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 November 30, 1999
-----------------
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 (I.R.S. Employer Identification No.)
of 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 [ ] No [x]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
19,480,374 shares of Common Stock, $0.001 par value, outstanding as of
January 31, 2000.
<PAGE>
SportsPrize Entertainment Inc.
Form 10-Q
Index
Page
PART 1 -- FINANCIAL INFORMATION............................................F-1
Item 1: Financial Statements................................................F-1
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations.........................................................1
Item 3: Quantitative and Qualitative Disclosures About Market Risk............7
PART II -- OTHER INFORMATION.................................................7
Item 1. Legal Proceedings.....................................................7
Item 2. Changes in Securities.................................................7
Item 3. Defaults Upon Senior Securities.......................................7
Item 4. Submission of Matters to a Vote of Security Holders...................7
Item 5. Other Information.....................................................7
Item 6. Exhibits and Reports on Form 8-K......................................8
<PAGE>
PART 1 -- FINANCIAL INFORMATION
Item 1: Financial Statements
SportsPrize Entertainment Inc.
(formerly Kodiak Graphics Company)
A DEVELOPMENT STAGE COMPANY
CONSOLIDATED FINANCIAL STATEMENTS
as of November 30, 1999
(Unaudited)
F-1
<PAGE>
SportsPrize Entertainment Inc.
(formerly Kodiak Graphics Company)
A DEVELOPMENT STAGE COMPANY
TABLE OF CONTENTS
November 30, 1999
Page
Financial Statements:
Balance Sheets F- 3
Statements of Loss F- 4 -5
Statements of Stockholders' Equity F- 6
Statements of Cash Flows F- 7
Notes to Financial Statements F- 8-12
F-2
<PAGE>
SportsPrize Entertainment Inc.
(formerly Kodiak Graphics Company)
A DEVELOPMENT STAGE COMPANY
CONSOLIDATED BALANCE SHEETS
as of
<TABLE>
<CAPTION>
November 30, February 28,
1999 1999
(Unaudited) (Audited)
----------- -----------
ASSETS
Current Assets
<S> <C> <C>
Cash and cash equivalents $ 1,427,044 $ 34,345
Accrued interest and other receivable 6,542
Portfolio investments (Note 4) 15,135 26,350
Prepaid expenses 48,364 9,113
------------------- -------------------
1,497,085 69,808
------------------- -------------------
Equipment and Software
Software development costs 353,776
Internet equipment 128,358
Office computers and equipment 54,725 3,649
Less: accumulated depreciation (4,076) (730)
------------------- -------------------
532,783 2,919
------------------- -------------------
Other
Organization costs, net 13,475
Deposit 8,279 17,000
------------------- -------------------
8,279 30,475
------------------- -------------------
Total assets $ 2,038,147 $ 103,202
=================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 111,534 $ 2,847
Accrued liabilities 27,000 484
------------------- -------------------
138,534 3,331
------------------- -------------------
Stockholders' Equity
- --------------------
Common stock - $0.001 par value
authorized 100,000,000 shares;
19,480,374 issued and outstanding 19,480 4,424
Preferred stock - $0.001 par value
authorized 5,000,000 shares;
non issued and outstanding
Additional paid-in capital 8,189,013 239,572
Deferred compensation (980,726)
Deficit accumulated during the development stage (5,328,154) (144,125)
------------------- -------------------
1,899,613 99,871
------------------- -------------------
$ 2,038,147 $ 103,202
=================== ===================
</TABLE>
The accompanying Notes to Financial Statements are an integral
part of these financial statements.
F-3
<PAGE>
SportsPrize Entertainment Inc.
(formerly Kodiak Graphics Company)
A DEVELOPMENT STAGE COMPANY
CONSOLIDATED STATEMENTS OF LOSS
for the periods from
<TABLE>
<CAPTION>
Inception,
March 1 to March 6 to
Inception, November 30, November 30,
March 6, 1998 1999 1998
to (9 months) (9 months)
November 30, 1999 (Unaudited) (Unaudited)
----------------- ------------- ----------------
<S> <C> <C> <C>
Revenue $ $ $
----------------- ---------------- ----------------
Operating expenses
General and administrative 5,183,683 5,120,347 40,486
Research and development 99,486 99,486
Depreciation and amortization 6,772 3,342 2,101
----------------- ---------------- ---------------
5,289,941 5,223,175 42,587
----------------- ---------------- ---------------
Operating loss (5,289,941) (5,223,175) (42,587)
Other income (expense)
Foreign exchange (2,610) (3,888) 852
Interest income 49,031 48,999
Interest expense (395) (321)
(Loss) gain on sale of investments (63,945) 7,510 (62,334)
Mineral property rights option (6,819)
----------------- ----------------- -----------------
Loss before cumulative effect of a change in
accounting principle (5,314,679) (5,170,554) (104,390)
Cumulative effect of a change in accounting
principle (Note 3) (13,475) (13,475)
----------------- ---------------- -----------------
Net loss for the period $ (5,328,154) $ (5,184,029) $ (104,390)
================= ================ ===============
Basic and diluted loss per share $ (0.31) $ (0.03)
================ ================
Weighted average shares outstanding 16,698,029 3,518,647
================ ===============
</TABLE>
The accompanying Notes to Financial Statements are an integral part of
these financial statements.
