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 September 30, 1999
___ 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. Employer Identification Number)
Incorporation or Organization)
400 West Church Street
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 October 20, 1999, 5,139,332
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]
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ORLANDO PREDATORS ENTERTAINMENT, INC.
FORM 10-QSB
INDEX
Part I Financial Information Page
Item 1. Financial Statements:
Balance Sheets as of September 30, 1999 and December 31, 1998 3
Statements of Operations for the Three and Nine Months Ended
September 30, 1999 and 1998 5
Statements of Cash Flows for the
Nine Months Ended September 30, 1999 and 1998 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 15
2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE ORLANDO PREDATORS ENTERTAINMENT, INC.
BALANCE SHEETS
ASSETS
September 30, December 31,
1999 1998
---------- ----------
CURRENT ASSETS:
Cash $ 95,465 $ 117,188
Accounts receivable, sponsorships 159,860 214,816
Accounts receivable, related party 54,417 106,734
AFL receivable, current portion 76,243 42,944
Accrued interest receivable, AFL 483,938 150,454
Inventory 26,221 20,585
Receivable from employees 21,604 45,135
Prepaid expenses 65,992 256,561
---------- ----------
Total Current Assets 983,740 954,417
PROPERTY AND EQUIPMENT, at cost, net 325,650 230,214
EQUITY INVESTMENT IN AFL 4,032,650 4,032,650
AFL RECEIVABLE, net of current portion 1,889,728 1,923,027
MEMBERSHIP COST, net 1,857,203 1,894,512
OTHER INTANGIBLES, net 18,961 34,474
RESTRICTED INVESTMENT 100,000 100,000
DEFERRED ACQUISITION COSTS 34,563 --
OTHER ASSETS 3,344 2,544
---------- ----------
$9,245,839 $9,171,838
========== ==========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
3
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THE ORLANDO PREDATORS ENTERTAINMENT, INC.
BALANCE SHEETS (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, December 31,
1999 1998
------------ ------------
CURRENT LIABILITIES:
<S> <C> <C>
Accounts payable and accrued expenses $ 246,673 $ 322,070
Accounts payable, related parties 15,090 25,661
Accrued interest, related party 6,672 6,671
Deferred revenue 382,480 643,672
Note payable 250,000 --
Accrued interest 5,822 --
------------ ------------
Total Current Liabilities 906,737 998,074
------------ ------------
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; 5,139,332 and 5,050,000 issued and
outstanding 10,032,399 9,867,150
Class B Common Stock, 1,000 shares authorized;
1,000 issued and outstanding 5,000 5,000
Additional paid-in capital 2,948,865 2,879,940
Accumulated (deficit) (4,647,162) (4,578,326)
------------ ------------
Total Stockholders' Equity 8,339,102 8,173,764
------------ ------------
$ 9,245,839 $ 9,171,838
============ ============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
4
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THE ORLANDO PREDATORS ENTERTAINMENT, INC.
