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As filed with the Securities and Exchange Commission on February 26, 1999.
Registration No. 333- _____
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
CNET, INC.
(Exact name of registrant as specified 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, CALIFORNIA 94111
(415) 395-7800
(Address, including zip code, and telephone number, including area
code, of registrant's principal executive offices)
---------------
Halsey M. Minor
Chairman of the Board, President and Chief Executive Officer
150 Chestnut Street
San Francisco, California 94111
(415) 395-7800
(Name, address, and telephone number,
including area code, of agent for service)
---------------
Approximate date of commencement of proposed sale to the public: From time to
time after the effective date of this Registration Statement.
If the only securities being registered on this form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box: [ ]
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 of the Securities Act of 1933,
other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act of 1933, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act of 1933, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
======================================================================================================================
AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF SHARES TO BE AGGREGATE PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED PER UNIT(1) OFFERING PRICE(1) FEE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock,
$.0001 par value 78,577 $ 114.63(2) $9,007,281.51(2) $2,504.03
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
(2) Calculated pursuant to Rule 457(c) of the Securities Act of 1933, as
amended, based upon the average of the high and low prices per share of the
common stock of CNET, Inc. on February 19, 1999, as reported by the Nasdaq
National Market.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
THE SELLING SHAREHOLDERS MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
CNET, INC.
78,577 SHARES
COMMON STOCK
----------------------------------
Certain of our shareholders are offering 78,577 shares of our common
stock. We will not receive any of the proceeds from the shareholders' sale of
the shares offered in this prospectus. These shares were issued by us to the
selling shareholders in connection with our acquisitions of Netventures, Inc. on
February 16, 1999 and AuctionGate Interactive, Inc. on February 19, 1999.
Our common stock is quoted on the Nasdaq National Market under the
symbol "CNET." The last reported sale price of our common stock on February 25,
1999 was $113.25 per share.
----------------------------------
See "Risk Factors" beginning on page 5 to read about certain factors
you should consider before buying shares of our common stock.
----------------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
----------------------------------
Prospectus dated February 26, 1999.
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We are a Delaware corporation. Our principal executive offices are located at
150 Chestnut Street, San Francisco, California 94111, and our telephone number
is (415) 395-7800. In this prospectus, the "Company," "CNET," "we," "us" and
"our" refer to CNET, Inc. and its subsidiaries, unless the context otherwise
requires.
TABLE OF CONTENTS
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Summary................................................................................................... 1
Risk Factors.............................................................................................. 5
Incorporation of Certain Documents by Reference...........................................................18
Where You Can Get More Information........................................................................18
Selling Shareholders......................................................................................19
Plan of Distribution......................................................................................20
Use of Proceeds...........................................................................................20
Legal Matters.............................................................................................20
Experts...................................................................................................20
</TABLE>
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SUMMARY
This summary highlights some important information from this
prospectus, but does not contain all material information about us or the
offering. You should read the more detailed information and financial statements
and notes appearing in, or incorporated by reference in, this prospectus. You
should carefully consider, among other things, the information set forth in
"Risk Factors." The information in this prospectus does not reflect our 2-for-1
split of our common stock that we will distribute in the form of a stock
dividend on March 8, 1999 to our common stock holders as of February 22, 1999.
THE COMPANY
We are a leading media company. We provide consumers with information
both online and on television regarding:
o computers
o the Internet
o digital technologies
Based on the volume of traffic over our branded online network, we believe that
we have established a leadership position in our market. We believe that our
network is the most frequently used source of technology information online,
with an average of 8.2 million pages viewed daily during the fourth quarter of
1998. According to Media Metrix, we reached 12.2% of the online audience, or
approximately 7.1 million unique users, during January 1999. In addition, we
deliver over 3.8 million newsletter dispatches per week to subscribers of our
newsletter services. We derive revenues from a combination of:
o banner and sponsorship advertising on our online network
o advertising and sales lead-based compensation from our recently
introduced online shopping services
o advertising sales and licensing fees from our television
programming
CNET ONLINE
Our online division produces a network of information and services
offered under our CNET brand through CNET.com, our gateway for consumers
interested in information technology and technology products and services.
Among the primary channels that users can access through CNET.com are:
o CNET Computers.com, a comprehensive source for computer hardware
information combining broad product listings, descriptions and
reviews
o CNET Shopper.com, an extensive resource for determining where to
buy computer products online with real-time pricing and links to
manufacturers, retailers and resellers
o CNET News.com, a technology information source offering news and
analysis about the Internet and the computer industry
o CNET Builder.com, an information source providing product reviews
and industry news for the Web-builder community
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o CNET Gamecenter.com, an extensive gaming resource offering reviews
and download information and links for popular computer games
o CNET Download.com, a comprehensive software download service
CNET TELEVISION
Our television division, intended to strengthen the our brand and
complement our online division, includes the Digital Domain, a two-hour
programming block broadcast on USA Networks and The Sci-Fi Channel.
Digital Domain is composed of:
o CNET Central (technology news)
o The Web (Internet and online services)
o Cool Tech (consumer-oriented technology products)
o The New Edge (future technologies)
We also produce TV.com (technology products and news) and Tech Reports
(90-second technology inserts for local news programs). Our television
programming is broadcast to more than 75 million households and is syndicated
nationally and in 40 international markets.
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SHOPPING SERVICES
Our shopping services help consumers decide what products to buy and
where to buy them. Our shopping services are a very efficient marketing channel
for sellers of technology products who are trying to reach a targeted audience
of potential buyers. These services, initiated in September 1998 through CNET
Computers.com and CNET Shopper.com, are among the industry's leading information
resources for buyers of technology products. We assist the consumer with the
initial phase of a product buying decision by providing high-quality editorial
content, including reviews and recommendations. This information is supplemented
by real-time pricing information from competing vendors covering more than
120,000 products. Our shopping services also provide one-click access to these
vendors. This enables the user to order the desired product from the supplier of
their choice. We believe that our online database of products and prices is the
largest publicly-accessible computer product database in the world. In the
fourth quarter of 1998, the first during which our shopping services were
offered, we estimate that we generated approximately $80 million in sales to our
70 participating merchants. Our shopping services generated an average of 90,000
leads per day during December 1998.
In assisting sellers of computer products reaching buyers online, we
address a significant market. According to Jupiter Communications, technology
products represent the largest e-commerce category on the Web. Purchases of PC
hardware and software are expected to be 45% of the estimated $8.2 billion
consumers will spend online in 1999. Forrester Research estimates that 46%, or
approximately $50 billion, of the estimated $108 billion projected to be spent
by businesses online in 1999 will be spent on computers and electronics.
We continue to explore new commerce-related opportunities in which our
content, traffic and technology will allow us to provide value to buyers and
sellers of technology products. In addition, we may increase significantly
marketing efforts designed to broaden audience reach and to strengthen the CNET
brand as the leading online source for information and services on computing,
technology and information systems.
OUR OTHER VENTURES
We are also an owner of snap., the free Internet directory, search, and
navigation portal service controlled by NBC Multimedia, Inc. We effectively own
approximately 40% of Snap! L.L.C. We also own approximately 9% (2.3 million
shares) of Vignette Corporation (Nasdaq:VIGN), a manufacturer of Web publishing
software, and 16% of BuyDirect.com, Inc., a Web retailer of downloadable
software.
OUR RECENT DEVELOPMENTS
o ACQUISITION OF NETVENTURES. On February 2, 1999, we agreed to
acquired NetVentures, Inc. in a stock-for-stock exchange valued at
approximately $12.5 million. NetVentures owns and operates
ShopBuilder (www.shopbuilder.com), an online store-creation
system. With the acquisition, we intend to develop the capacity to
enable small and midsize computer manufacturers and resellers of
unbranded computer systems, known in the industry as "white box"
PCs, to build online stores and use our online sales channel to
market products directly to customers. In addition, we expect to
create the Internet's first marketplace for unbranded PCs, sales
of which make up an estimated 30% of the $75 billion U.S. PC
market, and expand our Shopper.com service by incorporating a
large segment of products and services that to date have not been
readily available online. We completed the acquisition on February
16, 1999.
o AGREEMENT WITH AMERICA ONLINE. On February 9, 1999, we announced
an agreement with American Online, Inc. whereby we will become the
exclusive provider of computer hardware and software buying guides
on the AOL service and on AOL.com, as well as the primary provider
of computer buying guides on CompuServe, Digital City, AOL
Hometown and certain AOL international properties. In addition to
buying guides, we will provide or create a variety of co-branded,
computing-oriented content areas. Under the terms of the
agreement, AOL will receive guaranteed.
