U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
----- EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2002
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
----- EXCHANGE ACT OF 1934
For the Transition Period from: ______________
Commission File Number: 001-13217
THE ORLANDO PREDATORS ENTERTAINMENT, INC.
---------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Florida 91-1796903
------------------------------ ---------------------
(State or Other Jurisdiction of (I.R.S.
Incorporation or Organization) Identification Number)
4901 Vineland Rd., Suite 150
Orlando, FL 32811
--------------------------------------
(Address of Principal Executive Offices)
Issuer's Telephone Number: (407) 648-4444
Check whether the Registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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
----- -----
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by court.
Yes No
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date: As of May 14, 2002 7,393,174 shares of
the Registrant's no par value Class A Common Stock and 1,000 shares of no par
value Class B Common Stock were outstanding.
Transitional Small Business Disclosure format: Yes[ ] No [X]
ORLANDO PREDATORS ENTERTAINMENT, INC.
FORM 10-QSB
INDEX
Part I Financial Information Page
Item 1. Financial Statements:
Balance Sheets as of March 31, 2002 and September 30, 2001 3-4
Statements of Operations for the Three and Six Months Ended
March 31, 2002 and 2001 5
Statements of Cash Flows for the
Six Months Ended March 31, 2002 and 2001 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
Part II Other Information and Signatures 14
2
THE ORLANDO PREDATORS ENTERTAINMENT, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
March 31, 2002 September 30, 2001
-------------- ------------------
(Unaudited)
CURRENT ASSETS:
Cash $ 1,095,686 $ 281,492
Accounts receivable, sponsorships 1,872,873 148,971
Accrued interest receivable, AFL 108,669 --
AFL receivable, current portion -- 121,324
af2 expansion fees receivable 109,697 --
Assets Available for sale 158,634 162,134
Inventory 56,397 42,443
Prepaid expenses 2,167,087 249,600
Other current assets 26,024 24,922
----------- -----------
Total Current Assets 5,595,067 1,030,886
----------- -----------
PROPERTY AND EQUIPMENT, at cost, net 571,069 558,918
EQUITY INVESTMENT IN AFL 4,032,650 4,032,650
AFL RECEIVABLE, net of current portion 1,116,171 1,116,171
MEMBERSHIP COST, net 2,263,188 2,282,500
AF2 TEAM INVESTMENTS 1,110,026 1,110,026
PURCHASE PRICE IN EXCESS OF ASSETS ACQUIRED -- 1,556,000
OTHER ASSETS 159,934 158,134
----------- -----------
TOTAL ASSETS $14,848,105 $11,845,285
=========== ===========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
3
THE ORLANDO PREDATORS ENTERTAINMENT, INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, 2002 September 30, 2001
-------------- ------------------
(Unaudited)
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 338,370 $ 858,872
Note payable-acquisition, current portion -- 583,333
Note payable-bank -- 700,000
af2 expansion fees payable 200,000 --
Note payable-related party -- 175,000
Deferred revenue 3,856,546 619,643
Accounts payable, related party -- 36,000
Due to AFL/AF2 50,000 124,000
------------ ------------
Total Current Liabilities 4,444,916 3,096,848
------------ ------------
NOTE PAYABLE-ACQUISITION, net of current portion -- 1,166,667
BRIDGE LOANS PAYABLE 2,500,372 --
DUE TO AFL, net of current portion 200,000 200,000
------------ ------------
7,145,288 4,463,515
------------ ------------
COMMITMENTS AND CONTINGENCIES
REDEEMABLE CLASS A COMMON STOCK -- 750,000
STOCKHOLDERS' EQUITY:
Preferred stock, 1,500,000 shares authorized; none
issued or outstanding -- --
Class A Common Stock, 15,000,000 shares
authorized; 7,393,174 and 6,720,710 issued and 13,907,532 12,581,457
outstanding, respectively
Class B Common Stock, 1,000 shares authorized;
1,000 issued and outstanding 5,000 5,000
Additional paid-in capital 4,256,512 3,102,903
Accumulated (deficit) (10,466,227) (9,057,590)
------------ ------------
Total Stockholders' Equity 7,702,817 6,631,770
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 14,848,105 $ 11,845,285
============ ============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
4
THE ORLANDO PREDATORS ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three For the Three For the Six For the Six
Months Ended Months Ended Months Ended Months Ended
March 31, 2002 March 31, 2001 March 31, 2002 March 31, 2001
-------------- -------------- -------------- ---------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
REVENUES:
Advertising and promotion $ 1,658 $ 143,047 $ 2,486 $ 148,406
Ticket -- 184,831 -- 184,831
Concession -- 13,542 -- 13,542
League -- 60,000 44,092 164,167
Telemarketing -- 11,383 -- 11,383
