===============================================================================
 
                      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 March 31, 1999
 
        Transition report pursuant to Section 13 or 15(d) of the Securities
----    Exchange Act of 1934.  For the transition period from _____________
        to _____________.
 
                           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 April 30, 1999, there were 19,580,482 shares of the Registrant's
                           common stock outstanding.
 
 ===============================================================================
<PAGE>
 
 
 
 
                              TABLE OF CONTENTS
                                                                           Page
                                                                         Number
PART I  - FINANCIAL INFORMATION
 
ITEM 1:   Financial Statements
 
          Balance Sheets as of March 31, 1999 (Unaudited)
          and December 31, 1998...............................................3
 
          Statements of Operations for the Three Months
          Ended March 31, 1999 and 1998 (Unaudited)...........................4
 
          Statements of Cash Flows for the Three Months Ended
          March 31, 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  - FINANCIAL INFORMATION
ITEM 1:   Financial Statements
 
                                  ONSALE, INC.
                                 BALANCE SHEETS
                       (in thousands, except share data)
<TABLE>
<CAPTION>
                                                     March 31,   December 31,
                                                      1999         1998
                                                   ------------ ------------
                                                   (unaudited)
<S>                                                <C>          <C>
ASSETS
Current assets:
 Cash and cash equivalents.......................      $28,837      $26,008
 Short-term investments..........................       15,177       20,696
 Accounts receivable, net of allowances of
   $554 and $487, ...............................        6,314        5,219
 Merchandise inventory...........................       10,435       10,809
 Prepaid expenses and other current assets.......          590          484
                                                   ------------ ------------
   Total current assets..........................       61,353       63,216
Property and equipment, net......................        4,444        4,024
Investment in joint venture......................        1,750        1,800
Other assets.....................................          387          386
                                                   ------------ ------------
   Total assets..................................      $67,934      $69,426
                                                   ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
 Accounts payable................................      $12,577      $11,064
 Accrued expenses................................        4,730        3,996
 Deferred revenue................................        1,736        1,836
                                                   ------------ ------------
   Total current liabilities.....................       19,043       16,896
                                                   ------------ ------------
Long-term liabilities............................        2,024        2,016
                                                   ------------ ------------
Stockholders' equity:
 Convertible preferred stock, $0.001 par value;
  2,000,000 shares authorized; no shares
  designated, issued and outstanding.............        --           --
  Common stock, $0.001 par value; 30,000,000
   shares authorized; 19,576,122 and
   19,314,844 shares issued and outstanding,
   respectively..................................           20           19
 Additional paid-in capital......................       69,589       67,712
 Accumulated deficit.............................      (22,742)     (17,217)
                                                   ------------ ------------
   Total stockholders' equity....................       46,867       50,514
                                                   ------------ ------------
   Total liabilities and stockholders' equity....      $67,934      $69,426
                                                   ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
 
                                        3
<PAGE>
 
 
                                  ONSALE, INC.
                            STATEMENTS OF OPERATIONS
                     (in thousands, except per share data)
                                  (unaudited)
<TABLE>
<CAPTION>
                                        Three Months Ended
                                            March 31,
                                       -------------------
                                         1999      1998
                                       --------- ---------
<S>                                    <C>       <C>
Revenue:
   Merchandise.......................   $65,442   $39,312
   Commission and other revenue......     2,361       857
                                       --------- ---------
       Total revenue.................    67,803    40,169
 
Cost of revenue:
   Cost of goods sold................    61,698    34,863
   Accounting reserves...............        --       789
                                       --------- ---------
       Total cost of revenue.........    61,698    35,652
                                       --------- ---------
Gross profit.........................     6,105     4,517
                                       --------- ---------
 
Operating expenses:
   Sales and marketing...............     8,190     5,211
   General and administrative........     2,583     3,093
   Engineering.......................     1,401     1,131
                                       --------- ---------
       Total operating expenses......    12,174     9,435
                                       --------- ---------
Loss from operations.................    (6,069)   (4,918)
 
