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 June 30, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition Period from:_______________to_______________
Commission File Number: 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. Employer Identification Number)
Incorporation or Organization)
20 North Orange Avenue, Suite 101
Orlando, Florida 32801
(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, 1998, 2,480,000 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]
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE ORLANDO PREDATORS ENTERTAINMENT, INC.
BALANCE SHEETS
ASSETS
------
June 30, December 31,
1998 1997
---------- ----------
CURRENT ASSETS:
Cash $ 121,361 $2,255,678
Accounts receivable, sponsorships 273,588 --
Inventory 41,169 14,659
Receivable from employees 62,898 51,717
Prepaid expenses 352,425 94,134
---------- ----------
Total Current Assets 851,441 2,416,188
PROPERTY AND EQUIPMENT, at cost, net 251,988 262,397
ACQUISITION COSTS 3,512,408 --
LOAN COSTS 70,000 --
DEFERRED OFFERING COSTS 128,521 --
MEMBERSHIP COST, net 1,919,386 1,944,259
OTHER INTANGIBLES, net 44,816 55,159
RESTRICTED INVESTMENT 100,000 100,000
OTHER ASSETS 4,344 908
---------- ----------
$6,882,904 $4,778,911
========== ==========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
2
<PAGE>
<TABLE>
<CAPTION>
THE ORLANDO PREDATORS ENTERTAINMENT, INC.
BALANCE SHEETS (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
June 30, December 31,
1998 1997
----------- -----------
CURRENT LIABILITIES:
<S> <C> <C>
Accounts payable and accrued expenses $ 296,878 $ 167,355
Accounts payable, related parties 51,317 80,108
Due to AFL 31,400 --
Notes payable, related party 1,100,000 --
Bridge loans 950,000 --
Accrued interest, related party 17,021 99,083
Deferred revenue 818,514 457,643
----------- -----------
Total Current Liabilities 3,265,130 804,189
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, 1,500,000 shares authorized; none
issued or outstanding -- --
Class A Common stock, 15,000,000 shares authorized;
2,480,000 issued and outstanding 4,861,707 4,861,707
Class B Common Stock, 1,000 shares authorized;
1,000 issued and outstanding 5,000 5,000
Accumulated (deficit) (1,248,933) (891,985)
----------- -----------
Total Stockholders' Equity 3,617,774 3,974,722
----------- -----------
$ 6,882,904 $ 4,778,911
=========== ===========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
3
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE ORLANDO PREDATORS ENTERTAINMENT, INC.
STATEMENTS OF OPERATIONS
For the
For the Three For the Three For the Six Period
Months Ended Months Ended Months Ended February 14, to
June 30, 1998 June 30, 1997 June 30, 1998 June 30, 1997
------------- ------------- ------------- -------------
REVENUE:
<S> <C> <C> <C> <C>
Ticket revenues $ 983,969 $ 1,111,804 $ 983,969 $ 1,111,804
Local television and radio
broadcast rights 42,028 60,247 42,028 60,247
Advertising and promotions 430,268 461,985 433,060 461,985
Advertising and promotions,
related party 68,750 -- 68,750 --
League revenue 67,301 50,000 67,301 50,000
Other 17,085 6,271 17,085 6,271
----------- ----------- ----------- -----------
Total Revenue 1,609,401 1,690,307 1,612,193 1,690,307
----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Operations 916,526 972,833 918,437 972,833
Selling and promotional
expenses 325,531 199,116 325,531 202,256
League assessments 49,153 101,164 49,153 101,164
General and administrative 427,500 285,571 635,548 353,625
Amortization 17,608 10,322 35,216 16,515
Depreciation 21,743 11,080 25,619 11,917
----------- ----------- ----------- -----------
Total Costs and Expenses 1,758,061 1,580,086 1,989,504 1,658,310
----------- ----------- ----------- -----------
OPERATING INCOME (LOSS) (148,660) 110,221 (377,311) 31,997
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest expense (16,272) -- (16,672) --
Interest expense, related party (17,021) (30,236) (17,021) (31,259)
Interest income 29,120 2,740 53,604 4,465
Other -- 31 452 31
----------- ----------- ----------- -----------
Net Other Income (Expense) (4,173) (27,465) 20,363 (26,763)
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES (152,833) 82,756 (356,948) 5,234
PROVISION FOR INCOME TAXES -- 2,200 -- 2,200
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ (152,833) $ 80,556 $ (356,948) $ 3,034
=========== =========== =========== ===========
NET INCOME (LOSS) PER SHARE - BASIC $ (.06) $ .06 $ (.14) $ *
=========== =========== =========== ===========
Weighted Average Number of
Common Shares Outstanding 2,480,000 1,380,000 2,480,000 1,380,000
=========== =========== =========== ===========
* - Less than $.01 per share
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE ORLANDO PREDATORS ENTERTAINMENT, INC.
