Back to GetFilings.com

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

FOR ANNUAL AND TRANSITION REPORTS

PURSUANT TO SECTIONS 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

(Mark One)

For the fiscal year ended: December 31, 2003

OR

For the transition period from              to             

Commission file number: 0-23337

SPORTSLINE.COM, INC.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: (954) 489-4000

Securities registered pursuant to Section 12(b) of the Act: NONE

Securities registered pursuant to Section 12(g) of the Act:

Common Stock (par value $.01 per share)

(Title of Class)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    x

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).    Yes  ¨    No  x

The aggregate market value of shares of Common Stock held by non-affiliates of the Registrant as of June 30, 2003, the last trading day of the Registrant’s most recently completed second fiscal quarter, was $49,493,464 based on the $2.10 closing price for the Common Stock on The Nasdaq National Market on such date. For purposes of this computation, all executive officers, directors and greater than 10% stockholders of the Registrant have been deemed to be affiliates. Such determination should not be deemed to be an admission that such officers, directors and/or stockholders are, in fact, affiliates of the registrant.

The number of shares of Common Stock of the registrant outstanding as of March 8, 2004 was 42,765,076.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive Proxy Statement relating to its 2004 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission not later than 120 days after the end of the fiscal year covered by this report, are incorporated by reference into Part III of this report.

Table of Contents

Index to Items

2

Table of Contents

PART I

Item 1. Business.

Certain statements contained in this Annual Report on Form 10-K, including, without limitation, statements containing the words “believes,” “anticipates,” “estimates,” “expects,” and words of similar import, constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Readers are referred to the “Risk Factors” section of the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained herein, which identifies important risk factors that could cause actual results to differ materially from those contained in the forward looking statements.

SportsLine.com, Inc. publishes one of the most comprehensive collections of multimedia sports news and information available on the Internet and offers consumers a broad assortment of merchandise and subscription and premium services, including fantasy leagues and contests. We offer advertisers the opportunity to reach our audience through marketing solutions that include sponsorships, advertising and direct marketing services.

We have established a number of important strategic relationships to increase awareness of the SportsLine.com brand, build traffic to our Web sites and develop proprietary programming. Our most important strategic relationships are with CBS Broadcasting Inc., the National Football League, the National Collegiate Athletic Association, The PGA TOUR and Westwood One. See “– Strategic Relationships” for a summary of each of these arrangements.

As used herein, “SportsLine.com,” “we,” “our,” and similar terms include SportsLine.com, Inc. and its subsidiaries, unless the context indicates otherwise.

Sports Information, Programming and Distribution

SportsLine.com offers a broad range of sports-related information and programming, which we deliver through our network of Web sites, wireless devices and radio.

3

Table of Contents

Web Sites

CBS Sportsline.com, our flagship Web site, features comprehensive, in-depth coverage of all major professional and college sports on a domestic and international basis. The CBS SportsLine.com Web site offers fantasy sports products for all major sports including NFL, MLB, NBA, NHL, PGA Tour and NASCAR.

NFL.com, which we produce in association with the NFL and in partnership with AOL and CBS, is the league’s official Web site and the anchor of the NFL Internet Network, which includes NFL.com, the 32 NFL team Web sites and other related Web sites, including superbowl.com, playfootball.com and nfleurope.com. The NFL.com site delivers complete coverage of the NFL and its players with state-of-the-art technology, live scoring and play-by-play, audio and video streaming from NFL Films and a fantasy football product suite. Additionally, the site provides access to the teams and players with behind-the-scenes features, news and analysis.

PGATOUR.com, which we produce in association with the PGA TOUR, is a comprehensive golf site that offers the only full leaderboard real-time scoring on the Internet from the PGA TOUR, CHAMPIONS TOUR and NATIONWIDE TOUR events. The site also features news covering other golf organizations and international tours. Additionally, the pgatour.com site focuses on recreational golf, travel opportunities and golf instruction and features a variety of interactive tools such as course guides and reviews. The site also contains exclusive features such as Live@17, a video transmission of one hole of a PGA TOUR tournament; and “TOURCast,” which allows users to view specific details such as distance and location of each shot of every golfer in a tournament. The pgatour.com site also features the PGA TOUR SHOP, the official online pro shop of the PGA TOUR offering a complete line of golf equipment, accessories, apparel and other products, including PGA TOUR branded merchandise. The site also incorporates our golfweb.com site, which provides golf-related content, interactive entertainment, membership services, golf course discounts and merchandise.

NCAAsports.com, which we produce pursuant to a sublicense of rights from CBS, is the official Web site of NCAA championship events. The NCAAsports.com site features in-depth coverage of all championship events administered by the NCAA and a vast array of year-round content including student-athlete features, standings, stats, brackets, event results and on-site championship information, including tickets, local events and activities.

MVP.com is a state-of-the-art comprehensive sports-oriented retail Web site that offers consumers the opportunity to purchase thousands of licensed products, memorabilia and sporting goods.

Wireless Distribution

Portions of our content are available to wireless users of digital cellular phones, Web enabled cellular phones and personal digital assistant devices. Users opt in for notifications to their device of NBA, NCAA basketball, NCAA football, NFL, NHL, MLB, golf, auto racing and tennis scoring and headline alerts. We also produce content specifically for Web enabled cellular phones and PDAs, such as headlines, scores, injuries, transactions, standings and schedules for the sports previously mentioned, as well as auto racing. We provide our

4

Table of Contents

fantasy users with the ability to receive various short message service notifications on their wireless devices, such as player updates, a lineup reminder, and various league transactions and to access live scoring, schedules, and statistics via a WAP-enabled device.

Radio Programming

We had three radio programs in syndication as of December 31, 2003 in partnership with Westwood One: “NFL Today,” “NFL Sunday” and “Fantasy Football Forecast.” Each of these programs is broadcast in approximately 175 markets.

Strategic Relationships

We have established a number of strategic relationships to provide marketing, e-commerce and cross-promotional opportunities, to increase consumer awareness of our brands, to build traffic and/or to obtain exclusive sports content on our Web sites. Our most important strategic relationships are the following:

CBS. We entered into a strategic alliance with CBS in March 1997 pursuant to which our flagship Web site was renamed “CBS SportsLine.com.” The term of our agreement with CBS, as subsequently amended, runs through 2006. The agreement provides for CBS SportsLine.com to receive extensive network television advertising and on-air promotion, primarily during CBS television sports broadcasts of events such as the NFL, the NCAA Division I Men’s Basketball Championship, NCAA Football, PGA TOUR events and U.S. Open tennis, as well as certain other benefits. In addition, we are able to use certain CBS logos and television-related sports content on CBS SportsLine.com and in connection with the operation and promotion of that Web site. We seek to maximize our advertising sales revenue through joint advertising sales efforts with CBS.

