. The customer list and relationships intangible asset has
been assigned a preliminary useful life of four years to be amortized on an
accelerated basis based on estimated usage, whereby a substantial portion of
the asset will be amortized in the first year. The above preliminary purchase
price allocation is subject to revision as more detailed analysis is completed
and additional information on the fair value of assets and liabilities of the
Company becomes available. Barnes &#038; Noble has engaged an independent third
party to perform a valuation analysis. The final purchase price allocation is
expected to be completed by the second quarter of 2004. It is possible that
some or all of the preliminary amounts may change. The final allocation to
goodwill and the trade name (which is considered to have an indefinite life and
will not be amortized) will be tested at least annually for impairment in
accordance with SFAS Statement No.&nbsp;142, &#147;Goodwill and Other Intangible Assets&#148;
(&#147;SFAS No.&nbsp;142&#148;).


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As a result of the above noted preliminary purchase price allocation, the
accompanying balance sheet as of December&nbsp;31, 2003 has been labeled Restated
post-acquisition to indicate the new basis of accounting reflected as of that
date. A similar distinction has not been reflected in the accompanying
statement of operations, since the amounts reported for sales, net loss and net
loss per share do not differ from those previously reported because the
additional amortization resulting from the purchase price adjustments have all
been attributable to the minority interest in the statement of operations.
Similarly, the pro forma results of the Company assuming the acquisition of
Bertelsmann&#146;s interest by Barnes &#038; Noble had occurred on January&nbsp;1, 2003 would
not differ from previously reported sales, net loss and net loss per share, and
therefore have not been provided.


<P align="center" style="font-size: 10pt">-29-
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table shows the effect of the restatement for the
application of push down accounting on the Company&#146;s December&nbsp;31, 2003 balance
sheet:

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="65%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="49%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center" colspan="13"><B>December 31, 2003 Balance Sheet</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center"><B>Impacted</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Net effects of</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center"><B>balance sheet</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>As originally</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>push down</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center"><B>line items</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>presented</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>accounting</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>As restated</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Fixed assets, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">48,474</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">13,400</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">61,874</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Goodwill</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,777</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">88,360</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">102,137</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Trade name</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">44,700</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">44,700</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Intangible assets, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,500</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Total assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">197,958</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">149,960</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">347,918</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Minority Interest</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22,556</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">149,960</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">172,516</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Total liabilities and
stockholders&#146; equity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">197,958</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">149,960</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">347,918</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On January&nbsp;8, 2004, the Company and Barnes &#038; Noble entered into a
definitive merger agreement. Under the terms of the merger, the holders of the
Company&#146;s outstanding common stock, other than that owned by Barnes &#038; Noble,
will be entitled to receive $3.05 in cash for each share that they own. As a
result of this transaction, which is subject to approval by the Company&#146;s
shareholders, the Company will become wholly owned by Barnes &#038; Noble. The
closing of the merger is expected to occur during the second quarter of fiscal
2004.


<P align="left" style="font-size: 10pt"><B>2. Summary of Significant Accounting Policies</B>



<P align="left" style="font-size: 10pt"><B>Consolidation</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The consolidated financial statements include the accounts of the Company
and its subsidiaries. The Company&#146;s investment in Fatbrain has been presented
in the accompanying consolidated financial statements, as a consolidated wholly
owned subsidiary beginning after the effective date of the merger, November&nbsp;16,
2000. As of April&nbsp;2003, the Company now receives commissions on sales of used
and out of print books, through BookQuest LLC (&#147;BookQuest&#148;), a service that
allows independent book dealers to sell their used books on the B&#038;N.com Web
site. All significant intercompany accounts and transactions have been
eliminated in consolidation. The Company has no unconsolidated majority owned
subsidiaries and no interests in special purpose entities.


<P align="left" style="font-size: 10pt"><B>Use of Estimates</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and revenues and expenses during the period reported. Actual results
could differ from those estimates.

<P align="center" style="font-size: 10pt">-30-
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="font-size: 10pt"><B>Concentration of Credit
Risk</B>

<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;B&#038;N.com is subject to concentrations of credit risk from its holdings of
cash, cash equivalents and short-term investments. B&#038;N.com&#146;s credit risk is
managed by investing its cash in high-quality money market instruments and
securities of the U.S. government and its agencies, foreign governments and
high-quality corporate issuers.


<P align="left" style="font-size: 10pt"><B>Merchandise Inventories</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Merchandise inventories are valued at the lower of cost or market as
determined on a weighted average basis. B&#038;N.com purchases a majority of its
products from two major vendors, Barnes &#038; Noble and AEC One Stop Group, Inc.
(&#147;AEC&#148;). Barnes &#038; Noble accounted for 34.5%, 34.2% and 45.2% of B&#038;N.com&#146;s
inventory purchases during the years ended December&nbsp;31, 2003, 2002 and 2001,
respectively. AEC accounted for the bulk of the Company&#146;s music and DVD/video
purchases and for 15.9%, 13.1% and 10.7% of total inventory purchases during
the years ended December&nbsp;31, 2003, 2002 and 2001, respectively. The Company
receives volume-based rebates from certain third party vendors, which is
recorded as a reduction to cost of sales.


<P align="left" style="font-size: 10pt"><B>Fixed Assets</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Fixed assets are carried at cost, less accumulated depreciation and
amortization. Computers and equipment are depreciated using the straight-line
method over their estimated useful lives of 3 to 10&nbsp;years. Leasehold
improvements are capitalized and amortized over the shorter of their estimated
useful lives or the remaining terms of the respective leases. In accordance
with Statement of Position 98-1 &#147;Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use&#148;, direct internal and external costs
associated with the development of the features and functionality of B&#038;N.com&#146;s
online store, transaction-processing systems, telecommunications infrastructure
and network operations, incurred during the application development stage, have
been capitalized, and are amortized over the estimated useful lives of three
years. B&#038;N.com expects to complete and put in service the remaining software
development projects that existed as of year-end.


<P align="left" style="font-size: 10pt"><B>Cash and Cash Equivalents</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All highly liquid instruments with an original maturity of three months or
less at the time of purchase are classified as cash equivalents.


<P align="left" style="font-size: 10pt"><B>Goodwill</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Effective July&nbsp;1, 2001, the Company adopted certain provisions of
Financial Accounting Standards Board (&#147;FASB&#148;) Statement of Financial Accounting
Standards (&#147;SFAS&#148;) No.&nbsp;141 &#147;Business Combinations&#148; (&#147;SFAS No.&nbsp;141&#148;), and
effective January&nbsp;1, 2002, the Company adopted the full provisions of SFAS No.
141 and SFAS No.&nbsp;142 &#147;Goodwill and Other Intangible Assets&#148; (&#147;SFAS No.&nbsp;142&#148;).
SFAS No.&nbsp;141 requires business combinations initiated after June&nbsp;30, 2001 to be
accounted for using the purchase method of accounting, and broadens the
criteria for recording intangible assets apart from goodwill. SFAS No.&nbsp;142
requires that purchased goodwill and certain indefinite-lived intangibles no
longer be amortized, but instead be tested for impairment at least annually.
As a result of adopting SFAS No.&nbsp;142, the Company ceased amortization of
goodwill beginning January&nbsp;1, 2002. Prior to the adoption of SFAS No.&nbsp;142, the
Company amortized goodwill on a straight-line basis over three years. The
Company has no other intangible assets.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SFAS No.&nbsp;142 prescribes a two-step process for impairment testing of
goodwill. The first step of this test, used to identify impairment, compares
the fair value of a reporting unit with its carrying amount including goodwill.
The second step (if necessary) measures the amount of the impairment. Using
the guidance in SFAS No.&nbsp;142, the Company has determined that the Company, as a
whole, is a reporting unit. The Company&#146;s annual impairment test indicated
that the fair value of the reporting unit exceeded the reporting unit&#146;s
carrying amount; accordingly, the second step was not necessary. The Company has
noted no subsequent indicators that would require testing goodwill for
impairment.


<P align="center" style="font-size: 10pt">-31-
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There were no changes in the carrying amount of goodwill for the years
ended December&nbsp;31, 2003 and 2002. In 2001, the Company determined that the
carrying value of the goodwill was impaired, resulting in a charge of $29,976
against goodwill. (See Note 4).


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Supplemental comparative disclosure, as if the change had been
retroactively applied, is as follows:

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="85%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11"><B>For the years ended December 31,</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2001</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net loss </DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(11,346</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(20,132</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(67,386</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Add back: Amortization of goodwill ($20,129 in 2001) net
of minority interest </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,556</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net loss, as adjusted </DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(11,346</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(20,132</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(61,830</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net loss per share:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Net loss </DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.28</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.46</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(1.54</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Amortization of goodwill </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.13</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net loss per share, as adjusted </DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.28</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.46</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(1.41</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt"><B>Investments in Equity Method Investees</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company has made certain investments in business entities accounted
for under the equity method of accounting. The Company accounts for an
investment under the equity method if the investment gives the Company the
ability to exercise significant influence over the operating and financial
policies of such entity. An investment of 20% or more of the voting stock
typically denotes such influence, in the absence of other evidence to the
contrary.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company has periodically evaluated whether the declines in fair value
of its equity investments are other-than-temporary. This evaluation consisted
of reviewing qualitative and quantitative factors including operating results
and trends, as well as market prices of public companies operating in the same
sector. As of December&nbsp;31, 2003, all investments in equity method investees
have no carrying value as the business entities invested in have ceased all
operations and are dissolved.


<P align="left" style="font-size: 10pt"><B>Impairment of Long-Lived Assets</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;B&#038;N.com reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable in accordance with SFAS No.&nbsp;144 &#147;Accounting for the Impairment
or Disposal of Long-Lived Assets&#148;. Recoverability of assets held and used is
measured by a comparison of the carrying amount of an asset to undiscounted
pre-tax future net cash flows expected to be generated by that asset. An
impairment loss is recognized for the amount by which the carrying amount of
the assets exceeds the fair value of the assets.


<P align="left" style="font-size: 10pt"><B>Fair Value of Financial Instruments</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The carrying amounts for the Company&#146;s cash and cash equivalents, accounts
payable, amounts due to affiliates and other liabilities approximate fair
value. The fair value for marketable securities is based on quoted market
prices that approximate cost.


<P align="center" style="font-size: 10pt">-32-
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<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="font-size: 10pt"><B>Net Sales</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company uses the guidelines set forth in FASB&#146;s Emerging Issues Task
Force (&#147;EITF&#148;) Issue No.&nbsp;99-19 &#147;Reporting Revenue Gross, as a Principal, versus
Net as an Agent,&#148; in recording revenue. Sales of B&#038;N.com&#146;s products are
recognized, net of estimated returns and promotional discounts, at the time the
products are shipped to customers. The Company now receives commissions on
sales of used and out of print books, through BookQuest, a service that allows
independent book dealers to sell their used books on the B&#038;N.com Web site.
Allowances for doubtful accounts are nominal.


<P align="left" style="font-size: 10pt"><B>Shipping and Handling Costs</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company uses guidelines set forth in EITF Issue No.&nbsp;00-10 &#147;Accounting
for Shipping and Handling Fees and Costs&#148;. Net sales reported by the Company
include revenue generated from shipping and handling charges. Costs related to
inbound and outbound shipping are classified as cost of sales. Fulfillment and
customer service costs include distribution center expenses for activities such
as receiving of goods, picking of goods for shipment and assembly for shipment,
as well as expenses to run the Company&#146;s customer service center.


<P align="left" style="font-size: 10pt"><B>Advertising Costs</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;B&#038;N.com expenses the costs of advertising for magazines, television, radio
and other media the first time the advertising takes place. Expenses for such
advertising were $5,307, $3,554 and $3,297 for the years ended December&nbsp;31,
2003, 2002 and 2001, respectively.


<P align="left" style="font-size: 10pt"><B>Technology and Web Site Development</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Technology and web site development expenses included in the accompanying
statements of operations consist principally of payroll and related expenses
for Web page production, network operations personnel and consultants, and
costs of infrastructure related to systems and telecommunications.


<P align="left" style="font-size: 10pt"><B>Net Loss Per Share</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Basic net loss per share is computed by dividing net loss by the weighted
average number of common shares outstanding during the period.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Diluted net loss per share is computed in a manner consistent with basic
net loss per share after giving effect to potentially dilutive securities.
Diluted net loss per share for the years ended December&nbsp;31, 2003, 2002 and 2001
excludes the assumed conversion of the outstanding Membership Units of B&#038;N.com
into 115,000 shares of Class&nbsp;A Common Stock of the Company and the minority
interest in the net loss, because it is not dilutive. Diluted net loss per
share for the years ended December&nbsp;31, 2003, 2002 and 2001 also excludes the
effect of outstanding stock options, none of which are dilutive.


<P align="center" style="font-size: 10pt">-33-
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<DIV style="font-family: 'Times New Roman',Times,serif">


<P align="left" style="font-size: 10pt"><B>Income Taxes</B>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;B&#038;N.com is a limited liability company and as such is not considered a
taxable entity for federal income tax purposes and most state income tax
purposes. The members report any taxable income or losses. As a result, no
tax benefits have been allocated to B&#038;N.com for its losses for all periods
presented. The Company recognizes deferred tax assets and liabilities based on
differences between the financial reporting and tax bases of assets and
liabilities using the enacted tax rates and laws that are expected to be in
effect when the differences are expected to be recovered. The Company provides
a valuation allowance for deferred tax assets for which it does not consider
realization of such assets to be more likely than not.


<P align="left" style="font-size: 10pt"><B>Stock Options</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company has one stock-based employee compensation plan in effect,
which is described more fully in Note 12. The Company accounts for all
transactions under which employees receive shares of stock or other equity
instruments in the Company based on the price of its stock in accordance with
the provisions of Accounting Principles Board Opinion No.&nbsp;25 &#147;Accounting for
Stock Issued to Employees&#148;. Options which have been repriced have been treated
as variable options. No stock-based employee compensation cost is reflected in
net loss, as all options granted under the plan had an exercise price equal to
the market value of the underlying common stock on the date of grant and the
market price of the stock subsequent to the repricing has not exceeded the
exercise price. The following table illustrates the effect on net loss and
earnings per share if the Company had applied the fair value recognition
provisions of SFAS No.&nbsp;123 &#147;Accounting for Stock-Based Compensation&#148; (&#147;SFAS No.
123&#148;).

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="75%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11"><B>Year ended December 31,</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2001</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net loss:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:40px; text-indent:-10px">As reported</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(11,346</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(20,132</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(67,386</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Deduct: Total stock-based
employee compensation expense
determined under fair value based
method for all awards ($7,034 in
2003, $12,088 in 2002, and
$13,518 in 2001), net of minority interest</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,951</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3,304</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3,728</TD>
    <TD nowrap>)</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px"></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><HR noshade size="1"></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><HR noshade size="1"></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><HR noshade size="1"></TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Proforma net loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(13,297</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(23,436</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(71,114</TD>
    <TD nowrap>)</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Basic net loss per share:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:40px; text-indent:-10px">As reported</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(0.28</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(0.46</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1.54</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:40px; text-indent:-10px">Proforma SFAS No.&nbsp;123</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.33</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.54</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(1.62</TD>
    <TD nowrap>)</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The fair value for each option granted was estimated at the date of grant
using the Black-Scholes option-pricing model, one of the allowable valuation
methods under SFAS No.&nbsp;123, with the following assumptions:

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="65%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="58%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11"><B>Year ended December 31,</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2001</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Average risk free interest rates</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">3.65</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">4.00</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">5.25</TD>
    <TD nowrap>%</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Average expected life (in years)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.65</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.00</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.00</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Volatility</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">102.27</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">140.07</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">112.73</TD>
    <TD nowrap>%</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The weighted-average fair value of the options granted during the years
2003, 2002 and 2001 was estimated to be $1.03, $1.06 and $1.06, respectively,
for options granted at fair market value.



<P align="center" style="font-size: 10pt">-34-
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<DIV style="font-family: 'Times New Roman',Times,serif">


<P align="left" style="font-size: 10pt"><B>3. Marketable Securities</B>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;B&#038;N.com invests certain of its excess cash in money market funds which
invest in debt instruments of the U.S. Government and its agencies, and of high
quality corporate issuers. All highly liquid instruments with an original
maturity of three months or less are considered cash equivalents; those with
original maturities greater than three months and less than one year are
classified as marketable securities. Long-term marketable securities mature in
a period greater than one year. B&#038;N.com classifies investments in accordance
with SFAS No.&nbsp;115 &#147;Accounting for Certain Investments in Debt and Equity
Securities&#148;.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company had no marketable securities as of December&nbsp;31, 2003 and 2002.


<P align="left" style="font-size: 10pt"><B>4. Acquisitions</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On November&nbsp;16, 2000, the Company acquired Fatbrain, the third largest
online bookseller, specializing in professional and technical titles for the
corporate marketplace, for $61,956 (paid 25% in cash and 75% in stock totaling
12,474 shares). The shares of Fatbrain were transferred to a wholly owned
subsidiary of B&#038;N.com in exchange for additional Membership Units. Subsequent
to the acquisition Fatbrain had been operated as Fatbrain.com, LLC. The
acquisition was accounted for under the purchase method of accounting and,
accordingly, the results of operations for the period subsequent to the
acquisition are included in the consolidated financial statements of the
Company. The excess of purchase price over the net assets acquired, in the
amount of $59,557, was recorded as goodwill and was amortized using the
straight-line method over an estimated useful life of three years until the
Company adopted SFAS No.&nbsp;142 in 2002. In the fourth quarter of 2001, the
Company determined that the carrying value of the goodwill was impaired,
resulting in a charge against the goodwill. The total impairment of $29,976
was determined by basing its fair value calculation on cash flows from Fatbrain
over a five-year period.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In connection with the acquisition of Fatbrain in 2000, B&#038;N.com assessed
and formulated plans to restructure certain operations of Fatbrain. These
plans involved the closure of the Fatbrain fulfillment facility in Kentucky as
well as a consolidation of administrative operations reducing the workforce at
Fatbrain&#146;s office in Santa Clara, California. The objectives of the plans were
to consolidate operations and leverage overhead expenses. The costs associated
with the consolidation effort were recorded as liabilities in the purchase
business combination and consisted of severance and other employee costs of
$1,059 and closure of the facility of $1,876, all of which has been paid by the
end of 2002.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In January&nbsp;2000, the Company acquired an approximate 32% interest in
enews, inc. (&#147;enews&#148;), a retailer of magazine subscriptions on the Internet,
and warrants to acquire additional common stock, for $26,428 in cash and 714
shares of the Company&#146;s stock valued at $12,857. During 2001, the Company
increased its investment in enews to approximately 49.5%. Due to market
conditions and operating expense requirements, it was determined in 2002 to
cease operations of enews. In July&nbsp;2002, the Board of Directors of enews
approved a Plan of Complete Liquidation (the &#147;Liquidation Plan&#148;), which was
then approved by stockholders of enews owning at least a majority of the
outstanding shares of capital stock of enews. As of December&nbsp;31, 2003, the
Liquidation Plan had been substantially completed and was concluded by February
29, 2004. As of December&nbsp;31, 2002, the Company had written off its remaining
investment in enews of $3,320.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;enews ceased all operations in October&nbsp;2002. Summarized statement of
operations information for enews, for the period during which the Company had
an investment, is as follows:

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="55%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="51%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Year ended</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>December 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>December 31,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2001</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">3,964</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">6,272</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Gross Profit (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,721</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,782</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(3,528</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(14,890</TD>
    <TD nowrap>)</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">-35-
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<DIV style="font-family: 'Times New Roman',Times,serif">


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In June&nbsp;2000, B&#038;N.com invested $20,000 in cash for a 25% equity interest
in MightyWords, Inc. (&#147;MightyWords&#148;), a provider of digital content. As a
result of the purchase of Fatbrain, the Company owned approximately 53% of the
shares in MightyWords. The Company had accounted for this acquisition using
the equity method of accounting, as control of MightyWords was deemed temporary
by the management of B&#038;N.com. In December&nbsp;2001, MightyWords&#146; Board of
Directors voted to dissolve MightyWords effective as soon as possible. The
Company determined that its investment in MightyWords was impaired and took an
impairment charge of $2,907 based on the estimated net liquidation value of
$3,228. Liquidation of MightyWords was completed in 2002 with a net
liquidation value of $3,408.


