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U.S. SECURITIES & 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, 1999
Transition report pursuant to Section 13 or 15(d) of the Securities
- ---- Exchange Act of 1934. For the transition period from July 1, 1999
to September 30, 1999.
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)
1350 Willow Road, Suite 100
Menlo Park, California 94025
(Address of principal executive offices)
_____________________
(650) 470-2400
(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, 1999, there were 19,694,621 shares of the Registrant's
common stock outstanding.
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1
<PAGE>
TABLE OF CONTENTS
Page
Number
PART I - FINANCIAL INFORMATION
Item 1: Financial Statements
Balance Sheets as of September 30, 1999 (Unaudited)
and December 31, 1998 3
Statements of Operations for the three and nine months ended
September 30, 1999 and 1998 (Unaudited) 4
Statements of Cash Flows for the nine months ended
September 30, 1999 and 1998 (Unaudited) 5
Notes to Financial Statements (Unaudited) 6
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Item 3: Quantitative and Qualitative Disclosures About Market Risk 19
PART II - OTHER INFORMATION
Item 1: Legal Proceedings 20
Item 2: Changes in Securities and Use of Proceeds 20
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 20
2
<PAGE>
PART I
Item 1. Financial Statements.
ONSALE, INC.
BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------ ------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................... $6,078 $26,008
Short-term investments.......................... 20,309 20,696
Accounts receivable, net of allowances of
$236 and $487................... 8,764 5,219
Merchandise inventory........................... 11,326 10,809
Prepaid expenses and other current assets....... 1,090 484
------------ ------------
Total current assets.......................... 47,567 63,216
Property and equipment, net...................... 4,974 4,024
Investment in joint venture...................... 1,160 1,800
Other assets..................................... 403 386
------------ ------------
Total assets.................................. $54,104 $69,426
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................ $20,436 $11,064
Accrued expenses................................ 8,033 3,996
Deferred revenue................................ 4,076 1,836
------------ ------------
Total current liabilities..................... 32,545 16,896
Long-term liabilities............................ 2,039 2,016
Stockholders' equity:
Preferred stock, $0.001 par value;
2,000,000 shares authorized: no shares
issued and outstanding............. -- --
Common stock, $0.001 par value; 30,000,000
shares authorized; 19,694,411 and
19,314,844 shares issued and outstanding,
respectively.................................. 20 19
Additional paid-in capital...................... 70,273 67,712
Accumulated deficit............................. (50,773) (17,217)
------------ ------------
Total stockholders' equity.................... 19,520 50,514
------------ ------------
Total liabilities and stockholders' equity.... $54,104 $69,426
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
ONSALE, INC.
STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- ----------------------
1999 1998 1999 1998
--------- --------- --------- ------------
<S> <C> <C> <C> <C>
Revenue:
Merchandise....................... $90,995 $57,196 $235,091 $146,646
Commission and other revenue...... 2,262 629 7,344 2,144
--------- --------- --------- ------------
Total revenue................. 93,257 57,825 242,435 148,790
--------- --------- --------- ------------
Cost of revenue 89,743 51,654 230,410 132,121
--------- --------- --------- ------------
Gross profit......................... 3,514 6,171 12,025 16,669
--------- --------- --------- ------------
Operating expenses:
Sales and marketing............... 15,013 6,493 33,026 18,069
General and administrative........ 3,124 2,127 8,893 8,337
Engineering....................... 1,724 1,318 4,532 3,701
--------- --------- --------- ------------
Total operating expenses...... 19,861 9,938 46,451 30,107
--------- --------- --------- ------------
Loss from operations................. (16,347) (3,767) (34,426) (13,438)
Equity in net loss of joint venture.. (290) (200) (640) (200)
Interest and other income, net....... 444 676 1,510 2,119
--------- --------- --------- ------------
Loss before income taxes............. (16,193) (3,291) (33,556) (11,519)
Income tax........................... -- -- 0 0
--------- --------- --------- ------------
Net loss............................. ($16,193) ($3,291) ($33,556) ($11,519)
========= ========= ========= ============
Net loss per share:
Basic and diluted................. ($0.82) ($0.17) ($1.72) ($0.61)
========= ========= ========= ============
Weighted average common shares:
Basic and diluted................. 19,649 19,065 19,562 18,858
========= ========= ========= ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
ONSALE, INC.
STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
----------------------
1999 1998
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net loss............................................ ($33,556) ($11,519)
Adjustments to reconcile net loss to net cash
used in operating activities:
Equity in net loss of joint venture............. 640 200
Interest on long-term liabilities............... 23 0
Depreciation and amortization................... 1,507 1,149
Changes in assets and liabilities:
Accounts receivable, net...................... (3,545) (1,785)
Merchandise inventory......................... (517) (7,577)
Prepaid expenses and other assets............. (623) 334
Accounts payable.............................. 9,372 6,729
Accrued expenses.............................. 4,037 3,266
Deferred revenue.............................. 2,240 927
---------- ----------
Net cash used in operating activities....... (20,422) (8,276)
---------- ----------
Cash flows from investing activities:
Purchases of short-term available-for-sale
investments....................................... (19,033) (21,871)
Proceeds from sales of short-term
available-for-sale investments.................... 19,420 5,021
Purchase of property and equipment.................. (2,457) (2,997)
---------- ----------
Net cash used in investing activities....... (2,070) (19,847)
---------- ----------
Cash flows from financing activities:
Proceeds from issuance of common stock.............. 2,562 1,692
---------- ----------
Net cash provided by financing activities... 2,562 1,692
---------- ----------
Net decrease in cash and cash equivalents............ (19,930) (26,431)
Cash and cash equivalents at beginning of period..... 26,008 56,566
---------- ----------
Cash and cash equivalents at end of period........... $6,078 $30,135
========== ==========
Supplemental disclosure of non-cash investing activities:
Investment in joint venture....................... 0 (2,000)
Supplemental disclosure of non-cash financing activities:
Borrowing associated with investment in joint ventur 0 2,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Onsale, Inc.
Notes to financial statements
September 30, 1999
(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 Annual Report on Form 10-K for the year ended
December 31, 1998. The results of operations for the three and nine month
periods ended September 30, 1999 are not necessarily indicative of the results
to be expected for any subsequent quarter or for the year ending December 31,
1999.