PGA TOUR. We entered into an exclusive agreement with the PGA TOUR in April 1999 to co-produce a comprehensive golf site providing real-time scoring, golf news and information regarding recreational golf, travel opportunities and golf instruction. We also pooled our resources with those of The PGA Tour to develop sales and sponsorship opportunities and share revenues from the site. In October 2003, we entered into a new agreement that extends this relationship through 2007, although the PGA TOUR has a unilateral termination right at the end of 2006.

NFL. We entered a four-party, multi-year agreement in July 2001 with NFL Enterprises, L.P., CBS and AOL encompassing a wide-range of initiatives, including the production and hosting by us of NFL.com, the most popular sports league Web site. We were given the designation of “official online sports partner of the NFL” and the right to use official NFL marks and logos and other league assets in our marketing efforts. Our CBS SportsLine.com site is prominently promoted on the NFL Internet Network, and receives selected NFL content for use on CBS SportsLine.com, including four video clips a week, an audio game of the week, contests and sweepstakes.

We manage media sales and direct marketing services for NFL.com and related sites. In addition to producing NFL.com, we also produce other NFL-related sites, such as superbowl.com, playfootball.com, and nfleurope.com, as well as the official fantasy football games for the sites. We also host and sell certain NFL content, such as NFL Films video, within the team sites. SportsLine.com, the NFL, CBS and AOL have also agreed to jointly explore a range of potential new business ventures in technology-based media.

NCAA. We entered into an agreement in February 2003 with CBS whereby SportsLine.com sublicensed the rights for the official NCAA Championship Web site, in their entirety, through 2006. These rights include site production, hosting and management of the sale of advertising for NCAAsports.com, and the exclusive rights to provide Internet broadcasts of certain NCAA championships including the Division I Men’s Basketball Championship. CBS received the NCAA’s Internet rights, beginning in 2003, as part of its long-term arrangement with the NCAA that includes coverage of the Division I Men’s Basketball Championship and approximately 65 other championships, as well as radio, corporate marketing, licensing, publishing and special events rights.

GSI Commerce, Inc. We entered into an e-commerce relationship with GSI Commerce, Inc. in July 2002 under which GSI was named the exclusive operator of our online store, operated under the MVP.com brand name. Under the five-year agreement, GSI manages certain components of the store, including customer service, order processing and fulfillment. We oversee the merchandising and marketing of the store.

Amazon.com. We announced a strategic alliance with Amazon.com in September 2003 pursuant to which we supply merchandise in the Amazon.com Sporting Goods store. Among the product categories we supply for the

5

Table of Contents

Amazon.com Sporting Goods store are licensed merchandise, memorabilia, fitness, tennis and outdoor. We also supply a variety of men’s, women’s and children’s apparel for both the Sporting Goods store and Amazon.com’s Apparel and Accessories store.

Westwood One. We entered into a three-year agreement with Westwood One in August 1999. Under this agreement, we produce sports content for Westwood One/CBS Radio Sports’ coverage of live sporting events. In addition, Westwood One syndicates our radio programs (“NFL Today”, “NFL Sunday” and “Fantasy Football Forecast”). In August 2002, we extended this agreement with Westwood One through July 2005.

Advertising and Marketing Services

We believe that the demographics of our audience are similar to the traditional sports advertisers’ target market. Based on our market research, users of SportsLine.com’s United States-targeted Web sites are predominantly male, 73% of all users are between the ages of 25 to 54, 73% have attended college and 46% have an annual income greater than $75,000.

A substantial portion of our revenue is generated from the sale of advertising on our Web sites. We sell sponsorship opportunities that enable advertisers to associate their corporate messages with our coverage of athletes and marquee events (such as the Super Bowl, the NCAA Division I Men’s Basketball Championship, tennis and golf’s major events, the NBA playoffs and the Stanley Cup playoffs), our fantasy sports products, special features of our Web sites (such as GameCenters and live scoring applications) and special promotions, contests and events. We also sell “banner” advertisements that allow interested readers to link directly to the advertisers’ own Web sites or to promotional sites we have created. SportsLine.com targets as advertisers on our Web sites traditional sports advertisers, such as consumer product and service companies, technology companies, sporting goods manufacturers and automobile companies.

Advertising revenue is generally derived from short-term advertising agreements that combine sponsorship opportunities with the traditional Internet media-type of advertising consisting of banner, pop-ups and superstitials advertising. These agreements usually have estimates or guarantees regarding the numbers of impressions that we will provide to our client. To enable advertisers to verify the number of impressions received by their advertisements and monitor their advertisements’ effectiveness, we provide our advertisers with third-party audit reports showing data on impressions received by their advertisements.

We have developed database marketing capabilities to offer our advertisers more targeted means to reach sports fans. We developed our direct marketing database using information we obtain from users of our web sites who register for fantasy products, memberships, contests and other products and services. We had over 10 million registered users as of December 31, 2003. Current programs in place include direct e-mail campaigns as well as cost-per-lead-generation campaigns that are promoted on registration pages.

Our in-house sales staff develops and implements our advertising strategies, including identifying strategic accounts and developing presentations and promotional materials. We have sales personnel located in Fort Lauderdale, New York, Chicago, San Francisco, Los Angeles, Atlanta and Detroit. We also capitalize on our cross-marketing relationships with our strategic partners by seeking sponsorships and advertisements from their sponsors. We coordinate our advertising sales efforts for CBS SportsLine.com with CBS’s television network advertising sales personnel.

No customer accounted for more than 5% of our revenue during 2003. No customer accounted for more than 9% of our revenue in 2002 or 2001.

Subscription and Premium Products

We offer fantasy sports products for all major sports including NFL, MLB, NBA, NHL, PGA TOUR and NASCAR. These fantasy products allow members to form their own team by assembling a group of athletes from a sport and following their performance on a weekly or daily basis. Members’ fantasy teams can then perform in competitions we administer for cash or merchandise prizes, or compete in leagues administered by the users themselves on our Web site.

We make our top-selling fantasy league management service available during the NFL, MLB, NBA and NHL seasons. We charge leagues a fee for each sport in which they participate. Single team purchases are also available, and we manage the leagues. We selectively make available fantasy challenge games. These competitions allow all participants to compete against the entire game population for a grand prize.

6

Table of Contents

From July 2000 to July 2001, we offered our fantasy products and services for free which allowed us to showcase our league management service to a broad audience of fantasy players who had either only played free games before or had never played in a fantasy game online. As a result of this strategy, we attracted more than four million fantasy products customers in 2001. After July 2001, we converted our free fantasy products back to primarily pay services, with select challenge and other games made available for free from time to time. Our offerings include a league management service currently priced at $139.95 or individual fantasy teams, placed in a league, ranging in price from $9.95 to $249.95, based on prizes and type of game. During 2003, more than 100,000 paid fantasy leagues representing about 1.1 million teams were formed in our fee-based baseball, football, basketball and hockey fantasy games.