<P align="left" style="font-size: 10pt"><B>5. Fixed Assets</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Fixed assets, at cost, consist of the following:

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="65%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Restated</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>December 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>December 31,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Computers and equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">78,782</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">83,434</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Leasehold improvements</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,131</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,846</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Software</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">54,171</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">65,026</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
 <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><HR noshade size="1"></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><HR noshade size="1"></TD>
    <TD>&nbsp;</TD>
</TR>


<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">146,084</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">163,306</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Less: accumulated depreciation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">84,210</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">104,435</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
 <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><HR noshade size="1"></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><HR noshade size="1"></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Fixed assets, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">61,874</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">58,871</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
 <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><HR noshade size="4"></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><HR noshade size="4"></TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of September&nbsp;15, 2003 a proportionate share of the fixed assets was
adjusted to reflected Barnes &#038; Noble&#146;s basis.


<P align="left" style="font-size: 10pt"><B>6. Accrued Liabilities</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accrued liabilities consist of the following:

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="55%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="66%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>December 31,</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Accrued merchandise payables</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">40,021</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">25,352</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Accrued special charges</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,052</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,293</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Accrued fixed assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,208</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">752</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Accrued compensation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,229</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,823</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Accrued advertising</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">547</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,365</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Accrued gift certificates</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,035</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,566</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,105</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,305</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">77,197</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">70,456</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt"><B>7. Impairments and Special Charges</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Impairment and Special Charges were $88,213 for the year ended December
31, 2001. In the fourth quarter of 2001, B&#038;N.com initiated a company-wide
assessment of its cost structure, investments, and other long-term assets
including goodwill. In connection with that assessment an impairment of fixed
assets and other special charges of $88,213 ($0.56 per share assuming
conversion of Membership Units) were recorded as a component of operating
expenses during the fourth quarter of 2001. These charges are primarily
related to the following:


<P align="center" style="font-size: 10pt">-36-
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Closure of Facilities- B&#038;N.com consolidated administrative and
functional operations by closing Fatbrain&#146;s Santa Clara, California office.
Fatbrain&#146;s two retail stores in California were also closed. Charges include
exit costs related to the remaining term of non-cancelable lease obligations
of the retail and Santa Clara facilities, related severance costs, as well as
the abandonment of related fixed assets that will not be suited for future
use in other remaining B&#038;N.com facilities. Furthermore, B&#038;N.com recently
determined it could not effectively utilize the full capacity of its Reno,
Nevada distribution center. Accordingly, following Board approval on January
29, 2002, B&#038;N.com agreed to transfer the Reno warehouse lease and sell the
Company&#146;s inventory located in Reno to Barnes &#038; Noble. The Board of Barnes &#038;
Noble also approved Barnes &#038; Noble&#146;s assumption of the lease obligation and
the hiring of all the employees at the Reno facility. The Reno lease
assignment and the transfer of the operations of the Reno facility to Barnes
&#038; Noble was completed during the first half of 2002. Charges related to the
Reno facility include the abandonment of fixed assets that were not suitable
for use at other B&#038;N.com facilities.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Impairment of Fixed Assets- As of December&nbsp;31, 2001, B&#038;N.com wrote-off
certain fixed assets that were no longer used in operations.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Impairment of Other Non-Current Assets- B&#038;N.com concluded that the
carrying amount of certain equity investments, including Powered.com,
goodwill and other investments, exceeded their fair value and that the
decline was other than temporary. The impairment loss was precipitated by
the significant decline in the value of Internet sector entities, material
changes in business models, and significant, recurring operating losses.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The consolidation of the Fatbrain administrative and functional operations
was completed in the first half of 2002, although the lease on the Santa Clara
office expires in 2006.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A summary of the impairment and special charges for the years ended
December&nbsp;31, 2001 is as follows:

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="55%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="82%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>December 31,</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2001</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Facility closure costs</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">33,442</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Impairment of Fatbrain goodwill</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29,976</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Impairment of equity investments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,158</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Impairment of fixed and other assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,637</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">88,213</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The components of the accrued liability associated with the special
charges are as follows:

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="95%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="29%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Balance</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Balance</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Balance</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Due within</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Due after</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>31-Dec-01</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Payments</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>31-Dec-02</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Payments</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>31-Dec-03</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>12 Months</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>12 Months</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Facility/Lease
Termination
Costs</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">6,997</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(2,428</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">4,569</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(1,202</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">3,367</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,616</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,751</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Employee
Termination
Benefits</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,436</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(4,356</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">80</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(30</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">50</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">50</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Accrued Settlement
Agreements</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,014</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,370</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">644</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(9</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">635</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">635</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">13,447</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(8,154</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">5,293</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(1,241</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">4,052</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">2,301</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,751</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">-37-
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<P align="left" style="font-size: 10pt"><B>8. Income Taxes</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company did not provide any current or deferred U.S. federal or state
income tax provision or benefit for any of the periods presented because it has
experienced operating losses since inception. At December&nbsp;31, 2003, the
Company had net operating loss carryforwards of approximately $137,028 related
to U.S. federal and state jurisdictions. Utilization of net operating loss
carryforwards, which begin to expire at various times starting in 2010, may be
subject to certain limitations under the Internal Revenue Code.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The deferred tax asset as of December&nbsp;31, 2003 was approximately $51,424,
which consisted of net operating loss carryforwards. The Company has provided
a full valuation allowance on the deferred tax asset because of uncertainty
regarding its realization.


<P align="left" style="font-size: 10pt"><B>9. Stockholders&#146; Equity</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There are three classes of common stock authorized: Class&nbsp;A Common Stock
(&#147;Class&nbsp;A Common&#148;), Class&nbsp;B Common Stock (&#147;Class&nbsp;B Common&#148;) and Class&nbsp;C Common
Stock (&#147;Class&nbsp;C Common&#148;). The holders of Class&nbsp;A Common generally have rights
identical to holders of Class&nbsp;B Common and Class&nbsp;C Common (collectively &#147;High
Vote Stock&#148;), except that each holder of Class&nbsp;A Common is entitled to one vote
per share and each holder of High Vote Stock is entitled to the number of votes
per share equal to: (i)&nbsp;10, multiplied by the sum of (a)&nbsp;the aggregate number
of High Vote Stock owned by such holder and (b)&nbsp;the aggregate number of
Membership Units owned by such holder; divided by (ii)&nbsp;the number of shares of
High Vote Stock owned by such holder. Pursuant to the Company&#146;s Amended and
Restated Certificate of Incorporation (the &#147;Amended Charter&#148;), each share of
High Vote Stock entitles the holder to directly elect three of the Company&#146;s
directors. Otherwise, holders of Class&nbsp;A Common and High Vote Stock
(collectively &#147;Common Stock&#148;) generally will vote together as a single class on
all matters (including the election of the directors who are not elected
directly by the holders of the High Vote Stock) presented to the stockholders
for their vote or approval, except as otherwise required by applicable Delaware
law.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Board of Directors, currently consisting of six members, is authorized
to issue up to an aggregate of 50,000 shares of Preferred Stock. The rights
and characteristics of the Preferred Stock are at the discretion of the Board
of Directors. There is no Preferred Stock outstanding.


<P align="left" style="font-size: 10pt"><B>10. Commitments</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;B&#038;N.com currently leases warehouse facilities, office space and equipment
under non-cancelable operating leases. Rental expense under operating lease
agreements was $5,049, $6,055 and $7,772 for the years ended December&nbsp;31, 2003,
2002 and 2001, respectively.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Future minimum lease payments under non-cancelable operating leases as of
December&nbsp;31, 2003 are:

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="55%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="59%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="17%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="18%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Future</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>Year ending</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>minimum lease</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>December 31,</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>payments</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">2004</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">5,041</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,872</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,801</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">2007</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,801</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">2008</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,801</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Thereafter </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,483</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">40,799</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">-38-
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>


<DIV style="font-family: 'Times New Roman',Times,serif">


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company has pledged a portion of its cash equivalents for stand-by
letters of credit that guarantee certain real property leases. Obligations
under letters of credit as of December&nbsp;31, 2003, 2002 and 2001 were $4,353,
$3,809 and $3,989, respectively.


<P align="left" style="font-size: 10pt"><B>11. Employees&#146; Retirement and Defined Contribution Plans</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of June&nbsp;30, 2000, substantially all employees of the Company were
covered under the Company&#146;s Employees&#146; Retirement Plan (the &#147;Retirement Plan&#148;).
The Retirement Plan is a defined benefit pension plan. As of July&nbsp;1, 2000,
the Retirement Plan was amended so that employees no longer earn benefits for
subsequent service. Subsequent service continues to be the basis for vesting
of benefits not yet vested at June&nbsp;30, 2000 and the Retirement Plan will
continue to hold assets and pay benefits. The amendment was treated as a
curtailment in fiscal 2000.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Actuarial assumptions used in determining the funded status of the
Retirement Plan are as follows:

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="65%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="80%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>December 31,</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Discount rate (beginning of year)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">6.50</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">7.25</TD>
    <TD nowrap>%</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Discount rate (end of
year)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">6.25</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">6.50</TD>
    <TD nowrap>%</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Expected long-term rate of return on plan assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">8.75</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">8.75</TD>
    <TD nowrap>%</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Assumed rate of compensation increase</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">N/A</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">N/A</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth the funded status of the Retirement Plan
and the pension liability recognized for the Retirement Plan in the
accompanying balance sheets:

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="75%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="78%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>December 31,</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Actuarial present value of benefit obligation:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Vested benefits</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(845</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(684</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Non-vested benefits</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(94</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(189</TD>
    <TD nowrap>)</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Accumulated benefit obligation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(939</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(873</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Effect of projected future compensation increases</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Projected benefit obligation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(939</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(873</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Plan assets at market value</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">988</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">827</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Excess (deficiency)&nbsp;of plan assets over projected
benefit obligation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">49</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(46</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Unrecognized net actuarial loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">339</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">442</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Unrecognized net obligation remaining</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Unrecognized prior service cost</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Pension asset</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">388</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">396</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>

<P align="center" style="font-size: 10pt">-39-
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company&#146;s Retirement Plan allocation at December&nbsp;31, 2003 and 2002,
target allocation for 2004 and expected long-term rate of return by asset
category are as follows:

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="75%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="56%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Percentage of plan</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Target<BR>allocation</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>assets at December 31,</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Weighted average<BR>expected long-term</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center"><B>Asset Category</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>rate of return - 2004</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->

<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Large Capitalization Equities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">25.0</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">24.9</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">21.5</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">2.9</TD>
    <TD nowrap>%</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Mid Capitalization Equities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.7</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Small Capitalization Equities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.7</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">International Equities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.6</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Fixed Income Core Bonds</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">35.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">34.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.9</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Global Bonds</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.3</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Cash</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.0</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">100.0</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">100.0</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">100.0</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">9.1</TD>
    <TD nowrap>%</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company&#146;s investment strategy is to obtain the highest possible return
commensurate with the level of assumed risk. Investments are very well
diversified within each of the major asset categories.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The expected long-term rate of return is figured by using the target
allocation and expected returns for each class as in the table stated above.
The actual historical returns are also relevant. Annualized returns for
periods ending December&nbsp;31, 2003 have been as follows: 23.7% for one year and
6.7% for five years.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We expect that there will be no regulatory funding requirements that will
need to be made during the fiscal year ending December&nbsp;31, 2004. It is also
expected that the maximum tax-deductible contributions will be $0 under
Internal Revenue Service rules.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Accumulated Benefit Obligation of the Retirement Plan was as follows:

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="55%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="78%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>December 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>December 31,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Accumulated Benefit Obligation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">939</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">873</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Expected benefit payments are as follows over future years:

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="55%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="83%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">1/1/2004 - 12/31/2004</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">6</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">1/1/2005 - 12/31/2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">1/1/2006 - 12/31/2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">1/1/2007 - 12/31/2007</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">1/1/2008 - 12/31/2008</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">1/1/2009 - 12/31/2013</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">144</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;B&#038;N.com is a participating employer in a defined contribution plan (the
&#147;Savings Plan&#148;), sponsored by Barnes &#038; Noble, for the benefit of substantially
all of its employees who meet certain eligibility requirements, primarily age
and length of service. The Savings Plan allows employees to invest up to 15%
of their current gross cash compensation on a pre-tax basis. B&#038;N.com&#146;s
contributions to the Savings Plan are generally in amounts based upon a certain
percentage of the employees&#146; pre-tax contributions. B&#038;N.com provides matching
contributions to participants in the amount of 100% of the first 3% of earnings
and 50% of the next 2% contributed by them, which contributions are made
consistent with the employees direction. The Fatbrain Savings Plan was merged
into the Savings Plan on November&nbsp;1, 2001. Charges for the Savings Plan were
$741, $796 and $794 for each of the years ended December&nbsp;31, 2003, 2002 and
2001, respectively.


<P align="center" style="font-size: 10pt">-40-
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;B&#038;N.com&#146;s Deferred Compensation Plan is a non-qualified plan, eligibility
for which is limited to &#147;Eligible Executives,&#148; who include: (i)&nbsp;the Company&#146;s
employees who became B&#038;N.com employees on November&nbsp;1, 1998 and were eligible to
participate in the Barnes &#038; Noble deferred compensation plan on October&nbsp;31,
1998; and (ii)&nbsp;the Company&#146;s employees whose base salary for a calendar year
exceeds $130. An Eligible Executive may elect in each year he or she is an
Eligible Executive to defer no less than $5 and no more than 50% of his or her
base salary to a Deferral Account. The Deferral Account of each Eligible
Executive who elects to participate in the Deferred Compensation Plan (a
&#147;Participant&#148;) is credited or debited with investment earnings or losses based
upon the performance of the investment fund or index selected by the
Participant from among alternatives selected by an Administrative Committee
appointed by the Compensation Committee of the Board of Directors.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A participant is entitled to a distribution of his or her Deferral Account
upon retirement or following termination of employment, as elected by the
Participant, but no later than the beginning of the year in which the
Participant would attain age 70 1/2. A Participant may elect whether to receive
the distribution in a lump sum or, at retirement, in annual installments over
not more than fifteen (15)&nbsp;years.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Amounts payable under the Deferred Compensation Plan are general unsecured
obligations of B&#038;N.com, payable out of B&#038;N.com&#146;s general assets to the extent
not paid by a grantor trust that the Company may establish. The Company may
amend or terminate the Deferred Compensation Plan at any time without affecting
any of the rights granted prior to termination. In 2003 the Company paid $25
in relation to the Deferred Compensation Plan.


<P align="left" style="font-size: 10pt"><B>12. Stock Incentive Plan</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 1998, B&#038;N.com had one incentive plan (the &#147;1998 Plan&#148;)
under which stock options were granted to key officers, employees, consultants,
advisors, and managers of B&#038;N.com and its subsidiaries and affiliates. The
Compensation Committee of the Board of Managers was responsible for the
administration of the 1998 Plan. Generally, options were granted at fair
market value, began vesting one year after grant in 25% increments, were to
expire 10&nbsp;years from issuance and were conditioned upon continual employment
during the vesting period. Options granted under the 1998 Plan were replaced
with options to purchase shares of the Class&nbsp;A Common of the Company under the
Company&#146;s 1999 Incentive Plan (the &#147;1999 Plan&#148;). The 1999 Plan is
substantially the same as the 1998 Plan, and is administered by the
Compensation Committee of the Company&#146;s Board of Directors. The 1999 Plan
allows the Company to grant options to purchase 25,500 shares of the Company&#146;s
Class&nbsp;A Common.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A summary of the status of stock options as of December&nbsp;31, 2003 is
presented below:

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="55%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="65%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Outstanding options</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Weighted average</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Number of</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>exercise price</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>shares</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>per share</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Balance December&nbsp;31, 2002</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,172</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">3.11</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Options granted </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,421</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.48</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Options forfeited
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,173</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.46</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Options exercised
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(4,478</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.29</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Balance December&nbsp;31, 2003</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,942</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">3.29</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">-41-
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table summarizes information as of December&nbsp;31, 2003
concerning outstanding and exercisable options:

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="95%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="36%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Options outstanding</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Options exercisable</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Weighted average</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center"><B>Range of</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>remaining</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Weighted average</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Weighted average</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center"><B>exercise price</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Number</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>contractual</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>exercise price</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Number</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>exercise price</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center"><B>per share</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>outstanding</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>life (in years)</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>per share</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>exercisable</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>per share</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">0.8000 - 2.4300</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,439</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7.74</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1.25</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,292</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1.22</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">2.5000 - 4.9062</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,385</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.55</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.79</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,385</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.79</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">5.1250 - 8.0000</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,563</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.61</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7.93</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,563</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7.93</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">8.1250 - 18.3750</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">555</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6.33</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9.43</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">555</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9.43</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,942</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6.60</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">3.29</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,795</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">3.28</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Grants during 2003, 2002 and 2001 were at fair value; therefore, no
compensation expense was recorded.
Equity Compensation Plan information for the year ended December&nbsp;31, 2003 is as
follows:

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="95%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="62%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Number of securities</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>remaining available for</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Number of securities</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>future issuance under</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>to be issued upon</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Weighted-average</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>equity compensation</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>exercise of</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>exercise prices of</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>plans (excluding</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>outstanding options,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>outstanding options,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>securities reflected in</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>Plan Category</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>warrants and rights</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>warrants and rights</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>column (a))</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>&nbsp;</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>(a)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>(b)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>(c)</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Equity Compensation Plans
Approved
by Security Holders</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,942</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">3.29</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,217</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Equity Compensation Plans Not
Approved by Security Holders</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,942</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">3.29</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,217</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt"><B>13. Litigation</B>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In August&nbsp;1998, The Intimate Bookshop, Inc. and its owner, Wallace Kuralt,
filed a lawsuit in the United States District Court for the Southern District
of New York against a predecessor of the Company, Barnes &#038; Noble, Borders
Group, Inc. and others, alleging violation of the Robinson-Patman Act and other
federal law, New York statutes governing trade practices and common law. In
March&nbsp;2000, a Second Amended Complaint was served on the Company and other
defendants alleging a single cause of action for violations of the
Robinson-Patman Act. The Second Amended Complaint claims that The Intimate
Bookshop, Inc. has suffered damages of $11,250 or more and requests treble


