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 August 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.
18,658,249 shares of Common Stock, $0.001 par value, outstanding
as of August 31, 2000.
<PAGE>
SportsPrize Entertainment Inc.
Form 10-Q
Index
<TABLE>
Page
----
<S> <C> <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................................................................................9
Item 3: Quantitative and Qualitative Disclosures About Market Risk.................................20
PART II - OTHER INFORMATION.........................................................................21
Item 1. Legal Proceedings..........................................................................21
Item 2. Changes in Securities......................................................................21
Item 3. Defaults Upon Senior Securities............................................................21
Item 4. Submission of Matters to a Vote of Security Holders........................................22
Item 5. Other Information..........................................................................22
Item 6. Exhibits and Reports on Form 8-K...........................................................22
SIGNATURES..........................................................................................23
</TABLE>
i
<PAGE>
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
The unaudited interim Consolidated Financial Statements accompanying this
Quarterly Report have not been reviewed by our auditor in accordance with Rule
10-01 of Regulation S-X.
SportsPrize Entertainment Inc.
A Development Stage Company
CONSOLIDATED FINANCIAL STATEMENTS
as of August 31, 2000
(Unaudited)
1
<PAGE>
SportsPrize Entertainment Inc.
A Development Stage Company
CONSOLIDATED BALANCE SHEETS
as of
<TABLE>
August 31, February 29,
2000 2000
(unaudited)
-------------- --------------
ASSETS
Current Assets
<S> <C> <C>
Cash and cash equivalents $ 94,124 $ 484,906
Portfolio investment 10,158 10,339
Prepaid expenses and other current assets 63,407 74,844
-------------- --------------
167,689 570,089
-------------- --------------
Capital Assets
Software development costs 487,692 393,997
Internet equipment 128,358 128,358
Office computers and equipment 49,514 53,994
Less: accumulated depreciation and amortization (122,410) (36,041)
-------------- --------------
543,154 540,308
-------------- --------------
Other
Deposits 10,494 8,527
-------------- --------------
Total assets $ 721,337 $1,118,924
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Accounts payable $ 473,041 $ 96,857
Accrued liabilities 718,316 280,084
-------------- --------------
1,191,357 376,941
-------------- --------------
Note payable (Note 7) 50,000 -
-------------- --------------
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; 18,658,249 and 19,480,374
issued and outstanding, respectively (Note 3) 18,658 19,480
Additional paid-in capital 10,589,911 8,053,227
Deferred compensation (1,373,907) (590,897)
Deficit accumulated during the development stage (9,754,682) (6,739,827)
-------------- --------------
Total stockholders' equity (deficit) (520,020) 741,983
-------------- --------------
$ 721,337 $1,118,924
============== ==============
</TABLE>
2
<PAGE>
SportsPrize Entertainment Inc.
A Development Stage Company
CONSOLIDATED STATEMENTS OF OPERATIONS
for the periods from
<TABLE>
Cumulative from
inception to March 1, March 1,
August 31, 2000 to to
2000 August 31, 2000 August 31, 1999
(unaudited) (unaudited) (unaudited)
----------------- ----------------- ----------------
<S> <C> <C> <C>
Operating expenses
General and administrative $9,492,544 $2,924,465 $ 3,307,107
Research and development 126,488 - 99,149
Depreciation and amortization 125,131 86,441 2,022
----------------- ----------------- ----------------
Loss from operations (9,744,163) (3,010,906) (3,408,278)
----------------- ----------------- ----------------
Other income (expense)
Interest 54,948 (5,307) 27,522
Gain (loss) on sale of investments (60,362) - 7,506
Other (5,105) 1,358 (3,764)
----------------- ----------------- ----------------
(10,519) (3,949) 31,264
----------------- ----------------- ----------------
Net loss for the period $(9,754,682) $(3,014,855) $ (3,377,014)
================= ================== ================
Basic and diluted loss per share $ (0.16) $ (0.22)
================== ================
Weighted average shares outstanding 18,332,962 15,321,978
================== ================
</TABLE>
3
<PAGE>
SportsPrize Entertainment Inc.