F-4
<PAGE>
SportsPrize Entertainment Inc.
(formerly Kodiak Graphics Company)
A DEVELOPMENT STAGE COMPANY
CONSOLIDATED STATEMENTS OF LOSS
for the three months ended November 30,
<TABLE>
<CAPTION>
1999 1998
(Unaudited) (Unaudited)
------------- ----------------
<S> <C> <C>
Revenue $ $
---------------- ----------------
Operating expenses
General and administrative 1,826,715 16,925
Research and development 337
Depreciation and amortization 1,320 546
---------------- ---------------
1,828,372 17,471
---------------- ---------------
Operating loss (1,828,372) (17,471)
Other income (expense)
Foreign exchange (124) 2,177
Interest income 21,477
Interest expense (15)
Gain (loss) on sale of investments 4 (23,649)
---------------- ---------------
Loss before cumulative effect of a change in
accounting principle (1,807,015) (38,958)
Cumulative effect of a change in accounting
principle (Note 3) ---------------- ----------------
Net loss for the period $ (1,807,015) $ (38,958)
================ ===============
Basic and diluted loss per share $ (0.09) $ (0.01)
================ ================
Weighted average shares outstanding 19,480,374 4,049,670
================ ===============
</TABLE>
The accompanying Notes to Financial Statements are an integral part of
these financial statements.
F-5
<PAGE>
SportsPrize Entertainment Inc.
(formerly Kodiak Graphics Company)
A DEVELOPMENT STAGE COMPANY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
for the period from inception, March 6, 1998 to November 30, 1999
(data for periods subsequent to February 28, 1999 is unaudited)
<TABLE>
<CAPTION>
Additional
Common Stock Paid-in Deferred
Date Stock Amount Capital Compensation Deficit Total
<S> <C> <C> <C> <C> <C> <C> <C>
Balance - March 6, 1998 $ $ $ $
$
Issuance of common stock March 1998 - 7,622,110 7,622 236,374 243,996
for cash February 1999
Net loss for the period (144,125) (144,125)
----------- -------- ----------- ------------ ------------ ----------
Balance - February 28, 1999 7,622,110 7,622 236,374 (144,125) 99,871
----------- -------- ----------- ------------ ------------ ----------
Issuance of common stock March -
for cash April 1999 913,134 913 131,624 132,537
Issuance of common stock
for compensation (Note 6) March 1, 1999 1,464,465 1,465 211,035 212,500
Subtotal - balance reflecting
common stock issued in
reverse merger (Note 5) ----------- -------- ----------- ------------ ------------ ----------
9,999,709 10,000 579,033 (144,125) 444,908
Issuance of stock options
for compensation (Note 6) May 6, 1999 603,500 603,500
Common stock
before merger May 14, 1999 7,564,000 7,564 (7,564)
Issuance of common
stock for cash May 14, 1999 1,666,665 1,666 2,498,332 2,499,998
Less: share issuance costs May 14, 1999 (70,000) (70,000)
Issuance of common
stock for cash July 27, 1999 250,000 250 999,750 1,000,000
Less: share issuance costs July 27, 1999 (28,000) (28,000)
Compensation expense March -
for stock options November 1999 3,090,962 (980,726) 2,110,236
Issuance of stock options
for compensation (Note 6) November 1999 523,000 523,000
Net loss for the period (5,184,029) (5,184,029)
----------- -------- ---------- ---------- ------------ -----------
Balance - November 30, 1999 19,480,374 $ 19,480 $8,189,013 $ (980,726) $(5,328,154) $ 1,899,613
=========== ======== ========== ========== ============ ===========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of
these financial statements.
F-6
<PAGE>
SportsPrize Entertainment Inc.
