**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,D.C. 20549**

**FORM 10-K**

| **x**      |   | **ANNUAL REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE** |
|------------|--------|---------------------------------------------------------------------|
| ** ** |   | **SECURITIES EXCHANGE ACT OF 1934**                                 |
| ** ** |   | **For the fiscal year ended December 31, 2005**                |
| ** ** |   | **OR**                                                              |
| **o**      |   | **TRANSITION REPORT PURSUANT TO  SECTION 13 OR 15(d) OF** |
| ** ** |   | **THE SECURITIES EXCHANGE ACT OF 1934**                             |

 

**For the transition periodfrom                 to                **

**Commission File No. 000-17436**

**CKX, INC.**

(Exact name of Registrantas specified in its charter)

| **Delaware**                     |   | **27-0118168**          |
|----------------------------------|--------|-------------------------|
| (State or other  jurisdiction of |   | (I.R.S. Employer        |
| incorporation or  organization)  |   | Identification  Number) |

 

**650Madison AvenueNew York, New York 10022**(Addressof Principal Executive Offices and Zip Code)

Registrant’s Telephone Number, Including Area Code: **(212) 838**-**3100**

Securities Registered Pursuant to Section 12(b) of the Act: **None**

Securities Registered Pursuant to Section 12(g) of the Act:

**CommonStock, Par Value $0.01 Per Share**

Indicate by check mark ifthe registrant is a well-known seasoned issuer, as defined in Rule 405 ofthe Securities Act.    Yes o      No x

Indicate by check mark ifthe registrant is not required to file reports pursuant to Section 13 or15(d) of the Exchange Act.    Yes o      No x

Indicate by check markwhether the issuer (1) has filed all reports required to be filed by Section 13or 15(d) of the Exchange Act during the preceding 12 months (or forsuch 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 o

Indicate by check mark ifdisclosure of delinquent filers pursuant to Item 405 of Regulation S-K is notcontained herein, and will not be contained, to the best of the registrant’sknowledge, in definitive proxy or information statements incorporated byreference in Part III of this Form 10-K or any amendment tothis Form 10-K. o

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer or a non-accelerated filer (as defined in Exchange Act Rule 12b-2).

Large accelerated filer  o             Acceleratedfiler  o            Non-acceleratedfiler  x

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2of the Exchange Act).    Yes o      No x

The aggregate market valueof the voting and non-voting common equity held by non-affiliates, based on theclosing sales price of the company’s common stock as of March 10, 2006,was $661,312,749.

As of March 10, 2006there were 92,354,341 shares of the registrant’s common stock outstanding.

DOCUMENTSINCORPORATED BY REFERENCE:  Portions ofthe issuer’s definitive proxy statement to be filed in connection with its 2006Annual Meeting of Stockholders are incorporated by reference into Part II,Item 5 and Part III, Items 9, 10, 11, 12 and 14.

 

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**CKX, Inc.Annual Report on Form 10-KDecember 31, 2005**

|          | ** ** | ** **                                                                                                         | ** ** | **Page** |
|----------|------------|--------------------------------------------------------------------------------------------------------------------|------------|----------|
|     | ** ** | **PART I**                                                                                                    |       |     |   |   |
| Item 1.  |       | Business                                                                                                           |       |     | 1 |   |
| Item 1A. |       | Risk  Factors                                                                                                      |       |     | 12 |   |
| Item 1B. |       | Unresolved Staff  Comments                                                                                         |       |     | 21 |   |
| Item 2.  |       | Properties                                                                                                         |       |     | 22 |   |
| Item 3.  |       | Legal  Proceedings                                                                                                 |       |     | 22 |   |
| Item 4.  |       | Submission of  Matters to a Vote of Security Holders                                                               |       |     | 22 |   |
|     | ** ** | **PART II**                                                                                                   |       |     |   |   |
| Item 5.  |       | Market for  Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchase  of Equity Securities |       |     | 23 |   |
| Item 6.  |       | Selected Financial  Data                                                                                           |       |     | 24 |   |
| Item 7.  |       | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                        |       |     | 27 |   |
| Item 7A. |       | Quantitative and Qualitative Disclosures About Market  Risk                                                        |       |     | 48 |   |
| Item 8.  |       | Financial  Statements and Supplementary Data                                                                       |       |     | 49 |   |
| Item 9.  |       | Changes in and  Disagreements with Accountants on Accounting and Financial Disclosure                              |       |     | 88 |   |
| Item 9A. |       | Controls and  Procedures                                                                                           |       |     | 88 |   |
| Item 9B. |       | Other Information                                                                                                  |       |     | 88 |   |
|     | ** ** | **PART III**                                                                                                  |       |     |   |   |
| Item 10. |       | Directors and  Executive Officers of the Registrant                                                                |       |     | 89 |   |
| Item 11. |       | Executive  Compensation                                                                                            |       |     | 89 |   |
| Item 12. |       | Security  Ownership of Certain Beneficial Owners and Management and Related Stockholder  Matters                   |       |     | 89 |   |
| Item 13. |       | Certain  Relationships and Related Transactions                                                                    |       |     | 89 |   |
| Item 14. |       | Principal  Accountant Fees and Services                                                                            |       |     | 89 |   |
|     | ** ** | **PART IV**                                                                                                   |       |     |   |   |
| Item 15. |       | Exhibits and  Financial Statement Schedules                                                                        |       |     | 89 |   |

 

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**PART I**

**ITEM 1.**                BUSINESS

*CKX, Inc., together with its subsidiaries andpredecessor, will be referred to in this Form 10-K Annual Report byterms such as “we,” “us,” “our,” “CKX,” the “registrant” and the “Company,”unless the context otherwise requires.*

We are engaged in theownership, development and commercial utilization of entertainment content. Todate, we have focused on acquiring globally recognized entertainment contentand related assets, including the rights to the name, image and likeness of ElvisPresley (1935-1977), the operations of Graceland and proprietary rightsto the *IDOLS* television brand,including the *American Idol* series in theUnited States (which first aired in June 2002 and commenced its fifthseason in January 2006), and local adaptations of the *IDOLS* television show format which,collectively, air in over 100 countries around the world.  Our existing properties generate recurringrevenues across multiple entertainment platforms, including music andtelevision; sponsorship, licensing and merchandising; artist management; themedattractions and touring/live events.

**Presley Business**

On February 7, 2005,we acquired an 85% interest in the entities which own and/or control thecommercial utilization of the name, image and likeness of Elvis Presley, theoperation of the Graceland museum and related attractions, as well as revenuederived from Elvis Presley’s television specials, films and certain of hisrecorded musical works (the “Presley Business”). The Presley Business consistsprimarily of two components: first, intellectual property, including thelicensing of the name, image, likeness and trademarks associated with ElvisPresley, as well as other owned and/or controlled intellectual property and thecollection of royalties from certain motion pictures, television specials andrecorded musical works and music compositions; and second, the operation of theGraceland museum and related attractions and retail establishments, includingElvis Presley’s Heartbreak Hotel and other ancillary real estate assets.

We believe the name, imageand likeness of Elvis Presley, as well as related intellectual property assets,are prime examples of the type of content that offers opportunities to generateincreased revenues from diverse platforms and distribution channels. Elvis isthe best-selling solo musical recording artist in U.S. history, havingsold more than one billion albums and singles worldwide and having set recordsfor the most albums and singles that have been certified Gold® and Platinum® bythe Recording Industry Association of America. In each of the past five years,Forbes Magazine has listed Elvis as the top earning deceased celebrity. Duringthat time, more than eleven million Elvis albums have been sold worldwide andan average of approximately 567,000 people have visited Graceland annually.

While, to date, thePresley Business has been successful in accomplishing its primary goal ofprotecting and preserving the legacy of Elvis Presley, we believe there is asignificant opportunity to further enhance the image of Elvis Presley anddevelop commercial opportunities for the Presley Business. For example, we areexploring opportunities to bring Elvis-related attractions and/or themed venuesto Las Vegas and other strategic locations throughout the world, includingAsia, the Middle East and Europe.

***Licensing andIntellectual Property***

**Music Rights**

We own co-publishingrights to approximately 650 music compositions, most of which were recorded byElvis Presley. Chrysalis Music Publishing administers our company’s share ofthese compositions, along with that of one of two other co-publishersunder an administration agreement. Approximately 40% of our publishing incomefrom these compositions originates outside the United States. The publicperformance rights for these compositions are administered by The AmericanSociety of Composers, Authors and Publishers (ASCAP) and Broadcast Music, Inc.(BMI), the two largest U.S. based companies which license 

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anddistribute royalties for the non-dramatic public performances ofcopyrighted musical works in the United States.

We also own rights toreceive royalties from sales of certain Elvis records. Under Elvis’ recordingcontract with RCA (now part of Sony BMG Music Entertainment), he was entitledto receive an artist’s royalty on record sales. In March 1973, Elvis soldhis ongoing record royalty rights on everything he had recorded up to that timefor a lump sum payment from RCA. We continue to receive royalties on sales ofrecords Elvis recorded after March 1973 and a marketing royalty inexchange for the right to use Elvis’ name, image and likeness in connectionwith the sale and marketing of newly released compilation records that includemusic Elvis recorded before March 1973.

Sony BMG MusicEntertainment (as RCA’s successor)  (“SonyBMG”) generally does not have the right to license master recordings featuringElvis’ musical performances for any commercial use other than the sale ofrecords. We negotiate, together with Sony BMG, when requests are received forthe use of these masters in a commercial setting. In addition, we retain theright to approve remixes and edits of any of the master recordings.

**Name, Image and Likeness**

We own the name, image andlikeness of Elvis Presley as well as trademarks in various names and imagesassociated with Elvis. We license to others the right to use this intellectualproperty for merchandising and other commercial exploitation. In addition, weenter into licenses for the use of video and audio clips of Elvis from variousmotion pictures in which he starred and the television programs which we own.

We believe that ourexperience and our infrastructure for exploiting the name, image and likenessof Elvis Presley provide a strong base upon which to expand our business. Weare presently exploring various methods of expanding this business which mightinclude purchasing additional name and likeness rights or entering intoagreements to manage name and likeness rights.

**Television/Video**

We own the rights to twoof Elvis’ television specials: “‘68 Special” (1968) and “Aloha From Hawaii”(1973) and, as a result of this ownership, we have the right to negotiate forrevenues associated with the use of footage from these specials in other media and formats. We also own therights to “Elvis by the Presleys” (2005), a two-hour documentary and four-hourDVD based on and including rare archival footage, home movies and photos, andinterviews with Elvis, his friends and relatives, including Lisa Marie Presleyand Priscilla Presley.

**Motion Pictures**

Elvis starred in 31feature films as an actor and two theatrically released concert documentaryfilms. Elvis had, and we are entitled to receive, participation royalties in 24of these films. We have the right to receive royalties, but do not own thefilms themselves or control the content or distribution of such films.

In addition, we have therights to and negotiate for revenues associated with the use of Elvis’ imagesas extracted from these films and embodied in other media and formats.

**Licensing**

In addition to our ownmerchandising efforts, our licensing division is charged with theresponsibility of protecting and preserving the integrity of Elvis Presley’simage, Graceland and other related properties. We seek to accomplish thisthrough the pursuit of appropriate commercial opportunities that advance andcomplement our financial strategies while maintaining the desired branding andpositioning for “Elvis” and our other properties. We currently have over 100licensing arrangements. Examplesof our licensed products and services (and the corresponding licensees)include: greeting cards (American Greetings); slot 

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machines (IGT); satellite radio (Sirius); chocolatecandy (Russell Stover Candies); limited edition wines (Signature Wines);collectible figures (Todd McFarlane); and calendars and stationary(MeadWestvaco).

