===============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
(MARK ONE)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 0-20939
CNET, INC.
(Name of small business issuer in its charter)
DELAWARE 13-3696170
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
150 CHESTNUT STREET
SAN FRANCISCO, CA 94111
(Address of principal executive officers) (zip code)
TELEPHONE NUMBER (415) 395-7800
(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 reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes /X/ No / /
As of April 30, 1998 there were 14,892,107 shares of the registrant's common
stock outstanding.
===============================================================================
<PAGE>
Part 1. Financial Information
Item 1. Financial Statements
CNET, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . $15,639,352 $22,553,988
Accounts receivable, net. . . . . . . . . . 8,937,284 9,149,762
Other current assets. . . . . . . . . . . . 1,116,393 1,134,957
Restricted cash . . . . . . . . . . . . . . 1,305,856 1,599,113
------------ ------------
Total current assets . . . . . . . . . 26,998,885 34,437,820
Property and equipment, net. . . . . . . . . . . 18,513,472 19,553,537
Other assets . . . . . . . . . . . . . . . . . . 4,951,741 4,270,321
------------ ------------
$50,464,098 $58,261,678
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable. . . . . . . . . . . . . . $2,748,654 $3,567,783
Accrued liabilities . . . . . . . . . . . . 8,150,709 10,080,504
Current portion of long-term debt . . . . . 1,090,695 1,358,772
------------ ------------
Total current liabilities. . . . . . . 11,990,058 15,007,059
Long-term debt . . . . . . . . . . . . . . . . . 2,480,845 2,611,815
------------ ------------
Total liabilities. . . . . . . . . . . 14,470,903 17,618,874
Stockholders' equity:
Common stock. . . . . . . . . . . . . . . . 1,485 1,468
Additional paid in capital. . . . . . . . . 95,703,880 94,697,595
Accumulated deficit . . . . . . . . . . . . (59,712,170) (54,056,259)
------------ ------------
Total stockholders' equity . . . . . . 35,993,195 40,642,804
------------ ------------
$50,464,098 $58,261,678
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
CNET, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------
1998 1997
------------ ------------
<S> <C> <C>
Revenues:
Television. . . . . . . . . . . . . . $1,752,289 $1,779,795
Internet. . . . . . . . . . . . . . . 8,914,653 4,538,349
------------ ------------
Total Revenues . . . . . . . . . . 10,666,942 6,318,144
Cost of revenues:
Television. . . . . . . . . . . . . . 1,747,000 1,773,702
Internet. . . . . . . . . . . . . . . 7,809,926 3,704,511
------------ ------------
Total cost of revenues . . . . . . 9,556,926 5,478,213
------------ ------------
Gross profit . . . . . . . . . . . . . 1,110,016 839,931
Operating expenses:
Sales and marketing . . . . . . . . . 3,767,617 2,353,267
Development . . . . . . . . . . . . . 1,552,604 2,533,399
General and administrative. . . . . . 1,644,459 1,344,547
Unusual items . . . . . . . . . . . . - 7,000,000
------------ ------------
Total operating expenses . . . . . 6,964,680 13,231,213
------------ ------------
Operating loss . . . . . . . . . . . . (5,854,664) (12,391,282)
Other income (expense):
Loss on joint venture . . . . . . . . - (748,954)
Other income . . . . .. . . . . . . . 198,753 252,033
------------ ------------
Total other income (expense). . . . . 198,753 (496,921)
------------ ------------
Net loss. . . . . . . . . . . . . . . ($5,655,911)($12,888,203)
============ ============
Basic and diluted net loss per share . . ($0.38) ($0.97)
============ ============
Shares used in calculating
per share data. . . . . . . . . . . . 14,785,127 13,300,127
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
CNET, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------
1998 1997
----------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss. . . . . . . . . . . . . . . . . . . .($5,655,911)($12,888,203)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization. . . . . . . . . 1,616,815 983,444
Amortization of program costs. . . . . . . . . 1,701,264 1,725,144
Allowance for doubtful accounts. . . . . . . . 199,159 22,421
Reserve for joint venture. . . . . . . . . . . - 748,954
Warrant compensation expense. . . . . . . . . - 7,000,000
Changes in operating assets and liabilities:
Accounts receivable . . . . . . . . . . . . (250,790) (710,375)
Other current assets. . . . . . . . . . . . (248,771) (217,105)
Other assets. . . . . . . . . . . . . . . . 181,815 (120,382)
Accounts payable. . . . . . . . . . . . . . (766,912) (866,246)
Accrued liabilities . . . . . . . . . . . .(1,691,884) 762,206