<P align="center" style="font-size: 10pt">-42-
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<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="left" style="font-size: 10pt">damages, costs, attorneys&#146; fees and interest, as well as declaratory and
injunctive relief prohibiting the defendants from violating the Robinson-Patman
Act. The Company served an Answer in April&nbsp;2000 denying the material
allegations of the Second Amended Complaint and asserting various affirmative
defenses. On January&nbsp;11, 2002, the Company and the other defendants filed a
motion for summary judgment. A hearing on that motion was held on March&nbsp;22,
2002. On September&nbsp;30, 2003, the court granted defendants&#146; motion and
dismissed all of plaintiff&#146;s claims. Plaintiff filed a notice of appeal of
that decision, which was withdrawn on February&nbsp;10, 2004.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There is a class action lawsuit entitled In Re Initial Public Offering
Securities Litigation pending since April&nbsp;2002 in the United States District
Court for the Southern District of New York (the &#147;Action&#148;). The Action named
over one thousand individuals and 300 corporations, including Fatbrain (a
Company subsidiary) and its former officers and directors. The Amended
Complaints in the Action all allege that the initial public offering
registration statements filed by the defendant issuers with the Securities and
Exchange Commission, including the one filed by Fatbrain, were false and
misleading because they failed to disclose that the defendant underwriters were
receiving excess compensation in the form of profit sharing with certain of its
customers and that some of those customers agreed to buy additional shares of
the defendant issuers&#146; common stock in the after market at increasing prices.
The Amended Complaints also allege that the foregoing constitute violations of:
(i)&nbsp;Section&nbsp;11 of the Securities Act of 1933, as amended (the &#147;1933 Act&#148;) by
the defendant issuers, the directors and officers signing the related
registration statements, and the related underwriters; (ii)&nbsp;Rule&nbsp;10b-5
promulgated under the Securities Exchange Act of 1934 (the &#147;1934 Act&#148;) by the
same parties; and (iii)&nbsp;the control person provisions of the 1933 and 1934 Acts
by certain directors and officers of the defendant issuers. A motion to
dismiss by the defendant issuers, including Fatbrain, was denied. After
extensive negotiations among representatives of plaintiffs and defendants, a
memorandum of understanding (&#147;MOU&#148;), outlining a proposed settlement resolving
the claims in the Action between plaintiffs and the defendant issuers, has been
entered into. A draft settlement agreement has been prepared and circulated
among the defendants and plaintiffs in the action, the terms of which are
consistent with the MOU and which, after execution, will be submitted to the
court for approval. The proposed settlement is not expected to have any
material adverse impact on the Company.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On August&nbsp;16, 2002, B&#038;N.com, along with 17 other defendants, was sued in
the United States District Court for the Eastern District of Texas by Charles
E. Hill Associates for patent infringement of United States Patent Nos.
5,528,490 (the &#147;490 Patent&#148;), 5,761,649 and 6,029,142. On November&nbsp;7, 2002,
B&#038;N.com and the other defendants answered and filed counterclaims for a
declaratory judgment of non-infringement, invalidity and unenforceability of
all three patents. On November&nbsp;27, 2002, B&#038;N.com joined the other defendants
in filing a motion to change venue to the United States District Court for the
Southern District of Indiana, where an earlier filed case against Compuserve,
one of the defendants in the Texas case, was pending involving only the 490
Patent. On January&nbsp;23, 2003, the court granted the motion to transfer and the
transferred case was assigned to Judge McKinney in Indianapolis. On November
24, 2003, the Indiana court dismissed the case which Hill had filed against
Compuserve alone (Cause no. IP97-0434-C-M/S, Indiana) with prejudice based on
the filing of a covenant not to sue by Hill. Consequently, on November&nbsp;25,
2003, the Indiana court granted Hill&#146;s motion to retransfer the case back to
the U.S. District Court for the Eastern District of Texas. Compuserve has
appealed the dismissal with prejudice and made a motion to stay the retransfer
pending the outcome of the appeal, which motion was denied. The retransferred
case has been reassigned to Judge Ward in the Eastern District of Texas.
B&#038;N.com intends to vigorously defend this action.


<P align="center" style="font-size: 10pt">-43-
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<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On November&nbsp;19, 2002, Half Price Books, Records, Magazine, Inc. filed a
complaint against B&#038;N.com in the United States District Court for the Northern
District of Texas. The complaint alleges trademark infringement and related
claims against B&#038;N.com for its use of the term &#147;Half Price Books&#148; on its Web
site. B&#038;N.com has responded to the complaint denying plaintiff&#146;s claims. The
plaintiff&#146;s motion for preliminary injunction was denied. B&#038;N.com&#146;s motion for
summary judgment for dismissal of all of plaintiff&#146;s claims is currently
pending before the court. Settlement discussions are occurring through a court
appointed mediator. B&#038;N.com intends to vigorously defend itself against this
action.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Following the November&nbsp;7, 2003 announcement of Barnes &#038; Noble&#146;s proposal
to purchase all of the outstanding shares of the Company&#146;s common stock at a
price of $2.50 per share in cash, fifteen substantially similar putative class
action lawsuits were filed by individual stockholders of the Company against
the Company, the Company&#146;s directors and Barnes &#038; Noble in the Delaware Court
of Chancery. The complaints in these actions, which purported to be brought on
behalf of all of the Company&#146;s stockholders excluding the defendants and their
affiliates, generally alleged (i)&nbsp;breaches of fiduciary duty by Barnes &#038; Noble
and the Company&#146;s directors, (ii)&nbsp;that the consideration offered by Barnes &#038;
Noble was inadequate and constituted unfair dealing and (iii)&nbsp;that Barnes &#038;
Noble, as controlling stockholder, breached its duty to the Company&#146;s remaining
stockholders by acting to further its own interests at the expense of the
Company&#146;s remaining stockholders. The complaints sought to enjoin the proposal
or, in the alternative, damages in an unspecified amount and rescission in the
event a merger occurred pursuant to the proposal. The complaints were
eventually consolidated under the caption In re BarnesandNoble.com, Inc.
Shareholders Litigation, Consolidated Civil Action No.&nbsp;042-N.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On January&nbsp;8, 2004, the parties executed a Memorandum of Understanding
reflecting the parties&#146; agreement to settle the action. Pursuant to the terms
of the Memorandum of Understanding, the parties agreed in good faith to execute
as soon as practicable a Stipulation of Settlement providing for, among other
things, the release of all claims of the plaintiffs and other members of the
class against defendants that were or could have been asserted in the action or
in any way arise out of or in connection with the merger. The Stipulation of
Settlement also is to expressly provide that the defendants in the action deny
that they have committed any violation of law whatsoever and are entering into
the Stipulation of Settlement solely to eliminate the burden, expense and
distraction of further litigation and to permit the merger to proceed as
scheduled.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The parties subsequently agreed that plaintiffs&#146; counsel will apply to the
court for an award of attorney&#146;s fees and costs in the amount of $600 and that
defendants will not object to a fee award up to that amount. It was further
agreed that defendants would pay or reimburse the costs of mailing. The
settlement is contingent upon, among other things, court approval, the merger
consideration being $3.05 per share in cash and consummation of the merger.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition to the litigations described above, the Company and B&#038;N.com
are involved in various legal proceedings incidental to the conduct of their
business. The Company does not believe that any of those legal proceedings
will have a material adverse effect on the financial condition, results of
operations or cash flows of the Company or B&#038;N.com.


<P align="left" style="font-size: 10pt"><B>14. Related Party Transactions</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;B&#038;N.com has entered into agreements with Barnes &#038; Noble, Bertelsmann and
their affiliates. The Company believes that the transactions and agreements
discussed below (including renewals of any existing agreements) between B&#038;N.com
and its affiliates are at least as favorable to B&#038;N.com as could be obtained
from unaffiliated parties. The Board of Directors and the Audit Committee must
approve in advance any proposed transaction or agreement with affiliates and
will utilize procedures in evaluating the terms and provisions of such proposed
transaction or agreement as are appropriate in light of the fiduciary duties of
directors under Delaware law.


<P align="center" style="font-size: 10pt">-44-
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<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;B&#038;N.com entered into a Supply Agreement, dated October&nbsp;31, 1998, as
amended, with Barnes &#038; Noble (the &#147;Supply Agreement&#148;), whereby Barnes &#038; Noble
has agreed to supply inventory to B&#038;N.com through Barnes &#038; Noble&#146;s distribution
facilities and purchasing departments. Pursuant to the Supply Agreement, Barnes
&#038; Noble charges B&#038;N.com its actual cost to acquire the inventory plus any
incremental overhead incurred by Barnes &#038; Noble in connection with providing
such merchandise supply services. B&#038;N.com purchased $114,172, $106,167 and
$126,217 from Barnes &#038; Noble representing 35%, 34% and 45% of its purchases for
the years ended December&nbsp;31, 2003, 2002 and 2001, respectively. The charges for
incremental overhead for the years ended December&nbsp;31, 2003, 2002 and 2001 were
$3,705, $2,519 and $2,369, respectively.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under a Services Agreement, dated October&nbsp;31, 1998, as amended, between
B&#038;N.com and Barnes &#038; Noble (the &#147;Services Agreement&#148;), B&#038;N.com receives various
administrative services from Barnes &#038; Noble, including, among other things,
services for payroll processing, benefits administration, insurance (property
and casualty, medical, dental and life) and tax administration. In accordance
with the terms of the Services Agreement, B&#038;N.com reimburses Barnes &#038; Noble in
an amount equal to the third-party expenses it incurs to fund and provide such
services, plus any incremental internal costs. B&#038;N.com was charged $1,990,
$3,491 and $4,144 for such services during the years ended December&nbsp;31, 2003,
2002 and 2001, respectively.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;B&#038;N.com purchased merchandise directly from Calendar Club, L.L.C.
(&#147;Calendar Club&#148;), a company engaged in the wholesaling and retailing of
calendars, in which Barnes &#038; Noble owns a 73.9% interest. B&#038;N.com&#146;s purchases
from Calendar Club were $1,320, $1,740 and $1,110 for the years ended December
31, 2003, 2002 and 2001, respectively.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;B&#038;N.com subleases from Barnes &#038; Noble approximately one-third of a 300,000
square foot warehouse facility located in New Jersey. B&#038;N.com was charged by
Barnes &#038; Noble $561, $498 and $486 for such subleased space during the years
ended December&nbsp;31, 2003, 2002 and 2001, respectively. The amount paid to Barnes
&#038; Noble by B&#038;N.com approximates the cost per square foot paid by Barnes &#038; Noble
as tenant pursuant to its lease of the space from an unaffiliated third party.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Since 1999, B&#038;N.com has used AEC One Stop Group, Inc. (&#147;AEC&#148;) as its main
music supplier, and as one of its suppliers of DVD/video. AEC is among the
largest wholesale distributors of music, videos and DVDs in the United States.
AEC also provides B&#038;N.com with a music, DVD and video product database.
Subsequent to the initial supply arrangement between AEC and B&#038;N.com, AEC&#146;s
parent corporation was acquired by an investor group in which Leonard Riggio,
Chairman of the Board of the Company and B&#038;N.com, became a minority investor.
B&#038;N.com was charged by AEC $52,257, $40,536 and $29,759 in connection with this
agreement for merchandise purchased during the years ended December&nbsp;31, 2003,
2002 and 2001, respectively. In addition, B&#038;N.com was charged by AEC $490, $403
and $279 for database services during the years ended December&nbsp;31, 2003, 2002
and 2001, respectively. At December&nbsp;31, 2003 and 2002, $7,939 and $9,008,
respectively, remained payable to AEC.


<P align="center" style="font-size: 10pt">-45-
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;B&#038;N.com licenses the &#147;Barnes &#038; Noble&#148; name under a royalty-free license
agreement, dated October&nbsp;31, 1998, as amended, between B&#038;N.com and B&#038;N College
(the &#147;License Agreement&#148;), of which Leonard Riggio is the principal
stockholder. Pursuant to the License Agreement, the Company has been granted an
exclusive license to use the &#147;Barnes &#038; Noble&#148; name and trademark for the
purpose of selling books over the internet (excluding sales of college
textbooks). Under a separate agreement dated as of January&nbsp;2001, between the
Company and Textbooks.com, Inc. (&#147;Textbooks.com&#148;), a corporation owned by
Leonard Riggio, B&#038;N.com was granted the right to sell college textbooks over
the Internet using the &#147;Barnes &#038; Noble&#148; name. Pursuant to this agreement,
B&#038;N.com pays Textbooks.com a royalty on revenues (net of product returns,
applicable sales tax and excluding shipping and handling) realized by the
Company from the sale of books designated as textbooks. The term of the
agreement is for five years and renews annually for additional one-year periods
unless terminated 12&nbsp;months prior to the end of any given term. For the years
ended December&nbsp;31, 2003, 2002 and 2001, the Company recorded royalty expense of
$3,984, $3,485 and $5,981, respectively, under the terms of this agreement.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;B&#038;N.com has various royalty-free non-exclusive licenses dated October&nbsp;31,
1998, as amended, from Barnes &#038; Noble, and Bertelsmann&#146;s Books Online (&#147;BOL&#148;).
B&#038;N.com licenses from Barnes &#038; Noble the right to use Barnes &#038; Noble&#146;s database
of book bibliographic data as well as certain software applications. B&#038;N.com
licenses from BOL, the subsidiary through which Bertelsmann conducts its
Internet business, its name and trademark for use in B&#038;N.com&#146;s operations.
Under Technology Sharing License Agreements, B&#038;N.com was granted a royalty-free
license to view, access and use BOL&#146;s computer technology and systems, and
B&#038;N.com granted BOL a license to view, access and use B&#038;N.com&#146;s computer
technology and systems. All of the agreements described in this paragraph were
terminated as of September&nbsp;16, 2003.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;B&#038;N.com and Barnes &#038; Noble commenced a marketing program in November&nbsp;2000,
whereby a customer purchases a subscription to the Barnes &#038; Noble Membership
Program (formerly the &#147;Readers&#146; Advantage&#153; card&#148;) for an annual membership
fee of $25.00 which is non-refundable after the first 30&nbsp;days of the membership
term. With this membership card, customers can receive discounts of 10% on all
Barnes &#038; Noble purchases and 5% on all B&#038;N.com purchases. B&#038;N.com and Barnes &#038;
Noble have agreed to share the expenses, net of revenue from the sale of the
cards, related to this program in proportion to the discounts customers receive
on purchases with each company. B&#038;N.com&#146;s share of the card revenue generated
from this program for the years ended December&nbsp;31, 2003, 2002 and 2001 was
$2,691, $1,359 and $636, respectively.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2002, B&#038;N.com entered into an agreement with Marketing Services
(Minnesota) Corp. (&#147;Marketing Services Corp.&#148;), a wholly owned subsidiary of
Barnes &#038; Noble, for marketing services, which includes the issuance of gift
cards. Under this agreement, B&#038;N.com has received $10,568 and $2,669 as of
December&nbsp;31, 2003 and 2002, respectively from Marketing Services Corp., which
represents reimbursement for purchases made with gift cards in a Barnes &#038; Noble
store and redeemed on the B&#038;N.com Web site.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;B&#038;N.com ships, through its fulfillment centers, customer orders on behalf
of Barnes &#038; Noble to Barnes &#038; Noble retail stores as well as to Barnes &#038; Noble
customers&#146; homes. B&#038;N.com charges Barnes &#038; Noble the costs associated with such
shipments plus any incremental overhead incurred by B&#038;N.com to process these
orders. For the years ended December&nbsp;31, 2003, 2002 and 2001, B&#038;N.com recorded
$2,357, $1,792 and $987, respectively, as a reimbursement for shipping and
handling from Barnes &#038; Noble. In addition, during 2001, B&#038;N.com and Barnes &#038;
Noble entered into an agreement whereby B&#038;N.com receives a commission on all
items ordered by customers at Barnes &#038; Noble stores and shipped directly to
customers&#146; homes by B&#038;N.com. Commissions for these sales were recorded as
revenue and amounted to $1,434, $1,280 and $383 for the years ended December
31, 2003, 2002 and 2001, respectively.


<P align="center" style="font-size: 10pt">-46-
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<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Barnes &#038; Noble subleased warehouse space from B&#038;N.com in Reno, Nevada.
B&#038;N.com charged Barnes &#038; Noble $500 and $1,882 for such subleased space for the
years ended December&nbsp;31, 2002 and 2001, respectively. Additionally, Barnes &#038;
Noble reimbursed B&#038;N.com $6,186 for fixed assets purchased on behalf of Barnes
&#038; Noble for the Reno warehouse. The equipment was sold to Barnes &#038; Noble at its
original cost. In January&nbsp;2002, the Company determined it could not effectively
utilize the full capacity of its Reno, Nevada distribution center. Accordingly,
following Board approval on January&nbsp;29, 2002, the Company agreed to transfer
the Reno warehouse lease and sell B&#038;N.com&#146;s inventory located in Reno to Barnes
&#038; Noble. Barnes &#038; Noble purchased the inventory from B&#038;N.com at cost for
approximately $9,877. The Board of Barnes &#038; Noble also approved Barnes &#038;
Noble&#146;s assumption of the lease obligation and the hiring of all of the
employees at the Reno warehouse. The Reno lease assignment and the transfer of
the operations of the Reno warehouse to Barnes &#038; Noble was completed in April
2002. In connection with the transfer, B&#038;N.com agreed to pay one-half of the
rent charged for the facility through December&nbsp;31, 2002. B&#038;N.com paid $943 in
relation to these expenses for the year ended December&nbsp;31, 2002.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2000, B&#038;N.com began purchasing new and used textbooks directly from MBS
Textbook Exchange, Inc. (&#147;MBS&#148;), a corporation majority-owned by Leonard Riggio
and one of the nation&#146;s largest wholesalers of college textbooks. B&#038;N.com&#146;s
total purchases for the years ended December&nbsp;31, 2003, 2002 and 2001 were
$13,829, $17,223 and $13,206, respectively. In addition, B&#038;N.com maintains a
link on its Web site called &#147;Sell Your Textbooks&#148; which is hosted by MBS and
through which B&#038;N.com customers are able to sell used books directly to MBS.
B&#038;N.com is paid a commission based on the price paid by MBS to the consumer.
Total commissions received and recorded as revenue for the years ended December
31, 2003, 2002 and 2001 were $75, $58 and $16, respectively.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under a Strategic Relationship Agreement, dated as of May&nbsp;1, 2001 (the
&#147;Strategic Relationship Agreement&#148;), between B&#038;N.com and GameStop Corp.
(&#147;GameStop&#148;), a majority-owned subsidiary of Barnes &#038; Noble, B&#038;N.com&#146;s Web site
refers customers to the GameStop Web site for purchases of video game hardware,
software and accessories and PC entertainment software. GameStop pays B&#038;N.com a
referral fee based on its net sales revenue from certain eligible purchases
made by customers as a result of the redirection from the B&#038;N.com Web site.
Either party may terminate the Strategic Relationship Agreement on 60&nbsp;days&#146;
notice. Commissions of $8, $65 and $33 were recorded as revenue for the years
ended December&nbsp;31, 2003, 2002 and 2001, respectively, under this agreement.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;B&#038;N.com has an approximate 46.8% equity stake in enews, a company
previously engaged in selling magazine subscriptions on the Internet, and
accounted for this investment under the equity method. Substantially all of the
balance of the shares are owned by Barnes &#038; Noble. In July&nbsp;2002, the Board of
Directors and stockholders of enews approved the Liquidation Plan. As of
December&nbsp;31, 2003, the implementation of the Liquidation Plan had been
substantially completed and was concluded by February&nbsp;29, 2004. Prior to the
implementation of the Liquidation Plan, B&#038;N.com fulfilled a majority of orders
for magazine subscriptions through enews and recorded a commission on these
sales. B&#038;N.com recorded commissions of $909 and $590 for the years ended
December&nbsp;31, 2002 and 2001, respectively, and was reimbursed $488, $524 and
$295, respectively, for expenses incurred on behalf of enews for the years
ended December&nbsp;31, 2003, 2002 and 2001.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At December&nbsp;31, 2003 and 2002, $71,957 and $48,261, respectively, remained
payable to Barnes &#038; Noble in connection with the transactions described above.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In July&nbsp;2003, Barnes &#038; Noble announced that it reached an agreement with
DirectGroup Bertelsmann, the direct-to-customer division of German-based media
company Bertelsmann, to acquire all of Bertelsmann&#146;s interest in B&#038;N.com for
$164,000 in a combination of cash and notes, equivalent to $2.80 per share or
Membership Unit. The transaction closed on September&nbsp;15, 2003.