Other -- 60,765 -- 64,541
----------- ----------- ----------- -----------
Total Revenue 1,658 473,568 46,578 586,870
----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Selling and promotional -- 28,205 728 30,163
Operations -- 92,336 -- 92,336
League assessments -- 3,750 -- 3,750
Trade expenses 67,593 162,705 125,526 189,905
General and administrative 396,233 325,445 952,991 751,431
Telemarketing -- 9,434 -- 10,453
Gain on assets available for sale -- (25,600) -- (25,600)
Loss on disposal of equipment 2,288 -- 2,288 --
Amortization -- 19,187 19,312 31,624
Depreciation 7,203 14,898 14,812 29,796
----------- ----------- ----------- -----------
Total Costs and Expenses 473,317 630,360 1,115,657 1,113,858
----------- ----------- ----------- -----------
OPERATING (LOSS) (471,659) (156,792) (1,069,079) (526,988)
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSES):
Interest expense (45,729) (47,777) (82,480) (79,601)
Interest income 1,392 6,134 2,339 7,050
Interest income, AFL 64,705 74,818 132,899 164,460
Loan fees (200,866) (176,250) (392,316) (176,250)
----------- ----------- ----------- -----------
Net Other Income (Expense) (180,498) (143,075) (339,558) (84,341)
----------- ----------- ----------- -----------
NET (LOSS) $ (652,157) $ (299,867) $(1,408,637) $ (611,329)
=========== =========== =========== ===========
NET (LOSS) PER SHARE-BASIC AND DILUTED $ (0.09) $ (0.05) $ (0.20) $ (0.11)
=========== =========== =========== ===========
Weighted Average Number of Common
Shares Outstanding, basic and diluted 7,221,986 5,730,673 7,000,981 5,532,458
=========== =========== =========== ===========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
5
THE ORLANDO PREDATORS ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six For the Six
Months Ended Months Ended
March 31, 2002 March 31, 2001
-------------- -------------
(Unaudited) (Unaudited)
CASH FLOWS FROM (TO) OPERATING ACTIVITIES:
Net Income (loss) $(1,408,637) $ (611,329)
Adjustments to reconcile net income (loss) to net cash from operating
activities:
Depreciation and amortization 34,124 61,420
Issuance of Class A common stock for loan fees 234,500 156,250
Issuance of Class A common stock purchase warrants
for services 259,000 --
Issuance of Class A common stock purchase warrants
for loan fees 894,610 --
Loss on retirement of assets 2,288 --
Changes in assets and liabilities:
Accounts receivable (1,723,902) (1,126,865)
AFL, Interest income receivable (108,669) (66,920)
Inventory (13,954) (58,742)
Prepaid expenses (1,917,487) (1,007,669)
Litigation reimbursement receivable -- 114,000
Other assets (2,902) (80,362)
Accounts payable and accrued expenses (376,125) 68,656
Due to AFL (74,000) --
Accounts payable and accrued expenses, related party (36,000) --
Deferred revenue 3,236,903 2,584,832
----------- -----------
Net Cash Provided (Used) by Operating Activities (1,000,251) 33,271
----------- -----------
CASH FLOWS FROM (TO) INVESTING ACTIVITIES:
Purchase of equipment (29,251) (250,240)
Acquisition of af2 teams and assets available for sale -- (2,987,019)
Due from af2 for IFL expansion markets -- 75,000
Proceeds from the sale of assest available for sale 3,500 141,932
Payments received-AFL note receivable 121,324 197,460
Acquisition costs utilized -- (2,984)
----------- -----------
Net Cash Provided (Used) by Investing Activities 95,573 (2,825,851)
----------- -----------
CASH FLOWS FROM (TO) FINANCING ACTIVITIES:
Proceeds from issuance of Class A common stock 493,500 578,813
Proceeds from note payable-bank -- 1,000,000
Proceeds from note payable-acquisition -- 1,750,000
Repayment of note payable-acquisition (400,000) --
Repayment of note payable-bank (700,000) (300,000)
Proceeds from bridge loans 2,325,372 --
Payment of offering costs -- (57,884)
----------- -----------
Net Cash Provided (Used) by Financing Activities 1,718,872 2,970,929
----------- -----------
INCREASE (DECREASE) IN CASH 814,194 178,349
Cash and Cash Equivalents at Beginning of Period 281,492 290,708
----------- -----------
Cash and Cash Equivalents at End of Period $ 1,095,686 $ 469,057
=========== ===========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest $ 18,907 $ 21,735
=========== ===========
Taxes $ -- $ --
=========== ===========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
6
THE ORLANDO PREDATORS ENTERTAINMENT, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include the
accounts of The Orlando Predators Entertainment, Inc. (the "Company") and its
wholly owned subsidiaries; Orlando Predators Arena Football, Inc. ("Predators")
and Peoria Professional Football, Inc. ("Peoria"). The financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and in accordance with the instructions for Form
10-QSB. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles.
