QUOKKA SPORTS INC, 10-Q, 2000-08-14

QUOKKA SPORTS INC
10-Q, 2000-08-14
MISCELLANEOUS AMUSEMENT & RECREATION

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<PAGE> 1

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

---------

FORM 10-Q

---------

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000

[ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM ___________ TO __________.

COMMISSION FILE NUMBER #000-26311

------------------------

QUOKKA SPORTS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE 94-3250045
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)

525 BRANNAN STREET, GROUND FLOOR
SAN FRANCISCO, CALIFORNIA 94107
(415) 908-3800

(ADDRESS OF REGISTRANTS PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE, AND
TELEPHONE NUMBER, INCLUDING AREA CODE)

------------------------

Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

Yes [X] No [ ]

The number of shares of the Registrant's Common Stock, $.0001 par value per
share, outstanding at August 7, 2000 was 46,341,770.

<PAGE> 2

SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS

This report on Form 10-Q contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended, which are subject to the
"safe harbor" created by those sections. The forward-looking statements include,
but are not limited to: the future gross profit performance of Quokka Sports,
Inc. and its subsidiaries (the "Company" or "Quokka"); the Company's future
capital needs and anticipated financing transactions; the Company's ability to
complete pending acquisition transactions or to achieve anticipated efficiencies
of the combined company; the Company's projected programming schedule; the
Company's ability to retain existing sponsors and attract and retain additional
sponsors; the Company's future research and development; the Company's ability
to generate revenue from electronic commerce and content syndication; the
Company's ability to expand its audience base; the Company's ability to reduce
the proportion of property and services accepted as payment; statements related
to industry trends and future growth in the markets for broadband applications
and content; the amount of studio services that the Company offers; and future
profitability.

Discussions containing such forward-looking statements may be found in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." These forward-looking statements involve certain risks and
uncertainties that could cause actual results to differ materially from those in
such forward-looking statements. The Company disclaims any obligation to update
these forward-looking statements as a result of subsequent events. The business
risks discussed in "Factors That May Affect Our Results" beginning on page 21,
among other things, should be considered in evaluating the Company's prospects
and future financial performance.

2
<PAGE> 3

QUOKKA SPORTS, INC.

INDEX TO FORM 10-Q FOR QUARTER ENDED JUNE 30, 2000

<TABLE>
<CAPTION>
PAGE
-----
PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements (Unaudited):

Consolidated Condensed Balance Sheets as of June 30, 2000
and December 31, 1999 4

Consolidated Condensed Statements of Operations for the
Three and Six Months Ended June 30, 2000 and 1999 5

Consolidated Condensed Statements of Cash Flows for the Six
Months Ended June 30, 2000 and 1999 6

Notes to Unaudited Consolidated Condensed Financial
Statements. 7

Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 14

Item 3. Quantitative and Qualitative Disclosures about Market Risk 27

PART II. OTHER INFORMATION

Item 1. Legal Proceedings. 28

Item 2. Changes in Securities and Use of Proceeds 28

Item 3. Defaults Under Senior Securities 28

Item 4. Submission of Matters to a Vote of Security Holders 28

Item 5. Other Information 28

Item 6. Exhibits and Reports on Form 8-K 29

Signature 30
</TABLE>

3
<PAGE> 4

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

QUOKKA SPORTS, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED BALANCE SHEETS
(IN THOUSANDS)

<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
--------- ---------
ASSETS (unaudited) (audited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 4,269 $ 3,855
Restricted cash 3,740 3,200
Investments in marketable securities 15,285 61,702
Accounts receivable, net 11,285 6,067
Inventory, net 249 -
Acquired programming and distribution rights 10,239 12,042
Prepaid and other expenses 4,535 1,823
--------- ---------
Total current assets 49,602 88,689

Property and equipment, net 14,470 10,551
Other assets 425 640
Goodwill and other intangibles 30,529 -
--------- ---------
Total assets $ 95,026 $ 99,880
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,715 $ 2,427
Accrued expenses 11,599 3,797
Current portion of long-term debt and capitalized lease obligations 6,343 6,041
Deferred revenues 4,733 3,864
--------- ---------
Total current liabilities 26,390 16,129
--------- ---------
Long term debt and capitalized lease obligations, net of current portion 8,956 11,493
--------- ---------
Stockholders' equity

Preferred stock - -
Common stock, voting and non-voting 5 4
Additional paid-in capital 164,646 137,460
Warrants and other 7,831 7,831
Treasury stock, at cost (107) (107)
Accumulated deficit (112,695) (72,930)
--------- ---------
Total stockholders' equity 59,680 72,258
--------- ---------
Total liabilities and stockholders' equity $ 95,026 $ 99,880
========= =========
</TABLE>

See accompanying notes to unaudited consolidated condensed financial statements

4
<PAGE> 5

QUOKKA SPORTS, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

(UNAUDITED)

<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- -----------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues $ 12,587 $ 2,552 $ 22,097 $ 3,449
-------- -------- -------- --------
Cost of revenues
Production and other costs 9,762 4,050 17,278 6,342
Amortization of programming and distribution rights 1,797 1,212 3,618 2,087
-------- -------- -------- --------
Total cost of revenues 11,559 5,262 20,896 8,429
-------- -------- -------- --------
Gross profit/(loss) 1,028 (2,710) 1,201 (4,980)
Operating expenses
Research and engineering 6,637 4,522 11,425 6,654
Sales and marketing 8,816 7,670 15,642 8,610
General and administrative 4,010 2,606 7,279 4,398
Restructuring costs 516 - 588 -
Depreciation 2,009 720 3,426 1,150
Amortization of goodwill 4,247 - 4,247 -
-------- -------- -------- --------
Total operating expenses 26,235 15,518 42,607 20,812
-------- -------- -------- --------
Loss from operations (25,207) (18,228) (41,406) (25,792)

Losses of associated venture - 615 - 1,067
Minority interest in net loss of consolidated subsidiary (645) (645) (1,291) (645)
Interest income/(expense), net (59) 44 352 212
-------- -------- -------- --------
Net loss $(24,621) $(18,154) $(39,763) $(26,002)
======== ======== ======== ========
Net loss per share:
Basic and diluted $ (.54) $ (1.84) $ (.88) $ (2.66)
Weighted average shares outstanding - basic and diluted 45,932 9,892 45,019 9,788
======== ======== ======== ========
</TABLE>

See accompanying notes to unaudited consolidated condensed financial statements

5
<PAGE> 6

QUOKKA SPORTS, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

(UNAUDITED)

<TABLE>
<CAPTION>
Six Months Ended
June 30,
------------------------
2000 1999
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(39,763) $(26,002)
Adjustments to reconcile net loss to net cash used
in operating activities:
Loss on disposal of fixed assets 171 -
Depreciation 3,426 1,150
Amortization of acquired programming and distribution rights 3,618 2,087
Amortization of goodwill 4,247 -
Minority interest in net loss of consolidated subsidiary (1,291) (645)
Non-cash compensation-related charges 2,222 1,623
Changes in operating assets and liabilities:
Inventory 754 -
Accounts receivable (4,633) (1,740)
Acquired rights (525) (675)
Prepaid expenses and other expenses (2,604) (1,148)
Other assets 236 -
Accounts payable (5,777) 2,389
Accrued expenses 5,017 1,718
Deferred revenues 869 2,397
--------- ---------
Net cash used in operating activities (34,033) (18,846)
--------- ---------
Cash flows from investing activities:
Increase in restricted cash (540) -
Net sale/(purchases) of marketable securities 46,417 -
Business acquisitions, net of cash acquired 130 -
Purchase of property and equipment (6,457) (4,131)
--------- ---------
Net cash provided by (used in) investing activities 39,550 (4,131)
--------- ---------
Cash flows from financing activities:
Payments on notes, long-term capital leases and financing arrangements (6,776) (555)
Proceeds from the issuance of common stock,
net of issuance cost 1,673 292
Purchase of treasury stock - (95)
Proceeds from the issuance of Series B Preferred stock,
net of issuance cost - 39,920
--------- ---------
Net cash provided by (used in) financing activities (5,103) 39,562
--------- ---------
Net increase in cash and cash equivalents 414 16,585

Cash and cash equivalents, beginning of period 3,855 23,994
--------- ---------
Cash and cash equivalents, end of period $ 4,269 $ 40,579
========= =========
</TABLE>

See accompanying notes to unaudited consolidated condensed financial statements

6
<PAGE> 7

QUOKKA SPORTS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (IN THOUSANDS,
EXCEPT PER SHARE DATA)

NOTE 1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

Description of Business

Quokka Sports, Inc., "Quokka" or the "Company", is an independent
digital sports network providing real-time coverage of sporting events for
worldwide audiences. Using digital assets generated at sports venues that are
under-utilized by traditional media, Quokka is building a digital sports network
by creating digital programming content that is specifically designed for
interactive distribution systems and other entertainment devices.

Revenues are generated from digital entertainment and other
sponsorships, advertising, electronic commerce, the sale of content and studio
services. The majority of revenues are derived from the sale of sponsorship
packages to corporations. Digital entertainment sponsors obtain branding on the
network or specific network properties, access to development projects, the use
of trademarks and logos and participation in various print and media campaigns
and may embed their products in Quokka's productions.

Going Concern Discussion

The accompanying unaudited consolidated condensed financial statements
have been prepared assuming that the Company will continue as a going concern.
As of June 30, 2000, the Company had approximately $23.3 million in cash, cash
equivalents and marketable securities. As shown in the unaudited consolidated
condensed financial statements, the Company has experienced a substantial
increase in operating expenses since inception in connection with the growth of
its operations and staffing. The Company has incurred significant operating
losses since inception, has an accumulated deficit of $112.7 million at June 30,
2000 and had operating cash outflows during the six months ended June 30, 2000
of $34.0 million.