A Development Stage Company
CONSOLIDATED STATEMENTS OF OPERATIONS
for the three months ended
<TABLE>
August 31, August 31,
2000 1999
(unaudited) (unaudited)
--------------- ---------------
<S> <C> <C>
Operating expenses
General and administrative $ 1,445,810 $ 1,443,496
Research and development - 18,180
Depreciation and amortization 41,567 1,809
--------------- ---------------
Loss from operations (1,487,377) (1,463,485)
--------------- ---------------
Other income (expense)
Interest (7,630) 22,437
Gain on sale of investments - 7,506
Other 525 (597)
--------------- ---------------
(7,105) 29,346
--------------- ---------------
Net loss for the period $(1,494,482) $(1,434,139)
=============== ===============
Basic and diluted loss per share $ (0.08) $ (0.07)
=============== ===============
Weighted average shares outstanding 18,306,931 19,328,200
=============== ===============
</TABLE>
4
<PAGE>
SportsPrize Entertainment Inc.
A Development Stage Company
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the periods from
<TABLE>
Cumulative March 1, 2000 March 1, 1999
from inception to to to
August 31, 2000 August 31, 2000 August 31, 1999
(unaudited) (unaudited) (unaudited)
------------------- ------------------ ------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (9,754,682) $ (3,014,855) $ (3,377,014)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 125,131 86,441 2,022
Loss (gain) on sale of investments 60,362 - (7,506)
Other 12,068 12,068 -
Issuance of common stock for compensation 227,500 15,000 212,500
Compensation expense for stock options 4,270,755 779,975 2,234,558
Other (9,658) 217 3,764
Change in operating assets and liabilities:
Prepaid expenses and other current assets (63,266) 11,618 (28,915)
Deposits (10,494) (1,967) 17,000
Accounts payable 473,041 376,184 5,842
Accrued liabilities 718,316 438,232 78,968
------------------- ------------------ ------------------
(3,950,927) (1,297,087) (858,781)
------------------- ------------------ ------------------
Cash flows from investing activities:
Proceeds from sale of portfolio investments 231,195 - 60,513
Purchases of portfolio investments (290,207) - (47,129)
Software development costs (487,692) (93,695) (228,742)
Purchases of equipment (182,352) - (135,191)
------------------- ------------------ ------------------
(729,056) (93,695) (350,549)
------------------- ------------------ ------------------
Cash flows from financing activities:
Proceeds from issuance of common stock 4,774,107 1,000,000 3,534,535
------------------- ------------------ ------------------
Net increase (decrease) in cash and cash equivalents 94,124 (390,782) 2,325,205
Cash and cash equivalents at beginning of period - 484,906 34,345
------------------- ------------------ ------------------
Cash and cash equivalents at end of period $ 94,124 $ 94,124 $ 2,359,550
=================== ================== ==================
</TABLE>
5
<PAGE>
SportsPrize Entertainment Inc.
A Development Stage Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
August 31, 2000
1. Operations and Going Concern
These unaudited interim Consolidated Financial Statements have been
prepared in accordance with generally accepted accounting principles, which
presume that the Company will continue as a going concern. The Company
commenced its Internet operations in May 1999 and launched the initial
public version of its Web site on December 29, 1999. However, the Company
has not earned any material revenue from its operations and it has incurred
operating losses throughout its history. The Company is dependent upon
acceptance of its product offerings and marketing programs before it can
generate sufficient revenues from its operations. The technologies and
businesses that it intends to develop also require cash significantly in
excess of its current resources.
The Company's current cash position is inadequate to pay its current
liabilities and the costs associated with the development, marketing and
commercialization of its product offerings. Management does not anticipate
it will generate sufficient revenues from its operations in the near future
to meet its anticipated working capital needs. Until the Company generates
sufficient revenues from its products, it will be dependent upon the
continued sale of its securities or debt financing to raise the funds
necessary to meet its cash requirements. Thus far, the Company has raised
$1,431,000 through private placements in fiscal 2000 and will continue to
pursue the additional financing necessary to fund its operations.