STATEMENTS OF CASH FLOWS
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
For the
For the Six Period
Months Ended February 14, to
June 30, 1998 June 30, 1997
------------- -------------
CASH FLOWS FROM (TO) OPERATING ACTIVITIES:
<S> <C> <C>
Net income (loss) $ (356,948) $ 3,034
Adjustments to reconcile net (loss) to net cash from operating
activities:
Depreciation and amortization 60,683 28,432
Changes in assets and liabilities:
Accounts receivable (273,588) 438,124
Employee receivables (11,181) (13,413)
Inventory (26,510) (22,096)
Prepaid expenses (258,291) (131,031)
Other assets (3,436) (2,240)
Accounts payable and accrued expenses 50,070 235,310
Accrued income taxes -- 2,200
Deferred revenue 360,871 (626,244)
----------- -----------
Net Cash (Used) by Operating Activities (458,330) (87,924)
----------- -----------
CASH FLOWS FROM (TO) INVESTING ACTIVITIES:
Purchase of equipment (15,058) (22,130)
Payment of acquisition costs (3,512,408) --
Investment in certificate of deposit -- (100,000)
----------- -----------
Net Cash (Used) by Investing Activities (3,527,466) (122,130)
----------- -----------
CASH FLOWS FROM (TO) FINANCING ACTIVITIES:
Loans from stockholders -- 270,000
Note payable - related party 1,100,000 --
Payment for deferred offering costs (167,586) --
Deferred offering costs from discontinued offering 39,065 --
Bridge loans 950,000 --
Payment of loan fees (70,000) --
Payment of offering costs -- (20,000)
----------- -----------
Net Cash Provided by Financing Activities 1,851,479 250,000
----------- -----------
INCREASE (DECREASE) IN CASH (2,134,317) 39,946
CASH, beginning of period 2,255,678 --
----------- -----------
CASH, end of period $ 121,361 $ 39,946
=========== ===========
Supplementary information:
CASH PAID FOR INTEREST $ 99,083 $ --
=========== ===========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
5
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<PAGE>
THE ORLANDO PREDATORS ENTERTAINMENT, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
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 interim financial statements for the period
ended June 30, 1998 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.
Audited financial statements for Orlando Predators, a division of Orlando
Predators, Ltd., the predecessor owner, for the period prior to acquisition,
January 1, 1997 through February 13, 1997, are not presented since no
substantial activities took place during that period.
The results for the three and six months ended June 30, 1998 and the periods
ended June 30, 1997 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 period ended December 31, 1997.
Certain amounts in the prior period's financial statements have been
reclassified for comparative purposes to conform to the current year.
NOTE 2 - AGREEMENT TO PURCHASE EQUITY INTERESTS IN THE AFL
The Company entered into an agreement to acquire two, non-voting, equity
interests in the Arena Football League, Inc. (AFL) for $6,000,000. Each similar
equity interest will entitle the Company to share equally with each other member
in AFL revenues. The AFL guarantees to pay the Company at least $480,000 per
year until the Company receives an aggregate of $6,000,000 through League
distribution. If the Company receives $6,000,000 within one year from the
closing of the sale, one equity interest returns to the League and one equity
interest remains with the Company without any guaranteed rate of return. Once
the Company receives an aggregate of $6,000,000, the Company will participate in
all League revenues, expenses and liabilities with respect to the two equity
interests.
The $6,000,000 is payable as follows: $3,500,000 was paid with the executed
contract and $2,500,000 will be paid within 60 days of the contract.
The purchase of the interests will require that two, non-voting, equity
interests in the League will be subject to the equity method of accounting, and
an unsecured, note receivable from the League, imputed interest and principal
due annually.