The Company was not in compliance with certain covenants related to its
debt facilities at June 30, 2000, but has received the appropriate waivers for
the six months ended June 30, 2000 and through August 31, 2000. If the Company
is not in compliance at any of the future quarterly dates, the bank has the
right to call the loan, which could cause the Company to renegotiate with the
bank for forbearance, make other financial arrangements or take other actions in
order to pay down the loan, if required. However, there can be no assurance that
such revised covenants will be met or that replacement financing will be
available. These matters raise substantial doubt about the Company's ability to
continue as a going concern. The unaudited consolidated condensed financial
statements do not include any adjustments relating to the recoverability and
classification of recorded asset amounts or the amounts and classification of
liabilities that might be necessary should the Company be unable to continue as
a going concern.

The Company has determined that it must raise additional funds to
support its operations and implement its business strategy over the next 12
months, and is undertaking efforts to raise additional capital. These efforts
include the planned issuance of convertible promissory notes in a private
placement during the third quarter of 2000, with expected gross proceeds of
approximately $50 million. The Company believes that the net proceeds from this
offering, along with cash, cash equivalents and marketable securities on hand,
will be sufficient to fund its cash requirements for operations, working capital
and capital expenditures for at least the next 12 months. Thereafter, the
Company may need to raise additional funds. In the event that this planned
offering is not consummated, the Company believes that it will need to raise
additional capital, either from the sale of equity or debt securities, or from
other sources such as borrowings from banks, in order to continue with its
current business strategy on the planned timetable. Although no assurances can
be given that the efforts to raise additional capital will be successful, based
on the Company's history of raising equity, the Company believes that it can
successfully raise funds necessary to support its plans for the next 12 months.
In the event that the Company is not able to raise such additional funds, it has
prepared a contingency plan that consists of reductions in personnel and
marketing and capital expenditures which, in the opinion of our management,
could be implemented and would allow the Company to continue our operations for
a reasonable period of time. However, the implementation of this contingency
plan could have material adverse effects on the Company's long-term operations.
This announcement is neither an offer to sell nor a solicitation of an offer to
buy any of the securities mentioned above.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Consolidation

The consolidated condensed financial statements include the accounts of
Quokka, and all of its wholly and majority-owned subsidiaries. All significant
inter-company balances and transactions have been eliminated in the consolidated
condensed financial statements. During 1999, investments in and advances to a
joint venture in which we had a 50% ownership interest were accounted for by the
equity method.

7
<PAGE> 8

QUOKKA SPORTS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Acquired Media Rights

Quokka and its subsidiaries and joint venture account for acquired
programming rights pursuant to Statement of Financial Accounting Standards
("SFAS") No. 63. Under SFAS No. 63, a licensee shall report an asset and a
liability for the rights acquired and obligations incurred under a license
agreement when the license period begins and other conditions, including
availability and acceptance, have been met. The assets are amortized using the
greater of the ratio of rights contributed during the period in relation to the
total rights expected or on a straight-line method over their estimated useful
life.

Revenue Recognition

Quokka generates revenues from digital entertainment sponsorships,
advertising, electronic commerce, the sale of content, and studio services.
Prior to April 1999, sponsorship revenues were recognized over the term of the
sponsored event based on the ratio of current period impressions to projected
total ultimate impressions based on a determination that no significant
obligations remained and collection of the resulting receivable was probable.
Digital entertainment sponsorships signed subsequently represent multi-year,
multi-event and multi-benefit sponsorships. Annual revenues from these new
sponsorships are recognized using the straight line method over the terms of the
agreements.

Revenues from studio services are recognized in the period the service
is provided. Advertising and electronic commerce revenues, which have not been
material to date, are recognized when the commitment is met or product is
shipped and payment is assured. Quokka will recognize revenue from the sale of
its proprietary content in accordance with the provisions of SFAS No. 63. Quokka
has accepted property and services as payment for sponsorship. Property and
services received as payment are valued at fair market value based on the
amounts normally charged to third parties for similar property and services.

Cost of Revenues

Cost of revenues consists primarily of production costs, amortization of
acquired programming and distribution rights and other costs related to
e-commerce revenue including product fulfillment and inbound and outbound
shipping costs. Production costs include costs of personnel and consultants,
software, travel, satellite transmission costs, field gear, marketing and an
allocation of general and administrative expenses.

Inventory

Inventory consists of outdoor gear and apparel, books, videos, and
assorted Olympics merchandise, and is valued at the lower of cost or market,
cost being determined using the first-in, first-out method.

Goodwill

Goodwill is associated with the purchase of ZoneNetwork.com, Inc. on
March 31, 2000 and is being amortized on a straight-line basis over 24 months.
The Company will periodically assess the recoverability of goodwill by
determining whether the amortization of the balance over the remaining life can
be recovered through undiscounted future operating cash flows of the Company's
operations.

8
<PAGE> 9

QUOKKA SPORTS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

Comprehensive Income

The functional currency of Quokka's subsidiaries is the local currency.
Accordingly, Quokka applies the current rate method to translate the
subsidiaries' financial statements into United States dollars. SFAS No. 130
"Reporting Comprehensive Income" establishes standards for reporting
comprehensive income and its components in a financial statement. Comprehensive
income as defined includes all changes in equity (net assets) during a period
from non-owner sources. Examples of items to be included in comprehensive
income, which are excluded from net income, include foreign currency translation
adjustments and unrealized gains/losses on available-for-sale securities.
Translation adjustments are deemed immaterial and included as a component of
additional paid-in capital in the accompanying financial statements.

Segment Reporting

The Company has adopted SFAS No. 131 "Disclosures about Segments of an
Enterprise and Related Information" effective January 1, 1998. SFAS 131
establishes standards for public enterprises to report information about
operating segments in annual and interim financial statements. It also
establishes standards for related disclosures concerning products and services,
geographic areas and major customers. Management has determined that the Company
has one principal operating segment. The adoption of SFAS 131 has had no impact
on the Company's financial position or results of operations.

Net Loss Per Share

Quokka computes net loss per share in accordance with SFAS No. 128,
"Earnings per Share", and SEC Staff Accounting Bulletin ("SAB") No. 98. Under
the provisions of SFAS No. 128 and SAB No. 98, basic net loss per share is
computed by dividing the net loss available to common stockholders for the
period by the weighted average number of common shares outstanding during the
period. Diluted net loss per share is computed by dividing the net loss for the
period by the weighted average number of vested common and common equivalent
shares outstanding during the period. However, as Quokka generated net losses in
all periods presented, common equivalent shares, composed of incremental common
shares issuable upon the exercise of stock options and warrants and upon
conversion of preferred stock, are not included in diluted net loss per share
because such shares are anti-dilutive.

9
<PAGE> 10

QUOKKA SPORTS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

The following table sets forth the computation of historical and pro
forma basic and diluted net loss per share for the periods indicated.

<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
2000 1999 2000 1999
--------- --------- --------- ---------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
NUMERATOR:
Net loss available to common stockholders $(24,621) $(18,154) $(39,764) $(26,002)
DENOMINATOR:
Weighted average shares 45,952 9,970 45,039 9,865
Weighted average unvested common shares subject to
repurchase agreements (20) (78) (20) (77)
--------- --------- --------- ---------
Denominator for basic calculation and diluted
calculation 45,932 9,892 45,019 9,788
========= ========= ========= =========
NET LOSS PER SHARE:
Basic and Diluted $ (.54) $ (1.84) $ (.88) $ (2.66)
Anti-dilutive securities including options, warrants
and preferred stock not included in historical
net loss per share calculations 13,626 35,088 13,626 34,082
</TABLE>

Recently Issued Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board issued SFAS No.
133 "Accounting for Derivative Instruments and Hedging Activities," which
establishes accounting and reporting standards for derivative instruments and
hedging activities. SFAS No. 133, which is effective for the Company in 2000,
requires that an entity recognize all derivatives as either assets or
liabilities in the balance sheet and measures those instruments at fair value.
The Company is assessing the requirements of SFAS No. 133 and the effects, if
any, on the Company's financial position, results of operations and cash flows.

In July 1999, the Financial Accounting Standards Board issued SFAS No.
137 "Accounting with Derivative Instruments and Hedging Activities Deferral of
the Effective Date of FASB Statement No. 133," which deferred the effective date
until the first fiscal quarter ending after June 30, 2000. The Company will be
required to adopt SFAS No. 133 for the year ending December 31, 2001. The
Company has not engaged in hedging activities or invested in derivative
instruments.

In December 1999, the SEC issued SAB No. 101 "Revenue Recognition in
Financial Statements." SAB No. 101 summarizes certain of the SEC's views in
applying generally accepted accounting principles ("GAAP") to revenue
recognition in financial statements. The adoption of SAB No. 101 will not have a
material impact on the Company's financial position and results of operation.

10
<PAGE> 11

QUOKKA SPORTS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

In April 2000, FASB Interpretation No. 44 "Accounting for Certain
Transactions Involving Stock Compensation - an interpretation of APB Opinion No.
25" ("FIN No. 44") was issued. FIN No. 44 clarifies the application of APB No.
25 for only certain issues. Among other issues, FIN No. 44 clarifies the
definition of employee for purposes of applying APB No. 25, the criteria for
determining whether a plan qualifies as a non-compensatory plan, the accounting
consequences of various modifications to the terms of a previously fixed stock
option or award and the accounting for an exchange of stock compensation awards
in a business combination. FIN No. 44 is effective July 1, 2000, but certain
conclusions in this interpretation cover specific events that occur after either
December 15, 1998 or January 12, 2000. The adoption of certain of the
conclusions of FIN No. 44 covering events occurring during the period after
December 15, 1998 or January 12, 2000 did not have a material impact on the
Company's financial position and results of operations. The Company does not
expect that the adoption of the remaining conclusions will have a material
effect on the financial statements.