----------- ------------
Net cash used in operating activities. .(4,915,215) (3,560,142)
----------- ------------
Cash flows from investing activities:
Purchases of equipment, excluding capital leases.(1,122,293) (2,723,737)
Purchases of programming assets . . . . . . . . .(1,484,381) (1,546,266)
Loan to joint venture . . . . . . . . . . . . . . - (750,000)
----------- ------------
Net cash used in investing activities. .(2,606,674) (5,020,003)
----------- ------------
Cash flows from financing activities:
Net proceeds from employee stock purchase plan. . 221,905 73,470
Net proceeds from exercise of options . . . . . . 784,397 168,382
Principal payments on capital leases. . . . . . . (87,284) (36,912)
Principal payments on equipment note. . . . . . . (311,765) (42,605)
----------- ------------
Net cash provided by financing activitie 607,253 162,335
----------- ------------
Net decrease in cash and cash equivalents. (6,914,636) (8,417,810)
Cash and cash equivalents at beginning of period . 22,553,988 20,155,935
----------- ------------
Cash and cash equivalents at end of period . . .($15,639,352) $11,738,125
=========== ============
Supplemental disclosure of cash flow information:
Interest paid . . . . . . . . . . . . . . . . . . $67,871 $62,850
=========== ============
Supplemental disclosure of non-cash transactions:
Investment $582,364 $ -
=========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
CNET, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Basis of Presentation
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements reflect all adjustments, consisting
only of normal recurring adjustments, considered necessary for a fair
presentation of the financial condition, results of operations and cash
flows for the periods presented. These condensed consolidated financial
statements should be read in conjunction with the audited consolidated
financial statements included in the Company's most recent annual report on
Form 10-K, as filed with the Securities and Exchange Commission which
contains additional financial and operating information and information
concerning the significant accounting policies followed by the Company.
The condensed consolidated results of operations for the three
months ended March 31, 1998 are not necessarily indicative of the
results to be expected for the current year or any other period.
Comprehensive Income
In June 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 130,
"Reporting Comprehensive Income," which established standards for
reporting and disclosures of comprehensive income and its components
(revenues, expenses, gains and losses) in a full set of general purpose
financial statements. SFAS No. 130 is effective for fiscal years
beginning after December 15, 1997 and requires reclassification of
financial statements for earlier periods to be provided for comparative
purposes. The Company has not determined the manner in which it will
present the information required by SFAS No. 130 in its annual
consolidated financial statements for the year ending December 31,
1998. The Company's total comprehensive income (loss) for all periods
presented herein would not have differed from those amounts reported as
net income (loss) in the consolidated statements of operations.
Recent Accounting Pronouncements
In June 1997, the FASB issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." SFAS No. 131
establishes standards for the way public business enterprises report
information about operating segments in annual financial statements and
requires those enterprises to report selected information about
operating segments in interim financial reports issued to stockholders.
SFAS No. 131 is effective for financial statements for periods
beginning after December 31, 1997. The Company has not yet determined
whether it has any separately reportable business segments.
Net Loss Per Share
Basic net loss per share is computed using the weighted-average
number of common shares outstanding during the period. Diluted net loss
per share is computed using the weighted-average number of common shares
and common equivalent shares from stock options outstanding, when
dilutive, using the treasury stock method. There were 2,143,034 and
1,429,449 options outstanding for the first quarter of 1998 and 1997,
repectively, that could potentially dilute earnings per share ("EPS") in the
future that were not included in the computation of diluted EPS because to
do so would have been antidilutive for that period.
(2) BALANCE SHEET
Restricted Cash
Restricted cash balance relates to certain deposits in escrow for
leasehold improvements and as collateral for letters of credit relating
to security deposits.