Equity in net loss of joint venture..       (50)       --
Interest and other income, net.......       594       727
                                       --------- ---------
Loss before income taxes.............    (5,525)   (4,191)
Provision for income taxes ..........        --        --
                                       --------- ---------
Net loss.............................   ($5,525)  ($4,191)
                                       ========= =========
 
Net loss per share:
   Basic ............................    ($0.28)   ($0.22)
                                       ========= =========
   Diluted......... .................    ($0.28)   ($0.22)
                                       ========= =========
 
Shares used in net loss per share
 calculations:
   Basic ............................    19,437    18,698
                                       ========= =========
   Diluted...........................    19,437    18,698
                                       ========= =========
 
</TABLE>
The accompanying notes are an integral part of these financial statements.
 
                                        4
<PAGE>
 
 
                                 ONSALE, INC.
                           STATEMENTS OF CASH FLOWS
                                (in thousands)
                                  (unaudited)
<TABLE>
<CAPTION>
                                                         Three Months Ended
                                                            March 31,
                                                       ----------------------
                                                          1999        1998
                                                       ----------  ----------
<S>                                                    <C>         <C>
Cash flows from operating activities:
 Net loss............................................    ($5,525)    ($4,191)
 Adjustments to reconcile net loss to net cash
  used in operating activities:
     Equity in net loss of joint venture.............         50         --
     Interest on long-term liabilities...............          8         --
     Depreciation and amortization...................        447         331
     Changes in assets and liabilities:
       Accounts receivable, net......................     (1,095)        128
       Merchandise inventory.........................        374      (2,289)
       Prepaid expenses and other assets.............       (107)        381
       Accounts payable..............................      1,513         936
       Accrued expenses..............................        734       1,053
       Deferred revenue..............................       (100)        260
                                                       ----------  ----------
         Net cash used in operating activities.......     (3,701)     (3,391)
                                                       ----------  ----------
Cash flows from investing activities:
 Purchases of short-term available-for-sale
   investments.......................................     (2,495)        --
 Proceeds from sales of short-term
   available-for-sale investments....................      8,014         --
 Purchase of property and equipment..................       (867)     (1,535)
                                                       ----------  ----------
         Net cash provided by (used in) .............
           investing activities......................      4,652      (1,535)
                                                       ----------  ----------
Cash flows from financing activities:
 Proceeds from issuance of common stock..............      1,878         409
                                                       ----------  ----------
         Net cash provided by financing activities...      1,878         409
                                                       ----------  ----------
Net increase (decrease) in cash and cash equivalents.      2,829      (4,517)
Cash and cash equivalents at beginning of period.....     26,008      56,566
                                                       ----------  ----------
Cash and cash equivalents at end of period...........    $28,837     $52,049
                                                       ==========  ==========
 
</TABLE>
The accompanying notes are an integral part of these financial statements.
 
                                        5
<PAGE>
 
 
 
                                  ONSALE, Inc.
                         Notes to Financial Statements
                                March 31, 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 month period ended March 31, 1999 are not
necessarily indicative of the results to be expected for any subsequent
quarter or for the year ending December 31, 1999.  Certain prior years'
balances have been reclassified to conform to the current year's
presentation, including credit card fees, which have been reclassified
from cost of revenue to sales and marketing expenses to provide a better
comparison with similar companies' reporting practices, and customer
service expenses which have been reclassified from general and
administrative expenses to sales and marketing expenses.  Credit card
fees represented approximately 2.4% and 2.6% of total revenue for the
three months ended March 31, 1999, and 1998, respectively.  Customer
service expenses represented 4.2% and 2.2% of total operating expenses
for the three months ended March 31, 1999 and 1998, respectively.
 
2. - CASH AND CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
 
Cash and cash equivalents consist of cash on deposit with banks and
highly liquid investments with an original maturity of three months or
less from the date of purchase.  The Company's short-term investments
consist of certificates of deposit, commercial paper and debt securities
with remaining maturities between 90 and 365 days.  The Company
classifies all short-term investments as available-for-sale in accordance
with Statement of Financial Accounting Standards ("SFAS") No. 115,
"Accounting for Certain Investments in Debt and Equity Securities", which
requires the Company to account for its investments at fair market value
as of the balance sheet date and record unrealized gains and losses in
stockholders' equity.  Realized gains and losses and permanent declines
in value, if any, on available-for-sale securities are reported in other
income or expense as incurred.
 
