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 March 31, 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)
6340 N.W. 5th Way
Fort Lauderdale, Florida 33309
(Address of principal executive offices) (Zip Code)
(954) 351-2120
(Registrant's telephone number, including area code)
None
(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, 2000:
26,369,369
Page 1 of 16 Pages
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Condensed Consolidated Balance Sheets (unaudited) as of March 31, 2000 and December 31, 1999........................ 3
Condensed Consolidated Statements of Operations (unaudited)
for the three months ended March 31, 2000 and 1999.............................................................. 4
Condensed Consolidated Statements of Changes in Shareholders' Equity (unaudited)
for the three months ended March 31, 2000....................................................................... 5
Condensed Consolidated Statements of Cash Flows (unaudited)
for the three months ended March 31, 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)
March 31, December 31,
2000 1999
---- ----
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ......................................... $ 95,820 $ 45,968
Marketable securities ............................................. 49,381 24,953
Deferred advertising and content costs ........................... 19,530 19,530
Accounts receivable ............................................... 18,093 11,875
Prepaid expenses and other current assets ......................... 13,512 14,657
--------- ---------
Total current assets .......................................... 196,336 116,983
RESTRICTED CASH EQUIVALENTS .......................................... 489 489
NONCURRENT MARKETABLE SECURITIES ..................................... 27,630 50,052
INVESTMENT IN MVP.COM, INC ........................................... 100,000 --
LICENSING RIGHTS ..................................................... 3,967 4,533
NONCURRENT DEFERRED ADVERTISING - AOL ................................ 2,454 3,682
NONCURRENT DEFERRED ADVERTISING AND CONTENT - CBS .................... 24,394 28,716
PROPERTY AND EQUIPMENT, net .......................................... 15,091 10,351
GOODWILL, net ........................................................ 37,945 42,823
OTHER ASSETS ......................................................... 25,626 13,832
--------- ---------
$433,932 $271,461
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable .................................................. $ 3,474 $ 3,296
Accrued liabilities ............................................... 16,680 12,128
Current portion of capital lease obligations ...................... 100 170
Current portion of deferred revenue ............................... 32,715 4,160
--------- ---------
Total current liabilities .................................... 52,969 19,754
DEFERRED REVENUE ..................................................... 70,472 --
CONVERTIBLE SUBORDINATED NOTES ....................................... 19,608 19,608
--------- ---------
Total liabilities ............................................ 143,049 39,362
--------- ---------
MINORITY INTEREST .................................................... 59,463 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 March 31, 2000 and December 31,
1999........................................................... -- --
Common stock, $0.01 par value, 200,000,000 shares authorized,
26,084,982 and 25,358,488 issued and outstanding as of
March 31, 2000 and December 31, 1999, respectively ........... 261 254
Additional paid-in capital ........................................ 349,161 333,879
Cumulative translation adjustment ................................. (1,322) 7
Accumulated deficit ............................................... (116,680) (109,484)
--------- ---------
Total shareholders' equity .................................... 231,420 224,656
--------- ---------
$433,932 $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
March 31,
---------
2000 1999
---- ----
REVENUE ....................................... $ 22,678 $ 11,057
COST OF REVENUE ............................... 8,654 5,383
------------ ------------
GROSS MARGIN .................................. 14,024 5,674
------------ ------------
OPERATING EXPENSES:
Product development ......................... 441 357
Sales and marketing ......................... 12,050 6,786
General and administrative .................. 9,612 3,861
Depreciation and amortization ............... 10,250 5,844
------------ ------------
Total operating expenses .......... 32,353 16,848
------------ ------------
LOSS FROM OPERATIONS .......................... (18,329) (11,174)
INTEREST EXPENSE .............................. (289) (186)
INTEREST AND OTHER INCOME, net ................ 3,608 1,232
GAIN ON SALE OF SUBSIDIARIES .................. 7,814 --
------------ ------------
NET LOSS ...................................... $ (7,196) (10,128)
============ ============
NET LOSS PER SHARE - BASIC AND DILUTED......... $ (0.28) $ (0.47)
============ ============
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING-
BASIC AND DILUTED............................ 25,713,275 21,694,499
============ ============
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
(amount in thousands except share data)
(UNAUDITED)
Accumulated
Additional Other
Common Stock Paid-In Comprehensive Accumulated Comprehensive
Shares Amount Capital Income(Loss) Deficit Loss
------ ------ ------- ------------ ------- ----
Balances at December 31, 1999 ................ 25,358,488 $ 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 ... 141,055 1 1,124 -- --
of employee options
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)
========== ========= ============ ========== ============
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
(amount in thousands)
(UNAUDITED)
Three Months Ended
March 31,
---------
2000 1999
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ........................................................................... $ (7,196) $ (10,128)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization .................................................. 10,250 5,844