(formerly Kodiak Graphics Company)
A DEVELOPMENT STAGE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the periods from
<TABLE>
<CAPTION>
Inception,
March 1 to March 6 to
Inception, November 30, November 30,
March 6, 1998 1999 1998
to (9 months) (9 months)
November 30, 1999 (Unaudited) (Unaudited)
----------------- ---------------- --------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (5,328,154) $ (5,184,029) $ (104,390)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 6,772 3,342 2,101
Loss (gain) on sale of investments 63,945 (7,510) 62,334
Issuance of common stock for compensation 1,339,000 1,339,000
Compensation expense for stock options 2,110,236 2,110,236
Foreign exchange 2,610 3,888 (852)
Change in operating assets and liabilities:
Accrued interest and other receivable (6,542) (6,542)
Prepaid expenses (48,364) (39,251) 23,403)
Deposit (8,279) 8,721 (7,750)
Organization costs 300 16,475 (14,925)
Accounts payable 111,534 108,687
Accrued liabilities 27,000 26,516 484
----------------- ---------------- ---------------
Net cash used in operating activities (1,729,942) (1,620,467) (86,401)
----------------- ---------------- ---------------
Cash flows from investing activities:
Proceeds from sale of portfolio investments 216,764 58,970 137,652
Purchases of portfolio investments (290,207) (47,129) (175,302)
Software development costs (353,776) (353,776)
Purchases of equipment (183,083) (179,434) (3,649)
Mineral property rights (6,819) (6,819)
----------------- ---------------- ---------------
Net cash used in investing activities (617,121) (521,369) (48,118)
----------------- ---------------- ---------------
Cash flows from financing activities:
Proceeds from issuance of common stock 3,893,294 3,632,535 169,472
Share issuance costs (124,187) (98,000) (19,687)
----------------- ---------------- ---------------
Net cash provided by financing activities 3,774,107 3,534,535 149,785
----------------- ---------------- ---------------
Net change in cash and cash equivalents $ 1,427,044 1,392,699 15,266
=================
Cash and cash equivalents at beginning of period 34,345
---------------- ---------------
Cash and cash equivalents at end of period $ 1,427,044 $ 15,266
================ ===============
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 395 $ $ 321
Non cash investing and financing activities:
Issuance of common stock for compensation $ 1,339,000 $ 1,339,000 $
Compensation expense for stock options $ 2,110,236 $ 2,110,236 $
</TABLE>
The accompanying Notes to Financial Statements are an integral part of
these financial statements.
F-7
<PAGE>
SportsPrize Entertainment Inc.
(formerly Kodiak Graphics Company)
(A Development Stage Company)
Notes To Consolidated Financial Statements
November 30, 1999
1. Presentation of Interim Consolidated Financial Information
The accompanying unaudited interim consolidated financial statements
have been prepared by SportsPrize Entertainment Inc., and its
subsidiary, SportsPrize Inc., in conformity with generally accepted
accounting principles for interim financial information and with the
rules and regulations of the U.S. Securities and Exchange Commission.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such
regulations. The unaudited interim consolidated financial statements
reflect all normal, recurring adjustments and disclosures, which are,
in the opinion of management, necessary for a fair presentation. The
results of operations for the interim period are not necessarily
indicative of the results to be expected for the full year.
2. Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amount of assets and
liabilities, disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amount of revenue and
expenses during the year. Actual results could differ from these
estimates.
Cash and Cash Equivalents
Cash and cash equivalents include highly liquid investments with
original maturities of three months or less.
Accounting for Stock Options
In October 1995, the FASB issued "Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation" ("SFAS No.
123"), which requires entities to calculate the fair value of stock
awards granted to employees. This statement provides entities with the
option of either electing to expense the fair value of employee
stock-based compensation or continue to recognize compensation expense
under previously existing accounting pronouncements and provide pro
forma disclosures of net income and, if presented, earnings per share,
as if the above-referenced fair value method of accounting was used in
determining compensation expense. However, pro forma disclosures are
not required for interim statements.
The Company accounts for stock-based employee compensation
arrangements in accordance with Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" ("APB No. 25"). The
Company has included the additional disclosures about stock-based
employee compensation plans required by SFAS No. 123 in these interim
financial statements.
Stock options issued to non-employees are recorded at the fair value of
the services received or the fair value of the options issued,
whichever is more reliably measurable. Compensation is charged to
expense over the shorter of the service or vesting period. Unearned
amounts are shown as deferred compensation in shareholders' equity.
F-8
<PAGE>
SportsPrize Entertainment Inc.
(formerly Kodiak Graphics Company)
(A Development Stage Company)
Notes To Consolidated Financial Statements
November 30, 1999
3. Change in Accounting Principle
The Company adopted AICPA Statement of Position 98-5, Reporting on the
Costs of Start-up Activities, in the first quarter of fiscal 2000. The
SOP requires the Company to expense start-up costs as incurred. On
adoption, the Company was required to write-off as a cumulative effect
of a change in accounting principle all previously capitalized
organization costs. The cumulative effect of adopting SOP 98-5 was to
increase the loss for the period by $13,475 net of Federal State, and
local tax benefits, which were zero because realization of those
benefits was not assured.
4. Portfolio Investments
All marketable securities were reclassified from the category
"Available for Sale" to "Trading Securities". There were no unrealized
gains or losses recorded as of the reclassification date. Therefore,
there was no accounting impact on the Statements of Loss. Any
unrealized gains and losses are reported in earnings. Realized gains
and losses are recorded by using the specific identification method.
