<PAGE>
===============================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
/x/ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
or
/_/ Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
COMMISSION FILE NUMBER 0-29244
ONSALE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 77-0408319
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1861 LANDINGS DRIVE
MOUNTAIN VIEW, CALIFORNIA 94043
(Address of principal executive offices)
_____________________
(650) 428-0600
(Registrant's telephone number, including area code)
_____________________
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--------- ---------
As of October 31, 1997, there were 18,604,791 shares of the Registrant's Common
Stock outstanding.
================================================================================
Page 1
<PAGE>
INDEX
<TABLE>
<CAPTION>
Page
Number
PART 1 - FINANCIAL INFORMATION
<C> <S> <C>
ITEM 1: FINANCIAL STATEMENTS:
Balance Sheet as of September 30, 1997 (Unaudited) and
December 31, 1996 3
Statement of Operations for the three and nine months
ended September 30, 1997 and September 30, 1996 (Unaudited) 4
Statement of Cash Flows for the nine months ended
September 30, 1997 and September 30, 1996 (Unaudited) 5
Notes to Financial Statements (Unaudited) 6
ITEM 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
ITEM 3: Quantitative and Qualitative Disclosures about
Market Risk 18
PART II - OTHER INFORMATION
ITEM 1: Legal Proceedings 19
ITEM 2: Changes in Securities and Use of Proceeds 19
ITEM 3: Defaults Upon Senior Securities 20
ITEM 4: Submission of Matters to a Vote of Security Holders 20
ITEM 5: Other Information 20
ITEM 6: Exhibits and Reports on Form 8-K 21
</TABLE>
Page 2
<PAGE>
Part I - Financial Information
Item 1: Financial Statements
ONSALE, INC.
BALANCE SHEET
(in thousands, except share data)
<TABLE>
<CAPTION>
September 30, December 31
ASSETS 1997 1996
------- ------
<S> <C> <C>
(unaudited)
Current assets:
Cash and cash equivalents $11,098 $2,649
Restricted cash 84 80
Accounts receivable, net of allowances of $174 and $66 2,224 395
Merchandise inventory 7,183 1,520
Prepaid expenses and other current assets 221 439
------- ------
Total current assets 20,810 5,083
Property and equipment, net 1,304 578
Other assets 96 19
------- ------
Total assets $22,210 $5,680
======= ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,721 $2,268
Accrued expenses 1,519 480
Deferred revenue 440 604
------- ------
Total current liabilities 3,680 3,352
------- ------
Stockholders' equity:
Convertible preferred stock, $0.001 par value; 2,000,000 shares
authorized; 804,521 shares designated; no and 365,191 shares issued - 1
Common stock, $0.001 par value; 30,000,000 shares authorized;
16,795,491 and 12,178,757 shares issued and outstanding 17 12
Additional paid-in capital 19,349 2,494
Accumulated deficit (836) (79)
Less: note receivable from stockholder - (100)
------- ------
Total stockholders' equity 18,530 2,328
------- ------
Total liabilities and stockholders' equity $22,210 $5,680
======= ======
</TABLE>
See notes to financial statements.
Page 3
<PAGE>
ONSALE, INC.
STATEMENT OF OPERATIONS
(In thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------ -------------------
1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenue:
Merchandise $24,198 $ 2,990 $53,754 $ 4,951
Commission 863 586 2,196 1,012
------- ------- ------- -------
Total revenue 25,061 3,576 55,950 5,963
Cost of revenue 21,735 2,665 48,407 4,463
------- ------- ------- -------
Gross profit 3,326 911 7,543 1,500
------- ------- ------- -------
Operating expenses:
Sales and marketing 1,935 339 3,273 512
General and administrative 1,376 275 3,459 396
Engineering 765 182 1,915 349
------- ------- ------- -------
Total operating expenses 4,076 796 8,647 1,257
------- ------- ------- -------
Income (loss) from operations (750) 115 (1,104) 243
Interest and other income 167 3 347 3
------- ------- ------- -------
Income (loss) before income taxes (583) 118 (757) 246
Provision for income taxes - (12) - (25)
------- ------- ------- -------
Net income (loss) $ (583) $ 106 $ (757) $ 221
======= ======= ======= =======
Net income (loss) per share $ (0.03) $ 0.01 $ (0.05) $ 0.01
======= ======= ======= =======
Shares used to compute net income (loss) per share 16,782 15,326 16,155 15,326
======= ======= ======= =======
</TABLE>
See notes to financial statements.
Page 4
<PAGE>
ONSALE, INC.
STATEMENT OF CASH FLOWS
(In thousands)
(unaudited)
<TABLE>
<CAPTION>
Nine months ended
September 30,
----------------------
1997 1996
------- ------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (757) $ 221
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation 281 26
Changes in assets and liabilities:
Restricted cash (4) (80)
Accounts receivable, net (1,829) (329)
Merchandise inventory (5,663) (273)
Prepaid expenses and other current assets 218 (81)
Other assets (77) (12)
Accounts payable (547) 711
Accrued expenses 1,039 319
Deferred revenue (164) 371
------- ------
Net cash provided by (used in) operating activities (7,503) 873
------- ------
Cash flows from investing activities:
Purchase of property and equipment (1,007) (273)
------- ------
Cash flows from financing activities:
Proceeds from the issuance of preferred stock and warrants - 2,345
Proceeds from note receivable from stockholder, net 100 -
Proceeds from issuance of common stock and exercises of
stock options and warrants, net 16,859 25
Advances due related parties, net - 226
------- ------
Net cash provided by financing activities 16,959 2,596
------- ------
Net increase in cash and cash equivalents 8,449 3,196
Cash and cash equivalents at beginning of period 2,649 20
------- ------
Cash and cash equivalents at end of period $11,098 $3,216
======= ======
</TABLE>
See notes to financial statements.