3. - 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 128").  SFAS 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 March 31, 1999 and 1998, options to purchase
approximately 2.6 million and 2.2 million shares, respectively, were
outstanding but were not included in the computation because they are
antidilutive.
 
                                        6
<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 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  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, over the web 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
charges for transaction, payment processing and shipping fees and
sales taxes where appropriate.
 
   For the three months ended March 31, 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: (1) commissions on agent sales (where the supplier
charges and ships the product to the customer); (2) advertising revenue;
and (3) commissions on The Onsale Exchange transactions (person to
person auctions) through September 30, 1998.  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 represent what our total revenue would have
been if all agent sales and The Onsale Exchange transactions had instead
been merchandise revenue transactions (previously referred to as
principal sales).  We believe that providing information on gross
merchandise sales benefits readers of our financial statements because
it enables them to compare current periods with historical periods more
accurately than they otherwise could based 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 March 31, 1999, 86% of total revenue was
generated through atAuction and 14% of total revenue was generated
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 months ended
March 31, 1999 and 1998:
 
<TABLE>
<CAPTION>
                                       Three Months Ended
                                            March 31,
                              ----------   ----------   ---------
                                                            %
                                 1999         1998       Change
                              ----------   ----------   ---------
<S>                           <C>          <C>          <C>
Total revenue...........        $67,803      $40,169          69%
Plus: gross Agent Sales.          7,817       10,951         (29%)
Less: net Agent Sales...         (2,361)        (857)        175%
                              ----------   ----------
Gross merchandise sales.        $73,259      $50,263          46%
                              ==========   ==========
</TABLE>
 
                                        7
<PAGE>
 
<TABLE>
 
<CAPTION>
                                   Three Months Ended March 31,
 
(In thousands)                                      % of Gross Merchandise Sales
                                     1999       1998       1999       1998
                                  ---------- ----------  --------- ----------
<S>                               <C>        <C>        <C>       <C>
Merchandise revenue
   purchased inventory              $34,198    $19,727        47%        39%
   consigned inventory               31,244     19,585        42%        39%
                                  ----------------------------------------------
Total merchandise revenue            65,442     39,312        89%        78%
Gross commission and other revenue    7,817     10,951        11%        22%
                                  ----------------------------------------------
Gross merchandise sales             $73,259    $50,263       100%       100%
                                  ==============================================
 
</TABLE>
 
 
   Sources of revenue growth.  The increases in total revenue and gross
merchandise sales were mainly due to (1) the introduction of Onsale
atCost in January 1999, which dramatically increased the amount and
types of products offered; (2) investments in marketing programs
designed to promote and maintain awareness of the Onsale brand; and (3)
growth in our customer base. Additionally, we introduced Quick Buy and
Express Auctions in the second quarter of 1998, enabling us to increase
the number of auctions per week and enabling customers to make immediate
purchases. The increase in commission and other revenue as compared to
the first quarter of 1998 was due primarily to an increase in
advertising revenues, which are expected to increase through the end of
1999, however there are no guarantees that this will occur.
 
   In an effort to increase atCost sales and gain market share we may
periodically waive fees charged for transaction processing and shipping
and offer promotional pricing on specific products to compete with prices
of our competitors.  Although we cannot guarantee future results, we
expect these efforts to significantly increase our atCost sales.
 
   Merchandise revenue vs. commission and other revenue.  The portion of
our gross merchandise sales represented by merchandise revenue increased
from 78% for the three months ended March 31, 1998, to 89% for the three
months ended March 31, 1999.  Increased sales of purchased inventory and
atCost sales led to the increase in merchandise revenue as a percentage
of gross merchandise sales, while the transfer of The Onsale Exchange in
September 1998 to Yahoo! contributed to the relative decrease in
commission and other revenue (although commission and other revenue
increased on an absolute basis due to an increase in advertising
revenue).
 
