SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period June 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-23337
SPORTSLINE.COM, INC.
(Exact name of Registrant as specified in its charter)
Delaware 65-0470894
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2200 W. Cypress Creek Road
Fort Lauderdale, Florida 33309
(Address of principal executive offices) (Zip Code)
(954) 351-2120
(Registrant's telephone number, including area code)
6340 N.W. 5th Avenue
Ft. Lauderdale, FL 33309
(Former name, former address and former fiscal year,
if changed since last report)
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, and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ]
Number of shares of common stock outstanding as of June 30, 2000:
26,413,657
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Condensed Consolidated Balance Sheets (unaudited) as of
June 30, 2000 and December 31, 1999 ................................... 3
Condensed Consolidated Statements of Operations (unaudited)
for the three and six months ended June 30, 2000 and 1999 ............. 4
Condensed Consolidated Statements of Changes in Shareholders'
Equity (unaudited) for the six months ended June 30, 2000 ............. 5
Condensed Consolidated Statements of Cash Flows (unaudited)
for the six months ended June 30, 2000 and 1999 ....................... 6
Notes to Condensed Consolidated Financial Statements (unaudited) .......... 7
2
SPORTSLINE.COM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(amounts in thousands except share data)
(UNAUDITED)
June 30, December 31,
2000 1999
--------- ---------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents .............................................. $ 83,737 $ 45,968
Marketable securities .................................................. 73,451 24,953
Deferred advertising and content costs ................................ 19,530 19,530
Accounts receivable, net ............................................... 18,184 11,875
Prepaid expenses and other current assets .............................. 13,232 14,657
--------- ---------
Total current assets ............................................... 208,134 116,983
RESTRICTED CASH EQUIVALENTS ............................................... 397 489
NONCURRENT MARKETABLE SECURITIES .......................................... -- 50,052
INVESTMENT IN MVP.COM, INC ................................................ 100,000 --
LICENSING RIGHTS .......................................................... 3,400 4,533
NONCURRENT DEFERRED ADVERTISING - AOL ..................................... 1,227 3,682
NONCURRENT DEFERRED ADVERTISING AND CONTENT - CBS ......................... 20,072 28,716
PROPERTY AND EQUIPMENT, net ............................................... 16,656 10,351
GOODWILL, net ............................................................. 39,129 42,823
OTHER ASSETS .............................................................. 35,262 13,832
--------- ---------
$ 424,277 $ 271,461
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ....................................................... $ 2,665 $ 3,296
Accrued liabilities .................................................... 21,310 12,128
Current portion of deferred revenue .................................... 30,266 4,160
Current portion of capital lease obligations ........................... 53 170
--------- ---------
Total current liabilities ......................................... 54,294 19,754
DEFERRED REVENUE - MVP.COM, INC. .......................................... 70,472 --
CONVERTIBLE SUBORDINATED NOTES ............................................ 19,608 19,608
--------- ---------
Total liabilities ................................................. 144,374 39,362
--------- ---------
MINORITY INTEREST ......................................................... 58,875 7,443
--------- ---------
COMMITMENTS AND CONTINGENCIES (Note 3)
SHAREHOLDERS' EQUITY:
Preferred stock, $0.01 par value, 1,000,000 shares authorized, none
issued and outstanding as of June 30, 2000 and December 31, 1999 ... -- --
Common stock, $0.01 par value, 200,000,000 shares authorized,
26,413,657 and 25,358,788 issued and outstanding as of
June 30, 2000 and December 31, 1999, respectively ................. 264 254
Additional paid-in capital ............................................. 358,256 333,879
Accumulated other comprehensive income (loss) .......................... (4,002) 7
Accumulated deficit .................................................... (133,490) (109,484)
--------- ---------
Total shareholders' equity ......................................... 221,028 224,656
--------- ---------
$ 424,277 $ 271,461
========= =========
The accompanying notes to condensed consolidated financial statements are
an integral part of these condensed consolidated balance sheets.
3
SPORTSLINE.COM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands except share and per share data)
(UNAUDITED)
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------- -----------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
REVENUE .................................... $ 24,317 $ 13,023 $ 46,995 $ 24,081
COST OF REVENUE ............................ 10,513 6,784 19,167 12,167
------------ ------------ ------------ ------------
GROSS PROFIT ............................... 13,804 6,239 27,828 11,914
------------ ------------ ------------ ------------
OPERATING EXPENSES:
Product development ...................... 392 405 833 762
Sales and marketing ...................... 13,482 8,251 25,532 15,038
General and administrative ............... 9,547 4,157 19,159 8,018
Depreciation and amortization ............ 10,104 6,715 20,354 12,559
------------ ------------ ------------ ------------
Total operating expenses ....... 33,525 19,528 65,878 36,377
------------ ------------ ------------ ------------
LOSS FROM OPERATIONS ....................... (19,721) (13,289) (38,050) (24,463)
INTEREST EXPENSE ........................... (286) (2,078) (575) (2,264)
INTEREST AND OTHER INCOME, net ............. 3,014 2,986 6,622 4,218
GAIN ON SALE OF E-COMMERCE SUBSIDIARIES .... -- -- 7,814 --
------------ ------------ ------------ ------------
NET LOSS ................................... $ (16,993) $ (12,381) $ (24,189) $ (22,509)
============ ============ ============ ============
NET LOSS PER SHARE - BASIC AND DILUTED ..... $ (0.64) $ (0.55) $ (0.93) $ (1.01)
============ ============ ============ ============
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING -
BASIC AND DILUTED ........................ 26,360,787 22,627,219 26,023,151 22,261,264
============ ============ ============ ============
The accompanying notes to condensed consolidated financial statements are
an integral part of these condensed consolidated financial statements.