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payments from us of $14.5 million over approximately two and
one-half years. We believe that the agreement provides us with the
opportunity to extend substantially the reach of our
computer-oriented information and shopping services to a new
audience of consumers.
o ACQUISITION OF AUCTIONGATE INTERACTIVE. On February 19,1999, we
acquired AuctionGate Interactive, Inc. in a stock-for-stock
exchange valued at approximately $6.5 million. AuctionGate owns
and operates AuctionGate.com, an auction site specializing in
computer products. With the acquisition, we hope to expand our
role as an Internet marketplace linking computer buyers and
sellers. The acquisition also introduces a potential new revenue
stream for us, as participating sellers in the new auction service
will be charged listing fees. The new auction site will allow
individual customers, resellers and manufacturers to auction their
used, refurbished, end-of-line and surplus items. We intend to
provide links to the auction service at relevant areas across our
Internet network.
o AGREEMENT WITH JENESYS. On February 23, 1999, we announced that we
had agreed to acquire the assets of Winfiles.com, a leading
software downloading service, from Jenesys LLC for a total
purchase price of $11.5 million, payable in cash in two
installments of $5.75 million. We believe that this acquisition
will increase the market reach of our CNET Download.com service.
We completed the acquisition on February 26, 1999.
o STOCK SPLIT. On February 10, 1999, we announced a 2-for-1 split of
our common stock that we are going to distribute in the form of a
stock dividend on March 8, 1999 to our common stock holders as of
February 22, 1999.
OUR OPERATING RESULTS
o On February 10, 1999, we announced annual and quarterly results
for the period ended December 31, 1998. Our revenues for the
quarter totaled $19.2 million, an 86% increase over the quarter
ended December 31, 1997. Net income for the quarter was $4.3
million, or $0.23 per share diluted, compared to a net loss of
$10.7 million, or $0.76 per share diluted, for the fourth quarter
of 1997. Excluding unusual items, net income for the quarter was
$3.3 million, or $0.18 per share diluted, compared to a net loss
of $8.7 million, or $0.62 per share diluted in the fourth quarter
of 1997.
o Revenues for our online operations increased 123% to $17.6 million
for the quarter, versus $7.9 million in the fourth quarter of
1997. Quarter-to-quarter traffic on our online operations
increased 20% to 8.2 million average daily page views in the
fourth quarter, from 6.8 million average daily page views in the
third quarter of 1998. Our television operations reported a slight
profit on revenues of $1.6 million in the fourth quarter of 1998,
similar to its results for the fourth quarter of 1997.
o For the year ended December 31, 1998, our revenues totaled $56.4
million, a 68% increase over revenues of $33.6 million for the
year ended December 31, 1997. Net income for 1998 was $2.6
million, or $0.15 per share diluted, compared to a net loss of
$24.7 million, or $1.82 per share diluted in 1997. For the year,
our online division reported revenues of $49.4 million, compared
to $25.8 million in 1997, and our television division reported
annual revenues of $7.1 million, compared to $6.9 million in 1997.
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RISK FACTORS
You should carefully consider the following risk factors and warnings, in
addition to all of the other information we have provided to you in this
prospectus, before purchasing our common stock. Also, you should be aware that
the risks described below are not the only ones facing us. Additional risks that
we do not yet know of may also have an adverse effect on us. If any of those
risks or any of the risks described below actually occur, our business,
financial condition and results of operations or prospects could be adversely
affected. In that case, the market price of our common stock could decline, and
you could lose all or part of your investment.
This prospectus contains or incorporates by reference certain statements
about our future that are not statements of historical fact. In some cases, you
can identify these statements by words such as "may," "will," "should,"
"expects," "anticipates," "plans," "believes," "estimates," "intends,"
"predicts," "potential" or "continue" or the negative of such terms and other
comparable terminology. These statements are only predictions, and in evaluating
those statements you should specifically consider the risks outlined below.
Actual performance or results may differ materially and adversely.
WE HAVE A LIMITED OPERATING HISTORY AND AN ACCUMULATED DEFICIT, AND WE
ANTICIPATE FUTURE LOSSES. We have a limited operating history upon which you can
evaluate us. Our prospects must be considered in light of the risks, expenses
and difficulties frequently encountered by companies in developing industries,
particularly companies in the relatively new and rapidly evolving market for
Internet products, content and services. Such risks for us include, but are not
limited to:
o an evolving and unpredictable business model
o uncertain acceptance of new services including CNET Shopper.com
and CNET Computers.com
o competition
o management of growth
To address these risks, we must, among other things:
o develop new relationships and maintain existing relationships with
our advertising customers, their advertising agencies and other
third parties
o provide original and compelling content to Internet users and
television viewers
o develop and upgrade our technology
o implement and successfully execute our business and marketing
strategy
o successfully expand into new products, services or markets
o effectively manage and integrate acquisitions and other business
combinations
o respond to competitive developments
o attract, retain and motivate qualified personnel
We cannot assure you that we will succeed in addressing such risks. If we fail
to do so, it could have a material adverse effect on our business, prospects,
financial condition and operating results.
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Additionally, our limited operating history and the emerging nature of the
markets in which we compete makes it difficult or impossible for us to predict
our future operating results, and there can be no assurance that our revenues
will increase or even continue at their current level or that we will maintain
profitability or generate cash from operations in future periods. In addition,
interest expense and costs of our acquisitions, including amortization of
goodwill and other purchased intangibles and ongoing operating expenses, will or
may further affect our operating results. From our inception until the third
quarter of 1998, we incurred significant losses and, as of September 30, 1998,
had an accumulated deficit of $55.4 million. We may continue to incur losses in
the future. For example, if we were to increase significantly our marketing
expenses, which we are considering, it is possible that we would incur losses as
a result. In view of the rapidly evolving nature of our business and our limited
operating history, we believe that period-to-period comparisons of our operating
results, including our gross profit and operating expenses as a percentage of
net sales, are not necessarily meaningful and should not be relied upon as an
indication of future performance.
WE MAY EXPERIENCE FLUCTUATIONS IN OUR QUARTERLY OPERATING RESULTS. Our
quarterly operating results may fluctuate significantly in the future as a
result of a variety of factors, many of which are outside our control. Factors
that may adversely affect our quarterly operating results attributable to our
Internet operations include, among others:
o the level of use of the Internet
o demand for Internet advertising
o seasonal trends in both Internet use and advertising placements
o the addition or loss of advertisers, and the advertising budgeting
cycles of individual advertisers
o the level of traffic on our network of Internet sites
o the amount and timing of capital expenditures and other costs
(including marketing costs) relating to the expansion of our
Internet operations
o the introduction of new sites and services by us or our
competitors
o our ability to manage effectively our development of new business
segments and markets
o our ability to successfully manage the integration of operations
and technology of acquisitions and other business combinations
o our ability to upgrade and develop our systems and infrastructure
o our ability to attract new personnel in a timely and effective
manner
o price competition or pricing changes in the industry
o technical difficulties, system downtime or Internet brownouts
o governmental regulation and taxation policies
o disruptions in service by common carriers due to strikes or
otherwise
o general economic conditions and economic conditions specific to
the Internet and Internet media
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We may be unable to adjust spending in a timely manner to compensate for any
unexpected revenue shortfall. Accordingly, any significant shortfall in revenues
in relation to our planned expenditures would have an immediate adverse effect
on our business, prospects, financial condition and results of operations.
Further, as a strategic response to changes in the competitive environment, we
may from time to time make certain pricing, purchasing, service, marketing or
acquisition decisions that could have a material adverse effect on our business,
prospects, financial condition and operating results. For example, we may
increase significantly our marketing expenditure as we seek to continue to build
audience reach and our brand name.
