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 May 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to __________________
Commission file number: 000-27025
SportsPrize Entertainment Inc.
-------------------------------------------------------
(Exact name of registrant as specified in its charter)
Nevada 98-0207616
------------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
13101 Washington Boulevard, Suite 131
Culver City, California 90066
-------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (310) 566-7140
Indicate by check mark whether the registrant (1) has filed all documents and
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 [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
17,585,374 shares of Common Stock, $0.001 par value, outstanding as of June 30,
2000.
<PAGE>
SportsPrize Entertainment Inc.
Form 10-Q
Index
<TABLE>
Page
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<S> <C>
PART 1 - FINANCIAL INFORMATION.......................................................................1
Item 1. Financial Statements........................................................................1
Consolidated Balance Sheets.................................................................2
Consolidated Statements of Operations.......................................................3
Consolidated Statements of Cash Flows.......................................................4
Notes to Consolidated Financial Statements..................................................5
Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations.......8
Item 3: Quantitative and Qualitative Disclosures About Market Risk.................................17
PART II - OTHER INFORMATION........................................................................18
Item 1. Legal Proceedings..........................................................................18
Item 2. Changes in Securities......................................................................18
Item 3. Defaults Upon Senior Securities............................................................18
Item 4. Submission of Matters to a Vote of Security Holders........................................18
Item 5. Other Information...........................................................................18
Item 6. Exhibits and Reports on Form 8-K...........................................................18
SIGNATURES..........................................................................................19
</TABLE>
<PAGE>
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
SportsPrize Entertainment Inc.
A Development Stage Company
CONSOLIDATED FINANCIAL STATEMENTS
as of May 31, 2000
(Unaudited)
1
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SportsPrize Entertainment Inc.
A Development Stage Company
CONSOLIDATED BALANCE SHEETS
as of
<TABLE>
May 31, 2000 February 29,
(unaudited) 2000
----------------- ---------------
ASSETS
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 86,786 $ 484,906
Portfolio investment 9,967 10,339
Prepaid expenses and other current assets 69,118 74,844
----------------- ---------------
165,871 570,089
----------------- ---------------
Capital Assets
Software development costs 393,997 393,997
Internet equipment 128,358 128,358
Office computers and equipment 53,994 53,994
Less: accumulated depreciation and amortization (80,723) (36,041)
----------------- ---------------
495,626 540,308
----------------- ---------------
Other
Deposits 8,518 8,527
----------------- ---------------
Total assets $ 670,015 $ 1,118,924
================= ===============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Accounts payable $ 184,323 $ 96,857
Accrued liabilities 657,568 280,084
----------------- ---------------
841,891 376,941
----------------- ---------------
Note payable (Note 7) 200,000 -
----------------- ---------------
Stockholders' Equity (Deficit)
Preferred stock - $0.001 par value
authorized 5,000,000 shares
none issued and outstanding - -
Common stock - $0.001 par value authorized
100,000,000 shares; 17,585,374 and 19,480,374
issued and outstanding, respectively (Note 3) 17,585 19,480
Additional paid-in capital 9,603,109 8,053,227
Deferred compensation (1,732,370) (590,897)
Deficit accumulated during the development stage (8,260,200) (6,739,827)
----------------- ---------------
Total stockholders' equity (deficit) (371,876) 741,983
----------------- ---------------
$ 670,015 $ 1,118,924
================= ===============
</TABLE>
2
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SportsPrize Entertainment Inc.
A Development Stage Company
CONSOLIDATED STATEMENTS OF OPERATIONS
for the periods from
<TABLE>
Cumulative from March 1, March 1,
inception to to to
May 31, 2000 May 31, 2000 May 31, 1999
(unaudited) (unaudited) (unaudited)
-------------------- ---------------- -----------------
<S> <C> <C> <C>
Operating expenses
General and administrative $ 8,046,734 $ 1,478,655 $ 1,863,611
Research and development 126,488 - 80,969
Depreciation and amortization 83,564 44,874 213
-------------------- ---------------- -----------------
Loss from operations (8,256,786) (1,523,529) (1,944,793)
-------------------- ---------------- -----------------
Other income (expense)
Interest income 62,578 2,323 5,085
Loss on sale of investments (60,362) - -
Other (5,630) 833 (3,167)
-------------------- ---------------- -----------------
(3,414) 3,156 1,918
-------------------- ---------------- -----------------
Net loss for the period $ (8,260,200) $ (1,520,373) $ (1,942,875)
==================== ================ =================
Basic and diluted loss per share $ (0.08) $ (0.17)
================ =================
Weighted average shares outstanding 18,347,494 11,318,473
================ =================
</TABLE>
3
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SportsPrize Entertainment Inc.