4
SPORTSLINE.COM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(amount in thousands except share data)
(UNAUDITED)
Accumulated
Common Additional Other
Stock Paid-In Comprehensive Accumulated Comprehensive
Shares Amount Capital Income (Loss) Deficit Loss
----------- --------- ---------- ---------- ----------- ----------
Balances at December 31, 1999 25,358,788 $ 254 $ 333,879 $ 7 $ (109,484)
Noncash issuance of common stock and
options pursuant to sale of subsidiaries 28,439 -- 2,299 -- --
Exercise of CBS warrants 500,000 5 11,495 -- --
Net proceeds from exercise of warrants 57,000 1 364 -- --
Issuance of common stock from exercise
of employee options 140,755 1 1,124 -- --
Comprehensive loss:
Net loss -- -- -- (7,196) $ (7,196)
Cumulative translation adjustment -- -- -- (1,329) -- (1,329)
----------
Comprehensive loss $ (8,525)
==========
--------------------------------------------------------------
Balances at March 31, 2000 26,084,982 261 349,161 (1,322) (116,680)
Noncash issuance of common stock and
options pursuant to acquisition of
subsidiary 277,152 3 8,161 -- --
Noncash issuance of common stock and
options pursuant to sale of -- -- 588 -- --
subsidiaries
Equity activity of subsidiary -- -- (1,841) -- 183
Issuance of common stock pursuant to the
Employee Stock Purchase Plan 33,058 -- 531 -- --
Noncash issuance of warrants -- -- 1,516 -- --
Issuance of common stock from exercise
of employee options 18,465 -- 140 -- --
Comprehensive loss:
Net loss -- -- -- (16,993) $ (16,993)
Cumulative translation adjustment -- -- -- (2,680) -- (2,680)
----------
Comprehensive loss $ (19,673)
==========
-------------------------------------------------------------
Balances at June 30, 2000 26,413,657 $ 264 $ 358,256 $ (4,002) $ (133,490)
========== ========= ========== ========== ===========
The accompanying notes to condensed consolidated financial statements are
an integral part of these condensed consolidated financial statements.
5
SPORTSLINE.COM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
(UNAUDITED)
Six Months Ended
June 30,
-----------------------
2000 1999
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ................................................................ $ (24,189) $ (22,509)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization ....................................... 20,354 12,559
Provision for doubtful accounts ..................................... 1,357 75
Minority interest in consolidated subsidiaries ...................... (788) --
Gain on sale of e-commerce subsidiaries ............................. (7,814) --
Changes in operating assets and liabilities:
Accounts receivable ............................................. (7,562) (2,708)
Prepaid expenses and other current assets ....................... 1,600 (3,880)
Accounts payable ................................................ 1,341 (1,246)
Accrued liabilities ............................................. 7,246 2,476
Deferred revenue ................................................ (1,249) (115)
--------- ---------
Net cash used in operating activities ......................... (9,704) (15,348)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities, net .................................. (3,446) (51,061)
Purchases of property and equipment ..................................... (11,371) (3,022)
Purchase of licensing agreements ........................................ -- (8,500)
Acquisition of businesses ............................................... (11) (1,915)
Net decrease in restricted cash ......................................... 92 --
--------- ---------
Net cash used in investing activities ......................... (14,736) (64,498)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock and exercise of common
stock warrants and options ........................................... 13,666 3,955
Proceeds from issuance of preferred stock of subsidiary ................. 52,500 7,500
Proceeds from issuance of convertible subordinated notes, net of costs .. -- 145,443
Repayment of capital lease obligations and long term borrowings ......... (117) (1)
--------- ---------
Net cash provided by financing activities ..................... 66,049 156,897
--------- ---------
Effect of exchange rate changes on cash ................................. (3,840) --
--------- ---------
Net increase in cash and cash equivalents ................................... 37,769 77,051
CASH AND CASH EQUIVALENTS, beginning of period .............................. 45,968 31,684
--------- ---------
CASH AND CASH EQUIVALENTS, end of period .................................... $ 83,737 $ 108,735
========= =========
SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES:
Noncash portion of sale of e-commerce subsidiaries ...................... $ 3,579 $ --
========= =========
Noncash investments in businesses ....................................... $ 103,297 $ --
========= =========
Noncash issuance of common stock warrants to PGA Tour ................... $ -- $ 3,238
========= =========
Noncash issuance of common stock pursuant to acquisition
of subsidiary ......................................................... $ 8,164 $ 428
========= =========
Noncash issuance of common stock
and options pursuant to sale of subsidiaries .......................... $ 2,887 $ --
========= =========
Noncash issuance of common stock warrants ............................... $ 1,516 $ --
========= =========
Noncash issuance of common stock and common stock
warrants pursuant to CBS agreement .................................... $ -- $ 59,688
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest .................................................. $ 497 $ 38
========= =========
The accompanying notes to condensed consolidated financial statements are
an integral part of these condensed consolidated financial statements.