STATEMENTS OF OPERATIONS
For the Three For the Three For the Nine For the Nine
Months Ended Months Ended Months Ended Months Ended
September 30, 1999 September 30, 1998 September 30, 1999 September 30, 1998
------------------ ------------------ ------------------ ------------------
REVENUE:
<S> <C> <C> <C> <C>
Ticket revenues $ 607,824 $ 583,250 $ 1,562,560 $ 1,497,345
Local television and radio
broadcast rights 15,750 34,724 50,000 76,752
Advertising and promotions 384,447 230,801 1,242,752 663,861
Advertising and promotions,
related party 15,750 31,250 50,000 100,000
Concession income 45,657 52,992 118,521 122,866
League revenue 94,800 32,699 642,658 100,000
Telemarketing revenue 27,934 -- 82,410 --
Telemarketing revenue, related
party -- 137,600 6,400 137,600
Other 205 43,196 12,093 60,281
Playoff revenue sharing 176,930 95,000 176,930 95,000
Playoff ticket revenues -- 130,762 -- 130,762
----------- ----------- ----------- -----------
Total Revenue 1,369,297 1,372,274 3,944,324 2,984,467
----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Operations 739,179 767,331 1,908,518 1,815,651
Operations, related party 11,177 4,988 16,831 4,988
Playoff expenses 257,371 352,016 257,371 352,016
Selling and promotional
expenses 429,266 253,097 1,130,640 576,342
League assessments 44,013 43,722 131,325 92,875
General and administrative 262,507 324,798 624,291 810,797
Telemarketing expenses 30,982 79,788 85,210 102,191
Telemarketing expenses, related
party 564 -- 6,819 --
Amortization 29,167 87,608 64,382 122,824
Depreciation 9,030 12,130 43,238 37,749
Loss on disposal of equipment -- -- 9,601 --
----------- ----------- ----------- -----------
Total Costs and Expenses 1,813,256 1,925,478 4,278,226 3,915,433
----------- ----------- ----------- -----------
OPERATING INCOME (LOSS) (443,959) (553,204) (333,902) (930,966)
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest expense (74,747) (10,570) (74,747) (27,243)
Interest expense, related party (1,247) (17,235) (2,589) (34,256)
Interest income 3,229 1,986 7,385 55,590
Interest income, AFL 109,233 56,499 333,484 56,499
Other income (5,476) -- 1,536 452
----------- ----------- ----------- -----------
Net Other Income (Expense) 30,992 30,680 265,069 51,042
----------- ----------- ----------- -----------
NET (LOSS) (412,967) (522,524) (68,833) (879,924)
EFFECT OF MONOLITH LIMITED
PARTNERSHIP PUT AGREEMENT -- (2,802,000) -- (2,802,000)
----------- ----------- ----------- -----------
NET (LOSS) ATTRIBUTABLE TO COMMON
STOCKHOLDERS $ (412,967) $(3,324,524) $ (68,833) $(3,681,924)
=========== =========== =========== ===========
NET (LOSS) PER SHARE-BASIC AND
DILUTED $ (.08) $ (.88) $ (.01) $ (1.26)
=========== =========== =========== ===========
Weighted Average Number of Common
Shares Outstanding 5,133,811 3,772,391 5,120,306 2,920,109
=========== =========== =========== ===========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
5
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THE ORLANDO PREDATORS ENTERTAINMENT, INC.
STATEMENTS OF CASH FLOWS
For the Nine For the Nine
Months Ended Months Ended
September 30, 1999 September 30, 1998
------------------ ------------------
CASH FLOWS FROM (TO) OPERATING ACTIVITIES:
<S> <C> <C>
Net income (loss) $ (68,833) $ (879,924)
Adjustments to reconcile net (loss) to net cash from operating
activities:
Depreciation and amortization 107,619 160,421
Loss on disposal of equipment 9,601 --
Issuance of Class A common stock purchase warrants 68,922 --
Changes in assets and liabilities: 54,956 --
Accounts receivable -- (76,931)
Accounts receivable, related party 52,317 (137,600)
Employee receivables 23,531 2,937
Accrued interest receivable, AFL (333,484) (56,499)
Inventory (5,636) (18,457)
Prepaid expenses 190,569 53,853
Other assets (800) (3,436)
Accounts payable and accrued expenses (75,396) 120,854
Accounts payable, related party (10,571) --
Accrued interest payable, related party 5,822 --
Deferred revenue (261,192) (264,770)
----------- -----------
Net Cash (Used) by Operating Activities (242,575) (1,099,552)
----------- -----------
CASH FLOWS FROM (TO) INVESTING ACTIVITIES:
Purchase of equipment (159,834) (15,058)
Investment in AFL -- (4,071,437)
Payment of acquisition costs (34,563) --
----------- -----------
Net Cash (Used) by Investing Activities (194,397) (4,086,495)
----------- -----------
CASH FLOWS FROM (TO) FINANCING ACTIVITIES:
Loans from stockholders 350,000 286,000
Payment of loans from stockholders (350,000) (12,363)
Proceeds from issuance of Class A common stock 186,999 4,739,427
Note payable - related party -- 1,050,000
Payment of note payable, related party -- (1,045,000)
Payment for deferred offering costs -- (738,559)
Proceeds from notes payable 250,000 --
Bridge loans -- 950,000
Payment of loan fees -- (200,000)
Payment of offering costs (21,750) (70,000)
Issuance of note receivable -- (1,965,971)
----------- -----------
Net Cash Provided by Financing Activities 415,249 2,993,534
----------- -----------
INCREASE (DECREASE) IN CASH (21,723) (2,192,513)
CASH, beginning of period 117,188 2,255,678
----------- -----------
CASH, end of period $ 95,465 $ 63,165
=========== ===========
Supplementary information:
CASH PAID FOR INTEREST $ 2,589 $ 149,857
=========== ===========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
6
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THE ORLANDO PREDATORS ENTERTAINMENT, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited financial statements include the accounts of The
Orlando Predators Entertainment, Inc. (the "Company"). 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
period ended September 30, 1999 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 nine months ended September 30, 1999 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, 1998.