***GracelandOperations***

**Graceland**

Graceland, the 13.5 acreestate which served as the primary residence of Elvis Presley from 1957 untilhis passing in 1977, is located in Memphis, Tennessee. Graceland was firstopened to public tours in 1982. Over the past five years, Graceland hasaveraged approximately 567,000 visitors per year.

We operate Graceland underthe terms of a 90-year lease with The Promenade Trust, under which 89years remain. We prepaid approximately $3.0 million of rent at closing of theacquisition of the Presley Business, and will make monthly payments of $1.00per month during the term of the lease. We own all worldwide rights, title andinterest in and to the name “Graceland,” which name may be used at additionalthemed locations as well as in Memphis, Tennessee.

The focal point of theGraceland business is a guided mansion tour, which includes a walk through thehistoric residence, as well as an extensive display of Elvis’ gold records andawards, career mementos, stage costumes, jewelry, photographs and more. Thetour also includes a visit to the Meditation Garden, where Elvis and members ofhis family have been laid to rest.

In addition to themansion, the Graceland operations include access to an automobile museumfeaturing vehicles owned and used by Elvis, the “Sincerely Elvis” museum, whichfeatures changing exhibits of Elvis Presley memorabilia, a movie theatershowing movies starring Elvis, an aviation exhibition featuring the airplaneson which Elvis traveled while on tour, retail stores offering Elvis themedmerchandise, restaurants, a wedding chapel, ticketing and parking. We also ownand operate retail stores at Graceland and produce exclusive licensedmerchandise for visitors to Graceland.

We recently announcedpreliminary plans to re-develop the Graceland attraction including an expandedvisitors center, developing new attractions and merchandising shops andbuilding a new boutique convention hotel. This project is conditioned on anumber of factors including obtaining necessary approvals and concessions fromlocal and state authorities and attracting an appropriate hotel partner. Althoughwe have not yet determined the exact scope, cost, financing plan and timing ofthis project, we expect that the re-development of Graceland will take severalyears and will require a substantial financial investment by the Company.

Adjacent to the Gracelandreal property is the Meadow Oaks Apartments, a 270-unit apartment complexthat we own and operate as a result of our acquisition of the Presley Business.

**Elvis Presley’s Heartbreak Hotel**

Adjacent to the mansionand related attractions, we have, since 1998, operated Elvis Presley’sHeartbreak Hotel, which is marketed primarily to visitors to Graceland. ElvisPresley’s Heartbreak Hotel is a 128-room boutique hotel premised on thelegendary hospitality and personal style for which Elvis Presley was known. Thehotel had an average occupancy rate of approximately 80% during the year ended December 31,2005.

**Elvis.com**

**We ownand operate the official Elvis Presley website, www.elvis.com. The website,which currently receives an average of over 300,000 unique visitors eachmonth,  includes a detailed history ofElvis Presley and the Presley Business, including biographical information,information about Elvis Presley’s awards and achievements, information aboutElvis’ friends and family and interesting facts about the life and times ofElvis Presley. The website also offers exclusive downloads such as e-cards,games and on-line tours, as well as direct access to shopelvis.com, ourofficial online store selling Elvis-branded merchandise. Visitors to**

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**thewebsite can also access Elvis Insiders, the official Presley sponsored affinitygroup where fans pay an annual fee for an “inside” look at Elvis and Graceland.**

**19 Entertainment**

**Overview**

On March 17, 2005, weacquired 19 Entertainment Limited (“19 Entertainment”) and entered into a long-termemployment agreement with Simon Fuller, its founder and the creative forcebehind its most successful projects. In addition to overseeing the operationsof 19 Entertainment and its subsidiaries, Mr. Fuller is a member of ourBoard of Directors and plays a key role in planning and implementing ouroverall creative direction. 19 Entertainment’s strategy is to create and retainan ownership interest in entertainment content and to seek to enhance the valueof its content through the control of multiple complementary revenue streamsincluding, for example, television, music, sponsorship and merchandising,touring and artist management.

***IDOLS* Brand**

19 Entertainment’s multi-platformapproach to the commercial utilization of its entertainment properties is bestillustrated by the example of the *IDOLS*brand. In 1998, 19 Entertainment created what was to become the concept for “PopIdol,” a televised talent contest for musical artists that allowed the viewingaudience to participate in and ultimately select the winning performer via textmessaging and telephone voting. The audience participation generates a pre-establishedmarket for the winning artists and other finalists who 19 Entertainment thenhas the right to represent with respect to artist management and merchandising.In the United States and United Kingdom, 19 Entertainment also enters intoexclusive recording agreements with the winning artists and other finalists.The first television program based on this concept was *Pop Idol*,first broadcast in the United Kingdom in 2001 and in the United States, underthe name *American Idol* in 2002. *American Idol* and/or local adaptations of the *IDOLS* television show format now collectively air in over100 countries around the world. The popularity of the *IDOLS* brand around the world, most notablythe *American Idol* series in the UnitedStates, has generated substantial revenue across multiple media platforms, inall of which 19 Entertainment retains a substantial ownership and/or economicinterest.

FremantleMedia NorthAmerica, Inc. (“FremantleMedia”), the content business production arm ofthe RTL Group, Europe’s largest television and radio broadcast company, is 19Entertainment’s global television production and distribution partner for *IDOLS*programming and Sony BMG is 19 Entertainment’s recordlabel partner with respect to *IDOLS* artistsin most major territories around the world.

Though19 Entertainment is a party to a variety of commercial relationships with itstelevision and record label production and distribution partners to produce,broadcast, distribute and finance shows based on the *IDOLS* brand, 19 Entertainment retains a substantial interestin all aspects of such shows and their multiple revenue streams through itswholly owned operating subsidiaries both in the United States and the UnitedKingdom. 19 Entertainment’s principal operational and ownership interests arestructured as follows:

·        19TV Limited owns two-thirds of the *IDOLS*brand and co-produces the show in the United States with its partner,FremantleMedia, which owns the other one-third of the *IDOLS* brand.

·        19TV Limited receives certain fees and revenues relating to the sublicensing ofthe brand and production and marketing of the shows based on the *IDOLS* brand around the world, includinglicensing and producer fees.

·        19TV Limited shares a percentage of the revenues FremantleMedia derives from on-airsponsorships and sales of *IDOLS*branded merchandise.

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·        19Recordings Limited has the right to sign recording contracts with the finalistsfrom the *American Idol* series in the UnitedStates and the *Pop Idol* series in the UnitedKingdom.

·        19Management Limited has the right to manage the finalists.

·        19Touring Limited has the right to produce *IDOLS*tours.

·        19Merchandising Limited has the licensing and merchandising rights for the *IDOLS* tours and in the United States andUnited Kingdom is jointly responsible for off-air sponsorship of thetelevised programs.

**Television**

The typical model for a 19Entertainment television project thus far, as demonstrated by the roll out ofthe *IDOLS* brand, has been thedevelopment of a compelling music themed television show that is capable ofbeing broadcast on a global basis. Through the initial programming, 19Entertainment is able to generate a significant fan base and, ultimately, buildsubstantial ancillary revenue streams.

19 Entertainment createdand co-produces the television show *So You Think You Can Dance*,which was initially broadcast on the Fox Broadcasting Network (“Fox”) in thesummer of 2005 and is scheduled for a second season in the summer of 2006. Inaddition to television shows based on the *IDOLS*format and *So**You Think You Can Dance*,19 Entertainment, in the ordinary course of its business, continually developsnew concepts for television projects and currently has several new televisionprojects in various stages of development, in both the United States and theUnited Kingdom.

**19 TV Limited/FremantleMedia Agreement**

19 Entertainment, throughits wholly owned subsidiary, 19 TV Limited, has entered into a worldwidepartnership arrangement with FremantleMedia for the production and distributionof the *IDOLS* brand, which givesFremantleMedia the exclusive right to produce (or sublicense production) anddistribute *IDOLS* programs andseries throughout the world except in the United States, where 19 TVLimited co-produces the *American Idol*series.  In the United States, the *American Idol* series airs on Fox, under an agreement between19 TV Limited, FremantleMedia and Fox, as more fully described below under “FoxAgreement.”

Underthe terms of the 19 TV Limited/FremantleMedia agreement, the *IDOLS* brand, together with all domainnames and trademarks relating thereto are owned jointly by the parties, two-thirdsby 19 TV Limited and one-third by FremantleMedia. In addition to itsjoint ownership of the *IDOLS*brand, 19 TV Limited has the right to receive certain fees and revenuesrelating to the sublicensing of the *IDOLS*brand and the production of television shows based on the *IDOLS* brand and format around the world.Specifically, 19 TV Limited receives:

·        apercentage of the “Format Fee,” which is a percentage of the gross feesreceived by a local production company from a local broadcaster for productionand transmission of the *IDOLS*series;

·        apercentage of revenues derived from distribution of *IDOLS* series and programs after a deduction of a percentageof gross revenues and other deductions;

·        apercentage of the net revenue derived from program sponsorship and programmerchandising; and

·        apercentage of the net revenue derived from local merchandising and management deals(outside the United States and the United Kingdom). 19 TV Limited retains 100%of artist management and artist merchandising income from the United States andthe United Kingdom.

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**Fox Agreement**

19 Entertainment, Fox and FremantleMedia have enteredinto a series of agreements, the most recent of which was entered into in November 2005,which together encompass the terms under which Fox is granted the right to air *American Idol* in the United States. Fox has been granted aperpetual and exclusive license, including the right of first negotiation andlast refusal, to broadcast any non-scripted television programs featuringthe *American Idol*brand or based on the *American Idol* format, or featuring contestants who appear intheir roles as *American Idol* winners, intendedfor broadcast within the United States and its territories. Under the terms ofthe 2005 amendment, Fox has guaranteed production of at least four more seasonsof *American Idol*(2006–2009), with anautomatic renewal for up to two additional seasons upon the show achievingcertain minimum ratings in the fourth and potential fifth years of the deal.

Fox pays FremantleMedia a flat, non-auditablelicense fee per episodic hour, as well as a premium license fee for each hourin excess of the initial season order. These fees are used by FremantleMedia tofund *American Idol* series production costs,excluding the fees of the judges and host, which are paid directly by Fox, overand above the license fees. FremantleMedia retains the balance of the Foxlicense fees minus production costs, and pays 50% of the balance directly to 19TV Limited. Under the terms of the 2005 amendment, beginning with *American Idol 5* (which commenced airing in January 2006),Fox pays an additional license fee directly to 19 TV Limited andFremantleMedia.

In addition to licensefees, Fox also pays bonus fees depending on where the *AmericanIdol* series is rated and ranked in the 18-49 age demographic.19 TV Limited and FremantleMedia share the ratings/rankings bonus 50/50, with19 TV Limited receiving its share directly from Fox. Fox also pays an executiveproducer fee per episodic hour, and a format fee equal to a percentage of theapproved production budget, of which 19 TV Limited receives 50% and 40%,respectively.

**Recorded Music**

19Entertainment has the exclusive right to select the record company entitled tosign contestants on television shows based on the *IDOLS* brand to long-term recording contracts. In theUnited States and the United Kingdom, 19 Entertainment typically options therecording rights to the top 24 finalists of each series of each television showbased on the *IDOLS* brand, andthen enters into recording agreements with each of the winners and certainfinalists. 19 Entertainment is currently a party to long-term recordingagreements with numerous best-selling former*IDOLS*contestants, including:

| **Artist**       | ** ** | ** **                   | ** ** | **Idol Season** |
|------------------|------------|------------------------------|------------|-----------------|
| Kelly Clarkson   | * *   | *American Idol 1 -*Winner    |
| Ruben Studdard   | * *   | *American Idol 2 -*Winner    |
| Clay Aiken       | * *   | *American Idol 2 -*Runner-Up |
| Fantasia Barrino | * *   | *American Idol 3 -*Winner    |
| Carrie Underwood | * *   | *American Idol 4 -*Winner    |
| Bo Bice          | * *   | *American Idol 4 -*Runner-Up |
| Will Young       | * *   | *Pop Idol 1 -*Winner         |
| Gareth Gates     | * *   | *Pop Idol 1 -*Runner-Up      |

 

The *AmericanIdol* and *Pop Idol*winners and finalists listed above collectively have sold more than 23 millionalbums in the United States and United Kingdom alone.