Page 5
<PAGE>
ONSALE, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles and, in the opinion of
management, reflect all adjustments (consisting only of normal recurring
adjustments) considered necessary to fairly present ONSALE, Inc's. ("ONSALE" or
the "Company") financial position, results of operations and cash flows for the
periods presented. These financial statements should be read in conjunction
with the Company's audited financial statements and notes thereto included in
the Company's Prospectus dated October 23, 1997 filed as part of a Registration
Statement on Form S-1 (Reg. No. 333-37171), as amended. The results of
operations for the three and nine month periods ended September 30, 1997 are not
necessarily indicative of the results to be expected for any subsequent quarter
or for the year ending December 31, 1997.
2. REVENUE RECOGNITION
The Company obtains merchandise from vendors in one of two primary
arrangements, either the Principal Sales model (merchandise revenue) or the
Agent Sales model (commission revenue). Under the Principal Sales model, the
Company either purchases the merchandise or acquires the rights to sell
merchandise under consignment relationships with vendors.
Principal sales - purchases
For sales of merchandise owned by ONSALE, the Company is responsible for
conducting the auction, billing the customer, shipping the merchandise to the
customer and processing merchandise returns. The Company recognizes the full
sales amount as revenue upon verification of the credit card transaction
authorization and shipment of the merchandise. In this type of transaction, the
Company bears both inventory and credit risk with respect to sales of its
inventory. In instances where the credit card authorization has been received
but the merchandise has not been shipped, the Company defers revenue recognition
until the merchandise is shipped.
Principal sales - consignment
For sales on consignment, the Company will either take physical possession
of the merchandise or the vendor will retain physical possession of the
merchandise. In either case, the Company is not obligated to take title to the
merchandise unless it successfully sells the merchandise at auction. Upon
completion of an auction, the Company takes title to the merchandise, charges
the customer's credit card and either ships the merchandise directly or arranges
for a third party to complete delivery to the customer. Subsequently, the
Company pays the vendor any amounts due for the purchase of the related
merchandise. The Company records the full sales amount as revenue upon the
verification of the credit card authorization and shipment of the merchandise.
In consignment transactions, the Company is at risk of loss for collecting all
of the auction proceeds,
Page 6
<PAGE>
delivery of the merchandise and returns from customers. In instances where
credit card authorization has been received but the merchandise has not been
shipped, the Company defers revenue recognition until the merchandise is
shipped.
Agent sales
In Agent Sales transactions, the Company conducts electronic auctions and
processes orders in exchange for a commission on the sale of the vendor's
merchandise. Under this arrangement, at the conclusion of an auction the Company
forwards the order information to the vendor, which then charges the customer's
credit card and ships the merchandise to the customer. In an Agent Sales
transaction, the Company does not take title to or possession of the
merchandise, and the vendor bears all of the risk of credit card chargebacks.
For Agent Sales transactions, the Company recognizes the commissions as revenue
upon completion of the auction process and the forwarding of the auction sales
information to the vendor. The vendor is typically responsible for merchandise
returns.
Under primarily the Principal Sales model, the Company will allow customers
to return products, in certain circumstances. Accordingly, the Company provides
for allowances for estimated future returns at the time of shipment based on
historical data.
Supplemental financial data
The Company's relationships with its vendors have evolved from a purely
Agent Sales business at the Company's inception to a business that now includes
a significant percentage of Principal Sales transactions. Gross merchandise
sales represent what the Company's total revenue would have been if all Agent
Sales had been made as Principal Sales. Due to the ongoing evolution in the
Company's operations toward the Principal Sales model, management believes that
the information on gross merchandise sales is relevant to a reader of the
Company's financial statements since it provides a more consistent comparison
between historical periods and a more accurate comparison to future periods than
does total revenue. Gross merchandise sales should not be considered in
isolation or as a substitute for other information prepared in accordance with
generally accepted accounting principles.
The reconciliation of total revenue in the Statement of Operations to gross
merchandise sales is as follows:
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------------- -------------------------
(in thousands) 1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Total revenue $ 25,061 $ 3,576 $ 55,950 $ 5,963
Plus: gross Agent Sales 8,103 6,256 21,031 11,377
Less: net Agent Sales (863) (586) (2,196) (1,012)
---------- ---------- ---------- ----------
Gross merchandise sales $ 32,301 $ 9,246 $ 74,785 $ 16,328
========== ========== ========== ==========
</TABLE>
Page 7
<PAGE>
3. NET INCOME (LOSS) PER SHARE
Net income (loss) per share is computed using the weighted average number
of common and common equivalent shares outstanding during the period. Common
equivalent shares consist of convertible preferred stock and warrants (using the
"if converted" method) and stock options (using the "treasury stock" method).
Common equivalent shares are excluded from the computation if their effect is
antidilutive, except that, pursuant to a Securities and Exchange Commission
Staff Accounting Bulletin, convertible preferred stock and warrants (using the
"if converted" method) and common equivalent shares (using the "treasury stock"
method and the assumed initial public offering price) issued subsequent to
December 1995 have been included in the computation as if they were outstanding
for all periods presented.
For periods subsequent to the Company's initial public offering, net income
(loss) per share is computed using the weighted average number of common and
common equivalent shares outstanding during the period. For such periods,
common equivalent shares consisting of stock options and stock warrants were
antidilutive and have been excluded from the weighted average share computation.
4. INITIAL PUBLIC OFFERING
In April 1997, the Company completed its initial public offering and issued
2,500,000 shares of its common stock to the public at a price of $6.00 per
share. The Company received approximately $12.7 million of cash, net of the
underwriting discount and offering expenses. Upon the closing of the initial
public offering, all outstanding shares of the Company's then outstanding Series
A and Series B convertible preferred stock were automatically converted into
shares of common stock. On May 21, 1997, the Company's underwriters exercised an
option to purchase an additional 375,000 shares of common stock, to cover over-
allotments, at a price of $6.00 per share. The Company received approximately
$2.1 million of cash, net of the underwriting discount and offering expenses.