   As we note under "Gross Profit" below, we have experienced low gross
margins on merchandise revenue transactions.  We are currently working
with our consignment and agent suppliers to establish standard customer
service terms for the sale of their products through atAuction.  We
believe this will enable us to increase our fixed margin consignment
inventory and agent sales over time.
 
Gross profit
 
   Gross profit is total revenue less cost of revenue.  Cost of
merchandise revenue consists primarily of the cost of the merchandise
sold to customers and shipping costs net of shipping and handling
revenue. Commission and other revenue have minimal related cost of
revenue.  Prior to the third quarter of 1998, credit card fees were
included as a cost of revenue.  To provide a better comparison with
similar companies' reporting practices, we reclassified credit card fees
to selling and marketing expenses for periods prior to the third quarter
of 1998.  Credit card fees represented approximately 2.4% and 2.6% of
total revenue for the three months ended March 31, 1999 and 1998,
respectively. Gross profit (gross margin) was $6.1 million (9.0%) for the
three months ended March 31, 1999, compared with $4.5 million (11.2%) for
the three months ended March 31, 1998. Gross profit in the first quarter
of 1998 included a charge of $789,000 for certain unreconciled
merchandise adjustments and additional reserves related to customer
returns.
 
   Gross profit on total merchandise revenue, gross commission and other
revenue, and corresponding gross margins on a gross merchandise sales
basis (excluding the 1998 first quarter charge for unreconciled
merchandise adjustments and additional reserves for customer returns) for
the three months ended March 31, 1999 and 1998 was (in millions of
dollars):
                                        8
<PAGE>
 
<TABLE>
<CAPTION>
 
                                              Three Months Ended March 31,
                                             1999                     1998
                                             ----                     ----
                                  Amount       Margin      Amount       Margin
                                 ---------    ---------   ---------    ---------
<S>                                 <C>          <C>         <C>          <C>
Total merchandise revenue            $3.7         5.7%        $4.4         11.3%
Gross commission and other revenue   $2.4         30.2%       $0.9          7.8%
 
</TABLE>
 
   The increase in total gross profit was due to increased sales.  Gross
margin on merchandise revenue decreased for the three months ended March
31, 1999 compared with the same period in 1998 due primarily to lower
margins associated with atAuction sales and the commencement of atCost
sales, which generally produce lower margins than atAuction sales.  The
decrease in margins associated with atAuction sales resulted from our
efforts to increase atAuction sales and market share by increasing the
quantity of each product available for bid at any one time which results
in lower final sales prices.  Gross margin on commission and other
revenue increased for the three month period ended March 31, 1999
compared with the same period in 1998 primarily due to increased
advertising revenue, which has a very low cost, partially offset by a
decrease in agent sales transactions.  We anticipate advertising revenue
to increase through 1999.  Additionally, as noted above, we did not
record any transactions from The Onsale Exchange in the first quarter of
1999.  Transactions from The Onsale Exchange during the first quarter of
1998 generated significantly lower margins for us compared to other
transactions.
 
   As noted previously, we expect gross margins to decrease or remain at
their current levels due to our aggressive efforts to gain market share
through our atCost program and our continued efforts to increase
atAuction market share.   Generally, we plan to acquire market share
expanding and enhancing our customer service operations.  Additionally,
our atCost strategies include periodically waiving all or part of the
transaction and shipping fees for limited periods of time to acquire new
customers and offering promotional pricing on specific products to
compete with prices offered by our competitors.  These efforts to
increase market share will result in lower gross margins in the short
term.
 