In the opinion of management, the unaudited interim financial statements for the
three and six months ended March 31, 2002 are presented on a basis consistent
with the audited financial statements and reflect all adjustments, consisting
only of normal recurring accruals, necessary for fair presentation of the
results of such period. The results for the three and six months ended March 31,
2002 are not necessarily indicative of the results of operations for the full
year. These financial statements and related footnotes should be read in
conjunction with the financial statements and footnotes thereto included in the
Company's Form 10-KSB filed with the Securities and Exchange Commission for the
year ended September 30, 2001.
Certain amounts in the prior period's financial statements have been
reclassified for comparative purposes to conform to the current year.
Prior to October 18, 2000, the operations of the Company included only the
operations of Predators. Subsequently, the Company formed Predators as a
separate corporation and assigned the football operations to Predators. In 2000,
the Company formed Peoria Professional Football, Inc. (Peoria) and acquired the
right to operate an af2 (a minor league system of the AFL) team in Peoria,
Illinois. The accounting policies of Predator and Peoria are identical to the
prior policies of the Company. In addition to the rights to Peoria, the Company
acquired the rights to operate two additional teams in af2 markets formerly
controlled by the Indoor Football League, Inc. (IFL), a competing indoor
football league. The Company also acquired assets of the IFL, including indoor
playing fields and office equipment. These assets have been classified as
available for sale.
NOTE 2 - CONTINGENCIES
The AFL is party to a number of lawsuits arising in the normal course of
business. The Company is contingently liable for its share of the outcomes.
NOTE 3 - COMMON STOCK
In December 2001and January 2002, the Company completed private placements for
the sale of 338,400 shares of Class A Common Stock for proceeds of $493,500 and
paid offering costs in the form of 56,400 shares of Class A Common Stock.
NOTE 4 - LOAN FEES
The Company has issued 84,778 shares of Class A Common Stock valued at the fair
market value on the date they were issued of $234,500. The stock issued for loan
fees were issued to the Company's Chief Executive Officer, a former director of
the Company and an employee/significant stockholder who is a former officer and
director of the Company for pledging collateral for the Company's $700,000 bank
note.
7
THE ORLANDO PREDATORS ENTERTAINMENT, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 5-IFL TRANSACTION
The Company negotiated a reduced purchase price of the assets acquired from IFL
Acquisition Co. (IFLA), a wholly owned subsidiary of Arenafootball 2 (af2). The
following is the reallocation of the purchase based upon the negotiated reduced
purchase price:
Three af2 memberships $ 1,500,000
Tangible property 469,000
Receivable from IFL Acquisition Co for af2 expansion revenue 184,697
Forgiveness of accrued interest expense 144,375
-----------
2,298,072
Less:
Class A Common Stock (598,072)
Cash payment (400,000)
af2 expansion fees payable (200,000)
Credit to buyer for territory release payment (25,000)
Credit to buyer for season ticket prepayments (226,165)
-----------
Cash paid at original closing $ 848,835
===========
The reduced purchase price reflects a cash payment of $400,000 on February 15,
2002 in exchange for the cancellation of a $1,750,000 note payable to the former
owners of the Indoor Football League (IFL), which bore interest at 6% per year
and the forgiveness of accrued interest payable under the note of $144,375. The
IFL also relinquished its option to return the 214,286 shares of the Company's
Class A Common Stock at a rate of $3.50 per share in exchange for an additional
35,000 shares of the Company's Class A Common Stock. The 214,286 and 35,000
shares have been valued at their fair market values on the dates that they were
issuable. The Company has agreed to pay the IFL the first $200,000 it receives
in expansion fees distributed by af2 for expansion in former IFL territories and
the first $100,000 it might have received from an AFL/NFL transaction. The NFL
did not exercise its option to purchase up to 49.9% of the AFL and therefore, no
adjustment has been made to the purchase price. The Company has allocated the
revised purchase price to reflect $184,697 of expansion fees receivable from af2
for expansion in former IFL territories rather than purchase price in excess of
assets acquired.