Sony BMG is 19Entertainment’s partner with respect to *IDOLS*-basedrecorded music in most major territories around the world.  Ronagold Limited, a subsidiary of Sony BMG (“Ronagold”),is entitled to select the record company (which must be a Sony BMG group recordcompany) in territories outside the United States and the United Kingdom whichwill sign the contestant-artists. In the United States and the UnitedKingdom, 19 Entertainment, through its wholly-owned subsidiary 19 RecordingsLimited 

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(“19 Recordings”)enters into recording agreements with the finalists and then grants an optionalexclusive license to a Sony BMG affiliate to select a Sony BMG record companyto handle the marketing, manufacturing and distribution of the recordsthroughout the world. For the first four series of *AmericanIdol* in the United States, Ronagold was the designated Sony BMGaffiliate with the right to select a SonyBMG record company.  19 Entertainment’s agreement with Ronagoldwith respect to *American Idol* in the UnitedStates expired following *American Idol 4*,which completed its run in May 2005.

In November 2005, 19Recordings entered into a new agreement with Sony BMG, extending its rights toserve as the recording partner with respect to *AmericanIdol* artists and designating Simco Limited, a wholly-ownedsubsidiary of Sony BMG (“Simco”), as the new record partner for seasonssubsequent to *American Idol 4*. In the UnitedStates, Simco was granted five successive options to serve as 19 Recording’srecord partner, with each option contingent upon Simon Cowell acting as on-airjudge for the subject season. In November 2005, Simon Cowell entered intoan agreement with Fox to act as an on-air judge for at least five more seasonsof *American Idol*. The new agreement withSony BMG and Simco lasts through *American Idol**9*.

In the United States andthe United Kingdom, the SonyBMG record company that licenses the winning artistand/or any of the finalists pays to 19 Recordings a recoupable advance, apercentage of which is passed along to the finalist/artist. Outside the UnitedStates and the United Kingdom, the designated SonyBMG record company licensesthe winning artist and/or any of the finalists directly and pays to themadvances and royalties commensurate with the terms of SonyBMG’s usual exclusiverecording agreements for artists with one Platinum selling album prior tosignature in the relevant country.

In further considerationfor 19 Recordings designating SonyBMG as the continuing record label for *American Idol* artists, Fox agreed to pay to 19 Recordings anon-recoupable annual fee for each of the fifth through ninth seasons of *American Idol.*

**Internet and Telephony**

19 Entertainment, togetherwith FremantleMedia and Fox, is working to extend the reach of the *American Idol* brand across additionalmedia platforms and distribution channels, starting with the development of anexpanded presence on the internet. Under the terms of the 2005 Fox amendment,Fox has agreed, at its own expense, to build and host www.americanidol.com,which, commencing with the currently airing *AmericanIdol 5*, serves as the show’s official website. 19 TV Limited,FremantleMedia and Fox have agreed to work together to develop content for thewebsite. Fox will pay 19 TV Limited/FremantleMedia two-thirds of netinternet revenue generated by Fox above certain thresholds on the primary sitefor each season through *American Idol 10.*Inaddition to developing content with Fox for the primary site, 19 TV Limited andFremantleMedia retain their right to offer premium services on the website andretain 100% of the income generated from such premium services. 19 TV Limitedand FremantleMedia expect to introduce the first of its premium services, whichmay include additional show-related content and *AmericanIdol*-themed participatory experiences, in March or April of2006.

Additionally, commencingwith *American Idol 5*, 19 TVLimited and FremantleMedia have granted to Fox certain wireless telephonyrights, including for show-related or inspired ringtones, realtones and videofootage. Fox will pay 19 TV Limited/FremantleMedia 50% of telephony revenuesgenerated by Fox above certain thresholds for each season through *American Idol 10*. In addition to plans tooffer show-related music and video content for use on telephones and othermobile devices, 19 Entertainmentbelieves that the anticipated industry wide adoption of cross carrier shortmessaging services will provide multiple and substantial new opportunities tocapitalize on the tremendous popularity of the show and the desire of its fansto interact via mobile device.

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**Sponsorship/Merchandising/Marketing**

19 Entertainment’ssponsorship and merchandising revenues are driven primarily by the *IDOLS* brand franchise. Fox has exclusiveresponsibility for selling on-air media on behalf of the *American Idol* series. However, to the extent that mediabuyers seek any off-air promotional tie-ins or in programidentification rights, these rights can only be sold with the consent of19 Entertainment/FremantleMedia. With respect to *IDOLS*tours,19 Entertainment’s staff solicits sponsors directly and exclusively.

19 Entertainment alsooptions the merchandising rights for the top ten contestants for each *American Idol* program and typically signs long-termexclusive merchandising contracts with the winner and certain runners-up.As noted above, all merchandising and licensing associated with the *American Idol* series is handled by FremantleMedia on a world-widebasis, though 19 Entertainment receives 50% of net merchandising revenue.

19 Entertainment isseeking to leverage its experience in building brands and generatingsponsorship opportunities as it develops marketing relationships with newpartners in diverse areas of media and entertainment. For example, in February 2006,19 Entertainment entered into a three-year agreement with Honda to generatesponsorships for and to market and promote the Honda Formula One racing teamaround the world in an effort to establish the Honda Formula One team as aglobally recognized sports and entertainment brand.

**Touring**

With the success of the *IDOLS* brand, touring has become anadditional source of revenue for 19 Entertainment. As discussed above,when the number of contestants on *American Idol*has been narrowed down to the final ten contestants, 19 Entertainment engagesthe finalists as talent for *American Idol*brandedtours produced by 19 Entertainment. 19 Entertainment typically works with alocal agent to book its tours with local promoters. In the summer of 2005, the *American Idol* tour, featuring the finalists from the show’sfourth season, played 43 dates in cities and venues across the United Statesand Canada.

**Artist Management**

19 Entertainment continuesto represent its historical roster of clients, including Annie Lennox and CathyDennis. In addition, 19 Entertainment options the right to manage the finalcontestants in each series of the *IDOLS*brand broadcasts in the United States, United Kingdom, France, Germany andCanada.

**Beckham Relationship**

19 Entertainment hasdeveloped a number of relationships in which it retains an ownership positionand which it expects to result in the creation of valuable properties andprojects. For example, 19 Entertainment manages Victoria Beckham, afashion and lifestyle personality, and David Beckham, a globally recognizedcelebrity athlete, for all of his commercial activities including advertising,sponsorship and endorsement activities. In addition, David and Victoria Beckhamhave agreed to pursue the development and exploitation of projects relating tomerchandising, products and skills (that do not, with certain exceptions,include the name “Beckham”) exclusively through a joint venture vehicle,Beckham Brand Limited, which is owned one-third by each of David Beckham,Victoria Beckham, and a subsidiary of 19 Entertainment.

In 2005, Beckham BrandLimited, together with the Anschutz Entertainment Group, developed and openedThe David Beckham Academy in London. The soccer academy is comprised of twosoccer fields, classrooms, training rooms and other facilities and provides afun and interactive experience for children, both boys and girls, of all skilllevels. A sister academy recently opened in Los Angeles.

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**MBST**

On August 9, 2005, weacquired Morra, Brezner, Steinberg & Tenenbaum Entertainment, Inc.(“MBST”), a leading manager of comedic talent and producer of motion picturesand television programming, and entered into long term employment agreementswith the principals of MBST, Larry Brezner, David Steinberg and SteveTenenbaum, who continue to oversee the day-to-day operations of MBST.

MBST is a full servicemanagement company with a roster of more than 35 clients, representing an arrayof Oscar, Tony, Emmy and Grammy winning artists including Robin Williams, BillyCrystal and Woody Allen for more than 25 years each, jazz legend JohnPizzarelli for 10 years, and comedian/writer Jeff Ross, comedian Jim Norton andEmmy award winning director Bob Weide, each for more than 3 years. MBSThas had an advisory relationship with Apple Corps., the holding corporation forthe Beatles, for more than 15 years. MBST also has had a relationship withAlain Boublil, the author of the Tony award winning Les Miserables, for morethan 15 years. In addition to its management activities, MBST or its seniorexecutives have been responsible for the production of numerous motion picturesand television productions over the years, including *Arthur*,*Good Morning Vietnam*, *The Vanishing*, *The Greatest Game EverPlayed*and most recently,*Match Point*.

MBST earns revenue througharrangements with artists that result in MBST receiving a percentage of theartists’ revenue, from consulting fees paid by advisory clients and fromparticipations in films it has produced.

The Company intends tocapitalize on the experience of MBST, its executives and other employees insourcing and structuring deals for its historical roster of clients to developand implement revenue enhancement opportunities for the Company’s other currentand to-be acquired entertainment content.

**InternationalOperations**

We derive a significantportion of our revenue from international markets. Approximately $27.7 million,or 23%, of our revenue for the year ended December 31, 2005 wasattributable to sales outside the United States.

**Segment Information**

The Company currently hasfour reportable segments: Presley Business—Royalties and Licensing, PresleyBusiness—Graceland Operations, 19 Entertainment and MBST. These designationshave been made as the discrete operating results of these segments are reviewedby the Company’s chief operating decision maker to assess performance and makeoperating decisions. Refer to footnote 12 in the accompanying consolidatedfinancial statements for financial information about the Company’s segments.

**Regulation**

Our businesses areregulated by governmental authorities in the jurisdictions in which we operate.Because of our international operations, we must comply with diverse andevolving regulations. Regulation relates to, among other things, management,licensing, foreign investment, use of confidential customer information andcontent. Our failure to comply with all applicable laws and regulations couldresult in, among other things, regulatory actions or legal proceedings againstus, the imposition of fines, penalties or judgments against us or significantlimitations on our activities. In addition, the regulatory environment in whichwe operate is subject to change. New or revised requirements imposed bygovernmental authorities could have adverse effects on us, including increasedcosts of compliance. Changes in the regulation of our operations or changes ininterpretations of existing regulations by courts or regulators or ourinability to comply with current or future regulations could adversely affectus by reducing our revenues, increasing our operating expenses and exposing usto significant liabilities.

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Ourbusiness involves risks of liability associated with entertainment content,which could adversely affect our business, financial condition or results ofoperations. As a developer and distributor of media content, we may facepotential liability for any of:

·       defamation;

·       invasionof privacy;

·       copyrightinfringement;

·       actionsfor royalties and accountings;

·       trademarkmisappropriation;

·       tradesecret misappropriation;

·       breachof contract;

·       negligence;and/or

·       otherclaims based on the nature and content of the materials distributed.

These types of claims havebeen brought, sometimes successfully, against broadcasters, publishers,merchandisers, online services and other developers and distributors ofentertainment content. We could also be exposed to liability in connection withmaterial available through our Internet sites. Any imposition of liability thatis not covered by insurance or is in excess of insurance coverage could have amaterial adverse effect on us.

**IntellectualProperty**

Our business involves theownership and distribution of intellectual property. Such intellectual propertyincludes copyrights, trademarks in names, logos and characters, patents orpatent applications for inventions related to our products and services, andlicenses of intellectual property rights of various kinds.

Our intellectual property,including the rights to the name, image, and likeness of Elvis Presley, and thename, trademark and service mark of *American Idol*,is material to our operations. If we do not or cannot protect our materialintellectual property rights against infringement or misappropriation by thirdparties, (whether for legal reasons or for business reasons relating, forexample, to the cost of litigation), our revenues may be materially adverselyaffected.