6
SPORTSLINE.COM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands except share and per share data)
(1) NATURE OF OPERATIONS:
SportsLine.com, Inc. ("SportsLine.com" or the "Company"), formerly
known as SportsLine USA, Inc., was incorporated on February 23, 1994 and began
recognizing revenue from its operations in September 1995. The Company is at the
leading edge of media companies, providing Internet sports content, community
and e-commerce on a global basis. SportsLine.com's content includes more than
one million pages of multimedia sports information, entertainment and
merchandise. The Company's flagship Internet sports service
(http://cbs.sportsline.com) was renamed CBS SportsLine.com as part of an
exclusive promotional and content agreement with CBS Corporation ("CBS") in
March 1997. SportsLine.com produces the official league Web sites for Major
League Baseball, PGA TOUR and NFL Europe League, and serves as the primary
sports content provider for America Online, Netscape and Excite. Sports.com
Limited ("Sports.com"), a majority owned subsidiary of SportsLine.com, launched
its first site in August 1999 and is the leading mobile and fixed internet
provider of European sports content, community and commerce providing
comprehensive European coverage in English of football, rugby, Formula One,
rally, cricket, boxing, tennis and golf as well all sports in local languages in
France, Germany, Italy and Spain.
The Company distributes a broad range of up-to-date news, scores,
player and team statistics and standings, photos and audio and video clips
obtained from CBS and other leading sports news organizations and the Company's
superstar athletes; offers instant odds and picks; produces and distributes
entertaining, interactive and original programming such as editorials and
analyses from its in-house staff and freelance journalists; and produces and
offers contests, games, and fantasy league products.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
include the accounts of SportsLine.com and its wholly and majority owned
subsidiaries.
The Company acquired International Golf Outlet, Inc. in June 1998 and
TennisDirect.com, Inc. in August 1999, and accounted for these transactions
using the purchase method of accounting. The purchases resulted in goodwill of
$3,180. Such goodwill was being amortized over an estimated life of ten years.
In May 1999, the Company acquired Golf Club Trader, Inc. The purchase was
accounted for using the pooling-of-interests method of accounting. As of January
2000, the aforementioned companies were sold to MVP.com, Inc. ("MVP") in
exchange for an equity interest in MVP. In addition, the Company entered into a
10-year strategic e-commerce and marketing agreement with MVP pursuant to which
MVP will operate the Company's domestic e-commerce business. These transactions
with MVP resulted in the Company receiving an investment in MVP totaling
$100,000. Such investment was initially recorded at estimated fair value and
will be periodically reviewed for any impairment. The sale resulted in a
one-time gain of $7,814 related to the sale of the above companies.
Sports.com was formed in May 1999. In May 1999, Sports.com purchased
SportsWeb, which was accounted for using the purchase method of accounting,
which resulted in goodwill of $584 that is being amortized over five years. In
June 1999, Sports.com acquired the sports division of Infosis Group. The Company
also accounted for this transaction using the purchase method of accounting
resulting in goodwill of $2,526 which is being amortized over five years. A
liability of $58,875 has been reflected in the Company's consolidated balance
sheet as of June 30, 2000 to reflect the minority interest in Sports.com not
owned by the Company.
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with accounting principles generally accepted
in the United States for interim financial information and with the 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 accounting principles generally
accepted in the United States for complete financial statements. In the opinion
of management, all adjustments, consisting only of normal recurring accruals
considered necessary for a fair presentation, have been included in the
accompanying unaudited financial statements. All significant intercompany
transactions and balances have been eliminated in consolidation. Operating
results for the three and six months ended June 30, 2000 are not necessarily
indicative of the results that may be expected for any subsequent period or the
full year ending December 31, 2000. For further information, refer to the
consolidated financial statements and notes thereto, included in the Company's
Annual Report on Form 10-K/A for the fiscal year ended December 31, 1999.
Per Share Amounts
Net loss per share is computed using the weighted average number of
common and dilutive common equivalent shares outstanding during the period.
Common equivalent shares consist of the incremental common shares issuable upon
conversion of all convertible preferred stock (using the
7
SPORTSLINE.COM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(amounts in thousands except share and per share data)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:--(Continued)
if-converted method) and shares issuable upon exercise of stock options and
warrants (using the treasury stock method). There were 8,400,935 and 8,014,387
options and warrants outstanding at June 30, 2000 and 1999, respectively, that
could potentially dilute earnings per share in the future. Such options and
warrants were not included in the computation of diluted net loss per share
because to do so would have been antidilutive for all periods presented.
Revenue by Type
Revenue by type for the three months and six months ended June 30, 2000
and 1999 is as follows:
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ------------------
2000 1999 2000 1999
------- ------- ------- -------
Advertising .......................... $19,820 $ 6,397 $38,696 $12,285
Subscription based services .......... 1,921 1,318 3,134 2,659
E-commerce ........................... 36 3,661 64 5,882
Content licensing and other .......... 2,540 1,647 5,101 3,255
------- ------- ------- -------
$24,317 $13,023 $46,995 $24,081
======= ======= ======= =======
Barter transactions, in which the Company primarily received
advertising in exchange for content or advertising on its Web sites, accounted
for approximately 15% and 20% of total revenue for the three months ended June
30, 2000 and 1999, respectively. Barter transactions are recorded on a basis
consistent with similar recent cash transactions of the Company pursuant to EITF
Issue No. 99-17, "Accounting for Advertising Barter Transactions." Barter
transactions accounted for 15% and 19% of total revenue for the six months ended
June 30, 2000 and 1999, respectively.