NOTE 6-NOTES PAYABLE
The Company completed a private placement of $2,500,372 in notes payable in
March 2002. The notes bear interest at 9.5% and principal and interest are due
18 months after the note date. The Company granted warrants to the note holders
to purchase a total of 500,074 shares of the Company's Class A Common Stock for
$2.75 based upon 30,000 shares for each $100,000 in principal balance, which are
exercisable until February 1, 2006. As part of the private placement, an
employee/significant stockholder and former officer and director of the Company,
converted a note payable of $175,000 to a note payable in the private placement.
If the Company repays the loans within one year, warrants to purchase 10,000
shares (for each $100,000 of principal balance) of the Company's Class A Common
Stock will be cancelled. The Company computed the fair market value of the
warrants utilizing the Black-Scholes model and will amortize the cost over the
note period. The warrants have been valued at $894,610 and the significant
assumptions used in the calculation of the warrants were a risk free interest
rate of 4.03% an average volatility of 82% and an average life of four years.
The notes are collateralized by the Company's two non-voting equity interests in
the Arena Football League and the Company's af2 memberships for Peoria, Illinois
and Green Bay, Wisconsin. During the six months ended March 31, 2002, the
Company has expensed $102,586 as loan fees and has recorded $792,023 as prepaid
loan fees.
8
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Introduction
The Company is in the sports and entertainment business and (i) owns and
operates the Orlando Predators (the Predators), a professional arena football
team of the Arena Football League (the AFL or the League), (ii) owns an
additional 8% revenue interest in the League (in addition to its 4% League
ownership through the Predators) and (iii) owns and operates the Peoria Pirates
(Pirates), a minor league professional arena football team of the arenafootball2
League (af2). Arena football is played in an indoor arena on a padded 50-yard
long football field using eight players on the field for each team. Most of the
game rules are similar to college or other professional football game rules with
certain exceptions intended to make the game faster and more exciting.
The Company's strategy is to participate through the operation of the Predators
and Pirates and through its league ownership in what the Company believes will
be continued significant growth of the AFL which in turn is expected to result
in increased revenue to the Company generated from (i) national (League) and
regional (team) broadcast contracts, (ii) national league sponsorship contracts,
(iii) the sale of additional League Membership fees, and (iv) increased fan
attendance at AFL and af2 games including Predators' and Pirates' games,
together with appreciation in the value of the Predators as an AFL team and the
Pirates as an af2 team. The trend toward ongoing League growth was evidenced by
a February 1999 announcement by the National Football League (NFL) that it had
obtained an option to purchase up to 49.9% of the League.
At the team levels, the Company's strategy is to increase fan attendance at
Predators' and Pirates' home games, expand the Predators' and Pirates'
advertising and sponsorship base, and contract with additional local and
regional broadcasters to broadcast Predators' and Pirates' games.
The Company currently derives substantially all of its revenue from the arena
football operations of the Predators and Pirates. This revenue is primarily
generated from (i) the sale of tickets to the Predators' and Pirates' home
games, (ii) the sale of advertising and promotions to Predator and Pirate
sponsors, (iii) the sale of local and regional broadcast rights to Predators'
games, (iv) the Predators' share of League contracts with national broadcast
organizations and expansion team fees paid through the AFL, (v) the sale of
merchandise carrying the Predators' and Pirates' logos and (vi) concession sales
at Predators' home games. A large portion of the Company's annual revenue is
determinable at the commencement of each football season based on season ticket
sales and contracts with broadcast organizations and team sponsors.