In late 2003, we launched a new subscription product named “VIP” which offers exclusive access to news from sixty major newspapers, comprehensive game previews, real time player news and injury reports and premier recruiting news. We charge a fee for our VIP product of $49.95 for a year of service, $29.75 for six months or $5.95 for one month.

Registered Users

We had over 10 million registered users as of December 31, 2003. In addition to our subscription products, all of which require registration, we encourage users of our Web sites to register by offering them the ability to customize our Web site in two ways. On the CBS SportsLine.com Web site, registered users can enter their favorite (and despised) teams and players along with their zip code. Given these preferences, the Web site is tailored to highlight information specific to the member’s team and player preferences. The user’s zip code is used to translate all schedule information into their local time zone. Registered users who desire more control over their CBS SportsLine.com experience can design their own personal sports Web pages using “My SportsLine”. This product allows the user to manage the content, layout and page settings of the site. Both customization offerings are intended to make the CBS SportsLine.com visitor experience more efficient and effective. We also provide the opportunity for registered users to participate in contests and sweepstakes in which the user can win cash, trips or merchandise. In many cases, an advertiser sponsors these contests and sweepstakes.

We have established an extensive database of registered users who exhibit increased media consumption (visit frequency and page views) due to their intense usage of our products and services. Our list of registered users is one of our key assets in terms of both internal list marketing and external direct marketing services.

Marketing

Our agreement with CBS provides for CBS SportsLine.com to receive extensive network television advertising and on-air promotion, primarily during CBS television broadcasts of sports events such as the NFL, the NCAA Division I Men’s Basketball Championship, NCAA Football, PGA TOUR events and U.S. Open tennis. In addition, CBS provides on-air promotion for NCAAsports.com, which we produce and has direct links to CBS SportsLine.com, during its telecasts of NCAA championships. NFL.com, which we produce and has direct links to CBS SportsLine.com, receives significant on-air promotion during all televised broadcasts of NFL games, including broadcasts on ABC, ESPN and Fox. PGATOUR.com, which we produce and has direct links to CBS SportsLine.com, receives significant on-air promotion during all televised broadcasts of PGA TOUR events, including broadcasts on ABC, NBC, ESPN, Fox SportsNet, USA Networks, TNT and the Golf Channel. Our agreement with Westwood One Radio Network provides for CBS SportsLine.com to receive extensive on-air promotion and live reads during radio broadcasts of the NFL, NCAA Football, Notre Dame Football and HBO Boxing and during other special events, such as the U.S. Open and Masters golf tournaments.

Another effective marketing outlet for us has been online advertising. From time to time, we purchase advertising impressions on leading web sites. In addition, we purchase paid listings on major search engines to promote our fantasy sports products. We also advertise using direct e-mail, targeted print publications, stadium signage, outdoor billboards, and sports talk radio.

7

Table of Contents

Competition

The market for our products and services and products is highly competitive. We compete, directly and indirectly, for advertisers, viewers, subscribers, content providers, merchandise sales and rights to sports events with the following categories of companies: (1) Web sites targeted to sports enthusiasts generally (such as espn.com, si.com, sports.yahoo.com and foxsports.com) or to enthusiasts of particular sports (such as Web sites maintained by the NBA, MLB and the NHL); (2) publishers and distributors of traditional off-line media (such as television, radio and print), including those targeted to sports enthusiasts, many of which have established or may establish Web sites; (3) general purpose consumer online services such as AOL and MSN, each of which provides access to sports-related content and services; (4) vendors of sports information, merchandise, products and services distributed through other means, including retail stores, mail, facsimile and private bulletin board services; and (5) Web search and retrieval services, such as Google, Lycos, Netscape and Yahoo!, and other high-traffic Web sites. We believe that our most significant competitors are ESPN.com, Yahoo! Sports, AOL Sports, foxsports.com and si.com, all of which offer a variety of sports content.

We believe that the principal competitive factors in attracting and retaining users and subscribers are the depth, breadth and timeliness of content, the ability to offer compelling and entertaining content and brand recognition. Other important factors in attracting and retaining users include ease of use, service quality and cost. We believe that the principal competitive factor in attracting and retaining content providers and merchandisers is our ability to offer sufficient incremental revenue from licensing fees, bounties and online sales of product or services. We believe that the principal competitive factors in attracting advertisers include the number of users and members of our Web sites, the demographics of our user and subscriber bases, price and the creative implementation of advertisement placements. We may be unable to compete favorably with respect to these factors.

Government Regulation and Legal Uncertainties

Our Internet operations are not currently subject to direct regulation by any government agency, other than regulations applicable to businesses generally. The application of existing laws and regulations to SportsLine.com with respect to issues such as the protection of databases, user privacy, defamation, pricing, advertising, gambling, taxation, sweepstakes and contests, promotions, content regulation, quality of products and services and intellectual property ownership and infringement can be unclear. In addition, we may also be subject to new laws and regulations directly applicable to our activities. Any existing or new legislation applicable to us could expose us to substantial liability, including significant expenses necessary to comply with such laws and regulations, and dampen the growth in use of the Web.

Our contests and sweepstakes may be subject to state and Federal laws governing lotteries and gambling. We seek to design our contests and sweepstakes to either not be subject to or to fall within exemptions from such laws and we restrict participation to individuals over 18 years of age who reside in jurisdictions within the United States and Canada in which the contests and sweepstakes are lawful. If our contests and sweepstakes are not exempt from such laws we may be required to spend significant resources complying with these laws or we may be unable to continue using the contests as a marketing tool.

Certain Federal laws could impact our business. The Digital Millennium Copyright Act is intended to reduce the liability of online service providers for listing or linking to third-party Web sites that include materials that infringe copyrights or other rights of others. The Children’s Online Protection Act and the Children’s Online Privacy Protection Act are intended to restrict the distribution of certain materials deemed harmful to children and impose additional restrictions on the ability of online services to collect user information from minors. In addition, the Protection of Children From Sexual Predators Act of 1998 requires online service providers to report evidence of violations of Federal child pornography laws under certain circumstances. Such legislation may impose significant additional costs on our business or subject us to additional liabilities.

We post our privacy policy and practices concerning the use and disclosure of user data on our Web sites. Any failure to comply with our posted privacy policy, requirements of the Federal Trade Commission regarding user privacy, or other privacy-related laws and regulations could result in proceedings by the FTC or others which could potentially have an adverse effect on our business, results of operations and financial condition. In this regard, the United States Congress and state legislative bodies periodically consider legislation regarding privacy issues that could affect our business. It is not possible to predict whether or when such legislation may be adopted, and certain proposals, if adopted, could significantly decrease our user registrations and revenues. This could be caused by, among other possible provisions, the required use of disclaimers or other requirements before users can utilize our services.

