UNITED STATES
SECURITIES & EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------
FORM 10-Q
(Mark One)
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
- ---- Exchange Act of 1934. For the quarterly period ended March 31, 1999
Transition report pursuant to Section 13 or 15(d) of the Securities
- ---- Exchange Act of 1934. For the transition period from _____________
to _____________.
Commission File Number 000-20873
CONNECT, INC.
(Exact name of registrant as specified in its charter)
Delaware 77-0431045
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
515 Ellis Street
Mountain View, California 94043-2242
(Address of principal executive offices) (Zip code)
(650) 254-4000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [_]
As of April 30, 1999 there were 14,818,589 shares of the Registrant's Common
Stock outstanding.
<PAGE>
CONNECT, INC.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited)
Condensed Balance Sheets as of
March 31, 1999 and December 31, 1998
Condensed Statements of Operations for the three months
ended March 31, 1999 and 1998
Condensed Statements of Cash Flows for the
three months ended March 31, 1999 and 1998
Notes to Condensed Financial Statements
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
ITEM 2 Changes in Securities and Use of Proceeds
ITEM 3 Defaults Upon Senior Securities
ITEM 4. Submission of Matters to Vote of Security Holders
ITEM 5. Other Information
ITEM 6. Exhibits and Reports on Form 8-K
SIGNATURES
<PAGE>
PART I
ITEM 1. FINANCIAL STATEMENTS
CONNECT, INC.
CONDENSED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................... $6,707 $3,965
Accounts receivable, less allowances for doubtful
accounts of $111, at March 31, 1999 and
$162 at December 31, 1998......................... 1,412 613
Prepaid expenses and other current assets........... 247 212
------------ ------------
Total current assets.................................. 8,366 4,790
Property and equipment, net........................... 569 609
Deposits and other assets............................. 47 54
------------ ------------
Total assets.................................. $8,982 $5,453
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable....................................... $709 $834
Accounts payable.................................... 838 707
Accrued payroll and related expenses................ 170 167
Other accrued liabilities........................... 578 857
Deferred revenue.................................... 74 415
Current portion of extended vendor liabilities...... 192 282
------------ ------------
Total current liabilities............................. 2,561 3,262
Notes payable......................................... 192 245
Commitments and contingencies
Stockholders' equity:
Preferred Stock:
Authorized shares--35,000,000. Issued and
outstanding shares--none.......................... -- --
Common Stock: $.001 par value. Authorized
shares--60,000,000. Issued and outstanding
shares--14,796,675 at March 31, 1999
and 13,213,801 at December 31, 1998............... 15 13
Additional paid-in capital.......................... 75,450 71,454
Deferred compensation............................... (49) (60)
Accumulated deficit................................. (69,187) (69,461)
------------ ------------
Total stockholders' equity............................ 6,229 1,946
------------ ------------
Total liabilities and stockholders' equity............ $8,982 $5,453
============ ============
</TABLE>
See accompanying notes.
<PAGE>
CONNECT, INC.
CONDENSED STATEMENTS OF OPERATIONS
(in thousands, except share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------
1999 1998
--------- ---------
<S> <C> <C>
Revenue:
License............................. $675 $1,025
Service............................. 1,351 1,227
--------- ---------
Total revenue..................... 2,026 2,252
--------- ---------
Cost of revenue:
License............................. 60 178
Service............................. 843 1,402
--------- ---------
Total cost of revenue............. 903 1,580
--------- ---------
Gross profit...................... 1,123 672
--------- ---------
Operating expenses:
Research and development............ 221 1,311
Sales and marketing................. 35 1,440
General and administrative.......... 667 796
--------- ---------
Total operating expenses.......... 923 3,547
--------- ---------
Income (loss) from operations......... 200 (2,875)
Interest expense...................... (32) (222)
Interest and other income, net........ 106 147
--------- ---------
Income (loss) before income taxes..... 274 (2,950)
Provision (benefit) for income taxes.. -- --
--------- ---------
Net income (loss)..................... $274 ($2,950)
========= =========
Basic and diluted net income
(loss) per share.................... $0.02 ($0.73)
========= =========
Shares used to compute net income
(loss) per share - basic............ 14,398 3,987
========= =========
Shares used to compute net income
(loss) per share - diluted.......... 15,894 3,987
========= =========
</TABLE>
See accompanying notes.