The operations of the team are year-round; however, the majority of revenues and
expenses are recognized during the AFL and af2 playing seasons, from March
through August of each year. The teams begin to receive deposits in late August
for season tickets during the upcoming season. From August through April, the
teams sell season tickets and collect revenue from all such sales. Selling,
advertising and promotions also take place from August through April, although
these revenues are not realized until after the season begins. Single game
tickets and partial advertising sponsorships are also sold during the season,
primarily from April to July. Additional revenues and expenses are recognized in
August from playoff games, if any.
In August 1998, the Company purchased an additional two equity interests in the
Arena Football League for $6,000,000 (Nth Agreement). The $6 million will be
repaid to the Company by distributions from the League related to these two
equity interests or Nths. The League currently owes the Company $1.1 million in
note payments.
In May 1999, the Company entered into a non-binding letter of intent to acquire
United Sports Ventures, Inc. (USV). USV wholly or partially owns and operates
the Quad City Mallards, the Rockford Ice Hogs and the Missouri River Otters of
the United Hockey League and the Mobile Bay Bears (AA) professional baseball
club. The Company terminated the letter of intent with USV in June 2000, but
retained the Company's senior management to oversee the operations of OPE in a
management agreement.
9
In mid-February 2000, the AFL announced it was going to cancel the 2000 season
due to its ongoing labor dispute with the players. In late February 2000, the
AFL was notified by the Arena Football League Players' Organizing Committee that
they received authorization cards from an overwhelming majority of AFL players
to act as the exclusive collective bargaining representative for all AFL
players. Subsequently, the 2000 season was re-opened and negotiations began on
an interim collective bargaining agreement.
In April 2000, the Company settled a dispute with the League regarding the
payment terms of the Nth Agreement. As a result the Company will receive a
guaranteed amount of $480,000 per year and all additional monies received from
the League will go to the repayment of the remaining approximate $1.1 million
owed to the Company. Subsequently, the Company will continue to receive their
pro rata share of League revenues. When the entire debt is repaid to the
Company, only then will the Company begin to recognize the additional 2 Nths'
distributions as revenue.
In October 2000, the Company entered into an agreement with IFL Acquisition Co.,
LLC (IFLA), a wholly owned subsidiary of af2 Enterprises, LLC (af2). The Company
acquired the rights to three af2 memberships, all of the tangible assets of the
Indoor Football League (which were acquired by IFLA under a separate agreement),
the first $1,000,000 in expansion revenues received by af2 for memberships in
former Indoor Football League markets. The Company filed af2 applications for
Peoria, IL, Bismarck, ND and Green Bay, WI. In 2001, the Company began play in
Peoria (Pirates), and will begin play in 2003 in Green Bay and in 2004 in
Bismarck. The Company expects all af2 operations to be profitable. In June 2000,
the Company changed its fiscal year end from December 31 to September 30 for
financial statement purposes only. In September 2001, the Company changed its
tax year-end to conform.
NBC Sports and the Arena Football League have reached an agreement to become
revenue-sharing partners in an historic national television contract beginning
with the 2003 season. The AFL season will begin on February 2 and conclude with
ArenaBowl XVII on Sunday, June 22, 2003. NBC's regular season broadcasts will be
shown live on Sunday afternoons with up to four regional telecasts each week.
While NBC will be the exclusive national broadcaster of AFL games and there is
no national cable partner in the deal, AFL teams' local television agreements
will continue on a non-conflicting basis. All Playoff Games will be broadcast
live on Saturdays and Sundays beginning with the AFL's Wild Card games on the
weekend of May 24-25, 2003 and culminating with ArenaBowl XVII on June 22, 2003.
The AFL will have a total of 22 broadcasts (15 regular season games with up to
four regional exposures, plus seven postseason games) on NBC encompassing a
total of 71 games (including all playoff games and ArenaBowl), resulting in over
55 hours of live programming each year.
Except for the historical information contained herein, certain matters set
forth in this report are forward-looking statements within the meaning of the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
These forward-looking statements are subject to risks and uncertainties that may
cause actual results to differ materially. These risks are detailed from time to
time in the Company's periodic reports filed with the Securities and Exchange
Commission. These forward-looking statements speak only as of the date hereof.