Provision for doubtful accounts ................................................ 862 51
Minority interest in consolidated subsidiaries ................................. (306) --
Gain on sale of subsidiaries ................................................... (7,814) --
Changes in operating assets and liabilities:
Accounts receivable ........................................................ (7,269) (2,054)
Prepaid expenses and other current assets .................................. 650 (1,497)
Accounts payable ........................................................... 2,529 (616)
Accrued liabilities ........................................................ 2,563 1,358
Deferred revenue ........................................................... 1,273 (250)
--------- ---------
Net cash used in operating activities ....................................... (4,458) (7,292)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities, net ............................................. (2,005) (10,151)
Purchases of property and equipment ................................................ (7,730) (1,721)
Acquisition of businesses .......................................................... (11) --
--------- ---------
Net cash used in investing activities ....................................... (9,746) (11,872)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock and exercise of common
stock warrants and options ...................................................... 12,990 2,517
Proceeds from issuance of preferred stock of
subsidiary........................................................................ 52,500 --
Proceeds from issuance of convertible subordinated notes, net of costs ............. -- 145,443
Repayment of capital lease obligations and long term borrowings .................... (70) (64)
--------- ---------
Net cash provided by financing activities ................................... 65,330 147,896
--------- ---------
Effect of exchange rate changes on cash ............................................ (1,364) --
Net increase in cash and cash equivalents .............................................. 49,852 128,732
CASH AND CASH EQUIVALENTS, beginning of period ......................................... 45,968 31,684
--------- ---------
CASH AND CASH EQUIVALENTS, end of period ............................................... $ 95,820 $ 160,416
--------- ---------
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Noncash portion of sale of subsidiaries ............................................ $ 2,991 $ --
========= =========
Noncash minority investments in businesses ......................................... $ 3,297 $ --
========= =========
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 ............................................................. $ 4 $ 19
========= =========
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:
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. In addition, Sports.com Limited ("Sports.com"), a majority owned
subsidiary of SportsLine.com launched its first site, football.sports.com, in
August 1999 followed in September by rugby.sports.com and france.sports.com.
Sports.com now covers all major sports in Europe and produces additional country
specific local language sites for Germany, Italy and Spain. The Company's
flagship Internet sports service (www.sportsline.com ) was renamed CBS
SportsLine in March 1997 as part of an exclusive promotional and content
agreement with CBS Corporation ("CBS"). SportsLine.com produces the official
league Web sites for Major League Baseball, the PGA TOUR and NFL Europe League,
and serves as the primary sports content provider for America Online, Netscape
and Excite.
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; produces and offers
contests, games, and fantasy league products; and sells sports-related
merchandise and memorabilia.
(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 value and will be
periodically reviewed for any impairment. The sale resulted in a one-time gain
of $7,814 related to the assets of the above companies.
The Company acquired another business during 1999 and accounted for the
transaction using the purchase method of accounting. The purchase resulted in
goodwill of $3,726, which is being amortized over an estimated life of seven
years. This business was sold in April 2000 resulting in a gain of approximately
$ 994.
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 $2,420 which 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
$59,463 has been reflected in the Company's consolidated balance sheet as of
March 31, 2000 to reflect the minority interest in Sports.com not owned by the
Company.
The Company acquired Daedalus Worldwide, Inc. in December 1999. The
transaction was accounted for using the purchase method of accounting. The
purchase resulted in goodwill of $31,880, which is being amortized over an
estimated life of seven years.
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
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)
unaudited financial statements. All significant intercompany transactions and
balances have been eliminated in consolidation. Operating results for the three
months ended March 31, 2000 are not necessarily indicative of the results that
may be expected for any subsequent quarter 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 if-converted method)
and shares issuable upon exercise of stock options and warrants (using the
treasury stock method). There were 7,712,178 and 7,101,156 options and warrants
outstanding at March 31, 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 ended March 31, 2000 and 1999 is
as follows:
Three Months Ended
March 31,
---------
2000 1999
---- ----
Advertising........................................................... $18,876 $ 5,888
E-commerce............................................................ 28 2,221
Membership and premium services....................................... 1,213 1,340
Content licensing and other........................................... 2,561 1,608
------- -------
$22,678 $11,057
======= =======
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 14% and 18% of total revenue for the three months
ended March 31, 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.
