SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One) [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001
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)
(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 April 30, 2001:
27,087,550
Page 1 of 15 Pages
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Condensed Consolidated Balance Sheets (unaudited) as of March 31, 2001 and December 31, 2000........... 3
Condensed Consolidated Statements of Operations (unaudited)
for the three months ended March 31, 2001 and 2000................................................. 4
Condensed Consolidated Statements of Changes in Shareholders' Equity (unaudited)
for the three months ended March 31, 2001.......................................................... 5
Condensed Consolidated Statements of Cash Flows (unaudited)
for the three months ended March 31, 2001 and 2000................................................. 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)
March 31, December 31,
2001 2000
--------- -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ........................................................ $ 74,735 $ 66,713
Marketable securities ............................................................ 27,630 59,052
Deferred advertising and content costs ........................................... 14,658 18,969
Accounts receivable, net ......................................................... 13,831 10,140
Prepaid expenses and other current assets ........................................ 11,761 11,902
--------- ---------
Total current assets ......................................................... 142,615 166,776
LICENSING RIGHTS .................................................................... 1,700 2,267
NONCURRENT DEFERRED ADVERTISING AND CONTENT ......................................... 10,857 11,428
PROPERTY AND EQUIPMENT, net ......................................................... 19,276 19,703
GOODWILL, net ....................................................................... 49,689 51,550
OTHER ASSETS ........................................................................ 11,101 6,447
--------- ---------
$ 235,238 $ 258,171
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ................................................................. $ 7,793 $ 14,398
Accrued liabilities .............................................................. 21,157 19,962
Deferred revenue ................................................................. 5,701 5,291
Capital lease obligations ........................................................ -- 6
--------- ---------
Total current liabilities ................................................... 34,651 39,657
CONVERTIBLE SUBORDINATED NOTES ...................................................... 19,608 19,608
--------- ---------
Total liabilities ........................................................... 54,259 59,265
MINORITY INTEREST ................................................................... 59,809 59,809
COMMITMENTS AND CONTINGENCIES (Notes 3, 4 and 6)
SHAREHOLDERS' EQUITY:
Preferred stock, $0.01 par value, 1,000,000 shares authorized, none
issued and outstanding as of March 31, 2001 and December 31, 2000 ............ -- --
Common stock, $0.01 par value, 200,000,000 shares authorized,
27,364,702 and 26,486,193 issued and outstanding as of
March 31, 2001 and December 31, 2000, respectively .......................... 274 265
Additional paid-in capital ....................................................... 366,212 359,612
Accumulated other comprehensive loss ............................................. (5,943) (5,228)
Accumulated deficit .............................................................. (239,373) (215,552)
--------- ---------
Total shareholders' equity ................................................... 121,170 139,097
--------- ---------
$ 235,238 $ 258,171
========= =========
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
March 31
--------
2001 2000
------------ ------------
REVENUE ..................................................... $ 22,298 $ 22,678
COST OF REVENUE ............................................. 11,163 8,654
------------ ------------
GROSS PROFIT ................................................ 11,135 14,024
------------ ------------
OPERATING EXPENSES:
Product development ....................................... 521 441
Sales and marketing ....................................... 14,108 12,050
General and administrative ................................ 9,954 9,612
Depreciation and amortization ............................. 11,714 10,250
------------ ------------
Total operating expenses ........................ 36,297 32,353
------------ ------------
LOSS FROM OPERATIONS ........................................ (25,162) (18,329)
INTEREST EXPENSE ............................................ (276) (289)
INTEREST AND OTHER INCOME, net .............................. 1,617 3,608
GAIN ON SALE OF E-COMMERCE SUBSIDIARIES ..................... -- 7,814
------------ ------------
NET LOSS .................................................... $ (23,821) $ (7,196)
============ ============
NET LOSS PER SHARE - BASIC AND DILUTED ...................... $ (0.89) $ (0.28)
============ ============
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING -
BASIC AND DILUTED ......................................... 26,821,619 25,713,275
============ ============
The accompanying notes to condensed consolidated financial statements are
an integral part of these condensed consolidated statements.