 
Operating expenses
 
   Our operating expenses have increased significantly since our
inception as a result of our expansion.  Operating expenses include
recruiting of personnel, development of our infrastructure, and
increased efforts to expand and market our brand.  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.  These expenses represented
12.1% and 13.0% of total revenue for the three months ended March 31,
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.  We reclassified prior years' customer service
expenses from general and administrative expenses to sales and marketing
expenses to conform to current year's presentation.  Customer service
expenses represented 4.2% and 2.2% of total operating expenses for the
three months ended March 31, 1999 and 1998, respectively. We also
reclassified prior years' credit card fees from cost of revenue to sales
and marketing expenses.  Credit card fees represented 2.4%, and 2.6% of
total revenue for the three months ended March 31, 1999 and 1998,
respectively.  In February 1999 we launched a $10 million marketing
campaign in an effort to enhance our brand recognition and promote our
new atCost site, of which $3.1 million was expensed during the first
quarter of 1999. In conjunction with our efforts to increase atCost
sales and market share, we expect to increase sales and marketing
spending significantly over and above our previously announced marketing
campaign.
 
   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 3.8% and 7.7% of total revenue for
the three months ended March 31, 1999 and 1998, respectively.  The
decrease in general and administrative expense as a percentage of total
revenue was due to our leveraging relatively fixed expenses with a
higher volume of
                                        9
<PAGE>
 
sales. We expect the dollar amount of general and administrative expenses
to increase throughout 1999, 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
2.1% and 2.8% of total revenue for the three months ended March 31, 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 prior years, all engineering costs were expensed as
incurred.  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 March 31, 1999, we capitalized approximately $565,000
of software of which $265,000 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 $50,000 during the
first quarter of 1999.
 
Interest and other income, net
 
   Our interest and other income, net, was $594,000, and $727,000 for the
three months ended March 31, 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 $5.5 and $4.2 million for the three months ended
March 31, 1999 and 1998 respectively, and thus 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
three months ended March 31, 1999 was approximately $3.7 million,
primarily attributable to our net loss of $5.5 million, and an increase
in accounts receivable of $1.1 million.  These uses of cash were
partially offset by an increase in accounts payable of $1.5 million as
we improved our payment terms with vendors, and an increase in accrued
expenses of $734,000. Net cash used in operating activities for the
three months ended March 31, 1998 was approximately $3.4 million,
primarily attributable to our net loss of $4.2 million, and an increase
in merchandise inventory of $2.3 million.  These uses of cash were
partially offset by an increase in accrued expenses of $1.1 million, and
an increase in accounts payable of $936,000.
 
   Investing activities.  Net cash provided by investing activities of
$4.7 million for the three months ended March 31, 1999 reflects from the
net change in short term marketable securities of $5.5 million offset by
an investment of $867,000 in property and equipment.   Net cash used in
investing activities of $1.5 million for the three months ended March
31, 1998 was related solely to the purchase of property and equipment.
                                       10
<PAGE>
 
 
   Financing activities.  Net cash provided by financing activities of
approximately $1.9 million and $409,000 for the three months ended March
31, 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 March 31,1999, we had approximately
$28.8 million of cash and cash equivalents and $15.2 million of short-
term available-for-sale investments.
 
   Commitments.  As of March 31, 1999:
 
    o   Our principal commitment was an obligation of approximately
        $4.1 million under operating leases for our corporate
        headquarters.
 
    o   We have no material commitments for capital expenditures, but
        we anticipate purchasing approximately $3.0 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 $894,000 and incremental fees
        under certain circumstances based on the volume of traffic to
        our web site. These agreements expire at various times from
        March to December 1999.
 
    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 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
        (1.6% as of March 31, 1999). This note has no right of offset
        against our investment in the joint venture.
 
     Based on our current operations we believe that our current cash
and cash equivalent balance will meet our anticipated cash needs for
working capital and capital expenditures for at least the next 12
months.  As a result of our intent to offer credit to certain customers
in the future and because of our rapid growth, we may require additional
funding to support this anticipated growth. 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 through at least the first half of 2000, and thus we may need
to finance our increased inventory, accounts receivable, capital
expenditures and some portion of our operating expenses from our current
cash and cash equivalents balance. . We may consider alternative
financing, such as issuance of additional equity or convertible debt
securities or obtaining credit facilities, if market conditions make
such alternatives financially attractive for funding our expansion.  The
sale of additional equity or convertible debt securities could result in
additional dilution to our stockholders. We cannot assure you that
financing will be available to us in amounts or on terms acceptable to
us.
 