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 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
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)
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 March 2000, the SEC issued SAB No. 101A to defer for one quarter the
effective date of implementation of SAB No. 101 with earlier application
encouraged. The Company is required to adopt SAB 101 in the second 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.
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.
Beginning 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
March 31, 2000
------------------
Total revenue:
United States $ 21,167
Europe 1,511
---------
$ 22,678
=========
Loss from operations:
United States $ (11,759)
Europe (6,570)
---------
$ (18,329)
=========
Interest income, net:
United States $ 1,826
Europe 1,493
---------
$ 3,319
=========
Gain on sale of subsidiaries:
United States $ 7,814
Europe --
---------
$ 7,814
=========
Net loss:
United States $ (2,119)
Europe (5,077)
---------
$ (7,196)
=========
Total assets as of March 31, 2000:
United States $ 374,156
Europe 59,776
---------
$ 433,932
=========
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:
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 against the Company and the named co-defendants 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 patent entitled "Computerized Statistical
Football Game," issued by the United States Patent and Trademark Office, 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
patent in the suit, that the patent in the suit is invalid, and the Company
seeks a Declaratory Judgement 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 against the Company 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 a tertiary domain name which the
plaintiff alleges infringes on the plaintiff's trademark rights. The action is
being consolidated with a declaratory judgement action, commenced by the
Company, seeking a judgement that the use of the tertiary URL
"shop.sportsline.com" did not infringe on plaintiff's common law rights. The
Company intends to vigorously defend itself in this action.
From time to time, the Company is involved in 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 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.
Recent Developments
In February 2000, the Company entered into a multi-year strategic
agreement with theglobe.com. Under the terms of the agreement the Company will
receive a minimum guarantee of $5 million payable in theglobe.com stock,
representing 3% of the outstanding shares in theglobe.com stock, in exchange for
integration and promotion of the enhanced community throughout the Company's web
sites and inclusion in the Company's membership "Rewards Program".
In the first quarter of 2000, the Company entered into a 10-year
strategic e-commerce and marketing agreement with MVP.com, Inc. ("MVP.com"), a
new sports and outdoor e-commerce company, pursuant to which MVP.com acquired
and will operate the Company's domestic e-commerce business. Effective as of
January 1, 2000, MVP.com assumed responsibility, at its expense, for the design,
hosting, operation and ongoing maintenance of the Company's e-commerce
operations and is entitled to all revenue generated from the sales of goods and
services pursuant thereto. As consideration for this right, MVP.com has issued
equity to the Company and will pay the Company promotional fees based on the
amount of revenue generated, with minimum cash payments of $120 million over the
10-year term. In connection with this agreement, the Company sold three of its
subsidiaries which engage in e-commerce activity (International Golf Outlet,
Inc., Golf Club Trader, Inc. and TennisDirect.com, Inc.) to MVP.com in exchange
for additional equity in MVP.com. The sale generated a one-time gain of
$7,814,000.
Results of Operations
Revenue
Total revenue for the quarter ended March 31, 2000 and 1999 was
$22,678,000 and $11,057,000, respectively. The increase in revenue was primarily
due to increased advertising sales and content licensing. Advertising revenue
for the three months ended March 31, 2000 and 1999 represented 83% and 53%,
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 advertising revenue recognized pursuant to the
agreement with MVP.com. During March 2000, the Company's coverage of the NCAA
tournament set a Company record for advertising sales for an event. There were
approximately 35 sponsors including Oldsmobile, Agilent and Budweiser. The
number of impressions available on the Company's Web sites also increased as
more content was produced.
Membership and premium services revenue decreased $127,000 in the three
months ended March 31, 2000 compared to the same period in 1999. While basic
membership revenue decreased in 2000 due to a restructuring of the Company's
membership program, premium service revenue increased due to increased
participation in the Company's fantasy sports contests as well as increased
participation in the Company's "Sports Careers" products. In January 1999, the
Company launched "SportsLine Rewards," a program which offers bonus points to
members for viewing pages and making purchases. These points can be redeemed for
discounts on merchandise, special events and other premium items.
E-commerce revenue decreased $2,193,000 in the three months ended March
31, 2000 compared to the same period ended March 31, 1999. This was caused by
the sale effective as of January 1, 2000, of virtually all of the Company's
e-commerce business to MVP.com.