4
SPORTSLINE.COM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(amounts in thousands, except share data)
(UNAUDITED)
Accumulated
Additional Other
Paid-In Comprehensive Accumulated Comprehensive
Shares Amount Capital Loss Deficit Loss
------ ------ ------- ---- ------- ----
Balances at December 31, 2000 26,486,193 $ 265 $ 359,612 $ (5,228) $ (215,552)
Noncash issuance of common stock pursuant
to acquisition of subsidiary............. 828,376 8 6,333 -- --
Noncash issuance of common stock pursuant
to consulting agreements................. 50,000 1 266 -- --
Issuance of common stock from exercise
of employee options....................... 133 -- 1 -- --
Comprehensive loss:
Net loss.................................... -- -- -- -- (23,821) $ (23,821)
Cumulative translation adjustment........... -- -- -- (715) -- (715)
----------
Comprehensive loss.......................... $ (24,536)
==========
--------------------------------------------------------------------
Balances at March 31, 2001 27,364,702 $ 274 $ 366,212 $ (5,943) $ (239,373)
====================================================================
The accompanying notes to condensed consolidated financial statements are
an integral part of these condensed consolidated statements.
5
SPORTSLINE.COM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
(UNAUDITED)
Three Months Ended
March 31
--------
2001 2000
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ...................................................................... $(23,821) $ (7,196)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization ............................................. 11,714 10,250
Other noncash expenses .................................................... 422 862
Minority interest in consolidated subsidiaries ............................ -- (306)
Loss on equity investments ................................................ 25 --
Gain on sale of subsidiaries .............................................. -- (7,814)
Changes in operating assets and liabilities:
Accounts receivable ................................................... (4,270) (7,269)
Prepaid expenses and other current assets ............................. 284 650
Accounts payable ...................................................... (606) 2,529
Accrued liabilities ................................................... 1,195 2,563
Deferred revenue ...................................................... 409 1,273
-------- --------
Net cash used in operating activities ................................. (14,648) (4,458)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sales (purchases) of marketable securities, net ............................... 31,422 (2,005)
Purchases of property and equipment ........................................... (1,837) (7,730)
Purchase of intangible assets ................................................. (6,000) --
Acquisition of businesses ..................................................... (158) (11)
Net change in restricted cash ................................................. (317) --
-------- --------
Net cash provided by (used in) investing activities ................... 23,110 (9,746)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of preferred stock of subsidiary ....................... -- 52,500
Net proceeds from issuance of common stock and exercise of common
stock warrants and options ................................................ 1 12,990
Repayment of capital lease obligations ........................................ (6) (70)
-------- --------
Net cash provided by (used in) financing activities .................. (5) 65,420
-------- --------
Effect of exchange rate changes on cash ....................................... (435) (1,364)
-------- --------
Net increase in cash and cash equivalents ......................................... 8,022 49,852
CASH AND CASH EQUIVALENTS, beginning of period .................................... 66,713 45,968
-------- --------
CASH AND CASH EQUIVALENTS, end of period .......................................... $ 74,735 $ 95,820
======== ========
SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES:
Noncash issuance of common stock pursuant to acquisition of subsidiary ........ $ 6,341 $ --
======== ========
Noncash issuance of common stock pursuant to consulting agreement ............. $ 267 $ --
======== ========
Noncash portion of sale of subsidiaries ....................................... $ -- $ 2,991
======== ========
Noncash minority investment in businesses ..................................... $ -- $ 3,297
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest ........................................................ $ 1 $ 4
======== ========
Cash paid for income taxes .................................................... $ 683 $ 13
======== ========
The accompanying notes to condensed consolidated financial statements are
an integral part of these condensed consolidated 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 AND BASIS OF PRESENTATION:
SportsLine.com, Inc. ("SportsLine.com" or the "Company") was
incorporated on February 23, 1994 and began recognizing revenue from its
operations in September 1995. SportsLine.com is a leading media company
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 in March 1997. SportsLine.com has strategic relationships with CBS, USA
Networks, Westwood One, the NFL, Major League Baseball ("MLB"), the NBA and the
PGA TOUR and serves as the primary sports content provider for America Online
and Netscape. In 1999, the Company commenced operations in Europe through its
subsidiary, Sports.com Limited ("Sports.com"). Sports.com launched its first
site in August 1999, is the leading mobile and fixed internet provider of
European sports content, community and commerce and provides comprehensive
European coverage in English for soccer, rugby, Formula One, rally, cricket,
boxing, tennis and golf, as well as 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.