8

Table of Contents

Due to the global nature of the Internet, it is possible that the governments of various states of the United States or foreign countries may attempt to regulate our transmissions or to prosecute us for violations of their laws. We may unintentionally violate these laws and these laws may be modified, or new laws enacted, in the future. It is also possible that various states of the United States or foreign countries may seek to impose sales taxes on out-of-state businesses that engage in commerce over the Internet. In the event that states or foreign countries succeed in imposing sales or other taxes on Internet commerce, the growth of the use of the Internet for commerce could slow substantially.

Intellectual Property

Our performance and ability to compete are dependent to a significant degree on internally developed content and technology. We rely on a combination of copyright and trademark laws, trade secret protection, confidentiality and non-disclosure agreements with our employees and with third parties and contractual provisions to establish and protect our proprietary rights. The steps we take to protect our proprietary rights may not be adequate, we may not be able to secure trademark registrations for all of our marks in the United States and/or foreign countries, and third parties may infringe upon or misappropriate our copyrights, trademarks, service marks and similar proprietary rights. In addition, effective copyright and trademark protection may be unenforceable or limited in certain foreign countries, and the global nature of the Internet makes it impossible to control the ultimate destination of our services. In the future, costly litigation may be necessary to enforce and protect our trade secrets, copyrights and other intellectual property rights.

From time to time, third parties have asserted copyright or trademark infringement claims against us or claims that our use of certain technologies violates a patent. If it is determined that we have infringed upon a third party’s proprietary rights, we may be unable to obtain any necessary licenses or rights on terms satisfactory to us, if at all. The inability to obtain any required license on satisfactory terms could have a material adverse effect on our business, results of operations and financial condition. We may also be subject to litigation to defend against claims of infringement of the rights of others or to determine the scope and validity of the intellectual property rights of others. If our competitors prepare and file applications in the United States that claim trademarks that we used or registered, we may oppose those applications and have to participate in proceedings before the United States Patent and Trademark Office to determine priority of rights to the trademark, which could result in substantial costs to us, even if the eventual outcome is favorable. An adverse outcome could require us to license disputed rights from third parties or to cease using such trademarks. Any such litigation would be costly and divert management’s attention, either of which could have a material adverse effect on our business, results of operations and financial condition. Adverse determinations in such litigation could result in the loss of certain of our proprietary rights, subject us to significant liabilities, require us to seek licenses from third parties, or prevent us from selling our services, any one of which could have a material adverse effect on our business, results of operations and financial condition. In addition, inasmuch as we license a substantial portion of our content from third parties, our exposure to copyright infringement actions may increase because we must rely upon such third parties for information as to the origin and ownership of such licensed content. We attempt to obtain representations as to the origins and ownership of such licensed content and generally obtain indemnification to cover any breach of any such representations; however, these representations may not be accurate and the indemnification may not provide adequate compensation for any breach of these representations.

We have applied to register in the United States a number of marks, several of which include the term “SportsLine.” We filed applications to register “SportsLine” marks in the United Kingdom, Canada and Mexico. We may not be able to secure adequate protection for these trademarks in the United States or in foreign countries. Many foreign countries have a “first-to-file” trademark registration system; and thus we may be prevented from registering its marks in certain countries if third parties have previously filed applications to register or have registered the same or similar marks. It is possible that our competitors or others will adopt product or service names similar to ours, thereby impeding our ability to build brand identity and possibly leading to customer confusion. Our inability to protect the “SportsLine” mark and other marks adequately could have a material adverse effect on our business, results of operations and financial condition.

SportsLine.com grants our users a license to use our service under an agreement that prohibits the unauthorized reproduction or distribution of our licensed and proprietary content. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our service or to obtain and use information

9

Table of Contents

that we or our content providers regard as proprietary. The steps we take to protect our proprietary rights may be inadequate and third parties may infringe or misappropriate our copyrights, trademarks, service marks and similar proprietary rights.

Employees

We employed 264 full-time employees at December 31, 2003, of whom 68 employees were in editorial and operations, 61 were in technical and product development, 101 were in sales and marketing (including customer service), and 34 were in finance and administration. None of our employees are represented by any collective bargaining organization, and we consider our employee relations to be good.

Infrastructure, Operations and Technology

We make our Web sites available with multiple servers using both the Red Hat Linux and Solaris operating systems on Dell, Intel and Sun equipment. The majority of our offerings were built using the Perl programming language and are served with the Apache web server software.

We maintain the equipment used to service our Web sites with Savvis Communications Corporation in their Miami, Florida datacenter facility. As of March 8, 2004, Savvis acquired substantially all of the assets of Cable & Wireless America; accordingly, all services formerly provided to us by CWA are now provided by Savvis. The Miami data center maintains multiple redundant Internet feeds on the CWA backbone and accommodates four to five times the amount of bandwidth capabilities that we require. The Miami data center gets power from two independent power grids and is located near Miami International Airport, which is given higher priority for service restoration in the event of a catastrophe. The data center is staffed twenty-four hours a day, every day, with both operations and security personnel. We also maintain a disaster recovery site with the Savvis data center in Sterling, Virginia.

Our offices and production/programming systems are located in Fort Lauderdale, Florida. Our headquarter operations are dependent upon our ability to protect systems against damage from fire, hurricanes, power loss, telecommunications failure, break-ins, computer viruses and other events beyond our control. We maintain access to and from the Internet through two third-party providers of high-speed connections; one provides a capacity of 45 megabits per second, the other provides 100 megabits per second capacity. These links are connected to two redundant routers in our facility. Redundant cables from our building connect with each local Internet provider’s network. Our Internet connections are designed to be fully redundant, so that if a failure in the network or equipment of one service provider occurs, traffic is automatically routed through to the other provider. All of our computer equipment is powered by an uninterruptible power supply, which is backed up by a diesel generator designed to provide power to the UPS within seconds of a power outage. In addition, all of our production systems are copied to backup tapes each night and stored at a third party, off-site storage facility. All of our computer equipment is insured at replacement cost. We also maintain a private data circuit connecting our headquarter facility to the Miami datacenter and use an encrypted virtual private network over the Internet as a redundant backup to that circuit.

If, despite these and other precautions taken, our Internet access is disrupted, and our third party providers are unable to handle higher volumes of users, or such third party providers experience damage or failure that causes system disruptions or other significant interruptions in our operations, our revenues may significantly decrease.

Available Information

Our investor relations website is located at http://www.sportsline.com/info/ir/. We make available free of charge on this Web site our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission.

Item 2. Properties.