Management intends to continue selling the Company's securities or
arranging debt financing to improve its cash position; however, no
assurance can be given that any such financing will be available when
required. In the event that financing on acceptable terms is not available,
management anticipates that they will consolidate the Company's operations,
reduce personnel and operating expenses, and/or sell or liquidate assets.
These factors raise substantial doubt about the Company's ability to
continue as a going concern. In the event the Company is unable to continue
as a going concern, management anticipates that it will sell the business,
its assets or discontinue its operations. The unaudited interim
Consolidated Financial Statements do not include any adjustments relating
to the recoverability and classification of recorded assets and
classification of liabilities that might be necessary should the Company be
unable to continue its operations.
6
<PAGE>
SportsPrize Entertainment Inc.
A Development Stage Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
August 31, 2000
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 year-end. The results of
operations for the period ended August 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 August 31,
2000, and the Consolidated Statements of Operations and of Cash Flows for
the three and six-month periods ended August 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.
3. Common Stock
Effective June 30, 2000, all of the Company's $1,050,000 of Convertible
Debentures and the related accrued interest of $7,875 were converted into
1,057,875 shares of common stock. Additionally, in July 2000, the Company
issued 15,000 shares of common stock to an investment banker at a price of
$0.50 per share. These transactions increased the Company's total
outstanding common shares to 18,658,249 as of August 31, 2000.
4. Stock Options and Warrants
During the fiscal quarter ended August 31, 2000, the Company granted
242,000 stock options to certain employees and consultants with an exercise
price of $0.25. During this period, there also were 60,000 warrants issued
at a price of $1.275 associated with the $1,050,000 Convertible Debenture
financing transaction.
7
<PAGE>
SportsPrize Entertainment Inc.
A Development Stage Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
August 31, 2000
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
5,246,830 shares of common stock ranging from $0.01 - $2.53 a share were
outstanding at August 31, 2000. Additionally, there were 60,000 warrants
outstanding as of August 31, 2000 at a price of $1.275. Such options and
warrants were not included in the computation of diluted earnings per share
because they were anti-dilutive.
<TABLE>
Six months Six months
ended ended
August 31, 2000 August 31, 1999
----------------- -----------------
<S> <C> <C>
Net loss: ($3,014,855) ($3,377,014)
================= =================
Denominator:
For basic and diluted 18,332,962 15,321,978
loss per share - weighted
average shares outstanding
Basic and diluted loss per common share ($0.16) ($0.22)
</TABLE>
6. Commitments and Contingencies
Consulting Agreement
In June 2000, the Company entered into a six month consulting agreement
with an entertainment content and game design company. The agreement
provides for 60,000 shares of the Company's common stock to be issued at a
price of $0.375 per share. From July to December 2000, 10,000 of these
shares vest each month in connection with this agreement.
7. Subsequent Event
In September 2000, the Company completed private equity financing
transactions totaling $381,000. On August 31, 2000, the Company received a
cash advance of $50,000 associated with one of these transactions, which
was recorded as a Note Payable. In connection with these financing
transactions, 2,032,000 shares of the Company's common stock are being
issued at a price of $0.1875 per share and 1,016,000 warrants are being
issued to acquire the Company's common stock at a price of $0.28125. The
Company also paid a finder's fee of $15,000 for assistance in arranging
$300,000 of this financing.
8
<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; under-capitalization;
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 sports-related
games and content; 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.comTM.
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 primary components on our Web site: (i)
sports-related content, (ii) sports-related games including the SportsPrize
TournamentSM and Monday Night MillionaireSM, and (iii) sports-oriented
e-commerce.