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 months ended March 31, 2001 are not necessarily indicative
of the results that may be expected for any subsequent period or the full year
ending December 31, 2001. For further information, refer to the consolidated
financial statements and notes thereto, included in the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 2000.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
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 if-converted method)
and shares issuable upon exercise of stock options and warrants (using the
treasury stock method). There were 9,159,760 and 7,712,178 options and warrants
outstanding at March 31, 2001 and 2000, 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 ended March 31, 2001 and 2000 is
as follows:
Three Months Ended
March 31,
--------------------
2001 2000
---- ----
Advertising................................ $18,270 $18,876
Subscription based services................ 1,123 1,213
Content licensing and other................ 2,905 2,589
--------- ---------
$22,298 $22,678
========= =========
7
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:--(Continued)
Barter transactions, in which the Company received advertising or other
services or goods in exchange for content or advertising on its Web sites,
accounted for approximately 24% and 14% of total revenue for the three months
ended March 31, 2001 and 2000, respectively. Included in these amounts are
$1,650 and $1,650 for the three months ended March 31, 2001 and 2000,
respectively, related to the Company's three-year agreement with AOL which
expires in October 2001. 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.
Equity transactions, in which the Company received equity in companies
in exchange for advertising and promotion accounted for approximately 8% and 14%
of total revenue for the quarters ended March 31, 2001 and 2000, respectively.
Equity revenue in 2001 is primarily generated from one agreement the Company has
which expires in June 2001. The majority of the equity related revenue in 2000
was derived from two agreements, which have been terminated as of December 31,
2000. Therefore, the Company expects that, unless new agreements are entered
into, equity related revenue will decrease in future periods.
Segment Reporting
Based on the criteria set forth in SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information," the Company operates in two
principal business segments that share the same infrastructure: United States
and Europe. 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.
A summary of the segment financial information is as follows:
Three Months Ended
March 31, 2001 March 31, 2000
-------------- --------------
Total revenue:
United States $ 20,142 $ 21,167
Europe 2,156 1,511
----------- -----------
$ 22,298 $ 22,678
=========== ===========
Loss from operations:
United States $ (16,205) $ (11,759)
Europe (8,957) (6,570)
----------- -----------
$ (25,162) $ (18,329)
=========== ===========
March 31, 2001 December 31, 2000
-------------- --------------
Identifiable assets:
United States $ 210,132 $ 223,554
Europe 25,106 34,617
----------- -----------
$ 235,238 $ 258,171
=========== ===========
(3) ACQUISITION OF DAEDALUS WORLD WIDE CORPORATION.
The Company acquired Daedalus World Wide Corporation. in December 1999.
In the fourth quarter of 2000, a $12,000 liability was recorded pursuant to the
purchase agreement, which provided for additional consideration in exchange for
meeting certain performance thresholds. During the first quarter of 2001,
828,376 shares of common stock were issued in satisfaction of $6,000 of the
liability. This remaining $6,000 is payable in cash or common stock in December
2001.
(4) COMMITMENTS AND CONTINGENCIES:
The terms of the Series B Preferred Shares of the Company's subsidiary,
Sports.com, allow any holder of the Series B Preferred Shares to elect to redeem
any or all of the Series B Preferred Shares in the event (i) an initial
8
(4) COMMITMENTS AND CONTIGENCIES:--(Continued)
public offering meeting certain conditions of the capital stock of Sports.com
has not occurred by January 12, 2004 (a "Qualified IPO"); (ii) a change of
control of Sports.com shall occur; or (iii) an initial public offering of the
capital stock of Sports.com which is not a Qualified IPO shall occur.
The redemption price of the Series B Preferred shall be the greater of
the nominal amount of the Series B Preferred plus any accrued but unpaid
dividends thereon or the fair market value of the Series B Preferred. In
addition, the terms of the Series A Preferred Shares of Sports.com allow the
holders of at least two thirds of the Series A Preferred Shares to elect to
redeem any or all of the Series A Preferred Shares either (i) in three equal
annual installments beginning on May 1, 2009; or (ii) following the payment in
full by Sports.com of the redemption of the Series B Preferred Shares. The
redemption price of the Series A Preferred shall be the nominal amount of the
Series A Preferred plus any accrued but unpaid dividends thereon. Such Preferred
Shares are reflected in minority interest in the accompanying condensed
consolidated balance sheets at the estimated redemption amounts.