 
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 are testing all systems to ensure that they will be
available and operational.  All testing and remediation efforts are
                                       11
<PAGE>
 
expected to be completed by June 30, 1999.  In addition, we are seeking
and will continue to seek assurances from vendors and other third
parties with whom we do business that they are on target for completing
their own Year 2000 remediation.
 
   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 are developing 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 expect to incur net losses for the foreseeable future.
 
   We incurred net losses in each of 1998 and 1997, and we expect to
experience substantial quarterly net losses through at least the first
half of 2000.  We base this expectation in part on the following:
 
    o   We expect the formation and operation of Onsale atCost to lead
        to increased operating expenses.  We cannot assure you that
        consumers will accept the atCost format or that the volume
        generated from this format will cover the increased operating
        costs.
 
    o   We expect our operating expenses will continue to increase as
        we expend financial and management resources on marketing.  We
        must continue to expand our marketing efforts to enhance our
        brand image, increase our visibility on other companies' high
        traffic web sites, purchase larger volumes of merchandise,
        increase the size of our staff and support our growing
        infrastructure. In January 1999, we launched a $10 million
        radio, print, and online marketing campaign designed to meet
        these objectives. Our operating expenses will also continue to
        increase as we increase the size of our staff, purchase larger
        volumes of merchandise and continue to support our growing
        infrastructure.
 
    o   Our atAuction business has relatively low operating margins,
        and the transaction fee pricing model on which atCost is based
        may produce lower gross margins than atAuction.  The
        profitability of atCost
                                       12
<PAGE>
 
        may therefore depend on generating a higher volume of transactions
        compared with atAuction.  Because atCost is new, we are unable to
        predict what revenues and margins atCost will produce, and therefore
        whether and to what extent atCost will achieve profitability.
 
   To the extent that increases in operating expenses are not matched by
increased revenue, our business, operating results and financial
condition will be harmed.
 
Due to our efforts to expand and maintain market share, our profit
margins may decrease or remain at their current levels for the
foreseeable future.
 
   We plan to make aggressive efforts to expand and maintain our market
share, and our profit margins may decline further as a result.  To
expand our atAuction market share, we have increased the quantity of
each product available for bid at any one time.  Additionally, we plan
to use customer service and aggressive programs, such as waiving
transactional fees and promotional pricing, to increase our atCost
market share.  One of the effects of these strategies may be lower
margins in the short term, 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 profits and 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 a number of factors, many
of which are outside our control. These factors include:
 
     o   our ability to attract new atAuction customers and to retain
         our repeat customers;
     o   our ability to generate increased transaction volumes with our
         new atCost business;
     o   the degree to which our new atCost business cuts into our
         existing atAuction business;
     o   our ability to manage our inventory mix and the mix of products
         offered for auction, meet our pricing targets and take other
         actions required to maintain customer satisfaction;
     o   the availability and pricing of merchandise from vendors;
     o   the timing, cost and availability of advertising on web sites
         comparable to ours and over other media;
     o   the amount and timing of costs relating to expansion of our
         operations;
     o   the announcement or introduction of new types of merchandise,
         service offerings or customer services by us or our
         competitors;
     o   delays in revenue recognition at the end of a fiscal period as
         a result of shipping or logistical problems;
     o   delays in shipments as a result of strikes or other problems
         with our delivery service providers or the loss of our credit
         card processor; and
     o   general economic conditions and economic conditions specific to
         the Internet and electronic commerce.
 
Due to the foregoing factors and factors discussed elsewhere in this
Form 10-Q, in some future quarter our operating results may not meet the
expectations of securities analysts and investors, and in such event the
trading price of our common stock may decline.
 
 
We are in an extremely competitive market.
 