In January 2000, the Emerging Issues Task Force ("EITF") reached a
consensus on EITF 99-17 "Accounting for Advertising Barter Transactions" (the
"Issue"). The Issue states that revenue and expense should be recognized at fair
value from an advertising barter transaction only if the fair value of the
advertising surrendered in the transaction is determinable within the limits of
the Issue. If the fair value of the advertising surrendered in the barter
transaction is not determinable within the limits of the Issue, the barter
transaction should be recorded based on the carrying amount of the advertising
surrendered, which likely would be zero. The adoption of EITF 99-17 did not have
a material effect on the Company's business practice.

NOTE 3. INITIAL PUBLIC OFFERING ("IPO")

On July 28, 1999, Quokka issued 5,000,000 shares of its common stock at
an initial public offering price of $12.00 per share. The net proceeds to Quokka
from that offering were approximately $54.5 million after deducting the
underwriters' discount and offering expenses. Concurrent with the IPO, warrants
were exercised to purchase 452,048 shares of common stock at prices ranging from
$0.50 to $3.25 per share, resulting in additional capital proceeds to the
Company totaling $486,000. In addition, upon completion of the IPO, each
outstanding share of the Company's convertible preferred stock was automatically
converted into one share of common stock and outstanding warrants to purchase
3,115,336 shares of preferred stock were automatically converted into warrants
to purchase 3,113,252 shares of common stock (after consideration of net
exercises).

NOTE 4. ACQUISITIONS

On March 31, 2000, the Company completed the acquisition of
ZoneNetwork.com, Inc. ("Zone") through the issuance of 1,411,639 shares of
Quokka common stock for a total purchase price of approximately $25.9 million,
including acquisition costs. Also in connection with the Zone acquisition,
Quokka granted to the former Zone option holders vested options to purchase
334,829 shares of Quokka common stock with exercise prices ranging from $.70 to
$12.16 per share and issued to former Zone warrant holders warrants to purchase
33,387 shares of Quokka common stock with exercise prices ranging from $.70 to
$12.16 per share. The estimated fair value of the warrants of $1.6 million has
been determined based on the Noreen-Wolfson fair value model with a volatility
of 70%. The acquisition was accounted for as a purchase in accordance with the
provisions of Accounting Principles Board Opinion ("APB") No. 16. Under the
purchase method of accounting, the purchase price was allocated to the assets
acquired and liabilities assumed based on their estimated fair values at the
date of acquisition. The Company recorded goodwill of approximately $34.2
million, which is being amortized over two years. The results of operations of
Zone were included in the statement of operations beginning April 1, 2000. The
assets acquired and the liabilities assumed or incurred in connection with the
acquisition are included in the consolidated balance sheet as of March 31, 2000.
The allocations of purchase price to the assets acquired and liabilities assumed
or incurred in connection with the acquisition are based on estimates of fair
values.

The pro forma net sales, net loss and diluted earnings per share for the six
months ended June 30, 2000, giving effect to the Zone acquisition as if it had
occurred at January 1, 2000 (in thousands, except per share data) are:

<TABLE>
<CAPTION>
<S> <C>
Pro forma net sales $24,037
Pro forma net loss $(50,561)
Pro forma diluted earnings per share $(1.10)
</TABLE>

On June 8, 2000, the Company signed a definitive agreement to acquire a
controlling interest in Golf.com, LLC, a privately-held company that is in the
business of developing, marketing and distributing a golf related online service
to be accessed via the Internet. Quokka will issue approximately 3.9 million
shares of common stock in exchange for 71% of the ownership interest in
Golf.com, LLC. This transaction is expected to close by the end of September
2000, subject to various conditions, including approval by Quokka's
stockholders.

11
<PAGE> 12

QUOKKA SPORTS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE 5. SUPPLEMENTAL CASH FLOW INFORMATION

<TABLE>
<CAPTION>
Six Months Ended
June 30,
-------------------------
2000 1999
----------- -----------
(unaudited) (unaudited)
<S> <C> <C>
Supplemental disclosure of cash:

Equipment financed through capital lease $- $ 331
======= ======
Accounts payable related to purchase of
property and equipment $ 968 $ 572
======= ======

Issuance of Preferred warrants for
subordinated debt $- $ 421
======= ======
Issuance of Preferred warrants under
programming and distribution rights $- $6,104
======= ======
Issuance of Preferred warrants as
compensation for services rendered $- $1,154
======= ======
Notes payable related to purchase of
acquired rights $- $8,251
======= ======
Notes payable related to purchase of
property and equipment $- $2,293
======= ======
Equity issued in a business acquisition $22,389 $-
======= ======
Stock options issued as compensation for
services rendered $ 2,222 $ 48
======= ======
</TABLE>

NOTE 6. NOTE PAYABLE

At June 30, 2000, Quokka was in default of certain financial covenants
relating to a $2 million equipment financing loan with Silicon Valley Bank
("SVB"). On July 26, 2000, Quokka obtained a waiver of the default from SVB
until August 31, 2000.

12
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QUOKKA SPORTS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE 7. RESTRUCTURING COSTS

Restructuring costs for the quarter ended June 30, 2000 were $516,000.
These costs are associated with a change in our e-commerce operational model
from in-house to outsource fulfillment. As a result, 22 employees associated
with in-house fulfillment were terminated prior to quarter end. Included in the
restructuring costs are severance expenses as well as the write-off of related
in-house software that managed the e-commerce process that has been taken out of
service. All restructuring costs have been expensed within operating expenses.
At June 30, 2000, a remaining accrual of $118,105 was included in accrued
liabilities and is expected to be relieved by September 30, 2000.

NOTE 8. SUBSEQUENT EVENT

On July 20, 2000, the Company signed a definitive agreement to acquire
Total Sports Inc., an event-centered, online sports media company. Quokka will
issue up to 15 million shares of common stock for all common stock, preferred
stock, stock options and warrants of Total Sports outstanding at the close of
the transaction. The transaction is expected to close by the end of October
2000, subject to various conditions, including approval by Quokka's
stockholders.

13
<PAGE> 14

QUOKKA SPORTS, INC. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

This report on Form 10-Q contains forward-looking statements that
involve risks and uncertainties. The statements contained in this report that
are not purely historical are forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, including, without limitation,
statements regarding our expectations, beliefs, intentions or strategies
regarding the future. When used in this Form 10-Q, the words "intend,"
"anticipate," "believe," "estimate," "plan" and "expect" and similar expressions
as they relate to us are included to identify forward-looking statements. Our
actual results could differ materially from the results discussed in the
forward-looking statements as a result of certain of the risk factors set forth
under the subheading "Factors That May Our Affect Results" as well as those
discussed in Quokka's Annual Report on Form 10-K for the year ended December 31,
1999 and our Quarterly Report on Form 10-Q for the three months ended March 31,
2000. All forward-looking statements included in this document are based on
information available to us on the date hereof, and we assume no obligation to
update any such forward-looking statements or to update the reasons why actual
results could differ from those projected in the forward-looking statements.

The following should be read in conjunction with the audited
consolidated financial statements and the notes thereto and Management's
Discussion and Analysis of Financial Condition and Results of Operations
included in our Annual Report on Form 10-K for the fiscal year ended December
31, 1999 filed with the SEC on March 29, 2000 and other documents that have been
filed with the SEC.

OVERVIEW

Quokka Sports is a leading provider of sports entertainment for the
digital world.

We use the power of emerging digital media to bring sports enthusiasts
closer to their favorite sports. We leverage our digital technology to offer
live event coverage, race viewers, news and information, audio and text
dispatches from athletes, games, community forums and content created by fans,
as well as opportunities for the fan to purchase premium content, products and
services in order to provide our audience a complete sports experience. The
Quokka Sports Network is designed to appeal to a global audience. We currently
cover motor racing, sailing, action sports such as climbing, hiking, skiing,
snow boarding, adventure racing and mountain biking, and key Olympic summer
sports, such as track and field, swimming and gymnastics. The Quokka Sports
Network also includes coverage of some of the world's largest sporting events
like the biennial Olympic Games, FedEx Championship Auto Racing (CART) Series
and the Motor Grand Prix championship as a result of our relationships with our
strategic partners like NBC Olympics, Inc., CART and Dorna Promocion del
Deporte, S.A.

We generate revenue from three sets of customers: from business
customers through sales of sponsorships and advertising; from media companies
through revenue from content syndication; and from consumers through sales of
premium content, sports memorabilia, officially-licensed merchandise and other
products and services. We currently derive the majority of our revenues from the
sale of sponsorship and advertising packages to corporations. In the past, we
have accepted property and services that we use in our business as payment for
sponsorships, including Internet access, computer equipment, digital cameras,
hosting services and telecommunications equipment and services. Property and
services received as payment are valued at fair market value based on the
amounts normally charged to third parties for similar property and services. We
intend to reduce the proportion of property and services accepted for payment in
future periods, although we may not be successful in this regard.

Several of our contracts are multi-year, multi-event and multi-benefit
sponsorships. These broader, long-term sponsorships, which we call digital
entertainment sponsorships, may include a variety of benefits such as category
exclusivity, embedded product placement in our programming, traditional sports
sponsorship benefits and sales and marketing assistance. We plan to sell digital
entertainment sponsorships to technology and communications companies. In
addition, we sell shorter-term, more narrowly focused sponsorships and
advertising packages, depending upon the needs and demands of our corporate
customers. Our sponsorship agreements provide for periodic sponsorship fees that
we recognize ratably as revenues over the corresponding period during the term
of the contract, provided that no significant obligations remain and collection
of the resulting receivable is probable. Because some of our sponsorship
revenues relate to our network of events rather than a single event, we do not
track the profitability of each event. However, we do track production costs by
event as well as the visitors to our coverage of each event.