5. SUBSEQUENT EVENT
In October 1997, the Company completed a secondary stock offering of
2,300,000 shares of common stock to the public at a price of $28.25 per share.
1,709,300 of these shares were sold by the Company and the remaining 590,700
shares were sold by certain selling shareholders. The Company received
approximately $45.1 million of cash, net of the underwriting discount and
offering expenses. The Company's underwriters retain an option to purchase an
additional 345,000 shares of common stock, to cover over-allotments from the
Company and certain selling shareholders, at a price of $28.25 per share. This
over-allotment option will expire on November 22, 1997.
In November 1997, the Company amended a lease agreement to provide
additional office space for its corporate headquarters. This amendment increases
the Company's operating lease commitments by $2.9 million, payable over five
years. The Company intends this amended lease agreement to replace an existing
lease agreement with an operating lease commitment of $780,000 and is currently
negotiating the cancellation of this lease.
Page 8
<PAGE>
6. NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued
Statements of Financial Accounting Standards No. 128, "Earnings per Share"
("SFAS No. 128"), and No. 129, "Disclosure of Information about Capital
Structure" ("SFAS No. 129"). SFAS No. 128 establishes financial accounting and
reporting standards for calculation of basic earnings per share and diluted
earnings per share. SFAS No. 128 supersedes APB No. 15 and is effective for the
periods ending after December 15, 1997, including interim periods. SFAS No.129
establishes standards for disclosing information about an entity's capital
structure. SFAS No. 129 is effective for financial statements for periods ending
after December 15, 1997. The Company will adopt the standards in the year
ending December 31, 1997. The effect of adopting SFAS No.128 and SFAS No.129
will not have a material impact on the financial statements.
In June 1997, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
130"), and No. 131, "Disclosures about Segments of an Enterprise and Related
Information" ("SFAS 131"). SFAS 130 establishes standards for reporting and
display of comprehensive income. SFAS 131 establishes standards for disclosing
information about operating segments for public business enterprises and
supersedes FASB Statement No. 14. Both SFAS 130 and SFAS 131 are effective for
fiscal years beginning after December 15, 1997.
Page 9
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following "Management's Discussion and Analysis of Financial Condition
and Results of Operations" contains forward-looking statements regarding the
Company and future expectations that involve risks and uncertainties, including,
but not limited to, the Company's limited operating history and fluctuations in
operating results, dependence on relationships with other Online companies, its
reliance on merchandise vendors and other third parties, the inventory and price
risks of the Company's purchasing merchandise in principal transactions, actual
and potential competition, the limited management and other resources that the
Company has available to it to address its rapid growth, dependence on the
Internet, technological change, uncertain acceptance of the ONSALE brand and
reliance on automated technology. These risks and uncertainties are described in
greater detail in the Company's prospectus dated October 23, 1997 (the
"Prospectus") and other documents filed by ONSALE, Inc. with the Securities and
Exchange Commission. The Company's actual future results could differ materially
from those discussed in the forward-looking statements.
RESULTS OF OPERATIONS
The following table sets forth certain unaudited quarterly statement of
operations data for the quarters ended December 31, 1995 through September 30,
1997.
<TABLE>
<CAPTION>
Quarters Ended
--------------------------------------------------------------------------------------
Sept. 30, June 30, Mar. 31, Dec. 31, Sept. 30, June 30, Mar. 31, Dec. 31,
1997 1997 1997 1996 1996 1996 1996 1995
--------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Merchandise $ 24,198 $ 17,860 $ 11,696 $ 7,622 $ 2,990 $ 1,493 $ 468 $ 30
Commission 863 715 618 684 586 317 109 70
--------- -------- -------- -------- --------- -------- -------- --------
Total revenue 25,061 18,575 12,314 8,306 3,576 1,810 577 100
Cost of revenue 21,735 16,146 10,526 7,076 2,665 1,380 418 27
--------- -------- -------- -------- --------- -------- -------- --------
Gross profit 3,326 2,429 1,788 1,230 911 430 159 73
--------- -------- -------- -------- --------- -------- -------- --------
Operating expenses:
Sales and marketing 1,935 948 390 379 339 115 58 69
General and administrative 1,376 1,294 789 362 275 89 32 63
Engineering 765 589 561 365 182 115 52 77
--------- -------- -------- -------- --------- -------- -------- --------
Total operating expenses 4,076 2,831 1,740 1,106 796 319 142 209
--------- -------- -------- -------- --------- -------- -------- --------
Income (loss) from operations (750) (402) 48 124 115 111 17 (136)
Interest and other income 167 148 32 34 3 - - -
--------- -------- -------- -------- --------- -------- -------- --------
Income (loss) before income taxes (583) (254) 80 158 118 111 17 (136)
(Provision) benefit for income taxes - 28 (28) (18) (12) (11) (2) -
--------- -------- -------- -------- --------- -------- -------- --------
Net income (loss) $ (583) $ (226) $ 52 $ 140 $ 106 $ 100 $ 15 $ (136)
========= ======== ======== ======== ========= ======== ======== ========
Supplemental Financial Data:
Gross Merchandising Sales (1) $ 32,301 $ 24,543 $ 17,941 $ 14,399 $ 9,246 $ 5,290 $ 1,792 $ 827
--------- -------- -------- -------- --------- -------- -------- --------
</TABLE>
- ---------------------------------
/1/ Represents what the Company's total revenue would have been if sales where
the Company acted as a commissioned auction agent for its vendors ("Agent
Sales") were recorded as transactions where the Company purchased or
accepted consignment of merchandise from vendors for resale at auction
("Principal Sales"). This increased sales amount does not affect the
Company's gross profit or net income, Management believes that gross
merchandise sales provide a more consistent comparison between historical
periods and to future periods than does total revenue. Gross merchandise
sales should not be considered in isolation or as a substitute for other
information prepared in accordance with GAAP.