<PAGE>
CONNECT, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------
1999 1998
--------- ---------
<S> <C> <C>
Operating activities:
Net income (loss)........................................ $274 ($2,950)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization......................... 123 426
Amortization of deferred compensation................. 11 11
Changes in operating assets and liabilities:
Accounts receivable................................. (799) 498
Prepaid expenses and other current assets........... (35) 181
Other assets........................................ 7 12
Accounts payable, accrued payroll and related
expenses, other accrued liabilities, and
extended vendor liabilities......................... (235) (55)
Deferred revenue.................................... (341) 262
--------- ---------
Net cash used in operating activities................. (995) (1,615)
--------- ---------
Investing activities:
Purchases of property and equipment...................... (83) (183)
--------- ---------
Net cash used in investing activities................. (83) (183)
--------- ---------
Financing activities:
Proceeds from issuance of common stock................... 3,999 --
Cost associated with issuance of convertible
preferred stock........................................ -- (133)
Repayment of principal on notes payable.................. (179) (141)
--------- ---------
Net cash provided (used) by financing activities...... 3,820 (274)
--------- ---------
Net increase (decrease) in cash and cash equivalents..... 2,742 (2,072)
Cash and cash equivalents at beginning of period......... 3,965 9,644
--------- ---------
Cash and cash equivalents at end of period............ $6,707 $7,572
========= =========
Supplemental disclosure of cash flow information
Cash paid for interest................................... $32 $222
Cash paid for income taxes............................... $2 --
Supplemental noncash financing information
Conversion of convertible notes into preferred
stock and common stock.................................. -- $9,654
========= =========
</TABLE>
See accompanying notes.
<PAGE>
CONNECT, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
1) THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. The
financial information should be read in conjunction with the financial
statements and notes thereto included in CONNECT, Inc.'s ("CONNECT" or
the "Company") Annual Report on Form 10-K for the fiscal year ended
December 31, 1998, as amended (the "Annual Report"). The results of
operations for the three months ended March 31, 1999 are not necessarily
indicative of the results that may be expected for the full fiscal year
or for any future periods. Certain prior year amounts previously
reported have been reclassified to conform to 1999 presentation.
2) NET INCOME (LOSS) PER SHARE
Basic and diluted net earnings per share is based on the weighted
average number of shares of Common stock outstanding during the period
presented, in accordance with Statement of Financial Accounting Standards
No. 128 (earnings per share). The following table sets forth the
calculations underlying the Company's basic and diluted net income (loss)
per share for the periods presented.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
(in thousands, except per -------------------
share data; Unaudited) 1999 1998
--------- ---------
<S> <C> <C>
BASIC NET INCOME (LOSS) PER SHARE:
Net income loss....................... $274 ($2,950)
========= =========
Weighted average number of common
shares outstanding during the
period.............................. 14,398 3,987
========= =========
Basic net income (loss) per share..... $0.02 ($0.73)
========= =========
DILUTED NET INCOME (LOSS) PER SHARE:
Net income loss....................... $274 ($2,950)
========= =========
Weighted average number of common
shares outstanding during the
period.............................. 14,398 3,987
Shares issuable from assumed
exercise of options................. 1,586 --
--------- ---------
Total shares for purpose of
calculating diluted net income
(loss) per share..................... 15,984 3,987
========= =========
Diluted net income (loss) per share... $0.02 ($0.73)
========= =========
</TABLE>
3) PRIVATE PLACEMENT
On January 22, 1999, the Company completed a private placement of 1,538,462
shares of common stock at $2.60 per share. The Company received net proceeds
of approximately $4.0 million.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This report contains, in addition to historical information, forward-
looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act
of 1934, as amended, that involve risks and uncertainties. The Company's
actual results could differ materially from the results discussed in the
forward-looking statements. Factors that could cause or contribute to
such differences include, but are not limited to, those discussed under
the caption, "Risk Factors" in the Annual Report, as well as the risks
discussed elsewhere in this Quarterly Report. In particular, such
factors include: the Company's ability to implement and execute its
revised business model focused on software services; acceptance by the
marketplace of the Company's services; the Company's ability to implement
its revised business model with its existing cash resources; the
Company's ability to obtain additional capital on terms favorable to the
Company, or at all; the Company's ability to offer new services to meet
market demand or that incorporate evolving industry standards; the
Company's ability to compete effectively; acceptance of the Internet as a
medium for electronic commerce and order management; the Company's
dependence on the Internet infrastructure; and the Company's dependence
on certain third party software and services vendors. Readers are
cautioned not to place undue reliance on these forward-looking
statements, which may be made to reflect events or circumstances after
the date hereof or to reflect the occurrence of unanticipated events.