<P align="center" style="font-size: 10pt">-47-
</DIV>


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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Michael N. Rosen, a director and Secretary of the Company, is also a
member of Bryan Cave LLP, outside counsel to the Company and B&#038;N.com.


<P align="left" style="font-size: 10pt"><B>15. Quarterly Financial Data (Unaudited)</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following tables set forth, for the periods indicated, selected
unaudited financial data.

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="50%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>



<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="15"><B>Three months ended</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>December 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>September 30,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>June 30,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>March 31,</B></TD>
</TR>

<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">133,382</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">98,993</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">86,476</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">105,964</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Gross profit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">32,670</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24,305</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21,217</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,996</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,405</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3,069</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3,551</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3,321</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Basic net loss per common share<SUP>(1)</SUP></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.03</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.08</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.09</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.08</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Weighted average shares</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">42,527</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">40,247</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">39,772</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">43,802</TD>
    <TD>&nbsp;</TD>
</TR>


<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>



<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="15"><B>Three months ended</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>December 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>September 30,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>June 30,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>March 31,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">127,880</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">102,575</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">85,837</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">106,535</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Gross profit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27,657</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24,578</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,172</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23,162</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3,968</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(4,815</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(5,686</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(5,663</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Basic net loss per common share<SUP>(1)</SUP></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.09</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.11</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.13</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.13</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Weighted average shares</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">43,790</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">43,788</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">43,788</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">43,787</TD>
    <TD>&nbsp;</TD>
</TR>


<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>







<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="15"><B>Three months ended</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>December 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>September 30,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>June 30,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>March 31,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2001</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2001</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2001</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2001</B><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">115,037</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">96,838</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">83,684</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">109,041</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Gross profit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24,438</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21,181</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,489</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,127</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(35,251</TD>
    <TD nowrap>)<SUP>(2)</SUP></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(10,558</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(10,590</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(10,987</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Basic net loss per common share<SUP>(1)</SUP></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.81</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.24</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.24</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.25</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Weighted average shares</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">43,787</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">43,787</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">43,787</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">43,787</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>




<P>
<HR size="1" width="18%" align="left" noshade>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top">
    <TD width="1%" nowrap align="right">(1)</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="96%">Assumed conversion of Membership Units or exercises of stock options are
not included, as it does not result in dilution.</TD>
</TR>

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

<TR valign="top">
    <TD width="1%" nowrap align="right">(2)</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="96%">Includes impairment and other special charges of $88,213 for the three
months ended December&nbsp;31, 2001.</TD>
</TR>

</TABLE>


<DIV align="left">
<A name="113"></A>
</DIV>

<P align="left" style="font-size: 10pt"><B>Item&nbsp;9. </B><B><I>Changes in and Disagreements With Accountants on Accounting and Disclosure</I></B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;None.

<DIV align="left">
<A name="114"></A>
</DIV>

<P align="left" style="font-size: 10pt"><B>Item&nbsp;9A. </B><B><I>Controls and Procedures</I></B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Disclosure Controls and Procedures. </I>The Company&#146;s management, with the
participation of the Company&#146;s Chief Executive Officer and Chief Financial
Officer, has evaluated the effectiveness of the Company&#146;s
disclosure controls and procedures (as such term is defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended
(the &#147;Exchange Act&#148;)) as of the end of the period covered by this report. Based
on such evaluation, the Company&#146;s Chief Executive Officer and Chief Financial
Officer have concluded that, as of the end of such period, the Company&#146;s
disclosure controls and procedures are effective. Notwithstanding the
foregoing, a


<P align="center" style="font-size: 10pt">-48-
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<P align="left" style="font-size: 10pt">control system, no matter how well designed and operated, can
provide only reasonable, not absolute, assurance that it will detect or uncover
failures within the Company to disclose material information otherwise required
to be set forth in the Company&#146;s periodic reports. The financial statements
filed for the year ended December&nbsp;31, 2003 were restated to reflect the
application of push down accounting resulting from the acquisition by Barnes &#038;
Noble of Bertelsmann&#146;s interest in the Company and B&#038;N.com in September&nbsp;2003.
The Form 10-K filed March&nbsp;15, 2004 did not include the effects of push down
accounting on the Company&#146;s financial statements due to the significant 25.3%
equity interest in B&#038;N.com still owned by the Company which the Company
believed was significant enough to not require the application of push down
accounting. Upon review, it has been determined that based on Barnes &#038; Noble&#146;s
96.6% voting interest in the Company, push down accounting is appropriate. In
management&#146;s opinion, given the interpretive nature of the restatement, such
restatement did not change its conclusion that the Company&#146;s controls and
procedures are effective.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Internal Control Over Financial Reporting. </I>There have not been any
changes in the Company&#146;s internal control over financial reporting (as such
term is defined in Rules&nbsp;13a-15(f) and 15d-15(f) under the Exchange Act) during
the fourth quarter of 2003 that have materially affected, or are reasonably
likely to materially affect, the Company&#146;s internal control over financial
reporting.


<P align="center" style="font-size: 10pt">-49-
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<A name="115"></A>
</DIV>

<P align="center" style="font-size: 10pt"><B>PART III</B>


<DIV align="left">
<A name="116"></A>
</DIV>

<P align="left" style="font-size: 10pt"><B>Item&nbsp;10. </B><B><I>Directors and Executive Officers of the Registrant</I></B>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="35%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="52%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>Name</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Age</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Position</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Leonard Riggio<SUP>(1)(3)</SUP>
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">63</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Chairman of the Board</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Stephen Riggio<SUP>(1)(4)</SUP>
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">49</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Vice Chairman</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Marie J. Toulantis
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">50</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Chief Executive Officer<BR>
</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Kevin M. Frain
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">42</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Chief Financial Officer and Vice President, Operations</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">David C. Willen
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">48</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Chief Technology Officer</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">David Gitow
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">43</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Vice President, Chief Marketing Officer<BR>
</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Daniel A. Blackman
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">41</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Vice President and General Manager,
Books, Music &#038; Video</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Michael N. Rosen<SUP>(1)</SUP>
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">63</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Secretary and Director</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Jan-Michiel Hessels<SUP>(2)</SUP>
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">61</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Patricia Higgins<SUP>(5)</SUP>
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">53</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">William F. Reilly<SUP>(3)</SUP>
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">65</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>




<P>
<HR size="1" width="18%" align="left" noshade>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top">
    <TD width="1%" nowrap align="right">(1)</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="96%">Class&nbsp;B Director.</TD>
</TR>

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

<TR valign="top">
    <TD width="1%" nowrap align="right">(2)</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="96%">Class&nbsp;A Director and member of the Audit Committee and the Compensation
Committee.</TD>
</TR>

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

<TR valign="top">
    <TD width="1%" nowrap align="right">(3)</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="96%">Member of the Special Committee, the Executive Committee and the
Nominating Committee.</TD>
</TR>

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

<TR valign="top">
    <TD width="1%" nowrap align="right">(4)</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="96%">Member of the Executive Committee.</TD>
</TR>

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

<TR valign="top">
    <TD width="1%" nowrap align="right">(5)</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="96%">Class&nbsp;A Director and a member of the Audit Committee.</TD>
</TR>

</TABLE>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Mr.&nbsp;Leonard Riggio, a Class&nbsp;B Director, has been Chairman of the Board of
the Company and B&#038;N.com since inception. Mr.&nbsp;Riggio is the founder of Barnes &#038;
Noble and has been Chairman of the Board and a principal stockholder of Barnes
&#038; Noble since its inception in 1986, and was Chief Executive Officer of Barnes
&#038; Noble from inception through February&nbsp;2002. Since 1965 Mr.&nbsp;Riggio has been
Chairman of the Board, Chief Executive Officer and the principal stockholder of
Barnes &#038; Noble College Bookstores, Inc. (&#147;B&#038;N College&#148;), one of the nation&#146;s
largest operators of college bookstores. Since 1985, Mr.&nbsp;Riggio has been the
Chairman of the Board and a principal beneficial owner of MBS Textbook
Exchange, Inc. (&#147;MBS&#148;), one of the nation&#146;s largest wholesalers of college
textbooks. Mr.&nbsp;Riggio is also a director of GameStop Corp. (&#147;GameStop&#148;), the
nation&#146;s largest specialty retailer of video games and a majority-owned
subsidiary of Barnes &#038; Noble. Mr.&nbsp;Leonard Riggio is the brother of Mr.&nbsp;Stephen
Riggio.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Mr.&nbsp;Stephen Riggio, a Class&nbsp;B Director, has been a director of the Company
and B&#038;N.com since inception and Vice Chairman since January&nbsp;2000. From January
2000 to February&nbsp;2002, Mr.&nbsp;Riggio was also Acting Chief Executive Officer of
the Company and B&#038;N.com, a position he previously held at B&#038;N.com from
inception to December&nbsp;1998. Mr.&nbsp;Riggio has been a director of Barnes &#038; Noble
since September&nbsp;1993, Vice Chairman of Barnes &#038; Noble since December&nbsp;1997 and
was named Chief Executive Officer in February&nbsp;2002. Mr.&nbsp;Riggio was Chief
Operating Officer of Barnes &#038; Noble from February&nbsp;1995 until December&nbsp;1997. Mr.
Riggio is also a director of iUniverse, The National Book Foundation, The
National Down&#146;s Syndrome Society and The Association for the Help of Retarded
Children. Mr.&nbsp;Stephen Riggio is the brother of Mr.&nbsp;Leonard Riggio.


<P align="center" style="font-size: 10pt">-50-
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Ms.&nbsp;Marie J. Toulantis has been Chief Executive Officer of the Company and
B&#038;N.com since February&nbsp;2002. Ms.&nbsp;Toulantis was President and Chief Operating
Officer of the Company and B&#038;N.com from May&nbsp;2001 through February&nbsp;2002. Prior
to that, Ms.&nbsp;Toulantis was Chief Financial Officer of the Company and B&#038;N.com
from May&nbsp;1999 through May&nbsp;2001. From March&nbsp;1999 through May&nbsp;1999 Ms.&nbsp;Toulantis
was Chief Financial Officer of Barnes &#038; Noble and from July&nbsp;1997 through May
1999 Ms.&nbsp;Toulantis was Executive Vice President, Finance of Barnes &#038; Noble.
Ms.&nbsp;Toulantis has served on the board of directors of Hershey Food Corporation
since April&nbsp;2003.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Mr.&nbsp;Kevin M. Frain has been Chief Financial Officer and Vice President,
Operations of the Company and B&#038;N.com since February&nbsp;2002. Mr.&nbsp;Frain is
responsible for all of the finance, distribution, order fulfillment and
customer service functions. From May&nbsp;2001 through February&nbsp;2002, Mr.&nbsp;Frain was
Vice President, Finance of the Company and B&#038;N.com. Prior to that Mr.&nbsp;Frain was
the Treasurer of the Company and B&#038;N.com from April&nbsp;2000 to May&nbsp;2001. From
January&nbsp;1999 to April&nbsp;2000, Mr.&nbsp;Frain was Director of Finance of the Company &#038;
B&#038;N.com.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Mr.&nbsp;David C. Willen has been Chief Technology Officer of the Company and
B&#038;N.com since May&nbsp;2002. Mr.&nbsp;Willen is responsible for all aspects of systems
and technology. Mr.&nbsp;Willen was Chief Software Architect of the Company and
B&#038;N.com from October&nbsp;2001 through May&nbsp;2002. Mr.&nbsp;Willen was Chief Technology
Officer of TheStreet.com, a multimedia provider of financial commentary,
analysis and news, from January&nbsp;2000 to October&nbsp;2001. Mr.&nbsp;Willen developed
technology solutions for Bloomberg, L.P. from January&nbsp;1999 to January&nbsp;2000.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Mr.&nbsp;David Gitow has been Vice President, Chief Marketing Officer of the
Company and B&#038;N.com since October&nbsp;2001. Mr.&nbsp;Gitow is responsible for all
partner and customer marketing and all marketing analysis and research. Mr.
Gitow served as Chief Marketing Officer of enews from June&nbsp;1999 through October
2001. Prior to joining enews, Mr.&nbsp;Gitow was with Time Warner Inc. for 13&nbsp;years
in a variety of positions culminating in his founding and serving as President
of Time Inc. Home Entertainment.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Mr.&nbsp;Daniel A. Blackman has been Vice President and General Manager, Books,
Music &#038; Video of the Company and B&#038;N.com since July&nbsp;2002. Mr.&nbsp;Blackman is
responsible for merchandising of consumer books, music and DVD/video products.
From October&nbsp;2001 to July&nbsp;2002, Mr.&nbsp;Blackman was Vice President, Books, Music &#038;
Video of the Company and B&#038;N.com. From February&nbsp;2000 to October&nbsp;2001, Mr.
Blackman was Vice President, Music, Video &#038; Software of the Company and
B&#038;N.com. From July&nbsp;1998 to February&nbsp;2000, Mr.&nbsp;Blackman was Director of Music &#038;
Video of the Company and B&#038;N.com.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Mr.&nbsp;Michael N. Rosen, a Class&nbsp;B Director, has been Secretary and a
director of the Company since inception. Mr.&nbsp;Rosen has been the Chairman of the
New York office of Bryan Cave LLP since their July&nbsp;2002 combination with
Robinson Silverman Pearce Aronsohn and Berman LLP (&#147;Robinson Silverman&#148;),
counsel to the Company and B&#038;N.com. Prior to that, Mr.&nbsp;Rosen was Chairman of
Robinson Silverman for more than the past five years. Mr.&nbsp;Rosen is also a
director of Barnes &#038; Noble, B&#038;N College, MBS and GameStop.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Mr.&nbsp;Jan-Michiel Hessels, a Class&nbsp;A Director, has been a director of the
Company since August&nbsp;1999. Mr.&nbsp;Hessels was the Chief Executive Officer of Royal
Vendex KBB N.V. (&#147;Vendex&#148;) from 1990 until June&nbsp;2000. Vendex is a multi-billion
dollar Netherlands-based corporation with international retailing operations.
Mr.&nbsp;Hessels is also a director of Schiphol Airport, Royal Vopak N.V., Royal
Philips Electronics N.V., Euronext N.V., Fortis N.V. and Heineken N.V.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Ms.&nbsp;Patricia Higgins, a Class&nbsp;A Director, has been a director of the
Company since July&nbsp;2000. Ms.&nbsp;Higgins was President and Chief Executive Officer
from September&nbsp;2000 to February&nbsp;2004, and currently is a
director, of Switch
and Data Facilities Inc., an international operator of convergent computer
network centers. Ms.&nbsp;Higgins was Vice President and Chief Information Officer
of Alcoa Inc. from January&nbsp;1997 to April&nbsp;1999.




<P align="center" style="font-size: 10pt">-51-
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Mr.&nbsp;William F. Reilly, a Class&nbsp;A Director, has been a director of the
Company since August&nbsp;1999. Mr.&nbsp;Reilly has been Chief Executive Officer of
Aurelian Communications, a special interest publisher, since he founded it in
February&nbsp;2002. Mr.&nbsp;Reilly served as Chairman and Chief Executive Officer of
Primedia Inc., a specialty media company, from February&nbsp;1990 to 1999. Mr.
Reilly is a member of the Board of Directors of FMC Corporation. Mr.&nbsp;Reilly
serves on the Board of Trustees of the University of Notre Dame.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Audit Committee</I>. The Company has a separately designated Audit Committee.
The current members of the Audit Committee are Mr.&nbsp;William F. Reilly, Mr.
Jan-Michiel Hessels and Ms.&nbsp;Patricia Higgins. Each member of the Audit
Committee meets the independence standards of the NASDAQ and the SEC. The
Board of Directors has deferred making any determination with respect to the
designation of an &#147;audit committee financial expert&#148; as defined by regulations
promulgated by the SEC, pending the outcome of the Company&#146;s contemplated
merger with a subsidiary of Barnes &#038; Noble.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Code of Ethics</I>. The Board of Directors has deferred finalizing a Code of
Ethics applicable to the Company&#146;s Senior Financial Officers, pending the
outcome of the Company&#146;s contemplated merger with a subsidiary of Barnes &#038;
Noble.


<P align="left" style="font-size: 10pt"><B>Section&nbsp;16(a) Beneficial Ownership Reporting Compliance</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company&#146;s directors and executive officers, and persons who own more than
10% of a registered class of the Company&#146;s securities, to file with the SEC
initial reports of ownership and reports of changes in ownership of common
stock and other equity securities of the Company. Executive officers, directors
and greater-than-10% stockholders are required by SEC regulation to furnish the
Company with copies of all Section 16(a) forms they file.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To the Company&#146;s knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, the Company believes that during the year ended December
31, 2003 its executive officers, directors and greater-than-10% stockholders
complied with all Section 16(a) filing requirements.