Based on Onsale's current level of operations, the Company's current business
plan and associated needs for working capital and capital expenditures over
the next 12 months, including its intent to offer credit to certain customers,
the Company will need to seek additional financing. Under the current
business plan, the Company expects its operating expenses to increase as it
continues to expand marketing efforts, increase staffing, increase software
development efforts, and grow its infrastructure. As a result, the Company
expects to experience quarterly net losses for the foreseeable future, which
will be funded from its current cash and cash equivalents balance and
additional funding as required. On July 13, 1999, Onsale executed a
definitive merger agreement with Egghead.com, which is subject to completion.
If this merger is completed, additional cash reserves will be available to
fund the operations of the combined company. Whether or not the merger is
completed, Onsale will likely need to raise additional funds within the next
12 months. Additional financing may not be available on terms favorable to
the Company, or may not be available at all. The sale of additional equity
could result in dilution to existing stockholders.
2. - BASIC AND DILUTED NET LOSS PER SHARE
Net loss per share is calculated in accordance with the provisions of SFAS
128, "Earnings Per Share". SFAS No.128 requires the Company to report both
basic earnings per share and diluted earnings per share. Basic earnings per
share is computed using the weighted average number of common shares
outstanding during the period. Diluted earnings per share is computed using
the weighted average number of common and potentially dilutive common
equivalent shares outstanding during the period. Common equivalent shares are
excluded from the computation if their effect is antidilutive.
During the quarters ended September 30, 1999 and 1998, options to purchase
approximately 2.9 million and 2.4 million shares of common stock, respectively,
were outstanding. These options were not included in the per share computation
because they are antidilutive.
3. -PROPOSED MERGER WITH EGGHEAD.COM
On July 13, 1999, the Company executed a definitive merger agreement with
Egghead.com, an online retailer of personal computer hardware, software,
peripherals and accessories. The merger, which is expected to be accounted
for as a pooling of interests, will be effected by exchanging 0.565 shares of
Onsale common stock for each outstanding share of Egghead.com common stock.
The transaction is valued at approximately $300 million as of November 5,
1999. The transaction is expected to be a tax-free transaction resulting in
current Egghead.com shareholders owning approximately 47% of the combined
company. The Company will also convert options to purchase approximately 2.7
million shares of Egghead.com common stock into options to purchase
approximately 1.5 million shares of Onsale common stock. The merger is
subject to approval by shareholders of both companies. On November 4, 1999
the Onsale stockholders voted to approve the proposals related to the merger
with Egghead.com and Egghead.com adjourned its shareholder meeting until
November 19, 1999 in order to allow Egghead.com shareholders additional time
to return their proxies. If the merger is approved, Egghead.com will become a
wholly owned subsidiary of Onsale
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
This discussion contains forward-looking statements relating to future
events or financial results, such as, statements in the future tense and
statements indicating that "we believe," "we expect," "we anticipate" or "we
intend" events may occur or trends may continue. These forward-looking
statements are subject to risks and uncertainties. Actual results could differ
materially from those anticipated in these forward-looking statements as a
result of various factors, including those factors discussed under "Risk
Factors" in the prospectus related to the proposed merger with Egghead.com,
which is part of our registration statement on Form S-4 (Reg. No. 333-87377),
in "Risk Factors" and elsewhere in this Form 10-Q, and others described in our
1998 Annual Report on Form 10-K under "Risk Factors."
General
We are an Internet retailer selling retail and wholesale goods to
businesses, resellers and consumers. We sell merchandise under two formats:
Onsale atAuction and Onsale atCost.
Onsale atAuction. Onsale atAuction is an interactive online auction
designed to serve as an efficient and entertaining marketing channel for
products that typically are unavailable through conventional distribution
channels. Through atAuction, we sell excess merchandise and services,
including refurbished and close-out products, to businesses, resellers and
consumers. Merchandise and services sold on the atAuction site include
personal computers, consumer electronics, sports and fitness equipment, and
vacation packages.
Onsale atCost. We introduced Onsale atCost in January 1999. Through
atCost, we offer businesses, resellers and consumers a broad selection of
new computers and computer-related products for sale at prices generally
equal to the amount invoiced by our vendors, plus payment processing,
shipping and handling fees.
For the three and nine months ended September 30, 1999, our revenue
consisted of merchandise revenue and commission and other revenue.
"Merchandise revenue," which includes both atAuction and atCost sales,
represents sales of merchandise acquired by us on a purchase or consignment
basis where we charge the customer's credit card and either we or the vendor
ships the merchandise to the customer. "Commission and other revenue" is
comprised of the following: commissions on sales where we sell as an agent for
the supplier and the supplier charges and ships the product to the customer
and advertising revenue. For a more detailed description of each model, the
risks that we bear under each revenue model and the recognition of revenue for
each see Note 1 of Notes to Financial Statements in our 1998 Annual Report on
Form 10-K.
Gross merchandise sales ("GMS") represent what our total revenue would have
been if all agent sales and person-to-person auction sales, which ceased on
September 30, 1998, had instead been merchandise revenue transactions. We
believe that providing information on gross merchandise sales enables readers
of our financial statements to compare current periods with historical periods
more accurately than they could based only on total revenue information. Gross
merchandise sales should not be considered in isolation or as a substitute for
other information prepared in accordance with generally accepted accounting
principles.
Results of operations
Revenue
For the three months ended September 30, 1999, we generated 65% of our
total revenue through atAuction and advertising, and 35% through atCost. For
the nine months ended September 30, 1999, we generated 73% of total revenue
through atAuction and advertising, and 27% through atCost (which we introduced
on January 19, 1999).