Quarterly operating results attributable to our television operations are
generally dependent on the costs we incur in producing our television
programming. If the costs of producing television programs exceed licensing and
distribution revenues, we could incur a gross deficit with respect to our
television operations. Further, revenues may be adversely impacted by the size
and demographic characteristics of our television viewing audience. As a result
of our strategy to cross market its television and Internet operations, a
decrease in the number of viewers of our television programs may have a negative
effect on the usage of our Internet sites and on our business, prospects,
financial condition or operating results.
We may also experience seasonality in our operating results, particularly
in connection with our shopping services which may reflect seasonal trends in
the retail industry. The level of consumer retail spending generally decreases
in the first and third calendar quarters. Advertising expenditures, which
comprise substantially all of our revenues, are also subject to seasonal
fluctuations and are influenced by consumer spending patterns.
Due to all of the foregoing factors, it is likely that our operating
results may fall below our expectations or the expectations of securities
analysts or investors in some future quarter. In such event, the trading price
of our common stock would likely be materially adversely affected.
OUR INTERNET CONTENT AND SERVICES MAY NOT BE ACCEPTED. Our future success
depends upon our ability to deliver original and compelling Internet content and
services in order to attract and retain users. We cannot assure you that our
content and services will be attractive to a sufficient number of Internet users
to generate revenues sufficient for us to sustain operations. We also cannot
assure you that we will be able to anticipate, monitor and successfully respond
to rapidly changing consumer tastes and preferences so as to attract or maintain
an audience. Internet users can freely navigate and instantly switch among a
large number of Internet sites, many of which offer competing content and
services, making it difficult for us to distinguish our content and services and
to attract users. In addition, many other Internet sites offer very specific,
highly targeted content that could have greater appeal than our sites to
particular subsets of our target audience. If we are unable to develop Internet
content and services that allow us to attract, retain and expand a loyal user
base possessing demographic characteristics attractive to advertisers and
sellers of technology products, we will be unable to generate revenue, and our
business, prospects, financial condition and operating results will be
materially adversely affected.
OUR TELEVISION PROGRAMMING MAY NOT BE ACCEPTED. We cannot assure you that
our television programming will be accepted by television broadcasters, cable
networks or their viewers. The successful development and production of
television programming is subject to numerous uncertainties, including the
ability to:
o anticipate and successfully respond to rapidly changing consumer
tastes and preferences
o obtain favorable distribution rights
o fund new program development
o attract and retain qualified producers, writers, technical
personnel and television hosts
If we are unable to develop television programming that allows us to attract,
retain and expand a loyal television audience, or if we are unable to retain or
develop distribution channels for our television programming, we may be
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unable to achieve our strategic objectives, and our business, prospects,
financial condition and operating results will be materially adversely affected.
WE OPERATE IN HIGHLY COMPETITIVE MARKETS. Competition among content and
service providers is intense and is expected to increase significantly in the
future. Our Internet and television operations compete against a variety of
firms that provide content through one or more media, such as print, broadcast,
cable television and the Internet. As with any other content or service
provider, we compete generally with other content and service providers for the
time and attention of consumers and for advertising revenues. To compete
successfully, we must provide sufficiently compelling and popular Internet
content and service and television programming to attract Internet users and
television viewers and to support advertising intended to reach such users and
viewers. Within the content niche of information technology and the Internet, we
compete in particular with the publishers of computer-oriented magazines and
Internet services, such as Ziff-Davis Publishing Company, International Data
Group and CMP Publications, and with television companies that offer
computer-related programming, such as the Cable News Network, the Discovery
Channel, Jones Computer Network, Mind Extension University and MSNBC, a joint
venture between Microsoft Corporation and General Electric's NBC Television
Network. Each of these competitors also offers one or more Internet sites with
content designed to complement its magazines or television programming.
In the overall market for Internet users, we compete with other Internet
content and service providers, including Web directories, search engines,
shareware archives, sites that offer original editorial content, commercial
online services and sites maintained by Internet service providers. These
competitors include:
o Excite, Inc.
o Infoseek Corporation
o Lycos, Inc.
o Microsoft Corporation
o Netscape Communications Corporation
o The Walt Disney Company
o Time Warner, Inc.
o Yahoo! Inc.
The market for Internet content and services is new, intensely competitive and
rapidly evolving. There are minimal barriers to entry, and current and new
competitors can launch new sites at relatively low cost. In addition, we compete
for the time and attention of Internet users with thousands of non-profit
Internet sites operated by individuals, government and educational institutions.
Existing and potential competitors also include magazine and newspaper
publishers, cable television companies and startup ventures attracted to the
Internet market. Accordingly, we expect competition to persist and intensify and
the number of competitors to increase significantly. As we expand the scope of
our Internet content and services, we will compete directly with a greater
number of Internet sites and other media companies, including other online
retailers and direct sellers of computer products. Because the operations and
strategic plans of existing and future competitors are undergoing rapid change,
it is difficult for us to anticipate which companies are likely to offer
competitive services in the future. There can be no assurance that our Internet
operations will compete successfully.
With respect to our television operations, we compete directly with
established broadcast and cable television networks and with other distributors
and producers of programming about information technology and the Internet. We
also face potential competition from a wide range of existing broadcast and
cable television companies, and
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from joint ventures between television companies and computer-oriented magazine
publishers or computer hardware or software vendors, any of which could produce
television programming that competes directly with our television programming.
For example, Ziff-Davis recently launched and is operating a 24 hour cable
television network focused on technology.
WE MAY HAVE DIFFICULTIES MANAGING OUR GROWTH. We have rapidly and
significantly expanded our operations and anticipate that further expansion of
our operations may be required in order to address potential market
opportunities. This rapid growth has placed, and is expected to continue to
place, a significant strain on our management, operational and financial
resources. The increase in the number of our employees and our market
penetration and product and service development activities have resulted in
increased responsibility for our management. Our management will be required to
successfully maintain relationships with various advertising customers, other
Internet sites and services, Internet service providers and other third parties
and to maintain control over our strategic direction in a rapidly changing
environment. There can be no assurance that our current personnel, systems,
procedures and controls will be adequate to support our future operations, that
management will be able to identify, hire, train, motivate or manage required
personnel or that management will be able to successfully identify and exploit
existing and potential market opportunities. If we are unable to manage growth
effectively, our business, financial condition and operating results will be
materially adversely affected.
WE HAVE RISKS ASSOCIATED WITH SYSTEM DEVELOPMENT AND OPERATIONS. Our
Internet revenues consist primarily of revenues derived from the sale of
advertisements and other fees from sellers of technology products on our
Internet sites, in particular from arrangements with our advertising customers
that provide for a guaranteed number of impressions. Any system interruptions
that result in the unavailability of our Internet sites may result in us being
unable to deliver the number of impressions guaranteed by such agreements.
During 1998, we experienced two power interruptions which resulted in the
unavailability of our Internet sites and services for portions of two days.
There can be no assurance that we will be able to accurately project the rate or
timing of increases, if any, in the use of its Internet sites or will be able
to, in a timely manner, effectively upgrade and expand its systems. Any
inability to do so could have a material adverse effect on our, prospects,
financial condition and operating results.
WE ARE DEPENDENT ON OUR ADVERTISING REVENUES. Our revenues through December
31, 1998 were derived primarily from the sale of advertising and other fees from
sellers of technology products on our Internet sites and from advertising and
license fees from producing our television programs. Most of our advertising
contracts can be terminated by the customer at any time on very short notice.
Consequently, our advertising customers may move their advertising to competing
Internet sites or from the Internet to traditional media, quickly and at low
cost, thereby increasing our exposure to competitive pressures and fluctuations
in revenues and operating results. In selling Internet advertising, we also
depend to a significant extent on advertising agencies, which exercise
substantial control over the placement of advertising for our existing and
potential advertising customers. If we lose advertising customers, fail to
attract new customers or are forced to reduce advertising rates in order to
retain or attract customers, our business, prospects, financial condition and
operating results will be materially adversely affected.