A Development Stage Company
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the periods from
<TABLE>
Cumulative from March 1, March 1,
inception to to to
May 31, 2000 May 31, 2000 May 31, 1999
(unaudited) (unaudited) (unaudited)
-------------------- ---------------- ----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(8,260,200) $(1,520,373) $(1,942,875)
Adjustments to reconcile net loss to net
Cash used in operating activities:
Depreciation and amortization 83,564 44,874 213
Loss on sale of investments 60,362 - -
Issuance of common stock for compensation 212,500 - 212,500
Compensation expense for stock options 3,897,293 406,513 1,550,100
Other (10,708) (833) 3,167
Change in operating assets and liabilities:
Prepaid expenses and other current assets (68,144) 6,740 (58,231)
Deposits (8,518) 9 17,000
Organization costs - - 13,475
Accounts payable 184,323 87,466 (1,235)
Accrued liabilities 657,568 377,484 -
-------------------- ---------------- ----------------
(3,251,960) (598,120) (205,886)
-------------------- ---------------- ----------------
Cash flows from investing activities:
Proceeds from sale of portfolio investments 231,195 - -
Purchases of portfolio investments (290,207) - -
Software development costs (393,997) - -
Purchases of equipment (182,352) - (3,136)
-------------------- ---------------- ----------------
(635,361) - (3,136)
-------------------- ---------------- ----------------
Cash flows from financing activities:
Proceeds from note payable 200,000 200,000 -
Proceeds from issuance of common stock 3,774,107 - 2,632,537
-------------------- ---------------- ----------------
Net increase (decrease) in cash and cash equivalents 86,786 (398,120) 2,423,515
Cash and cash equivalents at beginning of period - 484,906 34,345
-------------------- ---------------- ----------------
Cash and cash equivalents at end of period $ 86,786 $ 86,786 $ 2,457,860
==================== ================ ================
</TABLE>
4
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SportsPrize Entertainment Inc.
A Development Stage Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
May 31, 2000
1. Operations and Going Concern
The Company commenced its Internet operations on May 14, 1999. However, it
has not yet earned any revenue therefrom, and the technologies and
businesses that it intends to develop will require cash significantly in
excess of its current resources. The ability of the company to develop
these technologies into a profitable Internet business is dependent on
management's ability to obtain adequate additional capital and develop a
commercially successful product. Management raised $1,050,000 through a
private placement of 9% Convertible Debentures in June 2000 and will
continue to pursue the additional financing necessary to fund its
operations.
2. Basis of Presentation
The information contained in these condensed Notes to Consolidated
Financial Statements is condensed from that which would appear in the
annual consolidated financial statements. Accordingly, the Consolidated
Financial Statements included herein should be reviewed in conjunction with
the Consolidated Financial Statements and the related notes thereto
contained in the Company's 2000 Annual Report on Form 10-K. It should be
understood that the accounting measurements at interim dates inherently
involve greater reliance on estimates than at yearend. The results of
operations for the fiscal quarter ended May 31, 2000 are not necessarily
indicative of the results that may be expected for the entire year.
The accompanying Consolidated Balance Sheet of the Company as of May 31,
2000, and the Consolidated Statements of Operations and of Cash Flows for
the three-month periods ended May 31, 2000 and 1999 are unaudited. The
Consolidated Financial Statements and related notes have been prepared in
accordance with generally accepted accounting principles applicable to
interim periods. In the opinion of management, the Consolidated Financial
Statements include all adjustments, consisting of normal recurring
adjustments, necessary for a fair presentation of the consolidated
financial position, operating results and cash flows for the periods
presented.