We attempt to protect ourintellectual property rights through a combination of patent, trademark,copyright, rights of publicity, and other laws, as well as licensing agreementsand third party nondisclosure and assignment agreements. Because of thedifferences in foreign trademark, patent and other laws concerning proprietaryrights, our intellectual property rights may not receive the same degree ofprotection in one country as in another. Although we believe that ourintellectual property is enforceable in most jurisdictions, we cannot guaranteesuch validity or enforceability. Our failure to obtain or maintain adequateprotection of our intellectual property rights for any reason could have amaterial adverse effect on our business, financial condition and results ofoperations.

We rely on trademarks,trade names, and brand names to distinguish our products from those of ourcompetitors, and have registered or applied to register some of thesetrademarks. In addition, FremantleMedia has registered some of these trademarks,including the trademark *American Idol*and its logo, on our behalf. With respect to applications to registertrademarks that have not yet been accepted, we cannot assure you that suchapplications will be approved. Third parties may oppose the trademarkapplications, seek to cancel existing registrations or otherwise challenge ouruse of the trademarks. If they are successful, we could be forced to re-brandour products and services, which could result in loss of brand recognition, andcould require us to devote resources to advertising and marketing new brands.We also grant third parties the right to use our trademarks. In an effort topreserve trademark rights, we enter into 

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licenseagreements with these third parties which govern the use of the trademarks, andwhich require our licensees to abide by quality control standards with respectto the goods and services that they provide under the trademarks. Although wemake efforts to police the use of the trademarks by our licensees, we cannotmake assurances that these efforts will be sufficient to ensure that ourlicensees abide by the terms of their licenses. In the event that our licenseesfail to do so, the trademark rights could be diluted, or subject to challengeor invalidation.

Although we rely oncopyright laws to protect the works of authorship created by us or transferredto us via assignment or by operation of law as work made for hire, we do nottypically register our works. Copyrights in works of U.S. origin authored afterJanuary 1, 1978, exist as soon as the works are authored and fixed in atangible medium; however, the works must be registered before the copyrightowners may bring an infringement action in the United States. Furthermore, if acopyrighted work of U.S. origin is not registered within three months ofpublication of the underlying work or before the act of infringement, thecopyright owner cannot recover statutory damages or attorneys’ fees in any U.S.enforcement action; rather, the owner must prove he suffered actual damages orlost profits. Accordingly, if one of our unregistered works of U.S. origin isinfringed by a third party, we will need to register the work before we canfile an infringement suit in the United States, and our remedies in any suchinfringement suit could be limited. Furthermore, copyright laws vary fromcountry to country. Although copyrights that arise under U.S. law will berecognized in most other countries (as most countries are signatories of theBerne Convention and the Universal Copyright Convention), we cannot guaranteethat courts in other jurisdictions will afford our copyrights with the sametreatment as courts in the United States.

In addition to copyrightand trademark protection, we rely on the rights of publicity to prevent othersfrom commercially exploiting Elvis Presley’s name, image and likeness. At thistime, there is no federal statute protecting our rights of publicity to ElvisPresley’s name, image and likeness. As a result, we must rely on state law toprotect these rights. Although most states have recognized the rights ofpublicity to some extent, not all 50 states have expressly done so throughtheir statutes or their respective common law. Thus, there is no guarantee thatthe rights of publicity are enforceable in every state. Additionally, manycountries outside of the United States do not recognize the rights of publicityat all or do so in a more limited manner. Thus, there is no guarantee that wewill be able to enforce our rights of publicity in these countries.

As we seek in the futureto acquire owners of content, we will be required to perform extensive duediligence in numerous domestic and foreign jurisdictions, both on the contentwe seek to acquire, and on the laws of the applicable jurisdiction to protectsuch content, which will increase the costs associated with such acquisitions.

**Employees**

Asof December 31, 2005, the Company had a total of 318 full-timeemployees, 157 part-time employees and 12 seasonal employees. Managementconsiders its relations with its employees to be good.

**CompanyOrganization**

On March 25, 2005,the Company changed its state of incorporation from Colorado to Delaware andchanged its capital stock from no par value to $0.01 par value per share.

The principal executiveoffice of the Company is located at 650 Madison Avenue, New York, New York10022 and our telephone number is (212) 838-3100.

The 2006 CKX, Inc.Annual Meeting of Stockholders will be held on May 12, 2006 at the officesof Greenberg Traurig, LLC, 200 Park Avenue, New York, New York 10166.

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**Available Information**

The Company is subject tothe informational requirements of the Securities Exchange Act and files reportsand other information with the Securitiesand Exchange Commission. Such reports and other information filed by theCompany may be inspected and copied at the Securitiesand Exchange Commission’s Public Reference Room at 100 F Street,N.E., Washington, D.C. 20549, as well as in the Securities and Exchange Commission’s public reference rooms inNew York, New York and Chicago, Illinois. Please call the Securities and Exchange Commission at1-800-SEC-0330 for further information on the operation of the Securities and Exchange Commission’s publicreference rooms. The Securities and ExchangeCommission also maintains an Internet site that contains reports, proxystatements and other information about issuers, like us, who fileelectronically with the Securities andExchange Commission. The address of the Securities and Exchange Commission’s web site ishttp://www.sec.gov.

In addition, the Companymakes available free of charge through its Web site, www.ckx.com, its AnnualReports on Form 10-KSB and Form 10-K, quarterly reports onForm 10-QSB and Form 100-Q, current reports on Form 8-K andamendments to those reports filed pursuant to Section 13(a) or15(d) of the Securities Exchange Act of 1934, as amended, as soon asreasonably practicable after such documents are electronically filed with theSecurities and Exchange Commission. This reference to our Internet website doesnot constitute incorporation by reference in this report of the informationcontained on or hyperlinked from our Internet website and such informationshould not be considered part of this report.

**ITEM 1A.**        RISK FACTORS

The risks anduncertainties described below are those that we currently believe are materialto our stockholders.

**Risks Related to Our Business**

**Weare dependent upon a limited number of properties which may, over time, declinein popularity.**

We rely heavily upon thecontinued appeal of the *IDOLS*brand, including the*American Idol*series in the United States and, to a lesser extent, its foreign adaptations.Our revenues and income derived from those television programs depend primarilyupon the initial and continued acceptance of that programming by the public.Public acceptance of particular programming is dependent upon, among otherthings, the quality of the programming, the strength of networks on which theprogramming is broadcast, the promotion and scheduling of the programming andthe quality and acceptance of competing television programming and othersources of entertainment and information. Popularity of programming can also benegatively impacted by excessive broadcasting or telecasting of the programmingbeyond viewers’ saturation thresholds. Any one or more of these factors couldresult in the *IDOLS* televisionseries losing its popularity among viewers. Regardless of the reason, a declinein the number of television viewers who tune in to the *AmericanIdol* series and its foreign adaptations could result in loweradvertising revenues for the networks that broadcast television shows based onthe *IDOLS* brand and hurt ourability to sell future *IDOLS*format shows. This, in turn, would have a material adverse effect on ourbusiness, operating results and financial condition.

We also rely upon thecontinued popularity of Elvis Presley and the market for products that exploithis name, image and likeness. Although we believe that Elvis’ fans willcontinue to visit Graceland and purchase Elvis-related merchandise, anytarnishing of the public image of Elvis Presley could materially negativelyimpact our business and results of operations. Moreover, as the life, times andartistic works of Elvis grow more distant in our past, his popularity maydecline. If the public were to lose interest in Elvis or form a negativeimpression of him, our business, operating results and financial conditionwould be materially and adversely affected.

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**Wehave a short operating history with respect to our current and proposed businesses,so it will be difficult for investors to predict our future success.**

Our company had no activeoperations between September 2002 and February 7, 2005, the date onwhich a management group led by Robert F.X. Sillerman acquired control of ourcompany and we acquired the Presley Business. As a result, we have a limitedoperating history for you to evaluate in assessing our future prospects. Youmust consider our business and prospects in light of the risks and difficultieswe will encounter as a company with a limited operating history in our currentand proposed businesses. If we are unable to successfully address these risksand difficulties, our business and operating results could be materiallyadversely affected.

**Oursuccess depends, to a significant degree, on our relationships with thirdparties, including our co-producers, television broadcasters, and recordcompanies.**

Our ability to exploit newentertainment content depends on our ability to have that content produced anddistributed on favorable terms. Although we have strong relationships in theentertainment industry, there can be no guarantee that these relationships willendure or that our production and distribution partners will honor theirobligations to us. For example, we depend heavily on the companies thatco-produce and broadcast the American *Idol* series inthe United States, namely Fox and FremantleMedia. Similarly, we depend onaffiliates of Sony BMG, to make and distribute recordings by *IDOLS* winners in the United States, theUnited Kingdom and other significant markets and to pay us royalties on recordsales and advance us monies against those royalties. We also rely on Sony BMGto distribute recordings and videos featuring Elvis Presley. We advance fundsto the winners, after they sign recording contracts, from the monies we receivefrom Sony BMG. Any failure of FremantleMedia, Fox, Sony BMG or other thirdparties on whom we rely to continue to honor their obligations to us and adhereto our past course of dealing and conduct would have a material adverse effecton our ability to realize continued revenues from the*IDOLS*platform. Revenue from Fox, FremantleMedia and Sony BMG represent 19%, 10% and15%, respectively, of the Company’s consolidated revenue for the year ended December 31,2005.

**If weare unable to complete or integrate future acquisitions, our business strategyand stock price may be negatively affected.**

Our ability to identifyand take advantage of attractive acquisition opportunities in the future is animportant component in the implementation of our overall business strategy. Wemay be unable to identify, finance or complete acquisitions in the future. Ifthe trading price of our common stock reflects the market’s expectation that wewill complete acquisitions in the future, then the price of our common stockmay drop if we are unable to complete such acquisitions.

Evenif we are able to complete future acquisitions, they could result in our:

·        incurrenceof unanticipated liabilities or contingencies from such acquisitions;

·        incurrenceof potential operating losses from such acquisitions;

·        engagementin competition with a larger universe of companies;

·        incurrenceof costs relating to possible additional regulatory requirements and compliancecosts;

·        issuanceof more capital stock, which may dilute our stockholders’ percentage ownershipin our company;

·        incurrenceof additional amounts of debt; and/or

·        amortizationof additional expenses related to goodwill and other intangible assets.

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Thesuccessful integration of any businesses we may acquire in the future are keyelements of our business strategy. The acquisition and integration ofadditional businesses involve risks, including:

·        the diversion ofmanagement’s time and attention away from operating our business to acquisitionand integration challenges;

·        ourentry into markets and geographic areas where we have limited or no experience;

·        thepotential loss of key employees, artists or customers of the acquiredbusinesses;

·        thepotential need to implement or remediate controls, procedures and policiesappropriate for a public company at businesses that prior to the acquisitionlacked these controls, procedures and policies;

·        theintegration of culturally diverse employees; and

·        theneed to integrate each business’ accounting, information management, humanresources, contract and intellectual property management and otheradministrative systems to permit effective management.

We may be unable toeffectively integrate businesses we may acquire in the future without encounteringthe difficulties described above. Failure to effectively integrate suchbusinesses could have a material adverse effect on our business, prospects,results of operations or financial condition. In addition, the combinedcompanies may not benefit as expected from the integration.

**Wemay not be able to manage our expected growth, which could adversely affect ouroperating results.**

We intend to continue tosignificantly grow our company’s business. Our anticipated growth could place astrain on our management, employees and operations. Our ability to competeeffectively and to manage our future growth effectively will depend on ourability to implement and improve financial and management information systemson a timely basis and to effect changes in our business, such as implementinginternal controls to handle the increased size of our operations and hiring,training, developing and managing an increasing number of experiencedmanagement-level and other employees. Unexpected difficulties during expansion,the failure to attract and retain qualified employees or our inability torespond effectively to recent growth or plan for future expansion, couldadversely affect our results of operations.