Readers should carefully review the risk factors described in other
documents the Company files from time to time with the Securities and
Exchange Commission, including, the Annual Report on Form 10-K, the
Quarterly Reports on Form 10-Q, and any Current Reports on Form 8-K filed
by the Company.
OVERVIEW
The Company provides integration solutions to enable its customers to
engage in Internet-based electronic commerce and extend their businesses
through the emerging network supply chain. The Company's MarketStream
software applications and Web time-driven professional services are
designed to enable corporations to build open, multi-vendor e-business
solutions that help them to compete effectively in the digital economy
using best-of-breed technologies. The Company utilizes innovative
methodologies and advanced technical expertise to conceptualize, design,
develop and deploy e-business solutions. This process is facilitated by
the use of emerging Internet technologies. This business strategy allows
the Company to leverage its core competencies and deliver to its
customers effective applications and consulting services solutions.
The Company historically designed, developed, marketed and supported
application software for Internet-based interactive commerce. In October
1998, the Company announced a shift in business direction and focus, to
providing Internet systems and systems integration services based on
technologies from both the Company and industry partners. These combined
applications, services and intellectual property strategy is the
Company's "ServiceWare" approach to providing solutions for e-business.
This decision effectively unified the Company's consulting engineering
organization and its software products group into a single consulting
services organization providing Internet systems integration, as well as
extending its current service business to emphasize building cross-
enterprise e-business solutions. Because of this recent shift in
business direction and focus, the Company believes that consecutive
quarter operating results comparisons are more meaningful than
comparisons of the current quarters' results to the prior years' similar
quarter.
During the second half of 1998 the Company executed a number of
strategic initiatives consistent with its new business direction and
focus. These initiatives included reductions in headcount, and other
cost reduction measures, directed at more appropriately aligning expenses
with revenues. Because of these actions, and expectations from the
marketplace, we have begun to expand our operations. This expansion
includes an increase in headcount, during the first quarter of 1999.
Further expansion is anticipated, including growth in our investment in
the sales and marketing functions, as well as the continued growth of our
technology center in the Chicago area.
The first quarter of 1999 was the second consecutive quarter of
profitability. Quarter-over-quarter growth in revenues and profits were
41% and 603%, respectively. The Company also succeeded in securing an
additional equity investment from existing stockholders. This investment
allowed the Company to comply with the "net asset" requirement, imposed
by NASDAQ. Failure to meet this requirement could have led to a "de-
listing" of the Company's stock from the NASDAQ system.
The Company believes that the consolidation of its software offerings
into a single application product (MarketStream), which was accomplished
during the quarter, will enable it to more effectively focus and utilize
its resources. Development was recently completed on a new product
release, MarketStream 2.0. This release creates a product that is both
Unix and Microsoft NT compatible. The Company believes this release
represents a significant step in providing the technology engine and
services required by eCommerce infomediaries. The Company also believes
this offering furthers its strategic objective of reducing time-to-market
and technology risk for supply chain communities.
The Company's prospects are dependent upon the successful acceptance of
its service offerings by the market. In addition, the Company's markets
are new and rapidly evolving, which heightens these risks and
uncertainties. To address these risks, the Company must, among other
things, successfully implement its marketing strategy, respond to
competitive developments, and integrate new technologies and industry
standards into its solutions offerings. There can be no assurance that
the Company will succeed in addressing any or all of these risks. See
"Risk Factors" in the Annual Report, as well as the risks discussed
elsewhere in this Quarterly Report.