THE INTERNET AS MAY NOT BE ACCEPTED AS AN ADVERTISING MEDIUM. Our Internet
advertising customers have only limited experience with the Internet as an
advertising medium and neither such customers nor their advertising agencies
have devoted a significant portion of their advertising budgets to
Internet-based advertising in the past. Some of our potential customers have
little or no experience with the Internet as an advertising medium and have not
devoted significant portions of their advertising budgets to Internet-based
advertising in the past. In order for us to generate advertising revenues,
advertisers and advertising agencies must direct a significant portion of their
budgets to the Internet and, specifically, to our Internet sites. There can be
no assurance that advertisers or advertising agencies will be persuaded to
allocate or continue to allocate or increase portions of their budgets to
Internet-based advertising, or, if so persuaded, that they will find
Internet-based advertising to be more effective than advertising in traditional
media such as print, broadcast and cable television, or in any event decide to
advertise or continue to advertise on our Internet network. Acceptance of the
Internet among advertisers and advertising agencies also depends to a large
extent on the growth of use of the Internet by consumers, which is highly
uncertain, and on the acceptance of new methods of conducting business and
exchanging information.
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Advertisers and advertising agencies that have invested substantial resources in
traditional methods of advertising may be reluctant to modify their media buying
behavior or their systems and infrastructure to use Internet-based advertising.
Furthermore, standards to measure the effectiveness of Internet-based
advertising are evolving, and there can be no assurance that such standards will
be adopted or adopted broadly enough to support widespread acceptance of
Internet-based advertising. If Internet-based advertising is not widely accepted
by advertisers and advertising agencies, our business, prospects, financial
condition and operating results will be materially adversely affected.
OUR BRAND MAY NOT BE ACCEPTED OR MAINTAINED. Promotion of the CNET brand
will depend largely on our success in providing high quality Internet and
television programming, which cannot be assured. If consumers do not perceive
our existing Internet and television content to be of high quality, or if we
introduce new Internet sites or television programs or enter into new business
ventures that are not favorably received by consumers, we will be unsuccessful
in promoting and maintaining our brand. Any expansion of the focus of our
operations beyond providing Internet content and services related to information
technology and the Internet creates a risk of diluting our brands, confusing
consumers and decreasing the attractiveness of its audience to advertisers.
Furthermore, in order to attract and retain Internet users and television
viewers, and to promote and maintain the CNET brand in response to competitive
pressures, we may find it necessary to increase substantially our budgets for
marketing or for content and service program development or otherwise to
increase substantially our financial commitment to creating and maintaining
brand awareness and loyalty among consumers. For example, we anticipate that we
may significantly increase our marketing expenditures as we seek to continue to
build our brand. If we are unable to provide high quality content and services
or otherwise fail to promote and maintain its brand, or if we incur excessive
expenses in an attempt to or promote and maintain its brand, our business,
prospects, financial condition and operating results will be materially
adversely affected.
LOSS OF KEY PERSONNEL COULD ADVERSELY AFFECT OUR BUSINESS. Our performance
is substantially dependent on the continued services of Halsey M. Minor, Shelby
W. Bonnie and the other members of our senior management team, as well as on our
ability to retain and motivate its other officers and key employees. We do not
have "key person" life insurance policies on any of its officers or other
employees. Our future success also depends on its continuing ability to attract
and retain highly qualified personnel. The production of content and services
for the Internet and television requires highly skilled writers and editors and
personnel with sophisticated technical expertise, and the number of such
personnel available is limited. Competition for such personnel among companies
with operations involving computer technology, the Internet and television
production is intense, and there can be no assurance that we will be able to
retain our existing employees or that we will be able to attract, assimilate or
retain sufficiently qualified personnel in the future. In particular, we have
encountered difficulties in attracting qualified software developers for its
Internet sites and related technologies, and there can be no assurance that we
will be able to attract and retain such developers. The inability to attract and
retain the necessary technical, managerial, editorial and sales personnel could
have a material adverse effect on our business, prospects, financial condition
and operating results.
WE HAVE RISKS ASSOCIATED WITH TELEVISION DISTRIBUTION AND WE ARE DEPENDENT
ON USA NETWORKS. Our television programming is currently carried primarily on
the USA Network and the Sci-Fi Channel, both of which are owned by USA Networks,
pursuant to an agreement between us and USA Network, which expires on June 30,
1999. We cannot assure you that we will be able to obtain distribution for our
television programming after June 30, 1999. In such event, our brand, business,
prospects, financial condition and operating results may be materially and
adversely affected.
WE ARE SUBJECT TO RISKS ASSOCIATED WITH TECHNOLOGICAL CHANGE. The market
for Internet products and services is characterized by rapid technological
developments, frequent new product introductions and evolving industry
standards. The emerging character of these products and services and their rapid
evolution will require that we continually improve the performance, features and
reliability of its Internet content, particularly in response to competitive
offerings. There can be no assurance that we will be successful in responding
quickly, cost effectively and sufficiently to these developments. In addition,
the widespread adoption of new Internet technologies or standards could require
substantial expenditures by us to modify or adapt its Internet sites and
services and could fundamentally affect the character, viability and frequency
of Internet-based advertising, either
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<PAGE> 14
of which could have a material adverse effect on our business, prospects,
financial condition or operating results. New Internet services or enhancements
offered by us may contain design flaws or other defects that could require
costly modifications or result in a loss of consumer confidence, either of which
could have a material adverse effect on our business, prospects, financial
condition or operating results. In addition, failure of any equipment or
software used by us to operate properly with regard to the Year 2000 and
thereafter could require us to incur unanticipated expenses to remedy any
problems, which could have a material adverse effect on our business, prospects,
financial condition and operating results.
WE DEPEND ON THIRD PARTIES FOR OUR INTERNET OPERATIONS. We rely on the
cooperation of owners and operators of other Internet sites in connection with
the operation of its Internet sites and services. There can be no assurance that
such cooperation will be available on acceptable commercial terms or at all. Our
ability to develop original and compelling Internet content and service is also
dependent on maintaining relationships with and using products provided by third
party vendors of Internet development tools and technologies, such as:
o Macromedia's Shockwave
o Microsoft's ActiveX
o Progressive Networks' RealAudio
o Sun Microsystems' Java
Our ability to advertise on other Internet sites and the willingness of the
owners of such sites to direct users to our Internet sites through hypertext
links are also critical to the success of our Internet operations. Other
Internet sites, particularly search engines, directories and other navigational
tools managed by Internet service providers and Web browser companies,
significantly affect traffic to our technology sites. Developing and maintaining
satisfactory relationships with third parties could become more difficult and
more expensive as competition increases. If we are unable to develop and
maintain satisfactory relationships with such third parties on acceptable
commercial terms, or if our competitors are better able to leverage such
relationships, our business, prospects, financial condition and operating
results will be materially adversely affected.
WE HAVE RISKS ASSOCIATED WITH OUR POTENTIAL ACQUISITIONS AND INVESTMENTS.
From time to time, we consider new business opportunities and ventures,
including acquisitions, in a broad range of areas. Any decision by us to pursue
a significant business expansion or new business opportunity would likely
require a substantial investment of capital, which could have a material adverse
effect on our financial condition and its ability to implement its existing
business strategy or the issuance of equity interests in us, which would be
dilutive to our common stock holders. Such an investment could also result in
operating losses for us. In addition, we may encounter significant competition
for acquisitions, which could lead to acquisition prices that we do not consider
acceptable. Further, the pursuit of expansion or new business opportunities
would place additional, substantial burdens on our management personnel and its
financial and operational systems. There can be no assurance that any new
Internet site or service or other new business venture would be developed in a
cost effective or timely manner or would achieve market acceptance, or that we
will have sufficient capital resources available for investment. Any such
venture that is not favorably received by consumers could damage our reputation
or the CNET brand. There can be no assurance that any significant business
expansion or new business opportunity would ever be profitable, and a failure by
us to recover the substantial investment required could have a material adverse
effect on our business, prospects, financial condition and operating results.