**Certainaffiliates, minority interests and third parties have the right to exploit ourintellectual property for commercial purposes and may exercise those rights ina manner that negatively affects our business.**

Certain partners,co-owners and third party licensees have the right to commercially exploitcertain of our intellectual property, including through shared music publishingrights and film and television production and distribution agreements. Wereceive a share of the resulting revenue. Our revenue share under suchagreements depends on the third party’s ability to successfully market thatcontent. If such third party exploits our intellectual property in a mannerthat diminishes its value, or adversely affects the goodwill associated withsuch intellectual property, there may be a material adverse effect on ourbusiness, prospects, financial condition, results of operations or cash flowand, ultimately, the price of our common stock.

**Ourintellectual property rights may be inadequate to protect our business.**

Our intellectual property,including the rights to the name, image and likeness of Elvis Presley, and thename, trademark and service mark “American Idol,” is material to ouroperations. If we do not or cannot protect our material intellectual propertyrights against infringement or misappropriation by third parties, (whether forlegal reasons or for business reasons relating, for example, to the cost oflitigation), our revenues may be materially adversely affected.

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We attempt to protect ourintellectual property rights through a combination of patent, trademark,copyright, rights of publicity, and other laws, as well as licensing agreementsand confidentiality and assignment agreements. Because of the differences inforeign trademark, patent, copyright and other laws concerning proprietaryrights, our intellectual property rights may not receive the same degree ofprotection in one country as in another. Although we believe that ourintellectual property is enforceable in most jurisdictions, we cannot guaranteesuch validity or enforceability. Our failure to obtain or maintain adequateprotection of our intellectual property rights for any reason could have amaterial adverse effect on our business, financial condition and results ofoperations.

We rely on trademarks,trade names, and brand names to distinguish our products, services and contentfrom those of our competitors, and have registered or applied to register someof these trademarks. In addition, FremantleMedia has registered on our behalfsome trademarks, which we co-own, including the trademark “American Idol” andits logo. With respect to applications to register trademarks that have not yetbeen accepted, we cannot assure you that such applications will be approved.Third parties may oppose the trademark applications, seek to cancel existingregistrations or otherwise challenge our use of the trademarks. If they aresuccessful, we could be forced to re-brand our products, services and content,which could result in loss of brand recognition, and could require us to devoteresources to advertising and marketing new brands. We also grant third partiesthe right to use our trademarks. In an effort to preserve trademark rights, weenter into license agreements with these third parties which govern the use ofthe trademarks, and which require our licensees to abide by quality controlstandards with respect to the goods and services that they provide under thetrademarks. Although we make efforts to police the use of the trademarks by ourlicensees, we cannot make assurances that these efforts will be sufficient toensure that our licensees abide by the terms of their licenses. In the eventthat our licensees fail to do so, the trademark rights could be diluted, orsubject to challenge or invalidation.

Although we rely oncopyright laws to protect the works of authorship created by us or transferredto us via assignment or by operation of law as work made for hire, we do nottypically register our works. Copyrights in works of U.S. origin authored afterJanuary 1, 1978 exist as soon as the works are authored and fixed in atangible medium; however, the works must be registered before the copyrightowners may bring an infringement action in the United States. Furthermore, if acopyrighted work of U.S. origin is not registered within three months of publicationof the underlying work or before the act of infringement, the copyright ownercannot recover statutory damages or attorneys’ fees in any U.S. enforcementaction; rather, the owner must prove he suffered actual damages or lostprofits. Accordingly, if one of our unregistered works of U.S. origin isinfringed by a third party, we will need to register the work before we canfile an infringement suit in the United States, and our remedies in any suchinfringement suit could be limited. Furthermore, copyright laws vary fromcountry to country. Although copyrights that arise under U.S. and U.K. law willbe recognized in most other countries (as most countries are signatories of theBerne Convention and the Universal Copyright Convention), we cannot guaranteethat courts in other jurisdictions will afford our copyrights with the sametreatment as courts in the United States or the United Kingdom.

In addition to copyrightand trademark protection, we rely on the rights of publicity to prevent othersfrom commercially exploiting Elvis Presley’s name, image and likeness. At thistime, there is no federal statute protecting our rights of publicity to ElvisPresley’s name, image and likeness. As a result, we must rely on state law toprotect these rights. Although most states have recognized the rights ofpublicity to some extent, not all 50 states have expressly done so throughtheir statutes or their respective common law and certain of those states whichhave recognized such rights, have imposed certain limitations on theenforcement of these rights. Consequently, there is no guarantee that therights of publicity are enforceable in every state. Additionally, manycountries outside of the United States do not recognize the rights of publicityat all or do so in a more limited manner. Consequently, there is no guaranteethat we will be able to enforce our rights of publicity in these countries.

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**Thedeparture of or failure to recruit key personnel could have a detrimentaleffect on us.**

Our success will depend toa significant extent upon a limited number of members of senior management andother key employees, particularly Robert F.X. Sillerman, our Chairman and ChiefExecutive Officer, and Simon Fuller, the Chief Executive Officer of 19Entertainment. The loss of the services of either of Messrs. Sillerman orFuller, or one or more key managers or other key creative, marketing ormanagement employees could have a material adverse effect on our business,operating results or financial condition. In addition, we believe that ourfuture success will depend in large part upon our ability to attract and retainadditional management and marketing personnel. There can be no assurance wewill be successful in attracting and retaining such personnel, and the failureto do so would have a detrimental effect on our business, financial conditionand results of operations.

**Wemay not be able to obtain additional financing on favorable terms, or at all.**

Weexpect that we will also require additional financing over time. The terms ofany additional financing we may be able to procure are unknown at this time.Our access to third party sources of capital will depend, in part, on:

·        generalmarket conditions;

·        themarket’s perception of our then-current performance and growth potential;

·        ourthen-current debt levels;

·        ourthen-current and expected future earnings;

·        ourcash flow; and

·        themarket price per share of our common stock.

Any future debt financingor issuances of preferred stock that we may make will be senior to the rightsof holders of our common stock, and any future issuances of equity securitieswill result in the dilution of the then-existing stockholders’ proportionateequity interest.

**Ouroverhead costs may materially adversely affect our financial position and/or stockprice.**

We incur substantialoverhead costs and commitments in connection with long-term employmentagreements with our key executives and the long-term lease for our corporateoffices, in anticipation of completing future acquisitions. If we are unable tocomplete acquisitions in the future or create substantial internal growth, ouroverhead costs would be disproportionately high for a company of our size.

**Certainof our obligations require that a significant part of our operating cash flowbe used to fund these obligations.**

The annual dividendrequirements on our outstanding Series B Convertible Preferred Stock total$1,826,000 and the annual payments on a note payable to Priscilla Presley are$550,000. In addition to making dividend payments on our preferred stock andinterest payments on the Presley note, under the terms of a stockholdersagreement and charter and the operating agreement of certain of oursubsidiaries, we are required to make future minimum annual distributions of$1.2 million for each full calendar year to The Promenade Trust, aTennessee grantor trust established for the benefit of Lisa Marie Presley.

Ourobligations could have important consequences to us and investors in oursecurities. These include:

·        Wewill have to use a significant part of our cash flow to pay the dividends onthe Series B Convertible Preferred Stock and to satisfy the otherobligations set forth above, which will reduce the capital available foroperations and expansion;

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·       Wemay not be able to satisfy all of our obligations, including, but not limitedto, our obligations under our Series B Convertible Preferred Stock; and

·       We could have difficultiesobtaining necessary financing in the future for working capital, capitalexpenditures, debt service requirements, refinancings or other purposes.

**Weintend to continue to expand our operations internationally, which will exposeus to new risks.**

A key element ofour business strategy, which we have begun to implement through the acquisitionof 19 Entertainment, is to expand our operations internationally, both throughacquisitions and internal growth. Such expansion will require us to understandlocal customs, practices and competitive conditions as well as develop amanagement infrastructure to support our international operations.International operations, including operating the business of 19 Entertainment,are also subject to certain risks inherent in doing business abroad, including:

·       fewerintellectual property protections and the potential difficulty in enforcingintellectual property rights in some foreign countries;

·       generaleconomic and political conditions in the countries where we operate may have anadverse effect on our operations in those countries or may not be favorable toour growth strategy;

·       foreigncustomers may have longer payment cycles than customers in the United States;

·       taxrates in some foreign countries may exceed those of the United States andforeign earnings may be subject to withholding requirements or the impositionof tariffs, exchange controls or other restrictions;

·       challengescaused by distance, language and cultural differences;

·       unexpectedchanges in regulatory requirements;

·       thedifficulties associated with managing a large organization spread throughoutvarious countries;

·       therisk that foreign governments may adopt regulations or take other actions thatwould have a direct or indirect adverse impact on our business and marketopportunities; and

·       thedifficulty of enforcing agreements and collecting receivables through someforeign legal systems.

As we continue to expandour business internationally, our success will depend, in large part, on ourability to anticipate and effectively manage these and other risks associatedwith our international operations, including the operations of 19Entertainment. Any of these risks could adversely affect the operations of 19Entertainment and any of our other international operations and, consequently,our business, financial condition and results of operations.

**Tothe extent we maintain international operations and generate  revenues in foreign currencies, and currency exchange rates become unfavorable,our results of operations may be adversely affected.**

As we expand ourinternational operations, more of our customers may pay us in foreigncurrencies. Currently, we maintain significant operations in the United Kingdomand receive payments from FremantleMedia with respect to our *IDOLS* agreement in U.S. dollars and U.K.pounds sterling. Conducting business in currencies other than U.S. dollarssubjects us to fluctuations in currency exchange rates. If the currencyexchange rates were to change unfavorably, the value of revenues we generate inforeign currencies could decrease when converted to U.S. dollars and the amountof expenses we incur in foreign currencies could increase when converted toU.S. dollars. This could have a negative impact on our reported operatingresults. Hedging strategies, such as forward contracts, options and foreign exchangeswaps related to transaction exposures, that we may implement to mitigate thisrisk may not eliminate our 

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exposureto foreign exchange fluctuations. Additionally, hedging programs expose us torisks that could adversely affect our operating results, including thefollowing:

·       Hedgingprograms are inherently risky and we could lose money as a result of poortrades;

·       We may be unable to hedgecurrency risk for some transactions because of a high level of uncertainty orthe inability to reasonably estimate our foreign exchange exposures; and

**Wedepend upon distributions from our operating subsidiaries to fund ouroperations and may be subordinate to the rights of their existing and futurecreditors.**

We conduct substantiallyall of our operations through our subsidiaries. Our subsidiaries must firstsatisfy their cash needs, which may include salaries of our executive officers,insurance, professional fees and service of indebtedness that may beoutstanding at various times. Financial covenants under future creditagreements, or provisions of the laws of Delaware, where we are organized, orTennessee or England and Wales, where certain of our subsidiaries areorganized, may limit our subsidiaries’ ability to make sufficient dividend,distribution or other payments to us. Creditors of our subsidiaries (includingtrade creditors) will be entitled to payment from the assets of thosesubsidiaries before those assets can be distributed to us. By virtue of ourholding company status, our Series B Convertible Preferred Stock, which isheld by The Promenade Trust for the benefit of Lisa Marie Presley, isstructurally junior in right of payment to all existing and future liabilitiesof our subsidiaries. The inability of our operating subsidiaries to makedistributions to us could have a material adverse effect on our business,financial condition and results of operations.