Recent Accounting Pronouncements
The Company adopted SFAS No. 130, "Reporting Comprehensive Income,"
during the year ended December 31, 1998. SFAS No. 130 establishes standards for
the reporting and display of comprehensive income (loss) and its components in a
full set of financial statements. The objective of SFAS No. 130 is to report
comprehensive income (loss), a measure of all changes in equity of an enterprise
that result from transactions and other economic events in a period, other than
transactions with owners. The Company has elected to disclose comprehensive
income (loss) in the consolidated statements of stockholders' equity. For the
three and six months ended June 30, 1999, comprehensive loss equaled net loss.
In June 1999, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities-Deferral of FASB Statement No. 133." SFAS No. 137 defers for one year
the effective date of SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities". SFAS No. 133 will now apply to all fiscal quarters of all
fiscal years beginning after June 15, 2000. SFAS No. 133, as amended by SFAS No.
138, will require the Company to recognize all derivatives on the balance sheet
as either assets or liabilities measured at fair value. Derivatives that are not
hedges must be adjusted to fair value through income. The Company will adopt
SFAS No. 133 effective January 1, 2001. The Company believes that the adoption
of SFAS No. 133 will not have a material impact on its consolidated financial
statements, as it has entered into no derivative contracts and has no current
plans to do so in the future.
The Company adopted SOP 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" effective January 1, 1999. SOP
98-1 establishes criteria for determining which costs of developing or obtaining
internal-use computer software should be charged to expense and which should be
capitalized. Such adoption did not have a material effect on the Company's
consolidated financial position or results of operations.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements." SAB 101 summarizes certain of the SEC's views in applying generally
accepted accounting principles to revenue recognition in financial statements.
In June 2000, the SEC issued SAB No. 101B to defer the effective date of
implementation of SAB 101. The Company is required to adopt SAB 101 in the
fourth quarter of fiscal 2000. The Company does not expect the adoption of SAB
101 to have a material effect on its financial position or results of
operations.
8
SPORTSLINE.COM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(amounts in thousands except share and per share data)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:--(Continued)
Segment Reporting
The Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" for the year ended December 31, 1998. SFAS
No. 131 establishes standards for the way public business enterprises report
information about operating segments in annual financial statements and requires
those enterprises to report selected information about operating segments in
interim financial reports issued to stockholders.
In the third quarter of 1999, the Company began operating in two
segments. The following information is disclosed, per SFAS No. 131, based on the
method management uses to organize financial information for making operating
decisions and assessing performance. The Company currently has two major lines
of businesses that share the same infrastructure: United States and Europe.
A summary of the segment financial information is as follows:
Three Months Ended Six Months Ended
June 30, 2000 June 30, 2000
--------- ---------
Total Revenue:
United States ......................... $ 22,245 $ 43,412
Europe ................................ 2,072 3,583
--------- ---------
$ 24,317 $ 46,995
========= =========
Loss from operations
United States ......................... $ (11,173) $ (22,932)
Europe ................................ (8,548) (15,118)
--------- ---------
$ (19,721) $ (38,050)
========= =========
Interest and other income (expense), net:
United States ......................... $ 2,244 $ 4,070
Europe ................................ 484 1,977
--------- ---------
$ 2,728 $ 6,047
========= =========
Gain on sale of e-commerce subsidiaries:
United States ......................... $ -- $ 7,814
Europe ................................ -- --
--------- ---------
$ -- $ 7,814
========= =========
Net Loss:
United States ......................... $ (8,929) $ (11,048)
Europe ................................ (8,064) (13,141)
--------- ---------
$ (16,993) $ (24,189)
========= =========
Total assets as of June 30, 2000:
United States ......................... $ 373,656
Europe ................................ 50,621
---------
$ 424,277
=========
(3) COMMITMENTS AND CONTINGENCIES:
On December 28, 1999, an action entitled Fantasy Sports Properties,
Inc. v. SportsLine.com, Inc., Yahoo! Inc., ESPN, Inc. and Sandbox Entertainment,
Inc., was commenced in the United States District Court for the Eastern District
of Virginia. The plaintiff seeks damages and injunctive relief for the alleged
infringement by the Company and the named co-defendants of a U.S. patent
entitled "Computerized Statistical Football Game," which is allegedly owned by
the plaintiff. The Company in its Answer, Affirmative Defenses and Counterclaim
has taken the position that it has not infringed the subject patent and that the
patent is invalid, and has sought a declaratory judgment of non-infringement and
invalidity. The Company intends to vigorously defend itself in this action.
On August 16, 1999, an action entitled Shopsports.com v. SportsLine
USA, Inc., was commenced in the United States Court for the Central District of
California. The plaintiff seeks damages and injunctive relief in connection with
the Company's use of the
9
SPORTSLINE.COM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(amounts in thousands except share and per share data)
(3) COMMITMENTS AND CONTINGENCIES:--(Continued)
tertiary domain name "shop.sportsline.com" which the plaintiff alleges infringes
on the plaintiff's trademark rights. The action has been consolidated with a
declaratory judgment action, commenced by the Company, seeking a judgment that
the use of the tertiary URL "shop.sportsline.com" did not infringe on
plaintiff's trademark rights. The Company intends to vigorously defend itself in
this action.