Page 10
<PAGE>
During the three months ended September 30, 1997, June 30, 1997 and
September 30, 1996, the Company's total revenue was approximately $25.1 million,
$18.6 million and $3.6 million, respectively. The amount for the three months
ended September 30, 1997 represented an increase of 34.9% and 601%,
respectively, over the amounts for the three months ended June 30, 1997 and
September 30, 1996. During the nine months ended September 30, 1997 and
September 30, 1996, the Company's total revenue was approximately $55.9 million
and $6.0 million, respectively. The amount for the nine months ended September
30, 1997 represented an increase of 838% over the amount for the nine months
ended September 30, 1996. The Company's growth in total revenue and gross
merchandise sales in each of these periods was due to significant growth in the
Company's customer base and in the amount of merchandise obtained from vendors,
increases in the number of auctions per week, technological advances in the
Company's systems allowing for a greater volume of sales and an overall increase
in demand for the Company's expanding array of merchandise, which the Company
believes is attributable in large part to its investments in marketing designed
to promote and maintain brand awareness of the Company.
The following tables illustrate gross merchandise sales, which represent
what the Company's total revenue would have been if sales for which the Company
acted as a commissioned auction agent for its vendors (Agent Sales) were
recorded as transactions in which the Company purchased or accepted consignment
of merchandise from vendors for resale at auction (Principal Sales). This
presentation of sales on a gross basis does not affect the Company's gross
profit or net income. Management believes that gross merchandise sales provide
a more consistent comparison between historical periods and a more accurate
comparison to future periods than does total revenue. Gross merchandise sales
should not be considered in isolation or as a substitute for other information
prepared in accordance with generally accepted accounting principles.
The reconciliation of total revenue to gross merchandise sales is as
follows:
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------------- -------------------------
(in thousands) 1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Total revenue $ 25,061 $ 3,576 $ 55,950 $ 5,963
Plus: gross Agent Sales 8,103 6,256 21,031 11,377
Less: net Agent Sales (836) (586) (2,196) (1,012)
---------- ---------- ---------- ----------
Gross merchandise sales $ 32,301 $ 9,246 $ 74,785 $ 16,328
========== ========== ========== ==========
</TABLE>
During the three months and nine months ended September 30, 1997 and
September 30, 1996, gross merchandise sales were comprised of the following:
Page 11
<PAGE>
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------------- -------------------------
(in thousands) 1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Principal Sales model--purchased inventory $ 16,172 $ - $ 30,092 $ -
Principal Sales model--consigned inventory 8,026 2,990 23,662 4,951
Agent Sales model 8,103 6,256 21,031 11,377
---------- ---------- ---------- ----------
Gross merchandise sales $ 32,301 $ 9,246 $ 74,785 $ 16,328
========== ========== ========== ==========
</TABLE>
During the three months ended September 30, 1997, June 30, 1997 and
September 30, 1996, the Company's gross merchandise sales were approximately
$32.3 million, $24.5 million and $9.2 million, respectively. The amount for the
three months ended September 30, 1997 represented increases of 31.6% and 249%,
respectively, over the amounts for the three months ended June 30, 1997 and
September 30, 1996. For the nine months ended September 30, 1997 and September
30, 1996, gross merchandise sales were approximately $74.8 million and $16.3
million, respectively. The amount for the nine months ended September 30, 1997
represented an increase of 358% over the amount for the nine months ended
September 30, 1996. The Company's growth in total revenue and gross merchandise
sales in each of these periods was due to significant growth in the Company's
customer base and in the amount of merchandise obtained from vendors, increases
in the number of auctions per week, technological advances in the Company's
systems allowing for a greater volume of sales and an overall increase in demand
for the Company's expanding array of merchandise, which the Company believes is
attributable in large part to its investments in marketing designed to promote
and maintain brand awareness of the Company.
For the three months ended September 30, 1997, June 30, 1997 and September
30, 1996, the Company's overall gross profit on sales was $3.3 million, $2.4
million and $911,000, respectively. The amounts for the three months ended
September 30, 1997 represented increases of 36.9% and 265%, respectively, over
the amounts for the three months ended June 30, 1997 and September 30, 1996. For
the nine months ended September 30, 1997 and September 30, 1996, gross profit on
sales was $7.5 million and $1.5 million, respectively. The amount for the nine
months ended September 30, 1997 represented an increase of 403% over the amount
for the nine months ended September 30, 1996.