RESULTS OF OPERATIONS
Revenue
Total revenue was $2,026,000 for the three months ended March 31, 1999,
compared to $2,252,000 for the comparable period in 1998. For the three
months ended March 31,1999, one customer represented approximately 25% of
total revenue.
License Revenue. License revenue was $675,000 or 33% of total revenue
for the three months ended March 31,1999, compared to $1,025,000, or 45%
of total revenue, for the comparable period in 1998. This decline is due
to the fact that the Company was transitioning its software applications
and developing MarketStream 2.0 during this period.
Service Revenue. Service revenue was $1,351,000, or 67% of total
revenue for the three months ended March 31,1999, compared to $1,227,000,
or 54% of total revenue, for the comparable period in 1998. This
represents an increase of 10%. This services revenue increase was
influenced by the fact that many of the Company's engineers were involved
with the development of the new MarketStream product while simultaneously
working on customer implementations.
Cost of Revenue
Cost of License Revenue. Cost of license revenue includes sub-license
fees. Cost of license revenue was $60,000, or 9% of license revenue, for
the three months ended March 31,1999, compared to $178,000, or 17% of
license revenue for the comparable period in 1998. This decrease
primarily reflects a re-positioning of certain embedded software that
permits it to be included on an as-needed basis rather than automatically
including it with our application software.
Cost of Service Revenue. Cost of service revenue consists of cost of
implementation services, including fees for third-party contract
developers, Company personnel costs, training and customer support costs.
Cost of service revenue was $843,000 or 62% of service revenue for the
three months ended March 31, 1999, compared to $1,402,000, or 114% of
service revenue, for the comparable period in 1998. The improved margins
in 1999 are due to cost reductions in the Company's services business,
the combining of engineering and services resources into one organization,
and the more effective use of fixed price contracts as the primary delivery
vehicle for the Company's services business.
Operating Expenses
Research and Development. Research and development expenses consist
primarily of personnel and equipment costs. Research and development expenses
for the three months ended March 31,1999 were $221,000, or 11% of total
revenue, compared with $1,311,000, or 58% for the comparable period in 1998.
The decline in total research and development expenses is related to staffing
reductions and other cost reduction measures. The Company expects research and
development expenses to remain relatively constant, as a percentage of revenue,
through the remainder of 1999. The Company has introduced a continuous product
improvement process built around its newly developed component-based
architecture. The Company believes that this approach will make it easier to
upgrade and release new application functionality and improvements than it has
been in the past.
Sales and Marketing. Sales and marketing expenses consist primarily of
salaries, commissions of sales and marketing personnel, travel, and
marketing and promotional expenses. Sales and marketing expenses were
$35,000, or 2% of total revenue for the three months ended March 31,1999,
compared with $1,440,000, or 64% of total revenue for the comparable
period in 1998. The decline in total sales and marketing expenses was
attributable to decreased staffing and reductions in marketing
expenditures. For the balance of 1999 the Company expects sales and
marketing costs to increase. The Company has followed a deliberate
strategy of dealing first with financial viability issues, which were a
significant impediment to its sales efforts in the past, and then
focusing on making its new MarketStream 2.0 application ready for market.
In addition, the Company believes that using the Internet as a
significant vehicle for marketing and sales activity is a much more cost
effective mechanism for an Internet Company than traditional direct sales
used in the past. The Company intends to increase its marketing and sales
staffing through the remainder of the year, and will seek additional
strategic business partnerships similar to the recently announced
partnership with IBM.
General and Administrative. General and administrative expenses consist
primarily of salaries of financial, administrative and management
personnel and related travel expenses, as well as legal and accounting
expenses. General and administrative expenses were $667,000, or 33% of
total revenue for the three months ended March 31,1999, compared with
$796,000, or 35% of total revenue for the comparable period in 1998. The
Company expects general and administrative expenses to remain relatively
constant for the remainder of 1999.
Other Income (Expense). Other income (expense) consists primarily of
interest expense and interest income and rental income. Interest
expense, which results principally from interest incurred under notes
payable and capital lease obligations, was $32,000, or 2% of total
revenue for the three months ended March 31, 1999, compared with
$222,000, or 10% of total revenue for the comparable period in 1998.