PROPERTY AND EQUIPMENT
A summary of property and equipment follows:
March 31, December 31,
1998 1997
------------- -------------
Computer equipment. . . . . . . . . . . . . . $11,902,396 $11,769,291
Production equipment. . . . . . . . . . . . . 2,241,597 2,241,597
Office equipment, furniture and fixtures. . . 2,427,681 2,230,267
Software. . . . . . . . . . . . . . . . . . . 1,528,778 1,745,660
Leasehold improvements. . . . . . . . . . . . 7,193,769 7,193,769
Other . . . . . . . . . . . . . . . . . . . . 1,748,086 1,533,198
------------- -------------
27,042,307 26,713,782
Less accumulated depreciation
and amortization. . . . . . . . . . . . . 8,528,835 7,160,245
------------- -------------
$18,513,472 $19,553,537
============= =============
ACCRUED LIABILITIES
A summary of accrued liabilities follows:
March 31, December 31,
1998 1997
------------- -------------
Compensation and related benefits . . . . . . $2,786,563 $2,594,386
Marketing and advertising . . . . . . . . . . 627,802 619,101
Deferred revenue. . . . . . . . . . . . . . . 1,639,473 3,233,681
Lease abandonment . . . . . . . . . . . . . . 1,299,554 1,300,000
Other . . . . . . . . . . . . . . . . . . . . 1,797,317 2,333,336
------------- -------------
$8,150,709 $10,080,504
============= =============
(3) Commitments
In September 1997, the Company entered into a lease for
approximately 97,000 square feet of additional office space in San
Francisco, California. The lease, which will commence on June 1, 1998,
has a ten year term. As security against Lessor tenant improvements,
the Company issued a letter of credit in the amount of $3.3 million.
The letter of credit is secured by $3.3 million of the $5.0 million
operating line of credit. Should the Company meet certain financial
goals the security will be released by the Lessor. The Company plans to
use the additional office space to consolidate its operations and for
future growth. The Company's current operations are housed in San
Francisco in four separate buildings and the consolidation of its
operations may require subleasing one or more of its existing locations.
There can be no assurance that the Company will be able to negotiate a
sublease for any of its property or that any sublease will generate
rental rates to offset the Company obligations.
(4) BuyDirect Divestiture
BUYDIRECT.COM (BuyDirect) was a wholly owned division of the
Company that distributed electronic software. On March 31, 1998 the
Company contributed its ownership in BuyDirect, and net assets related
to BuyDirect of approximately $600,000, to a new venture that is
separately owned and operated by BuyDirect's existing management group.
As part of the transaction, the Company received a 19 percent ownership
interest in the new venture. As a part of the agreement CNET licensed
certain technology to BuyDirect and also entered into a multi-year
arrangement with the new venture to provide marketing and promotion in
exchange for $5.4 million in cash payable through April 30, 2000. The
Company recognized $400,000 in revenues during the first quarter of 1998
relating to the licensing of technology.
(5) Subsequent Event
Effective May 12, 1998 the Company acquired U.Vision, Inc. in a
stock-for-stock exchange. U.Vision owns and operates COMPUTERESP.COM,
a pricing and availability engine for buying computer products on the
Internet. Under the terms of the agreement, the Company issued 544,965
common shares for 100 percent of U.Vision's stock. The Company intends
to record this transaction using the pooling-of-interests accounting
method.
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition
The Company was formed in December 1992 and began to recognize
revenues in April 1995. CNET: The Computer Network is a media company
focused on providing original Internet content and television
programming relating to information technology and the Internet. CNET
Television includes the DIGITAL DOMAIN, a two hour programming block
which includes CNET CENTRAL, THE NEW EDGE and THE WEB. CNET Television
also produces the nationally syndicated program TV.COM. The Company's
CNET Online division includes the following eight technology-focused
Internet sites: CNET.COM, NEWS.COM, GAMECENTER.COM, SHAREWARE.COM,
SEARCH.COM, BUILDER.COM, DOWNLOAD.COM and COMPUTERS.COM. The Company
also operates Snap!, a free online service that aggregates Internet
content and offers Internet directory and searching capabilities.