The Company disclaims any intent or obligation to update these forward-looking
statements.
Results of Operations
Three Months Ended March 31, 2002 Compared To The Three Months Ended March 31,
2001
Revenues
--------
The Company recognizes game revenues and expenses over the course of the season
(generally April through August). During the three months ended March 31, 2001,
the Predators played one home game and the Pirates played one away game.
Revenues for the three months ended March 31, 2002 were $1,658 compared to
$473,568 for the three months ended March 31, 2001. The reduction was
principally due to the teams not playing any games in 2002 as compared to one
home game for the Predators and one away game for the Pirates which generated
revenues of $341,420, distributions related to AFL expansion memberships sold
during the three months ended March 31, 2002 of $60,000 and other miscellaneous
income of $60,765. In addition the telemarketing department generated $11,383 of
revenues during the three months ended March 31, 2001 compared to $0 during the
three months ended March 31, 2002. Management anticipates increasing revenues in
the telemarketing department by contracting to sell season tickets for other
sports teams.
Selling and Promotional Expenses
--------------------------------
Selling and promotional expenses were $0 for the three months ended March 31,
2002 compared to $28,205 for the three months ended March 31, 2001. The
Predators have agreed to have the sales of team merchandise managed by an
outside party. The Company anticipates a reduction in inventory costs from this
agreement. The reduction in selling and promotional expenses is a result of no
games played during the three months ended March 31, 2002.
10
Operations
----------
Operating expenses were $0 for the three months ended March 31, 2002 compared to
$92,336 for the three months ended March 31, 2001. Operating expenses consist
primarily of player and coaching staff salaries and benefits and game production
costs. The reduction in operating expenses is a result of no games played during
the three months ended March 31, 2002.
Trade Expenses
--------------
Trade expenses were $67,593 for the three months ended March 31, 2002 compared
to $162,705 for the three months ended March 31, 2001. The teams trade
sponsorship opportunities at home games in exchange for goods or services. The
value of trade expenses are expensed as incurred, while trade revenues are
recognized when home games are played. The expenses during the three months
ended March 31, 2002 consisted primarily of wireless phone services, web site
and computer maintenance and furniture rentals. Trade expenses during the three
months ended March 31, 2001 also included medical services, player housing, team
meals, and selling and promotional item production. The reduction in trade
expenses is a result of no games played during the three months ended March 31,
2002.
General and Administrative Expenses
-----------------------------------
General and administrative expenses of $396,233 increased by $70,788 or 22% for
the three months ended March 31, 2002 compared to $325,445 for the three months
ended March 31, 2001. The increase was primarily due to legal fees associated
with the Company's successful defense of a law suit by a former sponsor of the
Predators, increased accounting and other professional fees and increased rent
expense. Management believes that general and administrative expenses will be
lower in future periods due to decreased staffing and other cost cutting
procedures.
Interest Income/Expense
-----------------------
Interest income and interest income AFL were $1,392 and $64,705, respectively
during the three months ended March 31, 2002 as compared to $6,134 and $74,818,
respectively for the three months ended March 31, 2001. The decrease in interest
income is due to reduced cash balances during the three months ended March 31,
2002 and payments on the principle balance of the note receivable from the AFL
during 2001.
Interest expense during the three months ended March 31, 2002 was $45,729 as
compared to $47,777 for the prior period. The interest expense is attributable
to the notes payable assumed under the acquisition agreement with IFLA during
the year ended September 30, 2001 and the bridge loans that closed in March
2002.
Loan Fees
---------
The Company had loan fees that were paid in 84,778 shares of Class A Common
Stock valued at the fair market value on the date they were issuable of
$234,500. The loan fees were paid to the Company's Chief Executive Officer, a
former director of the Company and an employee/significant stockholder who is a
former officer and director of the Company for pledging collateral for the
Company's $700,000 bank note. In addition, the Company granted warrants to
purchase 500,074 shares of the Company's Class A Common Stock in connection with
its bridge loan financing which were valued utilizing the Black-Scholes model
totaling $894,610. During the three months ended March 31, 2002, the Company
expensed $102,586 and is amortizing the loan fees over the 18 month period of
the loan.
Six Months Ended March 31, 2002 Compared To The Six Months Ended March 31, 2001
Revenues
--------
The Company recognizes game revenues and expenses over the course of the season
(generally April through August). During the six months ended March 31, 2001,
the Predators played one home game and the Pirates played one away game.