Interest expense decreased in 1999 from 1998 due to interest associated
with the exchange of the convertible notes in February 1998, previously
issued in November 1997.
Interest and other income was $113,000, or 6% of total revenue for the
three months ended March 31, 1999, compared with $147,000, or 7% of total
revenue for the comparable period in 1998. This decrease is primarily
due to lower cash balances in 1999.
The Company has a tax loss carry forward and is currently incurring
losses for tax purposes. Accordingly, there is no provision for income
taxes.
FACTORS AFFECTING QUARTERLY OPERATING RESULTS
The Company has experienced and expects to continue to experience
significant fluctuations in quarterly operating results that may be
caused by many factors including, among others, the Company's ability to
implement and execute its business strategy, acceptance of MarketStream
2.0, rapid changes in the marketplace, risks related to the management of
growth, the Company's ability to attract, train and retain qualified
personnel, the Company's ability to build its sales and marketing
resources, development and promotional expenses related to the
introduction of its new software releases, changes in technology and
industry standards, changes in the market for the Company's services, the
rate of acceptance of the Company's services, dependence of the Company's
business on the Internet, increased competition, changing of pricing
policies by the Company or its competitors, the timing of receipt and
orders from major customers, dependence on key personnel, proprietary
technology and the inherent difficulties in protecting intellectual
property, dependence on third-party technology, and exposure for product
and professional services liability.
Further, the Company's expense levels are based, in significant part, on
the Company's expectations as to future revenue and are therefore relatively
fixed in the short term. If revenue levels fall below expectations, net
income (loss) is likely to be disproportionately adversely affected because a
proportionately smaller amount of the Company's expenses varies with its
revenue. There can be no assurance that the Company will be able to achieve
profitability on a quarterly or annual basis in the future. Due to all the
foregoing factors, the Company's future operating results may be below the
expectations of securities analysts and investors. In such event, the price
of the Company's common stock would likely be materially adversely affected.
See "Risk Factors - Our Net Revenues and Operating Results may Fluctuate" in
the Company's Annual Report.
YEAR 2000 COMPLIANCE
The Year 2000 issue is the result of computer programs being written
using two digits rather than four to define the applicable year, thus
rendering them incapable of properly managing and manipulating data that
includes both 20th and 21st century dates, the ability to properly manage
and manipulate such data is referred to herein as "Year 2000 Compliant".
In connection with a normal plan of upgrading its computer resources, the
Company has installed or upgraded IT and Non-IT internal systems
in connection with operating its business. The vendors of these systems
generally have represented that their systems are Year 2000 Compliant.
While the Company currently expects that the Year 2000 issue
will not pose significant internal operational problems, delays in the
implementation of new information systems, or a failure to fully identify
all Year 2000 dependencies in the Company's systems, could have a
material adverse effect on the Company's business or results of
operations. The Company has completed all changes required to make
its IT and Non-IT internal systems Year 2000 Compliant.
The Company believes that the most current releases of its software
products are Year 2000 Compliant. The Company has contacted its
customers directly by mail and by posting information on the Company's
web site advising that non-current product releases cannot be certified
as Year 2000 Compliant. The inability of the Company's previously
released products to properly manage and manipulate data in the Year 2000
could result in increased warranty costs and customer satisfaction issues
which could have a material adverse effect on the Company's business,
results of operations or financial condition.
The Company is in the process of developing a contingency plan. This
plan is expected to be in place in the second quarter of 1999. The inability
of the Company to develop and implement a contingency plan could result
in a material adverse impact on the Company. The Company has had
discussions with its suppliers and financial institutions to ensure that
those parties have appropriate plans to remediate Year 2000 issues where
their systems interface with the Company's systems or otherwise impact
its operations. The Company has requested that all significant vendors
give assurance that their programs are Year 2000 Compliant.
The Company has completed upgrading all internal programs and system
interfaces with significant vendors and financial institutions to be Year
2000 Compliant. The Company currently estimates that no additional Year
2000 costs will be incurred to address the Year 2000 Compliance of the
Company's products, internal IT and Non-IT systems and third party system
interfaces, and is subject to change. There can be no assurance that a
third party's failure to ensure Year 2000 compliance would not have an adverse
effect on the Company's operations.
