(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
| Delaware | 13-3696170 | |
| (State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification Number) |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ]
As of July 31, 2003 there were 140,294,194 shares of the registrant’s common stock outstanding.
| Page No. | |||
|---|---|---|---|
| PART I. FINANCIAL INFORMATION | |||
| Item 1. Financial Statements (unaudited): | |||
| Condensed Consolidated Balance Sheets at June 30, 2003 | |||
| and December 31, 2002 | 1 | ||
| Condensed Consolidated Statements of Operations for the | |||
| three and six months ended June 30, 2003 and 2002 | 2 | ||
| Condensed Consolidated Statements of Cash Flows for the six | |||
| months ended June 30, 2003 and 2002 | 3 | ||
| Notes to the Condensed Consolidated Financial Statements | 5 | ||
| Item 2. Management's Discussion and Analysis of Financial Condition and | |||
| Results of Operations | 14 | ||
| Item 3. Quantitative and Qualitative Disclosures About Market Risk | 18 | ||
| Item 4. Controls and Procedures | 22 | ||
| PART II. Other Information | |||
| Item 1. Legal Proceedings | 22 | ||
| Item 2: Changes in Securities and Use of Proceeds | 23 | ||
| Item 3. Defaults Upon Senior Securities | 23 | ||
| Item 4: Submission of Matters to a Vote of Security Holders | 23 | ||
| Item 5. Other Information | 24 | ||
| Item 6. Exhibits and Reports on Form 8-K | 24 | ||
| Signatures | 25 | ||
| June 30, 2003 |
December 31, 2002 | |||||||
|---|---|---|---|---|---|---|---|---|
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | 72,766 | $ | 47,199 | ||||
| Investments in marketable debt securities | 9,382 | 14,239 | ||||||
| Accounts receivable, net | 43,395 | 56,064 | ||||||
| Other current assets | 8,132 | 16,789 | ||||||
| Total current assets | 133,675 | 134,291 | ||||||
| Restricted cash | 18,926 | 18,067 | ||||||
| Investments in marketable debt securities | 47,530 | 65,602 | ||||||
| Property and equipment, net | 59,736 | 62,893 | ||||||
| Other assets | 20,890 | 21,406 | ||||||
| Intangible assets, net | 13,645 | 15,886 | ||||||
| Goodwill | 60,624 | 59,150 | ||||||
| Total assets | $ | 355,026 | $ | 377,295 | ||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 7,610 | $ | 6,572 | ||||
| Accrued liabilities | 66,612 | 62,833 | ||||||
| Current portion of long-term debt | 205 | 220 | ||||||
| Total current liabilities | 74,427 | 69,625 | ||||||
| Non-current liabilities: | ||||||||
| Long-term debt | 117,701 | 117,738 | ||||||
| Other liabilities | 3,080 | 3,875 | ||||||
| Total liabilities | ||||||||
| 195,208 | 191,238 | |||||||
| Stockholders' equity: | ||||||||
| Common stock; $0.0001 par value; 400,000,000 shares | ||||||||
| authorized; 139,621,595 outstanding at | ||||||||
| June 30, 2003 and 139,251,879 | ||||||||
| outstanding at December 31, 2002 | 14 | 14 | ||||||
| Notes receivable from stockholders | (397 | ) | (397 | ) | ||||
| Additional paid-in-capital | 2,700,115 | 2,698,980 | ||||||
| Accumulated other comprehensive loss | (13,784 | ) | (13,811 | ) | ||||
| Treasury stock, at cost | (30,428 | ) | (30,428 | ) | ||||
| Accumulated deficit | (2,495,702 | ) | (2,468,301 | ) | ||||
| Total stockholders' equity | 159,818 | 186,057 | ||||||
| Total liabilities and stockholders'equity | $ | 355,026 | $ | 377,295 | ||||
See accompanying notes to the condensed consolidated financial statements.
| Three Months Ended June 30, |
Six Months Ended June 30, | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2003 |
2002 |
2003 |
2002 | |||||||||||
| Revenues: | ||||||||||||||
| Internet | $ | 46,864 | $ | 44,356 | $ | 88,913 | $ | 87,736 | ||||||
| Publishing | 11,537 | 12,882 | 26,076 | 25,154 | ||||||||||
| Total revenues | 58,401 | 57,238 | 114,989 | 112,890 | ||||||||||
| Operating expenses: | ||||||||||||||
| Cost of revenues | 34,079 | 37,177 | 70,280 | 74,312 | ||||||||||
| Sales and marketing | 17,365 | 20,230 | 35,082 | 40,984 | ||||||||||
| General and administrative | 11,019 | 15,990 | 21,065 | 28,749 | ||||||||||
| Depreciation | 3,855 | 6,766 | 9,467 | 13,007 | ||||||||||
| Amortization of intangible assets | 1,898 | 12,186 | 3,502 | 24,245 | ||||||||||
| Total operating expenses | 68,216 | 92,349 | 139,396 | 181,297 | ||||||||||
| Operating loss | (9,815 | ) | (35,111 | ) | (24,407 | ) | (68,407 | ) | ||||||
| Non-operating income (expense): | ||||||||||||||
| Realized gains on sale of investments | -- | 98 | -- | 2,434 | ||||||||||
| Realized losses on sale or impairment of | ||||||||||||||
| investments | -- | (701 | ) | -- | (8,366 | ) | ||||||||
| Interest income | 563 | 1,267 | 1,236 | 2,639 | ||||||||||
| Interest expense | (1,778 | ) | (2,579 | ) | (3,547 | ) | (5,357 | ) | ||||||
| Other | (271 | ) | (101 | ) | (266 | ) | (104 | ) | ||||||
| Total non-operating expense | (1,486 | ) | (2,016 | ) | (2,577 | ) | (8,754 | ) | ||||||
| Loss before income taxes | (11,301 | ) | (37,127 | ) | (26,984 | ) | (77,161 | ) | ||||||
| Income tax expense (benefit) | 271 | (11,309 | ) | 417 | (20,293 | ) | ||||||||
| Net loss | $ | (11,572 | ) | $ | (25,818 | ) | $ | (27,401 | ) | $ | (56,868 | ) | ||
| Basic and diluted net loss per share | $ | (0.08 | ) | $ | (0.19 | ) | $ | (0.20 | ) | $ | (0.41 | ) | ||
| Shares used in calculating basic and diluted | ||||||||||||||
| net loss per share | 139,432,692 | 138,772,593 | 139,343,944 | 138,720,732 | ||||||||||
See accompanying notes to the condensed consolidated financial statements.