WE HAVE RISKS ASSOCIATED WITH BUSINESS COMBINATIONS AND STRATEGIC
ALLIANCES. We may choose to expand our operations or market presence by entering
into agreements, business combinations, investments, joint ventures or other
strategic alliances with third parties, such as our agreement with America
Online, or our joint venture with an affiliate of NBC to operate our snap.
Internet portal service. Any such transaction will be accompanied by risks
commonly encountered in such transactions, which include, among others:
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<PAGE> 15
o the difficulty of assimilating the operations
o technology and personnel of the combined companies
o the potential disruption of our ongoing business
o the possible inability to retain key technical and managerial
personnel
o the potential inability of our management to maximize our
financial and strategic position through the successful
integration of acquired traffic and businesses
o additional expenses associated with amortization of goodwill and
other purchased intangible assets
o additional operating losses and expenses associated with the
activities and expansion of acquired businesses
o the maintenance of uniform standards, controls and policies
o the possible impairment of relationships with existing employees
and advertising customers
There can be no assurance that we will be successful in overcoming these risks
or any other problems encountered in connection with such business combination,
investments, joint ventures or other strategic alliances, or that such
transactions will not have a material adverse effect on our business, prospects,
financial condition and operating results.
WE ARE DEPENDENT ON INTELLECTUAL PROPERTY RIGHTS AND OTHERS MAY INFRINGE
UPON THOSE RIGHTS. Our success and ability to compete is dependent in part on
the protection of our original content for the Internet and television and on
the goodwill associated with our trademarks, trade names, service marks and
other proprietary rights. We rely on copyright laws to protect the original
content that we develop for the Internet and television, including our editorial
features and the various databases of information that we maintain and make
available through our Internet sites. In addition, we rely on federal trademark
laws to provide additional protection for the appearance of our Internet sites.
A substantial amount of uncertainty exists concerning the application of
copyright and trademark laws to the Internet, and there can be no assurance that
existing laws will provide adequate protection for our original content or its
Internet domain names. In addition, because copyright laws do not prohibit
independent development of similar content, there can be no assurance that
copyright laws will provide any competitive advantage to us.
We own two Federal trademark registrations for the name "CNET" for use in
connection with certain software applications and consulting services that it
acquired by assignment. We have filed applications to register a number of our
trademarks and service marks, including the name "CNET" and the related logo and
the names CNET.COM, SHAREWARE.COM, SEARCH.COM and DOWNLOAD.COM, but no federal
registrations have been granted for such names or marks. We also assert common
law protection on certain names and marks that we have used in connection with
our business activities. Two third parties objected to our application to
register the service mark "CNET: the computer network," and, in connection with
one of these objections, we agreed not to use such mark for any real estate or
insurance related services. We are also a defendant in pending litigation
concerning its use of the name "Snap". There can be no assurance that we will be
able to secure registration for any of our marks. We have also invested
significant resources in purchasing Internet domain names for existing and
potential Internet sites from the registered owners of such names. There is a
substantial degree of uncertainty concerning the application of federal
trademark law to the protection of Internet domain names, and there can be no
assurance that we will be entitled to use such domain names.
We rely on trade secret and copyright laws to protect the proprietary
technologies that we have developed to manage and improve our Internet sites and
advertising services, but there can be no assurance that such laws will
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provide sufficient protection to us, that others will not develop technologies
that are similar or superior to ours, or that third parties will not copy or
otherwise obtain and use our technologies without authorization. We have filed
patent applications with respect to certain of its software systems, methods and
related technologies, but there can be no assurance that such applications will
be granted or that any future patents will not be challenged, invalidated or
circumvented, or that the rights granted thereunder will provide a competitive
advantage for us. In addition, we rely on certain technology licensed from third
parties, and may be required to license additional technology in the future, for
use in managing its Internet sites and providing related services to users and
advertising customers. Our ability to generate revenues from Internet commerce
may also depend on data encryption and authentication technologies that we may
be required to license from third parties. There can be no assurance that these
third party technology licenses will be available or will continue to be
available to us on acceptable commercial terms or at all. The inability to enter
into and maintain any of these technology licenses could have a material adverse
effect on our business, prospects, financial condition and operating results.
Policing unauthorized use of our proprietary technology and other
intellectual property rights could entail significant expense and could be
difficult or impossible, particularly given the global nature of the Internet
and the fact that the laws of other countries may afford us little or no
effective protection of its intellectual property. In addition, there can be no
assurance that third parties will not bring claims of copyright or trademark
infringement against us or claim that our use of certain technologies violates a
patent. We anticipate an increase in patent infringement claims involving
Internet-related technologies as the number of products and competitors in this
market grows and as related patents are issued. Further, there can be no
assurance that third parties will not claim that we have misappropriated their
creative ideas or formats or otherwise infringed upon their proprietary rights
in connection with our Internet content or television programming. Any claims of
infringement, with or without merit, could:
o be time consuming to defend
o result in costly litigation
o divert management attention
o require us to enter into costly royalty or licensing arrangements
o prevent us from using important technologies or methods
Any of these could have a material adverse effect on our business, prospects,
financial condition and operating results.
WE HAVE RISKS ASSOCIATED WITH DOMAIN NAMES. We currently hold various Web
domain names relating to our brand and sites. The acquisition and maintenance of
domain names generally is regulated by governmental agencies and their
designees. For example, in the United States, the National Science Foundation
has appointed Network Solutions, Inc. as the current exclusive registrar for the
".com," ".net" and ".org" generic top-level domains. The regulation of domain
names in the United States and in foreign countries is subject to change.
Governing bodies may establish additional top-level domains, appoint additional
domain name registrars or modify the requirements for holding domain names. As a
result, there can be no assurance that we will be able to acquire or maintain
relevant domain names in all countries in which it conducts business.
Furthermore, the relationship between regulations governing domain names and
laws protecting trademarks and similar proprietary rights is unclear. We,
therefore, may be unable to prevent third parties from acquiring domain names
that are similar to, or infringe upon or otherwise decrease the value of its
trademarks and other proprietary rights. Any such inability could have a
material adverse effect on our business, prospects, financial condition and
operating results.
WE ARE SUBJECT TO GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES. Although
there are currently few laws and regulations directly applicable to the
Internet, a range of new laws and regulations have been proposed, and could be
adopted, covering issues such as privacy, copyrights, obscene or indecent
communications and the
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pricing, characteristics and quality of Internet products and services. During
1996, Congress enacted the Communications Decency Act, which, among other
things, purported to impose criminal penalties on anyone that distributes
"obscene" or "indecent" material over the Internet. A number of states have
adopted or proposed similar legislation. Although certain provisions of the act
have been held to be unconstitutional, the manner in which the act and similar
existing or future federal and state laws will ultimately be interpreted and
enforced and their effect on our operations cannot yet be fully determined, such
laws could subject us to substantial liability. For example, we do not and
cannot practically screen the contents of the various Internet sites that are
indexed or accessible through our directories and search engines. Restrictive
laws or regulations could also dampen the growth of the Internet generally and
decrease the acceptance of the Internet as an advertising medium, and could,
thereby, have a material adverse effect on our business, prospects, financial
condition or operating results. Application to the Internet of existing laws and
regulations governing issues such as property ownership, libel and personal
privacy is also subject to substantial uncertainty.
The television industry is subject to extensive regulation at the federal,
state and local levels. In addition, legislative and regulatory proposals under
consideration by Congress and federal agencies may materially affect the
industry and our ability to obtain distribution for its television programming.
There can be no assurance that current or new government laws and
regulations, or the application of existing laws and regulations, will not
subject us to significant liabilities, significantly dampen growth in Internet
usage, prevent us from obtaining distribution for its television programming,
prevent us from offering certain Internet content or services or otherwise cause
a material adverse effect on our business, prospects, financial condition and
operating results.
