QUOKKA SPORTS INC, 10-Q, 2000-11-14

QUOKKA SPORTS INC
10-Q, 2000-11-14
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 SEPTEMBER 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 October 31, 2000 was 50,310,533.

<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 25
among other things, should be considered in evaluating the Company's prospects
and future financial performance.

<PAGE> 3
QUOKKA SPORTS, INC.

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

<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited):

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

Consolidated Condensed Statements of Operations for the Three and Nine
Months Ended September 30, 2000 and 1999...................................... 5

Consolidated Condensed Statements of Cash Flows for the Nine
Months Ended September 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..................................................... 15

Item 3. Quantitative and Qualitative Disclosures about Market Risk....................... 37

PART II. OTHER INFORMATION

Item 1. Legal Proceedings................................................................ 38

Item 2. Changes in Securities and Use of Proceeds........................................ 38

Item 3. Defaults under Senior Securities................................................. 38

Item 4. Submission of Matters to a Vote of Security Holders............................. 38

Item 5. Other Information............................................................... 38

Item 6. Exhibits and Reports on Form 8-K................................................. 39

Signature................................................................................ 41
</TABLE>

<PAGE> 4
PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

QUOKKA SPORTS, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED BALANCE SHEETS
(IN THOUSANDS)

<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------ -----------
(unaudited)
<S> <C> <C>
ASSETS

Current assets:
Cash and cash equivalents $ 3,732 $ 3,855
Restricted cash 6,007 3,200
Investments in marketable securities 64,911 61,702
Accounts receivable, net 10,448 6,067
Inventory, net 287 -
Acquired programming and distribution rights, net 9,338 12,042
Prepaid and other expenses 1,506 1,823
---------- ----------
Total current assets 96,229 88,689

Property and equipment, net 19,480 10,551
Other assets 643 640
Debt issuance costs 5,157 -
Goodwill and intangibles, net 27,339 -
---------- ----------
Total assets $ 148,848 $ 99,880
========== ==========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,343 $ 2,427
Accrued expenses 13,605 3,797
Current portion of long-term debt and capitalized lease obligations 7,786 6,041
Deferred revenues 4,461 3,864
---------- ----------
Total current liabilities 31,195 16,129
---------- ----------
Long term debt and capitalized lease obligations, net of current portion 75,584 11,493
---------- ----------
Redeemable warrants 8,225 -

Stockholders' equity

Preferred stock - -
Common stock, voting and non-voting 5 4
Additional paid-in capital 193,451 137,460
Warrants and other 8,885 7,831
Treasury stock, at cost (107) (107)
Accumulated deficit (168,390) (72,930)
---------- ----------
Total stockholders' equity 33,844 72,258
---------- ----------
Total liabilities and stockholders' equity $ 148,848 $ 99,880
========== ==========
</TABLE>

See accompanying notes to unaudited consolidated condensed financial statements

<PAGE> 5
QUOKKA SPORTS, INC. AND SUBSIDIARIES

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

(UNAUDITED)

<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- --------------------
2000 1999 2000 1999
-------------------- --------------------
<S> <C> <C> <C> <C>
Revenues $ 16,009 $ 2,961 $ 38,105 $ 6,410
-------------------- --------------------

Cost of revenues:
Production and other costs 19,195 6,926 36,472 13,269
Amortization of programming and distribution rights 1,515 226 5,134 1,863
-------------------- --------------------
Total cost of revenues 20,710 7,152 41,606 15,132
-------------------- --------------------

Gross profit/(loss) (4,701) (4,191) (3,501) (8,722)

Operating expenses:
Research and engineering 5,103 2,596 16,528 9,249
Sales and marketing 6,642 4,858 22,284 13,919
General and administrative 4,040 3,581 11,320 7,978
Restructuring costs - - 587 -
Depreciation 2,267 1,605 5,693 2,755
Amortization of other intangibles 4,754 - 9,001 -
-------------------- --------------------
Total operating expenses 22,806 12,640 65,413 33,901
-------------------- --------------------

Loss from operations (27,507) (16,831) (68,914) (42,623)

Losses of associated venture - 372 - 1,439
Minority interest in net loss of consolidated subsidiary (645) (645) (1,936) (1,291)
Interest income/(expense), net (28,834) 745 (28,482) 957
-------------------- --------------------
Net loss $(55,696) $(15,813) $(95,460) $(41,814)
==================== ====================

Net loss per share:
Basic and diluted $ (1.21) $ (1.19) $ (2.10) $ (3.80)
Weighted average shares outstanding - basic and diluted 46,131 13,291 45,449 10,900
</TABLE>

See accompanying notes to unaudited consolidated condensed financial statements

<PAGE> 6
QUOKKA SPORTS, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

(UNAUDITED)

<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------------
2000 1999
------------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (95,460) $ (41,814)
Adjustments to reconcile net loss to net cash used
in operating activities:
Loss on disposal of fixed assets 171 -
Depreciation 5,693 2,755
Amortization of acquired programming and distribution rights 5,134 1,863
Amortization of other intangibles 9,001 -
Minority interest in net loss of consolidated subsidiary (1,936) (1,291)
Beneficial conversion charge related to convertible notes 28,458 -
Non-cash compensation-related charges 1,702 1,341
Changes in operating assets and liabilities:
Inventory 715 -
Accounts receivable (3,796) (1,219)
Acquired rights (494) (125)
Prepaid and other expenses 425 (925)
Other assets 19 (629)
Debt issuance costs (5,157) -
Accounts payable (4,149) 654
Accrued expenses 7,069 2,765
Deferred revenues 597 1,959
------------------------
Net cash used in operating activities (52,008) (34,666)
------------------------

Cash flows from investing activities:
Net purchases of marketable securities (6,016) -
Business acquisitions, net of cash acquired 1,327 -
Purchase of property and equipment (13,734) (6,949)
------------------------
Net cash used in investing activities (18,423) (6,949)
------------------------

Cash flows from financing activities:
Proceeds from long term financing arrangements 420 3,699
Payments on notes, long-term capital leases and financing arrangements (8,301) (1,156)
Proceeds from the issuance of common stock,
net of issuance cost 789 95,805
Purchase of treasury stock - (95)
Proceeds from convertible debt financing 77,400 -
------------------------
Net cash provided by financing activities 70,308 98,253
------------------------
Net increase/(decrease) in cash and cash equivalents (123) 56,638

Cash and cash equivalents, beginning of period 3,855 23,994
------------------------
Cash and cash equivalents, end of period $ 3,732 $ 80,632
========================
</TABLE>

See accompanying notes to unaudited consolidated condensed financial statements

<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, Quokka
is building a digital sports network by creating digital programming content
that is specifically designed for interactive distribution systems and other
entertainment devices. The Company operates as a single business segment.

Revenues are generated from digital entertainment and other
sponsorships, 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.

On September 15, 2000, the Company closed a private placement in which
the Company issued 7.0% convertible promissory notes and warrants for total
consideration of $77.4 million. (See note 8 for further discussion.)

Since its inception, the Company has been successful in completing
several rounds of financing. During the same period, the Company has incurred
substantial losses and negative cash flows from operations in every fiscal
period since inception. For the year ended December 31, 1999, the Company
incurred a loss from operations of approximately $58.3 million and negative cash
flows from operations of $48.3 million. For the nine months ended September 30,
2000, the Company incurred a loss from operations of approximately $68.9 million
and negative cash flows from operations of $52.0 million. As of September 30,
2000, the Company had an accumulated deficit of approximately $168.4 million.
Management expects operating losses and negative cash flows to continue for the
foreseeable future because of additional costs and expenses related to brand
development, marketing and other promotional activities, continued development
of the Company's technology infrastructure, expansion of product offerings and
integration of recent acquisitions. Certain of these costs could be reduced if
working capital decreased significantly. Failure to generate sufficient
revenues, raise additional capital or reduce certain discretionary spending
could have a material adverse effect on the Company's ability to continue as a
going concern and to achieve its intended business objectives.

At September 30, 2000, Quokka was in default of debt covenants relating
to a $2.0 million equipment financing loan with Silicon Valley Bank ("SVB").
Since October 1, 2000, the Company is in default of certain covenants. The
noteholder can call the note at any time. At September 30, 2000, the outstanding
balance was classified as a current liability. We are in the process of working
with the noteholder to amend the covenants, however no assurances can be given
that the covenants will be amended or a waiver will be obtained.