5. Re-capitalization
Kodiak Graphics Company, a Nevada corporation, ("Kodiak Graphics"),
entered into a merger agreement to acquire all the outstanding common
stock of SportsPrize Inc., a Nevada corporation, in a transaction
described for legal purposes as a reverse merger. The merger became
effective on May 14, 1999. The surviving entity, Kodiak Graphics,
changed its name to SportsPrize Entertainment Inc. The transaction has
been treated as a re-capitalization of SportsPrize Inc.
For reporting purposes, the historical information disclosed in the
financial statements of SportsPrize Entertainment Inc. is that of
SportsPrize Inc., the accounting acquirer. However, the capital
structure is that of the legal acquirer, Kodiak Graphics. All shares
listed in the Statement of Stockholders' Equity prior to the reverse
merger represent those of SportsPrize Inc., and have been converted at
the conversion rate described below.
Immediately prior to the merger, Kodiak Graphics was a non-operating
shell with no net assets and 7,564,000 shares of common stock
outstanding. As part of the re-capitalization, Kodiak Graphics issued
an additional 9,999,709 shares in exchange for all of the shares of
SportsPrize Inc. (5,804,000) at a conversion rate of 1.7229 shares of
Kodiak Graphics for each share of SportsPrize Inc. Approximately 57% of
the shares outstanding in SportsPrize Entertainment Inc. were held by
the former shareholders of SportsPrize Inc. immediately following the
transaction.
F-9
<PAGE>
SportsPrize Entertainment Inc.
(formerly Kodiak Graphics Company)
(A Development Stage Company)
Notes To Consolidated Financial Statements
November 30, 1999
6. Stockholders' Equity
Common Stock
The Company's Articles of Incorporation authorize the issuance of up to
100,000,000 shares of Common Stock, $0.001 par value per share, of
which 19,480,374 shares were outstanding as of November 30, 1999.
Holders of shares of Common Stock are entitled to one vote for each
share on all matters to be voted on by the stockholders. Holders of
Common Stock have no cumulative voting rights. Holders of shares of
Common Stock are entitled to share ratably in dividends, if any, as may
be declared from time to time by the Board of Directors, from funds
legally available. In the event of liquidation, dissolution or winding
up of the Company, the holders of shares of Common Stock are entitled
to share pro rata all assets remaining after payment in full of all
liabilities. Holders of Common Stock have no preemptive rights to
purchase the Company's Common Stock. All of the outstanding shares of
Common Stock are fully paid and non-assessable.
On March 1, 1999, the Company executed agreements to issue 650,000
shares of common stock to employees and 200,000 shares of common stock
to an outside consultant for services. The total compensation expense
recorded for these transactions was $212,500. The value was based on
equivalent shares issued in conjunction with a private placement
financing occurring in the same period. The shares were subsequently
converted into 1,464,465 shares based on the exchange rate of 1.7229 in
connection with the aforementioned reverse merger (Note 5).
On May 6, 1999, the Company executed a strategic marketing and
consulting agreement with Interactive Marketing Inc. ("IMI"). IMI
agreed to provide overall strategic and tactical marketing as well as
operational strategy. In exchange for services, IMI received fully
vested, non-cancelable options to purchase 400,000 shares of
SportsPrize Entertainment Inc. unregistered Common Stock, which was
previously issued to various founders of the Company. IMI can exercise
these options upon demand for a period of up to one year. The founders,
upon signing the contract with IMI, placed the stock in escrow.
The Company accounted for the transaction as a contribution of capital
by the founders and recorded $596,000 of compensation expense because
the services were being performed in the current period. The options
were valued at $1.50 per share using the Black-Scholes model, which
assumed a $0.01 grant price, a 4.79% risk free rate, 30% volatility and
an expected life of one year.
In November 1999, IMI received additional fully vested, non-cancelable
options to purchase 200,000 shares of SportsPrize Entertainment Inc.
unregistered Common Stock, which were previously issued to various
founders of the Company. IMI can exercise these options upon demand for
a period of one year. Consequently, in November 1999, the Company
recorded $523,000 of compensation expense in connection with the
continuation of the IMI agreement. The Company accounted for the
transaction as a contribution of capital by the founders. The options
were valued at $2.62 per share using the Black-Scholes model, which
assumed a $0.01 grant price, a 4.79% risk free rate, 30% volatility and
an expected life of one year.
F-10
<PAGE>
SportsPrize Entertainment Inc.
(formerly Kodiak Graphics Company)
(A Development Stage Company)
Notes To Consolidated Financial Statements
November 30, 1999
7. Earnings Per Share
The Company adopted Statement of Financial Accounting Standard No. 128,
"Earnings Per Share". Basic earnings per share are based on the
weighted effect of all common shares issued and outstanding. The
following table sets forth the computation of basic and diluted
earnings per share for the nine months ended November 30, 1999, and the
period ended November 30, 1998.