WE ARE DEPENDENT ON CONTINUED GROWTH IN USE OF THE INTERNET. Rapid growth
in the use of and interest in the Internet is a recent phenomenon, and there can
be no assurance that acceptance and use of the Internet will continue to develop
or that a sufficient base of users will emerge to support our business. Revenues
from our Internet operations will depend largely on the widespread acceptance
and use of the Internet as a source of information and entertainment and as a
vehicle for commerce in goods and services. The Internet may not be accepted as
a viable commercial medium for a number of reasons, including potentially
inadequate development of the necessary network infrastructure, timely
development of enabling technologies or commercial support for Internet-based
advertising. To the extent that the Internet continues to experience an increase
in users, an increase in frequency of use or an increase in the bandwidth
requirements of users, there can be no assurance that the Internet
infrastructure will be able to support the demands placed upon it. In addition,
the Internet could lose its viability as a commercial medium due to delays in
the development or adoption of new standards and protocols required to handle
increased levels of Internet activity, or due to increased government
regulation. Changes in the pricing or quality of, or insufficient availability
of, telecommunications services to support the Internet also could result in
higher prices to end users or slower response times and could adversely affect
use of the Internet generally and of our Internet sites in particular. If use of
the Internet does not continue to grow or grows more slowly than expected, or if
the Internet infrastructure does not effectively support growth that may occur,
our business, prospects, financial condition and operating results would be
materially adversely affected.
WE HAVE CAPACITY CONSTRAINTS THAT MAY LEAD TO SYSTEM DISRUPTIONS. The
satisfactory performance, reliability and availability of our Internet sites and
its network infrastructure are critical to attracting Internet users and
maintaining relationships with advertising customers. Our Internet advertising
revenues are directly related to the number of advertisements delivered by us to
users. System interruptions that result in the unavailability of our Internet
sites or slower response times for users would reduce the number of
advertisements delivered and reduce the attractiveness of our Internet sites to
users and advertisers. We have experienced periodic system interruptions in the
past and believes that such interruptions will continue to occur from time to
time in the future. Additionally, any substantial increase in traffic on our
Internet sites may require us to expand and adapt its network infrastructure. If
we are unable to add additional software and hardware to accommodate increased
traffic on our Internet sites, an unanticipated system disruption could result,
slowing response times. There can be no assurance that we will be able to expand
its network infrastructure on a timely basis to meet increased demand. Any
increase in system interruptions or slower response times resulting from the
foregoing factors could have a material adverse effect on our business,
prospects, financial condition and operating results.
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Our Internet and television operations are vulnerable to interruption by
fire, earthquake, power loss, telecommunications failure and other events beyond
the our control. All of our servers and television production equipment is
currently located in San Francisco, California, an area that is susceptible to
earthquakes. Since launching its first Internet site in June 1995, we have
experienced system downtime for limited periods of up to a few hours due to
power loss and telecommunications failures, and there can be no assurance that
interruptions in service will not materially adversely affect our operations in
the future. We do not carry sufficient business interruption insurance to
compensate us for losses that may occur, and any losses or damages incurred by
us could have a material adverse effect on our business, prospects, financial
condition and operating results.
WE MAY BE LIABLE FOR OUR INTERNET AND TELEVISION CONTENT. As a publisher
and a distributor of content over the Internet and television, we also face
potential liability for defamation, negligence, copyright, patent or trademark
infringement and other claims based on the nature and content of the materials
that we publish or distribute. Such claims have been brought, and sometimes
successfully pressed, against online services. In addition, we could be exposed
to liability with respect to material indexed or offered on our sites. Although
we carries general liability insurance, our insurance may not cover potential
claims of this type or may not be adequate to indemnify us for all liability
that may be imposed. Any imposition of liability that is not covered by
insurance or is in excess of insurance coverage could have a material adverse
effect on our business, prospects, financial condition and operating results.
WE HAVE SECURITY RISKS. A party who is able to circumvent our security
measures could misappropriate proprietary information or cause interruptions in
our Internet operations. We may be required to expend significant capital and
resources to protect against the threat of such security breaches or to
alleviate problems caused by such breaches. For example, so-called "spiders"
have and can be used in efforts to copy our data bases, including its data base
of technology products and prices.
Concerns over the security of Internet transactions and the privacy of
users may also inhibit the growth of the Internet generally, particularly as a
means of conducting commercial transactions. To the extent that activities of us
or third party contractors involve the storage and transmission of proprietary
information, such as computer software or credit card numbers, security breaches
could expose us to a risk of loss or litigation and possible liability. There
can be no assurance that contractual provisions attempting to limit our
liability in such areas will be successful or enforceable, or that other parties
will accept such contractual provisions as part of our agreements.
WE ARE DEPENDENT ON LICENSED TECHNOLOGY. We rely on certain technology
licensed from third parties, and there can be no assurance that these third
party technology licenses will be available or will continue to be available to
us on acceptable commercial terms or at all.
AVAILABILITY OF SIGNIFICANT AMOUNTS OF COMMON STOCK FOR SALE COULD
ADVERSELY AFFECT OUR STOCK PRICE. All of the 78,577 shares of common stock that
the selling shareholders are offering to you will be eligible for immediate
resale in the public market without restriction, except for any of these shares
that are acquired by an affiliate of ours. As of December 31, 1998, we had
17,059,974 shares of our common stock outstanding, excluding:
o 2,553,941 shares subject to options outstanding as of December 31,
1998 under our stock option plans (exercisable at prices ranging
from $1.20 to $68.50 per share)
o 149,950 shares of our common stock issuable pursuant to warrants
(exercisable at prices ranging from $2.41 to $31.73 per share)
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We believe that substantially all of these shares of common stock will be
freely tradable under the federal securities laws following this offering,
subject to limitations. These limitations include vesting provisions in option
agreements and volume and manner of sale restrictions under Rule 144 of the
Securities Act of 1933. The future sale of a substantial number of shares of
common stock in the public market following this offering, or the perception
that such sales could occur, could adversely affect the prevailing market price
of our common stock.
PAYMENT OF CASH DIVIDENDS. We have never paid cash dividends on our common
stock. Our board of directors will determine future dividend policy based on the
our results of operations, financial conditions, capital requirements and other
circumstances. It is not anticipated that any cash dividends will be paid on our
common stock in the foreseeable future.
VOLATILITY OF STOCK PRICE. The trading price of our common stock is subject
to wide fluctuations. For example, during the 52-week period ended February 12,
1999, the reported price of our common stock on Nasdaq was as high as $154.75
and as low as $25.25 per share. Trading prices of our common stock may fluctuate
in response to a number of events and factors, such as:
o quarterly variations in operating results
o announcements of innovations
o new products, strategic developments or business combinations by
us or our competitors
o changes in our expected operating expense levels or losses
o changes in financial estimates and recommendations of securities
analysts
o the operating and securities price performance of other companies
that investors may deem comparable to us
o news reports relating to trends in the Internet
other events or factors many of which are beyond our control. In addition, the
stock market in general, and the market prices for Internet-related companies in
particular, have experienced extreme volatility that often has been unrelated to
the operating performance of such companies. These broad market and industry
fluctuations may adversely affect the trading price of our common stock,
regardless of our operating performance.
YEAR 2000 COMPLIANCE. We are aware of the issues associated with the
programming code and embedded technology in existing systems as the year 2000
approaches. The "Year 2000 Issue" arises from the potential for computers to
fail or operate incorrectly because their programs incorrectly interpret the two
digit date fields "00" as 1900 or some other year, rather than the year 2000.
The year 2000 issue creates risk for us from unforeseen problems in its own
computer systems and from third parties, including customers, vendors and
manufacturers, with whom we deal. Failures of our and/or third parties' computer
systems could result in an interruption in, or a failure of certain normal
business activities or operations. Such failures could materially and adversely
affect our business, prospects, financial condition and operating results.