The Company's revenues, cost of revenues and operating expenses
have grown substantially since the Company's inception and the Company
has incurred net losses of $59.7 million. These losses reflect
substantial expenditures to develop and launch the Company's various
Internet sites and television programs. In addition, the Company
believes that newly launched services require a certain period of growth
before they begin to achieve adequate revenues to support their
operation. The increase in television programming and Internet sites
has also required increased sales and marketing expenses as well as
increased general and administrative costs. As the Company's audience
for its Internet sites and television programs grows, management believes
it will be able to attract additional advertising customers and
increased advertising revenues.
The Company has a limited operating history upon which an
evaluation of the Company and its prospects can be based. The Company's
prospects must be considered in light of the risks, expenses and
difficulties frequently encountered by companies in the television
programming industry and in the relatively new and rapidly evolving
market for Internet products, content and services. To address these
risks, the Company must, among other things, effectively develop new
relationships and maintain existing relationships with its advertising
customers, their advertising agencies and other third parties, provide
original and compelling content to Internet users and television
viewers, develop and upgrade its technology, respond to competitive
developments and attract, retain and motivate qualified personnel. There
can be no assurance that the Company will succeed in addressing such
risks and the failure to do so could have a material adverse effect on
the Company's business, financial condition or operating results.
Additionally, the limited operating history of the Company makes the
prediction of future operating results difficult or impossible, and
there can be no assurance that the Company's revenues will increase or
even continue at their current level or that the Company will achieve or
maintain profitability or generate cash from operations in future
periods. Since inception, the Company has incurred significant losses
and, as of March 31, 1998, had an accumulated deficit of $59.7 million.
The Company may continue to incur losses in the future.
Results of Operations
Revenues
Total Revenues
Total revenues were $10.7 million and $6.3 million for the three
months ended March 31, 1998 and 1997, respectively.
Television Revenues
Television revenues were $1.8 million for each of the three month
periods ended March 31, 1998 and 1997, respectively. Pursuant to an
amended agreement, effective July 1, 1996, between the Company and USA
Networks, USA Networks licensed the right to carry the DIGITAL DOMAIN on
its networks for an initial one-year term for a fee equal to the cost of
production of those programs up to a maximum of $5.2 million. In
January 1997, USA Networks agreed to extend the agreement for an
additional year beginning July 1, 1997 and revenues are again limited to
the costs of producing such programs, subject to a maximum amount of
$5.5 million.
Prior to March 1, 1998, the Company had an agreement with Trans World
International ("TWI"), whereby the Company produced a television
program, TV.COM, which was exclusively distributed by TWI. Revenue from
the distribution of TV.COM was first used to offset costs of
distribution and production, with any excess being shared equally by
CNET and TWI. Beginning March 1, 1998, the Company assumed
responsibility for the sale of advertisements on TV.COM and began paying
a distribution fee to TWI.
Internet Revenues
Total Internet revenues were $8.9 million and $4.5 million for the
three months ended March 31, 1998 and 1997, respectively. Internet
revenues for CNET Online were $8.0 million and $4.5 million for the
three months ended March 31, 1998 and 1997, respectively. Internet
revenues for Snap! were $906,000 for the three months ended March 31,
1998. Snap! commenced operations in September 1997, and thus did not
generate revenues for the three month period ended March 31, 1997.
Internet revenues consist primarily of revenues derived from the sale of
advertisements on pages delivered to users of the Company's Internet
sites. The delivery of an advertisement is recognized by the Company as
an "impression." Advertising revenues are derived principally from
arrangements with the Company's advertising customers that provide for a
guaranteed number of impressions. Advertising rates vary depending
primarily on the particular Internet site on which advertisements are
placed, the total number of impressions purchased and the length of the
advertiser's commitment. Advertising revenues are recognized in the
period in which the advertisements are delivered. The Company's ability
to sustain or increase revenues for Internet advertising will depend on
numerous factors, which include, but are not limited to, the Company's
ability to increase its inventory of delivered Internet pages on which
advertisements can be displayed and its ability to maintain or increase
its advertising rates.