<TABLE>
<CAPTION>
November 30, 1999 November 30, 1998
<S> <C> <C>
Numerator:
Numerator for basic and diluted
earnings per share - net loss ($5,184,029) ($104,390)
Denominator:
Denominator for basic and diluted
earnings per share - weighted
average shares outstanding 16,698,029 3,518,647
</TABLE>
Options to purchase 3,077,000 shares of common stock ranging from $0.25
- $2.00 a share were outstanding at November 30, 1999. Such options
were not included in the computation of diluted earnings per share
because they were antidilutive.
8. Stock Options and Warrants
The Company established a stock option plan effective June 21, 1999,
and amended it October 6, 1999. The plan originally allowed issuance of
up to 3,000,000 shares of our common stock as incentive stock options
to our current and future key employees and consultants. The amended
plan increased the options issuable to 6,000,000. The Board of
Directors or a committee of two or more outside directors on the Board
administers the Plan. The Board of Directors has the authority to
determine the terms and restrictions on all options, as well as to
construe and interpret any provision of the Plan.
The options can be granted for periods up to ten years, or five years
for ISO's (Incentive Stock Options) granted to optionees possessing
more than 10% of the total combined voting power of all classes of
stock. Unless extended by the Plan administrators, the right to
exercise an option terminates 90 days after the termination of an
optionee's relationship with the Company. If the optionee dies or
becomes disabled, the option will remain exercisable for one year.
The Company accounts for its stock option plan in accordance with the
provisions of APB Opinion No. 25, "Accounting for Stock Issued to
Employees".
The fair value of each option grant was estimated at the grant date
using the Black-Scholes option - pricing model for the period from
inception, March 6, 1998 to November 30, 1999, assuming a risk-free
interest rate ranging from 5.27% to 5.6%, volatility of 30%, zero
dividend yield, and an expected life of two to three years.
F-11
<PAGE>
SportsPrize Entertainment Inc.
(formerly Kodiak Graphics Company)
(A Development Stage Company)
Notes To Consolidated Financial Statements
November 30, 1999
8. Stock Options and Warrants (Continued)
The Black-Scholes option valuation method was developed for use in
estimating the fair value of traded options and warrants which have no
vesting restrictions and are fully transferable. In addition, option
valuation models require the input of highly subjective assumptions,
including the expected stock price volatility. Because the Company's
employee stock options and warrants have characteristics significantly
different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value
estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its
employee stock options.
9. Contingencies
All shares in escrow to Quad-Linq and certain individuals have been
distributed and recorded at fair market value. These shares were
converted at 1.7229 shares of Kodiak Graphics Company for each share of
SportsPrize Entertainment Inc., upon the merger of the Companies.
On May 12, 1999, the Company negotiated an addendum to the original
agreement with Quad-Linq Software Inc. Under this addendum, the Company
paid an additional $90,000 to Quad-Linq when the product was completed
and ready for testing. The Company is also paying Quad-Linq, at their
contracted rates, for any additional software development and
programming services not covered under the agreements. Through November
30, 1999, the Company has paid an additional $71,920 in connection with
this agreement.
Pursuant to an agreement dated May 6, 1999, with Interactive Marketing,
Inc. ("IMI"), who agreed to provide strategic, marketing and other
consulting services, the Company committed to the following:
* Cash payments totaling $165,000.
* 15% royalties on net revenues that Interactive Marketing,
Inc. materially participates in developing on behalf of the
Company.
Additional cash payments of $180,000 may be due under the extension
provisions of this agreement. As of November 30, 1999, an additional
$15,000 had been paid in connection with this agreement. In January
2000, IMI exercised the 600,000 options to purchase founders shares
earned in connection with this agreement.
A total of 300,000 stock options granted to certain employees may vest
at a future date. 150,000 of these options were issued at a price of
$0.50, and 150,000 options were issued at $2.00. These options expire
in August 2004. The options are contingent upon events not certain to
occur, and beyond the control of the Company, thus no compensation
expense has been recorded. Any compensation expense will be recognized
upon vesting of these options, and will be accounted for in accordance
with the provisions of APB No. 25, "Accounting for Stock Issued to
Employees":
10. Subsequent Event
On December 20, 1999, the Company became a fully reporting company
under the U.S. Securities Exchange Act of 1934, as amended, when its
Registration Statement on Form 10 automatically became effective. On
January 14, 2000, the U.S. Securities and Exchange Commission reached a
position of no further comment regarding the Company's Form 10.