During the three months and nine months ended September 30, 1997 and
September 30, 1996, gross profit was comprised of the following:
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------------- -------------------------
(in thousands) 1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Principal Sales model $ 2,463 $ 325 $ 5,347 $ 488
Agent Sales model 863 586 2,196 1,012
---------- ---------- ---------- ----------
Gross profit $ 3,326 $ 911 $ 7,543 $ 1,500
========== ========== ========== ==========
</TABLE>
Page 12
<PAGE>
During the three months and nine months ended September 30, 1997 and
September 30, 1996, gross margin on merchandise revenue was comprised of the
following:
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------------- -------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Principal Sales model 10.2% 10.9% 9.9% 9.9%
Agent Sales model 10.7% 9.4% 10.4% 8.9%
Gross margin 10.3% 9.9% 10.1% 9.2%
</TABLE>
The Company's gross profit on the Principal Sales model only, for the three
months ended September 30, 1997, was $2.5 million or 10.2% of merchandise
revenue (i.e., revenue made under the Principal Sales model), compared to
$325,000 or 10.9% of merchandise revenue in the three months ended September 30,
1996. The remaining $863,000 of gross profit, which is attributable to Agent
Sales, represented 10.7% of gross merchandise sales made under the Agent Sales
model, compared to $586,000 or 9.4% of Agent Sales in the three months ended
September 30, 1996. The Company's gross margin under the Principal Sales model
for the quarter ended September 30, 1997 was adversely affected by the United
Parcel Service drivers strike during the month of August. The Company's gross
profit on the Principal Sales model only, for the nine months ended September
30, 1997, was $5.3 million or 9.9% of merchandise revenue made under the
Principal Sales model, compared to $488,000 million or 9.9% of merchandise
revenue in the nine months ended September 30, 1996. The remaining $2.2 million
of gross profit, which is attributable to Agent Sales, represented 10.4% of
gross merchandise sales made under the Agent Sales model compared to $1.0
million or 8.9% of Agent Sales for the nine months ended September 30, 1996. The
Company believes the investment in the Principal Sales model is necessary for
the future growth of the business. The increase in gross margin on Agent Sales
from the first nine months of 1996 to the comparable period in 1997 was
primarily attributable to the Company's ability to negotiate more favorable
terms with vendors as it grew in size.
In the second and third quarters of 1997, the Company accelerated its sales
and marketing spending in order to enhance its brand recognition. These
increases in sales and marketing expenditures significantly contributed to the
Company's recognizing a net loss in the third quarter of 1997. Because the
Company intends to continue to increase its sales and marketing expenditures
through at least the first two quarters of 1999, the Company expects to continue
to experience substantial net losses.
Sales and marketing expenses consist primarily of advertising expenditures,
payroll and related expenses for sales, marketing and merchandise acquisition
personnel, and promotional material. For the three months ended September 30,
1997, June 30, 1997 and September 30, 1996, sales and marketing expenses were
$1.9 million, $948,000 and $339,000, respectively. The amount for the three
months ended September 30, 1997 represented an increase of 104% and 471% over
the amounts for the three months ended June 30, 1997 and September 30, 1996,
respectively. These expenses represented 7.7%, 5.1% and 9.5% of revenues for the
three months ended September 30, 1997, June 30, 1997 and September 30, 1996,
respectively. For the nine months ended September
Page 13
<PAGE>
30, 1997 and September 30, 1996, sales and marketing expenses were $3.3 million
and $512,000, respectively. The amount for the nine months ended September 30,
1997 represented an increase of 539% over the nine months ended September 30,
1996. These expenses represented 5.8% and 8.6% of revenues for the amount for
the nine months ended September 30, 1997 and September 30, 1996, respectively.
The dollar increases in sales and marketing expenses in each of these periods
were primarily attributable to expansion of the Company's Internet advertising,
increases in the Company's marketing staff and increased expenses associated
with promotion and marketing of the Company's services. The Company expects
sales and marketing expenses to increase significantly in absolute dollars and
as a percentage of gross merchandise sales as it endeavors to enhance its brand
recognition through marketing alliances.
General and administrative expenses consist primarily of payroll and
related expenses for customer service, bad debt expense, facilities expenses,
executive, accounting and logistical personnel, recruiting and other general
corporate expenses. For the three months ended September 30, 1997, June 30,
1997 and September 30, 1996, general and administrative expenses were $1.4
million, $1.3 million and $275,000, respectively. The amount for the three
months ended September 30, 1997 represented an increase of 6.3% and 400%, over
the amounts for the three months ended June 30, 1997 and September 30, 1996,
respectively. These expenses represented 5.5%, 7.0% and 7.7% of revenues for
the three months ended September 30, 1997, June 30, 1997 and September 30, 1996,
respectively. For the nine months ended September 30, 1997 and September 30,
1996, general and administrative expenses were $3.5 million and 396,000,
respectively. The amount for the nine months ended September 30, 1997
represented an increase of 773% over the amount for the nine months ended
September 30, 1996. These expenses represented 6.2% and 6.6% of revenues for the
nine months ended September 30, 1997 and September 30, 1996, respectively. The
dollar increases in general and administrative expenses were due to an increase
in salaries and benefits, primarily due to the hiring of additional officers and
other personnel, and increases in bad debt and facilities expenses. The Company
expects general and administrative expenses to increase in absolute dollars for
the remainder of 1997 and 1998, and as a percentage of gross merchandise sales
at least through the first quarter of 1998, as the Company expands its officer
group, staff and facilities, incurs the additional costs related to being a
public company and expends approximately $75,000 in the fourth quarter of 1997
and the first quarter of 1998 to move to new facilities. In addition, the
Company expects to incur incremental costs of approximately $396,000 over the
next year as the Company amortizes certain purchased software.
Engineering expenses consist primarily of payroll and related expenses for
engineering personnel and consultants who develop, operate and monitor the
Company's Web site and related systems, and equipment costs. For the three
months ended September 30, 1997, June 30, 1997 and September 30, 1996,
engineering expenses were $765,000, $589,000 and $182,000, respectively. The
amount for the three months ended September 30, 1997 represented an increase of
29.9% and 320% over the amounts for the three months ended June 30, 1997 and
September 30, 1996, respectively. These expenses represented 3.1%, 3.2% and 5.1%
of revenues for the three months ended September 30, 1997, June 30, 1997 and
September 30, 1996, respectively. For the nine months ended September 30, 1997
and September 30, 1996, engineering expenses were $1.9 million and $349,000,
respectively. The amount for the nine months ended September 30, 1997
represented an increase of 449% over the amount for the nine months ended
September 30, 1996. These expenses represented 3.4% and 5.9% of revenues for the
nine months ended September 30, 1997 and September 30, 1996, respectively. The
dollar increases in engineering expenses in each of these
Page 14
<PAGE>
periods were primarily attributable to increased staffing and associated costs
relating to enhancing the features and functionality of the Company's Web site
and related systems. To date, all engineering costs have been expensed as
incurred. The Company expects engineering expenses to increase in absolute
dollars in the future but not to increase as a percentage of gross merchandise
sales. However, there can be no assurance that gross merchandise sales will
increase more rapidly than engineering expenses.