The increase in revenues for CNET Online of $3.5 million from the first
quarter of 1997 to the first quarter of 1998 was attributable to
increased pages delivered and increased advertisements sold on each of
its sites. Average daily pages delivered on the Company's CNET Online
sites during the first quarter of 1998 approximated 6.5 million pages,
an increase of 103% as compared to 3.2 million average daily pages
during the first quarter of 1997. In addition, Internet revenues
include non-advertising revenues of $1.0 million and $703,000 for the
three months ended March 31, 1998 and 1997, respectively. Non-
advertising revenues include fees earned from Company sponsored trade
shows, electronic commerce revenues, content licensing revenues,
technology licensing and consulting.
A portion of the Company's Internet revenues were derived from
barter transactions whereby the Company delivered advertisements on its
Internet sites in exchange for advertisements on the Internet sites of
other companies. Barter transactions accounted for $709,000 and $24,000
for the three months ended March 31, 1998 and 1997, respectively.
Television operations accounted for 16% and 28% of total revenues
and Internet operations accounted for 84% and 72% of total revenues for
the three month ended March 31, 1998 and 1997, respectively. The
Company expects to experience fluctuations in television and Internet
revenues in the future that may be dependent on many factors, including
demand for the Company's Internet sites and television programming, and
the Company's ability to develop, market and introduce new and enhanced
Internet content and television programming.
Cost of Revenues
Total Cost of Revenues
Total cost of revenues were $9.6 million and $5.5 million for the
three months ended March 31, 1998 and 1997, respectively. Cost of
revenues includes costs associated with the production and delivery of
the Company's television programming and the production of its Internet
sites. The principal elements of cost of revenues for the Company's
television programming have been the production costs of its television
programs, which primarily consist of payroll and related expenses for
the editorial and production staff and costs for facilities and
equipment. The principal elements of cost of revenues for the Company's
Internet sites have been payroll and related expenses for the editorial,
production and technology staff, as well as costs for facilities and
equipment.
Cost of Television Revenues
Cost of television revenues were $1.8 million for each of the
three months ended March 31, 1998 and 1997, representing approximately
100% of the related revenues for each of the periods.
Cost of Internet Revenues
Cost of Internet revenues were $7.8 million and $3.7 million for
the three months ended March 31, 1998 and 1997, representing 88% and 82%
of the related revenues, respectively. Cost of Internet revenues for
the three months ended March 31, 1998 and 1997 for CNET Online were $5.3
million and $3.7 million, respectively, and for Snap! were $2.5 million
in 1998. Costs of production for Snap! were classified as development
expenses for the three months ended March 31, 1997 as Snap! had not
commenced revenue generating activities. The increase of $1.6 million
for CNET Online for the three months ended March 31, 1998 as compared to
the same period in 1997 is primarily attributable to $1.1 million of
costs associated with two Internet sites that were launched in November
1997.
Sales and Marketing
Sales and marketing expenses consist primarily of payroll and
related expenses, consulting fees and advertising expenses. Sales and
marketing expenses were $3.8 million and $2.4 million for the three
months ended March 31, 1998 and 1997, representing 35% and 37% of total
revenues, respectively. The increase in sales and marketing expenses for
the three months ended March 31, 1998 compared to the same period in
1997 is primarily attributable to an increase of approximately $750,000
in salaries and related expenses and an increase of approximately
$500,000 in advertising expenses.
Development
Development expenses consist of expenses relating to technology
and creative design staff who are involved in the research and
development of new or improved technologies and design to enhance the
performance of the Company's Internet sites, as well as expenses
incurred in the development of new Internet sites. Development expenses
for technology and creative design enhancements and for development of
new Internet sites include payroll and related expenses for editorial,
production and technology staff, as well as costs for facilities and
equipment. Costs associated with the development of a new Internet site
are recognized as development expenses until the new site begins
generating revenue. Development expenses were $1.6 million and $2.5
million for the three months ended March 31, 1998 and 1997, representing
15% and 40% of total revenues, respectively. The decrease in development
expenses of approximately $1.0 million for the three months ended March
31, 1998 as compared to the same period in 1997 was primarily
attributable to decreased activities related to the development of new
Internet sites. During 1997, the Company incurred development expenses
related to the development of Snap! and COMPUTERS.COM which were both
generating revenues in the first quarter of 1998.