The Company has been informed that Lisa J. and David L. Crocker have
filed a lawsuit in a state court in Madison County, Illinois (the "Crocker
Action"), naming as defendants, the Company and certain of its executive
officers. Also named as defendants are, among others, the National Collegiate
Athletic Association, CBS Corporation, Viacom International, Inc., several major
credit card issuers and several individuals and corporations that allegedly are
engaged in various aspects of internet gambling. The Crocker Action asserts
various claims based on alleged patterns of racketeering activity among the
various defendants and seeks monetary damages in unspecified amounts, and
injunctive and other relief. To the best of its knowledge, the Company has not
yet been served with the Crocker Action. However, the Company believes the
Crocker Action to be totally without merit and intends to vigorously defend
itself and its executive officers in this lawsuit.
In the opinion of management, the Company is not currently a party to
any other 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.
(5) PURCHASE OF INTANGIBLE ASSETS
During the first quarter of 2001, the Company purchasd certain assets
from MVP.com, Inc. for a total of $6.0 million. These assets consisted of the
domain names, trademarks and certain other assets associated with the Web sites
mvp.com, PlanetOutdoors.com, igogolf.com, tennisdirect.com and golfclubtrader.
(6) SUBSEQUENT EVENTS
In April 2000, the Company, through its wholly owned subsidiary
VegasInsider.com, Inc., purchased the DBC Sports division of Data Broadcasting
Corporation ("DBC") in exchange for 277,152 shares of the Company's common stock
(the "Consideration Shares"). Pursuant to the terms of the purchase agreement,
the Company guaranteed that the Consideration Shares would have a value equal to
or greater than $12.5 million on March 31, 2001 (the "Guaranteed Proceeds"). On
April 6, 2001, due to the decline in the trading price of the Company's common
stock, the Company fulfilled its obligation to DBC by purchasing the
Consideration Shares for $12.5 million. The Consideration Shares were cancelled
and retired in April 2001. DBC Sports originates and sells odds and other
statistical data to certain Las Vegas casinos.
(7) RECENTLY ISSUED ACCOUNTING STANDARDS
The Company adopted SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities on January 1, 2001. SFAS No. 133, as amended by SFAS No.
138, requires the recognition of all derivatives on the balance sheet as either
assets or liabilities measured at fair value. Derivatives that do not qualify
for hedge accounting must be adjusted to fair value through income. Adoption of
SFAS No. 133 did not have a material impact on the consolidated financial
statements, as no derivative contracts have been entered into and there are no
current plans to do so in the future.
9
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 for the year ended December 31,
2000. 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.
Recent Developments
In April 2001, in recognition of the continued uncertainty in the
advertising markets and overall downturn in the economy, the Company announced
that it has implemented several cost-saving initiatives. Cost reductions will be
accomplished through a variety of steps, most significantly in the areas of
discretionary marketing and a 15-20% reduction in the Company's domestic
workforce. There have been no reductions in the Company's sales force. These
cost-saving initiatives are expected to bring the Company $8 to $10 million in
savings on an annualized basis. Based on these actions, the Company expects to
record a one-time charge in the second quarter of 2001 of approximately $2 to $3
million related primarily to severance pay and termination of leases. Sports.com
is also being affected by the downturn in the economy, and is in the process of
reducing expenses to preserve cash, while maintaining its leadership position in
Europe. Sports.com continues to pursue additional private financing; however,
due to current financial market conditions the success of the funding cannot be
assured. SportsLine.com has no obligation to provide additional funding to
Sports.com beyond its existing $2.5 million investment.
In April 2001, the Company re-purchased the shares issued in the
acquisition of the DBC Sports division of Data Broadcasting Corporation for
approximately $12.5 million.
Results of Operations
Revenue
Total revenue for the three months ended March 31, 2001 was $22,298,000
compared to $22,678,000 for the three months ended March 31, 2000. The decrease
in revenue in the first quarter was primarily due to the termination of the
agreements with MVP.com and Internet Sports Network offset by increases in
content licensing and other revenue.