6
<PAGE>
THE ORLANDO PREDATORS ENTERTAINMENT, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 3 - 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. In
the opinion of management, the resolution of these matters will not have a
material effect on the Company's financial position.
NOTE 4 - PRIVATE PLACEMENT
On August 11, 1998 the Company completed a private placement of 1,250,000 shares
of its Class A Common stock for $2,500,000 ($2.00 per share). Simultaneously the
Company withdrew its proposed public offering of its preferred shares and is
filing another private placement for up to 1,200,000 shares of its Class A
Common stock for $3,000,000 ($2.50 per share).
NOTE 5 - NOTES PAYABLE - BRIDGE LOANS
During April 1998, the Company completed an offering of 40 units in a Private
Placement. Each unit consisted of one $50,000 promissory note (totaling
$2,000,000) bearing interest at 7% per annum and 4,000 warrants to purchase the
Company's Class A Common Stock expiring December 31, 2001. The notes are payable
the earlier of December 31, 2001 or on the closing date of a public offering in
excess of $5,000,000. Underwriters were paid a commission of $95,000. Of the
$2,000,000 promissory notes, $1,050,000 were sold to current stockholders or
directors, including $850,000 to Monolith.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
General
- -------
The Company derives substantially all of its revenue from the arena football
operations of the Predators. This revenue is primarily generated from (i) the
sale of tickets to the Predators' home games, (ii) the sale of advertising and
promotions to Predator 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' 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 playing season, from April through August
of each year. The team begins to receive deposits in late September for season
tickets during the upcoming season. From September through April, the team sells
season tickets and collects revenue from all such sales. Selling, advertising
and promotions also take place from September 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 are recognized in August from playoff games,
if any.
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
- ---------------------
Six Months Ended June 30, 1998 Compared To The Period February 14 To June 30,
1997
Revenues
- --------
The Company recognizes game revenues and expenses over the course of the season
(April through August).
Revenues for the six months ended June 30, 1998 were $1,612,193 which
represented a decrease of $78,114 or 4.6% as compared to revenues for the period
ended June 30, 1997 of $1,690,307. The decrease for the six months ended June
30, 1998 was directly attributable to having only five home games as compared to
six home games in the prior period. Ticket sales are recognized when the games
are played thus the decrease in ticket sales of approximately $197,709. In
comparing the periods, operating under the new lease agreement for the arena,
the Company generated $69,874 in concession income for the five home games
played in this quarter as compared to no concession income in the prior period.
Sponsorship sales increased $39,825 or 8.6% as compared to the prior period.
League revenues increased in the amount of $17,301 or 34.6% over the prior
period.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
Revenues (Continued)
- --------
Season ticket prices for the 1998 season decreased an average 10%; however, the
number of season ticket holders increased by 1,889, which represents an increase
in season ticket holders of over 38% for the year.
Operating Expenses
- ------------------
Operating expenses of $918,436 decreased $54,396 or 5.6% as compared to the
prior period of $972,833. The decreases were a result of decreases in arena rent
and expenses of $45,978 as well as having one less home game during the
comparative period. Other decreases included training camp expenses of $9,800 as
well as travel and medical costs of $37,122 over the prior period.
These decreases were offset by increased expenses of $30,639 that are related to
player payroll and bonuses. Other increases included injured reserve payments,
which increased $26,285 over the prior period.
Selling and Promotional Expenses
- --------------------------------
Selling and promotional expenses of $325,531 increased 61% or $123,275 compared
to the prior period primarily due to a new telemarketing department, which
helped increase season ticket sales by 1,889. The increased costs of
telemarketing were partially offset by decreased advertising costs of $20,174.
League Assessments
- ------------------
League assessments of $49,153 decreased $52,101 or 51.4% as compared to the
prior period of $101,163. League assessments decreased due to the reduction in
expenses associated with legal settlements and legal bills with former teams as
well as other claims. The Arena Football League, Inc. is comprised of a number
of teams who share in all league expenses and some league revenues. League
assessments are based upon the team's share of league operating expenses and
other league expenses such as legal settlements.
General and Administrative Expenses
- -----------------------------------
General and administrative expenses of $635,548 increased $281,923 as compared
to the prior period of $353,624. This increase can be attributed to increased
payroll costs of $175,545 due to additional employees as well as the shorter
prior period. Other increases included offering costs from a discontinued
offering of $39,065, legal costs of $18,827 and $19,498 in office operations
related to the new telemarketing department.