9
<PAGE>
Content: We currently offer the following sports-related content:
o Sports news and statistical information;
o SportsPrize Question of the DaySM - a daily sports trivia
question that enables our viewers to test their knowledge and
accumulate points in the SportsPrize games;
o SportsPrize Six-PackSM - a daily listing and archive of sports
editorial commentary on a high-profile sports topics;
o SportsPrize Luxury BoxSM - a daily compilation and archive of
photos of the SportsPrize models, and
o Chat rooms and message boards.
We plan to offer the following sports-related content:
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, and
o Ticket and sporting events information.
SportsPrize Games: We intend to offer a variety of sports-related games on
our Web site. On December 29, 1999, we launched our first proprietary,
interactive game called the "SportsPrize TournamentSM," 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.
In September 2000, we launched our second proprietary game called "Monday
Night MillionaireSM", where participants predict the outcome of National
Football League games and have the opportunity to win a Ferrari at the end of
the NFL season.
We expect that sports-related games will be an integral part of the
SportsPrize.com(TM) Web site. The SportsPrize games will be designed to
integrate the excitement of sports-related content and information with the
communication and marketing capabilities of the Internet. We currently offer our
SportsPrize TournamentSM and Monday Night MillionaireSM 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.
10
<PAGE>
Based on our research, we believe that there are only a few sports-oriented
Web sites that currently provide all three components (sports-related content,
sports-related predictive games 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
promote our Web site and build our audience through an aggressive marketing
strategy.
We intend to generate revenue by:
o Charging fees for online participants to play our proprietary
sports games;
o Selling advertising and sponsorships on our Web site;
o Selling merchandise through our virtual SportsPrize e-commerce
shopping venues;
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 currently have no material revenue from our
operations. We have a history of losses, and as of August 31, 2000, we had an
accumulated deficit of $9,754,682, including $4,498,255 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 $3,014,855 for the six months ended August 31, 2000, including
$794,975 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 nearly $5,100,000 through private
placements to finance our business. We also are in the process of seeking
additional financing. We are attempting to raise an additional $3,000,000 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.
As of August 31, 2000, we had a working capital deficiency of $1,023,668.
Our ability to continue as a going concern is questionable. See "Management's
Discussion and Analysis of Results of Operations and Financial Condition - Going
Concern Risks."
11
<PAGE>
We launched the initial public version of our SportsPrize.com(TM) Web site
on December 29, 1999. Since then, we have test marketed the site and built a
total membership of approximately 20,000. However, we have not had sufficient
working capital to aggressively market and promote our Web site, and as a
result, we have not generated any material revenues from advertising or sales of
merchandise. We cannot assure you 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, Stewart Television to design
and develop sports-related games for our Web site and ShopSports.com to provide
merchandise and the 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 by the end
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 existing relationships with
DBC Sports, Stewart Television, ShopSports.com or the 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
assure you 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 Quarterly Report. The
unaudited interim Consolidated Financial Statements accompanying this Quarterly
Report have not been reviewed by our auditor in accordance with Rule 10-01 of
Regulation S-X.
12
<PAGE>
Six Months Ended Six Months Ended
August 31, 2000 August 31, 1999
------------------ ------------------
$ $
------------------ ------------------
Net Sales - -
Gross Profit - -
Total Operating Expenses 3,010,906 3,408,278
Net Loss 3,014,855 3,377,014
Net Loss per Share (0.16) (0.22)
-------------------------------------------------------------------------------
At At
August 31, 2000 February 29, 2000
------------------ ------------------
$ $
------------------ ------------------
Working Capital (Deficiency) (1,023,668) 193,148
Total Assets 721,337 1,118,924
Long-Term Obligations 50,000 -
Total Liabilities 1,241,357 376,941
Shareholders' Equity (Deficit) (520,020) 741,983
Cash Dividends - -
-------------------------------------------------------------------------------
Results of Operations
Six Months Ended August 31, 2000 Compared to Six Months Ended August 31,
1999
The following is a discussion of the Company's operations for the six
months ended August 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 the Company's Annual
Report on Form 10-K for the fiscal year ended February 29, 2000.