Our corporate headquarters are located in Fort Lauderdale, Florida. We currently lease approximately 80,000 square feet under a lease that expires in March 2010. See Note 12 of Notes to Consolidated Financial Statements. We have options to extend the lease for two additional five-year terms. The space at the corporate headquarters facility is in excess of our current needs. We also lease sales offices in Chicago, New York, Atlanta, San Francisco, Los Angeles and Detroit.

10

Table of Contents

Item 3. Legal Proceedings.

On January 28, 2003, SportsTicker Enterprises, L.P., a vendor of electronic sports data, filed a lawsuit against SportsLine.com in New York State Supreme Court, alleging that we improperly terminated our subscription agreement with SportsTicker. SportsTicker’s complaint seeks approximately $2.15 million in damages. Our motion to dismiss this action was recently denied with respect to the breach of contract claim and we have not yet filed our answer to the complaint. We believe the claim by SportsTicker to be completely without merit and intend to vigorously defend ourselves in this action.

In October 2003, SportsLine.com, our chief executive officer and our former chief financial officer were named as defendants in several securities class action lawsuits filed in the United States District Court for the Southern District of Florida alleging violations of the Securities Exchange Act of 1934, as amended. On November 20, 2003, the Court consolidated the lawsuits into a single action entitled In re SportsLine.com Securities Litigation, Master File No. 03-61849-CIV-MIDDLEBROOKS, and subsequently appointed lead plaintiffs and lead plaintiffs’ counsel. On or about February 26, 2004, lead plaintiffs filed a second amended consolidated class action complaint, which superseded the earlier complaints. The complaint purports to state claims against us on behalf of all persons who purchased our common stock between January 30, 2001 and September 25, 2003; and seeks money damages in unspecified amounts and litigation expenses including attorneys’ and experts’ fees. The essence of the allegations in the complaint is that we intentionally or recklessly made false or misleading statements in our previously issued consolidated financial statements which were subsequently restated due primarily to our failure to properly recognize non-cash compensation expense relating to certain option grants. The plaintiffs contend that such statements or omissions caused our stock price to be artificially inflated. We intend to file a motion to dismiss this action by the end of March 2004. We believe that the allegations in this purported securities class action are without merit and we intend to defend the action vigorously.

In December 2003, a derivative lawsuit was filed by a purported shareholder on behalf of SportsLine.com in the United States District Court for the Southern District of Florida against our chief executive officer, our former chief financial officer and each member of our Board of Directors as of September 25, 2003. The plaintiff alleges violations of Section 304 of the Sarbanes-Oxley Act of 2002 and breaches of fiduciary duty arising out of the payment of incentive compensation by certain of the named defendants and breaches of fiduciary duties and claims for contribution and indemnification against all the named defendants. We believe these claims to be without merit at this time and SportsLine.com is currently evaluating its legal options with respect to such lawsuit.

From time to time, SportsLine.com may be involved in litigation relating to claims arising out of its operations in the normal course of business. We are not currently a party to any other legal proceedings, the adverse outcome of which, individually or in the aggregate, is expected to have a material adverse effect on SportsLine.com’s financial position or results of operations.

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

No matter was submitted to a vote of security holders during the fiscal quarter ended December 31, 2003.

11

Table of Contents

PART II

Item 5. Market for the Registrant’s Common Equity and Related Stockholder Matters.

Market Prices for Our Common Stock and Related Stockholder Matters

Our common stock has been traded on the Nasdaq National Market under the symbol “SPLN” since November 13, 1997. The following table sets forth for the periods indicated the range of high and low closing prices per share of common stock, as reported by the Nasdaq National Market:

We have never paid any cash dividends on our common stock and do not anticipate paying any cash dividends in the foreseeable future. We currently intend to retain future earnings, if any, to fund the development and growth of our business.

As of March 8, 2004, we had approximately 600 stockholders of record.

Sales of Unregistered Securities During the Year Ended December 31, 2003

No underwriter was involved in any of the above sales of securities. All of the above securities were issued in reliance upon the exemption set forth in Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”), on the basis that they were issued under circumstances not involving a public offering.

12

Table of Contents

Item 6. Selected Financial Data.

The following data should be read in conjunction with our Consolidated Financial Statements and Notes thereto included in Item 8 of this Form 10-K. The selected consolidated balance sheet data set forth below as of December 31, 2003 and 2002, and the selected consolidated statement of operations data for the three years ended December 31, 2003 have been derived from our audited consolidated financial statements included elsewhere herein.¹

13

Table of Contents

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements, which involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain risk factors, including those set forth under “Risk Factors that May Affect Future Results,” below and elsewhere in this Report. The following discussion also should be read in conjunction with the information set forth in “Item 6. Selected Financial Data” and our Consolidated Financial Statements and Notes thereto included in “Item 8. Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.

Overview

We currently derive our revenue from two major sources: advertising and marketing services revenue and subscription and premium products revenue. These two categories constituted approximately 72% and 28% and 78% and 22% of our total revenue in 2003 and 2002, respectively. In 2001, we also derived revenue from content licensing and international sources, which comprised approximately 4% and 8%, respectively, of our total revenue in 2001. Advertising and marketing services comprised 85% of our total revenue in 2001 while subscription and premium products comprised 3%.

We derive advertising and marketing services revenue principally from sponsorship opportunities that enable advertisers to associate their corporate messages with our coverage of major sports and marquee events, games and contests. We attempt to leverage our relationship with CBS to sell advertising associated with events broadcast on CBS and to participate in joint sales efforts with CBS. During 2003 and 2002, revenue generated through our joint sales efforts with CBS comprised approximately 13% and 6%, respectively, of our total advertising sales. Our advertising revenue also includes short-term advertising contracts for the display of banners or other media type for a fee on a per impression basis or for a fixed fee based on a minimum number of impressions. We also provide other types of advertising and marketing services such as wireless alerts, product exclusive emails and names captured from targeted advertising offers. Due to innovations in the industry as well as the increased use of broadband technology in personal computers, new types of advertising are constantly being developed and sold. We also derive advertising and marketing services revenue from the sale of advertising on Web sites that we operate such as NFL.com, PGATOUR.com and NCAAsports.com, as well as from our promotion of e-commerce Web sites such as MVP.com and the NFL.com shop. We recognize advertising and marketing services revenue in the period in which the advertisement is displayed or services rendered, provided that no significant obligations remain and that collection of the resulting receivable is probable. Our obligations typically include guarantees of a minimum number of “impressions,” or times that advertisements appear in page views downloaded by users, or may include a length of time the sponsorship is displayed. We typically invoice our advertising clients on a monthly basis for our services; however, in some cases payment is received prior to the service being provided and is recorded as deferred revenue on our balance sheets.