The following tables reconcile total revenue to gross merchandise sales and
set forth the composition of gross merchandise sales for the three and nine
months ended September 30, 1999 and 1998:
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
---------- ---------- --------- ---------- ---------- ---------
% %
(in thousands) 1999 1998 Change 1999 1998 Change
---------- ---------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Total revenue........... $93,257 $57,825 61% $242,435 $148,790 63%
Plus: gross commission and other revenue... 6,144 6,088 1% 22,173 25,477 (13%)
Less: net commission and other revenue..... (2,262) (629) 260% (7,344) (2,144) 243%
---------- ---------- ---------- ----------
Gross merchandise sales. $97,139 $63,284 53% $257,264 $172,123 49%
========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
(IN THOUSANDS) % GMS % GMS
1999 1998 1999 1998 1999 1998 1999 1998
--------- --------- -------- --------- --------- --------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Merchandise revenue:
purchased inventory $38,577 $32,186 40% 51% $111,809 $77,144 43% 45%
consigned inventory 52,418 25,010 54% 40% 123,282 69,502 48% 40%
-------- -------- --- --- -------- -------- --- ---
Total merchandise revenue 90,995 57,196 94% 91% 235,091 146,646 91% 85%
Gross commission and other revenu 6,144 6,088 6% 9% 22,173 25,477 9% 15%
-------- -------- --- --- -------- -------- --- ---
Gross merchandise sales $97,139 $63,284 100% 100% $257,264 $172,123 100% 100%
======= ======= ==== ==== ======= ======= ==== ====
</TABLE>
Sources of revenue growth. The increases in total revenue and gross
merchandise sales were mainly due to the introduction of Onsale atCost in
January 1999, which increased the amount and types of products offered, growth
in our customer base and increased average order values. The decrease in
gross commission and other revenue for the nine months ended September 30,
1999 as compared to 1998 was due primarily to the transfer of our person-to-
person auction service to Yahoo! in September 1998, partially offset by
increased agent and advertising sales.
Merchandise revenue vs. commission and other revenue. The portion of our
gross merchandise sales represented by merchandise revenue increased from 91%
for the three months ended September 30, 1998, to 94% for the three months
ended September 30, 1999, and from 85% for the nine months ended September 30,
1998, to 91% for the nine months ended September 30, 1999. These increases
were primarily due to the addition of atCost sales revenue commencing in
January 1999 and, to a lesser extent, increased atAuction sales of purchased
inventory.
Gross profit
Gross profit is total revenue less cost of revenue. Cost of revenue
consists primarily of the cost of the merchandise sold to customers and
shipping cost net of shipping and handling revenue; commission and other
revenue has minimal related costs. Gross profit (gross margin) was $3.5 million
(3.8%) for the three months ended September 30, 1999, compared with $6.2
million (10.7%) for the three months ended September 30, 1998. Gross profit
(gross margin) was $12.0 million (5.0%) for the nine months ended September 30,
1999, compared with $16.7 million (11.2%) for the nine months ended September
30, 1998.
Gross profit from total merchandise revenue and from gross commission and
other revenue, and the corresponding gross margins on a gross merchandise sales
basis for the three and nine months ended September 30, 1999 and 1998 were (in
millions of dollars):
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
1999 1998 1999 1998
---- ---- ---- ----
Gross Profit Amount Margin Amount Margin Amount Margin Amount Margin
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total merchandise revenue $1.3 1.4% $5.6 9.7% $4.7 2.0% $14.6 9.9%
Gross commission
and other revenue $2.2 36.8% $0.6 10.3% $7.3 33.1% $2.1 8.4%
</TABLE>
Gross margin on merchandise revenue decreased for the three months ended
September 30, 1999 compared with the same period in 1998 primarily due to lower
margins associated with atAuction sales, and the January 1999 commencement of
atCost sales, which generally produce lower margins than atAuction sales.
During the third quarter of 1999, shipping and handling charges on atAuction
sales were also impacted by temporary programming changes, thereby
significantly reducing margin. The decrease in margins associated with
atAuction sales resulted from our continued efforts to increase atAuction sales
and market share by increasing the quantities of products available for bid at
any one time, which tends to lower final sales prices.
Gross margin on merchandise revenue decreased for the nine months ended
September 30, 1999 compared with the same period in 1998, primarily due to the
January 1999 commencement of atCost sales, which generally produce lower
margins than atAuction sales, and lower margins associated with atAuction
sales. Additionally, we conducted an aggressive marketing campaign associated
with atCost sales in which, for primarily the entire second quarter, we waived
fees charged for transaction processing and shipping and offered promotional
pricing on specific products to compete with prices of our competitors. In
August 1999 we re-introduced the at Cost shipping and transaction processing
fees as a single shipping and handling fee.
Gross margin on commission and other revenue increased for the three and
nine month periods ended September 30, 1999 compared with the same periods in
1998, primarily due to increased advertising revenue, which has a very low
cost. We anticipate advertising revenue to increase through 2000.
Additionally, as noted above, we had no transactions from the person-to-person
auction service in 1999. Transactions from person-to-person auction service
during 1998 generated significantly lower margins for us compared to other
transactions.
We expect gross margins to continue to be low due to our aggressive efforts
to gain market share and respond to our competition. Generally, we plan to
continue to increase market share by expanding and enhancing our customer
service operations, our promotional offerings, and extending credit to certain
business customers. Our atCost marketing strategies also include waiving all or
part of the shipping and handling fee for limited periods of time and offering
promotional pricing on specific products to meet competition. We expect these
promotional efforts to increase market share will result in low gross margins
for the immediate future but effects beyond that are not estimable.
Operating expenses
Our operating expenses have increased significantly as a result of our
expansion. We believe that our operating expenses will continue to increase as
we expand our operations and promote our brand name.
Sales and marketing. Sales and marketing expenses consist primarily of
advertising expenditures, payroll and related expenses for sales, customer
service, marketing and merchandise acquisition personnel, credit card fees and
promotional material. Sales and marketing expenses represented 16.1% and
11.2% of total revenue for the three months ended September 30, 1999 and 1998,
respectively, and 13.6% and 12.1% of total revenue for the nine months ended
September 30, 1999 and 1998, respectively. The dollar increases in sales and
marketing expenses were primarily attributable to increased spending on radio,
print and online marketing and advertising programs designed to create brand
awareness and expansion of our customer service department and offerings. In
February 1999, we launched an aggressive marketing campaign in an effort to
enhance our brand recognition and promote our new atCost site. We spent
approximately $15.0 million related to this marketing campaign through the
third quarter of 1999.
