XYIENCE BANKRUPTCY CRUISES TOWARD APRIL FOOLS DAY AUCTION

Posted on | March 9, 2008 | 7 Comments

By: Rich Bergeron

One of the greatest lessons a writer can ever learn is that fact is stranger than fiction. It’s one of the hallmark themes of the hit movie No Country For Old Men and a reality that is overwhelmingly supported by the ongoing scandal regarding Xyience, Zuffa, and Fertitta Enterprises.

Some new developments managed to fly under the mainstream MMA media radar in recent weeks, and the story has gone pretty cold since fightlinker.com interviewed me in early February. First, let’s take a quick look at the rapidly deteriorating Xyience lawsuit against me.

Xyience’s bogus case is now almost 8-months old. The third law firm employed on Xyience’s behalf recently took over and had the case transferred to a second judge. If anyone suggested this would happen back in July of 2007 when I first got sued, I probably would have laughed in their face and called them crazy.

As my own attorney, I never expected this case to get this far. I honestly expected to be railroaded by a corrupt Nevada judicial system. Instead, what started as a threatening, daunting, seemingly impossible to overcome obstacle has now become much more manageable since I’ve learned so much about the legal process and managed to win my first hearing.

Since then, however, I ran into the ruthless lawyers at Fennemore Craig, P.C., which is a giant nationwide law firm that is handling Xyience’s bankruptcy proceedings. These slick hucksters managed to get Judge Timothy Williams recused and also earned themselves a 60-day extension through circumventing my rights to due process.

This all happened because the new lawyers managed to get themselves a hearing without me being present or appearing telephonically. Why? Well, take a listen to the following answering machine recording left for me by the new judge’s secretary:

CLICK HERE TO LISTEN

When I followed those directions I wound up finding out that the judge had already ruled and barred me from appearing telephonically at any future proceedings in this case. The new lawyers made sure to get the hearing at an earlier time so they could lock me out of the process.

I am now fighting tooth and nail to get some crucial hearings on the docket to overturn the judge’s ruling, restore my right to due process, and get some much-needed financial relief before Xyience goes to auction on April Fool’s Day. I’ve filed the following motions hoping to get some positive momentum going:

MOTION TO STRIKE EXTENSION ORDER

MOTION TO STRIKE ADAM FRANK’S AFFIDAVIT, ETC.

Meanwhile, Xyience has received an offer from the first prospective buyer. According to Sherdog’s Adam Swift:

“On Feb. 22, Xyience entered into a preliminary purchase agreement with Manchester Consolidated Corporation. Under terms of the agreement, Manchester will pay $15,017,000 for the company — $200,000 in cash to Xyience plus the assumption of $14.8 million in secured debt held by Zyen, LLC.”

A public auction will still be held on April 1, 2008 to see if any other buyers may be interested. Yet that offer might be the best deal Fertitta Enterprises could hope for since it allows them to recover much more than what they’ve put into the ailing company so far.

Though the news of the Manchester Consolidated Corporation (MCC) bid has been widely reported in recent weeks, not much research has been published regarding their possible motivation for buying the brand. Upon closer inspection of the company it’s clear why there’s such heavy interest.

The CEO and Chairman of MCC is Anthony M. Pallante. According to the company’s Web-site: “Previously, Mr. Pallante served as a Vice President and Officer of Cott Corporation. Over his tenure with Cott sales increased from less than $50 Million to over $500 Million world-wide. In addition, the stock value realized a forward split 3 times providing an exponential increase in shareholder value. Prior to Cott Mr. Pallante was President & CEO of Exclusive Beverage, the Royal Crown Cola franchise in Toronto Canada. His expertise is focused on financing (using both public and private companies), mergers and acquisitions strategy and general corporate structuring.”

Cott is the producer of Xenergy, one of Xyience’s most valued and hyped products.

Not surprisingly, Pallante is not the only Cott convert to come over to MCC. The Web-site also details the background of Mr. William Smith: Executive VP of Corporate Finance/Mergers & Acquisitions. Before his employment at MCC, Smith also worked at Cott. The MCC Web-site reports:

“Mr. Smith was Vice President, Taxation, Investor Relations and Treasurer of Cott Corporation, the worlds largest private label manufacturer of soft drinks and a publicly traded company in both Canada and the United States. He carried out a wide range of responsibilities which included M&A activity, all financings, international tax structuring, cash management worldwide (Cott operated in over 10 countries), analyst presentations for Wall Street, all contact with the media, speech writing for the CEO, writing annual reports, and arranging annual general meetings.”

The Cott Connection makes sense. Mid-February saw Bankruptcy Judge Mike Nakagawa approve a $1.6 million loan and a marketing agreement for use of the Ultimate Fighting Championship logo on Xenergy. Without the agreement, Xyience would have had to scrap $8 million of product already labeled with the UFC logo that was made by Cott.

The Las Vegas Review Journal published an article about the deal that stated, “Xyience attorney Laurel Davis expressed cautious optimism late Tuesday, noting that one potential buyer was sitting in the audience during the bankruptcy court hearing.” Perhaps Davis was talking about someone from Manchester Consolidated Corporation.

Coincidentally Davis is also now handling my case.

Rumors are still swirling on other fight news sites pointing to the Fertittas intending to purchase Xyience at the auction, but that doesn’t appear to make much sense considering other recent findings.

I recently received a stack of documents relating to an independent audit of Xyience by A.J. Robbins, P.C. Certified Public Accountants. The audit paperwork (dated November, 2007) details the 2005 and 2006 end of the year financial statistics for Xyience. Inside sources have told me Xyience still owes A.J. Robbins $100,000 for the audit, which has not been fully completed.