From time to time, the Company is involved in other litigation arising
out of its operations in the normal course of business. In the opinion of
management, the Company is not currently a party to any legal proceedings, the
adverse outcome of which, individually or in the aggregate, would have a
material adverse effect on the Company's consolidated financial position or
results of operations.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following Management's Discussion and Analysis of Financial
Condition and Results of Operations contains forward-looking statements which
involve risks and uncertainties. The Company's actual results could differ
materially from those anticipated in these forward-looking statements. Factors
that might cause or contribute to such differences include, among others,
competitive pressures, the growth rate of the Internet, constantly changing
technology and market acceptance of the Company's products and services.
Investors are also directed to consider the other risks and uncertainties
discussed in the Company's Securities and Exchange Commission filings, including
those discussed under the caption "Risk Factors That May Affect Future Results"
in the Company's Annual Report on Form 10-K/A for the year ended December 31,
1999. The Company undertakes no obligation to publicly release the result of any
revisions to 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. The following discussion also should be read in
conjunction with the Company's Consolidated Financial Statements and Notes
thereto included elsewhere in this Report.
Results of Operations
Revenue
Total revenue for the quarter ended June 30, 2000 and 1999 was
$24,317,000 and $13,023,000, respectively. Total revenue for the six months
ended June 30, 2000 and 1999 was $46,995,000 and $24,081,000, respectively. The
increase in revenue was primarily due to increased advertising sales and content
licensing. Advertising revenue for the three months ended June 30, 2000 and 1999
represented 82% and 49%, respectively, of total revenue. Advertising revenue
increased primarily as a result of a higher number of impressions sold
generating additional advertising on the Company's Web sites and the recognition
of revenue recognized under the MVP.com agreement which commenced during the
first quarter of 2000. Contributing to the increase in advertising sales during
the six months ended June 30, 2000 were (i) increased spending by repeat
traditional advertisers such as Anheuser Busch, Delta Airlines and MasterCard,
(ii) increased revenue from major golf tournaments such as The Masters and the
US Open as a result of the Company capitalizing on its relationship with the PGA
TOUR and (iii) increased cross-selling efforts pursuant to the Company's
relationship with CBS.
Subscription based services revenue increased $603,000 in the three
months ended June 30, 2000 compared to the same period in 1999 and $475,000 in
the six months ended June 30, 2000 compared to the same period in 1999.
Subscription based services revenue decreased in 2000 due to a restructuring of
the Company's membership program, however, commencing in the second quarter of
2000 the Company began to recognize subscription revenue relating to statistical
data and other content as a result of its acquisition of DBC Sports in April
2000. In July 2000, the Company began offering its fantasy products and services
for free which will result in a decline in subscription revenue in further
periods. However, the Company expects this new strategy to result in an increase
in fantasy players and enhance its ability to generate incremental advertising
revenue through database marketing and new sponsorships.
E-commerce revenue decreased to $36,000 in the three months ended June
30, 2000 from $3,661,000 for the three months ended June 30, 1999. E-commerce
revenue decreased to $64,000 for the six months ended June 30, 2000 from
$5,882,000 for the six months ended June 30, 1999. Effective as of January 1,
2000, the Company sold its domestic e-commerce business to MVP.com, Inc.
E-commerce revenue currently consists solely of revenue generated by Sports.com.
Content licensing and other revenue increased $893,000 in the three
months ended June 30, 2000 compared to the same period in 1999 and $1,846,000 in
the six months ended June 30, 2000 compared to the same period in 1999. This was
in part due to increased revenue as a result of the Company's agreement with
AOL. Additional content revenue was generated by the Company's agreement with
Excite and content revenue generated by Sports.com.
As of June 30, 2000, the Company had current deferred revenue of
$30,266,000, of which $9,273,000 related to the agreement with MVP.com, Inc. and
the remainder related to agreements with Internet Sports Network and
theglobe.com, and long-term deferred revenue related to the agreement with
MVP.com, Inc. of $70,472,000, relating to cash, receivables or equity for which
services had not yet been provided.
Barter transactions, in which the Company primarily received
advertising in exchange for content or advertising on its Web sites, accounted
for approximately 15% and 20% of total revenue for the three months ended June
30, 2000 and 1999, respectively. Barter transactions accounted for 15% and 19%
of total revenue for the six months ended June 30, 2000 and 1999, respectively.
Barter transactions are recorded on a basis consistent with similar recent cash
transactions of the Company pursuant to EITF Issue No. 99-17, "Accounting for
Advertising Barter Transactions." In future periods, management intends to
maximize cash advertising and content licensing revenue, although the Company
will continue to enter into barter relationships when deemed appropriate.
11
Cost of Revenue
Cost of revenue for the three months ended June 30, 2000 and 1999 was
$10,513,000 and $6,784,000, respectively. Cost of revenue for the six months
ended June 30, 2000 and 1999 was $19,167,000 and $12,167,000 respectively. The
increase in cost of revenue was primarily the result of increased revenue
sharing under the Company's agreements with CBS, Major League Baseball and the
PGA TOUR and, to a lesser extent, increases in the costs of content fees and
telecommunications needed to support and deliver services. Also contributing to
the increase was Sports.com's relatively high level of employee costs required
for its start up (Sports.com accounted for 28% of total consolidated cost of
revenue in the second quarter of 2000). As a percentage of revenue, cost of
revenue decreased to 43% for the three months ended June 30, 2000 from 52% for
the three months ended June 30, 1999. For the six months ended June 30, 2000 and
1999 cost of revenue decreased to 41% from 51%.
