According to the latest docket posted, on July 20, 2004, the Court entered the Order signed by U.S. District Judge Donald M. Middlebrooks, granting the motion dismiss the second amended complaint. The Plaintiffs' second amended complaint was dismissed with prejudice. That day, the Court also entered the Order of Closure and the case was closed.
As reported by the Company’s FORM 10-Q for the quarterly period ended March 31, 2004, in October 2003, SportsLine.com, the Company’s chief executive officer and its 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 On or about February 26, 2004, lead plaintiffs filed a second amended consolidated class action complaint, which superseded the earlier complaints.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 the Company on behalf of all persons who purchased the Company’s 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 the Company intentionally or recklessly made false or misleading statements in its previously issued consolidated financial statements which were subsequently restated due primarily to the Company’s failure to properly recognize non-cash compensation expense relating to certain option grants. The plaintiffs contend that such statements or omissions caused the Company’s stock price to be artificially inflated. On March 29, 2004, the Company filed a motion to dismiss this action which has not yet been decided.
The original Complaint alleges that defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder, by issuing a series of material misrepresentations to the market between May 15, 2001 and September 25, 2003, thereby artificially inflating the price of SportsLine's publicly traded securities. The Complaint alleges the statements were materially false and misleading because they failed to disclose and/or misrepresented the following adverse facts, among others: (i) that the Company's MVP.com store was failing to make a profit; (ii) that the Company's core strategy of generating revenue through its advertising base and capitalizing on its strategic relationship with CBS was a failure; (iii) that increased competition was preventing the Company's fantasy sports business from developing into a reliable revenue source; (iv) that the Company was hiding expenses and improperly classifying its discontinued operations in order to post a positive EBITDA; and (v) that as a result, the value of the Company's net income and financial results were materially overstated at all relevant times.
The Complaint further alleges that on September 26, 2003, the Company announced its intention to amend its previously issued historical financial statements from 2001, 2002, and 2003 to correct an error in the way the Company had previously accounted for certain employee stock option grants. The Company's announced restatement would increase net loss for 2001 by approximately $5.0 million from $61.1 million to approximately $66.1 million, for 2002 by approximately $2.3 million from $48.2 million to approximately $50.5 million and for the first six months of 2003 by approximately $700,000 from $22.2 million to approximately $22.9 million. Moreover, the Company reported that a re-audit of its 2001 financial statements was required due to the reclassification of its gaming information operations as discontinued operations in prior period financial statements. The Company's announcement shocked the market, causing shares of SportsLine to fall $0.54 per share, or more than 30.5%, to close at $1.22 per share on September 26, 2003.