Certain amounts in the prior period's financial statements have been
reclassified for comparative purposes to conform to the current year.
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. In
the opinion of management, the resolution of these matters will not have a
material effect on the Company's financial position.
NOTE 3 - OPERATING SEGMENTS
The Company organizes its business units into two reportable segments: football
operations and telemarketing services. The football operations segment operates
the AFL team and the telemarketing services segment provides telemarketing
services to a related party and other sports franchises.
7
<PAGE>
NOTE 3 - OPERATING SEGMENTS (Continued)
The Company's reportable business segments are strategic business units that
offer different products and services. The segments are managed together because
they utilize similar resources within the Company. Segment information for the
nine months ended September 30, 1999 was as follows:
Net Operating Identifiable Capital
Revenues Income Assets Expenditures
-------- ------ ------ ------------
Football operations $ 3,846,097 $ (330,683) $ 9,191,422 $ 159,834
Telemarketing services 88,810 (3,219) 54,417 --
----------- ----------- ----------- -----------
$ 3,934,907 $ (333,902) $ 9,245,839 $ 159,834
=========== =========== =========== ===========
The Company's reportable business segments are strategic business units that
offer different products and services. The segments are managed together because
they utilize similar resources within the Company. Segment information for the
nine months ended September 30, 1998 was as follows:
Net Operating Identifiable Capital
Revenues Income Assets Expenditures
-------- ------ ------ ------------
Football operations $ 2,846,867 $ (966,375) $ 8,646,977 $ 15,058
Telemarketing services 137,600 35,409 137,600 --
----------- ----------- ----------- -----------
$ 2,984,467 $ (930,966) $ 8,784,577 $ 15,058
=========== =========== =========== ===========
NOTE 4 - MONOLITH LIMITED PARTNERSHIP PUT AGREEMENT
In August, 1998, Monolith Limited Partnership ("Monolith"), a major stockholder
of the Company, entered into an agreement with a stockholder (who is also a
partner in Monolith), who purchased 1,000,000 shares of the Company's Class A
common stock for $2,000,000. The agreement requires Monolith to purchase 600,000
shares of the Company's Class A common stock from the stockholder for $4,000,000
at the stockholder's option. The agreement was amended in May 1999, to extend
the period of exercise through March 2001. Generally accepted accounting
principles require that the Company record a capital contribution from Monolith
of $2,802,000 on the date of the transaction, with a corresponding charge to
retained earnings. This amount is also reflected as an addition to net loss in
computing net loss attributable to common stockholders, in the earnings per
share computation. On July 13, 1999, the option agreement for 275,000 of the
600,000 shares was exercised. In consideration for $550,000 paid by Monolith to
the stockholder, as a cancellation fee, the stockholder agreed to terminate its
put right for the remaining shares.
8
<PAGE>
NOTE 5 -INCOME TAXES
The Company did not record a provision for income taxes for the three and nine
months ended September 30, 1999 due to the utilization of net operating loss
carryforwards.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
General
The Company is in the sports entertainment business and (i) owns and operates
the Orlando Predators (the "Predators" or the "team"), a professional arena
football team of the Arena Football League (the "AFL" or the "League") and (ii)
owns an additional 8.7% revenue interest in the League (in addition to its
League ownership through the Predators). 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 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
games including Predators' games, together with appreciation in the value of the
Predators as an AFL team. The trend toward ongoing League growth was recently
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 level, the Company's strategy is to increase fan attendance at
Predators' home games, expand the Predators' advertising and sponsorship base,
and contract with additional local and regional broadcasters to broadcast
Predators' games.