**Theconcentration of ownership of our capital stock with our executive officers anddirectors and their affiliates will limit your ability to influence corporatematters.**

As of March 10, 2006,our executive officers and directors together beneficially own approximately48.1% of our outstanding capital stock. In particular, Mr. Sillerman, ourchief executive officer and chairman of our board of directors, beneficiallyowns approximately 35.2% of our outstanding capital stock. Mr. Sillermantherefore has the ability to influence our management and affairs and theoutcome of matters submitted to stockholders for approval, including theelection and removal of directors, amendments to our charter, approval of anyequity-based employee compensation plan and any merger, consolidation orsale of all or substantially all of our assets. This concentrated control maylimit your ability to influence corporate matters and, as a result, we may takeactions that our stockholders do not view as beneficial. As a result, themarket price of our common stock could be adversely affected.

**Ourmanagement information, internal controls and financial reporting systems willneed further enhancements and development to comply with the Sarbanes-OxleyAct of 2002.**

Pursuant to Section 404 of the Sarbanes-OxleyAct of 2002,  we will be required toevaluate and report on our system of internal controls beginning with our AnnualReport on Form 10-K for the year ending December 31, 2006.Section 404 of the Sarbanes-Oxley Act also requires that, beginningwith our year ending December 31, 2006, our independent registered publicaccounting firm report on management’s evaluation of our system of internalcontrols. We have initiated the process of improving and fully documenting itssystems of internal control over financial reporting and is developing internalplans to test the operating effectiveness of those controls to ensure fullcompliance by December 31, 2006. If we fail to maintain an effectivesystem of internal controls, we could be subject to regulatory scrutiny, civilor criminal penalties or stockholder litigation. Any inability to providereliable financial reports could harm our business.

Deloitte & ToucheLLP, the Company’s registered independent public accounting firm, has indicatedthat it will be issuing the Company a management letter in connection with itsaudit of the Company’s 

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financialstatements as of and for the year ended December 31, 2005 citing amaterial weakness in the Company’s accounting for income taxes.

Any failure to implement required new or improvedcontrols, or difficulties encountered in the implementation of adequatecontrols over our financial processes and reporting in the future, could harmour operating results or cause us to fail to meet our reporting obligations.Inferior internal controls could also cause investors to lose confidence in ourreported financial information, which could have a negative effect on thetrading price of our stock. Further, the growth and diversification of ourbusiness through acquisitions complicates the process of developing,documenting and testing internal controls. Owners of content we may seek toacquire may not be in compliance with the provisions of the Sarbanes-OxleyAct regarding adequacy of their internal controls. The development of theinternal controls of any such entity to achieve compliance with the Sarbanes-OxleyAct may increase the time and costs necessary to complete any such acquisition.

**Weare subject to extensive governmental regulation, and our failure to complywith regulations could adversely affect our results of operations, financialcondition and business.**

Our businesses areregulated by governmental authorities in the jurisdictions in which we operate.Because our operations are international, we must comply with diverse andevolving regulations. These regulations relate to, among other things,management, licensing, foreign investment, use of confidential customerinformation and content. Our failure to comply with all applicable laws andregulations could result in, among other things, regulatory actions or legalproceedings against us, the imposition of fines, penalties or judgments againstus or significant limitations on our activities. In addition, the regulatoryenvironment in which we operate is subject to change. New or revisedrequirements imposed by governmental authorities could have adverse effects onus, including increased costs of compliance. Changes in the regulation of ouroperations or changes in interpretations of existing regulations by courts orregulators or our inability to comply with current or future regulations couldadversely affect us by reducing our revenues, increasing our operating expensesand exposing us to significant liabilities.

**Ourbusiness involves risks of liability associated with entertainment content,which could adversely affect our business, financial condition or results ofoperations.**

As an owner anddeveloper of entertainment content, we may face potential liability for any of:

·       defamation;

·       invasionof privacy;

·       copyrightinfringement;

·       actionsfor royalties and accountings;

·       trademarkmisappropriation;

·       tradesecret misappropriation;

·       breachof contract;

·       negligence;and/or

·       otherclaims based on the nature and content of the materials distributed.

These types of claims havebeen brought, sometimes successfully, against broadcasters, publishers,merchandisers, online services and other developers and distributors ofentertainment content. We could also be exposed to liability in connection withmaterial available through our Internet sites. Any imposition 

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ofliability that is not covered by insurance or is in excess of insurance coveragecould have a material adverse effect on us.

**Risks Related toOur Common Stock**

**We donot anticipate paying dividends on our common stock in the foreseeable future,and the lack of dividends may have a negative effect on our stock price.**

We have never declared orpaid any cash dividends or distributions on our common stock. We currentlyintend to retain any future earnings to support operations and to financeexpansion and therefore do not anticipate paying any cash dividends on ourcommon stock in the foreseeable future. In addition, the terms of any futuredebt agreements we may enter into are likely to prohibit or restrict, thepayment of cash dividends on our common stock.

**Certainprovisions of Delaware law and our charter documents could discourage a takeoverthat stockholders may consider favorable.**

Certain provisionsof Delaware law and our certificate of incorporation and by-laws may have theeffect of delaying or preventing a change of control or changes in ourmanagement. These provisions include the following:

·       Ourboard of directors has the right to elect directors to fill a vacancy createdby the expansion of the board of directors or the resignation, death or removalof a director, subject to the right of the stockholders to elect a successor atthe next annual or special meeting of stockholders, which limits the ability ofstockholders to fill vacancies on our board of directors.

·       Ourstockholders may not call a special meeting of stockholders, which would limittheir ability to call a meeting for the purpose of, among other things, votingon acquisition proposals.

·       Ourby-laws may be amended by our board of directors without stockholder approval,provided that stockholders may repeal or amend any such amended by-law at aspecial or annual meeting of stockholders.

·       Ourby-laws also provide that any action required or permitted to be taken by ourstockholders at an annual meeting or special meeting of stockholders may not betaken by written action in lieu of a meeting.

·       Ourcertificate of incorporation does not provide for cumulative voting in theelection of directors, which could limit the ability of minority stockholdersto elect director candidates.

·       Stockholdersmust provide advance notice to nominate individuals for election to the boardof directors or to propose matters that can be acted upon at a stockholders’meeting. These provisions may discourage or deter a potential acquiror fromconducting a solicitation of proxies to elect the acquiror’s own slate ofdirectors or otherwise attempting to obtain control of our company.

·       Ourboard of directors may authorize and issue, without stockholder approval,shares of preferred stock with voting or other rights or preferences that couldimpede the success of any attempt to acquire our company.

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As a Delawarecorporation, by an express provision in our certificate of incorporation, wehave elected to “opt out” of the restrictions under Section 203 of theDelaware General Corporation Law regulating corporate takeovers. In general, Section 203prohibits a publicly-held Delaware corporation from engaging, under certaincircumstances, in a business combination with an interested stockholder for aperiod of three years following the date the person became an interestedstockholder, unless:

·       Priorto the date of the transaction, the board of directors of the corporationapproved either the business combination or the transaction which resulted inthe stockholder becoming an interested stockholder;

·       Uponcompletion of the transaction that resulted in the stockholder becoming aninterested stockholder, the interested stockholder owned at least 85% of thevoting stock of the corporation outstanding at the time such transactioncommenced, excluding, for purposes of determining the number of shares outstanding,(1) shares owned by persons who are directors and also officers of thecorporation and (2) shares owned by employee stock plans in which employeeparticipants do not have the right to determine confidentially whether sharesheld subject to the plan will be tendered in a tender or exchange offer; or

·       Onor subsequent to the date of the transaction, the business combination isapproved by the board of directors of the corporation and authorized at anannual or special meeting of stockholders by the affirmative vote of at least66 2¤3% of the outstanding votingstock which is not owned by the interested stockholder.

In this context, a business combination includes amerger, asset or stock sale, or other transaction resulting in a financialbenefit to the interested stockholder. An interested stockholder is a personwho, together with affiliates and associates, owns or, within three years priorto the determination of interested stockholder status owned, 15% or more of acorporation’s outstanding voting securities.

A Delaware corporation may “opt out” of Section 203with an express provision in its original certificate of incorporation or anexpress provision in its certificate of incorporation or by-laws resulting fromamendments approved by holders of at least a majority of the corporation’soutstanding voting shares. We elected to “opt out” of Section 203 by anexpress provision in our original certificate of incorporation. However,subject to certain restrictions, we may elect by an amendment to our certificateof incorporation to be subject to Section 203. Such an amendment wouldnot, however, restrict a business combination between us and an interestedstockholder if that stockholder became an interested stockholder prior to theeffective date of such amendment.

Our certificate ofincorporation may only be amended by the affirmative vote of a majority of theoutstanding shares of common stock at an annual or special meeting ofstockholders and specifically provides that our board of directors is expresslyauthorized to adopt, amend or repeal our by-laws. The by-laws additionallyprovide that they may be amended by action of the stockholders at an annual orspecial meeting, except for certain sections relating to indemnification ofdirectors and officers.

**ITEM 1B.**       UNRESOLVEDSTAFF COMMENTS

None.

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**ITEM 2.**                PROPERTIES

Thefollowing table sets forth certain information with respect to the Company’sprincipal locations as of December 31, 2005. These properties were leasedby the Company for use in its operations. We believe that our facilities willbe suitable for the purposes for which they are employed, are adequatelymaintained and will be adequate for current requirements and projected growth.

| **Location**    | ** ** | ** **                                                    | ** ** | **Name of Property**                                                        | ** ** | **Type/Use of Property** | ** ** | **Approximate Size**            | ** ** | **Owned or Leased** |
|-----------------|------------|---------------------------------------------------------------|------------|-----------------------------------------------------------------------------|------------|--------------------------|------------|---------------------------------|------------|---------------------|
| Memphis, TN     |       | Graceland                                                     |       | Museum/Home                                                                 |       | 13.53 acres              |       | Lease expires in 2095           |
| Memphis, TN     |       | Presley Business  Headquarters/Retail/  Parking/Ancillary Use |       | Parking Lot/  Airplane Museum/  Retail/EPE Corporate Office/  Ancillary Use |       | 38.60 acres              |       | Owned                           |
| Memphis, TN     |       | Heartbreak Hotel                                              |       | Hotel                                                                       |       | 2.66 acres               |       | Owned                           |
| Memphis, TN     |       | Meadow Oaks Apartments                                        |       | Apartment Complex                                                           |       | 10.70 acres              |       | Owned                           |
| Memphis, TN     |       | Memphis Restaurant  Property(1)                               |       | Restaurant/  Nightclub                                                      |       | 0.83 acres               |       | Lease expires in 2017           |
| Memphis, TN     |       | Presley Business Office  and Warehouses                       |       | Office and Warehouses                                                       |       | 67,915 square feet       |       | Leases expire in 2006  and 2009 |
| Memphis, TN     |       | Presley Business Offices                                      |       | Offices                                                                     |       | 3,500 square feet        |       | Lease expires in 2013           |
| Los Angeles, CA |       | Presley Business Offices                                      |       | Offices                                                                     |       | 2,200 square feet        |       | Lease expires in 2006           |
| New York, NY    |       | Corporate Headquarters                                        |       | Offices                                                                     |       | 16,810 square feet       |       | Lease expires in 2013           |
| New York, NY    |       | 19 Entertainment  Administrative Offices                      |       | Offices                                                                     |       | 3,500 square feet        |       | Lease expires in 2007           |
| London, England |       | 19 Entertainment  Headquarters                                |       | Offices                                                                     |       | 12,518 square feet       |       | Lease expires in 2010           |
| Los Angeles, CA |       | 19 Entertainment  Administrative Offices                      |       | Offices                                                                     |       | 7,350 square feet        |       | Lease expires in 2011           |
| Los Angeles, CA |       | MBST Executive and Administrative Offices                     |       | Offices                                                                     |       | 7,376 square feet        |       | Lease expires in 2006           |

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(1)          We closed the restauranteffective September 2003 and are attempting to negotiate a termination orsublease of the entire space.