The financial statements include the accounts of the Company and its wholly
owned subsidiary. All significant intercompany balances and transactions
have been eliminated.
5
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SportsPrize Entertainment Inc.
A Development Stage Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
May 31, 2000
3. Common Stock
On April 7, 2000, pursuant to pre-existing agreements among certain
principal shareholders of the Company, 1,895,000 shares were contributed to
the Company, which reduced the Company's total outstanding common shares to
17,585,374.
4. Stock Options and Warrants
During the fiscal quarter ended May 31, 2000, the Company granted options
to purchase 1,395,000 shares of the Company's common stock to its Chairman
and Chief Executive Officer as well as certain employees and consultants.
These options were granted at prices ranging from $0.01 - $1.00, resulting
in compensation of $1,547,947, which will be amortized over service periods
of up to two years.
5. Loss Per Share
Basic loss per share is computed using the weighted effect of all common
shares issued and outstanding. The following table sets forth the
computation of basic and diluted earnings per share. Options to purchase
5,033,000 shares of common stock ranging from $0.01 - $2.53 a share were
outstanding at May 31, 2000. Such options were not included in the
computation of diluted earnings per share because they were antidilutive.
<TABLE>
Three months Three months
Ended Ended
May 31, 2000 May 31, 1999
------------------ ------------------
<S> <C> <C>
Net loss: ($1,520,373) ($1,942,875)
================== ==================
Denominator:
For basic and diluted 18,374,494 11,318,473
loss per share - weighted
average shares outstanding
Basic and diluted loss per common share ($0.08) ($0.17)
</TABLE>
6
<PAGE>
SportsPrize Entertainment Inc.
A Development Stage Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
May 31, 2000
6. Commitments and Contingencies
Employment and Consulting Agreements
The Company entered into an employment agreement with its Chairman of the
Board and Chief Executive Officer ("CEO") effective on April 17, 2000. The
term of the agreement is for 24 months and provides for an annual base
salary of $250,000. Pursuant to this agreement, the CEO was granted options
to purchase 1,000,000 of the Company's common shares at a price of $0.01
per share. Each month, 40,000 of these options vest throughout the term of
the agreement.
7. Subsequent Event
In June 2000, the Company completed a private placement of 9% Convertible
Debentures for $1,050,000, less a finders fee of $100,000. The Debentures
and accrued interest were due in May 2005. Additionally, 60,000 warrants
were granted in connection with this financing. On May 9, 2000, the Company
received a cash advance of $200,000 associated with the Debentures. On June
6, 2000, the Company received the remaining $750,000.
In July 2000, the Company agreed to convert all of the Debentures plus
accrued interest at a price of $1.00 per share. Once the transaction is
completed, the Company's total outstanding shares of common stock will be
18,643,249.
7
<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations
Note Regarding Forward Looking Statements
Except for statements of historical fact, certain statements in this
Quarterly Report on Form 10-Q constitute "forward-looking statements" covered
within the meaning of Section 21E of the Securities Exchange Act of 1934, as
amended, including, without limitation, statements containing the words
"believes," "anticipates," "intends," "expects" and words of similar import, as
well as projections of future results. Such forward-looking statements involve
known and unknown risks, uncertainties and other factors which may cause the
actual results or achievements of the Registrant to be materially different from
any future results or achievements of the Registrant expressed or implied by
such forward-looking statements. Such factors include, but are not limited to,
the following: the Registrant's limited operating history; undercapitalization;
risks involving new product development; unpredictability of future revenues;
management of growth and integration; potential technological changes; the
Registrant's dependence on key personnel; marketing relationships and third
party suppliers; reliance on advertisers; potential new businesses, competition
and low barriers to entry; uncertain acceptance of the Internet as an
advertising medium; uncertain acceptance of the Registrant's SportsPrize
Tournament; limited experience in sales, marketing and advertising; dependence
on continued growth in use of the Internet; the Registrant's ability to protect
its intellectual property rights and uncertainty regarding infringing
intellectual property rights of others; potential capacity and systems
disruptions; liability for Internet content; government regulations; security
risks; and the other risks and uncertainties described under "Description of
Business - Risk Factors" in the Registrant's Annual Report on Form 10-K filed on
June 13, 2000. We undertake no obligation to publicly release the results of any
revision to these forward-looking statements that may be made to reflect events
or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
The Registrant's management has included projections and estimates in this
Quarterly Report, which are based primarily on management's experience in the
industry, assessments of the Registrant's results of operations, discussions and
negotiations with third parties and a review of information filed by its
competitors with the Securities and Exchange Commission. Investors are cautioned
against attributing undue certainty to management's projections.