General and administrative. General and administrative expenses consist
primarily of payroll and related expenses for executive, accounting and
logistical personnel, bad debt expense, facilities expenses, recruiting and
other general corporate expenses. General and administrative expenses
represented 3.3% and 3.7% of total revenue
for the three months ended September 30, 1999 and 1998, respectively, and 3.7%
and 5.6% of total revenue for the nine months ended September 30, 1999 and
1998, respectively. The decrease in general and administrative expense
as a percentage of total revenue was due to leveraging relatively fixed
expenses with a higher volume of sales. We expect the dollar amount of general
and administrative expenses to increase throughout 2000, as we expand staff
and facilities and reflect expenses for additional personnel added.
Engineering. Engineering expenses consist primarily of payroll and related
expenses for engineering personnel and consultants who develop, enhance,
manage, operate and monitor our web site and related systems, as well as
related equipment costs. Engineering expenses represented 1.8% and 2.3% of
total revenue for the three months ended September 30, 1999 and 1998,
respectively, and 1.9% and 2.5% of total revenue for the nine months ended
September 30, 1999 and 1998, respectively. The dollar increases in
engineering expenses were primarily attributable to increased staffing and
associated costs relating to enhancing the features and functionality of our
web site and related systems. In December 1998, we adopted the American
Institute of Certified Public Accountants' ("AICPA") Statement of Position 98-
1, "Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use" ("SOP 98-1") and, accordingly, capitalized certain engineering
costs related to internally developed software. In the three months ended
September 30, 1999, we capitalized approximately $364,000 of software, of
which approximately $312,000 was related to engineering costs for internally
developed software. In the nine months ended September 30, 1999, we
capitalized approximately $1,289,000 of software, of which approximately
$917,000 was related to engineering costs for internally developed software.
We expect the dollar amount of engineering expenses to increase in the future
as we continue to add staff to maintain, enhance and modify our web site and
other systems.
Equity in net loss of joint venture
On May 15, 1998, we entered into a joint venture agreement with Softbank
Corporation to perform on-line auctions for the Japanese market, resulting in
the formation of Onsale Japan K.K., which commenced operations in the third
quarter of 1998. We own a 40% interest in the joint venture and account for our
interest using the equity method of accounting. Accordingly, we recognize our
share of net profits or losses of the joint venture as an adjustment to our
initial investment amount. Our share of the net loss of the joint venture was
$290,000 for the three months ended September 30, 1999 and $640,000 for the
nine months ended September 30, 1999.
Interest and other income, net
Our interest and other income, net, was $444,000 and $676,000 for the three
months ended September 30, 1999 and 1998, respectively, and $1.5 million and
$2.1 million for the nine months ended September 30, 1999 and 1998,
respectively. The decrease in interest and other income, net, was due to
decreased cash balances resulting from increased purchases of merchandise
inventory and net losses.
Income taxes
We had net losses of $16.2 and $3.3 million for the three months ended
September 30, 1999 and 1998, respectively, and $33.6 and $11.5 million for the
nine months ended September 30, 1999 and 1998, respectively, therefore no
provision for income taxes was recorded for these periods.
Liquidity and capital resources
Cash inflows and outflows
Operating activities. Net cash used in operating activities for the nine
months ended September 30, 1999 was approximately $20.4 million, primarily
attributable to our net loss of $33.6 million, and an increase in accounts
receivable of $3.5 million. These uses of cash were partially offset by an
increase in accounts payable of $9.4 million as we improved our payment terms
with vendors, increases in accrued expenses of $4.0 million, deferred
revenue of $2.2 million, and depreciation and amortization of $1.5 million.
Net cash used in operating activities for the nine months ended September 30,
1998 was approximately $8.3 million, primarily attributable to our net loss of
$11.5 million, increases in accounts receivable and merchandise inventory of
$1.8 million and $7.6 million, respectively. These uses of cash were partially
offset by an increase in accounts payable of $6.7 million, increases in
accrued expenses of $3.3 million, deferred revenue of $927,000, and
depreciation and amortization of $1.1 million.
Investing activities. Net cash used by investing activities of $2.1
million for the nine months ended September 30, 1999 reflects the net sales in
short term marketable securities of $387,000 offset by the purchase of $2.5
million in property and equipment. Net cash used in investing activities of
$19.8 million for the nine months ended September 30, 1998 was attributable to
net purchases of short term investments of $16.8 million and the purchase of
property and equipment of $3.0 million.
Financing activities. Net cash provided by financing activities of
approximately $2.6 million and $1.7 million for the nine months ended
September 30, 1999 and 1998, respectively, reflects the issuance of common
stock under our stock option and employee stock purchase plans.
Cash, cash equivalents and commitments
Cash and cash equivalents. As of September 30, 1999, we had $6.1 million
of cash and cash equivalents and $20.3 million of short-term available-for-
sale investments.
Commitments. As of September 30, 1999:
o Our principal commitment was an obligation of approximately $5.0
million under operating leases for our corporate headquarters.
o We have no material commitments for capital expenditures, but we
anticipate purchasing approximately $1.1 million of property and
equipment during the remainder of 1999, primarily for computer and
office equipment.
o We have certain sponsorship agreements which allow us to appear as
the auction sponsor on specific web sites. These agreements require
future payments of up to approximately $2.9 million and incremental
fees under certain circumstances based on the volume of traffic to
our web site. These agreements expire at various times through June
2000.
o During 1998, we funded our initial investment of $2.0 million in our
joint venture with Softbank Corporation through an unsecured note
payable to Softbank Corporation. The principal and accrued interest
thereon is due upon the earlier of the closing date on an initial
public offering of the joint venture or December 2002, with interest
accruing at a fluctuating rate equal to the short-term prime rate of
the Dai-ichi Kangyo Bank in Tokyo, Japan (1.4% as of September 30,
1999). This note has no right of offset against our investment in the
joint venture.
Based on our current level of operations, our current business plan and
associated needs for working capital and capital expenditures, including our
intent to offer credit to certain customers, we will need to seek additional
financing within the next 12 months. Under our current business plan, we
expect our operating expenses to increase as we continue to expand our
marketing efforts, increase our staffing, increase our software development
efforts, and grow our infrastructure. As a result, we expect to experience
quarterly net losses for the foreseeable future, which will be funded from our
current cash and cash equivalents balance and additional financing as required.