Revenues for the six months ended March 31, 2002 were $46,578 compared to
$586,870 for the six months ended March 31, 2001. The reduction was principally
due to the teams not playing any games in 2002 as compared to one home game for
the Predators and one away game for the Pirates which generated revenues of
$341,420, distributions related to AFL expansion memberships sold during the six
months ended March 31, 2002 of $164,167 compared to $44,093 and other
miscellaneous income of $64,541. In addition the telemarketing department
generated $11,383 of revenues during the six months ended March 31, 2001
compared to $0 during the six months ended March 31, 2002. Management
anticipates increasing revenues in the telemarketing department by contracting
to sell season tickets for other sports teams.
Selling and Promotional Expenses
--------------------------------
Selling and promotional expenses were $728 for the six months ended March 31,
2002 compared to $30,163 for the six months ended March 31, 2001. During 2002,
the Predators agreed to have the sales of team merchandise managed by an outside
party. The Company anticipates a reduction in inventory costs from this
agreement. The reduction in selling and promotional expenses is a result of no
games played during the six months ended March 31, 2002.
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Operations
----------
Operating expenses were $0 for the six months ended March 31, 2002 compared to
$92,336 for the six months ended March 31, 2001. Operating expenses consist
primarily of player and coaching staff salaries and benefits and game production
costs. The reduction in operating expenses is a result of no games played during
the six months ended March 31, 2002.
Trade Expenses
--------------
Trade expenses were $125,526 for the six months ended March 31, 2002 compared to
$189,905 for the six months ended March 31, 2001. The teams trade sponsorship
opportunities at home games in exchange for goods or services. The value of
trade expenses are expensed as incurred, while trade revenues are recognized
when home games are played. The expenses during the six months ended March 31,
2002 consisted primarily of wireless phone services, web site and computer
maintenance and furniture rentals. Trade expenses during the six months ended
March 31, 2001 also included medical services, player housing, team meals, and
selling and promotional item production. The reduction in trade expenses is a
result of no games played during the six months ended March 31, 2002.
General and Administrative Expenses
-----------------------------------
General and administrative expenses of $952,991 increased by $70,788 or 27% for
the six months ended March 31, 2002 compared to $751,431 for the six months
ended March 31, 2001. The increase was primarily due to legal fees associated
with the Company's successful defense of a law suit by a former sponsor of the
Predators, increased accounting and other professional fees and increased rent
expense. The increase was also due to the recording of the fair market value of
options granted to USV for the termination of its management contract with the
Company of $259,000. Management believes that general and administrative
expenses will be lower in future periods due to decreased staffing and other
cost cutting procedures.
Interest Income/Expense
-----------------------
Interest income and interest income AFL were $2,339 and $132,899, respectively
during the six months ended March 31, 2002 as compared to $7,050 and $164,460,
respectively for the six months ended March 31, 2001. The decrease in interest
income is due to reduced cash balances during the six months ended March 31,
2002 and payments on the principle balance of the note receivable from the AFL
during 2001
Interest expense during the six months ended March 31, 2002 was $82,480 as
compared to $79,601 for the prior period. The interest expense is attributable
to the notes payable assumed under the acquisition agreement with IFLA during
the year ended September 30, 2001 and the bridge loans that closed in March
2002.
Loan Fees
---------
The Company had loan fees that were paid in 84,778 shares of Class A Common
Stock valued at the fair market value on the date they were issuable of
$234,500. The loan fees were paid to the Company's Chief Executive Officer, a
former director of the Company and an employee/significant stockholder who is a
former officer and director of the Company for pledging collateral for the
Company's $700,000 bank note. In addition, the Company granted warrants to
purchase 500,074 shares of the Company's Class A Common Stock in connection with
its bridge loan financing which were valued utilizing the Black-Scholes model
totaling $894,610. During the six months ended March 31, 2002, the Company
expensed $102,586 and is amortizing the loan fees over the 18 month period of
the loan.
Liquidity and Capital Resources
Historically, the Company has financed net operating losses primarily with
expansion and note receivable and interest payments from the AFL, the sale of
its securities and related party loans.