To mitigate this risk, we have established a formal year 2000 program to
oversee and coordinate the assessment, remediation, testing and reporting
activities related to this issue. We are currently in the assessment phase of
our year 2000 program. As part of this assessment, the following persons will be
reviewed to determine if they are year 2000 compliant:
o our application systems (e.g., financial systems, various
custom-developed business applications)
o technology infrastructure (e.g., networks, servers, desktop
equipment)
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o facilities (e.g., security systems, fire alarm systems)
o vendors/partners and products
This review will include:
o the collection of documentation from software and hardware
manufacturers
o the detailed review of programming code for custom applications
o the physical testing of desktop equipment using software designed
to test for year 2000 compliance
o the examination of key vendors'/partners' year 2000 programs
o the ongoing testing of our products as part of normal quality
assurance activities
We have not made estimates for the costs associated with completing our
year 2000 program, but will do so after completion of the assessment phase of
the project. Costs incurred to date have not been material. There can be no
assurance that we will not experience serious unanticipated negative
consequences and/or additional material costs caused by undetected errors or
defects in the technology used in its internal systems, or by failures of its
vendors/partners to address their year 2000 issues in a timely and effective
manner.
Should miscalculations or other operational errors occur as a result of the
year 2000 issue, we or the parties on which we depend may be unable to produce
reliable information or to process routine transactions. Furthermore, in the
worst case, we or the parties on which we depend may, for an extended period of
time, be incapable of conducting critical business activities which include, but
are not limited to, the production and delivery of our Internet sites, invoicing
customers and paying vendors, which could have a material adverse effect on our
business, prospects, financial condition and operating results.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Instead of repeating information in this prospectus that we have
already filed with the SEC, SEC rules permit us to "incorporate by reference"
the information we file with them. These rules mean that we can disclose
important information to you by referring you to those documents that we have
previously filed with the SEC. The information incorporated by reference is
considered to be part of this prospectus, and information that we later file
with the SEC will automatically update and supersede the information in this
prospectus. We incorporate by reference the documents listed below and any
future filings we make with the SEC under Sections 13(a), 13(c), 14, or 15(d) of
the Securities Exchange Act of 1934 until we sell all of our shares offered by
this prospectus.
o Our Annual Report on Form 10-K for the fiscal year ended December
31, 1997;
o Our Quarterly Reports on Form 10-Q (that contain unaudited
consolidated financial statements) for the fiscal quarters ended
March 31, 1998, June 30, 1998 and September 30, 1998;
o Our Reports on Form 8-K filed May 22, 1998, June 15, 1998 and July
15, 1998;
o Our Proxy Statement dated April 30, 1998; and
o The description of our common stock contained in our Registration
Statement on Form 8-A filed on June 17, 1996, including any
amendments or reports filed for the purpose of updating such
description.
WHERE YOU CAN GET MORE INFORMATION
We have filed a registration statement with the SEC to register the
common stock that the selling shareholders are offering to you. This prospectus
is part of that registration statement. As allowed by the SEC's rules, we have
not included in this prospectus all of the information that is included in the
registration statement. At your request, we will provide you, without charge,
with a copy of the registration statement or any of the exhibits to the
registration statement. If you want more information, write or call us at:
CNET, Inc.
150 Chestnut Street
San Francisco, California 94111
Telephone: (415) 395-7800
Attention: Chief Financial Officer
Our fiscal year ends December 31. We furnish our stockholders with
annual reports containing audited financial statements and other appropriate
reports. In addition, we file annual, quarterly and current reports, proxy
statements and other information with the SEC. You may read and copy any
reports, statements or other information we file at the SEC's public reference
room at 450 Fifth Street, N.W., Washington, D.C. 20549. You can request copies
of those documents, upon payment of a duplicating fee, by writing to the SEC.
Please call the SEC at 1-800-SEC-0330 for further information on the operation
of the public reference rooms. The SEC maintains an Internet site that contains
reports, proxy and information statements and other information regarding
issuers that file electronically, such as us, at http://www.sec.gov.
----------------------------
Information contained on our Internet network will not be deemed to be
part of this prospectus.
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SELLING SHAREHOLDERS
The table below sets forth information with respect to the beneficial
ownership of our common stock by the selling shareholders immediately prior to
this offering and as adjusted to reflect the sale of shares our common stock
pursuant to the offering. All information with respect to the beneficial
ownership has been furnished by the respective selling shareholders. Percentages
are based on the 17,059,974 shares of Common Stock outstanding on December 31,
1998.
<TABLE>
<CAPTION>
Beneficial Ownership Beneficial Ownership
Prior to Offering After Offering
------------------------------------------- --------------------------
Number of Percent of Shares to Number of Percent of
Name of Beneficial Owner Shares Class be Sold Shares Class
- ------------------------ --------- ---------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
James Nicholson 48,137 0.282% 24,069 24,068 0.141%
Ilan Reuben 48,137 0.282% 24,069 24,068 0.141%
Steve Boom 3,375 0.02% 1,688 1,687 0.01%
CNA Trust FBO Steve Boom 577 0.003% 289 288 0.002%
Abe Reuben 915 0.005% 458 457 0.003%
Ana Maria Nicholson 669 0.004% 335 334 0.002%
Dick Schwarz 445 0.002% 223 222 0.001%
Peter Nicholson 219 0.001% 110 109 0.0005%
Thomas Randell 1,128 0.007% 564 564 0.003%
Nihad Hafiz 40,157 0.235% 20,079 20,078 0.118%
Denny Chittick 13,386 0.078% 6,693 6,693 0.039%
</TABLE>
19
<PAGE> 23
PLAN OF DISTRIBUTION
The sale of the shares offered in this prospectus may be effected from
time to time directly or by one or more broker-dealers or agents in one or more
transactions on the Nasdaq National Market, in negotiated transactions, or
through a combination of such methods of distribution, at prices related to
prevailing market prices or at negotiated prices.
In the event one or more broker-dealers or agents agree to sell the
shares, they may do so by purchasing the shares as principals or by selling the
shares as agent for the selling shareholders. Any such broker-dealers may
receive compensation in the form of discounts, concessions, or commissions from
the selling shareholders or the purchasers of the shares for which such
broker-dealer may act as agent or to whom they sell as principal, or both (which
compensation as to a particular broker-dealer may be in excess of customary
compensation).
Under applicable rules and regulations under the Exchange Act, any
person engaged in a distribution of the shares may not simultaneously engage in
market-making activities with respect to our common stock for the applicable
period under Regulation M of the Exchange Act prior to the commencement of such
distribution. In addition and without limiting the foregoing, the selling
shareholders will be subject to applicable provisions of the Exchange Act and
the rules and regulations thereunder, including, without limitation, Regulation
M, which provisions may limit the timing of purchases and sales of the shares by
the selling shareholders. All of the foregoing may affect the marketability of
the shares.
In order to comply with certain states' securities laws, if applicable,
our common stock will be sold in such jurisdictions only through registered or
licensed brokers or dealers. In certain states, our common stock may not be sold
unless it has been registered or qualified for sale in such state or an
exemption from registration or qualification is available and is complied with.
No dealer, salesperson or other person is authorized to give any
information or to represent anything not contained in this prospectus. You must
not rely on any unauthorized information or representations. This prospectus is
an offer to sell only the shares offered hereby, but only under the
circumstances and in jurisdictions where it is lawful to do so. The information
contained in this prospectus is current only as of its date.
USE OF PROCEEDS
We will not receive any proceeds from the offering.
LEGAL MATTERS
The validity of the shares offered in this prospectus will be passed
upon for us by Hughes & Luce, L.L.P., Dallas, Texas.
EXPERTS
The consolidated financial statements of the Company as of December 31,
1997 and 1996, and for each of the years in the three-year period ended December
31, 1997, have been incorporated by reference herein and in the registration
statement in reliance upon the report of KPMG LLP, independent certified public
accountants, incorporated by reference herein, and upon the authority of said
firm as experts in accounting and auditing.
20
<PAGE> 24
PART II
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<S> <C>
Registration fee $ 2,505
Accounting fees and expenses 2,500*
Legal fees and expenses 5,000*
Miscellaneous expenses 5,000*
--------
Total: $ 15,005
--------
</TABLE>
- ---------------
* Estimated
All of the above expenses will be paid by the Company.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Amended and Restated Certificate of Incorporation and
Amended and Restated Bylaws provide that officers and directors who are made a
party to or are threatened to be made a party to or is otherwise involved in any
action, suit, or proceeding, whether civil, criminal, administrative, or
investigative (hereinafter a "proceeding"), by reason of the fact that he or she
is or was an officer or a director of the Company or is or was serving at the
request of the Company as a director or an officer of another entity shall be
indemnified and held harmless by the Company to the fullest extent authorized by
the Delaware General Corporation Law ("DGCL") against all expense, liability,
and loss reasonably incurred or suffered by such person in connection therewith.