Gross Profit
Gross profit for the three months ended June 30, 2000 and 1999 was
$13,804,000 and $6,239,000, respectively. Gross profit for the six months ended
June 30, 2000 and 1999 was $27,828,000 and $11,914,000 respectively. The
increase in gross profit was primarily attributable to an increase in
advertising revenue. E-commerce revenue historically has had lower gross profit
margins than advertising revenue; effective January 1, 2000, the Company sold
its domestic e-commerce business to MVP.com, Inc. Consequently, as a percentage
of revenue, gross profit increased to 57% for the three months ended June 30,
2000 from 48% for the three months ended June 30, 1999. For the six months ended
June 30, 2000 and 1999 gross profit increased to 59% from 49%.
Operating Expenses
Product Development. For the three months ended June 30, 2000 and 1999,
product development costs were $392,000 and $405,000, respectively. For the six
months ended June 30, 2000 and 1999, product development costs were $833,000 and
$762,000, respectively. The Company believes that investments in product
development are required to remain competitive. Consequently, the Company
intends to continue to invest resources in product development. As a percentage
of revenue, product development expense decreased to 2% for the three and six
months ended June 30, 2000 from 3% for the three and six months ended June 30,
1999.
Sales and Marketing. For the three months ended June 30, 2000 and 1999,
sales and marketing expense was $13,482,000 and $8,251,000, respectively. Sales
and marketing expense for the six months ended June 30, 2000 and 1999 was
$25,532,000 and $15,038,000 respectively. The increase in sales and marketing
expense was primarily the result of increased advertising on other Web sites and
in print and other media, as well as the addition of expenses related to
Sports.com partially offset by reduced expenses as a result of the sale of the
Company's domestic e-commerce business effective January 1, 2000. For the three
months ended June 30, 2000, Sports.com accounted for $4,675,000, or 35%, of
sales and marketing expense. The Company intends to continue to aggressively
promote the Sports.com brand worldwide in order to attract traffic and new users
to its international Web sites. Barter transactions accounted for approximately
28% and 32% of sales and marketing expense for the three months ended June 30,
2000 and 1999, respectively and 27% and 30% of sales and marketing expense for
the six months ended June 30, 2000 and 1999, respectively. As a percentage of
revenue, sales and marketing expense decreased to 55% for the three months ended
June 30, 2000 from 63% for the three months ended June 30, 1999. For the six
months ended June 30, 2000 and 1999 sales and marketing decreased to 54% from
63%, as a percentage of revenue.
General and Administrative. General and administrative expense for the
three months ended June 30, 2000 and 1999 was $9,547,000 and $4,157,000,
respectively. General and administrative expense for the six months ended June
30, 2000 and 1999 was $19,159,000 and $8,018,000 respectively. The increase in
general and administrative expense in each period was primarily attributable to
expenses related to Sports.com, including increases in rent and occupancy
expense and payroll. The increase in salary and related expenses was due to the
addition of personnel, particularly in the technology area. The Company
increased general and administrative expense in order to develop and maintain
the administrative infrastructure necessary to support the growth of its
business. Sports.com accounted for 27% of total general and administrative
expense in the second quarter of 2000. The Company expects to incur additional
start-up expenses as Sports.com continues its expansion in the European market.
As a percentage of revenue, general and administrative expense increased to 39%
for the three months ended June 30, 2000 from 32% for the three months ended
June 30, 1999, and increased to 41% for the six months ended June 30, 2000 from
33% for the six months ended June 30, 1999.
Depreciation and Amortization. Depreciation and amortization expense
was $10,104,000 and $6,715,000 for the three months ended June 30, 2000 and
1999, respectively. Depreciation and amortization expense was $20,354,000 and
$12,559,000 for the six months ended June 30, 2000 and 1999, respectively. The
increase in depreciation and amortization expense was primarily due to the
amortization of amounts related to the Company's agreements with CBS, PGA TOUR
and Westwood One and Sports.com's agreement with IMG and, to a lesser extent,
additional property and equipment. Additionally, goodwill amortization increased
because of acquisitions made by the Company in the second half of 1999. In
future periods, the Company anticipates total amortization expense to increase
as a result of the agreements mentioned above and the goodwill amortization of
recent acquisitions.
12
Under the Company's agreement with CBS, the Company issued shares of
Common Stock and warrants to purchase Common Stock in consideration of CBS's
advertising and promotional efforts and its license to the Company of the right
to use certain CBS logos and television-related sports content. The value of the
advertising and content will be recorded annually in the balance sheet as
deferred advertising and content costs and amortized to depreciation and
amortization expense over each related contract year. Total expense under the
CBS agreement was $8,644,000 for the six months ended June 30, 2000 and will be
$8,644,000 for the remainder of 2000.
Under the Company's current agreement with AOL, which became effective
in October 1998, the Company issued shares of Common Stock and warrants to
purchase Common Stock and made a cash payment in consideration of AOL's
advertising and promotional efforts. The value of the advertising has been
recorded on the balance sheet as deferred advertising costs and is amortized to
depreciation and amortization expense over each related contract year. Total
amortization expense under the AOL agreement was $2,454,000 for the six months
ended June 30, 2000 and will be $2,454,000 for the remainder of 2000.
Under the Company's agreement with Westwood One, which became effective
in August 1999, the Company issued shares of Common Stock in consideration for a
three-year promotional and programming agreement. The value of the common stock
has been recorded on the balance sheet as deferred consulting costs and is
amortized to depreciation and amortization expense over each related contract
year. Total amortization expense under the Westwood One agreement was $1,500,000
for the six months ended June 30, 2000 and will be $1,500,000 for the remainder
of 2000.