| Six Months Ended June 30, | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2003 |
2002 | |||||||
| Cash flows from operating activities: | ||||||||
| Net Loss | $ | (27,401 | ) | $ | (56,868 | ) | ||
| Adjustments to reconcile net loss to net cash | ||||||||
| provided by (used in) | ||||||||
| operating activities: | ||||||||
| Depreciation and amortization | 12,969 | 37,256 | ||||||
| Asset impairment and disposals | 91 | 128 | ||||||
| Deferred taxes | -- | 9,557 | ||||||
| Noncash interest | 408 | 548 | ||||||
| Noncash stock compensation | 53 | -- | ||||||
| Allowance for doubtful accounts | 1,607 | 4,899 | ||||||
| (Gain) loss on sale and impairment of marketable | ||||||||
| securities and privately held investments | (3 | ) | 5,937 | |||||
| Changes in operating assets and liabilities, | ||||||||
| net of acquisitions: | ||||||||
| Accounts receivable | 11,062 | 4,988 | ||||||
| Other assets | 6,566 | 1,495 | ||||||
| Accounts payable | 1,038 | 159 | ||||||
| Accrued liabilities | 3,315 | (8,720 | ) | |||||
| Other long-term liabilities | (665 | ) | (1,068 | ) | ||||
| Foreign currency translation gain (loss) | 536 | (2,618 | ) | |||||
| Net cash provided by (used in) operating | ||||||||
| activities | 9,576 | (4,307 | ) | |||||
| Cash flows from investing activities: | ||||||||
| Purchase of marketable debt securities | (22,211 | ) | (94,295 | ) | ||||
| Proceeds from sale of marketable debt securities | 45,699 | 106,835 | ||||||
| Proceeds from sale of marketable equity | ||||||||
| investments | -- | 144 | ||||||
| Proceeds from sale of (investments in) | ||||||||
| privately held companies | -- | 3,000 | ||||||
| Net cash paid for acquisitions | (2,018 | ) | (4,022 | ) | ||||
| Capital expenditures | (6,244 | ) | (10,572 | ) | ||||
| Net cash provided by investing activities | 15,226 | 1,090 | ||||||
| Cash flows from financing activities: | ||||||||
| Payments received on stockholders' notes | -- | 149 | ||||||
| Net proceeds from employee stock purchase plan | 216 | 476 | ||||||
| Net proceeds from exercise of options and warrants | 866 | 3,136 | ||||||
| Principal payments on borrowings | (317 | ) | (249 | ) | ||||
| Net cash provided by financing activities | 765 | 3,512 | ||||||
| Net increase in cash and cash equivalents | 25,567 | 295 | ||||||
| Effect of exchange rate changes on cash and cash | ||||||||
| equivalents | -- | 386 | ||||||
| Cash and cash equivalents at the beginning of the | ||||||||
| period | 47,199 | 93,439 | ||||||
| Cash and cash equivalents at the end of the period | $ | 72,766 | $ | 94,120 | ||||
| Six Months Ended June 30, | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2003 |
2002 | |||||||
| Supplemental disclosure of cash flow information: | ||||||||
| Interest paid | $ | 2,869 | $ | 4,323 | ||||
| Taxes refunded | $ | 8,612 | $ | 31,697 | ||||
See accompanying notes to the condensed consolidated financial statements.
BUSINESS AND BASIS OF PRESENTATION
CNET Networks, Inc. (CNET) is a global media company producing a branded global Internet network, print publications and a technology product database for both businesses and individuals.
In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, considered necessary for a fair presentation of the financial condition, results of operations and cash flows for the periods presented. These condensed financial statements should be read in conjunction with the audited consolidated financial statements included in CNET’s most recent Annual Report on Form 10-K, as filed with the Securities and Exchange Commission, which contains additional financial and operating information and information concerning the significant accounting policies followed by CNET.
The condensed consolidated results of operations for the three and six months ended June 30, 2003 are not necessarily indicative of the results to be expected for the current year or any other future period.
CONCENTRATION OF CREDIT RISK
Revenues from one customer, Gateway Inc., approximated 10% and 11% of total revenues for the three months ended June 30, 2003 and 2002, respectively and 13% and 11% of total revenues for the six months ended June 30, 2003 and 2002, respectively. Of the year-to-date revenues from this customer as of June 30, 2003, approximately 69% were generated from a custom publishing contract. Approximately 7% of CNET’s accounts receivable balance at June 30, 2003 related to Gateway