The Company currently 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 August for season
tickets during the upcoming season. From August through April, the team sells
season tickets and collects 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 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 expects to complete the acquisition by February 2000.
9
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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 September 30, 1999 Compared To The Three Months Ended
September 30, 1998
Net loss for the quarter ended September 30, 1999 was ($412,967) or ($.08) a
share as compared to the quarter ended September 30, 1998 loss of ($3,324,524)
or ($.88) per share. Without the non-cash effect of the Monolith Limited
Partnership Put Agreement the loss for the quarter ended September 30, 1998 was
($522,524).
Results of Operations
Nine Months Ended September 30, 1999 Compared To The Nine Months Ended September
30, 1998
Revenues
- --------
The Company recognizes game revenues and expenses over the course of the season
(April through August).
Revenues for the nine months ended September 30, 1999 were $3,944,324 which
represented an increase of $959,857 or 32% as compared to revenues for the
period ended September 30, 1998 of $2,984,467. The increase for the nine months
ended September 30, 1999 was directly attributable to an increase in corporate
sponsorship revenue of $528,891 and an increase of League revenue of $542,658
due to the Chicago expansion franchise that will begin play in 2001. The team
played the same number of home games in the period as last year. Ticket sales
are recognized when the games are played. The lease agreement with the Orlando
Arena generated $118,521 in concession income for the eight home games played in
this period.
The telemarketing division also generated revenue of $88,810 for the nine months
ended September 30, 1999 compared to $137,600 for the nine months ended
September 30, 1998. The division produced revenue from selling season tickets
for the Tampa Bay Storm of the AFL and the Missouri River Otters of the UHL. The
Company currently is telemarketing for the Missouri River Otters and has entered
into an agreement to sell year 2000 season tickets for the San Jose Sabercats of
the AFL. The Company anticipates the expansion of this division in the future to
other teams in the AFL, Arenafootball2 (the AFL's minor league system is
expected to begin play in the 2000 season) and other minor league hockey and
baseball teams.
10
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Operating Expenses
- ------------------
Operating expenses of $1,925,349 increased $104,710 or 5.8% for the nine months
ended September 30, 1999 as compared to $1,820,639 for the nine months ended
September 30, 1998. Operating expenses are expensed in a 69%-31% ratio over the
second and third quarters of the calendar year determined by the number of games
played during the quarter.
Selling and Promotional Expenses
- --------------------------------
Selling and promotional expenses of $1,130,640 increased $554,298 or 96% for the
nine months ended September 30, 1999 compared to $576,342 for the nine months
ended September 30, 1998. This was due to telemarketing department expenses of
$188,000, which is the company's primary source of increasing and maintaining
the team's season ticket base. Coinciding with the large increase in sponsorship
revenue, corporate sponsorship commissions increased to $230,000 compared to
approximately $70,000 in the same period in 1998.
League Assessments
- ------------------
League assessments of $131,325 increased $38,450 or 41% for the nine months
ended September 30, 1999 as compared to $92,875 for the nine months ended
September 30, 1998. The League is comprised of numerous teams who share in all
league revenue and expenses. 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 $624,291 decreased $186,506 or 23% for
the nine months ended September 30, 1999 compared to $810,797 for the nine
months ended September 30, 1998. This decrease can be primarily attributed to a
restructured senior management.
Playoffs
- --------
The Orlando Predators played three road playoff games in 1999 and played one
home and two road playoff games in 1998. Playoff revenues for the nine months
ended September 30, 1999 were $176,930 as compared to $225,762 for the nine
months ended September 30, 1998. Home teams retain all revenues for playoff
games. Road teams receive $45,000 for rounds one and two, and $50,000 for the
Arena Bowl.
Playoff expenses for the nine months ended September 30, 1999 were $257,371 as
compared to $352,016 for the nine months ended September 30, 1998.