<DIV align="left">
<A name="117"></A>
</DIV>

<P align="left" style="font-size: 10pt"><B>Item&nbsp;11. </B><B><I>Executive Compensation</I></B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The salaries and other compensation (other than long-term compensation) of
the executive officers of the Company are paid by B&#038;N.com. The following table
summarizes the compensation paid or accrued by the Company and B&#038;N.com for the
year ended December&nbsp;31, 2003 for the services rendered to the Company and
B&#038;N.com, to the Chief Executive Officer and the four other most highly
compensated executive officers (collectively, the &#147;Named Executive Officers&#148;).
Leonard Riggio, the Company&#146;s Chairman and Stephen Riggio, the Company&#146;s Vice
Chairman, receive no salary or other cash compensation from the Company or
B&#038;N.com.


<P align="center" style="font-size: 10pt">-52-
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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="center" style="font-size: 10pt"><B>Summary Compensation Table</B>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Long-term</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="9"><B>Annual Compensation</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Compensation</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Securities</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Underlying</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>All Other</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center"><B>Name and Principal Position</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Year</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Salary</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Bonus</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Options</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Compensation<SUP>(1)</SUP></B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD align="center"><DIV style="margin-left:50px; text-indent:-10px">Marie J. Toulantis</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">2003</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">596,153</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">273,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">8,288</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD align="center"><DIV style="margin-left:40px; text-indent:-10px">Chief Executive Officer</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">2002</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">485,577</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">325,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">500,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,288</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD align="center"><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">2001</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">350,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">113,750</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,000,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,088</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="padding-top: 0em">
    <TD align="center"><DIV style="margin-left:50px; text-indent:-10px">David C. Willen</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">2003</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">293,269</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">63,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,488</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD align="center"><DIV style="margin-left:30px; text-indent:-10px">Chief Technology Officer</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">2002</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">261,538</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">94,875</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">350,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">283</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD align="center"><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">2001</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">41,538</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">80,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="padding-top: 0em; background: #eeeeee">
    <TD align="center"><DIV style="margin-left:50px; text-indent:-10px">Kevin M. Frain</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">2003</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">225,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">47,250</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,259</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD align="center"><DIV style="margin-left:20px; text-indent:-10px">Chief Financial Officer and</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">2002</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">212,981</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">87,625</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">300,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,243</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD align="center"><DIV style="margin-left:20px; text-indent:-10px">Vice President, Operations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">2001</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">167,308</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">41,875</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">75,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,992</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="padding-top: 0em">
    <TD align="center"><DIV style="margin-left:50px; text-indent:-10px">David Gitow</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">2003</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">262,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">42,650</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">200,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,116</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD align="center"><DIV style="margin-left:50px; text-indent:-10px">Vice President,</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">2002</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">212,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">70,200</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">94,281</TD>
    <TD nowrap><SUP>(2)</SUP></TD>
</TR>

<TR valign="bottom">
    <TD align="center"><DIV style="margin-left:40px; text-indent:-10px">Chief Marketing Officer</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">2001</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">41,538</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">200,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">38</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="padding-top: 0em; background: #eeeeee">
    <TD align="center"><DIV style="margin-left:50px; text-indent:-10px">Daniel A. Blackman</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">2003</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">225,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">47,250</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,371</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD align="center"><DIV style="margin-left:20px; text-indent:-10px">Vice President and General</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">2002</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">210,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">87,625</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">200,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,082</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD align="center"><DIV style="margin-left:10px; text-indent:-10px">Manager, Books, Music &#038; Video</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">2001</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">181,354</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26,250</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,008</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>





<P>
<HR size="1" width="18%" align="left" noshade>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top">
    <TD width="1%" nowrap align="right">(1)</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="96%">Except as otherwise indicated in Note 2 below, these amounts
represent payments made by the Company for life insurance premiums and
for contributions to the respective Named Executive Officers&#146; accounts
under the Company&#146;s 401(k) Savings Plan.</TD>
</TR>

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

<TR valign="top">
    <TD width="1%" nowrap align="right">(2)</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="96%">Of this amount, $87,750 represents contractual forgiveness of a loan
from the Company to Mr.&nbsp;Gitow.</TD>
</TR>

</TABLE>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Option Grants in 2003


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth certain information with respect to stock
grants to the Named Executive Officers during the year ended December&nbsp;31, 2003.


<P align="center" style="font-size: 10pt">-53-
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="center" style="font-size: 10pt"><B>Option Grants in Last Fiscal Year</B>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="20%">&nbsp;</TD>
    <TD width="13%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="15"><B>Individual Grants<SUP>(1)</SUP></B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>&nbsp;</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>% of Total</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Potential Realizable Value at</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Number of</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Options</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Assumed Annual Rates of</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Securities</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Granted to</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Stock Price Appreciation for</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Underlying</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Employees</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Exercise</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Option Term<SUP>(2)</SUP></B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Options</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>in Fiscal</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Price per</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Expiration</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center"><B>Name</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Granted</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Year</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Share</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Date</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>5.0%</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>10.0%</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Marie J. Toulantis</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">David C. Willen</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.13</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.29</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3/23/2010</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">52,516</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">122,385</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Kevin M. Frain</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.03</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.29</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3/23/2010</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,129</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30,596</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">David Gitow</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">200,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.26</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.29</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3/23/2010</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">105,032</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">244,769</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Daniel A. Blackman</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.13</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.29</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3/23/2010</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">52,516</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">122,385</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>




<P>
<HR size="1" width="18%" align="left" noshade>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top">
    <TD width="1%" nowrap align="right">(1)</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="96%">All options were granted with an exercise price equal to or above the
fair market value of the Common Stock at the date of grant.</TD>
</TR>

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

<TR valign="top">
    <TD width="1%" nowrap align="right">(2)</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="96%">In accordance with the rules of the SEC, the amounts shown on this
table reflect hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These
gains are based on assumed rates of stock appreciation of 5.0% and
10.0%, compounded annually from the date the respective options were
granted to their expiration date. The gains shown are net of the option
exercise price, but do not include deductions for taxes or other
expenses associated with the exercise. Actual gains, if any, on stock
option exercises will depend on the future performance of the Common
Stock and the date on which the options are exercised.</TD>
</TR>

</TABLE>



<P align="left" style="font-size: 10pt">Options Exercised in 2003 and Fiscal Year-End Option Values



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth certain information with respect to the
value of options held by the Named Executive Officers at December&nbsp;31, 2003.


<P align="center" style="font-size: 10pt"><B>Aggregated Option Exercises in 2003 and Fiscal Year-End Option Values</B>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="22%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Number of Securities</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Value of Unexercised</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Underlying Unexercised</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>In-the-Money Options</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Shares</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Options at December 31, 2003</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>at December 31, 2003<SUP>(1)</SUP></B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Acquired on</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Value</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center"><B>Name</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Exercise</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Realized</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Exercisable</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Unexercisable</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Exercisable</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Unexercisable</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Marie J. Toulantis</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,400,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">4,312,400</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">David C. Willen</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">450,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">705,465</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Kevin M. Frain</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">462,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">709,340</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">David Gitow</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">400,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">754,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Daniel A. Blackman</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">66,666</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">80,933</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">420,084</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">578,728</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>




<P>
<HR size="1" width="18%" align="left" noshade>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top">
    <TD width="1%" nowrap align="right">(1)</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="96%">Based on the closing price of the Class&nbsp;A Common Stock on December
31, 2003 ($2.93 per share), less the option exercise price, multiplied
by the number of shares exercisable or unexercisable.</TD>
</TR>

</TABLE>


<P align="center" style="font-size: 10pt">-54-
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">






<P align="left" style="font-size: 10pt">Employees&#146; Retirement Plan



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of June&nbsp;30, 2000, substantially all employees of the Company were
covered under the Company&#146;s Employees&#146; Retirement Plan (the &#147;Retirement Plan&#148;).
The Retirement Plan is a defined benefit pension plan. As of July&nbsp;1, 2000, the
Retirement Plan was amended so that employees no longer earn benefits for
subsequent service. Subsequent service continues to be the basis for vesting of
benefits not yet vested at June&nbsp;30, 2000 and the Retirement Plan will continue
to hold assets and pay benefits. The amendment was treated as a curtailment in
fiscal 2000.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A participant&#146;s annual benefit was determined for an employee, including
an officer, generally as (i)&nbsp;0.7% of the participant&#146;s average annual pay as
determined in accordance with the Retirement Plan up to Social Security-covered
compensation, multiplied by the participant&#146;s years of credited service, plus
(ii)&nbsp;1.3% of the participant&#146;s average annual pay as determined in accordance
with the Retirement Plan in excess of Social Security-covered compensation,
multiplied by the participant&#146;s years of credited service. A participant&#146;s
maximum benefit is limited pursuant to Section&nbsp;415 of the Internal Revenue Code
of 1986, as amended (the &#147;Code&#148;) to $130,000 for 1999, indexed annually.
Compensation recognized was limited to $170,000 in 2000.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Credited years of service under the Retirement Plan as of June&nbsp;30, 2000
for the Named Executive Officers are: Marie J. Toulantis &#151; 2, David C. Willen &#151;
0, Kevin M. Frain &#151; 2, David Gitow &#151; 0 and Daniel A. Blackman &#151; 3.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table illustrates the maximum annual amounts payable at age
65 under the Retirement Plan, based on various levels of highest average annual
salary and years of credited service:

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="25%">&nbsp;</TD>
    <TD width="13%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="19"><B>Years of Credited Service</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center"><B>Assumed Highest Average Salary</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>15</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>20</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>25</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>30</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>35</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">$100,000</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">16,260</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">21,680</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">27,100</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">32,520</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">37,940</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">$125,000</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21,135</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28,180</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">35,225</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">42,270</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">49,315</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">$150,000</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26,010</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">34,680</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">43,350</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">52,020</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">60,690</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">$170,000 and above<SUP>(1)</SUP></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29,910</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">39,880</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">49,850</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">59,820</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">69,790</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>


&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<HR size="1" noshade width="25%" align="left">


<DIV align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1)&nbsp;The benefits shown corresponding to this compensation reflect the
compensation limit under Section&nbsp;401 (a)(17) of the Code. A participant&#146;s
compensation in excess of $150,000 (as adjusted to reflect cost-of-living
increases) is disregarded for purposes of determining highest average earnings
in plan years beginning in 1994 through 1996; a participant&#146;s compensation in
excess of $160,000 (as adjusted to reflect cost-of-living increases) is
disregarded for purposes of determining highest average earnings in plan years
beginning in 1997 through 1999 and $170,000 in plan years beginning in 2000.
Benefits accrued as of the last day of the plan year beginning in 1993 on the
basis of compensation in excess of $150,000 are preserved.</DIV>


<P align="left" style="font-size: 10pt">Compensation of Directors



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All directors at the time of the Company&#146;s Initial Public Offering of
Class&nbsp;A Common Stock (the &#147;Offering&#148;), other than Leonard Riggio and Stephen
Riggio, received options to purchase 40,000 shares of Class&nbsp;A Common Stock at a
per share exercise price equal to the per share Offering price. Such options
vested in four equal annual installments on the first through fourth
anniversary of the completion of the Offering. Directors taking office after
the Offering received options to purchase 40,000 shares of Class&nbsp;A Common Stock
at an exercise price equal to the market price on such date, with such options
vesting in four equal annual installments on the first through fourth
anniversaries of the date of grant. Directors who are not employees of the
Company,


<P align="center" style="font-size: 10pt">-55-
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<DIV style="font-family: 'Times New Roman',Times,serif">
<P align="left" style="font-size: 10pt">B&#038;N.com, Barnes &#038; Noble or Bertelsmann receive an annual fee of
$40,000 plus a fee of $2,500 for each committee meeting attended. In addition,
members of the Special Committee formed in connection with the proposed merger
with Barnes &#038; Noble each receive a one-time fee of $75,000. Furthermore, all
directors are
reimbursed for certain expenses in connection with attendance at Board of
Directors and committee meetings, and Special Committee members are reimbursed
for all expenses in connection with such service. Other than with respect to
reimbursement of expenses, directors who are employees or officers of the
Company or B&#038;N.com do not receive additional compensation for their services as
directors.



<P align="left" style="font-size: 10pt">Employment Arrangements



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Ms.&nbsp;Marie J. Toulantis has an employment agreement (the &#147;Agreement&#148;) for
her services as Chief Executive Officer entered into as of October&nbsp;31, 2002 and
expiring on October&nbsp;31, 2005. The Agreement provides for a minimum annual
salary of $600,000 and an annual bonus in accordance with the Company&#146;s annual
bonus compensation plan established by the Compensation Committee. The
Agreement also provides for reimbursement for all expenses incurred in the
performance of her duties and responsibilities under the Agreement, a car
allowance, disability insurance and a severance arrangement. The Agreement
also provided for the grant of options to purchase 500,000 shares of common
stock of the Company at an exercise price of $1.15 per share (the fair market
value at the date of grant).


<P align="left" style="font-size: 10pt">Compensation Committee Interlocks and Insider Participation



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Compensation Committee consists of William F. Reilly and Jan-Michiel
Hessels, neither of whom is an officer or employee or former officer or
employee of the Company or B&#038;N.com.


<P align="left" style="font-size: 10pt">Compensation Committee Report on Executive Compensation



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Compensation Committee consists of William F. Reilly and Jan-Michiel
Hessels. The Company offers compensation packages designed to attract and
retain individuals whose skills are crucial to the long-term success of the
Company. The compensation offered by the Company should reward and motivate
individual and team performance in attaining business objectives and maximizing
stockholder value.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Compensation Committee reviews and approves the Company&#146;s executive
compensation program each year. This includes a comparison of the Company&#146;s
executive compensation, corporate performance, stock performance and total
return to the stockholders with that of peer companies, including other
e-commerce companies. In addition, the Compensation Committee considers and
reviews the full compensation package afforded by the Company to its executive
officers, including pension, insurance and other benefits.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The key elements of the Company&#146;s executive compensation package consist
of base salary, bonus and stock options. The Company&#146;s policies with respect to
each of these elements are discussed below. The Compensation Committee makes
its determinations after receiving and considering the recommendations of the
Company&#146;s Chairman.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Base Salaries</I>. An executive officer&#146;s base salary is determined primarily
on the basis of the executive officer&#146;s responsibility, qualification,
experience and the competitive marketplace for executive talent. The base
salary is intended to be competitive with base salaries paid to executive
officers with comparable qualifications, experience and responsibilities at
peer companies.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Performance Bonus</I>. The Company&#146;s management is eligible for a performance
bonus that is based on both the Company&#146;s performance and the individual&#146;s
performance and is contingent on achieving certain pre-determined targets.


<P align="center" style="font-size: 10pt">-56-
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<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Stock Options</I>. Stockholder grants to executive officers promote success
by aligning employee financial interests with long-term stockholder value.
Additionally, long-term awards offer executive officers an incentive for the
achievement of superior performance over time and foster the retention of key
management personnel. Annual stock option grants are determined based on various subjective
factors, primarily related to the individual&#146;s performance and potential to
improve stockholder value.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Chief Executive Officer Compensation</I>. The compensation of the Company&#146;s
Chief Executive Officer is determined pursuant to the principles noted above.
Specific consideration is given to the Chief Executive Officer&#146;s
responsibilities and experience in the industry and the compensation package
awarded to chief executive officers of peer companies.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Section&nbsp;</I><I>162(m)</I><I> of the Internal Revenue Code</I>. The Compensation Committee
has considered the potential impact of Section 162(m) of the Code, adopted
under the Revenue Reconciliation Act of 1993. This section disallows a tax
deduction for any publicly held corporation, for individual compensation
exceeding $1,000,000 in any taxable year paid to its Named Executive Officers
unless (i)&nbsp;the compensation is payable solely on account of the attainment of
performance goals, (ii)&nbsp;the performance goals are determined by a compensation
committee of two or more outside directors, (iii)&nbsp;the material terms under
which compensation is to be paid are disclosed to and approved by stockholders
and (iv)&nbsp;the compensation committee certifies that the performance goals were
met.


<P align="left" style="font-size: 10pt; margin-left: 50%">Compensation Committee<BR>
William F. Reilly<BR>
Jan-Michiel Hessels


<P align="left" style="font-size: 10pt">Performance Graph

<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The graph set forth below compares cumulative total return on the Common
Stock of the Company with the cumulative total return of the NASDAQ Stock
Market Index and the NASDAQ Retail Trade Index, adjusted for stock splits and
stock dividends, resulting from an initial assumed investment of $100 in each
for the period beginning on the date of the Company&#146;s Offering of the Common
Stock on May&nbsp;25, 1999 and the years ending December&nbsp;31, 1999, 2000, 2001, 2002
and 2003.

<P align="center" style="font-size: 10pt"><IMG src="y96865y9686500.gif" alt="(PERFORMANCE GRAPH)">


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="31%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>NASDAQ</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>NASDAQ</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>barnesandnoble.com inc.</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Stock Market</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Retail Trade</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">05/25/99</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100.00</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100.00</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100.00</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">12/31/99</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">78.82</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">171.38</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">96.82</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">12/31/00</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7.29</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">103.36</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">59.43</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">12/31/01</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.56</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">82.04</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">82.13</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">12/31/02</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6.39</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">56.72</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">69.81</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">12/31/03</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16.28</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">84.80</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">97.20</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left">
<A name="118"></A>
</DIV>

<P align="center" style="font-size: 10pt">-57-
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<P align="left" style="font-size: 10pt"><B>Item&nbsp;12. </B><B><I>Security Ownership of Certain Beneficial Owners and Management</I></B>

<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Equity Compensation Plan information for the year ended December&nbsp;31, 2003 is as
follows:

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Number of securities</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>remaining available for</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Number of securities</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>future issuance under</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>issued upon to be</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Weighted-average</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>equity compensation</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>exercise of</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>exercise prices of</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>plans (excluding</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>outstanding options,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>outstanding options,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>securities reflected in</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>warrants and rights</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>warrants and rights</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>column(a))</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center"><B>Plan Category</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>(a)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>(b)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>(c)</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Equity Compensation Plans
Approved
by Security Holders</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,942</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">3.29</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,217</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Equity Compensation Plans Not
Approved by Security Holders</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,942</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">3.29</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,217</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt">Incentive Plan



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>General</I>. The Company&#146;s 1999 Incentive Plan (the &#147;Incentive Plan&#148;)
provides that options to acquire shares of Class&nbsp;A Common Stock (&#147;Shares&#148;) may
be granted to key officers, employees, consultants, advisors and directors of
the Company or any of its subsidiaries or affiliates as shall be selected from
time to time by a committee of not fewer than two directors of the Company, as
designated by the Board of Directors. The purpose of the Incentive Plan is to
assist the Company in attracting and retaining selected individuals to serve as
directors, officers, consultants, advisors and employees of the Company and
B&#038;N.com who will contribute to the Company&#146;s success and to achieve long-term
objectives that will inure to the benefit of all stockholders of the Company
through the additional incentive inherent in the ownership of the Common Stock.
Awards under the Incentive Plan may take the form of stock options (&#147;Options&#148;),
including corresponding share appreciation rights (&#147;SARs&#148;) and reload options,
restricted stock awards and stock purchase awards.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Share Authorization</I>. The maximum number of Shares that may be the subject
of awards under the Incentive Plan is 25,500,000 Shares and in any given year,
the maximum number of Shares with respect to which awards may be granted to any
employee is 7,000,000 Shares. Shares covered by any unexercised portions of
terminated Options, Shares forfeited by participants and Shares subject to any
awards that are otherwise surrendered by a participant without receiving any
payment or other benefit with respect thereto may again be subject to new
awards under the Incentive Plan. In the event the purchase price of the Option
is paid in whole or in part through the delivery of Shares, the number of
Shares issuable in connection with the exercise of the Option shall not again
be available for the grant of awards under the Incentive Plan. Shares subject
to Options, or portions thereof, with respect to which SARs are exercised, are
not again available for the grant of awards under the Incentive Plan. The
Shares to be issued or delivered under the Incentive Plan are authorized and
unissued Shares, or issued Shares that have been acquired by the Company, or
both.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Incentive Plan Administration</I>. The Compensation Committee of the Board of
Directors administers the Incentive Plan. The Compensation Committee is
authorized, subject to the provisions of the Incentive Plan, to establish such
rules and regulations as it may deem appropriate for the conduct of meetings
and proper administration of the Incentive Plan. Subject to the provisions of
the Incentive Plan, the Compensation Committee shall have authority, in its
sole discretion, to grant awards under the Incentive Plan, to interpret the
provisions of the Incentive Plan and, subject to the requirements of applicable
law, to prescribe, amend, and rescind rules and regulations relating to the
Incentive Plan or any award thereunder as it may deem necessary or advisable.