Revenue. The Company is a development stage enterprise, and had no material
revenue from its operations during the six months ended August 31, 2000 or for
this period in 1999. During the six months ended August 31, 2000, the Company
had net interest expense of $5,307, compared to net interest income of $27,522
for the same period in 1999.
Since the initial public launch of the Company's Web site on December 29,
1999, the Company has had insufficient capital to aggressively market and
promote its Web site. Consequently, the Company has conducted some limited test
marketing programs, but the audience growth and traffic has been limited. With
minimal traffic on its Web site, the Company's anticipated advertising and
e-commerce revenue streams have not materialized.
Expenses. During the six months ended August 31, 2000, the Company incurred
general and administrative expenses of $2,924,465, compared to $3,307,107 for
the same period in 1999. During the period ended August 31, 2000, the most
significant portion of general and
13
<PAGE>
administrative expenses was for compensation and consulting costs of $1,602,132,
of which $794,975 was non-cash compensation associated with the issuance of
stock and stock options to our directors, employees and consultants. This
compared to compensation and consulting costs of $2,905,146, of which $2,447,058
was non-cash compensation during the same period in 1999.
During the six months ended August 31, 2000, the Company incurred Web
design and content fees of $217,803, which were $25,500 for the same period in
1999. During this period in 2000, the Company incurred total prizing costs of
$548,365, which were zero in 1999. Additionally, the Company incurred Web site
advertising and promotion costs of $186,495 for the six months ended August
31,2000, which were zero during the same period in the prior year.
The other material operating costs incurred by the Company during the six
months ended August 31, 2000 were insurance costs of $104,768, which were zero
in 1999. We also incurred professional fees of $68,682 compared to $121,569
during the same period in 1999. The professional fees incurred during both
periods were primarily attributable to preparation of the Company's financing
agreements, SEC filings and other legal agreements and documents.
During the six months ended August 31, 2000, we had no research and
development expenses, compared to $99,149 during this period in 1999. During the
six months ended August 31, 2000, we had depreciation and amortization expense
of $86,441, compared to $2,022 during the same period in 1999.
Losses. During the six months ended August 31, 2000, the Company incurred a
total net loss of $3,014,855 ($0.16 per share), compared to $3,377,014 ($0.22
per share) during the same period in 1999. These losses are expected to continue
in the foreseeable future.
Three Months Ended August 31, 2000 Compared to Three Months Ended August
31, 1999
Revenue. The Company is a development stage enterprise, and had no material
revenue from its operations during the three months ended August 31, 2000 or for
this period in 1999. During the three months ended August 31, 2000, the Company
had net interest expense of $7,630, compared to net interest income of $22,437
for the same period in 1999.
Since the initial public launch of the Company's Web site on December 29,
1999, the Company has had insufficient capital to aggressively market and
promote its Web site. Consequently, the Company has conducted some limited test
marketing programs, but the audience growth and traffic has been limited. With
minimal traffic on its Web site, the Company's anticipated advertising and
e-commerce revenue streams have not materialized.
Expenses. During the three months ended August 31, 2000, the Company
incurred general and administrative expenses of $1,445,810, compared to
$1,443,496 for the same period in 1999. During this period in 2000, the most
significant portion of general and administrative expenses was for compensation
and consulting costs of $801,955, of which $388,462 was non-cash compensation
associated with the issuance of stock and stock options to our directors,
employees and consultants. This compared to compensation and consulting costs of
$1,079,691, of which $684,458 was non-cash compensation during the same period
in 1999.
14
<PAGE>
During the three months ended August 31, 2000, the Company incurred Web
design and content fees of $115,981, which were $25,500 for the same period in
1999. During this period in 2000, the Company incurred total prizing costs of
$271,977, which were zero in 1999. Additionally, the Company incurred Web site
advertising and promotion costs of $71,465 for the six months ended August
31,2000, which were zero during the same period in the prior year.
The other material operating costs incurred by the Company during the six
months ended August 31, 2000 were insurance costs of $52,139, which were zero in
1999. We also incurred professional fees of $28,201 compared to $112,942 during
the same period in 1999. The professional fees incurred during both periods were
primarily attributable to preparation of the Company's financing agreements, SEC
filings and other legal agreements and documents.