Interest Income/Expense
- -----------------------
Interest income during the nine months ended September 30, 1999 was $340,869 as
compared to $112,089 for the nine months ended September 30, 1998. The interest
income related to the Arena Football League is due to the Nth agreement.
Interest expense during the nine months ended September 30, 1999 was $77,336 as
compared to $61,499 for the prior period. Related party interest expense was
$2,589 as compared to $34,256 for the prior period. The related party interest
expense during the nine months ended September 30, 1999 was related to a bridge
loan of $350,000, which was used for operating capital. The loan was repaid in
July 1999.
11
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Liquidity and Capital Resources
- -------------------------------
Historically, the Company has financed net operating losses primarily with loans
from the team's former managing general partners and the sale of its securities.
During April 1998, the Company completed an offering of 40 units, with each unit
consisting of one $50,000 promissory note 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 were due on the earlier of December 31, 2001 or the closing
date of a public offering in excess of $5,000,000. A commission of $95,000 was
paid in connection with the transaction. Of the $2,000,000 (40 units) promissory
notes, $1,050,000 (21 units) was sold to current stockholders or directors,
including $850,000 (17 units) to Monolith. Notes of $755,000 and accrued
interest of $5,573 were converted to 304,229 shares of the Company's Class A
Common Stock in the August 31, 1998 private placement. The remaining notes
payable and accrued interest of $1,295,774 were paid on September 1, 1998.
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) with no
offering costs. These proceeds were used to complete the purchase of the equity
interests in the Arena Football League.
On August 31, 1998, the Company completed a private placement of 1,200,000
shares of its Class A Common Stock for $3,000,000 ($2.50 per share) and paid
offering costs of $749,557. Proceeds from this private placement were used to
pay off the outstanding bridge loans and interest. The remaining proceeds were
used for working capital needs.
In October 1998, the Company completed another private placement offering. It
consisted of one investor totaling $250,000 ($2.50 per share), with commissions
of 15% or $37,500 paid for 100,000 shares of Class A Common Stock. These
proceeds were used to fund current operations.
On November 5, 1998, the Company received a payment from the League in the
amount of $672,791. This payment represented expansion revenue related to the
Los Angeles expansion team that will begin play in 2000.
In January and February 1999, the Company completed another private placement
offering. It consisted of three investors totaling $145,000 ($2.50-$3.00 per
share), with commissions of 15% or $21,750 paid for 75,000 shares of Class A
common stock. These proceeds were used to fund current operations.
On September 26, 1999, the Company received a payment from the League in the
amount of $547,858. This represented expansion revenue related to the Chicago
expansion team that will begin play in 2001.
In June 1999, the Monolith Limited Partnership, ("Monolith"), a major
stockholder of the Company, loaned the Company $350,000, due in September 2002
with interest at 8% annually. The note was repaid in July 1999.
In July 1999, the Company issued a convertible note payable to a stockholder of
the Company for $250,000, convertible at $4.50 per share, due in September 2001
with interest at 10% annually. The Company granted warrants to purchase 25,000
shares of the Company's Class A common stock at $4.50 per share, which expire in
July 2004 in conjunction with the issuance of the note payable. In October 1999,
the company repaid $125,000 of the convertible note and 12,500 of the warrants
were canceled.
12
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
In October and November 1999, the Company received payments from the League in
the amount of $682,488. This represented expansion revenue related to the
Carolina membership that will begin play in 2000.
In November 1999, the Company completed another private placement offering. It
consisted of one investor totaling $100,000 ($2.00 per share), with commissions
of 10% or $10,000 paid for 50,000 shares of Class A common stock. These proceeds
were used to fund current operations.
The reduction of indebtedness using proceeds of the private placements improved
the Company's liquidity by reducing indebtedness required to be paid in the
future. The Company believes that cash flows from operations, along with
distributions related to the recent 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.
Year 2000 Issue
- ---------------
Many computer systems and other equipment with embedded chips or microprocessors
may not be able to appropriately interpret dates after December 31, 1999 because
such systems use only two digits to indicate a year in the datefield rather than
four digits. If not corrected, many computers and computer applications could
fail or create miscalculations, causing disruptions to the Company's operations.