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QUOKKA SPORTS, INC. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

As a direct result of having only a small number of live programs at any
time, revenues from sponsorships, advertising and consumer revenues have varied
on both a quarterly and annual basis during our short operating history.
Revenues may fluctuate from period to period in the future depending upon our
ability to attract and retain sponsors and advertisers, the number of live
events that are being produced and distributed simultaneously during any one
period, our ability to maintain a continuous programming calendar, our ability
to attract a worldwide audience for our sporting events, our ability to acquire
long-term digital and other intellectual property rights to global sporting
events, our ability to develop and produce sports programming that will attract
a global audience, our ability to acquire and integrate other companies, our
ability to select and offer the right merchandise and services for our audience
to buy and our ability to obtain or create content that is valuable to other
media companies.

We also generate revenues by providing studio services that could lead
to digital sports entertainment programming and long-term sponsorship
opportunities. These revenues are recognized in the period the service is
provided. We intend to continue to offer studio services; however, we expect
studio services to decline substantially as a percentage of overall revenues in
future periods and ultimately we may choose to discontinue offering these
services.

We have incurred significant net losses and negative cash flows from
operations, and as of June 30, 2000, we had an accumulated deficit of $112.7
million. This accumulated deficit resulted from the production costs of our
network programming, the costs of developing new and enhancing existing tools
and techniques that enhance our Quokka Sports Platform technology, the costs of
expanding our sales and business development efforts and other costs related to
ongoing research and design. Due to the planned expansion of the Quokka Sports
Network, we expect to incur significant operating losses for the foreseeable
future. We may never achieve significant revenues or profitability; or if we
achieve significant revenues or profitability, they may not be sustained.

As of June 30, 2000 we had 382 employees compared to 242 at June
30, 1999.

ACQUISITIONS

On March 1, 2000, we entered into an Agreement and Plan of Merger and
Reorganization to acquire ZoneNetwork.com, Inc. ("Zone"), a Washington
corporation. Zone produces and operates web sites that offer digital content,
products and services targeted to enthusiasts of skiing, snowboarding, hiking,
mountain biking, and climbing. The Zone acquisition was completed on March 31,
2000 and was accounted for under the purchase method of accounting.

On June 8, 2000, we signed a definitive agreement to acquire a
controlling interest in Golf.com, LLC, a privately-held company that is in the
business of developing, marketing and distributing golf related online services
via the Internet. Quokka will issue approximately 3.9 million shares of common
stock in exchange for 71% of the ownership interest in Golf.com, LLC. This
transaction is expected to close by the end of September 2000, subject to
various conditions, including approval by Quokka's stockholders.

On July 20, 2000, we signed a definitive agreement to acquire Total
Sports Inc., an event-centered, online sports media company. Quokka will issue
approximately 15 million shares of common stock in exchange for all of the
outstanding capital stock, options and warrants of Total Sports, and the
transaction is expected to close by the end of October 2000, subject to various
conditions, including approval by Quokka's stockholders and Total Sports'
stockholders.

15
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QUOKKA SPORTS, INC. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)

RESULTS OF OPERATIONS

THREE MONTHS ENDED JUNE 30, 2000 AND 1999

Revenues

Our revenues increased $10.0 million to $12.6 million for the June 2000
quarter from $2.6 million for the June 1999 quarter. This increase was due to an
increase in the number of digital entertainment sponsors for the quarter. During
the June 2000 quarter, we recognized revenues from our digital entertainment
sponsorship agreements, other sponsorship and advertising, content distribution,
consumer revenue and other sources. Revenue for the June 1999 quarter were
derived primarily from our digital entertainment sponsorship agreements and
sponsorship revenue from the Around Alone sailing event.

Production Costs

Production costs increased $5.7 million to $9.8 million for the June
2000 quarter from $4.1 million for the June 1999 quarter. Production costs
include costs of personnel and consultants, software, travel, satellite
transmission costs, field gear, marketing and an allocation of general and
administrative expenses. The increase in production costs from 1999 to 2000 is
due to increased sports programming including our sports coverage of the FedEx
CART Championship Series, the FIM Road Racing World Championship Grand Prix
motorcycle races, the BT Global Challenge, coverage of Everest 2000, the 100th
U.S. Open at Pebble Beach, GM Experience at Le Mans and the 2000 North American
International Auto Show.

Amortization of Acquired Programming and Distribution Rights

Acquired programming rights to sporting events and acquired distribution
rights are amortized over their respective license periods on a straight-line
basis. Amortization of acquired programming and distribution rights increased
$600,000 to $1.8 million for the June 2000 quarter from $1.2 million for the
June 1999 quarter. This amortization pertains to licensing fees paid for the
acquisition of programming rights related to our joint venture with NBC
Olympics, Inc. for U.S. digital coverage of the Olympic Games and for the
exclusive worldwide interactive media rights to FIM Road Racing World
Championship Grand Prix and for the America's Cup 2000 Yacht Race. Acquired
distribution rights represents licensing fees paid for the rights to distribute
our programming on Excite@Home and Terra Networks, S.A.

Gross Profit/Loss

Based upon the foregoing information, we had a positive gross margin of
$1.0 million for the June 2000 quarter compared to a negative gross margin of
$2.7 million for the June 1999 quarter.

Research and Engineering

Research and engineering expenses increased $2.1 million to $6.6 million
for the June 2000 quarter from $4.5 million for the June 1999 quarter. The
increase represents the cost of additional personnel, costs associated with
network operations, expenses incurred to improve and develop our Quokka Sports
Platform and broadband applications and hosting costs related to our expanded
events.

Sales and Marketing

Sales and marketing expenses increased $1.1 million to $8.8 million for
the June 2000 quarter from $7.7 million for the June 1999 quarter. Sales and
marketing expenses include personnel costs, consultants, partnership marketing
and advertising. This increase is attributable to partnership marketing and
off-line advertising, which is designed to create brand recognition and drive
Internet traffic to www.quokka.com and the other properties on the Quokka Sports
Network. Expenses also increased as a result of increases in the number of sales
and marketing personnel.

16
<PAGE> 17

QUOKKA SPORTS, INC. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)

General and Administrative

General and administrative expenses increased $1.4 million to $4.0
million for the June 2000 quarter from $2.6 million for the June 1999 quarter.
General and administrative expenses include personnel associated with general
management, business and legal affairs, finance and accounting, facilities, and
human resources. The increase is attributable to increased personnel and related
facilities and other third-party expenses associated with building our
operational infrastructure.

Restructuring Costs

Restructuring costs for the quarter ended June 30, 2000 were $516,000.
These costs are associated with a change in our e-commerce operational model
from in-house to outsource fulfillment. As a result, 22 employees associated
with in-house fulfillment were identified and terminated prior to quarter end.
Included in the restructuring costs are severance expenses as well as the
write-off of related in-house software that managed the e-commerce function that
has been taken out of service. All restructuring costs have been expensed within
operating expenses. At June 30, 2000, a remaining accrual of $118,105 was
included in accrued liabilities and is expected to be relieved by September 30,
2000.

Depreciation

Depreciation expenses increased $1.3 million to $2.0 million for the
June 2000 quarter from $720,000 for the June 1999 quarter. Depreciation and
amortization expenses consist of depreciation of computers, telecommunications
equipment, software, and furniture and fixtures associated with our operational
infrastructure. Amortization expense relates to leasehold improvements of our
facilities in San Francisco. The increase is primarily due to purchases of
additional equipment and amortization of leasehold improvements in our expanded
facilities associated with the scaling up of our operations in connection with
the upcoming Olympics.

Goodwill

Goodwill amortization for the June 2000 quarter was $4.2 million.
Goodwill is associated with the purchase of ZoneNetwork.com, Inc. on March 31,
2000 and is being amortized on a straight-line basis over 24 months.

Losses of Associated Venture

In December 1999, we dissolved our joint venture with Forsythe Racing,
Inc. Accordingly, we did not record any losses related to the associated venture
for the March 2000 quarter. Prior to December 1999, we had accounted for our 50%
interest in this joint venture under the equity method of accounting. For the
March 1999 quarter, losses of associated venture were $615,000.

Minority Interest in Net Loss of Consolidated Subsidiary

During February 1999, we formed NBC/Quokka Ventures, LLC, a joint
venture with NBC Olympics, Inc. to provide interactive digital coverage of the
Olympic Games and related pre-games events. In connection with this venture, NBC
has contributed, among other things, certain programming and content in exchange
for a 49% minority interest. The fair market value of this content is being
amortized over the initial term of the venture agreement from inception through
October 2004 on a straight-line basis and is included in our amortization of
acquired programming rights expense. For the June 2000 and 1999 quarters,
minority interest of $645,000 represents the minority interest's share of net
losses for the period.

Interest Income/(Expense)

Interest expense, net of interest income, was $59,000 for the June 2000
quarter. Interest income, net of interest expense, was $44,000 for the June 1999
quarter. The increase in interest expense was due to a decrease in our cash
balance. Interest income recorded during these periods includes interest income
earned on cash and cash equivalents and investment in marketable securities.
Interest expense incurred during these periods related to our financing
obligations for various equipment purchases.

Net Loss

Based upon the foregoing information, we had a net loss of $24.6 million
for the June 2000 quarter compared to a net loss of $18.2 million for the June
1999 quarter.