We also lease space forthe operations of 19 Entertainment in Paris and Hamburg.

**ITEM 3.**                LEGALPROCEEDINGS

We are subject to certainclaims and litigation in the ordinary course of business. It is the opinion ofmanagement that the outcome of such matters will not have a material adverseeffect on our consolidated financial position or results of operations.

**ITEM 4.**                SUBMISSIONOF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of securityholders during the three months ended December 31, 2005.

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**PART II**

**ITEM 5.**                MARKETFOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUERPURCHASES OF EQUITY SECURITIES

**Market Information**

Since March 1,2005, our common stock, par value $.01 per share (the “Common Stock”) has beenlisted on The NASDAQ National Market ® under the ticker symbol “CKXE.”  Prior to that, since May 1999, ourCommon Stock was quoted on The OTC Bulletin Board under the symbol “SPEA.OB.”  The following table sets forth the high andlow closing sale prices of our Common Stock as reported on The NASDAQ NationalMarket® and the high and low closing bid prices of our Common Stock, as quotedon The OTC Bulletin Board, for each of the periods listed. The high and lowclosing sales prices for 2005 and 2004 were as follows:

| ** **                                             | ** ** | **2005** | ** ** |
|--------------------------------------------------------|------------|----------|------------|
| ** **                                             | ** ** | **High** | ** ** | **Low** | ** ** |
| **The NASDAQ National Market®**                   |       |     |       |   |   |
| ***Quarters  Ended***                                  |       |     |       |   |   |
| December 31,  2005                                |       | $        | 14.78      |   | $ | 11.53 |   |
| September 30,  2005                               |       | $        | 14.49      |   | $ | 11.73 |   |
| June 30,  2005                                    |       | $        | 28.80      |   | $ | 12.60 |   |
| March 18, 2005—March 31, 2005 (1)       |       | $        | 26.73      |   | $ | 23.20 |   |
| March 1,  2005—March 17, 2005           |       | $        | 18.48      |   | $ | 15.68 |   |
| **OTC  Bulletin Board**                                |       |     |       |   |   |
| February 8,  2005—February 28, 2005 (2) |       | $        | 21.49      |   | $ | 14.70 |   |
| January 1,  2005—February 7, 2005       |       | $        | 13.40      |   | $ | 7.75 |   |

 

| ** **                                              | ** ** | **2004**   | ** ** |
|---------------------------------------------------------|------------|------------|------------|
| ** **                                              | ** ** | **High**   | ** ** | **Low** | ** ** |
| **OTC Bulletin Board**                                  | ** ** | ** ** | ** ** | ** ** | ** ** |
| December 16,  2004—December 31, 2004 (3) |       | $          | 9.15       |   | $ | 6.41 |   |
| October 1,  2004—December 15, 2004       |       | $          | 0.20       |   | $ | 0.07 |   |
| ***Quarters  Ended***                                   |       |       |       |   |   |
| September 30,  2004                                |       | $          | 0.10       |   | $ | 0.09 |   |
| June 30,  2004                                     |       | $          | 0.16       |   | $ | 0.12 |   |
| March 31, 2004                                     |       | $          | 0.08       |   | $ | 0.06 |   |

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(1)          On March 18, 2005,we announced the consummation of our acquisition of 19 Entertainment.

(2)          On February 8,2005, we announced the consummation of (i) the February 7, 2005acquisition of control of our company by a management group led byRobert F.X. Sillerman, and (ii) the Company’s February 7, 2005acquisition of an 85% interest in the Presley Business.

(3)          On December 16,2004, we announced the execution of definitive agreements pursuant to which (i) amanagement group led by Robert F.X. Sillerman would acquire control of theCompany, and (ii) the Company would acquire an 85% interest in the PresleyBusiness.

From January 1, 2006through March 10, 2006, the high closing sales price for our Common Stockwas $15.14, the low closing sales price was $11.58 and the last closing salesprice on March 10, 2006 was $14.08. As of March 10, 2006, there were 1,076holders of record of our Common Stock.

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**Dividend Policy**

The Company has not paid and has no present intentionsto pay dividends on its Common Stock.

The Company’s Series BConvertible Preferred Stock requires payment of a cash dividend of 8% per annumin quarterly installments. On an annual basis, the total dividend payment onthe Series B Convertible Preferred Stock will be $1.8 million. If theCompany fails to make a quarterly dividend payment to the holders of the Series BConvertible Preferred Stock on a timely basis, the dividend rate increases to12% per annum and all amounts owing must be paid within three business days inshares of common stock valued at the average closing price over the previous 30consecutive trading days. After such payment is made, the dividend rate returnsto 8% per annum.

**SecuritiesAuthorized for Issuance Under Equity Compensation Plans**

Information required by this item with respect to equitycompensation plans of the Company is incorporated by reference to the Company’sProxy Statement for its 2006 Annual Meeting of Stockholders.

There were no purchases bythe Company or any affiliated purchaser of the Company’s equity securitiesduring 2005.

**ITEM 6.**                SELECTEDFINANCIAL DATA

Prior to February 7, 2005, CKX was a publiclytraded company with no operations. As a result the Presley Business isconsidered to be the Predecessor company (the “Predecessor”). To assist in theunderstanding of the results of operations and balance sheet data of theCompany, we have presented the historical results of the Predecessor. Theselected consolidated financial data was derived from the audited consolidatedfinancial statements of the Company as of and for the year ended December 31,2005. The data should be read in conjunction with “Management’s Discussion andAnalysis of Financial Condition and Results of Operations” and the consolidatedfinancial statements and the related notes thereto included elsewhere herein.

The selected historical financial data for each of thefour years ended December 31, 2004 and as of December 31, 2004, 2003,2002, and 2001 is represented by that of the Presley Business (as Predecessor)which have been derived from the Presley Business’ audited Combined FinancialStatements and Notes thereto, as of December 31, 2004, 2003, 2002 and2001, and for each of the four years ended December 31, 2004. The selectedstatement of operations data for the period January 1, 2005—February 7,2005 represents the pre-acquisition operating results of the Presley Business(as Predecessor) in 2005.

Our selectedstatement of operations data for the year ended December 31, 2005 includesthe results of the Presley Business for the period following its acquisition onFebruary 7, 2005, the results of 19 Entertainment for the periodfollowing its acquisition on March 17, 2005 and the results of MBST forthe period following its acquisition on August 9, 2005.

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| ** **                                                                | ** ** | **CKX, Inc.** | ** ** | ** **                             | ** ** | ** ** | ** ** | **Predecessor Company**                | ** ** |
|---------------------------------------------------------------------------|------------|--------------------|------------|----------------------------------------|------------|------------|------------|---------------------------------------------|------------|
| **(amounts in thousands,  except share information)** | ** ** | ** **         | ** ** | **Year Ended  December 31,** | ** ** | ** ** | ** ** | **January 1 -  February 7,** | ** ** | **Year Ended December 31,** | ** ** |
| ** **                                                                | ** ** | **2005**           | ** ** | ** **                             | ** ** | **2005**   | ** ** | **2004**                                    | ** ** | **2003** | ** ** | **2002** | ** ** | **2001** | ** ** |
| **Statement of Operations Data:**                                         |       |               |       |                                   |       |       |       |                                        |       |   |   |   |   |   |   |   |   |
| Net revenues                                                              |       | $                  | 120,605    |                                   |       |       |       | $                                           | 3,442      |   |   | $ | 41,658 |   | $ | 44,376 |   | $ | 43,644 |   | $ | 37,194 |   |
| Operating  expenses (excluding depreciation and amortization)             |       | 108,547            |       |                                   |       |       | 2,854      |                                        |       | 30,558 |   | 32,268 |   | 30,840 |   | 30,051 |   |
| Depreciation and  amortization                                            |       | 14,910             |       |                                   |       |       | 126        |                                        |       | 1,201 |   | 1,227 |   | 1,123 |   | 1,139 |   |
| Operating income  (loss)                                                  |       | (2,852             | )          |                                   |       |       | 462        |                                        |       | 9,899 |   | 10,881 |   | 11,681 |   | 6,004 |   |
| Interest  (expense), net                                                  |       | (2,820             | )          |                                   |       |       | (115       | )                                           |       | (1,327 | ) | (1,362 | ) | (1,623 | ) | (1,503 | ) |
| Write-off of  unamortized deferred loan costs                             |       | (1,894             | )          |                                   |       |       | —     |                                        |       | — |   | — |   | — |   | — |   |
| Other income                                                              |       | 2,970              |       |                                   |       |       | —     |                                        |       | — |   | — |   | — |   | — |   |
| Income (loss)  from continuing operations before income taxes             |       | (4,596             | )          |                                   |       |       | 347        |                                        |       | 8,572 |   | 9,519 |   | 10,058 |   | 4,501 |   |
| Income tax  expense                                                       |       | 855                |       |                                   |       |       | 152        |                                        |       | 833 |   | 813 |   | 1,863 |   | 435 |   |
| Equity in  earnings of affiliate                                          |       | 843                |       |                                   |       |       | —     |                                        |       | — |   | — |   | — |   | — |   |
| Minority interest                                                         |       | (1,296             | )          |                                   |       |       | —     |                                        |       | — |   | — |   | — |   | — |   |
| Income (loss)  from continuing operations                                 |       | (5,904             | )          |                                   |       |       | 195        |                                        |       | 7,739 |   | 8,706 |   | 8,195 |   | 4,066 |   |
| Loss from  discontinued operations                                        |       | —             |       |                                   |       |       | —     |                                        |       | (246 | ) | (3,378 | ) | (720 | ) | (2,169 | ) |
| Net income (loss)                                                         |       | (5,904             | )          |                                   |       |       | 195        |                                        |       | 7,493 |   | 5,328 |   | 7,475 |   | 1,897 |   |
| Dividends on  preferred stock                                             |       | (1,632             | )          |                                   |       |       | —     |                                        |       | — |   | — |   | — |   | — |   |
| Accretion of  beneficial conversion feature                          |       | (17,762            | )          |                                   |       |       | —     |                                        |       | — |   | — |   | — |   | — |   |
| Net income (loss)  applicable to common stockholders                      |       | $                  | (25,298    | )                                      |       |       |       | $                                           | 195        |   |   | $ | 7,493 |   | $ | 5,328 |   | $ | 7,475 |   | $ | 1,897 |   |
| Basic and diluted  income (loss) per common share                         |       | $                  | (0.35      | )                                      |       |       |       |                                        |       |   |   |   |   |   |   |   |   |   |
| Average number of common  shares outstanding                              |       | 71,429,858         |       |                                   |       |       |       |                                        |       |   |   |   |   |   |   |   |   |
|                                                                           |            |                    |            |                                        |            |            |            |                                             |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

| ** **                                                    | ** ** | **CKX, Inc.**    | ** ** | ** ** | ** ** | **Predecessor Company** | ** ** |
|---------------------------------------------------------------|------------|-----------------------|------------|------------|------------|------------------------------|------------|
| **(amounts in thousands)**                          | ** ** | **December 31,** | ** ** | ** ** | ** ** | **December 31,**        | ** ** |
| ** **                                                    | ** ** | **2005**              | ** ** | ** ** | ** ** | **2004**                     | ** ** | **2003** | ** ** | **2002** | ** ** | **2001** | ** ** |
| **Balance Sheet Data:**                                       |       |                  |       |       |       |                         |       |   |   |   |   |   |   |   |   |
| Cash and cash  equivalents                                    |       |                  | $          | 36,979     |       |                         |       |   | $ | 201 |   | $ | 287 |   | $ | 855 |   | $ | 491 |   |
| Marketable  securities                                        |       |                  | 42,625     |       |       |                         |       | — |   | — |   | — |   | — |   |
| Other current  assets                                         |       |                  | 26,495     |       |       |                         |       | 6,912 |   | 8,188 |   | 9,757 |   | 9,647 |   |
| Total assets                                                  |       |                  | 430,128    |       |       |                         |       | 36,032 |   | 37,304 |   | 43,124 |   | 44,607 |   |
| Current  liabilities (excluding current portion of debt) |       |                  | 33,937     |       |       |                         |       | 8,978 |   | 6,949 |   | 8,660 |   | 8,714 |   |
| Debt                                                          |       |                  | 3,500      |       |       |                         |       | 23,582 |   | 26,431 |   | 26,326 |   | 30,114 |   |
| Total liabilities                                             |       |                  | 79,893     |       |       |                         |       | 34,615 |   | 35,645 |   | 38,403 |   | 42,510 |   |
| Redeemable  restricted common stock                           |       |                  | 23,002     |       |       |                         |       | — |   | — |   | — |   | — |   |
| Stockholders’ equity/net  assets                         |       |                  | 323,432    |       |       |                         |       | 1,417 |   | 1,659 |   | 4,721 |   | 2,097 |   |
|                                                               |            |                       |            |            |            |                              |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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**FORWARD LOOKING STATEMENTS**