Most of our subscription and premium services revenue is derived from Web site users’ participation in fantasy sports. Fantasy sports entails participants creating fictitious teams comprised of actual professional athletes and competing against other teams where results are based on the statistical performances of the respective professional athletes in actual games. Fantasy sports enthusiasts can participate in our own-administered leagues, for which the participant pays a fee as a single game user, or form their own leagues with customized rules, live scoring and reporting for which the customer pays a fee for the league. The primary sports responsible for our fantasy revenue were football and baseball, with some contribution from basketball and hockey. More than 100,000 paid fantasy leagues, representing more than 1.1 million teams were formed in our fee-based football, baseball, basketball and hockey fantasy games in 2003, representing an increase of 25% over total paid leagues in 2002. We charge our fantasy customers through their credit card at the time they sign-up for our service, and we recognize this revenue ratably over the relevant sports season or life of the game or contest period. Accordingly, amounts received for which services have not yet been provided are recorded as deferred revenue on our balance sheets.

14

Table of Contents

A major point of emphasis in our strategy has been to establish strategic relationships with key entities in the sports industry to increase consumer awareness of the SportsLine brand and increase advertising and sponsorship sales opportunities. This has represented both our greatest opportunity and our greatest challenge.

Our most significant relationship is with CBS. In March 1997, we entered into a strategic alliance with CBS pursuant to which our flagship Web site was renamed “CBS SportsLine.com.” The CBS agreement was amended in February 1999 to extend the term for an additional five years, effective as of January 1, 1999, through 2006. Commencing with calendar year 1999, CBS is obligated to provide advertising and promotion of the CBS SportsLine.com Web site pursuant to a fixed promotion schedule. In consideration of additional promotional and advertising opportunities, at the time of the execution of the amendment in 1999, we became obligated to issue additional shares of common stock valued at $100 million between 2002 and 2006. The 1999 amendment to the CBS agreement provides that our obligation to issue additional shares of common stock valued at $100 million between 2002 and 2006 is to be satisfied by the issuance of shares having a fair market value of $20 million based on the average of closing prices of the common stock on the Nasdaq National Market for the five-day period ending on the day prior to each of the following five issue dates, as applicable: January 1, 2002; April 1, 2003; July 1, 2004; October 1, 2005; and January 1, 2007. In January 2002, we satisfied the first of the foregoing five issuances by issuing to CBS approximately 6.9 million shares of common stock valued at $20 million. On March 5, 2003, the CBS agreement was amended to modify the annual schedule of stock issuances to CBS. See Note 12 of Notes to the Consolidated Financial Statements. In accordance with the March 2003 amendment, on April 1, 2003, we issued to CBS approximately 5.5 million shares of common stock valued at approximately $5.4 million and the remaining 2003 obligation of approximately $14.6 million has been deferred until July 2004.

In July 2001, we entered into a multi-year agreement with CBS, AOL and the NFL. Pursuant to the terms of the agreement, we are responsible for the production and hosting of the NFL’s Internet sites, including NFL.com, superbowl.com, nfleurope.com and playfootball.com. We are entitled to recoup the costs of such production and hosting pursuant to an agreed-upon budget, from the first dollars of revenue generated from such sites, after the payment of certain sales commissions, including but not limited to, advertising and sponsorship sales, e-commerce revenues and direct marketing and, to a limited extent, from the exploitation of certain emerging media rights. We are responsible for a portion of the rights fee payments required to be made to the NFL under the NFL agreement, with our share of the required cash payments aggregating $24.1 million over the five-year term of the NFL agreement as follows: $9.6 million has been paid as of December 31, 2003 and $1.5 million is owed for the third year; $6.0 million for fourth year; and $7.0 million for the fifth year. In addition, we issued to the NFL 350,000 shares of common stock upon effectiveness of the NFL agreement; issued to the NFL an additional 1,049,869 shares of common stock valued at $1.3 million in May 2003, and are obligated to pay an additional $2.7 million in cash or common stock, at our option, in May 2004. After the payment of certain sales commissions and our recoupment of our production and hosting expenses, we are entitled to a graduated share of gross revenues, as defined in the agreement, in an amount aggregating approximately 50% of the first $140 million of gross revenues generated during the term of the NFL agreement. In addition, we may be entitled to receive 20% of certain additional gross revenues in excess of such amount. The NFL has the unilateral right to terminate the NFL agreement after the 2003 - 2004 NFL Season, which may be exercised on or before April 30, 2004.

Additionally, we have strategic relationships with, among others, the PGA TOUR to co-produce PGATOUR.com, the NCAA for which we sublicensed the rights for the official NCAA Championship Web site and Amazon whereby we supply merchandise for the Amazon.com sporting goods store. For information on these and additional strategic relationships, see “Item 1. Business – Strategic Relationships.”

In September 2003, we announced our intention to amend our previously issued historical financial statements for 2001, 2002 and the first six months of 2003 primarily to correct an error in the way we had previously accounted for certain employee stock option grants. Correction of this error required us to record non-cash compensation expense to reflect the intrinsic value of such option grants. During the course of the re-audit of 2001 by Ernst & Young, our current auditors, certain additional adjustments to our previously issued financial statements which were audited by our prior auditors were identified. We and our auditors discovered that the Black-Scholes valuation of certain warrants issued to America Online, Inc. and another third party service provider used incorrect assumptions regarding the life of the warrants and the value of the underlying common stock at the applicable grant date, the net effect of which required us to record additional non-cash amortization expense. In addition, we and our auditors also identified certain other minor adjustments to our previously issued financial statements. Our amended financial statements were filed with the SEC in November 2003.

15

Table of Contents

As a result of our September 2003 announcement, several securities class action lawsuits were filed against us and certain of our officers. See “Item 3. Legal Proceedings.” In addition, in December 2003, the SEC advised us that it had initiated an informal investigation and requested that we provide it with certain documents relating to our September 2003 announcement of our intention to amend our previously issued historical financial statements. We are cooperating fully with the SEC and have provided the requested information as expeditiously as possible. Because the informal investigation is currently ongoing, the outcome of such investigation cannot be predicted at this time.

Critical Accounting Policies and Estimates

Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenue and expenses during the reporting period. Our accounting policies are more fully described in Note 2 of the Consolidated Financial Statements. On an on-going basis, management evaluates its estimates and judgments, including those related to bad debts, intangible assets, restructuring costs, contingencies and litigation. Management bases its estimates and judgments on historical experience, and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Management believes the following critical accounting policies, among others, affect the more significant judgments and estimates used in the preparation of its consolidated financial statements:

16

Table of Contents

believes its estimates and judgments have been reasonable in determining whether our goodwill has been impaired. We tested for impairment of our goodwill as of October 1, 2003 and found there was no impairment. If, however, there were a material change in the conditions or circumstances influencing the fair value of our goodwill, we could be required to recognize an impairment charge. We cannot predict the occurrence of certain future events that might adversely affect the reported value of goodwill of $16.2 million as of December 31, 2003.