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QUOKKA SPORTS, INC. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)

SIX MONTHS ENDED JUNE 30, 2000 AND 1999

Revenues

Our revenues increased $18.7 million to $22.1 million for the six months
ended June 30, 2000 from $3.4 million for the comparable 1999 period. This
increase was due to an increase in the number of digital entertainment sponsors
for the six month period. Revenue for the six months ended June 30, 2000 were
derived primarily from our digital entertainment sponsorship agreements, other
sponsorship and advertising, content distribution, consumer revenue and other
sources. Revenue for the six months ended June 30, 1999 were derived primarily
from our digital entertainment sponsorship agreements and sponsorship revenue
from the Around Alone sailing event.

Production Costs

Production costs increased $11.0 million to $17.3 million for the six
months ended June 30, 2000 from $6.3 million for the six months ended June 30,
1999. The increase in production costs from 1999 to 2000 is due to increased
sports programming including our sports coverage of the FedEx CART Championship
Series, the FIM Road Racing World Championship Grand Prix motorcycle races, the
America's Cup 2000 and Challenger Series yacht races, the BT Global Challenge,
coverage of Everest 2000, the 100th U.S. Open at Pebble Beach, GM Experience at
Le Mans and the 2000 North American International Auto Show. This increase
reflects costs associated with eight events produced or in pre-production
during the period as compared to one event, The Around Alone Race, during the
comparable 1999 period. Also included in 1999 production costs are costs
associated with the launch of our www.quokka.com network in March 1999.

Amortization of Acquired Programming and Distribution Rights

Acquired programming rights to sporting events and acquired distribution
rights are amortized over their respective license periods on a straight-line
basis. Amortization of acquired programming and distribution rights increased
$1.5 million to $3.6 million for the six months ended June 2000 from $2.1
million for the six months ended June 1999 quarter. This amortization pertains
to licensing fees paid for the acquisition of programming rights related to our
joint venture with NBC Olympics, Inc. for U.S. digital coverage of the Olympic
Games and for the exclusive worldwide interactive media rights to FIM Road
Racing World Championship Grand Prix and for the America's Cup 2000 Yacht Race.
Acquired distribution rights represents licensing fees paid for the rights to
distribute our programming on Excite@Home and Terra Networks, S.A.

Gross Profit/Loss

Based upon the foregoing information, we had positive gross margin of
$1.2 million for the six months ended June 30, 2000 compared to a negative gross
margin of $5.0 million for the six months ended June 30, 1999.

Research and Engineering

Research and engineering expenses increased to $4.7 million for the six
months ended June 30, 2000 to $11.4 million from $6.7 million for the six months
ended June 30, 1999. The increase represents the cost of additional personnel
and related expenses associated with our continuing development of our Quokka
Sports Platform, broadband applications and network operations and other
engineering initiatives.

Sales and Marketing

Sales and marketing expenses increased $7.0 million to $15.6 million for
the six months ended June 30, 2000 from $8.6 million for the six months ended
June 30, 1999. Sales and marketing expenses include personnel costs,
consultants, partnership marketing and advertising. This increase is
attributable to partnership marketing and off-line advertising, which is
designed to create brand recognition and drive Internet traffic to
www.quokka.com and the other properties on the Quokka Sports Network. Expenses
also increased as a result of increases in the number of sales and marketing
personnel.

General and Administrative

General and administrative expenses increased $2.9 million to $7.3
million for the six months ended June 30, 2000 from $4.4 million for the six
months ended June 30, 1999. General and administrative expenses include
personnel associated with general management, business and legal affairs,
finance and accounting, facilities, and human resources. The increase is
attributable to increased personnel and related facilities and other third-party
expenses associated with building our operational infrastructure.

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QUOKKA SPORTS, INC. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)

Restructuring Costs

Restructuring costs for the six months ended June 30, 2000 were
$588,000. These costs are associated with a change in our e-commerce operational
model from in-house to outsource fulfillment. As a result, 22 employees
associated with the in-house fulfillment were identified and terminated prior to
June 30, 2000. Included in the restructuring costs are severance expenses as
well as the write-off of related in-house software that managed the e-commerce
function that has been taken out of service. All restructuring costs have been
expensed within operating expenses. At June 30, 2000, a remaining accrual of
$118,105 was included in accrued liabilities and is expected to be relieved by
September 30, 2000.

Depreciation

Depreciation and amortization expenses increased $2.2 million to $3.4
million for the six months ended June 30, 2000 from $1.2 million for the six
months ended June 30, 1999. The increase is primarily due to purchases of
additional equipment and amortization of leasehold improvements in our expanded
facilities associated with the scaling up of our operations in connection with
the upcoming Olympics.

Goodwill

Goodwill amortization for the six months ended June 30, 2000 was $4.2
million. Goodwill is associated with the purchase of ZoneNetwork.com, Inc. on
March 31, 2000 and is being amortized on a straight-line basis over 24 months.

Losses of Associated Venture

In December 1999, we dissolved our joint venture with Forsythe Racing,
Inc. Accordingly, we did not record any losses related to the associated venture
for the six months ended June 30, 2000. Prior to December 1999, we had accounted
for our 50% interest in this joint venture under the equity method of
accounting. For the six months ended June 30, 1999, losses of associated venture
were $1.1 million.

Minority Interest in Net Loss of Consolidated Subsidiary

For the six months ended June 30, 2000, minority interest was $1.3
million compared to $645,000 for the six months ended June 30, 1999 and
represents the minority interest's share of net losses for the period.

Interest Income/(Expense)

Interest income, net of interest expense, was $352,000 for the six
months ended June 30, 2000 as compared to $212,000 for the comparable 1999
period. The $149,000 net increase reflects higher cash balances during the six
months ended June 30, 2000.

Net Loss

Based upon the foregoing information, we had net losses of $39.8 million
for the six months ended June 30, 2000 and $26.0 million for the six months
ended June 30, 1999.

LIQUIDITY AND CAPITAL RESOURCES

Since August 1996, we have financed our operations primarily through
sales of our equity securities. On August 2, 1999, Quokka completed its initial
public offering of common stock. Net proceeds to Quokka from that offering were
approximately $54.5 million, net of underwriters' discounts and offering
expenses. Total net proceeds from sales of our equity securities since August
1996 through June 30, 2000 were $164.6 million.

At June 30, 2000, we had $23.3 million in cash and cash equivalents and
marketable securities. Restricted cash associated with three office leases and
the employee stock purchase plan and certain cash funding requirements under the
NBC/Quokka Ventures, LLC operating agreement aggregated $10.7 million at June
30, 2000. Net cash used in operating activities was $34.0 million for the six
months ended June 30, 2000 and $18.8 million for the six months ended June 30,
1999. Net cash used in operating activities resulted from our net operating
losses, adjusted for certain non-cash items including compensation expense
related to the issuance of warrants and options to attract key vendors and
business partners. Non-cash charges related to the issuance of these warrants
and options were $2.2 million for the six months ended June 30, 2000 and $1.6
million for the six months ended June 30, 1999. Non-cash charges relating to
depreciation expense were $3.4 million for the six months ended June 30, 2000
and $1.2 million for the six months ended June 30, 1999. Non-cash charges
related to the amortization of programming and distribution rights were $3.6
million for the six months ended June 30, 2000 and $2.1 million for the six
months ended June 30, 1999. Non-cash charges related to the amortization of
goodwill was $4.2 million for the six months ended June 30, 2000 and zero for
the six months ended June 30, 1999.

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<PAGE> 20

QUOKKA SPORTS, INC. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)

Net cash provided by investing activities was $43.3 million for the six
months ended June 30, 2000 resulting primarily from net sales of marketable
securities offset by purchases of additional equipment and leasehold
improvements in our expanded facilities. Net cash used in investing activities
was $4.1 million for the six months ended June 30, 1999 resulting primarily from
purchases of additional equipment and leasehold improvements in our expanded
facilities.

Net cash used in financing activities was $5.1 million for the six
months ended June 30, 2000 resulting primarily from payments on long-term
financing arrangements offset by proceeds from the issuance of common stock. Net
cash provided by financing activities was $39.6 for the six months ended June
30, 1999 resulting primarily from the issuance of preferred and common stock,
offset by the payments on long-term financing arrangements.

As of June 30, 2000, the Company had approximately $23.3 million in
cash, cash equivalents and marketable securities. The Company has experienced a
substantial increase in operating expenses since inception in connection with
the growth of its operations and staffing. The Company has incurred significant
operating losses since inception, has an accumulated deficit of $112.7 million
at June 30, 2000 and had operating cash outflows during the six months ended
June 30, 2000 of $34.0 million.

The Company was not in compliance with certain covenants related to its
debt facilities at June 30, 2000, but has received the appropriate waivers for
the six months ended June 30, 2000 and through August 31, 2000. If the Company
is not in compliance at any of the future quarterly dates, the bank has the
right to call the loan which could cause the Company to renegotiate with the
bank for forbearance, make other financial arrangements or take other actions in
order to pay down the loan, if required. However, there can be no assurance that
such revised covenants will be met or that replacement financing will be
available. These matters raise substantial doubt about the Company's ability to
continue as a going concern.

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<PAGE> 21

QUOKKA SPORTS, INC. AND SUBSIDIARIES

FACTORS THAT MAY AFFECT OUR RESULTS

WE HAVE A HISTORY OF OPERATING LOSSES, EXPECT TO INCUR LOSSES FOR AT LEAST THE
NEXT EIGHT QUARTERS AND MAY BE UNABLE TO ACHIEVE OR SUSTAIN PROFITABILITY OR
GENERATE POSITIVE CASH FLOW.

We expect to incur losses for at least the next eight quarters, largely due
to substantial planned increases in marketing expenses and expenses associated
with our digital sports entertainment programming. We may be unable to generate
sufficient revenues or control operating expenses to achieve or sustain
profitability or generate positive cash flow. We adopted our current business
model in August 1996 and began generating revenues in connection with this model
during the first quarter of 1997. As of June 30, 2000, we had an accumulated
deficit of $112.7 million. Our net operating losses were $39.8 million for the
six months ended June 30, 2000, $56.9 million for the year ended December 31,
1999 and $9.5 million for year ended December 31, 1998. Cash used in operating
activities was $34.0 million for the six months ended June 30, 2000, $48.3
million for year ended December 31, 1999 and $10.9 million for year ended
December 31, 1998.