From January 2000 through September 2000, the Company received net payments from
the League in the amount of $186,743. This represented expansion revenue related
to the Detroit Fury, Dallas, New Orleans and Washington, DC expansion teams that
will begin play in 2001, 2002, 2002 and 2003, respectively. The Company also
received approximately $1.4 million for principle and interest payments related
to its note receivable from the League.
From October 2000 to September 2001, the Company received net payments from the
League in the amount of $164,167. This represented expansion revenue related to
the Dallas and Long Island expansion teams that will begin play in 2002 and
2001, respectively and the New Jersey team which was sold to a new owner. The
Company also received approximately $654,000 for principle and interest payments
related to its note receivable from the League.
In October 2000, the Company entered into an agreement with IFL Acquisition Co.,
LLC (IFLA), a wholly owned subsidiary of af2 Enterprises, LLC (af2). The Company
acquired the rights to three af2 memberships, all of the tangible assets of the
Indoor Football League (which were acquired by IFLA under a separate agreement),
the first $1,000,000 in expansion revenues received by af2 for memberships in
former Indoor Football League markets. In addition, to the extent that af2
licenses intellectual property acquired from the Indoor Football League to third
parties within 24 months of the date of the agreement the Company will receive a
fee of $10,000. In exchange for the assets and rights acquired, the Company paid
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$1,100,000 cash less a credit of $25,000 for a territory release payment and a
credit of $226,165 for cash received prior to the sale to IFLA, issued 214,286
shares of Redeemable Class A Common Stock valued at $750,000 and a promissory
note for $1,750,000 bearing interest at 6% per year, payable in three annual
installments of $583,333 on October 18, 2000. The Company's two equity interests
in the League collateralize the note. The common stock is redeemable at $3.50
per share at the option of the stockholder for a period of six months beginning
on April 18, 2002. The Company also paid $25,000 to the owner of the Milwaukee
AFL membership and a $50,000 fee for the first af2 team acquired and will be
required to pay $5,000 for each additional af2 team to af2.
The agreement was renegotiated in February 2002 and the financial statements
reflect a reduced purchase price. The reduced purchase price reflects a cash
payment of $400,000 on February 15, 2002 in exchange for the cancellation of a
$1,750,000 note payable to the former owners of the Indoor Football League
(IFL), which bore interest at 6% per year and the forgiveness of accrued
interest payable under the note of $144,375. The IFL also relinquished its
option to return the 214,286 shares of the Company's Class A Common Stock at a
rate of $3.50 per share in exchange for an additional 35,000 shares of the
Company's Class A Common Stock. The 214,286 and 35,000 shares have been valued
at their fair market values on the dates that they were issuable. The Company
has agreed to pay the IFL the first $200,000 it receives in expansion fees
distributed by af2 for expansion in former IFL territories and the first
$100,000 it might have received from an AFL/NFL transaction. The NFL did not
exercise its option to purchase up to 49.9% of the AFL and therefore, no
adjustment has been made to the purchase price. The Company has allocated the
revised purchase price to reflect $184,697 of expansion fees receivable from af2
for expansion in former IFL territories rather than purchase price in excess of
assets acquired.
In January through September of 2001, the Company completed private placements
for the sale of 1,132,044 shares of the Company's Class A Common Stock for net
proceeds of $1,532,446.
In October 2001 through January 2002, the Company completed private placements
for the sale of 338,400 shares of the Company's Class A Common Stock for net
proceeds of $493,500.
The Company believes that cash flows from operations, along with distributions
related to the purchase of two equity interests in the AFL will enhance the
Company's future cash flows and satisfy the Company's anticipated working
capital requirements for at least the next 12 months. This will be accomplished
by the requirement that the AFL make a minimum principal and interest payment to
the Company in the amount of $480,000 annually in August.
PART II. OTHER INFORMATION AND SIGNATURES
-----------------------------------------
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS FOR WORKING CAPITAL
In January 2002, the Company completed private placements for the sale of
338,400 shares of Class A Common Stock for proceeds of $493,500 and paid
offering costs in the form of 56,400 shares of Class A Common Stock for working
capital.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None
13
Signatures
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
THE ORLANDO PREDATORS ENTERTAINMENT, INC.
Registrant
/s/ John H. Pearce
--------------------------------------------
John H. Pearce Chief Financial Officer
Date: May 15, 2002
14