   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 currently or
potentially compete with many other companies which either offer the
same types of merchandise and/or provide the same or a similar type of
sales format to customers. Some of our current atAuction competitors
include uBid, Egghead, and First Auction, and some of our current atCost
competitors include Egghead, Value America, Buy.com, Cyberian Outpost,
Gigabuys, NECX, Club Computer, Computers for Less,  and Hardware Street.
Many of our current and potential competitors have significantly greater
financial, technical, marketing and other resources than we do.  As a
result, they may be able to secure merchandise from vendors on more
favorable terms than we obtain, and they may be able to respond more
quickly to changes in customer preferences or to devote greater
resources to the development, promotion and sale of their merchandise
than we can.
                                       13
<PAGE>
 
   New competitors.  Electronic commerce is characterized by low
barriers to entry.  Moreover, our current and potential competitors have
established or may establish cooperative relationships among themselves
or directly with vendors to obtain exclusive or semi-exclusive sources
of merchandise.  Accordingly, it is possible that new competitors or
alliances among competitors and vendors may emerge and rapidly acquire
market share.  In addition, manufacturers may elect to liquidate their
products directly.  We do not currently consider companies that conduct
online person-to person auctions, such as eBay Inc. and Amazon.com,
Inc., as direct competitors, however, these companies may develop into
direct competitors in the future.  Increased competition may result in
reduced operating margins, loss of market share and a diminished brand
franchise.
 
   Accordingly, we may not be able to maintain or increase our revenues,
web site traffic levels or click-throughs relative to our current and
potential competitors.  If competition increases and our branding
efforts are not successful, our business will be harmed.
 
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.
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 any 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 face risks associated with purchasing and carrying our own inventory.
 
   We currently purchase a large majority of our merchandise from
vendors, rather than having our vendors ship merchandise as each sale
occurs, and we expect our purchased inventory to continue to account for
a large majority of our total gross merchandise sales in the future.
Accordingly, we inherit the risks of carrying our own inventory,
including:
 
     o  potential declines in the market value of the refurbished and
        excess goods that we purchase;
     o  managing customer returns and credits associated with
        merchandise to be returned to vendors;
     o  shrinkage resulting from theft, loss or misrecording of
        inventory; and
     o  unpredictable sale prices due to the nature of our auction
        process.
 
   We depend on third parties for fulfillment of our purchased
inventory.  We use Gage Marketing Group, our contract warehouse, to
fulfill approximately 85% 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 March 31, 1999, approximately 39.4% of our total sales
over our online auctions were derived from merchandise acquired from the
five most significant vendors for that period and one vendor accounted
for 13.7% of total sales.  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 new 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.
                                       14
<PAGE>
 
   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.
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, we in fact have accepted returns from
customers for which we did not receive reimbursements from our
manufacturers or vendors.  If the quality of service provided by such
vendors falls below a satisfactory standard or if our level of returns
exceeds our expectations, this could have a harmful effect on our
business.
 
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
jurisdiction.  We are currently subject to auctioneering laws in the
state of California, but other states may interpret their statutes to
apply to our transactions with consumers in such states.  The burdens of
complying with auctioneering laws in other states could materially
increase our cost of doing business.  Similarly, other 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 such 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
governments of California and other states could require additional
disclosure in order to comply with other regulations.
 
   Internet access fees.  Certain local telephone carriers have asserted
that the increasing popularity and use of the Internet has burdened the
existing telecommunications infrastructure, and that many areas with
high Internet use have begun to experience interruptions in telephone
service.  These carriers have petitioned the Federal Communications
Commission to impose access fees on Internet service providers and
online service providers.  If such access fees are imposed, the costs of
communicating on the Internet could increase substantially, potentially
slowing the increasing use of the Internet, which could in turn decrease
the demand for our services or increase our cost of doing business and
thus have a harmful effect our business.
 
   New Internet laws.  Due to the increasing popularity and use of the
Internet, it is possible that a number of laws and regulations may be
adopted with respect to the Internet generally, covering issues such as
user privacy, pricing, and characteristics and quality of products and
services.  Similarly, the growth and development of the market for
Internet commerce may prompt calls for more stringent consumer
protection laws that may impose additional burdens on those companies
conducting business over the Internet.  The adoption of any additional
laws or regulations may decrease the growth of commerce over the
Internet, increase our cost of doing business or otherwise have a
harmful effect on our business.
 