General and Administrative
General and administrative expenses consist of payroll and related
expenses for executive, finance and administrative personnel,
professional fees and other general corporate expenses. General and
administrative expenses were $1.6 million and $1.3 million for the three
months ended March 31, 1998 and 1997, representing 15% and 21% of total
revenues, respectively. The increase of $300,000 for the three months
ended March 31, 1998 as compared to the same period in 1997 was
primarily attributable to the growth of the Company.
Unusual Items
In January 1997, the Company incurred a one-time, non-cash expense
of $7.0 million related to an amendment to the warrant agreement with
USA Networks whereby the Company agreed that the warrants held by USA
Networks will vest in full on December 31, 2006, to the extent that they
have not previously vested. Additionally, USA Networks exercised its
option to extend its agreement with the Company to carry the Company's
three television programs through June 30, 1998.
Other Income (Expense)
Other income and expense consists of interest income, interest
expense and gains and losses from the Company's joint venture with E!
Entertainment. In June 1997, the Company sold its 50% equity position
and certain technology licenses and marketing and consulting services to
its joint venture partner for $10.0 million in cash and a $3.2 million
note receivable.
Total other income and expense were $199,000 and $(497,000) for
the three months ended March 31, 1998 and 1997, respectively. Included
in other expense were losses of $749,000 attributable to the joint
venture for the three month period ended March 31, 1997.
Liquidity and Capital Resources
Net cash used in operating activities of $4.9 million and $3.6
million for the three months ended March 31, 1998 and 1997,
respectively, was primarily attributable to net losses in such periods.
Net cash used in investing activities of $2.6 million and $5.0 million
for the three months ended March 31, 1998 and 1997 respectively, was
primarily attributable to purchases of equipment and programming assets.
Cash flows provided by financing activities for the three months ended
March 31, 1998 consisted primarily of proceeds from the exercise of
stock options.
The Company currently has obligations under notes payable and
capital leases of $3.6 million. Such obligations were incurred to
finance equipment purchases and are payable through June 2001.
As of March 31, 1998, the Company's principal source of liquidity
was approximately $15.6 million in cash and cash equivalents. In
addition, the Company has a $10.0 million line of credit from a bank.
The line of credit consists of a $5.0 million operating line of credit
secured by accounts receivable and a $5.0 million line of credit for up
to 65% of capital equipment purchases. The capital proceeds from the
equipment line will convert to a two year term loan in July 1998. As of
March 31, 1998, the Company had used $3.3 million of the operating line
of credit as security for a letter of credit and had drawn $768,000 on
the capital equipment line of credit. The $10.0 million bank financing
is subject to certain financial covenants. At March 31, 1998, the
Company was in compliance with the financial covenants. The Company
believes that these funds, together with other sources of capital
expected to be available to the Company, will be sufficient to meet its
anticipated cash needs for working capital and capital expenditures for
at least the next 12 months. However, any projections of future cash
needs and cash flows are subject to substantial uncertainty. See
"Additional Factors That May Affect Future Results" below. If currently
available cash and cash generated by operations is insufficient to
satisfy the Company's liquidity requirements, the Company may be
required to sell additional equity or debt securities. The sale of
additional equity or convertible debt securities would result in
additional dilution to the Company's stockholders. There can be no
assurance that financing will be available to the Company in amounts or
on terms acceptable to the Company.
Seasonality and Cyclicality
The Company believes that advertising sales in traditional media,
such as television, are generally lower in the first and third calendar
quarters of each year than in the respective preceding quarters and that
advertising expenditures fluctuate significantly with economic cycles.
Depending on the extent to which the Internet is accepted as an
advertising medium, seasonality and cyclicality in the level of
advertising expenditures generally could become more pronounced for
Internet advertising. Seasonality and cyclicality in advertising
expenditures generally, or with respect to Internet-based advertising
specifically, could have a material adverse effect on the Company's
business, financial condition or operating results.