On July 13, 1999 we executed a definitive merger agreement with Egghead.com,
which is subject to completion. On November 4, 1999 the Onsale stockholders
voted to approve the proposals related to the merger with Egghead.com. On the
same date, Egghead.com adjourned its shareholder meeting until November 19,
1999 in order to allow Egghead.com shareholders additional time to return
their proxies. If this merger is completed, we will have additional cash
reserves to fund the operations of the combined company. Whether or not the
merger is completed, we will likely need to raise additional funds within the
next 12 months. There is no assurance that any additional financing will be
available on terms favorable to us. A sale of additional equity could result
in dilution in our stockholders' ownership interest.
Impact of the Year 2000 issue
Background. The "Year 2000 Issue" refers generally to the problems that
some software may have in determining the correct century for the year. For
example, software with date-sensitive functions that are not Year 2000
compliant may not be able to distinguish whether "00" means 1900 or 2000,
which may result in failures or the creation of erroneous results.
Readiness. We have completed assessment of all internal systems. Our
assessment included information technology systems such as business systems,
web site operations systems, infrastructure and support systems as well as
non-information technology systems such as our security system, building and
telephone equipment, and embedded microcontrollers. Our accounting system and
internally developed systems are Year 2000 compliant. We have tested all
systems to ensure that they will be available and operational. All testing
and remediation efforts have been completed. In addition, we have received
assurances from our top 5 vendors and 60% of the remaining active vendors and
other third parties with whom we do business, that they are on target for
completing their own Year 2000 remediation. We continue to pursue assurance
from the remaining vendors.
Risks. Our most likely worst case scenario would be dispersed,
intermittent telecommunications problems experienced by local Internet service
providers and their users throughout the country and world, preventing those
customers from being able to access our web site. This could be combined
with, or result from, intermittent power problems which could cause similar
problems with accessing the web site. Additionally, many customers may be
using older systems which may not be Year 2000 compliant, and this would
prevent them from accessing our web site. Under this worst case scenario, we
would continue operations, but our web site would be inaccessible to the
individuals or groups affected by these problems. If our credit card
processors are not Year 2000 compliant, we will not be able to process credit
card sales. If our vendors are not Year 2000 compliant, we will not be able
to obtain products from our vendors or our vendors may not be able to ship
products sold to our customers. In the event of this worst case scenario, we
could lose significant revenues from customers unable to purchase from the
site, be unable to ensure delivery of products to customers, incur expenses to
repair our systems, face interruptions in the work of our employees, lose
advertising revenue and suffer damage to our reputation.
Estimated Year 2000 costs. We estimate our total costs for ensuring Year
2000 compliance for all internal systems to be minimal. We will incur
additional amounts related to the Year 2000 plan for administrative expenses
associated with confirming compliance by outside parties, outside contractor
assistance, product engineering and customer satisfaction. We have funded our
Year 2000 plan from operating cash flows.
Contingency planning. We have developed a comprehensive contingency plan
to address situations that may result if we are unable to achieve Year 2000
readiness of our critical operations. We are also subject to external forces
that might generally affect industry and commerce, such as utility or
transportation company Year 2000 compliance failures and related service
interruptions and we make no guarantees with regards to these external forces
and their impact on our operations.
Risk Factors
An investment in our common stock involves a high degree of risk. You
should consider the risks described below and the other information in this
Form 10-Q carefully. The risks described below are not the only ones we face.
Additional risks that we are aware of or that we currently believe are
immaterial may become important factors that affect our business. If any of
the following risks occur, or if others occur, our business, operating results
and financial condition could be seriously harmed. The trading price of our
common stock could decline due to any of these risks, and you may lose all or
part of your investment.
We may need to seek additional financing, and may not be able to secure it.
We expect to need to raise additional funds within the next 12 months.
Additional financing may not be available on terms favorable to us, or may not
be available to us at all. If we raise additional funds by issuing equity
securities, you may experience dilution of your ownership interest, and these
securities may have rights senior to the rights of common stockholders.
Failure to complete the merger with Egghead.com
If the merger with Egghead.com is not completed we may face certain risks,
including:
o under certain circumstances we may be required to pay Egghead.com
a termination fee equal to four
percent of our equity value, or we may have difficulty collecting
a termination fee or termination loan from Egghead.com;
o a number of our customer service associates have left the company
in anticipation of the merger. If the merger is not completed it may
be difficult to replace these associates;
o the price of our common stock may decline to the extent that the
current market price of our stock may reflect a market assumption
that the merger will be completed;
o we will be required to obtain additional funding sooner than
anticipated;
o we may lose key personnel.
We expect to incur net losses for the foreseeable future.
We have incurred net losses since 1997, and we expect to experience
substantial net losses for the foreseeable future, due primarily to the
following:
o competitive pricing pressures, which we expect to continue to put
pressure on gross margins;
o significant spending on operating expenses, particularly marketing
expenses; and
o substantial spending on our infrastructure.
Due to our efforts to expand and maintain market share, our profit margins may
remain low for the foreseeable future.
We plan to make aggressive efforts to expand and maintain our market share,
and our profit margins may remain low as a result. We expect to continue to
attempt to expand our market share for auctioned goods by increasing the
quantity of products available for bid at any one time, which tends to
decrease revenues per unit. We may also use promotional pricing and enhanced
customer service to increase our market share for at Cost sales, which tends
to reduce margins. One of the effects of these strategies may be continued
low margins, and we may not be successful in increasing or maintaining our
market share in either or both lines of business. Even if we are successful
in increasing our market share, continued competition and customer
expectations may make it difficult to improve profit margins in the future.
Accordingly, our losses may increase and our stock price may be harmed.
Our operating results fluctuate significantly and are difficult to predict.
Our operating results have fluctuated in the past, and we expect them to
continue to fluctuate in the future, due to many factors which are outside our
control. These factors include:
o pricing competition;
o the availability and pricing of merchandise from vendors;
o our ability to manage our inventory mix and the mix of products
offered for auction;
o actions required to maintain customer satisfaction;
o the degree to which our sales of at Cost merchandise reduces sales of
similar products on our auction site;
o seasonal fluctuations in buying patterns of new and reconditioned
merchandise and in the availability of reconditioned merchandise;
o the level of traffic at our web site, and our ability to attract new
customers and to retain existing customers;
o the announcement or introduction of new types of merchandise, service
offerings or customer services by us or our competitors;
o the timing, cost and availability of web advertising;
o the amount and timing of costs relating to expansion of our operations;
o interruptions to or increases in the costs associated with the normal
flow of our business operations, including the occurrence of
technical or communications failures or stoppages by common carriers
such as United Parcel Service; and
o governmental regulation and taxation policies.