Advertising revenue decreased $606,000 in the first quarter of 2001
compared to the same period in 2000. Advertising revenue decreased primarily as
a result of the termination of the agreements with MVP.com and Internet Sports
Network. Excluding revenue recorded under these agreements, advertising revenue
increased 65% in 2001 compared to 2000. In conjunction with the NFL and CBS, the
Company produced the official site for SuperBowl.com, attracting many new and
repeat sponsors such as Miller Lite, Blockbuster, Coke, Ford Trucks,
10
Frito-Lay, RCA and Taco Bell. Also, the Company generated over $5,000,000 in
advertising revenue from its coverage of the 2001 NCAA Men's Basketball
Championship, an increase of over $1,000,000 from coverage of the 2000 NCAA
Men's Basketball Championship during the quarter ended March 31, 2000.
International advertising revenue, revenue generated by Sports.com, accounted
for approximately 5% of total advertising revenue during the quarters ended
March 31, 2001 and 2000.
Subscription based services revenue decreased $90,000 in the three
months ended March 31, 2001 compared to the same period in 2000. In July 2000,
the Company began offering its fantasy products and services for free instead of
for a fee, resulting in a decrease in subscription revenues for all subsequent
periods. However, the Company expects this new strategy to result in an increase
in fantasy players and to enhance its ability to generate incremental
advertising revenue through database marketing and new sponsorship and
advertising sales. Subscription based services revenue from memberships also
decreased in 2001 due to a restructuring of the Company's membership program.
These decreases were offset by the addition of subscription revenue relating to
statistical data and other content as a result of its acquisition of DBC Sports
in April 2000.
Content licensing and other revenue increased $316,000 in the three
months ended March 31, 2001 compared to the same period in 2000. The increase in
other revenue was mostly due to fees generated by Sports.com's online betting
site and, to a lesser extent, other international content revenue. The Company's
agreement with Excite expired in December 2000, and its agreement with AOL
currently is scheduled to expire in October 2001. Unless the Company enters into
new content licensing agreements or extends the AOL agreement, management
expects content licensing revenue to decline in future periods.
As of March 31, 2001, the Company had current deferred revenue of
$5,701,000 relating to cash, equity investments and receivables for which
services had not yet been provided.
Barter transactions, in which the Company received advertising or other
services or goods in exchange for content or advertising on its Web sites,
accounted for approximately 24% and 14% of total revenue for the three months
ended March 31, 2001 and 2000, respectively. Included in these amounts are
$1,650,000 and $1,650,000 for the three months ended March 31, 2001 and 2000,
respectively, related to the Company's three-year agreement with AOL which
expires in October 2001. 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.
Equity transactions, in which the Company received equity in companies
in exchange for advertising and promotion accounted for approximately 8% and 14%
of total revenue for the quarters ended March 31, 2001 and 2000, respectively.
Equity revenue in 2001 is primarily generated from one agreement which the
Company has which expires in June 2001. The majority of the equity related
revenue in 2000 was derived from the MVP and ISN agreements, both of which had
been terminated as of December 31, 2000. Therefore, the Company expects that,
unless new agreements are entered into, equity related revenue will decrease in
future periods.
Cost of Revenue
Cost of revenue for the three months ended March 31, 2001 and 2000 was
$11,163,000 and $8,654,000, respectively. The increase in cost of revenue was
primarily due to content and personnel costs for Sports.com's Spain, Germany and
Italy operations, which commenced in the second quarter of 2000, along with
increased expenses associated with Sports.com's new on-line betting service.
Sports.com accounted for 38% of cost of revenue in the quarter ended March 31,
2001 and 26% of cost of revenue in the quarter ended March 31, 2000. Cost of
revenue also increased in 2001 to a lesser extent due to increases in the costs
of content fees and telecommunications needed to support and deliver services
such as streaming video during the SuperBowl and the NCAA Men's Basketball
Championship. As a percentage of revenue, cost of revenue increased to 50% for
the three months ended March 31, 2001 from 38% for the three months ended March
31, 2000.