Basis of Presentation

The accompanying consolidated condensed financial statements and related
notes of Quokka are unaudited. However, in the opinion of management, all
adjustments (consisting only of normal recurring adjustments) that are necessary
for a fair presentation of the financial position, results of operations and
cash flows for the interim period have been included. These condensed
consolidated financial statements should be read in conjunction with the audited
consolidated financial statements and notes thereto for the fiscal year ended
December 31, 1999 which are included in Quokka's Annual Report on Form 10-K. The
results of operations for the three and nine months ended September 30, 2000 are
not necessarily indicative of results to be expected for the entire fiscal year,
which ends on December 31, 2000, or for any future period.

<PAGE> 8
QUOKKA SPORTS, INC. AND SUBSIDIARIES

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

In accordance with the rules and regulations of the Securities and
Exchange Commission, unaudited condensed consolidated financial statements may
omit or condense certain information and disclosures normally required for a
complete set of financial statements prepared in accordance with generally
accepted accounting principles. However, Quokka believes that the notes to the
condensed consolidated financial statements contain disclosures adequate to make
the information presented not misleading.

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the recorded amounts reported in the unaudited condensed
consolidated financial statements and accompanying notes. A change in the facts
and circumstances surrounding these estimates could result in a change to the
estimates and affect future operating results.

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.

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,
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 media impressions to projected total
ultimate media 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. Electronic commerce revenues, which have not been material to
date, are recognized when the product is shipped and payment is assured. Quokka
recognizes 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. Such transactions are recorded at the estimated fair
value of the products and services received or given. Revenue from barter
transactions is recognized when media impressions are provided, and services
received are charged to expense when used, or capitalized and amortized over
the period of benefit. For the nine months ended September 30, 2000, barter
revenues represented 10% of net revenues. For the nine months ended September
30, 1999, barter revenues represented 2% of net revenues.

<PAGE> 9
QUOKKA SPORTS, INC. AND SUBSIDIARIES

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

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.

Business Risk and Concentration of Credit Risk

Quokka operates in the Internet industry, which is rapidly evolving and
intensely competitive. Quokka potentially competes with other Internet
companies, large, established media companies and sports marketing
organizations.

To date, we have depended on a limited number of sponsors for a majority
of our revenues. For the nine months ended September 30, 2000, three sponsors
accounted for 44% of our revenues. In 1999, three sponsors accounted for 65% of
our revenues. At September 30, 2000, two customers accounted for 21% and 14%
respectively, of total outstanding accounts receivable. At December 31, 1999,
four customers accounted for 43%, 15%, 14% and 11% respectively, of total
outstanding accounts receivable.

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. At September 30,
2000, the Company has recorded an inventory reserve of $674,000 to cover any
potential lower of cost of market issues or obsolete inventory.

Goodwill and intangibles

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

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. Translation
adjustments and unrealized gains/losses on available-for-sale securities are
deemed immaterial and included as a component of additional paid-in capital in
the accompanying financial statements. As of September 30, 2000, net unrealized
losses on available-for-sale securities was $54,000.

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 potential common
shares outstanding during the period. However, as Quokka generated net losses in
all periods presented, potential common 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.

<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 basic and
diluted net loss per share for the periods indicated.

<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
--------------------------- ---------------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Numerator:
Net loss available to common stockholders $ (55,695) $ (15,813) $ (95,460) $ (41,814)

Denominator:
Weighted average shares 46,145 13,429 45,462 11,066
Weighted average unvested common shares subject to
repurchase agreements (14) (138) (14) (76)
---------- ---------- ---------- ----------
Denominator for basic calculation and diluted
calculation 46,131 13,291 45,449 10,990
========== ========== ========== ==========

Net loss per share:
Basic and Diluted $ (1.21) $ (1.19) $ (2.10) $ (3.80)
Anti-dilutive securities including options, warrants
and preferred stock not included in historical
net loss per share calculations 26,287 38,657 26,287 36,011
</TABLE>

Recently Issued Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and reporting
standards for derivative instruments and hedging activities. SFAS No. 133,
requires that an entity recognize all derivatives as either assets or
liabilities in the balance sheet and measures those instruments at fair value.
In July 1999, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards 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 January 1, 2001. The Company has
not engaged in hedging activities or invested in derivative instruments. 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.

<PAGE> 11
QUOKKA SPORTS, INC. AND SUBSIDIARIES

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

In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements." SAB
No. 101 summarizes certain of the SEC's views in applying generally accepted
accounting principles to revenue recognition in financial statements. The
adoption of SAB No. 101 did not have a material effect on the Company's
financial statements.

In April 2000, FASB Interpretation No. 44, "Accounting for Certain
Transactions Involving Stock Compensation -- an interpretation of APB Opinion
No. 25" 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 the conclusions of FIN
No. 44 did not have a material impact on the Company's financial position and
results of operations.

In January 2000, the Emerging Issues Task Force ("EITF") reached a
consensus on EITF 99-17, "Accounting for Advertising Barter Transactions" (the
"Issue"). This 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
this Issue. If the fair value of the advertising surrendered in the barter
transaction is not determinable within the limits of this Issue, the barter
transaction should be recorded based on the carrying amount of the advertising
surrendered, which likely would be zero. The adoption of this consensus did not
have a material impact on the Company's financial statements.

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 $54.4 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 and common stock were automatically converted into
warrants to purchase 3,113,252 shares of common stock (after consideration of
net exercises).

<PAGE> 12
QUOKKA SPORTS, INC. AND SUBSIDIARIES

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

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 nine
months ended September 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>
<S> <C>
Pro forma net sales $40,045
Pro forma net loss $(106,258)
Pro forma basic and diluted earnings per share $(2.27)
</TABLE>

On June 1, 2000, the Company signed an asset purchase agreement to
acquire Helium, LLC. Total consideration was $1.2 million and includes a
$300,000 cash payment and the issuance of 190,764 shares of common stock. The
transaction was completed on June 1, 2000 and was recorded using the purchase
method of accounting.

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 issued approximately 3.9 million shares
of common stock in exchange for 71% of the ownership interest in Golf.com, LLC.
This transaction was completed on October 3, 2000 and will be recorded using the
purchase method of accounting.

On July 20, 2000, the Company signed a definitive agreement to acquire
Total Sports Inc., an event-centered, online sports media company. The
acquisition will further extend the reach of the Quokka Sports Network into
mainstream U.S. Sports. Quokka will issue approximately 15 million shares of
common stock in exchange for all of the outstanding shares of capital stock,
options and warrants of Total Sports. The transaction was completed on
November 13, 2000.

<PAGE> 13
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>
Nine Months Ended
September 30,
-----------------------------
2000 1999
-----------------------------
(unaudited) (unaudited)
<S> <C> <C>
Supplemental disclosure of cash:

Equipment financed through capital lease $ - $ 429
=============================

Accounts payable related to purchase of
property and equipment $ 968 $ 398
=============================

Issuance of preferred warrants for
subordinated debt $ - $ 572
=============================

Issuance of preferred warrants under
programming and distribution rights $ - $ 5,703
=============================

Issuance of preferred warrants as
compensation for services rendered $ - $ 1,555
=============================

Notes payable related to purchase of
acquired rights $ - $ 6,945
=============================

Notes payable related to purchase of
property and equipment $ - $ 2,293
=============================

Equity issued in a business acquisition $ 23,594 $ -
=============================

Stock options issued as compensation for
services rendered $ 2,256 $ 263
=============================

Beneficial conversion interest charge related
to debt issuance $ 28,458 $ -
=============================
</TABLE>

<PAGE> 14
QUOKKA SPORTS, INC. AND SUBSIDIARIES

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

NOTE 6. RESTRUCTURING COSTS

Restructuring costs for the nine months ended September 30, 2000 were
$587,000. These costs are associated with a change in the Company's e-commerce
operational model from in-house to outsource fulfillment. As a result, 22
employees associated with in-house fulfillment were terminated prior to the end
of the second quarter. Included in the restructuring costs are severance
expenses as well as the write-off of $351,000 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 September
30, 2000, a remaining accrual of $69,000 was included in accrued liabilities and
is expected to be relieved by December 31, 2000.