Due to the foregoing factors and factors discussed elsewhere in this Form
10-Q, or unforeseen factors, in some future quarter our operating results may
not meet the expectations of securities analysts and investors, and in this
event the trading price of our common stock may decline.
We operate in an extremely competitive market and we could lose revenue and
customers to our competitors.
Existing competitors. The electronic commerce market, particularly over
the Internet, is new, rapidly evolving and competitive, and we expect
competition to intensify in the future. We compete with many other companies
which either offer the same types of merchandise or provide the same or a
similar type of sales format to customers. Some of our current competitors
include:
o Companies with online commerce sites, such as Beyond.com, Buy.com.,
Cyberian Outpost, and Dell Computer; and
o Companies offering certain types of Internet auctions, such as uBid,
Internet Shopping Network (the FirstAuction site), and Micro
Warehouse.
New competitors. It is not difficult to enter the online commerce market,
and current and new competitors can launch new online commerce web sites at
relatively low cost. Competition in online commerce will likely increase as
retailers, suppliers, manufacturers and direct marketers who have not
traditionally sold computer products and consumer goods directly to consumers
through the Internet enter this market segment. Increased competition may
result in price reductions, fewer customer orders, reduced gross margins,
increased marketing costs or loss of market share, or any combination of these
problems.
New competitors may emerge and rapidly acquire market share in several
ways, including through mergers or by alliances among competitors and vendors.
For example, Dell Computer Corporation and Amazon.com, Inc. have agreed to
provide links from their Web sites to new Web pages that advertise their
respective products. Through such alliances, competitors may also obtain
exclusive or semi-exclusive sources of merchandise. In addition,
manufacturers may elect to liquidate their products directly over the
Internet. Companies that primarily conduct online person-to-person auctions,
such as eBay Inc. may develop into direct competitors in the future.
We may not be successful in competing against competitors. Many of these
competitors have greater financial, marketing, customer support, technical and
other resources than we do. As a result, they may be able to respond more
quickly to changes in customer preference or to devote greater resources to
the development, promotion and sale of their merchandise than we can. If
competition increases and our branding efforts are not successful, we may not
be able to command higher margins on the products we sell, or we may lose
revenue and customers to our competitors.
If we cannot continue to build strong brand loyalty, our business will be
harmed.
We believe that development and awareness of the Onsale brand is critical
to our success in attracting customers and advertisers if we do not complete
the merger with Egghead.com. Furthermore, we believe that brand loyalty will
become increasingly important as low barriers to entry encourage the
proliferation of web sites. If we are unsuccessful in continuing to build
strong brand loyalty, our business will be harmed.
In order to attract and retain consumers and advertisers, and to promote
and maintain the Onsale brand in response to competitive pressures, we intend
to increase our online and offline marketing and advertising. We believe that
advertising rates generally, and the cost of online advertising campaigns in
particular, could increase substantially in the future. Despite our efforts,
consumers or advertisers may not perceive our web site or the Onsale brand as
superior to the web sites or brands of our competitors.
We will face risks associated with purchasing and carrying our own inventory.
We purchase our merchandise from vendors. The risks of carrying inventory,
include:
o potential declines in the market value of the goods that we purchase;
o difficulties managing customer returns and credits associated with
merchandise to be returned to vendors;
o shrinkage resulting from theft, loss or inaccurate inventory
recording; and
o unpredictable sale prices due to the nature of our auction process.
If we manage our inventory poorly, we may be forced to sell our
inventory at a discount or loss.
We depend on third parties for fulfillment of our purchased inventory. We
use Gage Marketing Group, our contract warehouse, to fulfill approximately 61%
of purchased inventory sales. We also use United Parcel Service as our
delivery service for substantially all of our products. We have limited
control over these third parties and we
have no long-term relationships with any of them. If we are unable to develop
and maintain satisfactory relationships with such third parties on acceptable
commercial terms, or if the quality of products and services by such third
parties falls below a satisfactory standard, our business could be harmed.
We rely on merchandise vendors for supply, shipping and quality of products.
Supply. We are entirely dependent upon vendors to supply us with
merchandise for sale through Onsale atAuction and Onsale atCost. In the
quarter ended September 30, 1999, approximately 52% of our total sales were
derived from merchandise acquired from the five most significant vendors.
Purchases from TechData, our distributor for the atCost business accounted for
approximately 35% of Onsale's aggregate merchandise purchases. We have no
long-term contracts or arrangements with our vendors that guarantee the
availability of merchandise. Moreover, we must develop distributor
relationships to supply the necessary volume of products for our atCost
business. We cannot assure you that our current vendors will continue to
supply merchandise for sale through atAuction or that we will be able to
establish new vendor relationships that will ensure that merchandise will be
available for atAuction or atCost.
Customer service - shipping and quality of products (returns). Although we
purchase a large majority of our inventory, we also rely on some of our
vendors to ship merchandise directly to customers. Consequently, we have
limited control over the goods shipped by these vendors, and at times these
shipments have been subject to delays and shipment errors. Also, despite the
fact that most merchandise that we have sold carries either a manufacturer's
or vendor's warranty, and we are not obligated to accept merchandise returns,
in fact we have accepted returns from customers for which we did not receive
reimbursements from the manufacturer or vendor. If the quality of service
provided by such vendors falls, or if our level of returns exceeds our
expectations, our business could be harmed.
Our business may face increased government regulation.
Auctioneering and other laws in other states. Several states have laws
that regulate auctions and auction companies within their jurisdictions. Some
states may interpret their statutes to apply to our transactions with
consumers in such states. The burdens of complying with auctioneering laws
could materially increase our cost of doing business. Similarly, states may
construe their existing laws governing issues such as property ownership,
sales tax, libel and personal privacy to apply to Internet companies servicing
consumers within their boundaries. Resolution of whether or how these laws
will be applied is uncertain and may take years to resolve.
Consumer protection laws. We could be subject to regulation under
consumer protection laws in various states. Several states, including
California, have laws regulating the disclosure of pricing information by
wholesalers and comparable businesses. Our web site includes disclosures
aimed at addressing these regulations. In the future, California or other
states could require additional disclosure or other regulatory compliance.