The right to indemnification includes the right to be paid by the Company for
expenses incurred in defending any such proceeding in advance of its final
disposition. Officers and directors are not entitled to indemnification if such
persons did not meet the applicable standard of conduct set forth in the DGCL
for officers and directors.
DGCL Section 145 provides, among other things, that the Company may
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding (other than
an action by or in the right of the Company) by reason of the fact that he is or
was a director, officer, agent or employee of the Company or who serves or
served at the Company's request as a director, officer, agent, employee, partner
or trustee of another corporation or of a partnership, joint venture, trust or
other enterprise, against expenses, including attorneys' fees, judgments, fines
and amounts paid in settlement actually and reasonably incurred in connection
with such action, suit or proceeding. The power to indemnify applies (a) if such
person is successful on the merits or otherwise in defense of any action, suit
or proceeding, or (b) if such person acted in good faith and in a manner he
reasonably believed to be in the best interest, or not opposed to the best
interest, of the Company and with respect to any criminal action or proceeding,
had no reasonable cause to believe his conduct was unlawful. The power to
indemnify applies to actions brought by or in the right of the Company as well,
but only to the extent of defense expenses (including attorneys' fees but
excluding amounts paid in settlement) actually and reasonably incurred and not
to any satisfaction of a judgment or settlement of the claim itself, and with
the further limitation that in such actions no indemnification shall be made in
the event of any adjudication of negligence or misconduct in the performance of
his duties to the Company, unless the court believes that in light of all the
circumstances indemnification should apply.
The indemnification provisions contained in the Company's Certificate
of Incorporation are not exclusive of any other rights to which a person may be
entitled by law, agreement, vote of stockholders or disinterested directors or
otherwise. In addition, the Company maintains insurance on behalf of its
directors and executive officers insuring them against any liability asserted
against them in their capacities as directors or officers or arising out of such
status.
ITEM 16. EXHIBITS.
The Exhibits to this Registration Statement are listed in the Index to
Exhibits on page II-6 of this Registration Statement, which Index is
incorporated herein by reference.
II-1
<PAGE> 25
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act.
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or
decrease in the volume of securities offered (if the total
dollar value of securities offered would not exceed that which
was registered) and any deviation from the low or high and of
the estimated maximum offering range may be reflected in the
form of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price
represent no more than 20 percent change in the maximum
aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration
statement.
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement.
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not
apply if the registration statement is on Form S-3, Form S-8 or Form
F-3, and the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports filed by
the registrant pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
(b) The undersigned registrant hereby undertakes that, for
purposes of determining any liability under the Securities Act of 1933, each
filing of the registrant's annual report pursuant to Section 13(a) or 15(d) of
the Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in this
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question
II-2
<PAGE> 26
whether such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-3
<PAGE> 27
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of San Francisco, State of California, on February 26,
1999.
CNET, INC.
<TABLE>
<S> <C>
By: /s/ SHELBY W. BONNIE
----------------------------------------------------
Shelby W. Bonnie,
Executive Vice President, Chief Operating Officer
and Secretary
By: /s/ DOUGLAS N. WOODRUM
----------------------------------------------------
Douglas N. Woodrum,
Executive Vice President, Chief Financial Officer
and Chief Accounting Officer
</TABLE>
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ HALSEY M. MINOR Chairman of the Board, President February 26, 1999
- -------------------------------- and Chief Executive Officer
Halsey M. Minor
/s/ SHELBY W. BONNIE Director, Executive Vice President, February 26, 1999
- -------------------------------- Chief Operating Officer and Secretary
Shelby W. Bonnie
/s/ DOUGLAS N. WOODRUM Director, Executive Vice President and February 26, 1999
- -------------------------------- Chief Financial Officer
Douglas N. Woodrum
/s/ ERIC ROBISON Director February 26, 1999
- --------------------------------
Eric Robison
Director
- --------------------------------
Douglas Hamilton
/s/ MITCHELL KERTZMAN Director February 26, 1999
- --------------------------------
Mitchell Kertzman
Director
- --------------------------------
John C. Colligan
</TABLE>
II-4
<PAGE> 28
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and
appoints Shelby W. Bonnie and Douglas N. Woodrum his or her true and lawful
attorney-in-fact and agent with full power of substitution and resubstitution,
for him or her and in his or her name, place, and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, and hereby grants to such attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and necessary
to be done, as fully to all intents and purposes as he or she might or could do
in person, hereby ratifying and confirming all that said attorney-in-fact and
agent or his substitute or substitutes may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act, this Registration
Statement or amendment thereto has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ HALSEY M. MINOR Chairman of the Board, President February 26, 1999
- -------------------------------- and Chief Executive Officer
Halsey M. Minor
/s/ SHELBY W. BONNIE Director, Executive Vice President, February 26, 1999
- -------------------------------- Chief Operating Officer and Secretary
Shelby W. Bonnie
/s/ DOUGLAS N. WOODRUM Director, Executive Vice President and February 26, 1999
- -------------------------------- Chief Financial Officer
Douglas N. Woodrum
/s/ ERIC ROBISON Director February 26, 1999
- --------------------------------
Eric Robison
Director
- --------------------------------
Douglas Hamilton
/s/ MITCHELL KERTZMAN Director February 26, 1999
- --------------------------------
Mitchell Kertzman
Director
- --------------------------------
John C. Colligan
</TABLE>
II-5
<PAGE> 29
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibits
- ------ -----------------------
<S> <C>
5.1 Opinion of Hughes & Luce, L.L.P.
23.1 Consent of Hughes & Luce, L.L.P. (included in Exhibit 5.1)
23.2 Consent of KPMG LLP
24.1 Power of Attorney (included in Part II of this registration statement)
</TABLE>
II-6
<PAGE> 1
EXHIBITS 5.1 AND 23.1
[Hughes & Luce, L.L.P. Letterhead]
February 26, 1999
CNET, Inc.
150 Chestnut Street
San Francisco, California 94111
Ladies and Gentlemen:
We have acted as counsel to CNET, Inc., a Delaware corporation (the
"Company"), in connection with the registration under the Securities Act of
1933, as amended (the "Securities Act"), of 78,577 shares (the "Shares") of the
Company's common stock, par value $.0001 per share, issued pursuant to that
certain Agreement and Plan of Merger dated as of February 2, 1999, by and among
the Company, Netventures, Inc. and the stockholders of Netventures, Inc. and
that certain Agreement and Plan of Merger dated as of February 19, 1999, by and
among the Company, AuctionGate Interactive, Inc. and the stockholders of
AuctionGate Interactive, Inc., as described in the Registration Statement of the
Company on Form S-3 (the "Registration Statement") filed with the Securities and
Exchange Commission.
In rendering this opinion, we have examined and relied upon executed
originals, counterparts, or copies of such documents, records, and certificates
(including certificates of public officials and officers of the Company) as we
considered necessary or appropriate for enabling us to express the opinions set
forth herein. In all such examinations, we have assumed the authenticity and
completeness of all documents submitted to us as originals and the conformity to
originals and completeness of all documents submitted to us as photostatic,
conformed, notarized, or certified copies.
Based on the foregoing, we are of the opinion that the Shares have been
duly authorized and are validly issued, fully paid and nonassessable.
This opinion may be filed as an exhibit to the Registration Statement.
We also consent to the reference to this firm as having passed on the validity
of such Shares under the caption "Legal Matters" in the prospectus that
constitutes a part of the Registration Statement. In giving this consent, we do
not admit that we are included in the category of persons whose consent is
required under Section 7 of the Securities Act or the rules and regulations of
the Securities and Exchange Commission promulgated thereunder.
Very truly yours,
HUGHES & LUCE, L.L.P.
II-7
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the use of our reports incorporated herein by reference
and to the reference to our firm under the heading "Experts" in the registration
statement.
KPMG LLP
San Francisco, California
February 26, 1999