Results of Operations (amounts in thousands except share and per share data)

Revenue

Advertising and marketing services revenue for 2003, 2002 and 2001 accounted for approximately 72%, 78% and 85%, respectively, of total revenue. Advertising and marketing services decreased in 2003 from 2002 primarily due to management’s decision to limit barter revenue. While we may enter into barter arrangements from time to time, we do not expect to recognize barter advertising revenue, nor the offsetting marketing expense, in future periods. Excluding barter revenue of $5,138 from 2002, advertising and marketing services revenue increased 13% in 2003, mainly due to increased revenue derived from NFL.com and the NCAA Division I Men’s Basketball Championship. The decrease in advertising and marketing services revenue in 2002 from 2001 was also due to management’s decision to limit barter revenue. Excluding barter revenue of $9,221 from 2001, advertising and marketing services revenue increased 18%, mainly due to increased revenue derived from NFL.com as a result of the agreement being in effect for a full year in 2002 for the first time.

17

Table of Contents

Subscription and premium products revenue increased in 2003 from 2002 due to the continued growth of our fantasy products. There were more than 100,000 paid fantasy leagues, representing more than 1.1 million teams that were formed in our fee-based football, baseball, basketball and hockey fantasy games in 2003. The number of leagues increased approximately 25% over total paid leagues in 2002. Subscription and premium products revenue increased in 2002 from 2001 because of the successful conversion from primarily free fantasy sports products to fee-based fantasy products. More than 80,000 paid fantasy leagues representing about one million teams were formed in our fee-based baseball, football, basketball and hockey fantasy games in 2002. The increase in fantasy revenue from 2002 to 2001 was offset by decreases in sales of other products such as our membership rewards program.

The elimination of content licensing revenue after 2001 was due primarily to the replacement in July 2001 of our previous agreement with AOL, which had included a barter content licensing provision. We do not expect to have content licensing revenue in future periods.

As of December 31, 2003 and 2002, we had deferred revenue of $2,221 and $2,052, respectively, relating to cash and receivables for which services had not yet been provided.

Barter transactions, in which we received advertising or other services or goods in exchange for content or advertising on our Web sites, accounted for approximately 0%, 9% and 17% of total revenue for 2003, 2002 and 2001, respectively. Barter transactions were recorded based upon, and to the extent of, similar recent cash transactions of the Company pursuant to EITF No. 99-17, Accounting for Advertising Barter Transactions. While we may enter into barter arrangements from time to time, we do not expect to recognize barter advertising revenue, or the offsetting marketing expense, in future periods.

Equity transactions, in which we received equity in companies in exchange for advertising and promotion accounted for approximately 0%, 0% and 5% of total revenue for the years ended December 31, 2003, 2002 and 2001, respectively. We expect that we will not have equity-related revenue in future periods.

Cost of Revenue

The main component of cost of revenue is revenue share expense related to agreements with our strategic partners including CBS, NFL and PGA Tour. Additionally, our cost of revenue includes content fees to third parties and payroll and related expenses for the editorial and operations staff that are responsible for creating content on our Web sites. Telecommunications, Internet access and computer related expenses for the support and delivery of our services are also included in our cost of revenue.

The increase in cost of revenue in 2003 from 2002 was primarily due to higher revenue share payments to the NFL for fantasy football revenue, increased revenue share payments to CBS as a result of higher cash advertising revenue, and higher expenses related to cash prizes and credit card fees due to increased fantasy participation. These increases were partially offset by decreased telecommunications expenses related to the support and delivery of our services due to lower negotiated rates charged by carriers. Merchandise costs were also lower due to the agreement we entered into in mid-2002 with GSI Commerce, Inc. under which GSI was named the exclusive operator of our online store, marketed under the MVP.com brand name. Under our previous e-commerce agreement, we had to incur some cost of goods sold that are not incurred under the current GSI agreement. The decrease in cost of revenue in 2002 from 2001 is primarily due to the deconsolidation of Sports.com on July 17, 2001. Sports.com accounted for 29% of cost of revenue in 2001. Costs related to revenue sharing increased in 2002 from 2001, primarily due to increased expenses related to increased fantasy football revenue. These increased costs were partially offset by reductions in telecommunications expenses and payroll.

18

Table of Contents

Operating Expenses

Sales and Marketing — Equity Consideration to Viacom for Promotion. Equity consideration to Viacom for promotion consists of the expense for our agreements with two Viacom-related entities pursuant to which we have issued equity instruments in exchange for advertising and promotion.

Pursuant to our promotion and licensing agreement with CBS, we issued shares of common stock and warrants to purchase shares of common stock and expensed $22,286 in both 2003 and 2002 compared to $17,288 in 2001. Additionally, we expensed $0, $1,750 and $3,000 in 2003, 2002 and 2001, respectively, related to shares of common stock issued to Westwood One, Inc. in exchange for promotion and programming. We will not recognize amortization expense related to the Westwood One, Inc. agreement in future periods due to the expiration of our agreement with Westwood One on August 1, 2002. At that time, we entered into a new agreement with Westwood One that does not require the issuance of additional equity or any other financial consideration.

Sales and Marketing — Other. Sales and marketing – other expense consists of salaries and related expenses, advertising, marketing, promotional, business development, public relations expenses, research expenses and rights payment expenses related to our agreement with the NFL.

The decrease in sales and marketing – other expense in 2003 from 2002 primarily relates to the absence of barter expense resulting from our not recording any barter revenue and its corresponding expense. This was offset by increased advertising expense related to the promotion of our fantasy football products and increased sales commissions paid because of higher cash advertising revenue. The decrease in sales and marketing – other expense from 2001 to 2002 was due to the deconsolidation of Sports.com along with decreased advertising and payroll as a result of our cost restructuring programs. Additionally, the replacement of our previous agreement with AOL at a lower cost in July 2001, contributed to the decrease in 2002 compared to 2001. Barter transactions accounted for approximately 19% of sales and marketing – other expense in 2002 and 21% in 2001. Included in sales and marketing – other expense are cash payments made to CBS and certain affiliates of CBS, respectively, for television, radio and outdoor advertising during those periods.

General and Administrative. General and administrative expense consists of salary and related costs for executive, finance and accounting, technical and customer support, human resources and administrative functions, as well as rent and occupancy expenses and professional service fees.

19

Table of Contents

The decrease in general and administrative expense in 2003 from 2002 was attributable primarily to reduced payroll expense as a result of our cost restructuring program and decreased stock based compensation expense. Additionally, we reduced bad debt expense in 2003 due to a recovery of a previously written off receivable as well as an adjustment made to the allowance for doubtful accounts (bad debt) resulting from fewer write-offs than in previous years and a higher number of repeat clients. The decrease in general and administrative expense from 2001 to 2002 was mainly due to the deconsolidation of Sports.com, which accounted for 17% of general and administrative expense in 2001, and decreases in payroll and consulting expenses due to our cost restructuring program.