NOTE 7. NBC WARRANT ISSUANCE

On August 22, 2000, the Company signed a warrant issuance agreement
whereby it issued a warrant to National Broadcasting Company, Inc. ("NBC") for
the purchase of 10 million shares of the Company's common stock for cash
consideration of $500,000 and NBC's continued relationship with the Company. The
warrant is exercisable at prices ranging from $8.89 per share to $20.00 per
share through 2004. In accordance with EITF 96-18, the value ascribed to this
warrant upon its issuance, utilizing the Noreen-Wolfson valuation model was
$23.2 million, is being amortized to amortization expense over its terms, which
expires on December 31, 2004. Assumptions used in the Noreen-Wolfson computation
included the following: volatility of 65%; risk free interest rate of return of
6.10%; exercise price ranging from $8.89 to $20.00; term of 4 years; and no
dividend yield. The warrant is reported as a component of stockholder's equity.

NOTE 8. CONVERTIBLE DEBT FINANCING

On September 15, 2000, the Company completed a private placement of
$77.4 million, before fees and expenses, of 7.0% convertible subordinated
promissory notes ("Notes") and warrants. The five-year Notes carry a 7.0%
interest rate per annum, payable quarterly in cash or in kind at the Company's
option. A noteholder may elect to convert its Notes into common stock at an
initial conversion price of $5.415, at any time prior to maturity or earlier
redemption. The conversion price is subject to downward adjustment under certain
circumstances. The investors also received warrants to purchase 2,805,750
shares. The warrants have an exercise price of $8.00 per share and are
exercisable for five years. The Company has the ability to force the exercise of
half of the warrants under certain circumstances. Applicable accounting rules
require that the gross proceeds be allocated among the Notes, the beneficial
conversion feature of the Notes and the warrants. As a result of that
allocation, the subordinated Notes were recorded on the balance sheet at a
discounted value of approximately $69.2 million. The $8.2 million discount
resulting from the issuance of warrants will be amortized to interest expense
over the five-year term of the Notes. The $28.5 million beneficial conversion
charge was recognized immediately in interest expense since the Notes can be
converted on day one at the holder's option. If certain events occur, including
a merger of greater than 50% of the Company's stock, the holders can force the
redemption of the Notes and warrants. The costs related to the issuance of the
Notes were capitalized and are being amortized to interest expense, using the
effective interest method, over the life of the Notes. Debt issuance costs, net
of amortization, are $5,157,000 as of September 30, 2000.

<PAGE> 15
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 the Company's 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, Form 14-A, Form S-4 and our Quarterly Report on Form
10-Q for the three and six months ended March 31 and June 30, 2000. All
forward-looking statements included in this document are based on information
available to the Company on the date hereof, and the Company assumes 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, Olympic summer and winter
sports, golf, major league baseball and college sports. 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,
the Motor Grand Prix championship and the Presidents Cup Golf tournament as a
result of our relationships with our strategic partners like NBC Olympics, Inc.,
CART and Dorna Promocion del Deporte, S.A. and the PGA Tour.

We generate revenue from three sets of customers: from business
customers through sales of sponsorships; 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 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. Such transactions are recorded at
the estimated fair value of the products and services received or given.
Revenue from barter transactions is recognized when media impressions are
provided, and services received are charged to expense when used or capitalized
and amortized over the period of benefit. For the nine months ended September
30, 2000, barter revenues represented 10% of net revenues. For the nine months
ended September 30, 1999, barter revenues represented 2% of net revenues.

<PAGE> 16
QUOKKA SPORTS, INC. AND SUBSIDIARIES

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

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.

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, 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 September 30, 2000, we had an accumulated deficit of
$168.4 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 September 30, 2000 we had 385 employees compared to 282 at
September 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.

<PAGE> 17
QUOKKA SPORTS, INC. AND SUBSIDIARIES

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

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 issued approximately 3.9 million shares of common stock
in exchange for 71% of the ownership interest in Golf.com, LLC. This transaction
was completed on October 3, 2000 and was accounted for under the purchase method
of accounting.

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. The transaction
was completed on November 13, 2000.

<PAGE> 18
QUOKKA SPORTS, INC. AND SUBSIDIARIES

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

RESULTS OF OPERATIONS

THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999

Revenues

Our revenues increased $13.0 million to $16.0 million for the September
2000 quarter from $3.0 million for the September 1999 quarter. This increase was
due to the growth in the number of digital entertainment sponsors for the
quarter. During the September 2000 quarter, we recognized revenues from our
digital entertainment sponsorship agreements, including 2000 Sydney Olympic
Games gold sponsors, content distribution, consumer revenue and other sources.
Revenues from the September 1999 quarter were derived primarily from our
digital entertainment sponsorship agreements and sponsorship revenue from our
Around Alone Race sailing event. For the September 2000 quarter, barter
revenues were 24% of net revenues.

Production and Other Costs

Production costs increased $12.3 million to $19.2 million for the
September 2000 quarter from $6.9 million for the September 1999 quarter.
Production costs include hosting and connectivity, 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 for the September quarter reflects costs associated with
increased programming during the September 2000 quarter including our sports
coverage of the 2000 Sydney Olympic Games in connection with our joint venture
with NBC Olympics, Inc., the CART FedEx Championship Series, FIM Road Racing
World Championship Grand Prix motorcycle races, the EcoChallenge, the BT Global
Challenge and pre-production for the Presidents Cup golf tournament. This
increase reflects costs associated with multiple events produced or in
pre-production during the period as compared to one event, the Around Alone
Race, during the comparable 1999 period.

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
$1.3 million to $1.5 million for the September 2000 quarter from $226,000 for
the September 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. 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 negative gross margin of
$4.7 million for the September 2000 quarter compared to a negative gross margin
of $4.2 million for the September 1999 quarter.

Research and Engineering

Research and engineering expenses increased $2.5 million to $5.1 million
for the September 2000 quarter from $2.6 million for the September 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.

<PAGE> 19
QUOKKA SPORTS, INC. AND SUBSIDIARIES

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

Sales and Marketing

Sales and marketing expenses increased $1.7 million to $6.6 million for
the September 2000 quarter from $4.9 million for the September 1999 quarters.
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 $400,000 to $4.0 million
for the September 2000 quarter from $3.6 million for the September 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.

Depreciation

Depreciation expenses increased $700,000 to $2.3 million for the
September 2000 quarter from $1.6 million for the September 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, California. 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 2000 Sydney Olympic Games.

Amortization of intangibles

Amortization of intangibles for the September 2000 quarter was $4.8
million. The balance is primarily associated with amortization of the excess of
the purchase price of ZoneNetwork.com, Inc. over the fair value of the tangible
assets and liabilities acquired on a straight-line basis over 24 months. Also
included in this balance is $555,000 of amortization related to the warrant
issued to NBC in August 2000. The warrant is being amortized ratably over its
term, which expires on December 31, 2004.

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 September 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 September 1999 quarter, losses of associated venture were $372,000.

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 September 2000 and 1999 quarters,
minority interest of $645,000 represents the minority interest's share of net
losses for the period.

<PAGE> 20
QUOKKA SPORTS, INC. AND SUBSIDIARIES

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

Interest Income/(Expense)

Interest expense, net of interest income, was $28.8 million for the
September 2000 quarter. Interest income, net of interest expense, was $745,000
for the September 1999 quarter. The increase in interest expense was due to a
one time charge of $28.5 million associated with the beneficial conversion
feature embedded in the convertible debt instrument that was issued in September
2000. Interest income recorded during these periods includes interest income
earned on cash and cash equivalents and investments in marketable securities.
Remaining 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 $55.7 million
for the September 2000 quarter compared to a net loss of $15.8 million for the
September 1999 quarter.

NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999

Revenues

Our revenues increased $31.7 million to $38.1 million for the nine
months ended September 30, 2000 from $6.4 million for the comparable 1999
period. This increase was due to growth in the number of digital entertainment
sponsors for the nine month period. Revenue for the nine months ended September
30, 2000 were derived primarily from our digital entertainment sponsorship
agreements including 2000 Sydney Olympic Games gold sponsors, content
distribution, consumer revenue and other sources. Revenue for the nine months
ended September 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 $23.2 million to $36.5 million for the nine
months ended September 30, 2000 from $13.3 million for the nine months ended
September 30, 1999. The increase in production costs from 1999 to 2000 is due to
increased sports programming including our sports coverage of the 2000 Sydney
Olympic Games in connection with our joint venture with NBC Olympics, Inc., the
CART FedEx Championship Series, the FIM Road Racing World Championship Grand
Prix motorcycle races, the America's Cup 2000 and Challenger Series yacht races,
the EcoChallenge, the BT Global Challenge, coverage of Everest 2000, GM
Experience at Le Mans, the 2000 North American International Auto Show, the
100th U.S. Open at Pebble Beach and pre-production for the Presidents Cup golf
tournament. This increase reflects costs associated with multiple 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 the Quokka Sports
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
$3.2 million to $5.1 million for the nine months ended September 30, 2000 from
$1.9 million for the nine months ended September 30, 1999. 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, 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.

<PAGE> 21
QUOKKA SPORTS, INC. AND SUBSIDIARIES

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

Gross Profit/Loss

Based upon the foregoing information, we had a negative gross margin of
$3.5 million for the nine months ended September 30, 2000 compared to a negative
gross margin of $8.7 million for the nine months ended September 30, 1999.

Research and Engineering

Research and engineering expenses increased $7.3 million for the nine
months ended September 30, 2000 to $16.5 million from $9.2 million for the nine
months ended September 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 $8.4 million to $22.3 million for
the nine months ended September 30, 2000 from $13.9 million for the nine months
ended September 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 $3.3 million to $11.3
million for the nine months ended September 30, 2000 from $8.0 million for the
nine months ended September 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.

Restructuring Costs

Restructuring costs for the nine months ended September 30, 2000 were
$587,000. These costs are associated with a change in the Company's 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 September
30, 2000, a remaining accrual of $69,000 was included in accrued liabilities and
is expected to be relieved by December 31, 2000.

Depreciation

Depreciation and amortization expenses increased $2.9 million to $5.7
million for the nine months ended September 30, 2000 from $2.8 million for the
nine months ended September 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 2000 Sydney Olympic Games.

<PAGE> 22
QUOKKA SPORTS, INC. AND SUBSIDIARIES

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

Amortization of intangibles

Amortization of intangibles for the nine months ended September 30, 2000
was $9.0 million. The balance is primarily associated with the amortization of
the excess of the purchase of ZoneNetwork.com, Inc. over the fair value of the
tangible assets and liabilities acquired on straight-line basis over 24 months.
Also included in this balance is amortization of $555,000 related to the
warrants issued in August 2000. The warrant is being amortized ratably over its
term, which expires on December 31, 2004.

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 nine months ended September 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 nine months ended September 30, 1999, losses of associated
venture were $1.4 million.

Minority Interest in Net Loss of Consolidated Subsidiary

For the nine months ended September 30, 2000, minority interest was $1.9
million compared to $1.3 million for the nine months ended September 30, 1999
and represents the minority interest's share of net losses for the period.

Interest Income/(Expense)

Interest expense, net of interest income, was $28.5 million for the nine
months ended September 30, 2000. Interest income, net of interest expense, was
$957,000 for the September 1999 quarter. The increase in interest expense was
due to a one time charge of $28.5 million associated with the beneficial
conversion feature embedded in the convertible debt instrument issued in
September 2000. 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 net losses of $95.5 million
for the nine months ended September 30, 2000 and $41.8 million for the nine
months ended September 30, 1999.

LIQUIDITY AND CAPITAL RESOURCES

Since August 1996, we have financed our operations primarily through
private 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 $54.4 million, net of underwriters' discounts and
offering expenses. Total net proceeds from sales of our equity securities since
August 1996 through September 30, 2000 were $193.5 million.

On August 22, 2000, we issued a warrant to purchase 10.0 million shares
of Quokka common stock to NBC for cash consideration of $500,000 and NBC's
continued relationship with Quokka. The warrant is exercisable at prices ranging
from $8.89 per share to $20.00 per share through 2004. If all warrants are
exercised, total estimated proceeds to be received are $140.8 million.

On September 15, 2000, the Company completed a private placement in
which the Company issued 7.0% convertible subordinated promissory notes and
warrants for total consideration of $77.4 million before transaction fees and
expenses.

<PAGE> 23
QUOKKA SPORTS, INC. AND SUBSIDIARIES

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

At September 30, 2000, we had $74.7 million in cash and cash
equivalents. Restricted cash associated with three office leases, equipment
financing loan and the employee stock purchase plan aggregated $6.0 million at
September 30, 2000. Net cash used in operating activities was $52.0 million for
the nine months ended September 30, 2000, $48.3 million for the year ended
December 31, 1999, $10.9 million for the year ended December 31, 1998, $3.8
million for the year ended December 31, 1997 and $34.7 million for the nine
months ended September 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
and retain key vendors and business partners. Non-cash charges were $30.2
million for the nine months ended September 30, 2000 primarily due to the
beneficial conversion charge for the convertible debt, $4.2 million for the year
ended December 31, 1999, $530,000 for the year ended December 31, 1998, $68,000
for the year ended December 31, 1997 and $1.3 million for the nine months ended
September 30, 1999. Non-cash charges relating to depreciation expense were $5.7
million for the nine months ended September 30, 2000 and $2.8 million for the
nine months ended September 30, 1999. Non-cash charges related to the
amortization of programming and distribution rights were $5.1 million for the
nine months ended September 30, 2000 and $1.9 million for the nine months ended
September 30, 1999. Non-cash charges related to the amortization of goodwill was
$9.0 million for the nine months ended September 30, 2000 and zero for the nine
months ended September 30, 1999.

Net cash used in investing activities was $18.4 million for the nine
months ended September 30, 2000 resulting primarily from net purchases of
marketable securities and purchases of additional equipment and leasehold
improvements in our expanded facilities. Net cash used in investing activities
was $74.2 million for the year ended December 31, 1999, $2.7 million for then
year ended December 31, 1998 and $295,000 for the year ended December 31, 1997
and $6.9 million for the six months ended September 30, 1999 resulting primarily
from purchases of additional equipment and leasehold improvements in our
expanded facilities.

Net cash provided by financing activities was $70.3 million for the nine
months ended September 30, 2000 resulting primarily from proceeds related to our
convertible debt financing. Net cash provided by financing activities was $102.4
million for the year ended December 31, 1999, $33.6 million for the year ended
December 31, 1998 and $8.1 million for the year ended December 31, 1997 and
$98.3 million for the six months ended September 30, 1999 resulting primarily
from net proceeds from long term financing arrangements and the issuance of
preferred and common stock.

At September 30, 2000, Quokka was in default of debt covenants relating
to a $2.0 million equipment financing loan with Silicon Valley Bank ("SVB").
Since October 1, 2000, the Company is in default of certain covenants. The
noteholder can call the note at any time. At September 30, 2000, the outstanding
balance due was classified as a current liability. We are in the process of
working with the noteholder to amend the covenants, however no assurance can be
given that the covenants will be amended or a waiver will be obtained.

We believe that our current cash and cash equivalent balance of $74.7
million as of September 30, 2000 will be sufficient to fund our operating
requirements for working capital and capital expenditures for at least the next
twelve months. Thereafter, we may need to raise additional funds. To the extent
that we encounter unanticipated opportunities, we may seek to raise additional
funds sooner, in which case we may sell additional equity or debt securities or
borrow funds from banks. If this were to occur, the percentage ownership of our
stockholders could be reduced and our stockholders may experience additional
dilution. No assurances can be given that our efforts to raise these funds will
be successful. In the event we are unable to raise these funds, our operations
may be materially adversely affected.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and reporting
standards for derivative instruments and hedging activities. SFAS No. 133,
requires that an entity recognize all derivatives as either assets or
liabilities in the balance sheet and measures those instruments at fair value.
In July 1999, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 137, "Accounting with Derivative Instruments
and Hedging Activities 137, "Accounting with Derivative Instruments and Hedging
Activities Deferral of the Effective date

<PAGE> 24
QUOKKA SPORTS, INC. AND SUBSIDIARIES

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

of FASB Statement No. 133," which deferred the effective date until January 1,
2001. The Company has not engaged in hedging activities or invested in
derivative instruments. 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 December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101, "Revenue Recognition in Financial Statements." SAB No. 101
summarizes certain of the SEC's views in applying generally accepted accounting
principles to revenue recognition in financial statements. The adoption of SAB
No. 101 did not have a material effect on the Company's 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"). This 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
this Issue. If the fair value of the advertising surrendered in the barter
transaction is not determinable within the limits of this Issue, the barter
transaction should be recorded based on the carrying amount of the advertising
surrendered, which likely would be zero. The adoption of this consensus did not
have a material impact on the Company's financial statements.