General Overview
We, SportsPrize Entertainment Inc., are engaged in the business of
offering, marketing and promoting sports-related content, entertainment,
merchandise and other products on the Internet through our Web site at
http://www.sportsprize.com.
Our mission is to establish a leading Internet sports-based entertainment,
merchandising and community destination Web site. We intend to build an online
sports, entertainment and e-commerce community that appeals to sports fans from
around the world by providing three
8
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primary components on our Web site: (i) sports-related content, (ii) the
SportsPrize Tournament and (iii) sports-oriented e-commerce.
Content: We plan to offer the following sports-related content:
o Sporting news feeds;
o Sports trivia;
o Articles and sports commentary;
o Interviews with players, coaches and sports commentators;
o Player and team profiles;
o Team schedules and information;
o Ticket and sporting events information, and
o Chat rooms and message boards.
The SportsPrize Tournament: We have developed a proprietary, interactive
game called the "SportsPrize Tournament," which offers participants the
opportunity to compete in a multi-sport, predictive tournament where
participants answer weekly questions and accumulate points to win a wide variety
of prizes, as well as discounts on merchandise within our SportsPrize e-shopping
venues.
We expect that our SportsPrize Tournament will be the center-piece of the
SportsPrize.com(TM) Web site. The SportsPrize Tournament is designed to
integrate the excitement of sports-related content and information with the
communication and marketing capabilities of the Internet. We offer our
SportsPrize Tournament as free entertainment to visitors on our Web site who
become Registered Members on the site.
E-Commerce: Visitors to our Web site have the opportunity to purchase a
broad range of sports-related merchandise in our SportsPrize stores.
Based on our research, we believe that there are not any other
sports-oriented Web sites that currently provide all three components
(sports-related content, a multi-sport predictive tournament and sports-oriented
e-commerce), integrated into one comprehensive Web site. We believe that our
unique, multi-faceted Web site will become a destination for many sports fans on
the Internet. Our goal is to differentiate our Web site from our competitors'
Web sites through an aggressive marketing strategy.
We intend to generate revenue by:
o Selling advertising and sponsorships on our Web site;
o Selling merchandise through our virtual SportsPrize e-commerce
shopping venues;
9
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o Licensing our content to other companies in the United States and
other countries; and
o Other marketing programs.
We are a development stage company, which means that we are in the process
of developing our business and we have limited revenue from our operations. We
have a history of losses, and as of May 31, 2000, we had an accumulated deficit
of $8,260,200, including $4,109,793 in non-cash compensation expenses related to
the issuance of stock and granting of stock options to certain of our directors,
employees and consultants. We incurred losses during the following periods:
o $144,125 for the period from March 6, 1998 (inception) to February 28,
1999;
o $6,595,702 for the fiscal year ended February 29, 2000, including
$3,703,280 in non-cash compensation expenses related to the issuance
of stock and granting of stock options to certain of our directors,
employees and consultants; and
o $1,520,373 for the first fiscal quarter ended May 31, 2000, including
$406,513 in non-cash compensation expenses related to the issuance of
stock and granting of stock options to certain of our directors,
employees and consultants.
We anticipate that we will continue to incur substantial losses for the
foreseeable future. Thus far, we have raised approximately $4,700,000 through
private placements to finance our business. We also are in the process of
seeking additional financing. We are attempting to raise an additional
$8,000,000 to fund our current plan of operation through our fiscal year ending
February 28, 2001. See "Note Regarding Forward Looking Statements" and "Plan of
Operation." We cannot assure you that we will obtain additional financing to
implement our business plan on acceptable terms, if at all.