Depreciation and Amortization. Depreciation and amortization expense consists of the depreciation of property and equipment, amortization of costs associated with consulting agreements and amortization of licensing rights and intangible assets.

The decrease in depreciation and amortization expense in 2003 from 2002 was due primarily to the expiration of certain consulting agreements and the full amortization of the related equity issuances. Software and equipment depreciation was lower due to fewer recent purchases and equipment becoming fully depreciated. The decrease in depreciation and amortization expense in 2002 compared to 2001 was due primarily to the adoption of Statement of Financial Accounting Standard (“SFAS”) No. 142 “Goodwill and Other Intangible Assets,” effective January 1, 2002. Goodwill is no longer subject to amortization, but instead will be reviewed for impairment and, if deemed necessary, written down and charged to results of operations. Goodwill amortization was $7,841 for the year ended December 31, 2001. Additionally, the warrants and shares associated with the 1998 AOL agreement became fully amortized in July 2001. Furthermore, depreciation and amortization expense related to fixed assets decreased due to decreased purchases in 2002 compared to 2001 combined with certain older equipment becoming fully depreciated.

Employee Termination and Restructuring Charges. For the year ended December 31, 2003, we recognized employee termination charges totaling $2,010. For the years ended December 31, 2002 and 2001, we recognized restructuring charges of $2,499 and $985, respectively, related to severance payments and the termination of leases. See Note 2 of Notes to Consolidated Financial Statements.

Write-down of E-Commerce Assets. In January 2001, we acquired for a cost of $6,000 certain assets of MVP.com, Inc., which had ceased business operations, including the domain names, trademarks and certain other assets associated with the Web sites mvp.com, planetoutdoors.com, igogolf.com, golfclubtrader.com and tennisdirect.com. The cost of these assets was being amortized using the straight-line method over five years. As a result of shortfalls in actual results compared to initial valuation forecasts, we recorded a write-down in the third quarter of 2003 of the remaining carrying value of such assets, totaling $2,800, to reflect a reduction in the estimated value of the e-commerce assets we acquired from MVP.com. There was no write-down of e-commerce assets in 2002 or 2001.

Write-down of Goodwill. As a result of the identification of several indicators of impairment including a slowdown in the economy and differences in actual results in comparison to initial valuation forecasts, we recognized a goodwill write-down in the year ended December 31, 2001 of $17,000 to adjust our investment in Daedalus World Wide Corporation to its estimated fair value. Our assessment of our goodwill investment associated with Daedalus World Wide was based on historical operations, future cash flows and the market value of similar entities. We performed the annual impairment test required under SFAS No. 142 to test impairment as of October 1, 2003. As a result, we found no impairment of its goodwill.

20

Table of Contents

Interest Expense. Interest expense was $952, $929 and $1,073 in 2003, 2002 and 2001, respectively. Interest expense is related primarily to our outstanding Convertible Subordinated Notes due 2006. The decrease in interest expense in 2002 compared to 2001 was primarily due to the repurchase of an additional $2,930 principal amount of our Convertible Subordinated Notes in the fourth quarter of 2001.

Interest and Other Income, Net. Interest and other income, net primarily represents interest earned on cash and cash equivalents and marketable securities. Interest and other income, net was $786 in 2003 compared to $888 and $3,460 in 2002 and 2001, respectively. The decrease in interest income in 2003 compared to 2002 and 2001 was primarily attributable to lower invested cash balances and lower interest rates.

Gain on Termination of Advertising Agreements. In 2001, we recognized a gain of $2,051 due to the completion of the liquidation of MVP.com, Inc. with which we had a previous advertising agreement. There was no gain on termination of agreements in 2003 and 2002.

Gain on Extinguishment of Debt. During the fourth quarter of 2001, we repurchased $2,930 of our Convertible Subordinated Notes for approximately $500 and, as a result, recognized a gain of $2,404, net of unamortized debt issuance costs. SFAS No. 145, Rescission of FASB Statements No. 4, 44, and 62, Amendment of FASB Statement No. 13, and Technical Corrections, eliminates the previous requirement under FASB Statement No. 4, Reporting Gains and Losses from Extinguishment of Debt, to report gains and losses from extinguishments of debt as extraordinary items in the income statement. We adopted SFAS No. 145 on July 1, 2002, and accordingly classified the extraordinary gain of $2,404 that occurred from our extinguishment of debt in 2001 to other non-operating income.

Effect of Deconsolidation of Sports.com. In accordance with United States generally accepted accounting principles, we recorded in 2001 the effect of the deconsolidation of Sports.com in the amount of $41,739. On July 17, 2001, Sports.com raised approximately $13,000 in equity funding from its existing investors. After giving effect to the funding, our fully diluted ownership stake in Sports.com, including all outstanding warrants and management options, was approximately 30%. As a result of our reduced ownership interest in Sports.com and a reduction in our representation on Sports.com’s board of directors to less than a majority, as of July 17, 2001 we no longer consolidated the results of Sports.com and accounted for our investment in Sports.com under the equity method of accounting.

Income Taxes. No provision for Federal and state income taxes has been recorded as we incurred net operating losses for each period presented. As of December 31, 2003, we had approximately $226,000 of net operating loss carryforwards for Federal income tax purposes, expiring beginning in 2009, available to offset future taxable income. Additionally, we had approximately $93,000 of capital loss carryforwards expiring in 2005. SFAS No. 109 requires a valuation allowance to reduce the deferred tax assets reported, if, based on the weight of the evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. After consideration of all the evidence, both positive and negative, management has determined that a full valuation allowance is necessary to reduce the deferred income tax assets to zero. See Note 11 of Notes to Consolidated Financial Statements.

In 2002, we recorded a tax benefit of $720 due to a refund of alternative minimum taxes paid in 2001.

21

Table of Contents

Quarterly Results of Operations (unaudited)

The tables below set forth our quarterly operating results for 2003 and 2002. This information is unaudited, and in our opinion reflects all adjustments that we consider necessary for a fair presentation of such information in accordance with United States generally accepted accounting principles. We made year-end adjustments to general and administrative expense in the fourth quarter of 2003 to reduce our management bonus accrual by $0.6 million due to both the reduced number of our officers and the amounts of bonuses awarded and to reduce our allowance for bad debt by $0.2 million due to the improvement of the credit quality of our advertisers and the decline of write-offs of past-due accounts. Additionally, we made a year-end adjustment in the fourth quarter to increase termination charges by $0.4 million to record additional payroll tax expense and restricted share expense related to terminations that occurred in 2002, primarily in the second quarter. The sum of the quarterly loss per share amounts may not necessarily be equal to the annual loss per share amounts due to rounding. The results for any quarter are not necessarily indicative of results for any future period.