   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.  Recently, the Internet Tax Information Act was
signed into law, placing a three-year moratorium on new state and local
taxes on Internet commerce.  Our business may be harmed by the passage
of laws in the future imposing taxes or other burdensome regulations on
Internet commerce.
 
   We may have to qualify to do business in other jurisdictions.  As our
service is available over the Internet in multiple states and foreign
countries, and as we sell to numerous consumers resident in such states
and foreign countries, such jurisdictions may claim that we are required
to qualify to do business as a foreign corporation in each 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.
                                       15
<PAGE>
 
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 our new key managerial and technical employees into
          our existing management team;
 
      o   training, motivating and managing our growing employee base,
          and identifying the personnel required to continue to grow our
          employee base; and
 
      o   managing the risks associated with accounts receivable
          expansion and collection if and when we begin offering credit
          to certain customers that have been approved as having an
          appropriate credit rating.
 
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 our
geographic location in the San Francisco Bay area, and we may not
succeed in attracting and retaining the personnel we will need to
succeed in the future.  If one or more of our key personnel leaves us
and/or joins or forms a competitor, this could have a harmful effect on
our business.
 
We may encounter new risks associated with international expansion.
 
   Expansion of our business into international markets present
additional risks.  Electronic commerce over the Internet in general, and
our services in particular, may not gain broad market acceptance in
international markets.  We may experience difficulty in managing
international operations as a result of competition, technical problems,
local laws and regulations, distance, and language and cultural
differences.  There are also certain risks inherent in doing business
internationally, including:
 
     o    the general risk that we may invest time and money into such
          expansion without success;
     o    cultural and business practice differences;
     o    fluctuations in currency exchange rates;
     o    political risks and legal and economic instability;
     o    difficulties in collecting international accounts receivable;
     o    potentially longer payment cycles;
     o    difficulties in obtaining U.S. export licenses;
     o    the introduction of non-tariff barriers and higher duty rates;
     o    higher costs of enforcing contractual obligations and
          intellectual property rights;
     o    seasonal reductions in business activity in certain other parts
          of the world; and
     o    potentially adverse tax consequences.
 
   One or more of these factors might have a material adverse effect on
our current or future international operations, and consequently on our
business overall.
 
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
                                       16
<PAGE>
 
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 may be unable to protect our intellectual property.
 
   Generally, our performance and ability to compete are dependent on 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 could face litigation risks.
 
   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.
 
   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.
                                       17
<PAGE>
 
   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 by us or our competitors;
    o    developments with respect to patents, copyrights or proprietary
         rights;
    o    changes in financial estimates by securities analysts;
    o    conditions and trends in the Internet and electronic commerce
         industries; and
    o    adoption of new accounting standards affecting the retail sales
         industry.
 
   Further, the stock markets, and in particular the Nasdaq National
Market, 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.  The
trading prices of many technology companies' stocks, including our
common stock, are at or near historical highs and reflect price earnings
ratios substantially above historical levels.  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
                                       18
<PAGE>
 
amount of creditexposure to any one issue, issuer, and type of investment. All
of our cash equivalents and short-term investments, consisting principally of
commercialpaper, equity securities and governmental securities, are classified
as available-for-sale as of March 31, 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                                                $28,837
   Fixed Interest Rate                                             4.9%
Investments                                                     $15,177
   Fixed Interest Rate                                             6.5%
 
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 March 31, 1999,
this prime rate was 1.6%.
                                       19
<PAGE>
 
                                   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 will have a material adverse effect on our business, results
of operations or financial condition.
 
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.
 
    Not applicable.
 
Item 6.  Exhibits and Reports on Form 8-K.
 
(a) The following exhibits are being filed as part of this report:
 
Exhibit 10.33   Offer letter to Bari Abdul, Vice President of Marketing
 
Exhibit 27.01   Financial data schedule
 
(b)     We did not file any current reports on Form 8-K during the first
        quarter of 1999.
 
                                       20
<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:  May 14, 1999                By: /s/ John E. Labbett
                                       -------------------
                                       John E. Labbett
                                       Senior Vice President and
                                       Chief Financial Officer
 
                                       21
<PAGE>