We launched the public version of our SportsPrize.com(TM) Web site on
December 29, 1999. Visitors to our SportsPrize.com(TM) Web site can play our
SportsPrize.com(TM) Tournament, access sports-related content and purchase
sports-oriented merchandise. Since the launch, we have test marketed the site
and built a total membership of approximately 17,000. However, we have not had
sufficient working capital to aggressively market and promote our Web site. We
cannot guarantee that our Web site will be commercially successful as planned or
that we will earn any revenue or profits from our operations.
We currently have relationships with DBC Sports to provide our
sports-related content and statistical information, as well as ShopSports.com to
provide merchandise and related order fulfillment services. We also have
established relationships with Boomer Esiason, James Worthy, Michael Buffer and
Steve Hartman, who serve on our Sports Advisory Board and provide unique sports
content and promote our Web site. We have not yet finalized our agreement with
Boomer Esiason, and anticipate that we will finalize this agreement during the
second fiscal quarter of 2000. We are currently in the process of attempting to
establish other relationships with potential sports marketing groups, athletes
and content providers to provide additional content on our Web site, as well as
potential advertisers and sponsors to purchase advertising on our Web site. We
cannot assure you that we will successfully maintain our
10
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existing relationships with DBC Sports, ShopSports.com or members of our Sports
Advisory Board, or that we will enter into any new relationships with vendors,
athletes, content providers or advertisers.
We intend to compete in the highly-competitive Internet industry. Many of
our competitors have substantially greater financial, technical and other
resources than we have. Several competitors already have established Web sites,
brand names, strategic relationships with advertisers and other Web sites, and
user loyalty, all of which create a competitive advantage over us. We cannot
guarantee that we will be able to compete effectively or that we will ever
generate sufficient revenues from our operations to make our business
commercially viable.
Our common stock is currently quoted on the National Association of
Securities Dealers' over-the-counter bulletin board and trades under the symbol
"JOCK".
Selected Financial Data
The following table sets forth selected financial data regarding our
consolidated operating results and financial position of our Company. The data
has been derived from our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. The following selected financial data is qualified in its
entirety by, and should be read in conjunction with, the consolidated financial
statements and notes thereto included elsewhere in this Report.
<TABLE>
Three Months Ended May 31, Three Months Ended May 31,
2000 1999
---------------------------- --------------------------
$ $
---------------------------- --------------------------
<S> <C> <C>
Net Sales - -
Gross Profit - -
Total Operating Expenses 1,523,529 1,944,793
Net Loss 1,520,373 1,942,875
Net Loss per Share (0.08) (0.17)
At At
May 31, 2000 February 29, 2000
---------------------------- --------------------------
$ $
---------------------------- --------------------------
<S> <C> <C>
Working Capital (Deficiency) (676,020) 193,148
Total Assets 670,015 1,118,924
Long-Term Obligations 200,000 -
Total Liabilities 1,041,891 376,941
Shareholders' Equity (Deficit) (371,876) 741,983
Cash Dividends - -
</TABLE>
11
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Results of Operations
The following is a discussion of our operations for the fiscal quarter
ended May 31, 2000. This discussion should be read in conjunction with the
Consolidated Financial Statements appearing elsewhere in this Quarterly Report
on Form 10-Q, as well as information presented in our Annual Report on Form 10-K
for our fiscal year ended February 29, 2000.
Revenue. During the fiscal quarter ended May 31, 2000, the Company
commenced the second fiscal year of its Internet business. We are a development
stage enterprise, and had no material revenue from operations during the fiscal
quarters ended May 31, 2000 or May 31, 1999. We had interest income of $2,323
during the fiscal quarter ended May 31, 2000, compared to $5,085 for the same
period in 1999.
Expenses. During the fiscal quarter ended May 31, 2000, the Company
incurred general and administrative expenses of $1,478,655, compared to
$1,863,611 for the fiscal quarter ended May 31, 1999. During the fiscal quarter
ended May 31, 2000, the most significant portion of our general and
administrative expenses was for compensation and consulting costs of $885,017,
of which $406,513 was non-cash compensation associated with the issuance of
stock options to our directors, employees and consultants. This compared to
compensation and consulting costs of $1,825,453, of which $1,762,600 was
non-cash compensation during the fiscal quarter ended May 31, 1999. We believe
that compensation and consulting costs will increase as we hire additional
personnel in future periods.
