ProElite 10-Q Notes
August 20, 2008
Interesting notes from ProElite’s 10-Q
Goodwill and Intangible Assets–
At June 30, 2008, the Company modified its operating plan for its Cage Rage subsidiary, due to its recent operating performance, and as a result recorded a charge of approximately $5.2 million to reduce the carrying value of goodwill and acquired intangible assets to their estimated fair values. Additionally, as of June 30, 2008, management assessed the financial performance of and market conditions affecting its ICON and King of the Cage acquisitions. Management evaluated recent adverse economic trends in the Hawaii market and as a result recorded an impairment of approximately $1.8 million to reduce goodwill and acquired intangible assets from the ICON acquisition to estimated realizable value. Management also evaluated industry trends, including increasing fighter purses and higher than anticipated promotion expenses in the Company’s King of the Cage subsidiary. Based upon this analysis, the Company recorded an impairment charge of approximately $2.4 million to reduce goodwill related to the King of the Cage to estimated fair value. Maintaining the goodwill and indefinite-lived intangible assets is predicated upon the Company executing the revised operating plan for Cage Rage and improving profitability of the other acquisitions. If the Company does not execute successfully against these plans, it may record non-cash charges to operations in future periods to reduce the amount of goodwill and indefinite-lived intangible assets.
For the non-financial folks out there, ProElite is writing down the value of their Icon, King of The Cage, and Cage Rage Promotions. They are taking an impairment charge which basically writes off some goodwill value of these properties. In essence, the value of these items is dropping and charges were made to properly reflect their value on the balance sheet. The size of these write-downs are pretty massive, especially in the case of Cage Rage.
Prepaid Distribution Costs
As of June 30, 2008, management determined the warrants issued in 2008 in connection with the CBS distribution agreement had no future value as the likelihood of realizing gross profit on the CBS events was remote. Therefore, the entire $2.3 million value of these warrants was charged to cost of revenue during the three months ended June 30, 2008.
Laymen’s terms; these CBS Shows aren’t profitable.
Going Concern–
A. The Company is actively negotiating to consummate a financing of approximately $3.5 million in secured debt (with a funded amount of $3.0 million after an original issue discount of $0.5 million) and believes a successful closing is reasonably likely, but there is no assurance that it will be successful in doing so at all or on a timely basis. Any such failure to obtain financing in the immediate future would have a material adverse effect on the Company’s liquidity and capital resources and ability to continue as a going concern.B. Even if the Company successfully closes on the debt financing referred to above, it expects that its capital resources would be sufficient only until the end of the year, and only if the Company makes significant reductions in or cessation of operations and expenditures before the end of the year, including dramatically reducing costs by reducing administrative expenses and some lines of business. Such actions would limit our potential for growth and could materially adversely affect the Company’s business and prospects.
C. To address its liquidity needs beyond the immediate period, the Company is actively seeking additional financing beyond the $3.0 million referred to above to enable the Company to execute its operating plans without significant reductions in operations, but there is no assurance as to whether any such financing will be available on reasonable terms or at all.
A. $3.0 million dollars from CBS/Showtime
B. They will be doing belt tightening, as seen by the cancellation of the Sept 20th show and the England show from this past week-end.
C. They are looking for additional funding outside of their CBS sources.
Burnett Warrants-
The term of the Agreement, as amended effective June 1, 2008, extends until the earlier of the end of the term of the license agreement with the broadcaster of the Series (the “License Agreementâ€) or the failure of MBP to enter into a License Agreement by November 17, 2008.
ProElite rolled over their deal with Mark Burnett for a possible reality television series pilot dealing with MMA, which has been filmed. The drop dead date is now November 17th, 2008.