Operating Expenses
Product Development. For the three months ended March 31, 2001 and
2000, product development costs were $521,000 and $441,000, respectively. The
Company believes that to remain competitive, it must continue to
11
invest in product development expenses for development of proprietary sports
information and entertainment applications, services, technologies, interfaces,
and content. As a percentage of revenue, product development expense was 2% for
the three months ended March 31, 2001 and 2000.
Sales and Marketing. For the three months ended March 31, 2001 and
2000, sales and marketing expense was $14,108,000 and $12,050,000, respectively.
The increase in sales and marketing expense was primarily the result of
increased advertising expense and increased personnel costs due to the expansion
of Sports.com in Europe. Sports.com accounted for 22% of sales and marketing
expense in 2001 compared to 21% in 2000. Barter transactions accounted for
approximately 38% and 27% of sales and marketing expense for the three months
ended March 31, 2001 and 2000, respectively. As a percentage of revenue, sales
and marketing expense increased to 63% for the three months ended March 31, 2001
from 53% for the three months ended March 31, 2000.
General and Administrative. General and administrative expense for the
three months ended March 31, 2001 and 2000 was $9,954,000 and $9,612,000,
respectively. The increase in general and administrative expense in the first
quarter was primarily attributable to expenses related to Sports.com, including
increases in rent and occupancy expense and payroll. Sports.com accounted for
29% of general and administrative expense in 2001 compared to 27% in 2000.
Increased domestic expenses were rent and other expenses related to the
Company's corporate headquarters and system support expenses related to the
Company's on-going technological infrastructure. As a percentage of revenue,
general and administrative expense increased to 45% for the three months ended
March 31, 2001 from 42% for the three months ended March 31, 2000.
Depreciation and Amortization. Depreciation and amortization expense
was $11,714,000 and $10,250,000 for the three months ended March 31, 2001 and
2000, respectively. The increase in depreciation and amortization in 2001
compared to 2000 was due to the increased amortization of assets acquired in
connection with the acquisition DBC Sports in April 2000 and the acquisition of
intangible assets of MVP.com following termination of the MVP.com agreement. In
future periods, the Company anticipates total amortization expense to increase
as a result of the agreement with CBS and the goodwill amortization of
acquisitions. Total amortization expense for the first quarter of 2001 under the
Company's agreements with CBS, AOL, Westwood One and PGA TOUR was $4,322,000,
$1,227,000, $750,000 and $567,000, respectively; and amortization under these
agreements for the remainder of 2001 will be $12,964,000, $2,454,000, $2,250,000
and $1,700,000, respectively. The AOL agreement currently expires in October
2001.
Interest Expense. Interest expense was $276,000 for the three months
ended March 31, 2001 compared to $289,000 for the three months ended March 31,
2000. The decrease in interest expense was primarily due to the expiration of
capital leases in the first quarter of 2001.
Interest and Other Income, Net. Interest and other income, net for the
three months ended March 31, 2001 was $1,617,000 compared to $3,608,000 for the
three months ended March 31, 2000. The decrease was primarily attributable to a
lower invested cash balances and decreasing interest rates.
Liquidity and Capital Resources
As of March 31, 2001, the Company's primary source of liquidity
consisted of $74,735,000 in cash and cash equivalents. As of March 31, 2001, the
Company also had $27,630,000 in current marketable securities, which mature at
various dates through May 2001. Of these amounts, $13,077,000 in cash and cash
equivalents are held by Sports.com.
As of March 31, 2001, current deferred advertising and content costs
totaled $14,658,000, which represented costs related to the CBS and AOL
agreements to be amortized to depreciation and amortization expense during the
remainder of 2001. Long-term deferred advertising and content costs related to
the CBS agreement totaled $10,857,000. Accrued liabilities totaled $21,157,000
as of March 31, 2001, an increase of $1,195,000 from December 31, 2000,
primarily due to increases in accruals for expenses related to revenue sharing
and international marketing and rent expenses.
Net cash used in operating activities was $14,648,000 and $4,458,000
for the three months ended March 31, 2001 and 2000, respectively. In the quarter
ended March 31, 2001, domestic net cash used in operating activities was
$6,013,000 and international net cash used in operating activities was
$8,635,000. The principal uses of cash
12
for all periods were to fund the Company's net losses from operations partially
offset by increases in depreciation and amortization and accrued liabilities.