<PAGE> 25
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 SIX 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 six 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 September 30, 2000, we had an
accumulated deficit of $168.4 million. Our net operating losses were $68.9
million for the nine months ended September 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 $52.0 million for the nine months ended
September 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;

<PAGE> 26
- 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.

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 three
months ended September 30, 2000 were $16.0 million as compared to $12.6 million
for three months ended June 30, 2000 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 ARE SUBJECT TO COVENANTS WHILE ANY OF OUR 7.0% CONVERTIBLE SUBORDINATED NOTES
DUE SEPTEMBER 2005 REMAIN OUTSTANDING THAT COULD LIMIT OUR OPERATIONAL
FLEXIBILITY AND IF WE FAIL TO COMPLY WITH THESE COVENANTS WE WILL BE IN DEFAULT
ON THE NOTES.

As is customary in debt transactions, the investment by the noteholders
was contingent on our agreement to comply with various covenants while any 7.0%
convertible subordinated notes due September 2005 remain outstanding. These
covenants include both affirmative covenants and negative covenants.

The affirmative covenants require us, among other things, to do the
following:

- pay principal of and interest on the notes;

- make SEC and other regulatory filings;

- pay taxes;

- maintain minimum levels of insurance;

- comply with applicable laws;

- deliver to the noteholders annual compliance certificates and
notice of any events of default;

- achieve minimum revenue and operating income thresholds; and

control maximum operating losses.

<PAGE> 27
The negative covenants restrict us and any subsidiaries from, among
other things, taking the following actions without the consent of the
noteholders:

- incurring or assuming additional indebtedness in excess of $25.0
million;

- declaring dividends, purchasing or redeeming capital stock or
otherwise incurring any liability to make any other payment or
distribution of cash or other property;

- selling assets or properties outside the ordinary course of
business in excess of $3.0 million in any calendar year;

- liquidating the company;

- entering into transactions with affiliates outside the ordinary
course of business;

- transferring any voting stock of any subsidiary outside the
company and its affiliates;

- creating or incurring any liens on its properties or assets
other than certain permitted liens;

- acquiring or investing in any assets or business of any person
for cash in excess of 20% of the sum of available cash and cash
equivalents;

- acquiring or investing in any assets or business of any person
other than asset acquisitions in the ordinary course of
business, intercompany acquisitions or Board-approved
acquisitions where the sole consideration is our capital stock;
and

- engaging in any business other than which is the same or
reasonably related or complementary to existing businesses of
the company and our subsidiaries.

Complying with these covenants could restrict our operating flexibility.
If we fail to comply with these covenants within the prescribed time periods, an
event of default will result, triggering remedies in favor of the noteholders.
Among these remedies is the acceleration of the maturity of the notes at a
premium of 115% of the sum of the face value of the notes, accrued but unpaid
interest on the notes and unpaid delay or default amounts on the notes.

IF AN EVENT OF DEFAULT OCCURS UNDER OUR 7.0% CONVERTIBLE SUBORDINATED NOTES, THE
NOTEHOLDERS WILL BE ABLE TO REQUEST IMMEDIATE PAYMENT OF A PREMIUM REDEMPTION
PRICE ON THE NOTES, WHICH CASH PAYMENTS, IF AVAILABLE, WOULD NOT BE AVAILABLE
FOR OTHER GENERAL CORPORATE PURPOSES.

If an event of default identified under the 7.0% convertible
subordinated notes occurs, then the noteholders may declare the notes and any
accrued but unpaid interest and payments on the notes to be immediately due and
payable and demand immediate payment of a premium price equal to 115% of the sum
of the face value of the notes, accrued but unpaid interest and unpaid delay or
default amounts on the notes. These events of default include: (1) failure to
pay the principal on any note when due; (2) an assignment for the benefit of
creditors or other bankruptcy or insolvency event; (3) the rendering of a
judgment against us in excess of $1 million (net of any insurance coverage) that
is not discharged within 60 days; (4) defaults under any mortgage, indenture,
agreement or instrument evidencing indebtedness in excess of $4 million; and (5)
the breach of covenants or representations or warranties made to the
noteholders. The premium redemption price payable upon other events of default
-- including (a) our failure to redeem all unconverted notes if we elect to
exercise our optional redemption rights (b) or the occurrence of an interfering
event that restricts the liquidity of the common stock underlying the notes and
warrants -- may also include the value the noteholder would be entitled to
receive upon conversion of the note into common stock at the applicable
conversion price followed by the sale of the common stock at the greater market
value at either the closing of the redemption or the event triggering the right
to redemption. If an event of default occurs for which a noteholder demands
immediate payment at a premium redemption price, the cash outlays for such
purposes would not be available for other general corporate purposes and if we
are unable to pay the premium redemption price on the notes our viability as an
independent corporate entity would be jeopardized.

<PAGE> 28
THE MARKET PRICE OF OUR COMMON STOCK MAY BE SUBJECT TO SIGNIFICANT DOWNWARD
PRESSURE IF THE PRICE OF OUR COMMON STOCK FALLS, THE CONVERSION PRICE OF OUR
7.0% CONVERTIBLE SUBORDINATED NOTES IS RESET DOWNWARD, NOTEHOLDERS CONVERT AND
SELL MATERIAL AMOUNTS OF OUR COMMON STOCK AND/OR NOTEHOLDERS PARTICIPATE IN
SHORT SALES OF OUR COMMON STOCK.

The common stock issuable upon conversion of the 7.0% convertible
subordinated notes is presently indeterminable and could fluctuate
significantly, resulting in substantial dilution. See the risk factor entitled
"You will experience dilution upon the conversion of notes and exercise of
warrants issued in the private placement and may experience additional dilution
if the conversion price of the notes is adjusted downward or if we elect to pay
interest on the notes with payments-in-kind rather than cash". In addition,
significant downward pressure on the market price of our common stock could
develop as noteholders convert and sell material amounts of common stock. Any
such sales could encourage short sales by noteholders or others, placing further
downward pressure on the market price of our common stock. The downward pressure
could lead to a further reduction of the conversion price of the notes,
resulting in additional dilution as notes are converted. The sale of these
additional shares in the market could place further downward pressure on the
market price with the effect of a still lower conversion price. This spiral
effect could result in additional dilution and downward pressure on our market
price.

OUR 7.0% CONVERTIBLE SUBORDINATED NOTES AND RELATED PAYMENT OBLIGATIONS COULD
RESTRICT OUR FINANCIAL FLEXIBILITY AND FUTURE PROSPECTS.

We have incurred significant leverage as a result of the issuance on
September 15, 2000 of our 7.0% convertible subordinated notes due September 2005
in the aggregate principal amount of approximately $77.4 million. If the notes
have not been converted into our common stock prior to their maturity and if
other financing has not been obtained to refinance the notes prior to that time,
a substantial portion of our cash flows would be required to repay the
outstanding principal of the notes at that time. In addition, some holders of
the notes may require that quarterly interest payments on the notes be made in
cash, and any such cash payments would reduce the funds available for other
corporate purposes. Furthermore, our ability to obtain additional financing for
working capital, capital expenditures, acquisitions, general corporate purposes
or other purposes may be impaired in the future because of the outstanding
notes. Finally, our substantial degree of leverage may limit our flexibility to
adjust to changing market conditions, place us at a disadvantage relative to our
competitors, reduce our ability to withstand competitive pressures and make us
more vulnerable to a downturn in general economic conditions or our business.

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.

<PAGE> 29
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. For the nine months ended September 30, 2000, three sponsors
accounted for 44% 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.

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, in October 2000 we acquired a majority of the ownership
interests in Golf.com, LLC and in November 2000 we acquired all of the capital
interests of Total Sports Inc. 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

<PAGE> 30
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. See also "--
Factors Related to the Merger with Total Sports" for a description of the risks
involved in integrating Quokka and Total Sports.

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.

