Photo by Esther Lin/EliteXC.
While last month’s respective resignations of Gary Shaw and Doug DeLuca from ProElite weren’t anything to be too alarmed about, the mounting evidence concerning EliteXC’s parent company and it’s potential financial troubles certainly is.
Less than 24 hours after EliteXC’s planned “Showdown at the Pit” event on September 20th was abruptly cancelled, word comes now that England-based Cage Rage, which ProElite acquired in the fall of last year, has cancelled it’s latest “Contenders” event according to MMA Weekly.
“We cancelled the show in order to focus on the November contenders show, which will be the first time we have done a live contenders show in full direct to TV,” Cage Rage figurehead Dave O’Donnell said in the report. “It made no sense to spread ourselves thin on this occasion.”
That’s not all that O’Donnell and company have decided to do. Ring announcer Mark Aplin and public relations agent Rob Nutley have both been released by the promotion. Couple that with the decision to now hold shows in the Troxy Theatre instead of the famed and much-bigger Wembley Arena, and one has to wonder exactly what is going on overseas.
The same sort of response can be expected out of EliteXC officials in the coming days due to their decision to hold four separate events within a month’s time of each other. However the idea may not have been completely made a reality in order to save time and effort.
Yesterday, ProElite requested an extension on their SEC filings, claiming that “unreasonable effort and expense” would be needed in order to file their report on time.
What else did the request reveal?
Unless the company is able to write off certain costs and acquire additional financing from outside parties, they may only have enough funds to last until the end of the year.
From yesterday’s report:
The Company anticipates significant changes in results of operations from the corresponding period of the last fiscal year will be reflected in the operations statement. These changes relate to impairment charges related to goodwill and acquired intangible assets and potential write off of approximately $1.7 million prepaid distribution costs related to the Company’s CBS contract. The Company expects to record an impairment charge of at least $5 million related goodwill and acquired intangible assets, principally related our Cage Rage subsidiary. The Company is currently analyzing additional goodwill and intangible assets of approximately $7.5 million related to other acquisitions, but management has not yet determined if any impairment has occurred.
Additionally, if the Company is unable to obtain material financing in the immediate future, the Company may be required to recognize additional impairment of goodwill and acquired intangible assets of approximately $2.5 million related to all the acquisitions. Under applicable accounting rules, the impairment is in part dependent upon the ability of the Company to execute its business plan, and lack of financing may cause the Company to reduce resources available to certain of its businesses.
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 also have a material adverse effect on the Company’s liquidity and capital resources and ability to continue as a going concern.
Even if the Company successfully closes on such financing, it expects to report in its Quarterly Report on Form 10-Q that its capital resources are sufficient only until the end of the year, and only if the Company makes significant reductions in operations and expenditures. The Company is also actively seeking additional financing beyond the $3.0 million 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.
Let it be known that this was the same kind of language stated in the IFL’s SEC filings before they were no longer able to continue on.
Writing off impairment charges isn’t exactly ProElite signing off on it’s eventual demise. Most big-time corporations do something similar with acquired assets that become basically worthless after the amount paid to purchase them become about equal to their total value.
Therefore, it seems that most of the above mentioned amount of debt isn’t coming from EliteXC, but from the multiple organizations that ProElite acquired over the last year. Cage Rage, King of the Cage, ICON Sport, and Rumble on the Rock were all purchased by the company last fall.
With the exception of KOTC, the other three promotions seem to have been suffering through hard times in recent months - ICON and Rumble on the Rock have only held a combined five shows since they were purchased by ProElite. A lack of resources to put together shows would obviously contribute to the inactivity.
Regardless, impairment charges can back fire in a big way if the company has tacked on a large amount of debt and needs financing to help them stay afloat. Unfortunately, it seems like that’s exactly what ProElite is trying to explain here.
Unless help arrives soon, what once was expected to be the biggest challenge to the UFC’s current monopoly over the sport of mixed martial arts, EliteXC may now be standing on it’s last legs.