WE HAVE A LIMITED OPERATING HISTORY UPON WHICH YOU CAN EVALUATE OUR BUSINESS AND
PROSPECTS.

Our limited operating history makes it difficult to evaluate our business
and prospects. As a digital sports entertainment company in an early stage of
development, we face significant risks, uncertainties, expenses and
difficulties. In order to succeed, we must do most, if not all, of the
following:

- develop programming to attract and retain our audience;

- secure and retain additional sponsors and advertisers;

- retain existing sponsors and advertisers;

- acquire rights on commercially feasible terms to cover additional
sporting events;

- acquire and integrate other media and technology companies;

- develop, enhance and carefully manage our brand;

- deliver multiple programming events simultaneously to one or more
global distribution networks;

- promote our name in the sports and media markets;

- respond appropriately to competitive developments;

- develop and implement a successful electronic commerce strategy;

- develop a successful line of product merchandise;

- secure additional distribution systems for our content;

- continue to develop and improve our know-how, to enhance our web
sites to meet the needs of a changing market and to adapt to
changing technology;

- successfully execute our business and marketing strategies; and

- attract, integrate, retain and motivate qualified personnel.

Our business operations and revenues will suffer if we are unable to
accomplish these things.

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<PAGE> 22

OUR QUARTERLY OPERATING RESULTS ARE EXPECTED TO FLUCTUATE AND OUR FAILURE TO
MEET FINANCIAL ESTIMATES COULD CAUSE OUR STOCK PRICE TO SUFFER.

Our quarterly operating results have varied in the past, and we expect
them to fluctuate in future periods. For example, our revenues for the six
months ended June 30, 2000 were $12.6 million compared to revenues of $2.6 for
the quarter ended June 30, 1999 and $9.5 million for the preceding quarter ended
March 31, 2000. These fluctuations depend on a number of factors described below
and elsewhere in this "Factors That May Affect Our Results" section of this
report, many of which are outside our control. We may be unable to predict our
future revenues and expenses accurately or adjust spending in a timely manner to
compensate for any unexpected revenue shortfall. In particular, because digital
entertainment sponsorships have a lengthy sales cycle, it is difficult to
predict when new sponsorship agreements will be completed and, consequently,
when revenue from new agreements will first be recognized. Any significant
shortfall of revenues would have a negative impact on our results of operations.
For these and other reasons, we may not meet the revenue, gross profit or
earnings estimates of securities analysts or investors and our stock price could
suffer. Our revenues in any quarter depend on the sports programming we offer,
the sponsorship arrangements we have in place at that time and finalize during
the quarter and, to a lesser extent, the advertising, content syndication and
consumer revenue transactions we execute. We expect that our consumer revenues
will be higher leading up to and during our major sports programming. It is
likely that sponsorship deals will have a long sales cycle and may be unevenly
distributed across fiscal quarters. We expect our expenses to increase over time
for production and other operational costs. The timing of these expenses, as
well as our obligations under existing and future contracts, could fluctuate
from quarter to quarter and intensify leading up to and during significant
sporting events such as the Olympic Games.

WE WILL NEED TO RAISE ADDITIONAL CAPITAL, WHICH MAY NOT BE AVAILABLE ON
FAVORABLE TERMS AND COULD RESULT IN ADDITIONAL DILUTION

In order to achieve our aggressive plans for growth and expansion, we
anticipate that we will need to raise additional capital by the end of the next
fiscal quarter. Additional financing may not be available on favorable terms or
at all. If adequate funds are not available or are not available on acceptable
terms, we may not be able to fund our expansion, take advantage of unanticipated
opportunities or respond to competitive pressures. If additional funds are
raised through the issuance of equity or convertible debt securities, the
percentage ownership of our stockholders will be reduced and the securities
issued may have rights, preferences and privileges senior to those of our common
stock.

WE NEED TO ACQUIRE RIGHTS TO KEY SPORTING EVENTS TO DEVELOP MORE PROGRAMMING AND
GROW OUR BUSINESS, BUT THE COST AND COMPETITION FOR THESE RIGHTS COULD PREVENT
US FROM DOING SO.

We need to acquire rights to key sporting events to succeed. If we are
unable to acquire these rights, our ability to broaden our programming and grow
our business will be limited. Our limited operating history makes it difficult
to assess our ability to acquire rights in the future. Holders of rights may not
be willing to enter into strategic relationships with us or sell rights to us at
prices we can afford, or at all. We expect the cost of acquiring rights to
increase significantly as competition for these rights increases. We may not be
successful in acquiring the rights we need, especially if third parties, such as
traditional media companies, which have significantly greater resources,
experience and bargaining leverage than we do, compete for those rights.

WE DEPEND ON A SMALL NUMBER OF SPONSORS, THE LOSS OF WHICH COULD HARM OUR
REVENUES.

To date, we have depended on a limited number of sponsors for a majority
of our revenues. In the second quarter of 2000, three sponsors accounted for 58%
of our revenues. In 1999, three sponsors accounted for 65% of our revenues. We
anticipate that our results of operations will continue to depend, to a
significant extent, upon revenues from a small number of digital entertainment
sponsors. The loss of one or more sponsors could negatively affect our business.
Although we seek to enter into multi-year agreements with sponsors, we cannot
guarantee that these sponsors will maintain their association with us. Certain
of our sponsors have the right to terminate our agreements with them if they are
dissatisfied with our performance, and certain digital entertainment sponsors
have the right to terminate our agreements after a specified period of time as
set forth in the applicable contract. The termination of any sponsorship
agreement could materially affect our sponsorship revenue backlog, and our
business and financial results would suffer. For example, we recently agreed
with Compaq Computer Corporation to terminate its sponsorship agreement with us
at the end of 2000. If we are unable to obtain additional sponsors to replace
the revenue forecasted for 2001 and 2002 under the Compaq digital entertainment
partnership agreement, our financial results would be adversely affected.

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<PAGE> 23

A DISASTER OR MALFUNCTION THAT DISABLES OUR COMPUTER SYSTEMS COULD HARM OUR WEB
SITES AND REDUCE THE APPEAL OF OUR PROGRAMMING.

Substantially all of our communications hardware and computer hardware
operations are located in our facilities in San Francisco, California and at
Intel Online Services in Santa Clara, California and Frontier GlobalCenter in
Sunnyvale, California, where our web sites are hosted. Our Olympics web site is
hosted by IBM at their facilities located in Redwood City, California, Bethesda,
Maryland and Schaumburg, Illinois. Our operations depend on our ability to
protect these systems against damage from fire, earthquakes, power loss,
telecommunications failures, break-ins and similar events. Additionally,
computer viruses, electronic break-ins or other similar disruptive problems
could harm our web sites. A disaster or malfunction that disables either our San
Francisco production facility or any of our hosting services facilities could
cause an interruption in the production and distribution of our programming,
limit the quantity or timeliness of updates to our productions or limit the
speed at which our audience can access our content. Any of these occurrences
could reduce the appeal of our programming. Our insurance policies may not
adequately compensate us for any losses that may occur due to any failures or
interruptions in our systems. We do not have a formally documented disaster
recovery plan for major disasters.

Our web sites have experienced significant increases in traffic during
coverage of some sporting events. As we deliver additional programming, we
expect our audience base to increase significantly. This will require our web
sites to accommodate a high volume of traffic and deliver frequently updated
information. Failure of our systems to accommodate higher volumes of traffic
could reduce the performance and appeal of our web sites and harm our results of
operations. For example, on some weekends during which we were covering multiple
motor sports events, our servers have suffered service disruptions.
Additionally, our web sites in the past have experienced slower response times
or other problems for a variety of reasons, including delays or malfunctions as
a result of third-party distributors on which we rely. Interruptions and
malfunctions related to the access to our web sites could materially damage our
relationships with our audience and rightsholders, and our business could
suffer.

OUR COMPETITIVE POSITION IN THE DIGITAL SPORTS ENTERTAINMENT INDUSTRY COULD
DECLINE IF WE ARE UNABLE TO ACQUIRE BUSINESSES OR TECHNOLOGY THAT ARE STRATEGIC
FOR OUR SUCCESS OR IF WE FAIL TO SUCCESSFULLY INTEGRATE ANY ACQUISITIONS WITH
OUR CURRENT BUSINESS.

If appropriate opportunities arise, we intend to acquire businesses,
technologies, services or products that we believe are strategic for our
success. For example, we acquired ZoneNetwork.com, Inc. in March 2000. The
digital sports entertainment industry is new, highly competitive and rapidly
changing. We believe these industry dynamics could result in a high level of
acquisition activity as companies seek to gain competitive advantage.
Competitive forces could require us to acquire additional companies or
technology. Our competitive position in the industry could decline if we are
unable to acquire businesses or technology that are strategic for our success or
if we fail to successfully integrate any acquisitions with our current business.
We may be unable to identify, negotiate or finance future acquisitions
successfully, or to integrate successfully any acquisitions with our current
business. The process of integrating an acquired business, technology, service
or product into our business and operations may result in unforeseen operating
difficulties and expenditures, including the allocation of significant
management time and company resources that would otherwise be available for
ongoing development of our business. Moreover, the anticipated benefits of any
acquisition may not be realized. In June 2000, we signed an agreement to
purchase a majority interest in Golf.com, L.L.C. and in July 2000, we signed an
agreement to acquire Total Sports Inc. Both companies' operations are based in
North Carolina. We may be unable to complete the Golf.com, L.L.C. and Total
Sports Inc. transactions if any of the conditions set forth in those agreements,
such as approval of both of the transactions by Quokka's stockholders and
approval of the Total Sports transaction by the Total Sports stockholders, are
not met. In addition, even if we complete both transactions, we may be unable to
efficiently integrate each of the companies into our operations or realize the
benefits that we had expected due to geographic separation or other unforeseen
factors.

