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Pro Elite 10Q SEC report for Q3 2007
By Zach Arnold | November 19, 2007
By Zach Arnold
The SEC just published the Q3 2007 quarterly financial report for Pro Elite Inc. There is a lot of data to read, so if you are up for the task, have at it and post thoughts in the comments section.
Although the Company has approximately $10.5 million of cash at September 30, 2007, additional financing is needed to continue to grow the operations to their desired levels over the next 12 months. We are currently seeking additional financing.
With all of the M & A (mergers and acquisitions) that the company has recently undertaken, they are claiming assets of $30.6 million USD. At the start of 2007, Pro Elite Inc. claimed the value of their total assets at $8.5 million USD.
Conversely, the accumulated deficit is listed as $23.35 million USD. At the start of 2007, Pro Elite Inc. had a deficit of $4.2 million USD. Current liabilities are claimed at $5.5 million USD.
The company claims that they have $12.2 million USD in “goodwill.”
During 2007, the Company acquired amortizable intangible assets consisting of fighter contracts, venue contracts, video libraries, web sites, merchandising rights and distribution agreements and indefinite-lived intangible assets consisting of brands and trademarks. The Company amortizes the cost of acquired intangible assets over their estimated useful lives, which average approximately three years.
Since the start of 2007, the company is claiming revenue of $3.1 million USD (plus $240,000 USD from Showtime) for a total of $3.34 million USD. The cost of generating that revenue was $9.36 million USD, representing a gross loss of $6 million USD. Total operating expenses were listed at $13.48 million USD, with an operating loss of $19.5 million USD so far in the past nine months. The net loss per share of stock is $0.44 USD/share since the start of 2007.
Net cash used in operating activities is listed at $12.2 million USD. Net cash used in investing activities is listed at $9.6 million USD. For issuance of common stock and warrants for cash, the number is $25.14 million USD.
Further filing statements
- “In October 2007, Showtime provided the Company estimates of pay-per view revenue that were approximately $171,000 lower than the original estimates provided by Showtime which was recorded as a reduction of revenue in the three months ended September 30, 2007. At September 30, 2007, the Company accrued estimated expenses related to Showtime production costs of approximately $1.8 million.”
- “During the three and nine months ended September 30, 2007, we capitalized $0 and $349,976 of website development costs.”
- At the time that King of the Cage and Cage Rage were purchased by Pro Elite Inc., KOTC had $84,000 USD in liabilities and Cage Rage had $454,000 USD in liabilities. In addition, Spirit MC had a net loss of $681,436 at the end of September of 2007.
- The lawsuit between Pro Elite Inc. and Wallid Ismail will take place in a Federal US court starting on September 16, 2008. Wallid is asking for a 23.25-26.67% equity stake in Pro Elite Inc, damages no less than $75,000 USD, punitive damages no less than $10 million USD, plus attorney fees and court costs.
- Pro Elite Inc. owes West Coast Productions $250,000 USD as part of the settlement over booking Frank Shamrock. $100,000 USD of that $250,000 USD has been paid.
Topics: Media, MMA, Pro Elite, Zach Arnold | 4 Comments » | Permalink | Trackback |
That is quite a mess. Does anyone remember when their contract with Showtime expires/is up for renewal?
Business is hectic! McMahon needs to stay out the MMA business! lol
IIRC, the Showtime contract didn’t pay much/any cash for the 2007 events, with increasing $$$ for events in 2008 and 2009. IMHO, this was to make sure that Showtime didn’t have to write-off as much if EXC was a flop (in terms of attracting viewers) or incompetent (as an event promoter). Smart on Showtime’s part, since multiple MMA promoters (WFA, JD Penn) were pursuing the SHO deal.
So it probably was expected that ProElite income would lag behing expenses in 2007. (That doesn’t reflect on whether the business plan or financial model is/isn’t viable). But that doesn’t diminish the fact that ProElite has spent recklessly to create a money-sink of a website and to acquire a whole lot of unneccessary promotions. (I can understand that KOTC, the Hawaiian promoters, and other ShoXC content providers MAY provide positive cashflow, but Spirit and Cage Rage are just pointless wastes of capital for a fledgling US fight promoter.)
This is really interesting. Spirit, Cage Rage, and KOTC ALL lost money during the period of ownership that is included in the current financials.
Also, it seems to me that Pro Elite significantly overpaid for KOTC and Cage Rage, based on the value of their assets, and the fact that, apparently, they aren’t actually making money. It looks like they each had significant negative retained earnings or owed a lot of money to creditors. I didn’t expect that at all. I figured that these smaller promotions were making money at least on an operating basis. That may not be the case.
However, the fight business is always going to be misleading when you look at a short period of time, and these entities were purchased very close to the end of the quarter. I’m not sure if they even promoted any events during that period. It may well be that they ARE making money on events, and that therefore the purchase prices were justified.
I’m now of the opinion that their stables of fighters don’t have the kind of value that we may have estimated. Fighter contracts are of very short duration (less than 3 years typically), and if your promotion heads downhill and you’re only paying amounts that are comparable to what these guys could make elsewhere, then they’re just going to pull up their stakes and get the hell out of Dodge (see IFL).
The amounts paid for these promotions are well in excess of what UFC would have paid for them, based on UFC’s past pattern of aquisitions. Typically, they swoop in on the fresh corpse of their target and buy their assets at a reasonable price, if not firesale prices (I’m not sure that this applies to WEC, but it’s certainly true of WFA and Pride). ProElite on the other hand, may be having to pay significantly more than market value to get these promotions under their banner.
If wonder if the presentation of Spirit on the equity basis instead of consolidation is correct. They seem to be indicating that the debt facility MUST be converted to stock shares, but I wonder if that is really the case.
On the whole, I am less bullish on ProElite now than I was three months ago.