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;

<PAGE> 31
- 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. We
recently completed two transactions in which we issued instruments which are
convertible into or exercisable for Quokka common stock. In August 2000, we
issued to National Broadcasting Company, Inc. a warrant to purchase up to 10.0
million shares of our common stock at varying prices from $8.89 per share to
$20.00 per share. The warrant expires at the end of December 2004 and the first
portion of the warrant is exercisable in June 2001. If NBC elects to exercise
this warrant, your ownership in Quokka will be diluted. If NBC subsequently
sells its shares, the market price for our stock could be adversely affected. On
September 15, 2000, we closed a private placement of 7.0% convertible promissory
notes in an aggregate face amount of $77.4 million and warrants to purchase an
aggregate of 2,805,750 shares of Quokka common stock. If the noteholders convert
their notes or exercise their warrants, your ownership in Quokka will be
diluted. If these holders subsequently sell their shares, the market price for
our stock could be adversely affected. For a further discussion see "--
Additional Factors Related to the Private Placement -- You will experience
dilution upon the conversion of notes and exercise of warrants issued in the
private placement and may experience additional dilution if the conversion price
of the notes is adjusted downward or if we elect to pay interest on the notes
with payments-in-kind rather than cash."

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. For the nine months ended September 30, 2000, we spent
$4.5 million for advertising. For the year ended December 31, 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.

<PAGE> 32
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 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.

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.

A key component of our business model includes selling products
associated with our sports entertainment programming. We have only recently
begun generating revenues from the sale of products and services. If we are
unable to develop and implement a successful strategy, develop a successful line
of product merchandise that appeals to a broad audience, overcome Internet
security concerns or respond to competitive pricing, we may be unable to
generate consumer revenues.

<PAGE> 33
The need to securely transmit confidential information over the Internet
has been a significant barrier to electronic commerce and communications over
the Internet. Any compromise of security could deter people from using the
Internet and our web sites to conduct transactions that involve transmitting
confidential information. We may need to expend significant resources to protect
against security breaches or to address problems caused by such breaches. Even
if we are able to overcome Internet security concerns, individuals may not buy
our products, resulting in revenues from consumer that fall short of the cost of
our strategy. Many Internet companies engaged in electronic commerce are losing
money. Additionally, many of our current and potential competitors may have
significantly greater resources and more favorable cost structures than we do
and may be able to price comparable products at levels we are unable to match
without incurring unacceptable operating losses.

We recently decided to enter into a relationship with a service provider
for the back-end infrastructure, inventory and customer care processes for a
portion of our electronic commerce business. We have no experience managing this
type of relationship and may be unable to realize the anticipated cost savings
and increased consumer revenues. After becoming familiar with our service
provider, individuals may decide to purchase products directly from them and we
may lose consumer revenues. We may experience lower viewing time on our web
sites if viewers are diverted from our web sites to our service provider's web
site.

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. 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. We may be unable to
effectively cover our other properties during our Olympics coverage and our
operating results may be adversely affected.

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

We believe that our current capital reserves will be sufficient to fund
our operating requirements for at least the next 12 months. Thereafter, we may
need to raise additional capital. 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 diluted and the
securities issued may have rights, preferences and privileges senior to those of
our common stock.

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

We are experiencing a period of significant expansion. We had 385
employees at September 30, 2000, compared to 284 employees at December 31, 1999
and 118 employees at December 31, 1998. This growth is placing, and we expect
any further growth to continue to place, a significant strain on our management,
operational and financial resources. This will require us to implement
additional management information systems and to develop additional operating,
administrative, financial and accounting systems and controls. If we are unable
to develop these systems and manage our growth effectively, our business will
not operate efficiently and our results of operations could be negatively
affected.

<PAGE> 34
IF WE FAIL TO ATTRACT AND RETAIN KEY PERSONNEL WE WILL BE UNABLE TO EXECUTE OUR
BUSINESS STRATEGY.

Our success will depend on the continued services of our senior
management and other key personnel, as well as our ability to attract, train,
retain and motivate other highly skilled technical, managerial, marketing and
customer service personnel. The loss of the services of any of our executive
officers, particularly Alvaro Saralegui, our president and chief executive
officer, or other key employees could prevent us from executing our business
strategy. Competition for these personnel is intense, and we may not be able to
successfully attract, integrate or retain sufficiently qualified personnel. Our
anticipated programming schedule in the near future will require that we attract
and retain personnel who are skilled in production, computer and other technical
fields. Skilled technical personnel are in high demand and have multiple
employment opportunities, especially in the San Francisco Bay Area, where our
headquarters are located. As a matter of practice, we do not generally enter
into employment agreements with our employees.

ADDITIONAL FACTORS RELATED TO THE PRIVATE PLACEMENT

OUR COMMON STOCK IS SUBORDINATE TO THE 7.0% CONVERTIBLE SUBORDINATED NOTES UPON
ANY LIQUIDATION OR BANKRUPTCY AND WILL ONLY BE PAID IF FUNDS OR ASSETS REMAIN
AFTER FULL PAYMENT TO THE NOTEHOLDERS.

In the event of a liquidation or bankruptcy or other similar event, the
notes will rank senior to the common stock upon any distribution. Accordingly,
upon such a distribution event, the holders of our outstanding common stock will
receive a smaller amount of the distribution than their ownership percentage in
the company may suggest and will only receive a payment if funds or assets
remain after full payment to the noteholders.

IF AN EVENT OCCURS THAT INTERFERES WITH A NOTEHOLDER'S LIQUIDITY, WE MAY BE
REQUIRED TO PAY A MONTHLY DELAY PAYMENT AND REDEEM THE NOTES AT A PREMIUM.

We have agreed to use our best efforts to provide for the liquidity of
the common stock underlying the notes and warrants acquired by the noteholders,
including registering the shares of common stock underlying the notes and
warrants, listing those shares with the Nasdaq National Market, avoiding the
suspension of trading in our common stock in excess of 45 days in any 12 months
and maintaining enough authorized shares of common stock to enable the
conversion of the notes and the exercise of the warrants. If any of these
interfering events occurs and is continuing, we may be required to pay to the
noteholders a monthly delay payment equal to one percent (1%) of the face amount
of the notes, all accrued and unpaid interest on the notes and all unpaid
penalties payable on the notes, for each 30 day period (or portion thereof) of
the interfering event. In addition, under some circumstances, we may be required
to redeem the notes if the interfering event continues at a premium redemption
price equal to the greater of (1) 115% of the sum of the face value of the
notes, accrued but unpaid interest on the notes and unpaid delay or default
amounts on the notes, or (2) the value the noteholder would be entitled to
receive upon conversion of the note into common stock at the applicable
conversion price followed by the sale of the common stock at the greater market
value at either the closing of the redemption or the event triggering the right
to redemption. If a monthly delay payment or a redemption were to occur, the
cash outlays for such purposes would not be available for other general
corporate purposes.

<PAGE> 35
YOU WILL EXPERIENCE DILUTION UPON THE CONVERSION OF NOTES AND EXERCISE OF
WARRANTS ISSUED IN THE PRIVATE PLACEMENT AND MAY EXPERIENCE ADDITIONAL DILUTION
IF THE CONVERSION PRICE OF THE NOTES IS ADJUSTED DOWNWARD OR IF WE ELECT TO PAY
INTEREST ON THE NOTES WITH PAYMENTS-IN-KIND RATHER THAN CASH.

The notes we issued on September 15, 2000 in the principal amount of
$77.4 million have a conversion price of $5.415. Accordingly, if all the notes
are converted at that conversion price, there will be dilution of approximately
14.3 million shares of common stock. In addition, we issued warrants to acquire
approximately 2.8 million shares of our common stock and these warrants are
exercisable at any time. Accordingly, the private placement is expected to
result in dilution of approximately 17.1 million shares of common stock, or
approximately 36.6% of the 46.4 million shares of common stock outstanding on
September 15, 2000. In addition, for a period of at least 75 trading days
beginning February 15, 2001, the conversion price of the notes may be reset
downward depending on the trading price of our common stock. If the conversion
price is reset downward, there will be dilution upon conversion of the notes in
excess of the 14.3 million shares identified above. There is no limit on how low
the conversion price may be reset. Additionally, you may experience dilution if
we elect to pay interest on the notes with payments-in-kind rather than cash.
Payments-in-kind allow us to avoid an immediate cash outlay on each interest
payment date but have the effect of increasing the face amount of the notes.
Assuming (1) we pay all interest payments on the notes for the full five year
term of the notes with payments-in-kind rather than cash, (2) the conversion
price remains at $5.415 throughout the five years and (3) no notes are converted
during the five year term of the notes, then the payments-in-kind would increase
the face amount of the notes by approximately $32.1 million, which would be
convertible into approximately 5.9 million additional shares of our common
stock. Depending on the applicable conversion price and the payments-in-kind we
elect to make, as well as the number of shares of our common stock outstanding
at that time, the number of shares issuable upon conversion of the notes and
exercise of the warrants could result in a change of control of Quokka.