Content licensing and other revenue increased $953,000 in the three
months ended March 31, 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 March 31, 2000, the Company had current deferred revenue of
$32,715,000 and long term-deferred revenue of $70,472,000 relating to cash or
receivables for which services had not yet been provided. Such amounts primarily
relate to the
11
MVP.com agreement previously discussed.
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 14% and 18% of total revenue for the three months
ended March 31, 2000 and 1999, respectively. 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.
Cost of Revenue
Cost of revenue for the three months ended March 31, 2000 and 1999 was
$8,654,000 and $5,383,000, 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 PGA TOUR. In addition, costs of content fees
and telecommunications needed to support and deliver services increased. Other
increases in cost of revenue reflect the relatively high level of rights
payments and employee costs required for the start up of Sports.com (which
accounted for 26% of total cost of revenue in the first quarter of 2000). As a
percentage of revenue, cost of revenue decreased to 38% for the three months
ended March 31, 2000 from 49% for the three months ended March 31, 1999.
Operating Expenses
Product Development. For the three months ended March 31, 2000 and
1999, product development costs were $441,000 and $357,000, 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 months ended March 31, 2000 from 3% for the three
months ended March 31, 1999.
Sales and Marketing. For the three months ended March 31, 2000 and
1999, sales and marketing expense was $12,050,000 and $6,786,000, respectively.
The increase in sales and marketing expense was primarily the result of the
growth in the number of personnel and related costs, increased advertising on
other Web sites as well as in print and other media and the addition of expenses
related to Sports.com. Sports.com accounted for $2,550,000 or 21% 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 Web
sites. Barter transactions accounted for approximately 27% and 29% of sales and
marketing expense for the three months ended March 31, 2000 and 1999,
respectively. As a percentage of revenue, sales and marketing expense decreased
to 53% for the three months ended March 31, 2000 from 61% for the three months
ended March 31, 1999.
General and Administrative. General and administrative expense for the
three months ended March 31, 2000 and 1999 was $9,612,000 and $3,861,000,
respectively. The increase in general and administrative expense in each period
was primarily attributable to expenses related to Sports.com as well as salary
and related expenses for additional personnel. 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. 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 42% for the three months ended March 31,
2000 from 35% for the three months ended March 31, 1999.
Depreciation and Amortization. Depreciation and amortization expense
was $10,250,000 and $5,844,000 for the three months ended March 31, 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, 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 future
periods, the Company anticipates total amortization expense to increase as a
result of the continuing agreements mentioned above and the goodwill
amortization of recent acquisitions.
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 $4,322,000 for the three months ended March 31, 2000 and will
be $12,964,000 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 $1,227,000 for the three months ended March 31, 2000
and will be $3,272,000 for the remainder of 2000.
12
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 $750,000
for the three months ended March 31, 2000 and will be $2,250,000 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 the PGA TOUR agreement was $567,000 for
the three months ended March 31, 2000 and will be $1,701,000 for the remainder
of 2000.
Interest Expense. Interest expense was $289,000 for the three months
ended March 31, 2000 compared to $186,000 for the three months ended March 31,
1999. The increase in interest expense was primarily due to the interest on the
Convertible Subordinated Notes which were issued on March 24, 1999. The Company
anticipates that interest expense will decrease in the immediate future compared
to 1999, as a result of the repurchase and retirement during the third and
fourth quarter of 1999 of approximately $130,000,000 of the $150,000,000
principal amount of Convertible Subordinated Notes originally issued.
Interest and Other Income, Net. Interest and other income, net for the
three months ended March 31, 2000 was $3,608,000 compared to $1,232,000 for the
three months ended March 31, 1999. The increase was primarily attributable to
the higher average balance of cash and cash equivalents and marketable
securities resulting from the investment of the proceeds from the Company's
April 1998 public equity offering, the Company's March 1999 Convertible
Subordinated Note offering and the funding received by Sports.com from the
issuance of Series B Preferred stock. Sports.com contributed to the increase by
recording a realized currency exchange gain upon receipt of the above funding
during the first quarter of 2000.
Gain on sale of subsidiaries. Effective January 1, 2000, the Company
sold to MVP.com three of its subsidiaries which engage in e-commerce activity
(International Golf Outlet, Inc., Golf Club Trader, Inc. and TennisDirect.com,
Inc.) The sale resulted a one-time gain of $7,814,000.