The Company's loss from operations for the three and nine months
ended September 30, 1997 was $750,000 and $1.1 million, respectively,
representing loss increases of $865,000 and $1.3 million, respectively, from the
three and nine months ended September 30, 1996, respectively. These losses
reflect the Company's decision to continue to increase certain operating
expenses significantly in order to increase the size of its staff, expand its
marketing efforts to enhance its brand image, purchase larger volumes of
merchandise to be sold at auction, increase its software development efforts,
and support its growing infrastructure. The Company believes the decision to
increase operating expenses will cause the Company to experience substantial
quarterly net losses through at least the first two quarters of 1999.
The Company's interest and other income for the three and nine months ended
September 30, 1997 was $167,000 and $347,000, respectively. Interest and
other income for the three and nine months ended September 30, 1996 was
negligible. This increase in interest and other income was due to increased cash
balances funded almost entirely by the Company's initial public offering of
$14.8 million and the exercise of warrants into convertible preferred stock of
$1.9 million in April 1997. The Company anticipates increased interest income as
a result of the recent completion of its secondary common stock offering. (See
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations: Exercise of Warrants into Subsequent Events)
The Company did not record a provision for income taxes in the three and
nine month periods ended September 30, 1997 as the Company had losses before
income taxes in each of these periods. In the comparable 1996 periods, the
Company recorded a provision for income taxes of $12,000 and $25,000,
respectively. The Company expects to continue to experience net losses through
at least the first two quarters of 1999, and the Company does not expect to
record a provision for income taxes in any period in which it experiences a net
loss.
FLUCTUATION IN OPERATING RESULTS
The Company's operating results have fluctuated in the past, and are
expected to continue to fluctuate in the future, due to a number of factors,
many of which are outside the Company's control. These factors include (i) the
Company's ability to attract new customers at a steady rate, manage its
inventory mix and the mix of products offered at auction, meet certain pricing
targets, liquidate its inventory in a timely manner, maintain gross margins and
maintain customer satisfaction, (ii) the availability and pricing of merchandise
from vendors, (iii) product obsolescence and pricing erosion, (iv) significant
reliance on various merchandise categories, (v) dependence on relationships with
other Online companies, (vi) consumer confidence in encrypted transactions in
the Internet environment, (vii) the timing, cost and availability of advertising
on other entities' Web sites, (viii) the amount and timing of costs relating to
expansion of the Company's operations, (ix) the announcement or introduction of
new types of merchandise, service offerings or customer
Page 15
<PAGE>
services by the Company or its competitors, (x) technical difficulties with
respect to consumer use of the auction format on the Company's Web site, (xi)
delays in revenue recognition at the end of a fiscal period as a result of
shipping or logistical problems, (xii) delays in shipments as a result of
strikes or other problems with the Company's delivery service providers or the
loss of the Company's credit card processor, (xiii) the level of merchandise
returns experienced by the Company and (xiv) general economic conditions and
economic conditions specific to the Internet and electronic commerce. As a
strategic response to changes in the competitive environment, the Company may
from time to time make certain service, marketing or supply decisions or
acquisitions that could have a material adverse effect on the Company's
quarterly results of operations and financial condition. The Company also
expects that, in the future, it like other retailers may experience seasonality
in its business. Due to all of the foregoing factors, in some future quarter the
Company's operating results may not meet or exceed the expectations of
securities analysts and investors. In such event, the trading price of the
Company's Common Stock would likely be materially adversely affected. In
addition, the Company expects to experience substantial quarterly net losses
through at least the first two quarters of 1999.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its operations primarily through
the sale of Common Stock in the Company's April 1997 initial public offering for
approximately $14.8 million; the private sale of convertible preferred stock for
approximately $2.3 million and the exercise of warrants into convertible
preferred stock of $1.9 million. Net cash used in operating activities for the
nine months ended September 30, 1997 was approximately $7.5 million. The net
cash used in operating activities in the first nine months of 1997 was primarily
attributable to increases in merchandise inventory of $5.7 million resulting
from the Company's decision to expand its Principal Sales model and in accounts
receivable of $1.8 million as the Company changed the timing of settlement of
cash receipts from a major financial institution for credit card purchases.
Net cash used in investing activities for the nine months ended September
30, 1997 represented purchases of property and equipment of $1.0 million. Net
cash of $17.0 million provided by financing activities in the nine months ended
September 30, 1997 resulted almost entirely from proceeds received from the
Company's initial public offering, which occurred in the second quarter of 1997,
and the proceeds from the exercise of stock options and warrants. In October
1997, the Company raised an additional $45.1 million, net of offering expenses,
in a public offering of its Common Stock.
As of September 30, 1997, the Company had approximately $11.1 million of
cash and cash equivalents. The Company also has available a $4.0 million line of
credit from Silicon Valley Bank that expires on April 17, 1998. Borrowings under
the line bear interest at an annual rate of 0.75% over the bank's prime rate.