F-12
<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
This Report contains forward-looking statements within the meaning of the
Private Securities Litigation Act of 1995. Any statements that express or
involve discussions with respect to predictions, expectations, beliefs, plans,
objectives, assumptions or future events or performance (often, but not always,
using words and phrases such as "expects," "believe," "believes," "plans,"
"anticipate," "anticipates," "is anticipated," or stating that certain actions,
events or results "will," "may," "should," or "can" be taken, occur or be
achieved) are not statements of historical fact and may be "forward-looking
statements." Forward-looking statements are based on expectations, estimates and
projections at the time the statements are made that involve a number of risks
and uncertainties which could cause actual results or events to differ
materially from those anticipated by us. 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 our 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 other risks and uncertainties discussed herein and those detailed in
our other Securities and Exchange Commission filings, including our Amended
Registration Statement on Form 10 filed on January 13, 2000. Investors are
cautioned not to place undue reliance on these forward-looking statements, which
reflect management's analysis as of the date hereof. 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.
General Overview
We, SportsPrize Entertainment Inc., intend to engage 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 primary components on our Web site: (i)
sports content, (ii) the SportsPrize Tournament and (iii) sports oriented
e-commerce.
Content: We plan to offer the following sports content:
-------
* Sporting news feeds;
* Articles and sports commentary;
* Interviews with players, coaches and sports commentators;
* Player and team profiles;
* Team schedules and information;
* Ticket and sporting events information;
* Chat rooms and message boards; and
* Email.
1
<PAGE>
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, periodic
tournament whereby participants answer weekly questions and accumulate
points to win a wide variety of prizes and awards, as well as discounts
on merchandise within our SportsPrize e-commerce 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 content and information
with the communication and marketing capabilities of the Internet. We
will 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.
Beginning in the first quarter 2000, visitors will be able to purchase
and sell merchandise on our SportsPrize Auction site.
Based on our research, we do not believe that currently there are any
sports-oriented Web sites that provide all of these components integrated into
one comprehensive Web site. We believe that we will have a competitive
advantage in the marketplace by being first-to-the-market with a unique,
multi-faceted Web site offering compelling sports content, our SportsPrize
Tournament, and a comprehensive e-commerce program to our visitors, all at one
destination 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:
* Selling advertising and sponsorships on our Web site;
* Selling merchandise through our virtual SportsPrize e-commerce
shopping venues;
* Receiving transaction fees through sales on our SportsPrize
Auction site; and
* Other marketing programs.
We launched the initial version of our SportsPrize.com(TM) Web site on November
8, 1999. Visitors to our SportsPrize.com(TM) Web site can play our
SportsPrize.com(TM) Tournament, access sports-related information and purchase
sports-related merchandise. We are currently in the process of refining our Web
site software and the technology related to our SportsPrize.com(TM) Web site. We
cannot guarantee that our Web site will be commercially successful as planned or
that we will earn any profits from our operations.
We currently have relationships with DBC Sports to provide our sports content
and statistical information, ShopSports.com to provide merchandise and related
order fulfillment services, and Dream Products, Inc. to provide sports-related
memorabilia and related order fulfillment services.
We recently have established relationships with Boomer Esiason and Michael
Buffer, who have agreed to serve on our Sports Advisory Board and to assist us
in developing and promoting our SportsPrize(TM) Web site by providing Web site
content, promotional appearances, and other promotional services. We are
currently in the process of attempting to establish 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, ShopSports.com
or Dream Products, Inc or the members of our Sports Advisory Board or that we
will enter into any new relationships with other vendors, athletes, content
providers or advertisers.
We intend to compete in the highly competitive Internet commerce industry. Many
of our competitors have substantially greater financial, technical and other
resources than us. 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.
2
<PAGE>
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 Form 10-Q.
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
November 30, 1999 November 30, 1999
--------------------------- -------------------------
$ $
--------------------------- -------------------------
<S> <C> <C>
Net Sales - -
Gross Profit - -
Total Operating Expenses 5,223,175 1,828,372
Net Loss ($5,184,029) ($1,807,015)
Net Loss per Share ($0.31) ($0.09)
</TABLE>
<TABLE>
<CAPTION>
At At
November 30, 1999 February 28, 1999
--------------------------- --------------------------
$ $
--------------------------- --------------------------
<S> <C> <C>
Working Capital 1,358,551 66,477
Total Assets 2,038,147 103,202
Total Liabilities 138,534 3,331
Shareholders' Equity 1,899,013 99,871
Long-term Obligations - -
Cash Dividends - -
</TABLE>
Management's Discussion and Analysis
In May 1999, we completed a statutory share exchange with SportsPrize Inc.
pursuant to the laws of the State of Nevada. With our acquisition of SportsPrize
Inc., we have implemented a new business strategy and plan, which is building a
sports-based entertainment company dedicated to creating an interactive
community on the Internet. Through our Web site, SportsPrize.com(TM), we intend
to provide a multi-faceted online sports entertainment community. We believe one
of the featured attractions will be the SportsPrize Tournament, a proprietary,
interactive sports game we developed to generate interest in our Web site. We
also intend to focus on retailing sports equipment, apparel, memorabilia and
other products through our various stores on our Web site.