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<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Options</I>. &#147;Incentive Stock Options&#148; meeting the requirements of Section
422 of the Code, and &#147;Nonqualified Stock Options&#148; that do not meet such
requirements are both available for grant under the Incentive Plan. The term of
each Option is determined by the Compensation Committee, but no Option can be
exercisable prior to
six months from the date of grant or more than 10&nbsp;years after the date of
grant (except in the case of Options that are not Nonqualified Stock Options,
where the Compensation Committee can specify a longer period). Options may also
be subject to restrictions on exercise, such as exercise in periodic
installments, as determined by the Compensation Committee. In general, the
exercise price for Incentive Stock Options must be at least equal to 100% of
the fair market value of the Shares on the date of grant and the exercise price
for Nonqualified Stock Options will be determined by the Compensation Committee
at the time of the grant. The exercise price can be paid in cash, or if
approved by the Compensation Committee, by delivery of a promissory note or
tendering Shares owned by the participant. Options are not transferable except
by will or the laws of descent and distribution and may generally be exercised
only by the participant (or his or her guardian or legal representative) during
his or her lifetime, provided, however, the Nonqualified Stock Options may,
under certain circumstances, be transferable to family members and trust for
the benefit of the participant or his or her family members.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Share Appreciation Rights</I>. The Incentive Plan provides SARs may be
granted in connection with the grant of Options. Each SAR must be associated
with a specific Option and must be granted at the time of grant of such Option.
A SAR is exercisable only to the extent the related Option is exercisable. Upon
the exercise of a SAR, the recipient is entitled to receive from the Company,
without the payment of any cash (except for any applicable withholding taxes),
up to, but no more than, an amount in cash or Shares equal to the excess of (A)
the fair market value of one Share on the date of such exercise over (B)&nbsp;the
exercise price of any related Option, multiplied by the number of Shares in
respect of which such SAR shall have been exercised. Upon the exercise of a
SAR, the related Option, or the portion thereof in respect of which such SAR is
exercised, will terminate. Upon the exercise of an Option granted in tandem
with a SAR, such tandem SAR will terminate.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Reload Options</I>. The Compensation Committee may grant, concurrently with
the award of any Option (an &#147;Underlying Option&#148;), a reload option (a &#147;Reload
Option&#148;) to such participant to purchase for cash or Shares a number of Shares
equal to the number of Shares delivered by the participant to the Company to
exercise the Underlying Option and, to the extent authorized by the
Compensation Committee, the number of Shares used to satisfy tax withholding
obligations. Although an Underlying Option may be an Incentive Stock Option, a
Reload Option is not intended to qualify as an Incentive Stock Option. A Reload
Option has the same expiration date as the Underlying Option and an exercise
price equal to the fair market value of the Shares on the date of the Reload
Option. A Reload Option is exercisable six months from the date of grant. A
Reload Option permits a participant to retain the potential Share appreciation
in the number of already-owned Shares that are used to exercise an Underlying
Option. Retention of such potential appreciation is accompanied by granting
options for the number of Shares used to pay the exercise price of the
Underlying Option or the related tax-withholding obligation. In this way,
Reload Options provide a participant with the opportunity to build up ownership
of Shares covered by an Underlying Option earlier during the Option term than
through a single exercise at or near the end of the Option term.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Restricted Stock</I>. The Company may award restricted Shares under the
Incentive Plan. Such a grant gives a participant the right to receive Shares
subject to a risk of forfeiture based upon certain conditions. The forfeiture
restrictions on the Shares may be based upon performance standards, length of
service or other criteria as the Compensation Committee may determine. Until
all restrictions are satisfied, lapsed or waived, the Company will maintain
custody over the restricted Shares but the participant will be able to vote the
Shares and will be entitled to all distributions paid with respect to the
Shares, as provided by the Compensation Committee. During such restrictive
period, the restricted Shares may not be sold, assigned, transferred, pledged
or otherwise encumbered. Upon termination of employment, the participant
forfeits the right to the Shares to the extent the applicable performance
standards, length of service requirements, or other measurement criteria have
not been met.



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<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Antidilution Provisions</I>. The number of Shares authorized to be issued
under the Incentive Plan and subject to outstanding awards (and the grant or
exercise price thereof) may be adjusted to prevent dilution or
enlargement of rights in the event of any dividend or other distribution,
recapitalization, stock split, reverse stock split, reorganization, merger,
consolidation, split-up, spin-off, combination, repurchase or exchange of
Shares or other securities, the issuance of warrants or other rights to
purchase Shares or other securities, or other similar capitalization change.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Change in Control</I>. Upon the occurrence of a change in control of the
Company, all Options and related SARs may become immediately exercisable and
the restricted Shares may fully vest. All options currently outstanding vest
upon a change in control of the Company.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Termination and Amendment</I>. The Incentive Plan will terminate by its terms
and without any action by the Board of Directors in 2008. No awards may be made
after that date. Awards outstanding on such termination date will remain valid
in accordance with their terms.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Compensation Committee may amend or alter the terms of awards under
the Incentive Plan, including to provide for the termination or modifications
of the vesting or performance provisions of the grants of restricted Shares,
but no such action shall in any way impair the rights of a participant under
any award, without such participant&#146;s consent.


<P align="left" style="font-size: 10pt">Deferred Compensation Plan



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;B&#038;N.com&#146;s Deferred Compensation Plan is a non-qualified plan, eligibility
for which is limited to &#147;Eligible Executives,&#148; who include: (i)&nbsp;the Company&#146;s
employees who became B&#038;N.com employees on November&nbsp;1, 1998 and were eligible to
participate in the Barnes &#038; Noble deferred compensation plan on October&nbsp;31,
1998; and (ii)&nbsp;the Company&#146;s employees whose base salary for a calendar year
exceeds $130,000. An Eligible Executive may elect in each year he or she is an
Eligible Executive to defer no less than $5,000 and no more than 50% of his or
her base salary to a Deferral Account. The Deferral Account of each Eligible
Executive who elects to participate in the Deferred Compensation Plan (a
&#147;Participant&#148;) is credited or debited with investment earnings or losses based
upon the performance of the investment fund or index selected by the
Participant from among alternatives selected by an Administrative Committee
appointed by the Compensation Committee of the Board of Directors.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A participant is entitled to a distribution of his or her Deferral Account
upon retirement or following termination of employment, as elected by the
Participant, but no later than the beginning of the year in which the
Participant would attain age 70-1/2. A Participant may elect whether to receive
the distribution in a lump sum or, at retirement, in annual installments over
not more than fifteen (15)&nbsp;years.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Amounts payable under the Deferred Compensation Plan are general unsecured
obligations of B&#038;N.com, payable out of B&#038;N.com&#146;s general assets to the extent
not paid by a grantor trust that the Company may establish. The Company may
amend or terminate the Deferred Compensation Plan at any time without affecting
any of the rights granted prior to termination.


<P align="left" style="font-size: 10pt">Defined Contribution Plan



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;B&#038;N.com is a participating employer in a defined contribution plan (the
&#147;401 (k)&nbsp;Savings Plan&#148;), sponsored by Barnes &#038; Noble, for the benefit of
substantially all of its employees who meet certain eligibility requirements,
primarily age and length of service. The 401(k) Savings Plan allows employees
to invest up to 25%, not to exceed limits specified in the Internal Revenue
Code, of their current gross cash compensation on a pre-tax basis. B&#038;N.com&#146;s
contributions to the 401(k) Savings Plan are generally in amounts based upon a
certain percentage of the employees&#146; pre-tax contributions. B&#038;N.com provides
matching contributions to participants in the amount of 100% of the first 3% of
earnings and 50% of the next 2% contributed by them, which contributions are
made consistent with the employees direction.



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<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="font-size: 10pt">Beneficial Ownership of Shares



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company has three classes of Common Stock, par value $0.001 per share
(the &#147;Common Stock&#148;). Each holder of the Company&#146;s Class&nbsp;A Common Stock is
entitled to one vote per share. Each holder of the Company&#146;s Class&nbsp;B Common
Stock or Class&nbsp;C Common Stock (collectively &#147;High Vote Stock&#148;) is entitled to
the number of votes per share equal to: 10, multiplied by the sum of (a)&nbsp;the
aggregate number of shares of High Vote Stock owned by such holder and (b)&nbsp;the
aggregate number of Membership Units in B&#038;N.com owned by such holder. Barnes &#038;
Noble is the beneficial owner of all of the Company&#146;s outstanding Class&nbsp;B
Common Stock and Class&nbsp;C Common Stock.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth certain information regarding beneficial
ownership of the Common Stock as of March&nbsp;15, 2004 by: (i)&nbsp;each person known by
the Company to own beneficially more than 5% of the outstanding shares of the
Company&#146;s Class&nbsp;A Common Stock; (ii)&nbsp;each of the Company&#146;s directors; (iii)&nbsp;the
executive officers named in the Summary Compensation Table contained in
&#147;Executive Compensation&#148;; and (iv)&nbsp;all current executive officers and directors
as a group.

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="49%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Percentage</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Number of Shares</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>of Class A</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Percentage of</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>Name and Address of Beneficial Owner</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Beneficially Owned<SUP>(1)</SUP></B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Common Stock<SUP>(2)</SUP></B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Voting Power<SUP>(2)(3)</SUP></B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Barnes &#038; Noble, Inc.
122 Fifth Avenue
New York, NY
10011</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">119,138,502</TD>
    <TD nowrap><SUP>(4)</SUP></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">72.95</TD>
    <TD nowrap>%<SUP>(4)</SUP></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">96.3</TD>
    <TD nowrap>%<SUP>(4)</SUP></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Leonard
Riggio
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">2,014,437</TD>
    <TD nowrap><SUP>(5)</SUP></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.17</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Stephen
Riggio
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">3,580,000</TD>
    <TD nowrap><SUP>(6)</SUP></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6.92</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Marie J.
Toulantis
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">3,818,000</TD>
    <TD nowrap><SUP>(7)</SUP></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7.38</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">David C.
Willen
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">450,500</TD>
    <TD nowrap><SUP>(8)</SUP></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Kevin M.
Frain
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">462,000</TD>
    <TD nowrap><SUP>(9)</SUP></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">David
Gitow
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">401,500</TD>
    <TD nowrap><SUP>(10)</SUP></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Daniel A.
Blackman</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">420,084</TD>
    <TD nowrap><SUP>(9)</SUP></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Michael N.
Rosen</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">100,000</TD>
    <TD nowrap><SUP>(11)</SUP></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Jan-Michiel
Hessels</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">40,000</TD>
    <TD nowrap><SUP>(9)</SUP></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Patricia
Higgins
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">40,000</TD>
    <TD nowrap><SUP>(9)</SUP></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">William F.
Reilly</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">90,000</TD>
    <TD nowrap><SUP>(11)</SUP></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">All current executive officers and
directors as a group (11
persons)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">11,416,521</TD>
    <TD nowrap><SUP>(12)</SUP></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20.03</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>




<P>
<HR size="1" width="18%" align="left" noshade>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top">
    <TD width="1%" nowrap align="right">*</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="96%">Represents less than 1%.</TD>
</TR>


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

<TR valign="top">
    <TD width="1%" nowrap align="right">(1)</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="96%">Except as indicated in the notes below, shares of Common Stock
subject to options that are currently exercisable or exercisable within
60&nbsp;days after March&nbsp;15, 2004 are deemed to be outstanding and
beneficially owned by the person holding such options for the purpose of
computing the percentage ownership of such person but are not treated as
outstanding for the purpose of computing the percentage ownership of any
other person.</TD>
</TR>

</TABLE>


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<DIV style="font-family: 'Times New Roman',Times,serif">





<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top">
    <TD width="1%" nowrap align="right">(2)</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="96%">Excludes 4,158,088 shares issued to B&#038;N.com in connection with the
merger with Fatbrain.</TD>
</TR>

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

<TR valign="top">
    <TD width="1%" nowrap align="right">(3)</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="96%">Represents the percentage of voting power resulting from the effect
of all outstanding High Vote Stock, assuming no conversion of that stock
into Class&nbsp;A Common Stock.</TD>
</TR>

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

<TR valign="top">
    <TD width="1%" nowrap align="right">(4)</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="96%">Represents shares of High Vote Stock that are convertible into, and
Membership Units that are exchangeable for, shares of Class&nbsp;A Common
Stock on a one-for-one-basis at any time at the option of the holder
thereof, together with 4,138,500 shares of Class&nbsp;A Common Stock,
beneficially owned by Barnes &#038; Noble through its wholly owned subsidiary
B&#038;N Holding.</TD>
</TR>

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

<TR valign="top">
    <TD width="1%" nowrap align="right">(5)</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="96%">Includes 600,000 shares each owned by B&#038;N College and MBS. Does not
include 119,138,502 shares of Class&nbsp;A Common Stock beneficially owned by
Barnes &#038; Noble. Mr.&nbsp;Riggio is Barnes &#038; Noble&#146;s Chairman of the Board and
principal stockholder. Accordingly, he could be considered to
beneficially own the shares owned by Barnes &#038; Noble. Mr.&nbsp;Riggio
disclaims any beneficial ownership of such shares.</TD>
</TR>

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

<TR valign="top">
    <TD width="1%" nowrap align="right">(6)</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="96%">Includes options granted by the Company to purchase 3,380,000 shares
of Class&nbsp;A Common Stock.</TD>
</TR>

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

<TR valign="top">
    <TD width="1%" nowrap align="right">(7)</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="96%">Includes options granted by the Company to purchase 3,400,000 shares
of Class&nbsp;A Common Stock.</TD>
</TR>

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

<TR valign="top">
    <TD width="1%" nowrap align="right">(8)</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="96%">Includes options granted by the Company to purchase 450,000 shares of
Class&nbsp;A Common Stock.</TD>
</TR>

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

<TR valign="top">
    <TD width="1%" nowrap align="right">(9)</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="96%">All of these shares are issuable upon the exercise of options granted
by the Company.</TD>
</TR>

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

<TR valign="top">
    <TD width="1%" nowrap align="right">(10)</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="96%">Includes options granted by the Company to purchase 400,000 shares of
Class&nbsp;A Common Stock.</TD>
</TR>

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

<TR valign="top">
    <TD width="1%" nowrap align="right">(11)</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="96%">Includes options granted by the Company to purchase 40,000 shares of
Class&nbsp;A Common Stock.</TD>
</TR>

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

<TR valign="top">
    <TD width="1%" nowrap align="right">(12)</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="96%">Includes options granted by the Company to purchase 8,672,084 shares
of Class&nbsp;A Common Stock.</TD>
</TR>

</TABLE>


<DIV align="left">
<A name="119"></A>
</DIV>

<P align="left" style="font-size: 10pt"><B>Item&nbsp;13. </B><B><I>Certain Relationships and Related Transactions (in thousands)</I></B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;B&#038;N.com has entered into agreements with Barnes &#038; Noble, Bertelsmann and
their affiliates. The Company believes that the transactions and agreements
discussed below (including renewals of any existing agreements) between B&#038;N.com
and its affiliates are at least as favorable to B&#038;N.com as could be obtained
from unaffiliated parties. The Board of Directors and the Audit Committee must
approve in advance any proposed transaction or agreement with affiliates and
will utilize procedures in evaluating the terms and provisions of such proposed
transaction or agreement as are appropriate in light of the fiduciary duties of
directors under Delaware law.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;B&#038;N.com entered into a Supply Agreement, dated October&nbsp;31, 1998, as
amended, with Barnes &#038; Noble (the &#147;Supply Agreement&#148;), whereby Barnes &#038; Noble
has agreed to supply inventory to B&#038;N.com through Barnes &#038; Noble&#146;s distribution
facilities and purchasing departments. Pursuant to the Supply Agreement, Barnes
&#038; Noble charges B&#038;N.com its actual cost to acquire the inventory plus any
incremental overhead incurred by Barnes &#038; Noble in connection with providing
such merchandise supply services. B&#038;N.com purchased $114,172, $106,167 and
$126,217 from Barnes &#038; Noble representing 35%, 34% and 45% of its purchases for
the years ended December&nbsp;31, 2003, 2002 and 2001, respectively. The charges for
incremental overhead for the years ended December&nbsp;31, 2003, 2002 and 2001 were
$3,705, $2,519 and $2,369, respectively.