Net cash provided by investing activities was $23,110,000 for the three
months ended March 31, 2001 while net cash used in investing activities was
$9,746,000 for the three months ended March 31, 2000. Investing activities
consisted primarily of the sale of marketable securities during the first
quarter of 2001 offset by the purchase of intangible assets from MVP.com. In the
first quarter of 2000, net cash used in investing activities was primarily for
the purchase of property and equipment and, to a lesser extent purchases of
current and non-current marketable securities.
Net cash used by financing activities was $5,000 for the three months
ended March 31, 2001 and net cash provided by financing activities was
$65,420,000 for the three months ended March 31, 2000. Financing activities in
2001 consisted principally of the repayment of capital lease obligations.
Financing activities in 2000 consisted principally of the issuance of preferred
stock by Sports.com and the exercise of warrants by CBS.
Although the Company has no material commitments for capital
expenditures, it anticipates purchasing approximately $8.2 million of property
and equipment during the remainder of 2001, 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
required by or on terms acceptable to the Company.
Sports.com continues to pursue additional private financing; however,
due to current financial market conditions the success of the funding cannot be
assured. SportsLine.com has no obligation to provide additional funding to
Sports.com beyond its existing $2.5 million investment.
Seasonality
The Company expects that its revenue will be higher leading up to and
during major U.S. and U.K. 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 the cyclical nature of the level of
Internet advertising expenditures could become more pronounced. The foregoing
factors could have a material adverse effect on the Company's business, results
of operations and financial condition.
Recent Accounting Pronouncements
The Company adopted SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities on January 1, 2001. SFAS No. 133, as amended by SFAS No.
138, requires the recognition of all derivatives on the balance sheet as either
assets or liabilities measured at fair value. Derivatives that do not qualify
for hedge accounting must be adjusted to fair value through income. Adoption of
SFAS No. 133 did not have a material impact on the consolidated financial
statements, as no derivative contracts have been entered into and there are no
current plans to do so in the future.
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
13
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.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company has been informed that Lisa J. and David L. Crocker have
filed a lawsuit in a state court in Madison County, Illinois (the "Crocker
Action"), naming as defendants, the Company and certain of its executive
officers. Also named as defendants are, among others, the National Collegiate
Athletic Association, CBS Corporation, Viacom International, Inc., several major
credit card issuers and several individuals and corporations that allegedly are
engaged in various aspects of internet gambling. The Crocker Action asserts
various claims based on alleged patterns of racketeering activity among the
various defendants and seeks monetary damages in unspecified amounts, and
injunctive and other relief. To the best of its knowledge, the Company has not
yet been served with the Crocker Action. However, the Company believes the
Crocker Action to be totally without merit and intends to vigorously defend
itself and its executive officers in this lawsuit.
In the opinion of management, the Company is not currently a party to
any other 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.
ITEM 2. CHANGE IN SECURITIES
During the three months ended March 31, 2001, the Company issued and
sold the following securities without registration under the Securities Act:
In January 2001, in connection with the execution of a consulting
agreement, the Company issued 50,000 shares of common stock to Eldrick T. Woods
in consideration of services rendered thereunder.
In March 2001, in connection with the December 1999 acquisition of
Daedalus Worldwide, the Company issued 828,376 shares of common stock to the
former holders of stock of that corporation as additional consideration for the
acquisition.
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
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
None
(b) Reports on Form 8-K
On February 20, 2001, the Company filed a Report on Form 8-K to
announce that the Company, Sports.com and Asiacontent.com, Ltd. have
discontinued their efforts to establish a joint venture in Asia.
15
On February 15, 2001, the Company filed a Report on Form 8-K to
announce the launch of an online betting service in the United Kingdom by
Sports.com.
On February 9, 2001, the Company filed a Report on Form 8-K to announce
(i) a multi-year partnership with USA Networks' Electronic Commerce Solutions
(ECS), whereby ECS will build and service SportsLine.com's retail infrastructure
and (ii) that in a separate transaction, SportsLine.com acquired the domain
names, trademarks and certain other assets associated with mvp.com,
PlanetOutdoors.com, igogolf.com, tennisdirect.com and golfclubtrader.com. Also
the Company filed a press release disclosing its financial results for the
fiscal quarter and fiscal year ended December 31, 2000 in such report.
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: May 15, 2001 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