FAILURE BY THIRD PARTIES ON WHOM WE DEPEND FOR INTERNET ACCESS, DELIVERY OF OUR
PROGRAMMING AND GENERATION OF MULTIPLE REVENUE STREAMS COULD HARM OUR OPERATIONS
AND REVENUES.

Our audience depends on Internet service providers, online service
providers and other web site operators for access to our web sites. Many of them
have experienced significant outages in the past, and could experience outages,
delays and other difficulties due to system failures unrelated to our systems.
Access by our audience outside the United States could also be delayed or
interrupted due to the uncertainty of the telecommunications infrastructure
inferring countries.

We depend on various domestic and international third parties for
software, systems and delivery of much of our programming. Many of these third
parties have limited operating histories, early generation technology and are
themselves dependent on reliable delivery from others. Any delays or
malfunctions in the distribution of our content would limit our ability to
deliver our programming. We also depend on IBM, Intel Online Services and
Frontier GlobalCenter, each of which hosts some of our web sites. From time to
time, service of our servers at the Frontier GlobalCenter hosting facility has
been temporarily disabled or has malfunctioned, and access to our web sites was
limited or eliminated. Our history with the IBM and Intel Online Services
facilities is very short and we cannot be certain that similar problems will be
avoided at these other facilities.

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<PAGE> 24

Our plans to generate multiple revenue streams also depend on third
parties. In particular, we depend on encryption technology provided by others to
enable secure consumer revenue transactions. In addition, our ability to obtain
sponsorship and advertising interest will depend on whether third parties we
hire can generate meaningful and accurate data to measure the demographics of
our audience and the delivery of advertisements on our web sites. Companies may
choose not to advertise on our web sites or may pay less if they do not perceive
these measurements made by third parties to be reliable. Also, our ability to
generate content syndication revenue depends on whether other media companies
value our content and are willing to pay for that content.

OUR COMMON STOCK PRICE IS LIKELY TO BE VOLATILE, WHICH COULD HURT INVESTORS AND
EXPOSE US TO LITIGATION.

The stock markets in general, and the Nasdaq National Market and the
market for Internet-related and technology companies in particular, have
experienced extreme price and volume fluctuations in recent months. These
fluctuations often have been unrelated or disproportionate to the operating
performance of these companies. These broad market and industry factors could
harm the market price of our common stock, regardless of our performance. Market
fluctuations, as well as general political and economic conditions such as a
recession or interest or currency rate fluctuations, also could harm the market
price of our common stock.

The trading prices of many technology company stocks, particularly
Internet company stocks, have recently been at or near historical highs,
reflecting valuations substantially above historical levels. Our stock price
could be subject to wide fluctuations in response to a variety of factors,
including factors that may be beyond our control. These include:

- actual or anticipated variations in our quarterly operating results;

- announcements of technological innovations or new sports
entertainment programming by us or our competitors;

- changes in financial estimates by securities analysts;

- conditions or trends in the Internet and online entertainment
industries;

- changes in the market valuations of other Internet companies;

- announcements by us or our competitors of significant acquisitions,
strategic partnerships, joint ventures or capital commitments;

- additions or departures of key personnel; and

- sales of substantial amounts of our common stock or other securities
in the open market.

Volatility in the market price of our common stock could result in
securities class action litigation. This type of litigation could result in
substantial costs and a diversion of management's attention and resources.

SALES OF OUR SHARES COULD NEGATIVELY AFFECT THE MARKET PRICE OF OUR STOCK,
IMPAIR OUR ABILITY TO RAISE CAPITAL THROUGH THE SALE OF ADDITIONAL EQUITY
SECURITIES AND RESULT IN FURTHER DILUTION.

Sales of a substantial number of shares in the public market could
negatively affect the market price of our common stock and could impair our
ability to raise capital through the sale of additional equity securities.
Stockholders beneficially owing in the aggregate approximately 23.3 million
shares of our common stock have entered into voting agreements in connection
with our purchase agreement with the selling members of Golf.com to vote in
favor of that transaction at our special stockholders meeting to approve that
purchase transaction. Under the terms of those voting agreements, those Quokka
stockholders have agreed not to sell or otherwise transfer their shares of
Quokka stock unless that purchase agreement is terminated or unless the selling
members of Golf.com agree to release those stockholders from the obligations of
the Golf.com voting agreements. In addition, stockholders beneficially owing in
the aggregate approximately 26.7 million shares of our common stock have entered
into voting agreements and proxies in connection with our merger agreement with
Total Sports to vote in favor of our pending merger with Total Sports at our
special stockholders meeting to approve that merger transaction. Under the terms
of their voting agreements with Total Sports, those Quokka stockholders have
agreed not to sell or otherwise transfer their shares of Quokka stock unless
that merger agreement is terminated or unless Total Sports agrees to release
those stockholders from the obligations of the Total Sports voting agreements
and proxies. Any shares subject to these voting agreements may be released at
any time by the selling members of Golf.com or Total Sports, as applicable, with
or without notice. Upon the closing of our pending Golf.com purchase transaction
and our pending merger with Total Sports, or the earlier termination of the
voting agreements, the stock held by those stockholders will be released from
those contractual obligations restricting transfer and sale.

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<PAGE> 25

OUR BRAND MAY NOT ACHIEVE THE BROAD RECOGNITION NECESSARY TO SUCCEED.

We believe that broad recognition and a favorable audience perception of
the Quokka brands will be essential to our success. If our brand does not
achieve favorable broad recognition, our success will be limited. We intend to
build traffic and brand recognition by aggressively marketing the Quokka Sports
Network brand as well as the brands of individual sport verticals within our
network. We plan to continue to market each of these brands through extensive
traditional media campaigns employing advertising on television, printed
publications, outdoor signage and radio. We also plan to continue to conduct a
simultaneous online advertising campaign and to seek exposure through our
co-branded initiatives. During 1999, we spent $7.7 million for advertising. We
expect to significantly increase our advertising expenses in future periods as
we build the Quokka brands and awareness of our properties in our network. We
may lack the resources necessary to accomplish these initiatives. Even if the
resources are available, we cannot be certain that our multi-brand enhancement
strategy will deliver the brand recognition and favorable audience perception
that we seek for any of our brands. If our strategy is unsuccessful, these
expenses may never be recovered and we may be unable to increase future
revenues. Even if we achieve greater recognition of our brands, competitors with
greater resources or a more recognizable brand could reduce our market share of
the emerging digital sports entertainment market.

THE LOSS OF ANY STRATEGIC RELATIONSHIPS WITH MEDIA ENTITIES AND SPORTS GOVERNING
BODIES COULD NEGATIVELY IMPACT THE BREADTH OF OUR SPORTS PROGRAMMING AND OUR
ABILITY TO ACQUIRE ADDITIONAL RIGHTS TO COVER SPORTS OR SECURE SPONSORSHIPS.

We depend on agreements with certain established media entities and
sports governing bodies, such as NBC Olympics, Inc. and Championship Auto Racing
Teams, Inc. The loss of any of these strategic relationships could impact the
breadth of our sports programming and affect our ability to acquire additional
rights or secure sponsorships. Our agreements with these parties enable
development of certain Olympic and motor sports programming. Additionally, these
strategic relationships, among others, provide us with credibility in the
marketplace to negotiate sponsorships and acquire rights to cover additional
sports. While these strategic relationships are grounded in contractual
agreements, these parties can terminate the agreements for various reasons,
including contractual breaches and a change in control of our company. For
example, NBC Olympics, Inc. can terminate its strategic relationship with us if
a competitor of NBC acquires us. We cannot guarantee that our strategic partners
will perform their contractual obligations. Even if the contracts run for the
full term, we may not be able to renew the agreements on comparable terms, if at
all. Recently, we amended our agreement with Dorna Promocion del Deporte, S.A.
to expire at the end of December 2000. If we are unable to conclude an agreement
with Dorna to extend our rights beyond 2000, the breadth of the programming on
the Quokka Sports Network may suffer.

OUR LIMITED EXPERIENCE DEVELOPING AND COORDINATING A COMPREHENSIVE PROGRAMMING
SCHEDULE COULD RESULT IN DELAYS OR SETBACKS THAT REDUCE THE APPEAL OF OUR WEB
SITES.

We have limited experience developing and coordinating a comprehensive
programming schedule and may experience delays or setbacks that reduce the
appeal of our web sites. The programming we have developed in the past required
significantly fewer resources and technical skills than the major sports
programming we are scheduled to produce, including the Olympic Games. Our
programming may not keep pace with technological developments, evolving industry
standards or competing programming alternatives. We have only recently begun to
develop multiple large-scale programming events simultaneously and may lack the
financial and technical resources to develop effectively content for multiple
simultaneous sporting events. Even if the resources are available, we may be
unable to coordinate a comprehensive programming schedule. To be successful, we
will need to staff and operate 24-hour production facilities that are capable of
collecting, repackaging and distributing digital coverage to a global audience.
In addition, the size and scope of the 2000 Olympics in Sydney, Australia will
require us to devote a substantial amount of our resources to that programming.
We may be unable to effectively cover our other properties during our Olympics
coverage and our operating results may be adversely affected.

OUR SPONSORSHIP MODEL IS UNPROVEN AND OUR REVENUES AND RESULTS OF OPERATIONS
WILL SUFFER IF WE ARE UNABLE TO MAINTAIN OUR EXISTING SPONSORS AND SECURE
ADDITIONAL SPONSORSHIPS.