WE HAVE LIMITED RIGHTS TO REDEEM THE NOTES PRIOR TO MATURITY AND MAY THEREFORE
BE SUBJECT TO THE DEBT AND RELATED COVENANTS LONGER THAN WE WOULD PREFER.

Our ability to pay off the debt by redeeming the notes prior to maturity
is limited. We will only be able to redeem the notes after March 15, 2002 and
only if the following apply:

- our common stock has traded, for at least 30 consecutive trading
days, at a closing price of $10.830 (as adjusted for any stock
splits and related adjustments);

- the noteholders have been able to sell their shares under an
effective registration statement on each of those 30 trading
days;

- the noteholders have been able to convert all their notes under
the rules of the applicable securities exchange on which our
common stock is traded; and

- we have the financial resources and ability to repurchase all
the notes.

If we are unable to redeem the notes when we would like, we will be
required to continue to comply with the affirmative and negative covenants we
made to the noteholders and could therefore be restricted from making the
financial and operational decisions we might prefer.

IF OUR OPERATING CASH FLOWS DO NOT GROW AS EXPECTED, WE MAY NOT HAVE SUFFICIENT
CASH TO REDEEM THE NOTES AT MATURITY ON SEPTEMBER 15, 2005.

While we have sufficient cash available to meet our payment obligations
under the notes prior to their maturity, if our operating cash flows do not grow
as expected today and if the noteholders have not elected to convert their notes
prior to their maturity, we may not have sufficient cash available to redeem the
notes at maturity, in which case we would need to refinance the notes by
incurring replacement indebtedness or raising funds through the issuance of
equity. There can be no assurance that we would be able to obtain such
replacement indebtedness or raise funds through the issuance of equity.

<PAGE> 36
FACTORS RELATED TO THE MERGER WITH TOTAL SPORTS

IF WE ARE NOT SUCCESSFUL IN INTEGRATING TOTAL SPORTS WITH OUR ORGANIZATION, THE
COMBINED COMPANY MAY BE UNABLE TO OPERATE EFFICIENTLY AFTER THE MERGER.

The combined company's ability to operate efficiently after the merger
will depend in part on the integration of Quokka's and Total Sports's operations
and personnel in a timely and efficient manner. In order for the combined
company to provide enhanced and more valuable content and services to its
customers after the merger, the combined company will need to integrate its
operations, technology and content. This integration may be difficult and
unpredictable because our web sites and Total Sports' web sites have been
developed independently and were designed without regard to integration.
Successful integration of the two companies' operations, technology and content
also requires coordination of different development and engineering teams, as
well as sales and marketing efforts and personnel. This, too, may be difficult
and unpredictable because of possible cultural conflicts between Quokka and
Total Sports as well as difficulties related to the geographical separation of
the two companies' primary operations. If the two companies cannot successfully
integrate their operations, technology and personnel, the combined company may
not be able to operate efficiently or realize the expected benefits of the
merger.

EFFORTS TO INTEGRATE QUOKKA AND TOTAL SPORTS MAY DIVERT MANAGEMENT'S ATTENTION
AWAY FROM DAY-TO-DAY OPERATIONS.

The integration of Quokka's and Total Sports's operations and personnel
may place a significant burden on the combined company's management and other
internal resources. The diversion of management attention and any difficulties
encountered in the transition and integration process could prevent the combined
company from operating efficiently.

WE EXPECT TO INCUR SIGNIFICANT COSTS TO INTEGRATE THE COMPANIES INTO A SINGLE
BUSINESS.

We expect to incur costs from integrating Total Sports' operations,
technology and personnel. These costs may be significant and may include
expenses and other liabilities for:

- employee redeployment, relocation or severance;

- conversion of information systems;

- increased travel and communications systems;

- combining teams and processes in various functional areas; and

- reorganization or closures of facilities.

The integration costs incurred by us may negatively impact the financial
condition of the combined company and the market price of our common stock.

FAILURE TO RETAIN KEY EMPLOYEES COULD DIMINISH THE ANTICIPATED BENEFITS OF THE
MERGER.

The successful combination of Quokka and Total Sports will depend in
part on the retention of personnel critical to the business and operations of
the combined company due to, for example, unique technical skills or management
expertise. The combined company may be unable to retain Quokka and Total Sports
management, technical, production, sales and marketing personnel that are
critical to the successful integration of Quokka and Total Sports, resulting in
disruption of operations, loss of key information, expertise or know-how and
unanticipated additional recruitment and training costs and otherwise
diminishing anticipated benefits of the merger.

<PAGE> 37
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
AND SIX MONTHS ENDED MARCH 31 AND JUNE 30 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.

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.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We have limited exposure to financial market risks, including changes in
interest rates. An increase or decrease in interest rates would not
significantly increase or decrease interest expense on debt or lease obligations
due to the fixed nature of the obligation.

Our interest income is sensitive to changes in the general level of U.S.
interest rates, particularly since the majority of our investments are in
short-term financial instruments. Due to the short-term nature of our
investments, we believe that we are not subject to any material market risk
exposure. We have limited foreign operations and so we believe that we are not
materially exposed to foreign currency fluctuations.

<PAGE> 38
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 quarterly period ended September 30, 2000, Quokka has issued and sold
unregistered securities as follows:

On June 21, 2000, Quokka approved the issuance of a warrant to National
Broadcasting Company, Inc. ("NBC") for the purchase of 10 million shares of the
Company's common stock, par value $0.0001 per share ("Common Stock"), (the
"Warrant"). The Warrant was issued pursuant to the terms of a Warrant Issuance
Agreement dated as of August 22, 2000 by and between the Company and NBC (the
"Warrant Issuance Agreement") and for cash consideration of $500,000. The
Company previously reported the issuance of the Warrant in its current report on
Form 8-K filed with the Securities and Exchange Commission ("SEC") on August 31,
2000, a copy of which is filed herewith as exhibit 99.1 and is hereby
incorporated herein by reference.

On September 15, 2000, Quokka Sports, Inc. (the "Company") completed a
private placement in which we issued 7.0% convertible subordinated promissory
notes in an aggregate face amount of $77.4 million to institutional and other
accredited investors and also issued warrants to purchase an aggregate of
2,805,750 shares of common stock to the noteholders. In the event of a
liquidation or bankruptcy or other similar event, the 7.0% convertible
subordinated notes will rank senior to the common stock upon any distribution.
Accordingly, upon such a distribution event, the holders of our outstanding
common stock will receive a smaller amount of the distribution than their
ownership percentage in the company may suggest and will only receive a payment
if funds or assets remain after full payment to the noteholders. The Company
previously reported the terms of this private placement in its current report on
Form 8-K filed with the SEC on September 19, 2000, its registration statement on
Form S-4 filed with the SEC and declared effective by the SEC on October 11,
2000, and its registration statement on Form S-3 filed with the SEC on October
13, 2000 and declared effective by the SEC on October 19, 2000, copies of which
are filed herewith as exhibits 99.2, 99.3 and 99.4, respectively, and each of
such exhibits hereby is incorporated herein by reference.