Under the Company's agreement with PGA TOUR, which became effective in
April 1999, the Company paid an up-front licensing fee of $8,500,000. The
licensing fee has been recorded on the balance sheet as licensing rights and is
amortized to depreciation and amortization expense over each related contract
year. Total amortization expense under PGA TOUR agreement was $1,134,000 for the
six months ended June 30, 2000 and will be $1,134,000 for the remainder of 2000.
Interest Expense. Interest expense was $286,000 for the three months
ended June 30, 2000 compared to $2,078,000 for the three months ended June 30,
1999. Interest expense was $575,000 for the six months ended June 30, 2000
compared to $2,264,000 for the six months ended June 30, 1999. The decrease in
interest expense was primarily due to the retirement in the third and fourth
quarters of 1999 of approximately $130,000,000 of the $150,000,000 principal
amount of Convertible Subordinated Notes which were originally issued in March
1999.
Interest and Other Income, Net. Interest and other income, net for the
three months ended June 30, 2000 was $3,014,000 compared to $2,986,000 for the
three months ended June 30, 1999. Interest and other income, net for the six
months ended June 30, 2000 was $6,622,000 compared to $4,218,000 for the six
months ended June 30, 1999. The increase was primarily attributable to the
higher average balances of cash and cash equivalents and marketable securities.
Sports.com contributed to the increase by recording a realized currency exchange
gain upon receipt of funding of a private placement of preferred stock during
the first quarter of 2000.
Gain on Sale of E-Commerce Subsidiaries. Effective January 1, 2000, the
Company sold to MVP.com, Inc. three of its subsidiaries which engaged in
e-commerce activity (International Golf Outlet, Inc., Golf Club Trader, Inc. and
TennisDirect.com, Inc.). The sale resulted in a one-time gain of $7,814,000.
Liquidity and Capital Resources
As of June 30, 2000, the Company's primary source of liquidity
consisted of $83,737,000 in cash and cash equivalents, an increase of
$37,769,000 from December 31, 1999, and $73,451,000 in current marketable
securities, an increase of $48,498,000 from December 31, 1999. The increase in
cash and cash equivalents is primarily due to a private placement of preferred
stock by Sports.com in the first quarter of 2000 and an increase in current
marketable securities as a result of changes in investment maturities (which was
offset by a decrease of $50,052,000 in noncurrent marketable securities from
December 31, 1999).
The Company has obtained revolving credit facilities that provide for
the lease financing of computers and other equipment purchases. Outstanding
amounts under the facilities bear interest at variable rates of approximately
9%. As of June 30, 2000, the Company owed $53,000 under these facilities.
As of June 30, 2000, current deferred advertising and content costs
totaled $19,530,000 and long-term deferred advertising and content costs totaled
$21,299,000, which represented costs related to the CBS and AOL agreements.
These amounts will be amortized to depreciation and amortization expense over
the terms of the respective agreement. Accrued liabilities totaled $21,310,000
as of June 30, 2000, an increase of $9,182,000 from December 31, 1999, primarily
due to increases in accruals for expenses related to sale of the subsidiaries to
MVP.com, Inc. and revenue sharing.
13
Net cash used in operating activities was $9,704,000 and $15,348,000
for the six months ended June 30, 2000 and 1999, respectively. The principal
uses of cash for all periods were to fund the Company's net losses from
operations and the increase in accounts receivable, partially offset by
increases in depreciation and amortization and accrued liabilities.
Net cash used in investing activities was $14,736,000 and $64,498,000
for the six months ended June 30, 2000 and 1999, respectively. The principal use
of cash during 2000 in investing activities was for the purchases of property
and equipment related to the Company's facilities. In 1999, net cash used in
investing activities was primarily for the purchase of current and non-current
marketable securities.
Net cash provided by financing activities was $66,049,000 and
$156,897,000 for the six months ended June 30, 2000 and 1999, respectively.
Financing activities in 2000 consisted principally of the issuance of a private
placement of preferred stock by Sports.com and the exercise of warrants by CBS.
In 1999, financing activities consisted mainly of the issuance of the
Convertible Subordinated Notes.
Although the Company has no material commitments for capital
expenditures, it anticipates purchasing approximately $6.0 million of property
and equipment during the remainder of 2000, primarily computer equipment and
furniture and fixtures related to the growth of the business, including the
expansion of Sports.com's infrastructure in Europe. The Company intends to
continue to pursue acquisitions of or investments in businesses, services and
technologies that are complementary to those of the Company.
The Company believes that its current cash and marketable securities
will be sufficient to fund its working capital and capital expenditure
requirements for at least the next 24 to 36 months. However, the Company expects
to continue to incur significant operating losses on a consolidated basis for at
least the next 24 to 36 months. To the extent the Company requires additional
funds to support its operations or the expansion of its business, the Company
may sell additional equity, issue debt or convertible securities or obtain
credit facilities through financial institutions. There can be no assurance that
additional financing, if required, will be available to the Company in amounts
or on terms acceptable to the Company.
Seasonality
The Company expects that its revenue will be higher leading up to and
during major U.S. sports seasons and lower at other times of the year,
particularly during the summer months. In addition, the effect of such seasonal
fluctuations in revenue could be enhanced or offset by revenue associated with
major sports events that do not occur every year, such as the Olympics and the
World Cup events. The Company believes that advertising sales in traditional
media, such as television, generally are lower in the first and third calendar
quarters of each year, and that advertising expenditures fluctuate significantly
with economic cycles. Depending on the extent to which the Internet is accepted
as an advertising medium, seasonality and cyclicality in the level of Internet
advertising expenditures could become more pronounced. The foregoing factors
could have a material adverse affect on the Company's business, results of
operations and financial condition.