Our revenues and results of operations will suffer if we are unable to
maintain our existing sponsors and secure additional sponsors. Our revenue model
is primarily based on securing long-term digital entertainment sponsorships that
provide each sponsor with the right to be named as the exclusive sponsor of our
network within a particular industry category. We have limited experience with
this sponsorship model. Prospective sponsors may not be interested in entering
into these digital entertainment sponsorships at the rates we set, if at all.
Additionally, our sponsorship agreements typically require the delivery of a
specified number of brand impressions, which refers to the number of times and
duration that the sponsor's brand appears on a user's screen while the user is
connected to our web sites. Our fulfillment of these commitments assumes that we
will be able to deliver these brand impressions on sports programming that we
acquire or create. Owners of rights to sporting events often have pre-arranged
sponsor lists they require us to honor. Pre-existing sponsorship relationships
may prevent us from meeting the minimum commitments we have to our exclusive
digital entertainment sponsors and other sponsors and advertisers, and would
cause us to allocate impressions to our sponsors that were otherwise available
for additional revenue generating purposes. These pre-existing sponsorship
relationships could also negatively affect our business by limiting our ability
to attract new sponsors. We might acquire or create additional programming that
would allow us to provide our sponsors with sufficient brand impressions for
which we would incur additional expenses.

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<PAGE> 26

WE FACE MANY OTHER RISKS, AS DISCUSSED IN OUR ANNUAL REPORT ON FORM 10-K FOR THE
YEAR ENDED DECEMBER 31, 1999 AND OUR QUARTERLY REPORT ON FORM 10-Q FOR THE THREE
MONTHS ENDED MARCH 31, 2000, INCLUDING THE FOLLOWING:

OUR SPONSORSHIP MODEL COULD PREVENT US FROM ACQUIRING CRITICAL TECHNOLOGY, WHICH
COULD AFFECT THE QUALITY OF OUR PROGRAMMING.

OUR PROGRAMMING AND OPERATIONS WILL SUFFER IF WE ARE UNABLE TO ADAPT IN A TIMELY
MANNER TO TECHNOLOGICAL DEVELOPMENTS, EVOLVING INDUSTRY STANDARDS, CHANGING
MARKET CONDITIONS OR CUSTOMER REQUIREMENTS.

OUR BUSINESS IS SUBJECT TO MANY RISKS ASSOCIATED WITH WORLDWIDE SPORTS EVENT
COVERAGE AND OTHER INTERNATIONAL ACTIVITIES, WHICH COULD PREVENT OR DELAY OUR
COVERAGE OR CAUSE US TO INCUR ADDITIONAL EXPENSES.

OUR BUSINESS WILL NOT OPERATE EFFICIENTLY AND OUR RESULTS OF OPERATIONS WILL BE
NEGATIVELY AFFECTED IF WE ARE UNABLE TO EFFECTIVELY MANAGE OUR GROWTH.

IF WE FAIL TO ATTRACT AND RETAIN KEY PERSONNEL WE WILL BE UNABLE TO EXECUTE OUR
BUSINESS STRATEGY.

DELAYS IN THE ACCESSIBILITY OR GROWTH OF DIGITAL MEDIA NETWORKS COULD ADVERSELY
AFFECT OUR PROGRAMMING AND REDUCE THE LEVEL OF TRAFFIC ON OUR WEB SITES.

THE ONLINE DIGITAL SPORTS ENTERTAINMENT INDUSTRY IS INTENSELY COMPETITIVE, AND
WE MAY BE UNABLE TO COMPETE SUCCESSFULLY AGAINST CURRENT AND FUTURE COMPETITORS.

ACCEPTANCE OF PROPERTY OR SERVICES AS PAYMENT MAY PROVIDE LESS WORKING CAPITAL
FLEXIBILITY THAN A CASH PAYMENT WOULD PROVIDE.

WE MAY BE SUBJECT TO NEGATIVE PUBLICITY AND LIABILITY FOR ATHLETES OR OUR
EMPLOYEES ASSOCIATED WITH OUR EVENTS, WHICH WOULD DISRUPT OUR PROGRAMMING AND
REDUCE SPONSORSHIPS AND PARTICIPATION IN FUTURE EVENTS.

WE MAY BE UNABLE TO ADEQUATELY PROTECT OR ENFORCE OUR INTELLECTUAL PROPERTY
RIGHTS, AND OUR EFFORTS TO DO SO COULD BE TIME-CONSUMING AND EXPENSIVE AND COULD
DIVERT MANAGEMENT ATTENTION FROM EXECUTING OUR BUSINESS STRATEGY.

REVENUES FROM SUBSCRIPTION SERVICES MAY FAIL TO DEVELOP, WHICH WOULD HARM OUR
RESULTS OF OPERATIONS.

CHANGES IN REGULATION OF THE INTERNET COULD LIMIT OUR BUSINESS PROSPECTS. OUR
INTERNET ACTIVITIES MAY BECOME SUBJECT TO ADDITIONAL TAXES, WHICH COULD
NEGATIVELY AFFECT OUR RESULTS OF OPERATIONS.

WE HAVE LIMITED EXPERIENCE GENERATING CONSUMER REVENUES FROM THE SALE OF
PRODUCTS AND SERVICES, AND WE MAY NOT BE ABLE TO DO SO IF WE ARE UNABLE TO
DEVELOP AND IMPLEMENT A SUCCESSFUL STRATEGY, DEVELOP A SUCCESSFUL LINE OF
PRODUCT MERCHANDISE, OVERCOME INTERNET SECURITY CONCERNS OR RESPOND TO
COMPETITIVE PRICING.

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<PAGE> 27

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

27
<PAGE> 28

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time Quokka is involved in legal proceedings in the
ordinary course of business. None of such proceedings are expected to have a
material impact on our business, results of operations or financial condition.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

During the six months ended June 30, 2000, Quokka has issued and sold
unregistered securities as follows:

On March 31, 2000, 1,411,639 shares of common stock were issued to the
former shareholders of Zone upon the closing of the Zone acquisition. Also in
connection with the Zone acquisition, Quokka granted to the former Zone option
holders vested options to purchase 334,829 shares of Quokka common stock with
exercise prices ranging from $.70 to $12.16 per share and issued to former Zone
warrant holders warrants to purchase 33,387 shares of Quokka common stock with
exercise prices ranging from $.70 to $12.16 per share.

Pursuant to an Asset Purchase Agreement dated June 1, 2000, Quokka
issued 190,764 shares of common stock to Helium LLC. Quokka purchased specified
intellectual property, including software and know-how.

All sales of securities were made in reliance on Section 4(2) of the
Securities Act and/or Regulation D promulgated under the Securities Act. These
sales were made without general solicitation or advertising. Each acquirer was,
or was represented by, a sophisticated investor with access to all relevant
information necessary to evaluate the investment and represented to Quokka that
the shares were being acquired for investment.

ITEM 3. DEFAULTS UNDER SENIOR SECURITIES

Not applicable.

ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDER

The 2000 Annual Meeting of Stockholders of the Company was held on May
3, 2000. The three persons named below were elected as proposed in the proxy
statement pursuant to Regulation 14A of the Securities Exchange Act of 1934, as
amended, to serve as directors until the 2003 Annual Meeting and until their
successors are elected and qualified, or until a director's earlier death,
resignation or removal. There were 40,369,821 votes cast in the election of
directors and there were 37,136 abstentions and 12,266 broker non-votes. The
voting regarding each nominee was as follows: Alan S. Ramadan (for:
40,382,087/withheld: 37,136); John Bertrand A.M. (for: 40,512,021 /withheld:
47,202); and Roel Pieper (for: 40,369,821 /withheld: 49,402). The following
directors' terms of office as directors continued after the meeting: Walter W.
Bregman, James G. Shennan, Jr., Richard H. Williams and Barry M. Weinman.

Also at the 2000 Annual Meeting of Stockholders of the Company, the
stockholders ratified the selection of PricewaterhouseCoopers LLP as independent
auditors of the Company for its fiscal year ending December 31, 2000, with
40,371,395 votes for; 42,908 votes against; and 4,920 votes abstained.

ITEM 5. OTHER INFORMATION

Effective as of July 1, 2000, Roel Pieper resigned from Quokka's board
of directors. No successor has been appointed to fill the vacancy created by Mr.
Pieper's resignation.

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<PAGE> 29

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
2.01 Purchase Agreement and Plan of Reorganization dated June 8, 2000
by and among the Registrant, Golf.com, LLC, GolfData Corporation,
The New York Times Company Magazine Group, Inc., Media One
Interactive Services, Inc., Total Sports Inc. and Otto Candies,
LLC

2.02 Asset Purchase Agreement dated June 1, 2000 by and between
Helium LLC and the Registrant

27.1 Financial Data Schedule.
</TABLE>

(b) Reports on Form 8-K.

1. On April 14, 2000, Quokka filed a current report on Form 8-K dated March 31,
2000. The current report was amended on May 11, 2000 to include the financial
statements of Zone and the pro forma financial information reflecting the
purchase of Zone for the year ended December 31, 1999.

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<PAGE> 30

SIGNATURE

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.

QUOKKA SPORTS, INC.
(Registrant)

/s/ LES SCHMIDT
--------------------------------------
Les Schmidt
Executive Vice President,
Chief Financial Officer and Secretary
(Authorized Officer and
Principal Financial and
Accounting Officer)

Dated: August 14, 2000

30
<PAGE> 31

EXHIBIT INDEX

2.02 Asset Purchase Agreement dated June 1, 2000 by and between
Helium LLC and the Registrant

27.1 Financial Data Schedule.
</TABLE>