During the three months ended August 31, 2000, we had depreciation and
amortization expense of $41,567, compared to $1,809 during the same period in
1999.
Losses. During the six months ended August 31, 2000, the Company incurred a
total net loss of $1,494,482 ($0.08 per share), compared to $1,434,139 ($0.07
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
$4,931,000 less finder's fees of $213,000.
On May 30, 2000, we issued 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
issued a warrant to Cutter Services exercisable to acquire 48,000 shares of our
common stock at $1.275 per share and a warrant to Strathburn Investments
exercisable 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, Cutter Services and Strathburn Investments 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 was terminated.
In August 2000, we received a cash advance of $50,000 associated with a
private equity financing transaction totaling $150,000, which was completed in
September 2000. In September 2000, we also completed other private equity
financing transactions totaling $231,000. See "Changes in Securities."
On August 31, 2000, we had a working capital deficiency of $1,023,668.
Additionally, our current working capital requirements are approximately
$300,000 per month. We currently do not have sufficient working capital to meet
our current obligations as they
15
<PAGE>
become due. We are in the process of seeking additional financing in the amount
of $3,000,000 to $4,000,000 to fund our operations through February 28, 2001. We
have not negotiated any such financing, and we cannot assure you that we will
obtain such financing on acceptable terms, if at all. Additionally, given our
current stock price, the Company's total outstanding shares will be diluted
substantially by any significant financing transaction. Finally, our failure to
obtain additional financing will affect our ability to continue as a going
concern beyond October 31, 2000. See "Going Concern Risks."
Assuming we raise at least $3,000,000 to implement our plan of operation,
once we are fully staffed, our total monthly capital requirement will increase
to approximately $500,000. Our working capital requirement related to financing
fees and costs, content costs, and general and administrative expenses is
anticipated to increase to approximately $275,000 per month. Our working capital
requirement related to marketing expenses is expected to increase to
approximately $165,000 per month, provided we are able to obtain sufficient
financing to implement our marketing program. We also anticipate that we will
invest approximately $60,000 per month for capital expenditures including Web
site design and development and other equipment and software.
If we cannot raise additional financing, we anticipate that we will reduce
our projected expenditures, or sell or shut down our business. 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
Office Leases $12,000 per month
Focus Partners $6,000 per month
Showcase Communications $7,500 per month
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 six 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
16
<PAGE>
develop and launch our Web site and build the necessary infrastructure to
operate and market the site. We launched the initial public version of our Web
site on December 29, 1999.
During our fiscal year ending February 28, 2001, we have continued to
develop and enhance our Web site and have conducted some test marketing programs
to build the SportsPrize brand as well as the Web site audience. During the
latter portion of our fiscal year ending February 28, 2001, we intend to
continue building the content areas on the SportsPrize.com(TM) Web site by
increasing sports information, news, sports-related games and other content. We
also plan to allocate a significant portion of our operating budget towards
marketing and promotion to further build the SportsPrize brand and Web site
audience. Our other primary operating objectives will be to continue attempting
to establish strategic alliances with corporate advertisers, sponsors,
e-commerce associates, and other potential content and marketing associates.
Our major strategic and business initiatives through February 28, 2001 are
as follows:
--------------------------------------------------------------------------------
1. Raise sufficient capital to finance our business.
--------------------------------------------------------------------------------
2. Appoint or Recruit Senior Management:
i. Vice President of Content.
ii. Vice President of Technology.
iii. Vice President of Sales.
--------------------------------------------------------------------------------
3. Continue Development and Refinement of the SportsPrize.com(TM) Web site:
i. Refine the Graphical User Interface for the site.
ii. Develop new proprietary sports-related games for the Web site.
iii. Expand the Stats/Info component of the Web site.
iv. Develop a private label E-Shopping component of the Web site.
v. Expand the Community component of the Web site, and
vi. Develop new content areas on the site such as trivia and other unique
sports games and content.