Recent Accounting Pronouncements
The Company adopted SFAS No. 130, "Reporting Comprehensive Income,"
during the year ended December 31, 1998. SFAS No. 130 establishes standards for
the reporting and display of comprehensive income (loss) and its components in a
full set of financial statements. The objective of SFAS No. 130 is to report
comprehensive income (loss), a measure of all changes in equity of an enterprise
that result from transactions and other economic events in a period, other than
transactions with owners. The Company has elected to disclose comprehensive
income (loss) in the consolidated statements of stockholders equity.
In June 1999, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 137, Accounting for Derivative Instruments and Hedging
Activities-Deferral of FASB Statement No. 133. SFAS No. 137 defers for one year
the effective date of SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities. SFAS No. 133 will now apply to all fiscal quarters of all
fiscal years beginning after June 15, 2000. SFAS No. 133, as amended by SFAS No.
138, will require the Company to recognize all derivatives on the balance sheet
as either assets or liabilities measured at fair value. Derivatives that are not
hedges must be adjusted to fair value through income. The Company will adopt
SFAS No. 133 effective for the year ended December 31, 2001. The Company
believes that the adoption of SFAS No. 133 will not have a material impact on
its consolidated financial statements, as it has entered into no derivative
contracts and has no current plans to do so in the future.
The Company adopted SOP 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" effective January 1, 1999. SOP
98-1 establishes criteria for determining which costs of developing or obtaining
internal-use computer software should be charged to expense and which should be
capitalized. Such adoption did not have a material effect on the Company's
financial position or results of operations.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements." SAB 101 summarizes certain of the SEC's views in applying generally
accepted
14
accounting principles to revenue recognition in financial statements. In June
2000, the SEC issued SAB No. 101B to defer the effective date of implementation
of SAB 101. The Company is required to adopt SAB 101 in the fourth quarter of
fiscal 2000. The Company does not expect the adoption of SAB 101 to have a
material effect on its financial position or results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's exposure to market rate risk for changes in interest
rates relates primarily to the Company's investment portfolio. The Company has
not used derivative financial instruments in its investment portfolio. The
Company invests its excess cash in debt instruments of the U.S. Government and
its agencies, and in high-quality corporate issuers and, by policy, limits the
amount of credit exposure to any one issuer. The Company protects and preserves
its invested funds by limiting default, market and reinvestment risk.
Investments in both fixed rate and floating rate interest earning instruments
carries a degree of interest rate risk. Fixed rate securities may have their
fair market value adversely impacted due to a rise in interest rates, while
floating rate securities may produce less income than expected if interest rates
fall. Due in part to these factors, the Company's future investment income may
fall short of expectations due to changes in interest rates or the Company may
suffer losses in principal if forced to sell securities which have declined in
market value due to changes in interest rates.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGE IN SECURITIES
Sales of Unregistered Securities during the Three Months Ended June 30, 2000
During the three months ended June 30, 2000, the Company issued and
sold the following securities without registration under the Securities Act:
In April 2000, in connection with the acquisition of DBC Sports, the
Company issued to Data Broadcasting Corporation 277,152 shares of common stock.
In June 2000, the Company issued warrants to purchase 30,000 shares of
common stock at an exercise price of $25.25 to Planned Licensing, Inc. in
exchange for the continued consulting and promotional services of Joe Namath.
In May 2000, the Company issued warrants to purchase 100,000 shares of
common stock at an exercise price of $11.4375 to JAE Endorsements, Inc. in
exchange for the promotional services of John Elway.
No underwriter was involved in any of the above sales of securities.
All of the above securities were issued in reliance upon the exemption set forth
in Section 4(2) of the Securities Act of 1933, as amended (the "Securities
Act"), on the basis that they were issued under circumstances not involving a
public offering.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its 2000 Annual Meeting of Stockholders on June 12,
2000. There were 26,323,683 shares of Common Stock entitled to vote at the
meeting and a total of 22,728,994 shares were represented at the meeting in
person or by proxy. Following are descriptions of the matters voted on and the
results of such meeting:
Proposal 1. Election of Directors
Total Vote For Total Vote Against
Each Director Each Director
-------------- ------------------
Gerry Hogan...................... 22,653,871 75,123
Sean McManus..................... 22,561,515 167,479
Michael P. Schulhof.............. 22,286,983 442,011
Proposal 2. Amendment of amendment to the Company's 1997 Incentive Compensation
Plan to increase the number of shares available for grant thereunder
from 5,500,000 to 8,000,000:
For Against Abstain Non-Votes
14,678,699 4,241,447 539,308 3,269,540
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
10.1 Amendment to the Employment Agreement of Michael Levy
27.1 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the three-month period ended
June 30, 2000.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: August 14, 2000 SPORTSLINE.COM, INC.
(Registrant)
/S/ MICHAEL LEVY
-------------------------------------
Michael Levy
President and Chief Executive Officer
/S/ KENNETH W. SANDERS
-------------------------------------
Kenneth W. Sanders
Chief Financial Officer
16
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
10.1 Amendment to the Employment Agreement of Michael Levy
27.1 Financial Data Schedule