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

A Special Meeting of Stockholders of the Company was held on September
28, 2000. The two proposals set forth in the proxy statement pursuant to
Regulation 14A of the securities Exchange Act of 1934, as amended, the
definitive version of which was filed on September 1, 2000, were approved as
proposed. For the proposal regarding the acquisition of approximately 71% of the
outstanding membership interests of Golf.com, LLC, there were 39,362,592 votes
cast, 2,845 abstentions and 4,578,426 broker non-votes. The Golf.com acquisition
proposal was approved by 34,767,607 shares voting for the proposal, with 13,714
shares voting against the proposal and 2,845 shares abstaining. For the proposal
regarding the amendment to the Company's Certificate of Incorporation to
increase the number of authorized shares of common stock from 110,000,000 shares
to 250,000,000 shares, there were 39,362,592 votes cast, 61,125 votes withheld
and 13,535 shares were voted by brokers pursuant to stockholder instructions.
The amendment to the Company's Certificate of Incorporation was approved by
39,301,467 shares voting for the proposal and 61,125 shares withheld.

ITEM 5. OTHER INFORMATION

On November 13, 2000, pursuant to an Agreement and Plan of Merger and
Reorganization dated as of July 20, 2000, as amended on October 10, 2000, by and
among Quokka and Total Sports Inc., a copy of which is filed with this report as
exhibit 2.1 (the "Agreement"), Quokka completed the acquisition of Total Sports
Inc. ("Total Sports"). As a result of the transaction, Total Sports was merged
with and into Quokka, with Quokka remaining as the surviving corporation (the
"Merger"). As consideration for the transaction, approximately 15,000,000 shares
of Quokka common stock was issued in exchange for all of the outstanding capital
stock, options and warrants of Total Sports. No fractional shares of Quokka
common stock were issued as Quokka paid cash in lieu of fractional shares. The
Merger is being accounted for using the purchase method of accounting.

The shares of Quokka common stock issued to the Total Sports equity
holders were registered under a Registration Statement on Form S-4 filed with
the Securities and Exchange Commission on October 11, 2000, a copy of which is
filed with this report as exhibit 99.3. Of the Quokka shares issued to the
outstanding stockholders of Total Sports capital stock at the closing of the
Merger, 1,500,000 shares were placed in escrow to secure certain indemnification
obligations contained in the Agreement. Subject to outstanding claims, the
shares will be released from escrow one year after the completion of the Merger.

The amount of consideration and other terms of the Agreement were
determined through arms-length negotiations between Quokka and Total Sports,
which negotiations took into account the value of the acquired intellectual
property and workforce of Total Sports, among other factors. Prior to the
consummation of the Merger, there were no material relationships between Total
Sports and Quokka or any of its affiliates, any director or officer of Quokka,
or any associate of any such director or officer.

Upon the closing of the Merger, Frank A. Daniels, III, the former
Chairman of the Board of Directors of Total Sports, was elected by the existing
seven members of Quokka's Board of Directors to fill a vacancy created by an
increase in the authorized number of directors to serve on Quokka's Board. Mr.
Daniels will serve on Quokka's Board as a Class III Director, and as such will
serve until Quokka's 2002 Annual Meeting of Stockholders or until his sccessor
is duly elected and qualified.

Total Sports is an online sports media company engaged in real time
sporting event coverage for mainstream sports. Total Sports owns and operates
the Total Sports Network that features TotalCast(TM) live-event coverage of
Major League Baseball, NCAA basketball and NCAA football as well as every major
college sports championship, including the College World Series. In addition to
live event coverage, the Total Sports Network offers proprietary historical
databases, data analysis and news for their fan communities.

The foregoing description of the Agreement and the Merger is qualified
in its entirety by reference to the Agreement, Quokka's Registration Statement
on Form S-4 filed with the SEC on October 11, 2000 and the press release of the
Company dated November 14, 2000, entitled "Quokka Sports Closes Acquisition of
Total Sports," copies of which are filed herewith as exhibits 2.1, 99.3 and
99.5, respectively, and each of such exhibits hereby is incorporated herein by
reference.

38
<PAGE> 39
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
2.1(1) Agreement and Plan of Merger and Reorganization dated July 20,
2000, as amended, by and among Quokka Sports, Inc. and Total
Sports Inc.

2.2(2) Purchase Agreement and Plan of Reorganization dated June 8, 2000,
as amended, by and among Quokka Sports, Inc., Golf.com, LLC,
GolfData Corporation, The New York Times Company Magazine Group,
Inc., MediaOne Interactive Services, Inc., Total Sports Inc. and
Otto Candies, LLC

3.1(1) Amended Certificate of Incorporation

3.2(3) Amended and Restated Bylaws

4.1(4) Note Purchase Agreement dated September 15, 2000 between
Quokka Sports, Inc. and the Purchasers identified therein,
including exhibits thereto

4.2(4) Form of 7.0% Convertible Subordinated Promissory Note dated
September 15, 2000 issued by Quokka Sports, Inc. (attached as
Exhibit A to Exhibit 4.1)

4.3(4) Form of Common Stock Purchase Warrant dated September 15, 2000
issued by Quokka Sports, Inc. (attached as Exhibit B to Exhibit
4.1)

4.4(4) Amended and Restated Investors' Rights Agreement dated September
15, 2000 by and among Quokka Sports, Inc. and the Investors as
set forth on Exhibit A thereto (attached as Exhibit C to Exhibit
4.1)

4.5(4) Noteholders Agreement dated September 15, 2000 by and among
Quokka Sports, Inc. and the signatories thereto (attached as
Exhibit D to Exhibit 4.1)

4.6(5) Warrant Issuance Agreement dated August 22, 2000 by and between
Quokka Sports, Inc. and National Broadcasting Company, Inc.

4.7(5) Warrant dated August 22, 2000 issued to National Broadcasting
Company, Inc.

27.1 Financial Data Schedule.

99.1(6) Current report on Form 8-K dated August 22, 2000 filed with the
Securities and Exchange Commission on August 31, 2000

99.2(7) Current report on Form 8-K dated September 15, 2000 filed with
the Securities and Exchange Commission on September 19, 2000

99.3(8) Registration Statement on Form S-4 filed with the Securities and
Exchange Commission on October 11, 2000

99.4(9) Registration Statement on Form S-3 filed with the Securities and
Exchange Commission on October 13, 2000

99.5 Press release titled "Quokka Sports Closes Acquisition of Total
Sports" dated November 14, 2000
</TABLE>

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

(1) Previously filed as an annex or an exhibit to Quokka's Registration
Statement on Form S-4 filed on October 11, 2000 (File No. 333-44774).

(2) Previously filed as an annex to Quokka's Definitive Schedule 14A filed
on September 1, 2000 (File No. 000-26311).

(3) Previously filed as an exhibit to Quokka's report on Form 10-Q filed on
May 15, 2000 (File No. 000-26311)

(4) Previously filed as an exhibit to Quokka's current report on Form 8-K
dated September 15, 2000 filed on September 19, 2000 (File No.
000-26311)

(5) Previously filed as an exhibit to Quokka's current report on Form 8-K
dated August 22, 2000 filed on August 31, 2000 (File No. 000-26311)

(6) Previously filed on August 31, 2000 (File No. 000-26311)

(7) Previously filed on September 19, 2000 (File No. 000-26311)

(8) Previously filed on August 29, 2000 and amended on September 29, 2000
and October 11, 2000 (File No. 333-44774). Prospectus contained in such
registration statement filed as a Rule 424(b)(3) prospectus on October
12, 2000 (File No. 333-44774).

(9) Previously filed on October 11, 2000 (File No. 333-44774). Prospectus
contained in such registration statement filed as a Rule 424(b)(3)
prospectus on October 19, 2000 (File No. 333-44774).

<PAGE> 40
(b) Reports on Form 8-K.

1. On July 26, 2000, Quokka filed a current report on Form 8-K
dated July 20, 2000 regarding the execution of the Agreement and
Plan of Merger and Reorganization dated July 20, 2000 by and
between Quokka and Total Sports Inc.

2. On August 31, 2000, Quokka filed a current report on Form 8-K
dated July 27, 2000 regarding its intention to issue convertible
promissory notes in a private placement.

3. On August 31, 2000, Quokka filed a current report on Form 8-K
dated August 22, 2000 regarding its issuance of a warrant to
National Broadcasting Company, Inc. for the purchase of 10
million shares of common stock of Quokka.

4. On September 19, 2000, Quokka filed a current report on Form 8-K
dated September 15, 2000 regarding the completion of a private
placement wherein the Company issued 7.0% convertible
subordinated promissory notes and related warrants to purchase
the Company's common stock to institutional and other accredited
investors.

<PAGE> 41
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)

<PAGE> 42

EXHIBIT INDEX