Still, the numbers A.J. Robbins did include are intriguing. The changes that occurred at the company in just one year’s time are staggering. The company suffered a net loss in 2005 of $13,032,555 according to the audit. For the following year A.J. Robbins puts the company’s net loss at a whopping $70,994,687. The gross profit listed for 2006 was just $4,276,183, and the largest expenditure was $44,194,630 for “selling and marketing expenses.” The company’s total accumulated deficit as of December 31, 2006 was listed as $84,367,339.

Also interesting to note was the sheer amount of litigation Xyience was either engaged in or about to face during the audit period. Xyience spent $2228,000 on litigation alone in 2006 compared to none in 2005 according to the audit. The company had five pending lawsuits they were fighting at the time and 15 separate categories listed as “potential litigation.” One paragraph of that category was particularly telling:

“Federal and State Securities Laws – The company may have previously violated certain federal and state securities laws with respect to prior securities issuances by the Company and, as a result, may have to take certain actions in order to remedy those violations, which actions and remedies may require the Company to expend significant amounts of capital and otherwise may have a Material Adverse Effect on the Company, and there is no guarantee that the Company will be able to adequately remedy such alleged violations. Moreover, if the Company is not able to remedy such alleged violations, it would have a Material Adverse Effect on the Company.”

The audit documents also list 9,390,302 shares in the company outstanding. The audit further raises questions as to whether or not the company ever actually received a large chunk of the proceeds from those sales of shares. The last increase in total shares allowed to the company put the number at 200 million, though it is not yet exactly clear how many Pre-IPO shares were ultimately issued before foreclosure and bankruptcy proceedings began.

The bottom line conclusion made by A.J. Robbins in their reporting of the financial figures: “…the Company has experienced recurring losses and negative cash flows from operations and has a capital deficit at December 31, 2006, that raises substantial doubt about its ability to continue as a going concern.”

That glaring statement may be what led the Fertitta Enterprises team to bankrupt the company, but had they done their homework before the investment they should have known about the serious losses the company was experiencing. Considering the intimate relationship between Xyience and Zuffa that existed before the Fertitta Enterprises investment, it’s hard to believe that the financial facts raised by the audit were a huge secret that Fertitta Enterprises would not be in any position to know about before they invested in the company.

Even if they only had a hint of what was going on, it stands to reason that they would have kept away from such a dangerous and volatile situation unless they could find some way to profit off of it with minimal risk. Furthermore, if they didn’t know how bad off the company was at the time of their investment, why would they send out a funding consent letter that promised investors their capital infusion would keep the company from going bankrupt? They knew about the mess they were getting into, and they invested anyway. So, the question must be asked: did they know all along that there was a way they could spin this whole thing into a huge profit?

I think the answer to that is a resounding yes.

Fertitta Enterprises and their fellow investors behind the current bankruptcy deal could potentially double their money in a matter of mere months. The funding consent letter went out a day after the injunction in my case came through on September 13, 2007. The deal was “ratified” on October 4th, 2007. So, if they can successfully sell the company at auction for anything more than what Manchester Consolidated Corporation is offering, they’ll succeed in their grand scheme to make millions off of a simple six-month fraud process.

Due to the ruthless and highly profitable previous business ventures that put the Fertitta family in their current financial position in the first place, it’s almost impossible to conceive any scenario in which all this just came together on its own with no planning whatsoever. There simply had to be some calculated process involved, and that orchestrated setup leaves countless victims in its wake with little potential for retribution in the end. Justice will be even harder to secure once the dust settles.

Given the current climate where the U.S. economy is looking more and more dismal with each passing day, the gap between the haves and the have nots is already wide enough. Yet, this steadily worsening situation widens that gap even further. While some burned investors wonder how they will get by, fund their retirement, or pay for their children to go to college due to the huge losses Xyience’s bankruptcy is forcing upon them, the Fertitta brothers just made the Forbes list:

THE FERTITTAS’ TAKE THEIR PLACE ON THE FORBES LIST.

All is not right with the world when so many people look the other way and continue to let this kind of thing happen over and over again without raising any protest whatsoever. It boggles the mind to imagine how this whole chain of events occurred with no laws being broken and nobody being brought to justice for the massive fraud that took place. Fertitta Enterprises will screw a whole host of victims and get away clean with a much bigger bank account as long as they can get through the April 1 auction unscathed.

Meanwhile they managed to prop up Xyience long enough for them to pump money back into Zuffa by way of a huge sponsorship deal that subsequently led to them justifying even bigger deals with Harley Davidson and Bud Light. They kept the company alive just long enough to benefit themselves, and now they’re killing it off and burying the body where nobody can find it and link the Fertittas to the financial murder they’ve committed.

All the while, they’re suing everyone who moves funny. Each and every possible threat is dealt with by way of massive litigation. Everyone who smites them is hit with a huge lawsuit. Any poor sap who infringes on their ridiculously long list of trademarks gets smacked by the long arm of the law until they submit in shame. They just continue to take and take and take, and nobody dares to stand in their way and tell them to stop. Nobody ever says enough is enough.

Yet, through it all there is one peculiar point of fact I can’t help but remind myself of each and every day.

Zuffa still hasn’t sued me.

They haven’t even sent me a letter telling me they MIGHT sue me.

They didn’t even want to be referred to by name in Xyience’s initial complaint against me though it’s clear they were part of that first claim.

Are Zuffa’s lawyers just too busy to bother with me? Do I not have enough assets to go after? Do they think suing me is giving me too much credit? Or…

Do they realize that everything I’ve printed about their corrupt and fraudulent behavior from the very beginning has all been true?

It appears that finally someone has managed to come along and challenge Zuffa to a fight it can’t win, even though I’m just one man against their army.

They say the pen is mightier than the sword, and I agree. But, there’s one thing that’s even more powerful and awe-inspiring than the pen…

The Truth.