--------------------------------------------------------------------------------
4. Develop comprehensive Web site monitoring/statistical software.
--------------------------------------------------------------------------------
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.
--------------------------------------------------------------------------------
6. Enter into strategic relationships and/or international ventures for our
Web site.
--------------------------------------------------------------------------------
17
<PAGE>
--------------------------------------------------------------------------------
7. Implementation of Sales, Marketing and Business Development Plans:
i. Refine the 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.
--------------------------------------------------------------------------------
8. Locate and lease a new corporate office in the Los Angeles area.
--------------------------------------------------------------------------------
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.
--------------------------------------------------------------------------------
During the latter portion of the 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.
18
<PAGE>
Summary of Planned Operating Budget
Our planned operating budget for the six months ending February 28, 2001,
is estimated to be approximately $3,000,000. See "Note Regarding Forward Looking
Statements." Our projected use of these funds is as follows:
Operating Expenses:
Financing Fees and Costs $ 200,000
Content Costs 150,000
General and Administrative 1,300,000
Marketing 1,000,000
----------
Total Operating Expenses $2,650,000
----------
Capital Expenditures:
Web Site Design/Development $ 300,000
Other 50,000
----------
Total Capital Expenditures $ 350,000
----------
Total Capital Required $3,000,000
==========
As of August 31, 2000, we had $94,124 in cash and cash equivalents.
Currently our total expenditures are 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 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."
In September 2000, we completed a private placement of 2,032,000 units at
$0.1875 per unit, each unit consisting of one share of common stock and one-half
non-transferable share purchase warrant. Each whole warrant is exercisable to
acquire one additional share of common stock at a price of $0.28125 per share
for a period of two years from the date of issuance. We raised gross proceeds of
$381,000 in connection with this offering, and paid a finder's fee to Sonora
Capital of $15,000 in connection with a portion of this transaction. See
"Changes in Securities."
We are attempting to raise an additional $3,000,000 to 4,000,000 to fund
our current plan of operation for the remaining portion of the 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 complete any
additional financing transactions on acceptable terms, if at all. If we cannot
raise additional financing, we anticipate that we will reduce our projected
expenditures, or sell or shut down our business.
19
<PAGE>
Going Concern Risks
The unaudited interim Consolidated Financial Statements accompanying this
Quarterly Report have been prepared assuming that the Company will continue as a
going concern. As discussed in Note 1 to the Consolidated Financial Statements,
the Company has not earned any material revenue from its operations and it has
incurred operating losses throughout its history. The Company is dependent upon
acceptance of its product offerings and marketing programs before it can
generate sufficient revenues from its operations. The technologies and
businesses that it intends to develop also require cash significantly in excess
of its current resources.
The Company's current cash position is inadequate to pay its current
liabilities and the costs associated with the development, marketing and
commercialization of its product offerings. Management does not anticipate it
will generate sufficient revenues from its operations in the near future to meet
its anticipated working capital needs. Until the Company generates sufficient
revenues from its products, it will be dependent upon the continued sale of its
securities or debt financing to raise the funds necessary to meet its cash
requirements. Thus far, the Company has raised $1,431,000 through private
placements in fiscal 2000 and will continue to pursue the additional financing
necessary to fund its operations. Management intends to continue selling the
Company's securities or arranging debt financing to improve its cash position;
however, no assurance can be given that any such financing will be available
when required. In the event that financing on acceptable terms is not available,
management anticipates that they will consolidate the Company's operations,
reduce personnel and operating expenses, and/or sell or liquidate assets.
These factors raise substantial doubt about the Company's ability to
continue as a going concern. In the event the Company is unable to continue as a
going concern, management anticipates that it will sell the business, its assets
or discontinue its operations. The unaudited interim Consolidated Financial
Statements do not include any adjustments relating to the recoverability and
classification of recorded assets and classification of liabilities that might
be necessary should the Company be unable to continue its 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. 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.