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<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under a Services Agreement, dated October&nbsp;31, 1998, as amended, between
B&#038;N.com and Barnes &#038; Noble (the &#147;Services Agreement&#148;), B&#038;N.com receives various
administrative services from Barnes &#038; Noble, including, among other things,
services for payroll processing, benefits administration, insurance (property
and casualty, medical, dental and life) and tax administration. In accordance
with the terms of the Services Agreement, B&#038;N.com reimburses Barnes &#038; Noble in
an amount equal to the third-party expenses it incurs to fund and provide such
services, plus any incremental internal costs. B&#038;N.com was charged $1,990,
$3,491 and $4,144 for such services during the years ended December&nbsp;31, 2003,
2002 and 2001, respectively.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;B&#038;N.com purchased merchandise directly from Calendar Club, L.L.C.
(&#147;Calendar Club&#148;), a company engaged in the wholesaling and retailing of
calendars, in which Barnes &#038; Noble owns a 73.9% interest. B&#038;N.com&#146;s purchases
from Calendar Club were $1,320, $1,740 and $1,110 for the years ended December
31, 2003, 2002 and 2001, respectively.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;B&#038;N.com subleases from Barnes &#038; Noble approximately one-third of a 300,000
square foot warehouse facility located in New Jersey. B&#038;N.com was charged by
Barnes &#038; Noble $561, $498 and $486 for such subleased space during the years
ended December&nbsp;31, 2003, 2002 and 2001, respectively. The amount paid to Barnes
&#038; Noble by B&#038;N.com approximates the cost per square foot paid by Barnes &#038; Noble
as tenant pursuant to its lease of the space from an unaffiliated third party.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Since 1999, B&#038;N.com has used AEC One Stop Group, Inc. (&#147;AEC&#148;) as its main
music supplier, and as one of its suppliers of DVD/ video. AEC is among the
largest wholesale distributors of music, videos and DVDs in the United States.
AEC also provides B&#038;N.com with a music, DVD and video product database.
Subsequent to the initial supply arrangement between AEC and B&#038;N.com, AEC&#146;s
parent corporation was acquired by an investor group in which Leonard Riggio,
Chairman of the Board of the Company and B&#038;N.com, became a minority investor.
B&#038;N.com was charged by AEC $52,257, $40,536 and $29,759 in connection with this
agreement for merchandise purchased during the years ended December&nbsp;31, 2003,
2002 and 2001, respectively. In addition, B&#038;N.com was charged by AEC $490, $403
and $279 for database services during the years ended December&nbsp;31, 2003, 2002
and 2001, respectively. At December&nbsp;31, 2003 and 2002, $7,939 and $9,008,
respectively, remained payable to AEC.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;B&#038;N.com licenses the &#147;Barnes &#038; Noble&#148; name under a royalty-free license
agreement, dated October&nbsp;31, 1998, as amended, between B&#038;N.com and B&#038;N College
(the &#147;License Agreement&#148;), of which Leonard Riggio is the principal
stockholder. Pursuant to the License Agreement, the Company has been granted an
exclusive license to use the &#147;Barnes &#038; Noble&#148; name and trademark for the
purpose of selling books over the internet (excluding sales of college
textbooks). Under a separate agreement dated as of January&nbsp;2001, between the
Company and Textbooks.com, Inc. (&#147;Textbooks.com&#148;), a corporation owned by
Leonard Riggio, B&#038;N.com was granted the right to sell college textbooks over
the Internet using the &#147;Barnes &#038; Noble&#148; name. Pursuant to this agreement,
B&#038;N.com pays Textbooks.com a royalty on revenues (net of product returns,
applicable sales tax and excluding shipping and handling) realized by the
Company from the sale of books designated as textbooks. The term of the
agreement is for five years and renews annually for additional one-year periods
unless terminated 12&nbsp;months prior to the end of any given term. For the years
ended December&nbsp;31, 2003, 2002 and 2001, the Company recorded royalty expense of
$3,984, $3,485 and $5,981, respectively, under the terms of this agreement.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;B&#038;N.com has various royalty-free non-exclusive licenses dated October&nbsp;31,
1998, as amended, from Barnes &#038; Noble, and Bertelsmann&#146;s Books Online (&#147;BOL&#148;).
B&#038;N.com licenses from Barnes &#038; Noble the right to use Barnes &#038; Noble&#146;s database
of book bibliographic data as well as certain software applications. B&#038;N.com
licenses from BOL, the subsidiary through which Bertelsmann conducts its
Internet business, its name and trademark for use in B&#038;N.com&#146;s operations.
Under Technology Sharing License Agreements, B&#038;N.com was granted a royalty-free
license to view, access and use BOL&#146;s computer technology and systems, and
B&#038;N.com granted BOL a license to view, access and use B&#038;N.com&#146;s computer
technology and systems. All of the agreements described in this paragraph were
terminated as of September&nbsp;16, 2003.



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<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;B&#038;N.com and Barnes &#038; Noble commenced a marketing program in November&nbsp;2000,
whereby a customer purchases a subscription to the Barnes &#038; Noble Membership
Program (formerly the &#147;Readers&#146; Advantage&#153; card&#148;) for an annual membership fee
of $25.00 which is non-refundable after the first 30&nbsp;days of the membership
term. With this membership card, customers can receive discounts of 10% on all
Barnes &#038; Noble purchases and 5% on all B&#038;N.com purchases. B&#038;N.com and Barnes &#038;
Noble have agreed to share the expenses, net of revenue from the sale of the
cards, related to this program in proportion to the discounts
customers receive on purchases with each company. B&#038;N.com&#146;s share of the
card revenue generated from this program for the years ended December&nbsp;31, 2003,
2002 and 2001 was $2,691, $1,359 and $636, respectively.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2002, B&#038;N.com entered into an agreement with Marketing Services
(Minnesota) Corp. (&#147;Marketing Services Corp.&#148;), a wholly owned subsidiary of
Barnes &#038; Noble, for marketing services, which includes the issuance of gift
cards. Under this agreement, B&#038;N.com has received $10,568 and $2,669 as of
December&nbsp;31, 2003 and 2002, respectively from Marketing Services Corp., which
represents reimbursement for purchases made with gift cards in a Barnes &#038; Noble
store and redeemed on the B&#038;N.com Web site.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;B&#038;N.com ships, through its fulfillment centers, customer orders on behalf
of Barnes &#038; Noble to Barnes &#038; Noble retail stores as well as to Barnes &#038; Noble
customers&#146; homes. B&#038;N.com charges Barnes &#038; Noble the costs associated with such
shipments plus any incremental overhead incurred by B&#038;N.com to process these
orders. For the years ended December&nbsp;31, 2003, 2002 and 2001, B&#038;N.com recorded
$2,357, $1,792 and $987, respectively, as a reimbursement for shipping and
handling from Barnes &#038; Noble. In addition, during 2001, B&#038;N.com and Barnes &#038;
Noble entered into an agreement whereby B&#038;N.com receives a commission on all
items ordered by customers at Barnes &#038; Noble stores and shipped directly to
customers&#146; homes by B&#038;N.com. Commissions for these sales were recorded as
revenue and amounted to $1,434, $1,280 and $383 for the years ended December
31, 2003, 2002 and 2001, respectively.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Barnes &#038; Noble subleased warehouse space from B&#038;N.com in Reno, Nevada.
B&#038;N.com charged Barnes &#038; Noble $500 and $1,882 for such subleased space for the
years ended December&nbsp;31, 2002 and 2001, respectively. Additionally, Barnes &#038;
Noble reimbursed B&#038;N.com $6,186 for fixed assets purchased on behalf of Barnes
&#038; Noble for the Reno warehouse. The equipment was sold to Barnes &#038; Noble at its
original cost. In January&nbsp;2002, the Company determined it could not
effectively utilize the full capacity of its Reno, Nevada distribution center.
Accordingly, following Board approval on January&nbsp;29, 2002, the Company agreed
to transfer the Reno warehouse lease and sell B&#038;N.com&#146;s inventory located in
Reno to Barnes &#038; Noble. Barnes &#038; Noble purchased the inventory from B&#038;N.com at
cost for approximately $9,877 The Board of Barnes &#038; Noble also approved Barnes
&#038; Noble&#146;s assumption of the lease obligation and the hiring of all of the
employees at the Reno warehouse. The Reno lease assignment and the transfer of
the operations of the Reno warehouse to Barnes &#038; Noble was completed in April
2002. In connection with the transfer, B&#038;N.com agreed to pay one-half of the
rent charged for the facility through December&nbsp;31, 2002. B&#038;N.com paid $943 in
relation to these expenses for the year ended December&nbsp;31, 2002.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2000, B&#038;N.com began purchasing new and used textbooks directly from MBS
Textbook Exchange, Inc. (&#147;MBS&#148;), a corporation majority-owned by Leonard Riggio
and one of the nation&#146;s largest wholesalers of college textbooks. B&#038;N.com&#146;s
total purchases for the years ended December&nbsp;31, 2003, 2002 and 2001 were
$13,829, $17,223 and $13,206, respectively. In addition, B&#038;N.com maintains a
link on its Web site called &#147;Sell Your Textbooks&#148; which is hosted by MBS and
through which B&#038;N.com customers are able to sell used books directly to MBS.
B&#038;N.com is paid a commission based on the price paid by MBS to the consumer.
Total commissions received and recorded as revenue for the years ended December
31, 2003, 2002 and 2001 were $75, $58 and $16, respectively.


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<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under a Strategic Relationship Agreement, dated as of May&nbsp;1, 2001 (the
&#147;Strategic Relationship Agreement&#148;), between B&#038;N.com and GameStop Corp.
(&#147;GameStop&#148;), a majority-owned subsidiary of Barnes &#038; Noble, B&#038;N.com&#146;s Web site
refers customers to the GameStop Web site for purchases of video game hardware,
software and accessories and PC entertainment software. GameStop pays B&#038;N.com a
referral fee based on its net sales revenue from certain eligible purchases
made by customers as a result of the redirection from the B&#038;N.com Web site.
Either party may terminate the Strategic Relationship Agreement on 60&nbsp;days&#146;
notice. Commissions of $8, $65 and $33 were recorded as revenue for the years
ended December&nbsp;31, 2003, 2002 and 2001, respectively, under this agreement.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;B&#038;N.com has an approximate 46.8% equity stake in enews, a company
previously engaged in selling magazine subscriptions on the Internet, and
accounted for this investment under the equity method. Substantially all of the
balance of the shares are owned by Barnes &#038; Noble. In July&nbsp;2002, the Board of
Directors and stockholders of enews approved the Liquidation Plan. As of
December&nbsp;31, 2003, the implementation of the Liquidation Plan had been
substantially completed and was concluded by February&nbsp;29, 2004. Prior to the
implementation of the Liquidation Plan, B&#038;N.com fulfilled a majority of orders
for magazine subscriptions through enews and recorded a commission on these
sales. B&#038;N.com recorded commissions of $909 and $590 for the years ended
December&nbsp;31, 2002 and 2001, respectively, and was reimbursed $488, $524 and
$295, respectively, for expenses incurred on behalf of enews for the years
ended December&nbsp;31, 2003, 2002 and 2001.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At December&nbsp;31, 2003 and 2002, $71,957 and $48,261, respectively, remained
payable to Barnes &#038; Noble in connection with the transactions described above.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In July&nbsp;2003, Barnes &#038; Noble announced that it reached an agreement with
DirectGroup Bertelsmann, the direct-to-customer division of German-based media
company Bertelsmann, to acquire all of Bertelsmann&#146;s interest in B&#038;N.com for
$164,000 in a combination of cash and notes, equivalent to $2.80 per share or
Membership Unit. The transaction closed on September&nbsp;15, 2003.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Michael N. Rosen, a director and Secretary of the Company, is also a
member of Bryan Cave LLP, outside counsel to the Company and B&#038;N.com.

<DIV align="left">
<A name="120"></A>
</DIV>

<P align="left" style="font-size: 10pt"><B>Item&nbsp;14. </B><B><I>Principal Accountant Fees and Services</I></B>



<P align="left" style="font-size: 10pt">Independent Accountants



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During the fiscal year ended December&nbsp;31, 2003, BDO Seidman, LLP (&#147;BDO
Seidman&#148;) provided various audit and permissible non-audit services to the
Company. The Company and the Audit Committee have considered whether the
non-audit services provided by BDO Seidman are compatible with maintaining the
independence of BDO Seidman in its audit of the Company and are not considered
prohibited services under the Sarbanes-Oxley Act of 2002. Set forth below are
the aggregate fees billed for those services:


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" nowrap align="right">(a)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><I>Audit Fees</I>: The aggregate fees billed for professional
services rendered for the audit of the Company&#146;s annual financial
statements for the fiscal years ended December&nbsp;31, 2003 and 2002
and for the reviews of the financial statements included in the
Company&#146;s quarterly reports on Form 10-Q were $315,000 and
$338,000, respectively.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" nowrap align="right">(b)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><I>Audit-Related Fees</I>: The aggregate fees billed by BDO
Seidman for services rendered to the Company for the audit of the
Company&#146;s pension plan for the fiscal years ended December&nbsp;31,
2003 and 2002 were $16,000 and $16,000, respectively.</TD>
</TR>


</TABLE>

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<P><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">


<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" nowrap align="right">(c)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><I>Tax Fees</I>: No such fees were incurred by the Company for
the fiscal years ended December&nbsp;31, 2003 and 2002.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" nowrap align="right">(d)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><I>All Other Fees</I>: The aggregate fees billed by BDO Seidman
for services rendered to the Company, other than the services
described above under &#147;Audit Fees&#148; and &#147;Audit-Related Fees,&#148; for
the fiscal years ended December&nbsp;31, 2003 and 2002 were $15,000 and
$7,000, respectively.</TD>
</TR>

</TABLE>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Audit Committee has determined that the provision of the services
above are compatible with maintaining the independence of BDO Seidman. BDO
Seidman does not provide consulting services to the Company in any capacity.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Pre-approval Policies and Procedures</I>. The Audit Committee Charter adopted
by the Board of Directors of the Company requires that, among other things, the
Audit Committee pre-approve the rendering by the Company&#146;s independent auditor
of all audit and permissible non-audit services. The Audit Committee has
delegated to its Chairman, together with any other member of the Audit
Committee, the authority to grant such pre-approvals during periods when the
Audit Committee is not in session and a meeting cannot be readily convened. All
fees paid to and or billed by our principal accountants were approved in
accordance with the policy described above beginning May&nbsp;6, 2003.

<DIV align="left">
<A name="121"></A>
</DIV>

<P align="center" style="font-size: 10pt"><B>PART IV</B>


<DIV align="left">
<A name="122"></A>
</DIV>

<P align="left" style="font-size: 10pt"><B>Item&nbsp;15.</B><B><I>Exhibits, Financial Statement Schedules and Reports on Form&nbsp;8-K</I></B>




<P align="left" style="margin-left:3%; font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>(a)(1) Financial Statements:</I>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following consolidated financial statements of the Company and
subsidiaries and the related notes are filed as part of this report pursuant to
Item&nbsp;8:



<P align="left" style="margin-left:3%; font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Reports of Independent Certified Public Accountants



<P align="left" style="margin-left:3%; font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Consolidated Balance Sheets



<P align="left" style="margin-left:3%; font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Consolidated Statements of Operations



<P align="left" style="margin-left:3%; font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Consolidated Statement of Stockholders&#146; Equity



<P align="left" style="margin-left:3%; font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Consolidated Statements of Cash Flows



<P align="left" style="margin-left:3%; font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Notes to Consolidated Financial Statements



<P align="left" style="margin-left:3%; font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>(a)(2) Financial Statement Schedules:</I>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;None.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All schedules are omitted because the required information is not present
or is not present in amounts sufficient to require submission of the schedule
or because the information required is given in the consolidated financial
statements or notes thereto.


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<DIV style="font-family: 'Times New Roman',Times,serif">