During the fiscal quarter ended May 31, 2000, the Company incurred total
prizing costs of $276,388, which were zero in the fiscal quarter ended May 31,
1999. Additionally, we incurred advertising and promotion costs of $115,030,
which also were zero during the same period in the prior year.
The other material operating costs incurred by the Company during the
fiscal quarter ended May 31, 2000 were insurance costs of $52,629, which were
zero during the fiscal quarter ended May 31, 1999. We also incurred professional
fees of $40,481 compared to $8,627 during the same period in 1999. The
professional fees incurred during the fiscal quarter ended May 31, 2000 were
primarily attributable to preparation of the Company's SEC filings and other
legal agreements.
During the fiscal quarter ended May 31, 2000, we had no research and
development expenses, compared to $80,969 during the quarter ended May 31, 1999.
During the fiscal quarter ended May 31, 2000, we had depreciation expense of
$44,874, compared to $213 during the quarter ended May 31, 1999.
Losses. During the fiscal quarter ended May 31, 2000, the Company incurred
a total net loss of $1,520,373 ($0.08 per share), compared to $1,942,875 ($0.17
per share) during the same period in 1999. These losses are expected to continue
in the foreseeable future.
Liquidity and Capital Resources
Since our Share Exchange with SportsPrize Inc., we have raised a total of
$4,550,000 less finder's fees of $198,000.
12
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On May 30, 2000, we agreed to issue two 9% Convertible Debentures, one in
the amount of $850,000 to Cutter Services Corp. and one in the amount of
$200,000 to Strathburn Investments Inc., for total gross proceeds of $1,050,000.
We also agreed to issue a warrant to Cutter Services to acquire 48,000 shares of
our common stock at $1.275 per share and a warrant to Strathburn Investments to
acquire 12,000 shares of our common stock at $1.275 per share. The warrants
expire on May 30, 2002. We paid Sonora Capital a finder's fee of $100,000 in
connection with the financing transaction. Cutter Services and Strathburn
Investments are non-U.S. persons, and the offer and sale were made outside the
United States in reliance on an exemption from registration under Regulation S
of the Securities Act of 1933, as amended.
In July 2000, the Company and the Holders of the Debentures agreed to
convert all of the Debentures into 1,050,000 shares of the Company's Common
Stock at a price of $1.00 per share. At the time of the conversion, the security
interest in the Company's assets, including our intellectual property, software,
technology and other assets will be terminated.
On May 9, 2000, we received a cash advance of $200,000 associated with the
Debentures. On May 31, 2000, we had working capital of approximately $73,980,
after giving effect to the entire private placement of the Debentures. Our
current working capital requirements are approximately $300,000 per month. We
believe we have sufficient working capital to fund our operations through August
2000. We are in the process of seeking additional financing in the amount of
$8,000,000 to fund our plan of operation through February 28, 2001. We have not
negotiated any such financings, and we cannot assure you that we will obtain
such financing on acceptable terms, if at all. Our failure to obtain additional
financing will affect our ability to continue as a going concern.
Assuming we raise $8,000,000 of planned financing and once we are fully
staffed, our total monthly capital requirement will increase to approximately
$660,000. Our working capital requirement related to financing fees and costs,
content costs, and general and administrative expenses is anticipated to
increase to approximately $330,000 per month. Our working capital requirement
related to marketing expenses is expected to increase to approximately $250,000
per month, provided we are able to obtain sufficient financing to implement our
marketing program. We also anticipate that we will invest approximately $80,000
per month for capital expenditures including Web site equipment and software,
Web site design and development and office equipment.
If we cannot raise additional financing, we anticipate that we will reduce
our projected expenditures related to our SportsPrize.com(TM) Web site and
concentrate our resources on developing the technologies related to our
SportsPrize.com(TM) Web site and the SportsPrize Tournament, and building our
revenue streams. We have the following material financial obligations to
software and systems developers, content providers, Internet access providers,
investor relations providers, and other vendors:
Vendor Obligation
------ ----------
DBC Sports $20,000 per month through June 2002
Frontier/Global Center $4,000 per month
Focus Partners $6,000 per month
Office Leases $12,000 per month
Big Ballot.com $3,000 per month
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In addition to these commitments, we have agreements with our employees and
consultants, which require us to make monthly payments totaling approximately
$100,000 per month. Our failure to meet these financial commitments and our
future obligations may have a material adverse effect on our business and
results of operations.