20
<PAGE>
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.
On May 30, 2000, we entered into a Loan Agreement and issued 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 issued 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 this 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 (the
"Securities Act").
On June 30, 2000, we entered into separate amendment and notice of
conversion agreements with Cutter Services Corp. and Strathburn Investments Inc.
Under the terms of these agreements, Cutter Services Corp. and Strathburn
Investments Inc. agreed to convert all of the Debentures issued on May 30, 2000
plus the accrued interest into shares of the Company's Common Stock at a price
of $1.00 per share. We issued 1,057,875 shares pursuant to Section 3(a)(9) of
the Securities Act.
In September 2000, we completed a private placement of 2,032,000 units at
$0.1875 per unit each unit consisting of one share of common stock and one-half
non-transferable share purchase warrant. Each whole warrant is exercisable to
acquire one additional share of common stock at a price of $0.28125 per share
for a period of two years from the date of issuance. We issued (i) 432,000 units
to one qualified "accredited investors" in the United States pursuant to the
requirements of Rule 506 of Regulation D promulgated under the Securities Act
and (ii) 1,600,000 units to two qualified non-U.S. Persons outside the United
States in an offer and sale that satisfied the requirements of Regulation S
promulgated under the Securities Act. We raised gross proceeds of $381,000 in
connection with this offering, and paid a finder's fee to Sonora Capital of
$15,000 in connection with a portion of this transaction.
Item 3. Defaults Upon Senior Securities.
None.
21
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders.
On July 21, 2000, we provided our shareholders notice of the Annual Meeting
of Stockholders of SportsPrize Entertainment Inc. (the "Company") which was
scheduled to be held on Thursday, August 10, 2000 at 10:00 a.m. (Pacific
Standard Time) at the Marina Beach Marriott Hotel located at 4100 Admiralty Way
in Marina Del Rey, California 90292, for the following purposes:
1. To elect seven directors, each to a one year term, to positions on the
Board of Directors;
2. To ratify the appointment of Grant Thornton LLP as the Company's
independent auditors; and
3. To transact such other business as may properly come before the
Meeting.
Our annual meeting was called to order on Thursday, August 10, 2000 at
10:00 a.m. The presence in person or by proxy of holders of record of a majority
of the outstanding Common Shares was required to constitute a quorum for the
transaction of business at the Annual Meeting. We did not meet the quorum
requirements to conduct the annual meeting on August 10, 2000 and the meeting
was adjourned pending receipt of a sufficient number of proxies to meet the
quorum requirements.
Item 5. Other Information.
On August 23, 2000, Jeffrey Paquin resigned his position as a Director.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit
Number Description
------ -----------
10.1 Form of Loan Agreement, dated May 30, 2000, entered into with
each of Cutter Services Corp. and Strathburn Investments Inc.
10.2 Form of Debenture issued to Cutter Services Corp. and Strathburn
Investments Inc.
10.3 Form of Amendment and Notice of Conversion Agreement, dated June
30, 2000, entered into with each of Cutter Services Corp. and
Strathburn Investments Inc.
27 Financial Data Schedule.
(b) Reports on Form 8-K
22
<PAGE>
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
ended August 31, 2000 to be signed on its behalf by the undersigned duly
authorized.
SportsPrize Entertainment Inc.
Date: October 16, 2000 /s/ David Kenin
---------------------------------------
David Kenin
Chief Executive Officer
Date: October 16, 2000 /s/ Bruce R. Cameron
---------------------------------------
Bruce R. Cameron
President and Chief Financial Officer
23
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
------ -----------
10.1 Form of Loan Agreement, dated May 30, 2000, entered into with
each of Cutter Services Corp. and Strathburn Investments Inc.
10.2 Form of Debenture issued to Cutter Services Corp. and Strathburn
Investments Inc.
10.3 Form of Amendment and Notice of Conversion Agreement, dated June
30, 2000, entered into with each of Cutter Services Corp. and
Strathburn Investments Inc.
27 Financial Data Schedule.