Tax laws. The tax treatment of the Internet and electronic commerce is
currently unsettled. A number of proposals have been made at the federal,
state and local level and by certain foreign governments that could impose
taxes on the sale of goods and services and certain other Internet activities.
Our business may be harmed by future laws imposing taxes or other burdensome
regulations on Internet commerce.
New Internet laws. Due to the increasing popularity and use of the
Internet, it is possible that new laws
and regulations may be adopted with respect to the Internet generally,
covering issues such as user privacy, pricing, and characteristics and quality
of products and services. Similarly, the growth and development of the market
for Internet commerce may prompt calls for more stringent consumer protection
laws that may impose additional burdens on those companies conducting business
over the Internet. The adoption of any additional laws or regulations may
decrease the growth of commerce over the Internet, increase our cost of doing
business or otherwise harm our business.
We may have to qualify to do business in other jurisdictions. As our
service is available over the Internet in many states and foreign countries,
and as we sell to consumers resident in such states and foreign countries,
those jurisdictions may claim that we are required to qualify to do business
as a foreign corporation in each such state and foreign country. We are
qualified to do business in only three states, and our failure to qualify as a
foreign corporation in a jurisdiction where we are required to do so could
subject us to taxes and penalties.
If we are unable to manage our growth, our business could be harmed.
We expect to continue to expand our operations, and in order to manage this
growth we face the following challenges:
o improving existing and implementing new operational, financial and
inventory systems, procedures and controls;
o integrating new managerial and technical employees into our existing
management team;
o training, motivating and managing our growing employee base, including
managing their ability to implement new projects quickly and accurately;
o managing relationships with third parties;
o managing risks associated with accounts receivable expansion and
collection; and
o meeting our growing needs for working capital.
We depend on our key employees.
Our future performance depends upon the continued contributions of members
of our senior management and other key personnel. We do not have long-term
employment agreements with any of our key personnel and we maintain no key
person life insurance. Competition for attracting and retaining personnel in
our industry is intense, especially in the San Francisco Bay area where we are
located, and we may fail to attract and retain the personnel we will need to
succeed in the future. If one or more of our key personnel leaves us or joins
a competitor, our business could be harmed.
The electronic commerce industry can change rapidly.
The market for Internet products and services is characterized by rapid
technological developments, evolving industry standards and consumer demands,
and frequent new product introductions and enhancements that could render our
existing web site technology and services obsolete. These market
characteristics are exacerbated by the emerging nature of the market and the
fact that many companies are expected to introduce new Internet products and
services in the near future. Moreover, the widespread adoption of developing
multimedia-enabling technologies could require fundamental and costly changes
in our own technology. Our future success will depend on our ability to
respond to technological advances, emerging industry standards and new market
demands on a timely and cost-effective basis.
We depend on continued improvements in the Internet infrastructure and in our
own systems.
Growth of the Internet generally. Our success depends in large part on the
development of the Internet infrastructure and related enabling technologies,
performance improvements and security measures for providing reliable Internet
access and services. The Internet could suffer from performance problems or
outages due to
continued growth in Internet users and their bandwidth requirements and due to
other problems such as the "Year 2000 issue." Any of these problems could
lead to decreased usage or growth in usage of our web site. Also, our ability
to increase the speed with which we provide services to consumers and to
increase the scope of such services is limited by and dependent upon the speed
and reliability of the Internet. Consequently, the emergence and growth of
the market for our services is dependent on future improvements to the entire
Internet.
Growth of our own systems in particular. Our revenues depend upon the
number of visitors who use our web site and the volume of orders we fulfill in
atAuction and atCost. We use an internally developed system for our web site
and several aspects of transaction processing, including billing, shipping and
tracking. We may be required to add additional hardware and software and
further develop and upgrade our existing technology, transaction-processing
systems and network infrastructure to accommodate increased traffic on our web
site and increased sales volume through our transaction-processing systems.
Any failure to do so may cause unanticipated systems disruptions, slower
response times, degradation in levels of customer service, impaired quality and
speed of order fulfillment or delays in reporting accurate financial
information.
We are subject to risks of system failure.
Substantially all of our communications and computer hardware is located
at a leased facility in Menlo Park, California. Our systems are vulnerable
to damage from earthquake, fire, floods, power loss, telecommunications
failures, break-ins and similar events. We do not presently have fully
redundant systems and have not yet completed implementing a formal disaster
recovery plan. Despite our implementation of network security measures,
our servers are also vulnerable to computer viruses, physical or electronic
break-ins, attempts by third parties deliberately to exceed the capacity of
our systems and similar disruptive problems. Our coverage limits on our
property and business interruption insurance may not be adequate to compensate
us for all losses that may occur.
We depend on other third parties for the operation of our business.
In addition to the merchandise vendors and online companies described
above, we also depend on several third parties in conducting our operations,
including the following:
o we do not own a gateway onto the Internet, but instead rely on an
Internet service provider to connect our web site to the Internet;
o our internally-developed auction software depends on operating
system, database and server software that has been developed,
produced by and licensed from third parties; and
o Wells Fargo Bank, through its relationship with First Data
Corporation, is our sole processor of credit card transactions.
We may be unable to protect our intellectual property.
Generally, our performance and ability to compete are dependent, to a
significant degree, on our ability to protect and enforce our intellectual
property rights, which include the following:
o our proprietary technology;
o our registered U.S. trademarks and our other trade and service
marks; and
o our domain names, each of which relates to our brand.
We rely on a combination of patent, trademark, copyright and trade secret
laws, regulations governing domain names, confidentiality agreements and
technical measures to establish and protect our proprietary rights. We may
not be able to protect our proprietary rights, and our inability or failure
to do so could result in lost or forgone licensing revenues, dilution of the
Onsale brand and other loss of competitive and commercial advantages that we
hold. Additionally, we may choose to litigate to protect our intellectual
property rights, which could result in a significant cost of resources and
money to us. We may not be successful in any litigation that we undertake.
We face litigation risks.
Products liability and consumer protection. Our sale of products through
our atAuction and atCost services could subject us to product liability claims
or consumer protection regulation, and states and other jurisdictions other
than California may interpret their products liability or consumer protection
laws to apply to Internet commerce providers such as us that enter into
transactions with their residents. While we carry liability insurance, this
may not be adequate to fully compensate for substantial claims, and these
claims could have a harmful effect on our business.