Liquidity and Capital Resources
As of March 31, 2000, the Company's primary source of liquidity
consisted of $95,820,000 in cash and cash equivalents, an increase of
$49,852,000 from December 31, 1999. As of March 31, 2000 the Company has
$49,381,000 in current marketable securities and $27,630,000 in noncurrent
marketable securities, which mature at various dates from April 2001 to May
2001. In January 2000, Sports.com completed a second round of funding, raising
gross proceeds of $52,500,000 through the issuance of Series B Preferred Stock.
In February 2000, CBS exercised warrants to purchase 500,000 shares of common
stock resulting in net proceeds of $11,500,000.
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 March 31, 2000, the Company owed $100,000 under these facilities.
As of March 31, 2000, current deferred advertising and content costs
totaled $19,530,000 and long-term deferred advertising and content costs totaled
$26,848,000, which represented costs related to the CBS and AOL agreements.
These amounts will be amortized to depreciation and amortization expense over
the terms of each agreement. Accrued liabilities totaled $16,680,000 as of March
31, 2000, an increase of $4,552,000 from December 31, 1999, primarily due to
increases in accruals for expenses related to sale of the subsidiaries to
MVP.com and revenue sharing.
Net cash used in operating activities was $4,458,000 and $7,292,000 for
the three months ended March 31, 2000 and 1999, respectively. The principal uses
of cash for all periods were to fund the Company's net losses from operations,
partially offset by increases in depreciation and amortization, accrued
liabilities and accounts payable.
Net cash used in investing activities was $9,746,000 and $11,872,000
for the three months ended March 31, 2000 and 1999, respectively. The principal
uses of cash in investing activities was for the purchases of property and
equipment and to a lesser extent purchases of marketable securities.
Net cash provided by financing activities was $64,056,000 and
$147,896,000 for the three months ended March 31, 2000 and 1999, respectively.
Financing activities consisted principally of the issuance of the Sports.com
Series B Preferred Stock and the exercise of the CBS warrants.
13
Although the Company has no material commitments for capital
expenditures, it anticipates purchasing approximately $10.0 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 the 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 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, such as the Olympics and the World Cup events, although
such events do not occur every year. 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 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 accounting principles to revenue recognition in financial statements.
In March 2000, the SEC issued SAB No. 101A to defer for one quarter the
effective date of implementation of SAB No. 101 with earlier application
encouraged. The Company is required to adopt SAB 101 in the second 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.
14
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
From time to time, the Company is involved in 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.
ITEM 2. CHANGE IN SECURITIES
Sales of Unregistered Securities During the Three Months Ended March 31, 2000
During the three months ended March 31, 2000, the Company issued and
sold the following securities without registration under the Securities Act:
During the three months ended March 31, 2000, upon exercise of
warrants, the Company issued a total of 557,000 shares of common stock for
aggregate cash of $11,865,000 including: (i) 6,000 shares of common stock to
Carmen A. Policy for cash consideration of $45,000; (ii) 10,000 shares of common
stock to Cal Ripken Jr. for cash consideration of $100,000; (iii) 18,000 shares
of common stock to Big Sky, Inc. for cash consideration of $90,000; (iv) 6,000
shares of common stock to Edward J. DeBartolo for cash consideration of $45,000;
(v) 17,000 shares of common stock to Leonard Armato for cash consideration of
$85,000; (vi) 500,000 shares of common stock to CBS Corporation for cash
consideration of $11,500,000.
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
15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibit Description
- ------- -----------
10.1 E-Commerce and Marketing Agreement, dated
March 24, 2000, between MVP.com, Inc. and
the Company.+
27 Financial Data Schedule
+ Certain portions of this exhibit have been omitted and separately filed with
the Securities and Exchange Commission pursuant to a request for confidential
treatment thereof.
(b) Reports on Form 8-K
On February 22, 2000, the Company filed a report on Form 8-K/A which
amends the Form 8-K previously filed on December 22, 1999. The original Form 8-K
announced the Company's acquisition of Daedalus World Wide Corporation ("DWWC").
The Form 8-K/A included the following statements: (i) the audited financial
statements of DWWC as of, and for the year ended, December 31, 1998 and the
unaudited financial statements of DWWC as of, and for the nine months ended,
September 30, 1999 and (ii) the unaudited pro forma combined balance sheet of
the Company as of September 30, 1999 and the unaudited pro forma combined
statements of operations for the Company for the year ended December 31, 1998
and the nine months ended September 30, 1999.
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, 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