In addition, the failure of customer and supplier computer systems could result
in interruption of sales and deliveries of key supplies or utilities. Because of
the complexity of the issues and the number of parties involved, the Company
cannot reasonably predict with certainty the nature or likelihood of such
impacts.
Using internal staff and outside consultants, the Company is actively addressing
this situation and anticipates that it will not experience a material adverse
impact to its operations, liquidity or financial condition related to systems
under its control. The Company is addressing the Year 2000 issue in four
overlapping phases: (i) identification and assessment of all critical software
systems and equipment requiring modification or replacement prior to 2000; (ii)
assessment of critical business relationships requiring modification prior to
2000; (iii) corrective action and testing of critical systems; (iv) development
of contingency and business continuation plans to mitigate any disruption to the
Company's operations arising from the Year 2000 issue.
The Company is in the process of implementing a plan to obtain information from
its external service providers, significant suppliers and customers, and
financial institutions to confirm their plans and readiness to become Year 2000
compliant, in order to better understand and evaluate how their Year 2000 issues
may affect the Company's operations. The Company currently is not in a position
to assess this aspect of the Year 2000 issue; however, the Company plans to take
the necessary steps to provide itself with reasonable assurance that its service
providers, suppliers, customers and financial institutions are Year 2000
compliant. This phase is 95% complete to date.
13
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Company is developing contingency plans to identify and mitigate potential
problems and disruptions to the Company's operations arising from the Year 2000
issue. This phase is expected to be completed by December 1999. The total cost
to achieve Year 2000 compliance was $39,000, which was invested on a new
networked computer system.
While the Company believes that its own internal assessment and planning efforts
with respect to its external service providers, suppliers, customers and
financial institutions are and will be adequate to address its Year 2000
concerns, there can be no assurance that these efforts will be successful or
will not have a material adverse effect on the Company's operations.
PART II. OTHER INFORMATION AND SIGNATURES
ITEM 1. LEGAL PROCEEDINGS
On December 9, 1998, Jack Youngblood, the Company's former President, filed a
lawsuit against the Company in the United States Circuit Court of the Ninth
Judicial Circuit in Orange County, Florida, case no. 98-10027-35. The action is
entitled Herbert Jackson Youngblood III vs. Orlando Predators Entertainment,
Inc., et al. The complaint as it relates to the Company, principally alleges the
Company breached its employment agreement and also alleges the Company issued a
defamatory press release stating that Mr. Youngblood had been placed on paid
administrative leave.
The Company states that Mr. Youngblood was taken off administrative leave on
November 24, 1998 and refused to return to work. Mr. Youngblood was then
terminated for "job abandonment" by the Board of Directors on Monday, December
22, 1998.
The Company believes that Mr. Youngblood's claims are without merit and intends
to vigorously defend the action.
In July 1999, the Arena Football League ("AFL") and all of its member teams were
joined as defendants in a civil action brought by Charlotte Arena Football
League, Inc., a former AFL team operator (the case is captioned Charlotte Arena
Football, Ltd. et. al. vs. Arena Football League, Inc., et. al., United States
District Court for the Middle District of Florida) in which the Plaintiffs seek
damages for alleged violations of the Sherman Antitrust Act, for certain
tortious conduct, for breach of fiduciary duties and for civil conspiracy. The
complaint seeks damages against the defendants in amounts exceeding $100
million. Costs of defense and payment of any damages by the defendants will be
advanced by the AFL to be shared equally by all of the AFL teams. The Company
has been advised that the AFL believes the civil action is without merit and
intends to vigorously defend against it.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Changes in Securities:
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
14
<PAGE>
PART II. OTHER INFORMATION AND SIGNATURES
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
Form 8-K
July 27, 1999, Charlotte Arena Football Ltd, et. al. vs. Arena Football
League, Inc., et. al. See Item 1. Legal Proceedings.
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: November 15, 1999 THE ORLANDO PREDATORS ENTERTAINMENT, INC.
-----------------------------------------
Registrant
/s/ Jeffrey L. Bouchy
---------------------
Jeffrey L. Bouchy
Chief Financial Officer
15
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