The Company currently estimates that total Year 2000 compliance costs
will not be material. Accordingly, the Company believes it has
sufficient resources for the Year 2000 project from currently available
cash reserves. The cost estimate is based on the current assessment of
the Company's Year 2000 readiness needs and is subject to change.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations to date primarily through the
private and public sale of debt and equity securities and the use of
capitalized leases for equipment financing. The Company had working
capital of $5.8 million at March 31, 1999.
During the three months ended March 31, 1999 and 1998, net cash used in
operating activities was $1.0 million and $1.5 million, respectively.
This was primarily due to a significant increase in accounts receivable and
net losses incurred by the Company.
During the three months ended March 31, 1999 and 1998, the Company used
$83,000 and $183,000, respectively, in investing activities for the
purchase of property and equipment. Net cash provided by financing
activities for the three months ended March 31, 1999 was $3,808,000,
primarily from the sale of common stock. Net cash used by financing
activities for the three months ended March 31, 1998 was $355,000,
primarily from the issuance of convertible preferred stock and repayment
of notes payable.
Although the Company has operated at a profit during the last two
quarters, the Company incurred net losses and experienced significant
negative cash flow from operations from inception through the third
quarter of 1998. As of March 31, 1999, the Company had an accumulated
deficit of $69.2 million. Based upon its current operating plan, the
Company believes it has adequate cash balances to fund its operations
through December 31, 1999. There can be no assurance, however, that the
Company's actual cash requirements will not exceed anticipated levels, or
that the Company will generate sufficient revenue to fund its operations
in the absence of additional funding sources. If additional funds are
raised through the issuance of equity securities, stockholders of the
Company may experience additional dilution, or the securities may have
rights, preferences or privileges senior to those of the Company's common
stock. There can be no assurance that such additional financing will be
available on acceptable terms, if at all. If adequate funds are not
available or are not available on acceptable terms, the Company may be
unable to continue operations, develop or enhance its products, take
advantage of future opportunities or respond to competitive pressures or
other requirements, any of which could have a material adverse effect on
the Company's business, operating results and financial condition.
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable
ITEM 2. CHANGES IN SECURITIES
Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
ITEM 5. OTHER INFORMATION
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
ITEM DESCRIPTION
----- -----------
(27) Financial Data Schedule
b) Report on Form 8-K
1. Form 8-K filed on February 4, 1999.
Item 5. Other Events. (Completed a private placement
of its common stock on January 22, 1999, which
raised approximately $4.0 million.)
2. Form 8-K filed on February 26, 1999.
Item 5. Other events. (In compliance with the
Nasdaq net tangible assets requirements.)
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act
of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
CONNECT, Inc.
Date: May 14,1999 /s/ Craig D. Norris
- ------------------------- -------------------------
Craig D. Norris
President and Chief Executive
Officer
(Principal Executive Officer)
Date: May 14,1999 /s/ Craig D. Norris
- ------------------------- -------------------------
Craig D. Norris
Acting Vice President, Finance &
Administration, and Chief
Financial Officer
(Principal Financial and
Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM CONDENSED CONSOLIDATED BALANCE SHEETS, CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS AND NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 6,707
<SECURITIES> 0
<RECEIVABLES> 1,523
<ALLOWANCES> 111
<INVENTORY> 0
<CURRENT-ASSETS> 8,366
<PP&E> 4,842
<DEPRECIATION> 4,273
<TOTAL-ASSETS> 8,982
<CURRENT-LIABILITIES> 2,561
<BONDS> 0
0
0
<COMMON> 15
<OTHER-SE> 6,214
<TOTAL-LIABILITY-AND-EQUITY> 8,982
<SALES> 675
<TOTAL-REVENUES> 2,026
<CGS> 60
<TOTAL-COSTS> 903
<OTHER-EXPENSES> 923
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 32
<INCOME-PRETAX> 274
<INCOME-TAX> 0
<INCOME-CONTINUING> 274
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<EPS-PRIMARY> 0.02
<EPS-DILUTED> 0.02
</TABLE>