Additional Factors That May Affect Future Results
The Company's quarterly operating results may fluctuate
significantly in the future as a result of a variety of factors, many of
which are outside the Company's control. Factors that may adversely
affect the Company's quarterly operating results attributable to its
Internet operations include the level of use of the Internet, demand for
Internet advertising, seasonal trends in both Internet use and
advertising placements, the addition or loss of advertisers, advertising
budgeting cycles of individual advertisers, the level of traffic on the
Company's Internet sites, the amount and timing of capital expenditures
and other costs relating to the expansion of the Company's Internet
operations, the introduction of new sites and services by the Company or
its competitors, price competition or pricing changes in the industry,
technical difficulties or system downtime, general economic conditions
and economic conditions specific to the Internet and Internet media.
Quarterly operating results attributable to the Company's television
operations are generally dependent on the costs incurred by the Company
in producing its television programming. If the cost of producing
television programs for USA Networks exceeds the maximum licensing fee
payable by USA Networks, the Company could incur a gross deficit with
respect to its television operations. Further, the size and demographic
characteristics of the Company's viewing audience may be adversely
affected by the popularity of competing television programs, including
special events, the time slots chosen for the Company's programs by the
cable network carrying such programs and the popularity of programs
immediately preceding the Company's programs. As a result of the
Company's strategy to cross market its television and Internet
operations, the Company believes that any decrease in the number of
viewers of its television programs will have a negative effect on the
usage of its Internet sites. Accordingly, a decrease in viewership of
the Company's television programs could have a material adverse effect
on the Company's business, financial condition or operating results.
Due to all of the foregoing factors, it is likely that the
Company's operating results may fall below the expectations of the
Company, securities analysts or investors in some future quarter. In
such event, the trading price of the Common Stock would likely be
materially and adversely affected.
Certain information in this Quarterly Report may contain
"forward-looking statements" within the meaning of Section 21E of the
Securities Exchange Act of 1934, as amended. All statements other than
statements of historical fact are "forward-looking statements" for
purposes of these provisions, including any projections of earnings,
revenues, expenses or other financial items, any statements of the plans
and objectives of management for future operations, any statements
concerning proposed new services, any statements regarding future
economic conditions or performance, and any statement of assumptions
underlying any of the foregoing. Although the Company believes that the
expectations reflected in its forward-looking statements are reasonable,
it can give no assurance that such expectations or any of its
forward-looking statements will prove to be correct, and actual results
could differ materially from those projected or assumed in the Company's
forward-looking statements. The Company's future financial condition
and results, as well as any forward-looking statements, are subject to
inherent risks and uncertainties, including those summarized in this
section. Additional information concerning these and other risk factors
is contained in the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1997, a copy of which may be obtained from the
Company upon request.
PART II. OTHER INFORMATION
ITEM (6) EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27. Financial Data Schedule
(b) Reports on Form 8-K
NONE
<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.
CNET, INC.
(Registrant)
/s/ Douglas N. Woodrum
________________________
Douglas N. Woodrum
Executive Vice President,
Chief Financial Officer
March 15, 1998
Date
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
FROM THE ACCOMPANYING FINANCIAL STATEMENTS AND IS QUA
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENT
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> MAR-31-1998 MAR-31-1997
<CASH> 15,639,352 11,738,125
<SECURITIES> 0 0
<RECEIVABLES> 8,937,284 5,980,131
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 26,998,885 18,697,175
<PP&E> 18,513,472 13,541,202
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 50,464,098 34,011,876
<CURRENT-LIABILITIES> 11,990,058 6,062,046
<BONDS> 0 0
0 0
0 0
<COMMON> 1,485 1,340
<OTHER-SE> 35,993.195 27,451,804
<TOTAL-LIABILITY-AND-EQUITY> 50,464,098 34,011,876
<SALES> 10,666,942 6,318,144
<TOTAL-REVENUES> 10,666,942 6,318,144
<CGS> 9,556,926 5,478,213
<TOTAL-COSTS> 9,556,926 5,478,213
<OTHER-EXPENSES> 6,964,680 13,231,213
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 67,871 77,513
<INCOME-PRETAX> (5,655,911) (12,888,203)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (5,655,911) (12,888,203)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (5,655,911) (12,888,203)
<EPS-PRIMARY> ($0.38) ($0.97)
<EPS-DILUTED> ($0.38) ($0.97)
<FN>
<F1> EPS-Basic and EPS-Diluted for previously reported periods has
been restated to comply with SFAS 128.
</TABLE>