At the time of the share exchange, we were a shell company with no revenues,
expenses, assets or liabilities, and our book value was $1,440, which was
written down to zero at the time of the share exchange. As a result of the share
exchange, all of the assets of SportsPrize Inc. became our assets, and our
historical and ongoing operations are deemed to be those of SportsPrize Inc. for
accounting purposes. Accordingly, we have presented our interim
3
<PAGE>
consolidated financial information for the three month period ended November 30,
1999 and the nine month period ended November 30, 1999.
Results of Operations
The following is a discussion of our operations for the three months ended
November 30, 1999 and the period from inception, March 6, 1998 to November 30,
1999 (unaudited). This discussion should be read in conjunction with the
consolidated financial statements appearing elsewhere in this Report on Form
10-Q, as well as information presented in our Registration Statement on Form 10
for the period from inception, March 6, 1998 to August 31, 1999.
Three Month Period Ended November 30, 1999
We are a development stage company and had no revenue from our operations during
the three month period ended November 30, 1999. We incurred total net losses for
the three months ended November 30, 1999 of $1,807,015, resulting primarily from
operating expenses of $1,828,372. A substantial portion of our operating
expenses were comprised of compensation expenses and consulting costs of
$1,526,865 including cash compensation expenses of $532,893 and non-cash
compensation expenses of $993,972 related to stock grants and stock option
grants. Other significant operating expenses included professional fees of
$92,633, travel expenses of $58,905 and marketing expenses of $43,851. We
anticipate that our total operating expenses, and resulting operating losses,
will continue to grow during calendar 2000 as a result of anticipated increases
in expenses associated with developing, marketing and promoting our Web site.
We generated interest income of $21,477 during the three months ended November
30, 1999.
Nine Month Period Ended November 30, 1999
During the nine month period ended November 30, 1999, we began our first period
of material operations with our Internet-related business plan. We had no
revenue during this period. Our total net loss of $5,184,029 during the nine
month period ended November 30, 1999, resulted primarily from operating expenses
of $5,223,175 during this period. A substantial portion of our operating
expenses were comprised of compensation expenses and consulting costs of
$4,434,009, including cash compensation expenses of $985,479, and non-cash
compensation expenses of $3,448,530 related to stock grants and stock option
grants.
Our legal and audit costs were $214,202 during the period resulting primarily
from our efforts to file a Registration Statement on Form 10 with the Securities
and Exchange Commission and for fees related to our acquisition of SportsPrize
Inc. (formerly SportsPrize Entertainment, Inc., formerly Beagle Venture
Resources Management, Ltd.), our wholly owned subsidiary. We also incurred
$164,156 of marketing costs and $126,708 of travel expenses. We expect our
general and administrative expenses to continue to be a material component of
our total expenses during the start-up phase of our development. During the
second half of our fiscal year 2000, sales and marketing costs will become the
largest component of our expenses.
We generated interest income of $48,999 for the nine months ended November 30,
1999.
Liquidity and Capital Resources
During the nine months ended November 30, 1999, we raised approximately $3.6
million in capital to finance our business. From March 1 to April 30, 1999, we
raised $132,537 through various private placements at a price of $0.25 per
share. Since our share exchange with SportsPrize Inc. on May 14, 1999, we raised
a total of $3,500,000 (less finder's fees of $98,000) by completing two private
placements. One private placement in May ($2,500,000), was completed at $1.50
per share, and the other private placement in July ($1,000,000) was completed at
$4.00 per share. No financing transactions were completed during the three month
period ended November 30, 1999.
During the nine month period ended November 30, 1999, we used cash of $1,620,467
for operating activities; $353,776 for software development; and $179,434 for
equipment.
4
<PAGE>
We had $1,358,551 of working capital at November 30, 1999. With current monthly
working capital requirements of approximately $250,000 to $350,000, we will
require significant additional capital to fully execute our plan of operation
through calendar year 2000.
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 operating budget for our business as well as for our administration and
marketing for the 12 months ending August 31, 2000 is set forth below.
Summary of Plan of Operation
The following is a summary of our corporate plan of operation through August 31,
2000. During the six month period ending February 29, 2000, the primary focus of
the plan has been to develop and launch our Web site and build the necessary
infrastructure to operate and market the site. We launched the initial version
of our Web site on November 8, 1999, and upgraded our Web site on December 29,
1999. In the first fiscal quarter of 2000, we plan to implement a major
marketing program to build the SportsPrize brand as well as the Web site
Membership. We also will continue developing and enhancing the Web site during
this period. During our first two fiscal quarters ending August 31, 2000, we
intend to allocate up to 55% 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.