Intellectual property rights. Our business activities may infringe
upon the proprietary rights of others, and we have in the past received, and
may in the future receive, notices from third parties claiming infringement by
our software or other aspects of our business. Any of these claims, with or
without merit, could result in significant litigation costs and diversion of
resources and management attention, and could require us to enter into royalty
and licensing agreements (which may not be available on terms acceptable to us
or at all). If litigation is successful against us, this could result in
invalidation of our proprietary rights and/or significant liability for
damages, which could have a harmful effect on our business.
Liability for information transmitted over our online services. The law
relating to the liability of online services companies for information carried
on or disseminated through our services is currently unsettled. Claims could
be made against us under both United States and foreign law for defamation,
libel, invasion of privacy, negligence, copyright or trademark infringement or
other theories based on the nature and content of the materials disseminated
through our services. Several private lawsuits seeking to impose such
liability on other online services companies are currently pending. In
addition, legislation has been proposed that imposes liability for or
prohibits the transmission over the Internet of certain types of information.
The potential imposition of liability on online services companies for
information carried on or disseminated through their services could require us
to alter our service offerings.
Consumer acceptance of the Internet as a viable market for our goods is
uncertain.
The market for the sale of goods over the Internet, particularly through
online auctions, is still in a development stage and is rapidly changing.
Demand and market acceptance for recently introduced services and products
over the Internet are subject to a high level of uncertainty, and there exist
few proven services and products. Since the market for our auctions is still
relatively new and evolving, and the market for our atCost products is new, it
is difficult to predict the size of this market or its future growth rate, if
any.
Moreover, the success of our auctions will depend upon continued growth of
the Internet as a medium for commerce by a broad base of consumers and
vendors. We cannot assure you that a sufficiently broad base of consumers
will adopt and continue to use the Internet as a medium for commerce generally
or for the types of products that we offer in particular. Additionally,
critical issues concerning the commercial use of the Internet, such as ease of
access, security, reliability, cost and quality of service, remain unresolved
and may affect the growth of Internet use or the attractiveness of conducting
commerce online.
Our stock price is volatile.
The market price of the shares of our common stock has been, and is likely
to be, highly volatile and could be subject to wide fluctuations in response
to several factors, such as:
o actual or anticipated variations in our results of operations;
o announcements of technological innovations;
o new sales formats, services or product introductions by us or our
competitors;
o developments with respect to patents, copyrights or proprietary
rights;
o changes in financial estimates by securities analysts; and
o conditions and trends in the Internet and electronic commerce
industries
The stock markets generally, and the Nasdaq National Market in particular,
have experienced extreme price and volume fluctuations that have particularly
affected the market prices of equity securities of many technology companies and
that often have been unrelated or disproportionate to the operating performance
of such companies. These market fluctuations, as well as general economic,
political and market conditions such as recessions, interest rates or
international currency fluctuations may adversely affect the market price of our
common stock. In the past, stockholders have instituted securities class action
litigation against several companies following periods of volatility in the
market price of their securities. Such litigation, if instituted against us,
could result in diversion of our management's attention and resources and
substantial financial costs.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Our exposure to market risk, for changes in interest rates, relates primarily
to our investment portfolio and long term debt. We do not use derivative
financial instruments in our investment portfolio. We consider investments in
highly liquid instruments purchased with an original maturity of 90 days or
less to be cash equivalents. We place our investments in instruments that
meet high credit quality standards, as specified in our investment policy
guidelines; the policy also limits the amount of credit exposure to any
one issue, issuer, and type of investment.
All of our cash equivalents and short-term investments, consisting
principally of commercial paper, equity securities and governmental securities,
are classified as available-for-sale as of September 30, 1999. We do not expect
any material loss with respect to our investment portfolio.
The table below presents principal (or notional) amounts and related weighted
average interest rates by year of maturity for our investment portfolio.
(In thousands, except interest rates)
1999
Cash Equivalents $6,078
Fixed Interest Rate 5.2%
Investments $20,309
Fixed Interest Rate 6.1%
We also have market risk related to our long-term debt obligation, which
matures in 2002. The principal amount of this obligation is $2.0 million and
has a variable rate of interest which is equal to the prime rate of the Dai-
ichi Kangyo Bank in Tokyo, Japan. At September 30, 1999, this prime rate was
1.4%.
Part II
Item 1. Legal Proceedings.
From time to time, we are subject to litigation in the ordinary course of
our business. We believe that none of the currently pending litigation is
material.
Item 2. Changes in Securities and Use of Proceeds.
Not applicable.
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.
On November 4, 1999, the Onsale stockholders voted to approve the proposals
related to the merger with Egghead.com and Egghead.com adjourned its
shareholder meeting until November 19, 1999, in order to allow Egghead.com
shareholders additional time to return their proxies.
Item 6. Exhibits and Reports on Form 8-K.
(a) The following exhibits are being filed as part of this report:
Exhibit 27.01 Financial data schedule
(b) On July 13, 1999 Onsale filed a report on Form 8-K, reporting
information under Item 5 related to its proposed merger with Egghead.com.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
Date: November 15, 1999 By: /s/ John E. Labbett
John E. Labbett
Senior Vice President and
Chief Financial Officer
21
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMA
EXTRACTED FROM THE QUARTERLY REPORT PURSUANT TO SEC
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 6,078
<SECURITIES> 20,309
<RECEIVABLES> 9,000
<ALLOWANCES> 236
<INVENTORY> 11,326
<CURRENT-ASSETS> 47,567
<PP&E> 8,684
<DEPRECIATION> (3,710)
<TOTAL-ASSETS> 54,104
<CURRENT-LIABILITIES> 32,545
<BONDS> 0
0
0
<COMMON> 20
<OTHER-SE> 19,500
<TOTAL-LIABILITY-AND-EQUITY> 54,104
<SALES> 93,257
<TOTAL-REVENUES> 93,257
<CGS> 89,743
<TOTAL-COSTS> 109,604
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (16,193)
<INCOME-TAX> 0
<INCOME-CONTINUING> (16,193)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (16,193)
<EPS-BASIC> (0.82)
<EPS-DILUTED> (0.82)
</TABLE>