Plan of Operation
Our plan of operation includes several important strategic initiatives and
is based on estimates of our senior management. A summary of our plan of
operation and planned operating budget for our business for the 12 months ending
February 28, 2001 is set forth below.
Summary of Plan of Operation
The following is a summary of our corporate plan of operation through
February 28, 2001. For the period ending February 29, 2000, the primary focus of
our operating plan was to develop and launch our Web site and build the
necessary infrastructure to operate and market the site. We launched the public
version of our Web site on December 29, 1999. During our fiscal year ending
February 28, 2001, we plan to implement a major marketing program to build the
SportsPrize brand as well as the Web site audience. We also will continue
developing and enhancing the Web site during this period. During our fiscal year
ending February 28, 2001, we intend to allocate up to 40% of our operating
budget towards marketing and promotion to facilitate the aforementioned
marketing program. Our other primary operating objectives will be to continue
establishing strategic alliances with corporate advertisers, sponsors,
e-commerce associates, and other potential content and marketing associates. We
also intend to continue to build the SportsPrize community areas on the
SportsPrize.com(TM) Web site by increasing sports information, news and chat
room content, and sports celebrity-related content.
14
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Our major strategic and business initiatives through February 28, 2001 are
as follows:
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1. Raise sufficient capital to finance our business.
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2. Appoint or Recruit Senior Management:
i. Vice President of Content.
ii. Vice President of Technology.
iii. Vice President of Sales.
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3. Continue Development and Refinement of the SportsPrize.com(TM)Web site:
i. Refine the Home Page and Graphical User Interface for the site.
ii. Expand the Stats/Info component of the Web site.
iii. Develop a private label E-Shopping component of the Web site.
iv. Expand the Community component of the Web site, and
v. Develop new content areas on the site such as trivia and other unique
sports games and content.
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4. Develop comprehensive Web site monitoring/statistical software.
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5. Corporate Development:
i. Recruit Outside Directors to increase the Board of Directors to nine
Directors, including five Outside Directors.
ii. Expand the Sports Advisory Board to include representatives from each
of the major sports offered on our Web site.
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6. Enter into strategic relationships and/or international ventures for our
Web site.
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7. Implementation of Sales, Marketing and Business Development Plans:
i. Refine the initial sales, marketing and business development plans.
ii. Commence the sales process and begin generating revenue.
iii. Commence the marketing and business development processes to build the
membership base, build the brand, and broaden the content offering on
the Web site
iv. Explore opportunities in foreign markets.
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8. Locate and lease a new corporate office in the Los Angeles area.
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9. Shareholder Relations and Investor Relations:
i. Update the database of shareholders and maintain communication with
them.
ii. Refine the brochures for and exposure to prospective investors to
broaden our shareholder base and capital structure.
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During our fiscal year ending February 28, 2001, we intend to concentrate
our efforts on marketing our Web site to users, sponsors and advertisers;
soliciting feedback on our content and technology offerings from our users,
sponsors and advertisers; selling advertising and sponsorships; increasing sales
of products offered through our SportsPrize e-shopping venues; building
additional strategic relationships; developing new content and technology
offerings; obtaining endorsements from professional athletes, coaches and sports
organizations; and enhancing and improving our Web site.
We cannot assure you that we will successfully complete all of the items
contemplated in our plan of operation on a timely basis, if at all. Our ability
to complete our plan of operation will be dependent on a number of factors, some
of which are beyond our control, including our ability to raise additional
financing on acceptable terms, our ability to develop our content and technology
on a timely basis, our ability to attract advertisers and sponsors, and the
acceptance of our SportsPrize.com(TM) Web site.