Interest Expense
- ----------------
Interest expense during the six months ended June 30, 1998 was $16,672 as
compared to $-0- for the prior period. Related party interest expense was
$17,021 as compared to $30,236 for the prior period. The interest expense and
the related party interest expense during the six months ended June 30, 1998 was
related to bridge loans of $2,000,000, which was used in the initial downpayment
for $3,500,000 in securing the two equity interests in the AFL. The interest
expense during the period ended June 30, 1997 was related to the debt assumed in
the purchase of the Company and additional advances for operations made by
stockholders of the Company.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
Interest Income
- ---------------
Interest income during the six months ended June 30, 1998 was $53,604 as
compared to $4,465 for the prior period. The increase can be attributed to the
proceeds received from the initial public offering.
Liquidity and Capital Resources
- -------------------------------
Historically, the Company financed net operating losses primarily with loans
from the team's former managing general partners.
Through December 10, 1997, the Company had issued an aggregate of $2,342,970 of
promissory notes (together with interest thereon) to its two stockholders most
of which were repaid from proceeds of the IPO. During April 1998, the Company
completed an offering of 40 units in a Private Placement. Each unit consisted of
one $50,000 promissory note (totaling $2,000,000) bearing interest at 7% per
annum and 4,000 warrants to purchase the Company's Class A Common Stock expiring
December 31, 2001. The notes are payable the earlier of December 31, 2001 or on
the closing date of a public offering in excess of $5,000,000. Underwriters were
paid a commission of $95,000. Of the $2,000,000 promissory notes, $1,050,000
were sold to current stockholders or directors, including $850,000 to Monolith.
The reduction of indebtedness using proceeds of the IPO improved the Company's
liquidity by reducing indebtedness required to be repaid in the future. The
Company believes that cash flows from operations along with the net proceeds of
the IPO will be sufficient to satisfy the Company's anticipated working capital
requirements for at least the next 12 months.
10
<PAGE>
PART II. OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Changes in Securities:
None
Use of Proceeds:
% of Proceeds Amount Total
------------- ------ -----
Gross Proceeds 100.0% $5,500,000
- --------------
Less:
Underwriters' expenses 10.0% 550,000
Other costs and expenses 10.5% 576,089
----- ----------
Total Expenses 20.5% 1,126,089
----- ----------
Net proceeds 79.5% 4,373,911
Use of Proceeds
- ---------------
Repayment of debts 42.1% 2,317,828
Payment of accounts payable 2.7% 150,000
Payment of marketing expenses 4.6% 250,000
Acquisition of 2 non-voting equity
interests in the AFL 30.1% 1,656,083
----- ----------
Total Use of Proceeds 79.5% 4,373,911
----- ----------
REMAINING PROCEEDS .0% $ --
===== ==========
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
Exhibits: None
11
<PAGE>
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.
Date: August 14, 1998 THE ORLANDO PREDATORS ENTERTAINMENT, INC.
-----------------------------------------
Registrant
/s/ Alex Narushka
-----------------------------------------
Alex Narushka
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 5-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 FEB-14-1997
<PERIOD-END> JUN-30-1998 JUN-30-1997
<CASH> 121,361 0
<SECURITIES> 0 0
<RECEIVABLES> 273,588 0
<ALLOWANCES> 0 0
<INVENTORY> 41,169 0
<CURRENT-ASSETS> 851,441 0
<PP&E> 309,857 0
<DEPRECIATION> 57,869 0
<TOTAL-ASSETS> 6,882,904 0
<CURRENT-LIABILITIES> 3,265,130 0
<BONDS> 0 0
0 0
0 0
<COMMON> 4,866,707 0
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 6,882,904 0
<SALES> 1,612,193 1,690,307
<TOTAL-REVENUES> 1,612,193 1,690,307
<CGS> 0 0
<TOTAL-COSTS> 1,989,504 1,658,310
<OTHER-EXPENSES> 20,363 (26,763)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (33,693) (31,259)
<INCOME-PRETAX> (356,948) 5,234
<INCOME-TAX> 0 2,200
<INCOME-CONTINUING> (356,948) 3,034
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (356,948) 3,034
<EPS-PRIMARY> (0.14) 0.000
<EPS-DILUTED> (0.14) 0.000
</TABLE>