Beginning in the first calendar quarter of 2000, 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-commerce 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 Operating Budget
Our operating budget for our plan of operation is estimated to be approximately
$14,850,000 for the period beginning September 1, 1999 and ending August 31,
2000. See "Note Regarding Forward Looking Statements." Our projected operating
budget is as follows:
5
<PAGE>
<TABLE>
<CAPTION>
9/1/99 to 3/1/00 to
2/29/00 8/31/00 Total
<S> <C> <C> <C>
Operating Expenses:
Financing Fees and Costs $ 100,000 $ 750,000 $ 850,000
Content Costs 250,000 500,000 750,000
General and Administrative 1,500,000 3,500,000 5,000,000
Marketing 150,000 6,000,000 6,150,000
------- --------- ---------
Total Operating Expenses $2,000,000 $ 10,750,000 $ 12,750,000
---------- ------------ ------------
Capital Expenditures:
Web Site Equipment/Software $ 250,000 $ 250,000 $ 500,000
Web Site Design/Development 250,000 500,000 750,000
Office Equipment/Software 250,000 250,000 500,000
Other 100,000 250,000 350,000
------- ------- -------
Total Capital Expenditures $ 850,000 $ 1,250,000 $ 2,100,000
--------- ----------- -----------
Total Capital Required $2,850,000 $12,000,000 $14,850,000
========== =========== ===========
</TABLE>
As of November 30, 1999, we had $1,427,044 in cash and cash equivalents.
Our current working capital requirements are approximately $250,000 to $350,000
per month. Once we are fully staffed, our working capital requirements related
to financing fees and costs, content costs, and general and administrative
expenses are anticipated to increase to approximately $800,000 per month during
the period from March 1, 2000 to August 31, 2000. Our working capital
requirements related to marketing expenses are anticipated to increase to
approximately $1,000,000 per month during the period from March 1, 2000 to
August 31, 2000, provided we are able to obtain sufficient financing to
implement our marketing program. We also anticipate that we will invest
approximately $200,000 per month for capital expenditures including Web site
equipment and software, Web site design and development and office equipment.
We anticipate we will need to raise approximately $12,000,000 to meet our
projected Operating Budget requirements for content development, general and
administrative expenses, as well as marketing costs through the second fiscal
quarter of 2000. We intend to complete 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
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 our SportsPrize Web site and concentrate our
resources on selling advertising and sponsorships and developing the
technologies related to our SportsPrize Web site and the SportsPrize Tournament.
We have the following material financial obligations to fulfillment vendors,
software systems developers, Internet access providers and marketing
communications providers:
Vendor Obligation
- ------------------------------------ -----------------------------
Quad-Linq $15,000 to $25,000 per month
Interactive Marketing $30,000 per month
Kaleidoscope $10,000 per month through
December 1999
DBC Sports $15,000 per month from
December 1, 1999 to March 1,
2000; and $20,000 per month
from April 1, 2000 to
termination
Tridian $15,000 to $20,000
Frontier $2,000 to $5,000 per month
ShopSports.com $14,800
Focus Partners $6,000 per month
Office Lease Agreements $10,000 per month
In addition to these material commitments, we have agreements with our employees
and consultants, which require
6
<PAGE>
us to make monthly payments totaling approximately $110,000 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.
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.
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.
Issuance of Common Shares
We did not issue any shares of common stock during the third quarter ended
November 30, 1999.
Stock Options Granted
We adopted a stock option plan and authorized the issuance of up to 3,000,000
shares of our common stock as incentive stock options to our current and future
key employees and consultants on June 21, 1999. The Board of Directors approved
an amendment to the plan to increase the number of shares issuable under the
plan to 6,000,000, and our shareholders ratified the plan and approved the
amendments at our annual shareholders meeting held on October 6, 1999. As of
February 3, 2000, we granted options to acquire 3,077,000 common shares. A
summary of the principal features of the 1999 Plan is included in our Amended
Registration Statement on Form 10 filed with the
7
<PAGE>
Securities and Exchange Commission on January 13, 2000. During the three month
period ended November 30, 1999, we granted options to acquire 772,000 shares of
common stock under our 1999 Plan.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
27.1 Financial Data Schedule.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the period.
8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Form 10-Q, for the period ended November 30,
1999, to be signed on its behalf by the duly authorized undersigned.
SportsPrize Entertainment Inc.
February 3, 2000 /s/ Bruce R. Cameron
- --------------------------- ---------------------------------------
(Date) Bruce R. Cameron, President and CFO
9
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> Feb-28-1999
<PERIOD-END> Nov-30-1999
<CASH> 1,427,044
<SECURITIES> 15,135
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,497,085
<PP&E> 0
<DEPRECIATION> (4,076)
<TOTAL-ASSETS> 2,038,147
<CURRENT-LIABILITIES> 138,534
<BONDS> 0
0
0
<COMMON> 19,480
<OTHER-SE> 8,189,013
<TOTAL-LIABILITY-AND-EQUITY> 2,038,147
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 5,223,175
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,148,029)
<EPS-BASIC> (.31)
<EPS-DILUTED> (.31)
</TABLE>