Pursuant to the line of credit, Silicon Valley Bank has been granted a
continuing security interest in substantially all assets of the Company, now
owned or hereafter acquired, including intellectual property. Pursuant to the
line of credit, the Company is required to maintain certain financial ratios
(including a ratio of "quick assets" (cash, cash equivalents, accounts
receivable and investments, with maturities not to exceed 90 days) to current
liabilities (less deferred revenue) of at least 2.5 to one, and a ratio of total
liabilities to tangible net worth of not more than 0.5 to one) and is prohibited
from incurring a monthly pretax loss of more than $400,000 or cumulative monthly
pretax losses on a rolling three-month basis of more than $750,000. The Company
anticipates that it will be in violation of the pretax loss condition in the
fourth quarter of
Page 16
<PAGE>
1997 and would need to seek a waiver if it wishes to borrow under the line of
credit. The Company has also agreed to certain negative covenants, including a
prohibition on incurring additional indebtedness, other than secured equipment
financing debt, indebtedness to trade creditors incurred in the ordinary course
of business and debt that is subordinated to the debt owing under the line of
credit, and a prohibition, with limited exceptions, on creating additional
security interests in the assets of the Company. In connection with the line,
the Company issued the bank a five-year warrant to purchase 8,571 shares of its
Common Stock with an exercise price of $7.00.
As of September 30, 1997, the Company's principal commitments consisted of
obligations of approximately $2.8 million under its operating leases, including
$2.6 million under a series of leases for its new corporate headquarters.
Although the Company has no material commitments for capital expenditures, it
anticipates purchasing approximately $420,000 of property and equipment during
the last quarter of 1997, primarily for computer equipment, furniture and
fixtures, and expenditures associated with the Company's relocation to new
facilities, as well as, approximately $500,000 in the first quarter of 1998 for
a new financial system. In addition, the Company has recently entered into a
series of relationships requiring minimum payments of $1.3 million through the
third quarter of 1998 and, under certain conditions, incremental fees based on
the volume of traffic to its Web site. As the Company continues to enter into
more transactions structured as Principal Sales, the Company will need to commit
more cash to support a larger merchandise inventory. Also, as a result of the
Company's intention to offer credit to certain customers in the next six months,
the Company may require additional cash to support the anticipated growth in
accounts receivable. The Company plans to increase its operating expenses
significantly, in order to support the growth of the business. These expenses
include an increase in staff, expansion of marketing efforts to enhance brand
image and an increase in software development efforts to support its growing
infrastructure. As a result, the Company may experience substantial quarterly
net losses through at least the first two quarters of 1999. Additionally, the
Company anticipates other significant changes to its assets, which include
larger merchandise inventories and an increase in accounts receivable. Thus, the
Company may well have to finance its increased inventory, accounts receivable,
capital expenditures and some portion of its growth in operating expenses from
current cash and cash equivalents. The Company believes that its current cash
and cash equivalents will be sufficient to meet its anticipated cash needs for
working capital and capital expenditures for at least the next 12 months.
Thereafter, if cash generated from operations is insufficient to satisfy the
Company's liquidity requirements, the Company may seek to sell additional equity
or convertible debt securities or obtain another credit facility. The sale of
additional equity or convertible debt securities could result in additional
dilution to the Company's stockholders. There can be no assurance that
financing will be available to the Company in amounts or on terms acceptable to
the Company.
SUBSEQUENT EVENTS
In October 1997, the Company completed a secondary stock offering of
2,300,000 shares of common stock to the public at a price of $28.25 per share.
1,709,300 of these shares were sold by the Company and the remaining 590,700
shares were sold by certain selling shareholders. The Company received
approximately $45.1 million of cash, net of the underwriting discount and
offering expenses. The Company's underwriters retain an option to purchase an
additional 345,000 shares of common stock, to cover over-allotments from the
Company and certain selling shareholders, at a price of $28.25 per share. This
over-allotment option will expire on November 22, 1997.
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<PAGE>
In November 1997, the Company amended a lease agreement to provide
additional office space for its corporate headquarters. This amendment increases
the Company's operating lease commitments by $2.9 million, payable over five
years. The Company intends this amended lease agreement to replace an existing
lease agreement with an operating lease commitment of $780,000 and is currently
negotiating the cancellation of this lease.
NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued
Statements of Financial Accounting Standards No. 128, "Earnings per Share"
("SFAS No. 128"), and No. 129, "Disclosure of Information about Capital
Structure" ("SFAS No. 129"). SFAS No. 128 establishes financial accounting and
reporting standards for calculation of basic earnings per share and diluted
earnings per share. SFAS No. 128 supersedes APB No. 15 and is effective for the
periods ending after December 15, 1997, including interim periods. SFAS No.129
establishes standards for disclosing information about an entity's capital
structure. SFAS No. 129 is effective for financial statements for periods ending
after December 15, 1997. The Company will adopt the standards in the year
ending December 31, 1997. The effect of adopting SFAS No.128 and SFAS No.129
will not have a material impact on the financial statements.
In June 1997, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
130"), and No. 131, "Disclosures about Segments of an Enterprise and Related
Information" ("SFAS 131"). SFAS 130 establishes standards for reporting and
display of comprehensive income. SFAS 131 establishes standards for disclosing
information about operating segments for public business enterprises and
supersedes FASB Statement No. 14. Both SFAS 130 and SFAS 131 are effective for
fiscal years beginning after December 15, 1997.
FORWARD-LOOKING STATEMENTS
This quarterly report contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21A of the Securities Exchange Act of 1934, as amended, that involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth above and those discussed in the Company's Prospectus
dated October 23, 1997 on file with the Securities and Exchange Commission.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
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<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Use of Proceeds from Sales of Registered Securities.
On May 21, 1997, the Company completed an initial public offering of
its Common Stock, $0.001 par value (the "Offering"). The managing underwriters
in the Offering were Montgomery Securities and Alex. Brown & Sons Incorporated
(the "Underwriters"). The shares of Common Stock sold in the Offering were
registered under the Securities Act of 1933, as amended, on a Registration
Statement on Form S-1 (the "Registration Statement") (Registration Number 333-
18459). The Registration Statement was declared effective by the Securities and
Exchange Commission (the "SEC") on April 17, 1997.