Summary of Planned Operating Budget
Our planned operating budget for the fiscal year ending February 28, 2001,
is estimated to be approximately $8,000,000. See "Note Regarding Forward Looking
Statements." Our projected use of these funds is as follows:
Operating Expenses:
Financing Fees and Costs $ 400,000
Content Costs 500,000
General and Administrative 3,100,000
Marketing 3,000,000
-----------
Total Operating Expenses $ 7,000,000
-----------
Capital Expenditures:
Web Site Equipment/Software $ 150,000
Web Site Design/Development 500,000
Office Equipment/Software 150,000
Other 200,000
-----------
Total Capital Expenditures $1,000,000
-----------
Total Capital Required $8,000,000
===========
As of May 31, 2000, we had $86,786 in cash and cash equivalents. Currently
we are expending approximately $300,000 per month. We cannot assure you that our
actual expenditures for during our fiscal year ending February 28, 2001 will not
exceed our estimated operating budget. We based our projected costs on our
results of operations, our current
16
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contractual commitments, our discussions and negotiations with potential third
party service providers, public disclosure of our competitors of their
historical costs for similar operations, our discussions with consultants, our
planned business activities and our management's experience. See "Note Regarding
Forward Looking Statements." Actual expenditures will depend on a number of
factors, some of which are beyond our control, including, but not limited to,
timing of changes to our SportsPrize Web site, our ability to generate revenue
from advertising, sponsorships, e-commerce sales and our auction site; the
availability of financing on acceptable terms; reliability of the assumptions of
management in estimating costs and timing; certain economic and industry
factors; the time expended by consultants and professionals and fees associated
with developing strategic relationships related to our business plan; our
ability to enter into strategic relationships with third parties; the success of
our SportsPrize Tournament; and our ability to attract visitors to our
SportsPrize Web site. You are cautioned not to place undue certainty in
management's assessments and projections. If the actual expenditures for such
costs exceed the estimated costs or if we are incapable of generating revenues
from our operations, we will be required to raise additional financing or to
defer certain expenditures.
We are attempting to raise an additional $8,000,000 to fund our current
plan of operation for fiscal year ending February 28, 2001. We intend to raise
additional financing to fund our operating budget by issuing equity or debt
through a combination of private and public financings. We cannot assure you
that we will successfully raise additional financing on acceptable terms, if at
all. If we cannot raise additional financing, we anticipate that we will reduce
our projected expenditures related to marketing the SportsPrize.com(TM) Web site
and concentrate our resources on developing the SportsPrize.com(TM) Web site and
the SportsPrize Tournament, and building our revenue streams. The failure to
meet certain expenditures may cause us to default on material obligations and
such default may have a material adverse effect on our business and results of
operations.
Item 3: Quantitative and Qualitative Disclosures About Market Risk
Our financial results are quantified in U.S. dollars and our obligations
and expenditures for our operations are incurred in U.S. dollars. In the future,
a portion of our revenues may be derived from business operations outside the
United States, which may subject our business to foreign currency fluctuations.
We do not, however, believe that we will have any materially significant market
risks relating to revenues from our operations derived from outside the United
States or other business arrangements denominated in currency other than the
U.S. dollar. Although variations in the exchange rate may give rise to foreign
exchange gains or losses that may be significant, we do not anticipate material
foreign exchange gains or losses.
We currently have no material long-term debt obligations, other than the
convertible debentures described in this Report. We do not use financial
instruments for trading purposes and we are not a party to any derivatives. In
the event we experience substantial growth in the future, our business and
results of operations may be materially affected by changes in interest rates
and other credit risks associated with our operations.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
To the best of our knowledge, we are not subject to any active or pending
legal proceedings or claims against us or any of our properties. However, from
time to time, we may become subject to claims and litigation generally
associated with any business venture.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of security holders during the
quarter covered by this Report.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
27.1 Financial Data Schedule.
(b) Reports on Form 8-K
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Quarterly Report on Form 10-Q for the period
ending May 31, 2000 to be signed on its behalf by the undersigned duly
authorized.
SportsPrize Entertainment Inc.
Date: July 17, 2000 /s/ David Kenin
-----------------------------------
David Kenin
Chief Executive Officer
Date: July 17, 2000 /s/ Bruce R. Cameron
-----------------------------------
Bruce R. Cameron
President and Chief Financial Officer
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