<P align="left" style="margin-left:3%; font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>(a)(3) Exhibits:</I>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="9%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="86%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>Exhibit</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>&nbsp;</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>No.</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Description</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">2.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Agreement and Plan of Merger, dated as of January&nbsp;8, 2004, by and
among the Company, Barnes &#038; Noble, B&#038;N.com Holding Corp. and
B&#038;N.com Acquisition Corp. (Incorporated herein by reference to
Exhibit&nbsp;2.1 in the Company&#146;s Current Report on Form&nbsp;8-K, filed
January&nbsp;9, 2004)</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">3.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Amended and Restated Certificate of Incorporation of the Company.
(Incorporated herein by reference to Exhibit&nbsp;3.1 in the Company&#146;s
Form&nbsp;10-K for the year ended December&nbsp;31, 2000, filed April&nbsp;2,
2001)</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">3.2
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Amended and Restated By-laws of the Company. (Incorporated herein
by reference to Exhibit&nbsp;3.2 in the Company&#146;s Form&nbsp;10-K for the
year ended December&nbsp;31, 2000, filed April&nbsp;2, 2001)</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Second Amended and Restated Limited Liability Company Agreement of
barnesandnoble.com llc. (Incorporated herein by reference to
Exhibit&nbsp;10.1 in the Company&#146;s Form&nbsp;10-K for the year ended
December&nbsp;31, 2000, filed April&nbsp;2, 2001)</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.2
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Amendment No.&nbsp;1 to Second Amended and Restated Limited Liability
Company Agreement of barnesandnoble.com llc. (Incorporated herein
by reference to Exhibit&nbsp;10.30 in the Company&#146;s Form&nbsp;10-K for the
year ended December&nbsp;31, 1999, filed March&nbsp;30, 2000)</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.3
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Stockholders Agreement between Barnes &#038; Noble, Inc. and
Bertelsmann AG. (Incorporated herein by reference to Exhibit&nbsp;10.3
in the Company&#146;s Form&nbsp;10-K for the year ended December 31, 2000,
filed April&nbsp;2, 2001)</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.4
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">1999 Incentive Plan of the Company. (Incorporated herein by
reference to Exhibit&nbsp;10.1 in Amendment No.&nbsp;3 of the Company&#146;s
Registration Statement No.&nbsp;333-64211, filed May&nbsp;24, 1999)</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.5
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Deferred Compensation Plan of the Company. (Incorporated herein by
reference to Exhibit&nbsp;10.25 in Amendment No.&nbsp;3 of the Company&#146;s
Registration Statement No.&nbsp;333-64211, filed May&nbsp;24, 1999)</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.6
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Retirement Plan of the Company. (Incorporated herein by reference
to Exhibit&nbsp;10.26 in Amendment No.&nbsp;3 of the Company&#146;s Registration
Statement No.&nbsp;333-64211, filed May&nbsp;24, 1999)</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.7
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Agreement of Lease, dated as of October&nbsp;1, 1999, between 111
Chelsea LLC, as landlord, and barnesandnoble.com llc, as tenant.
(Incorporated herein by reference to Exhibit&nbsp;10.33 in the
Company&#146;s Form&nbsp;10-K for the year ended December&nbsp;31, 1999, filed
March&nbsp;30, 2000)</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.8
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Indenture of Lease and Amendments thereto, dated as of June&nbsp;7,
1994, between SDI Technologies, Inc., as Landlord, and B. Dalton
Bookseller, Inc., as Tenant. (Incorporated herein by reference to
Exhibit&nbsp;10.22 in Amendment No.&nbsp;1 of the Company&#146;s Registration
Statement No.&nbsp;333-64211, filed March&nbsp;18, 1999)</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.9
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Lease, dated as of June&nbsp;30, 1997, between P.A. Building Company,
as Landlord, and Barnes &#038; Noble, Inc., as Tenant. (Incorporated
herein by reference to Exhibit&nbsp;10.23 in Amendment No.&nbsp;1 of the
Company&#146;s Registration Statement No.&nbsp;333-64211, filed March&nbsp;18,
1999)</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.10
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Amended and Restated Industrial Lease Agreement effective as of
July&nbsp;27, 1999, between Industrial Developments International
(Tennessee), L.P., as landlord, and barnesandnoble.com llc, as
tenant. (Incorporated herein by reference to Exhibit&nbsp;10.31 in the
Company&#146;s Form&nbsp;10-K for the year ended December&nbsp;31, 1999, filed
March&nbsp;30, 2000)</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">-67-
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="9%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="86%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>Exhibit</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>&nbsp;</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>No.</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Description</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.11
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Supply Agreement, dated as of October&nbsp;31, 1998, between
barnesandnoble.com llc and Barnes &#038; Noble, Inc. (Incorporated
herein by reference to Exhibit&nbsp;10.14 in Amendment No.&nbsp;1 of the
Company&#146;s Registration Statement No.&nbsp;333-64211, filed March&nbsp;18,
1999)</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.12
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Amendment No.&nbsp;1 to the Supply Agreement, between
barnesandnoble.com llc and Barnes &#038; Noble Inc. (Incorporated
herein by reference to Exhibit&nbsp;10.14 in the Company&#146;s Form&nbsp;10-K
for the year ended December&nbsp;31, 2000, filed April&nbsp;2, 2001)</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.13
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Amended and Restated Services Agreement, dated as of October&nbsp;31,
1998, among the Company, barnesandnoble.com llc and Barnes &#038;
Noble, Inc. (Incorporated herein by reference to Exhibit&nbsp;10.10 in
Amendment No.&nbsp;1 of the Company&#146;s Registration Statement No.
333-64211, filed March&nbsp;18, 1999)</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.14
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Amendment No.&nbsp;1 to the Amended and Restated Services Agreement,
among the Company, barnesandnoble.com llc and Barnes &#038; Noble, Inc.
(Incorporated herein by reference to Exhibit&nbsp;10.16 in the
Company&#146;s Form&nbsp;10-K for the year ended December&nbsp;31, 2000, filed
April&nbsp;2, 2001)</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.15
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Technology Sharing and Licensing Agreement, dated as of October
31, 1998, between barnesandnoble.com llc, as Licensor and
BOL.Global, Inc., as Licensee. (Incorporated herein by reference
to Exhibit&nbsp;10.8 in Amendment No.&nbsp;1 of the Company&#146;s Registration
Statement No.&nbsp;333-64211, filed March&nbsp;18, 1999)</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.16
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Amendment No.&nbsp;1 to the Technology Sharing and License Agreement,
between barnesandnoble.com llc, as Licensor and BOL.Global, Inc.,
as Licensee. (Incorporated herein by reference to Exhibit&nbsp;10.18 in
the Company&#146;s Form&nbsp;10-K for the year ended December&nbsp;31, 2000,
filed April&nbsp;2, 2001)</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.17
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Technology Sharing and Licensing Agreement, dated as of October
31, 1998, between barnesandnoble.com llc, as Licensee and
BOL.Global, Inc., as Licensor. (Incorporated herein by reference
to Exhibit&nbsp;10.9 in Amendment No.&nbsp;1 of the Company&#146;s Registration
Statement No.&nbsp;333-64211, filed March&nbsp;18, 1999)</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.18
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Amendment No.&nbsp;1 to the Technology Sharing and License Agreement,
between barnesandnoble.com llc, as Licensee and BOL.Global, Inc.,
as Licensor. (Incorporated herein by reference to Exhibit&nbsp;10.20 in
the Company&#146;s Form&nbsp;10-K for the year ended December&nbsp;31, 2000,
filed April&nbsp;2, 2001)</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.19
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Amended and Restated Database and Software License Agreement,
dated as of October&nbsp;31, 1998, among the Company,
barnesandnoble.com llc and Barnes &#038; Noble, Inc. (Incorporated
herein by reference to Exhibit&nbsp;10.15 in Amendment No.&nbsp;1 of the
Company&#146;s Registration Statement No.&nbsp;333-64211, filed March&nbsp;18,
1999)</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.20
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Amendment No.&nbsp;1 to the Amended and Restated Database and Software
License Agreement, among the Company, barnesandnoble.com llc and
Barnes &#038; Noble, Inc. (Incorporated herein by reference to Exhibit
10.22 in the Company&#146;s Form&nbsp;10-K for the year ended December&nbsp;31,
2000, filed April&nbsp;2, 2001)</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.21
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Trademark License Agreement, dated as of October&nbsp;31, 1998, between
BOL.Global, Inc. and barnesandnoble.com llc. (Incorporated herein
by reference to Exhibit&nbsp;10.13 in Amendment No.&nbsp;1 of the Company&#146;s
Registration Statement No.&nbsp;333-64211, filed March&nbsp;18, 1999)</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">-68-
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="9%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="86%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>Exhibit</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>&nbsp;</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>No.</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Description</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.22
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Amendment No.&nbsp;1 to the Trademark License Agreement, between
BOL.Global, Inc. and barnesandnoble.com llc. (Incorporated herein
by reference to Exhibit&nbsp;10.24 in the Company&#146;s Form&nbsp;10-K for the
year ended December&nbsp;31, 2000, filed April&nbsp;2, 2001)</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.23
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Amended and Restated Trademark License Agreement, dated as of
October&nbsp;31, 1998, between Barnes &#038; Noble College Bookstores, Inc.
and barnesandnoble.com llc. (Incorporated herein by reference to
Exhibit&nbsp;10.12 in Amendment No.&nbsp;1 of the Company&#146;s Registration
Statement No.&nbsp;333-64211, filed March&nbsp;18, 1999)</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.24
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Amendment No.&nbsp;1 to the Amended and Restated Trademark License
Agreement, between Barnes &#038; Noble College Bookstores, Inc. and
barnesandnoble.com llc. (Incorporated herein by reference to
Exhibit&nbsp;10.26 in the Company&#146;s Form&nbsp;10-K for the year ended
December&nbsp;31, 2000, filed April&nbsp;2, 2001)</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.25
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Web Site Agreement, dated as of January&nbsp;31, 2001, between
Textbooks.com, Inc. and barnesandnoble.com llc. (Incorporated
herein by reference to Exhibit&nbsp;10.27 in the Company&#146;s Form&nbsp;10-K
for the year ended December&nbsp;31, 2000, filed April&nbsp;2, 2001)</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.26
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Employment Agreement, dated as of October&nbsp;31, 2002, between the
Company and Marie J. Toulantis (Incorporated herein by reference
to Exhibit&nbsp;10.26 in the Company&#146;s Form&nbsp;10-K for the year ended
December&nbsp;31, 2002, filed March&nbsp;27, 2003)</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">21.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">List of Subsidiaries</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">23.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Consent of BDO Seidman, LLP</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">31.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Certification of Chief Executive Officer pursuant to Rule
13a-14(a) under the Securities Exchange Act of 1934, as adopted
pursuant to Section&nbsp;302 of the Sarbanes-Oxley Act of 2002.</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">31.2
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Certification of Chief Financial Officer pursuant to Rule
13a-14(a) under the Securities Exchange Act of 1934, as adopted
pursuant to Section&nbsp;302 of the Sarbanes-Oxley Act of 2002.</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">32.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Certification of Chief Executive Officer pursuant to Rule
13a&#150;14(b) under the Securities Exchange Act of 1934 and 18 U.S.C.
Section&nbsp;1350, as adopted pursuant to Section&nbsp;906 of the
Sarbanes-Oxley Act of 2002.</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">32.2
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Certification of Chief Financial Officer pursuant to Rule
13a&#150;14(b) under the Securities Exchange Act of 1934 and 18 U.S.C.
Section&nbsp;1350, as adopted pursuant to Section&nbsp;906 of the
Sarbanes-Oxley Act of 2002.</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>(b)&nbsp;Reports on </I><I>Form 8-K</I><I>:</I>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On October&nbsp;29, 2003, the Company furnished a Report on Form 8-K pursuant
to Items 7 and 12 of such form announcing third quarter 2003 financial results.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On November&nbsp;12, 2003, the Company filed a Report on Form 8-K pursuant to
Items 5 and 7 of such form relating to Barnes &#038; Noble&#146;s proposal to purchase in
a merger transaction for $2.50 in cash each share of the Company&#146;s common stock
that Barnes &#038; Noble does not currently own.


<P align="center" style="font-size: 10pt">-69-
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Subsequent to the end of the fourth quarter, on January&nbsp;9, 2004, the
Company filed a Report on Form 8-K pursuant to Items 5 and 7 of such form
announcing a definitive merger agreement with Barnes &#038; Noble for $3.05 in cash
per share of the Company&#146;s common stock that Barnes &#038; Noble does not currently
own and the subsequent dismissal of lawsuits filed with respect to the proposed
merger, subject to customary conditions.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Subsequent to the end of the fourth quarter, on January&nbsp;30, 2004, the
Company furnished a Report on Form 8-K pursuant to Items 7 and 12 of such form
announcing fourth quarter 2003 and fiscal year ended December&nbsp;31, 2003
financial results.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Subsequent to the end of the fourth quarter, on April&nbsp;28, 2004, the
Company furnished a Report on Form 8-K pursuant to Items 7 and 12 of such form
announcing first quarter 2004 financial results.


<P align="center" style="font-size: 10pt">-70-
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<A name="123"></A>
</DIV>

<P align="center" style="font-size: 10pt"><B>SIGNATURES</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to the requirements of Section&nbsp;13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="20%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="65%">&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">barnesandnoble.com inc.
(Registrant)</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">By:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">/s/ MARIE J. TOULANTIS
<HR size="1" noshade>
Marie J. Toulantis<BR>
Chief Executive Officer</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt">Date: April&nbsp;30, 2004



<P align="center" style="font-size: 10pt">-71-
</DIV>

</BODY>
</HTML>

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21.1
<SEQUENCE>2
<FILENAME>y96865exv21w1.htm
<DESCRIPTION>EX-21.1: LIST OF SUBSIDIARIES
<TEXT>
<HTML>
<HEAD>
<TITLE>EX-21.1: LIST OF SUBSIDIARIES</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="right" style="font-size: 10pt">Exhibit&nbsp;21.1



<P align="center" style="font-size: 10pt">LIST OF SUBSIDIARIES



<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>barnesandnoble.com llc, a Delaware limited liability company.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Barnes &#038; Noble BookQuest, LLC, a Delaware limited liability company.</TD>
</TR>

</TABLE>


<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

</BODY>
</HTML>

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.1
<SEQUENCE>3
<FILENAME>y96865exv23w1.txt
<DESCRIPTION>EX-23.1: CONSENT OF BDO SEIDMAN LLP
<TEXT>
<PAGE>
                                                                    Exhibit 23.1

                             CONSENT OF INDEPENDENT
                          CERTIFIED PUBLIC ACCOUNTANTS

barnesandnoble.com inc.
New York, New York

     We hereby consent to the incorporation by reference of our report dated
January 29, 2004 (except for Note 1 thereto the date of which is March 31, 2004)
relating to the consolidated financial statements of barnesandnoble.com inc.
(the "Company"), incorporated by reference into the prospectuses constituting a
part of the Company's registration statement No. 333-79261 on Form S-8.

BDO Seidman, LLP
/s/ BDO Seidman, LLP

New York, New York
April 30, 2004




</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.1
<SEQUENCE>4
<FILENAME>y96865exv31w1.htm
<DESCRIPTION>EX-31.1: CERTIFICATION OF CHIEF EXECUTIVE OFFICER
<TEXT>
<HTML>
<HEAD>
<TITLE>EX-31.1: CERTIFICATION OF CHIEF EXECUTIVE OFFICER</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="right" style="font-size: 10pt">Exhibit&nbsp;31.1



<P align="center" style="font-size: 10pt">CERTIFICATION


<P align="left" style="font-size: 10pt">I, Marie J. Toulantis, Chief Executive Officer, certify that:



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">1.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>I have reviewed this annual report on Form 10-K/A of barnesandnoble.com
inc.;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">2.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">3.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">4.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The registrant&#146;s other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules&nbsp;13a-15(e) and 15d-15(e)) for the registrant
and have:</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" nowrap align="right">a.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" nowrap align="right">b.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>evaluated the effectiveness of the registrant&#146;s disclosure
controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as
of the end of the period covered by this report based on such
evaluation; and</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" nowrap align="right">c.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>disclosed in this report any change in the registrant&#146;s
internal control over financial reporting that occurred during the
registrant&#146;s most recent fiscal quarter (the registrant&#146;s fourth
fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the
registrant&#146;s internal control over financial reporting; and</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">5.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The registrant&#146;s other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting,
to the registrant&#146;s auditors and the audit committee of registrant&#146;s board
of directors (or persons performing the equivalent function):</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" nowrap align="right">a.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>all significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant&#146;s
ability to record, process, summarize and report financial
information; and</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" nowrap align="right">b.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant&#146;s
internal control over financial reporting.</TD>
</TR>

</TABLE>

<P align="left" style="font-size: 10pt">Date: April&nbsp;30, 2004


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="48%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="49%">&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">By:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">/s/ Marie J. Toulantis
<HR size="1" noshade>
Marie J. Toulantis<BR>
Chief Executive Officer<BR>
(Principal Executive Officer)<BR>
barnesandnoble.com inc.</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

</BODY>
</HTML>

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.2
<SEQUENCE>5
<FILENAME>y96865exv31w2.htm
<DESCRIPTION>EX-31.2: CERTIFICATION OF CHIEF FINANCIAL OFFICER
<TEXT>
<HTML>
<HEAD>
<TITLE>EX-31.2: CERTIFICATION OF CHIEF FINANCIAL OFFICER</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<P align="right" style="font-size: 10pt">Exhibit&nbsp;31.2



<P align="center" style="font-size: 10pt">CERTIFICATION


<P align="left" style="font-size: 10pt">I, Kevin M. Frain, Chief Financial Officer, certify that:



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">1.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>I have reviewed this annual report on Form 10-K/A of barnesandnoble.com
inc.;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">2.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">3.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">4.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The registrant&#146;s other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules&nbsp;13a-15(e) and 15d-15(e)) for the registrant
and have:</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" nowrap align="right">a.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" nowrap align="right">b.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>evaluated the effectiveness of the registrant&#146;s disclosure
controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as
of the end of the period covered by this report based on such
evaluation; and</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" nowrap align="right">c.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>disclosed in this report any change in the registrant&#146;s
internal control over financial reporting that occurred during the
registrant&#146;s most recent fiscal quarter (the registrant&#146;s fourth
fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the
registrant&#146;s internal control over financial reporting; and</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">5.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The registrant&#146;s other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting,
to the registrant&#146;s auditors and the audit committee of registrant&#146;s board
of directors (or persons performing the equivalent function):</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" nowrap align="right">a.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>all significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant&#146;s
ability to record, process, summarize and report financial
information; and</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" nowrap align="right">b.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant&#146;s
internal control over financial reporting.</TD>
</TR>

</TABLE>

<P align="left" style="font-size: 10pt">Date: April&nbsp;30, 2004


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="48%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="49%">&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">By:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">/s/ Kevin M. Frain
<HR size="1" noshade>
Kevin M. Frain<BR>
Chief Financial Officer and Vice President, Operations<BR>
(Principal Accounting and Financial Officer)<BR>
barnesandnoble.com inc.<BR></TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

</BODY>
</HTML>

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32.1
<SEQUENCE>6
<FILENAME>y96865exv32w1.htm
<DESCRIPTION>EX-32.1: CERTIFICATION OF CHIEF EXECUTIVE OFFICER
<TEXT>
<HTML>
<HEAD>
<TITLE>EX-32.1: CERTIFICATION OF CHIEF EXECUTIVE OFFICER</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<P align="right" style="font-size: 10pt">Exhibit&nbsp;No.&nbsp;32.1



<P align="center" style="font-size: 10pt">CERTIFICATION PURSUANT TO


<DIV align="center" style="font-size: 10pt">RULE 13a-14(b) UNDER THE SECURITIES EXCHANGE ACT OF 1934</DIV>


<DIV align="center" style="font-size: 10pt">AND 18 U.S.C. SECTION 1350,</DIV>


<DIV align="center" style="font-size: 10pt">AS ADOPTED PURSUANT TO</DIV>


<DIV align="center" style="font-size: 10pt">SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002</DIV>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In connection with the annual report of barnesandnoble.com inc. (the
&#147;Company&#148;) on Form 10-K/A for the year ended December&nbsp;31, 2003 as filed with
the Securities and Exchange Commission on the date hereof (the &#147;Report&#148;), I,
Marie J. Toulantis, Chief Executive Officer of the Company, certify, to the
best of my knowledge, pursuant to Rule&nbsp;13a-14(b) under the Securities Exchange
Act of 1934 and 18 U.S.C. &#167; 1350, as adopted pursuant to &#167; 906 of the
Sarbanes-Oxley Act of 2002:

<P align="left" style="font-size: 10pt">(1)&nbsp;The Report fully complies with the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934; and



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the
Company.</TD>
</TR>

</TABLE>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="48%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="49%">&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">By:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">/s/ Marie J. Toulantis
<HR size="1" noshade>
Marie J. Toulantis<BR>
Chief Executive Officer<BR>
(Principal Executive Officer)<BR>
barnesandnoble.com inc.<BR>
April&nbsp;30, 2004</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>


<P align="left" style="font-size: 10pt">NOTE: A signed original of this certification has been provided to the Company
and will be retained by the Company and furnished to the Securities and
Exchange Commission or its staff upon request.





<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

</BODY>
</HTML>

</TEXT>
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<DOCUMENT>
<TYPE>EX-32.2
<SEQUENCE>7
<FILENAME>y96865exv32w2.htm
<DESCRIPTION>EX-32.2: CERTIFICATION OF CHIEF FINANCIAL OFFICER
<TEXT>
<HTML>
<HEAD>
<TITLE>EX-32.2: CERTIFICATION OF CHIEF FINANCIAL OFFICER</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="right" style="font-size: 10pt">Exhibit&nbsp;No.&nbsp;32.2



<P align="center" style="font-size: 10pt">CERTIFICATION PURSUANT TO


<DIV align="center" style="font-size: 10pt">RULE 13a-14(b) UNDER THE SECURITIES EXCHANGE ACT OF 1934</DIV>


<DIV align="center" style="font-size: 10pt">AND 18 U.S.C. SECTION 1350,</DIV>


<DIV align="center" style="font-size: 10pt">AS ADOPTED PURSUANT TO</DIV>



<DIV align="center" style="font-size: 10pt">SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002</DIV>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In connection with the annual report of barnesandnoble.com inc. (the
&#147;Company&#148;) on Form 10-K/A for the year ended December&nbsp;31, 2003 as filed with
the Securities and Exchange Commission on the date hereof (the &#147;Report&#148;), I,
Kevin M. Frain, Chief Financial Officer of the Company, certify, to the best of
my knowledge, pursuant to Rule&nbsp;13a-14(b) under the Securities Exchange Act of
1934 and 18 U.S.C. &#167; 1350, as adopted pursuant to &#167; 906 of the Sarbanes-Oxley
Act of 2002:


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The Report fully complies with the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934; and</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the
Company.</TD>
</TR>

</TABLE>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="48%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="49%">&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">By:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">/s/ Kevin M. Frain</TD>
</TR>

<TR style="font-size: 1px">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><HR size="1" noshade>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Kevin M. Frain<BR>
Chief Financial Officer and<BR>
Vice President, Operations<BR>
(Principal Accounting and Financial Officer)<BR>
barnesandnoble.com inc.<BR>
April&nbsp;30, 2004</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="left" style="font-size: 10pt">NOTE: A signed original of this certification has been provided to the Company
and will be retained by the Company and furnished to the Securities and
Exchange Commission or its staff upon request.




<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

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