On April 17, 1997, the Company commenced the Offering. The Offering
terminated on May 21, 1997 after the Company had sold 2,875,000 of the 3,220,000
shares of Common Stock initially registered under the Registration Statement.
All of the shares sold were sold by the Company (including 375,000 shares sold
pursuant to the exercise of the Underwriters' over-allotment option). The
assumed offering price was $10.00 per share for an aggregate price of the
offering amount registered of $32,200,000, and the shares were sold at a price
to the public of $6.00 per share for an aggregate offering price of $17,250,000.
From the effective date of the Registration Statement to May 21, 1997, the
Company paid an aggregate of $1,207,500 in underwriting discounts and
commissions. In addition, the following table sets forth an estimate of all
expenses incurred in connection with the Offering, other than underwriting
discounts and commissions. All of the amounts shown are estimated except for
the registration fees of the SEC, the National Association of Securities
Dealers, Inc. (the "NASD") and the Nasdaq National Market. None of the amounts
shown were paid directly or indirectly to any director, officer, general partner
of the Company or their associates, persons owning 10 percent or more of any
class of equity securities of the Company, or an affiliate of the Company.
<TABLE>
<CAPTION>
<S> <C>
SEC registration fee $ 9,758
NASD filing fee 3,720
Nasdaq National Market filing fee 50,000
Accounting fees and expenses 325,000
Legal fees and expenses 450,000
Road show expenses 25,000
Printing and engraving expenses 125,000
Blue sky fees and expenses 2,000
Transfer agent and registrar fees and expenses 4,000
Miscellaneous 5,522
----------
Total $1,000,000
==========
</TABLE>
Page 19
<PAGE>
After deducting the underwriting discounts and commissions and the Offering
expenses described above, net proceeds to the Company from the Offering were
approximately $15,042,500. The entire amount has been allocated for general
corporate purposes, including working capital requirements of the Company
resulting from its growth. None of the net proceeds of the Offering were paid
directly or indirectly to any director, officer, general partner of the Company
or their associates, persons owning 10 percent or more of any class of equity
securities of the Company, or an affiliate of the Company.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
In July 1997, the Company announced the introduction of two new auction Web
sites - the Consumer Electronics Auction SuperSite and the Computer Products
Auction SuperSite. These new properties were the first step in the Company's
strategy of expanding its merchandise offerings and simplifying the customers'
shopping experience.
In August 1997, the Company announced its plan to begin accepting paid
advertising on its Web site in the third quarter of 1997.
In September 1997, the Company announced four new strategic alliances.
Agreements were signed with Netscape, NetBuyer, CBS Sportsline and Excite.
In September 1997, the Company announced a new commerce agreement with
America Online. ONSALE will appear in the Electronics department and in the
Computer Hardware department on AOL's newly designed Shopping channel.
In October 1997, the Company announced the introduction of the ONSALE
Exchange, a new self-service "Classified" Auction SuperSite, which allows small
businesses and individuals to sell merchandise over the Web using ONSALE's
leading auction management system.
In October 1997, the Company announced the release of Bidwatch, a real-
time, Java-based desktop client that allows user to create and track a
customized list of open ONSALE auctions, much like a quote list.
In October 1997, the Company and CBS SportsLine unveiled a new Web site -
the Sports and Fitness Auction SuperSite. This new auction site is part of a
broad joint commerce agreement between CBS SportsLine and ONSALE.
Page 20
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON 8-K
(a) The following exhibits are being filed as part of this Report:
11.01 Calculation of Earnings Per Share
27.01 Financial Data Schedule
(b) The Company did not file any reports on Form 8-K during the three months
ended September 30, 1997.
Page 21
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: November 14, 1997 By: /s/ John F. Sauerland
-------------------- ---------------------------
John F. Sauerland
Chief Financial Officer
and Duly Authorized Officer
Page 22
<PAGE>
Exhibit 11.01
ONSALE, INC.
CALCULATION OF EARNINGS PER SHARE
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------- ------------------
1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net income (loss) $ (583) $ 106 $ (757) $ 221
======= ======= ======= =======
Weighted average common and common equivalent shares:
Common stock 16,782 12,179 16,155 12,179
Common stock equivalents from convertible preferred stock - 1,704 - 1,704
and warrants using the "if converted" method - - - -
Common stock equivalents from stock options
using the "treasury stock" method (1) - 1,443 - 1,443
------- ------- ------- -------
Shares used in calculation of net income (loss) per share 16,782 15,326 16,155 15,326
======= ======= ======= =======
Net income (loss) per share $ (0.03) $ 0.01 $ (0.05) $ 0.01
======= ======= ======= =======
</TABLE>
(1) Pursuant to a Securities and Exchange Commission Staff Accounting
Bulletin, stock options issued subsequent to September 1995 have been
included in the computation as if they were outstanding for all periods
presented.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 11,098
<SECURITIES> 0
<RECEIVABLES> 2,398
<ALLOWANCES> (174)
<INVENTORY> 7,183
<CURRENT-ASSETS> 20,810
<PP&E> 1,653
<DEPRECIATION> (349)
<TOTAL-ASSETS> 22,210
<CURRENT-LIABILITIES> 3,680
<BONDS> 0
0
0
<COMMON> 17
<OTHER-SE> 18,513
<TOTAL-LIABILITY-AND-EQUITY> 22,210
<SALES> 24,198
<TOTAL-REVENUES> 25,061
<CGS> 21,735
<TOTAL-COSTS> 25,811
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (167)
<INCOME-PRETAX> (583)
<INCOME-TAX> 0
<INCOME-CONTINUING> (583)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (583)
<EPS-PRIMARY> (0.03)
<EPS-DILUTED> (0.03)
</TABLE>