In addition to historical information, this Form 10-K(this “Annual Report”) contains forward-looking statements within themeaning of Section 21E of the Securities Exchange Act of 1934, as amended.Forward-looking statements are those that predict or describe futureevents or trends and that do not relate solely to historical matters. You cangenerally identify forward-looking statements as statements containingthe words “believe,” “expect,” “will,” “anticipate,” “intend,” “estimate,” “project,”“assume” or other similar expressions, although not all forward-lookingstatements contain these identifying words. All statements in this AnnualReport regarding our future strategy, future operations, projected financialposition, estimated future revenue, projected costs, future prospects, andresults that might be obtained by pursuing management’s current plans andobjectives are forward-looking statements. You should not place unduereliance on our forward-looking statements because the matters theydescribe are subject to known and unknown risks, uncertainties and otherunpredictable factors, many of which are beyond our control. Our forward-lookingstatements are based on the information currently available to us and speakonly as of the date on which this Annual Report was filed with the Securitiesand Exchange Commission (“SEC”). We expressly disclaim any obligation to issueany updates or revisions to our forward-looking statements, even ifsubsequent events cause our expectations to change regarding the mattersdiscussed in those statements. Over time, our actual results, performance orachievements will likely differ from the anticipated results, performance orachievements that are expressed or implied by our forward-lookingstatements, and such difference might be significant and materially adverse toour stockholders.

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**ITEM 7.**                MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

*Management’s discussion and analysis of financialcondition and results of operations should be read in conjunction with thehistorical financial statements and footnotes of the Presley Business, includedin the Company’s Current Report on Form 8-K/A filed on February 11,2005, of 19 Entertainment Limited, included in the Company’s Current Report on Form 8-K/Afiled on May 27, 2005 and of MBST, included in the Company’s CurrentReport on Form 8-K/A filed on October 25, 2005. Our futureresults of operations may change materially from the historical results ofoperations reflected in our historical financial statements.*

The following discussionand analysis summarizes the financial condition and operating performance ofthe Company (and its predecessor) and should be read in conjunction with theCompany’s historical consolidated financial statements and notes theretoincluded elsewhere in this Annual Report.

We are engaged in theownership, development and commercial utilization of entertainment content,including the rights to the name, image and likeness of Elvis Presley, theoperations of Graceland and proprietary rights to the *IDOLS* television brand, including the *American Idol* series in the United States, and  local adaptations of the *IDOLS* television show format which,collectively, air in over 100 countries around the world.

On February 7, 2005,RFX Acquisition LLC, a management group led by Robert F.X. Sillerman, acquiredcontrol of the Company (formerly known as Sports Entertainment Enterprises, Inc.)which had been inactive since it sold all of its assets in August 2002.Simultaneous with that transaction, the Company acquired an 85% interest in thePresley Business. The former owner of the Presley Business maintains a 15%interest in the business, is entitled to certain future distributions and hasother contractual rights. On March 17, 2005, we acquired 100% of theoutstanding capital stock of 19 Entertainment. On August 9, 2005 weacquired 100% of the outstanding capital stock of MBST.

Management’s discussionand analysis of financial condition and results of operations is based on thehistorical financial condition and results of operations of the Presley Business,as predecessor, rather than those of CKX, prior to February 7, 2005.Although we own 85% of the Presley Business, the historical financialstatements of the Presley Business and related management’s discussion andanalysis of financial condition and results of operations reflect 100% ofthe Presley Business.

As a result of these acquisitions, we have madechanges to the historical capital and financial structure of the Company, whichare noted below under “Liquidity and Capital Resources.”

**Presley Business**

The Presley Business consists of entities which ownand/or control the commercial utilization of the name, image and likeness ofElvis Presley, the operation of the Graceland museum and related attractions,as well as revenue derived from Elvis Presley’s television specials, films andcertain of his recorded musical works. The Presley Business consists of tworeportable segments: Royalties and Licensing—intellectual property, includingthe licensing of the name, image, likeness and trademarks associated with ElvisPresley, as well as other owned and/or controlled intellectual property and thecollection of royalties from certain motion pictures, television specials andrecorded musical works and music compositions; and Graceland Operations—theoperation of the Graceland museum and related attractions and retailestablishments, including Elvis Presley’s Heartbreak Hotel and other ancillaryreal estate assets.

The Royalties andLicensing segment generates revenue from the name, image and likeness of ElvisPresley, including physical and intellectual property owned or created by ElvisPresley during his life. The primary revenue source of this segment comes fromlicensing Elvis’ name and likeness for consumer products, commercials and otheruses and royalties and other income derived from intellectual property createdby Elvis including records, movies, videos and music publishing. Licensingrevenue is primarily 

derived from long-termcontracts with terms of one to ten years. Although we seek to obtain significantminimum guarantees, our licensing revenue varies based on the actual productsales generated by licensees. The intellectual property created by Elvis duringhis lifetime which we own has generally been assigned to third parties forcommercial exploitation under long-term agreements. Although we maintaincertain controls over the use of this content and, in certain cases, haverights to terminate these agreements if the third party fails to perform, ourrevenue from this intellectual property is highly dependant upon the ability ofthird parties to successfully market the content.

The Graceland Operationssegment generates its primary revenue from ticket and merchandise sales andrelated income from public tours of Graceland as well as from the operation ofElvis Presley’s Heartbreak Hotel and the Meadow Oaks apartment complex. Revenuefrom Graceland has historically been seasonal with sharply higher numbers ofvisitors during the late spring and summer seasons as compared to the fall andwinter seasons.

Most of our revenuesources are dependant upon the public’s continued interest in Elvis Presley andthe intellectual property he created.

Our significant costs to operate the Presley Businessinclude salaries, rent and other general overhead costs. Most of our costs donot vary significantly with our revenue. Our discretionary costs are generallyin our marketing and promotions department which we primarily incur to maintainand/or increase the number of visitors to Graceland. We may also incurdiscretionary expenses in exploring opportunities to bring Elvis-relatedattractions to Las Vegas and other strategic locations throughout the world.

**19 Entertainment**

19 Entertainment generatesrevenue from the creation and production of entertainment properties. Ourprimary revenue sources include production and license fees and related ratingsand rankings bonuses from television programs, and royalties from the sale ofrecorded music by artists signed to our record labels. We also derive revenuefrom the sale of merchandise, sponsorships and tours based on our televisionprograms and recorded music artists, and fee income from management clients.

The majority of ourrevenue is derived from production and license fees and related performancebonuses from producing and licensing the *IDOLS*television show format in various countries and ancillary revenue streams fromthe *IDOLS* brand. Ancillaryrevenue from the *IDOLS* brand isgenerated through agreements which provide us with the option to sign finalistson the *IDOLS* television shows tolong-term recording contracts, concert tours we produce featuring *IDOLS* finalists and the sale ofsponsorships and merchandise involving the *IDOLS*brand.

Most of our *IDOLS* related revenue is generated throughagreements with our global television production and distribution partner,FremantleMedia, and our principal global record label partners Ronagold forseasons *American Idol 1* through *American Idol 4* and Simco for all seasons subsequent to *American Idol 4*. Therefore, we are highly dependent upon thecontinued ability of these entities to successfully maintain the *IDOLS* brand and promote our recordingartists.

Other than *American Idol*, which is discussed below, the *IDOLS* television shows are generallyproduced or licensed under one year contracts under which each local televisionnetwork has the right, but not the obligation, to renew the agreement foradditional years. Our recording artists are generally signed to long-termrecording contracts under which we and SonyBMG have the right, but not theobligation, to require the artist to release a specified number of albums.

Ourrevenue from the *IDOLS* brand isalso highly dependent upon the continued success of the *AmericanIdol* series which currently airs on the Fox television network in theUnited States, and local adaptions of the *IDOLS*television show which air around the world. Our revenue is also dependent uponthe continued success and productivity of our recording artists and managementclients. A portion of our 

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revenuefrom the *American Idol* series is dependent uponthe number of hours of programming we deliver. In the fourth broadcast season,which aired during our first and second fiscal quarters of 2005, we delivered38.5 hours of programming compared to 42.5 hours of programming during the sameperiod of 2004. On November 28, 2005, 19 Entertainment entered into a series of agreements withFox, FremantleMedia and SonyBMG, related to its ownership interest in the *American Idol* television program. Under the terms of theagreements, Fox has guaranteed at least four, and as many as six more seasonsof *American Idol*. Additional terms of theagreements call for Fox to order a minimum of 37 hours and a maximum of 45hours of *American Idol*programming each seasonand to pay 19 Entertainment an increased license fee per season and an annualpayment tied to our recording agreement with SonyBMG.

19 Entertainment’s revenueis seasonal in nature, reflecting the timing of our television shows and toursin various markets. Historically, 19 Entertainment generated higher revenueduring the first half of the calendar year, which corresponds to the dates our *American Idol* series airs on Fox in the United States. 19Entertainment’s revenues reflect its contractual share of the *IDOLS* television revenue representing producer, format andlicensing fees as well as ratings and ratings bonuses and do not include therevenues earned or the production costs incurred directly by our production anddistribution partner, FremantleMedia. In 2005, 19 Entertainment generatedadditional revenue during the second half of the year  from its new television show *So You Think You Can Dance*, which also aired on Fox. 19Entertainment records all of the television and sponsorship revenue for *So You Think You Can Dance* and our operating expensesinclude the contractual share with  ourproduction partners.

Our significant costs to operate 19 Entertainmentinclude salaries and other compensation, rents and general overhead costs. Ourdiscretionary costs include salary and overhead costs incurred in thedevelopment of new entertainment content.

**MBST**

MBST is a full servicemanagement company with a roster of more than 35 clients, representing an arrayof Oscar, Tony, Emmy and Grammy winning artists including Robin Williams, BillyCrystal and Woody Allen. MBST also has an advisory relationship with AppleCorps, the holding corporation for the Beatles. In addition to its managementactivities, MBST produces motion pictures.

MBST earns revenue througharrangements with artists that result in MBST receiving a percentage of theartists’ performance revenue, from consulting fees paid by advisory clients andfrom participations in films it has produced.

Our significant costs to operate MBST includesalaries, rent and general overhead costs. Most of these costs do not varysignificantly with our revenue.

**Use of OIBDA**

We evaluate our operatingperformance based on several factors, including a financial measure ofoperating income (loss) before non-cash depreciation of tangible assetsand non-cash amortization of intangible assets (which we refer to as “OIBDA”).We consider OIBDA to be an important indicator of the operational strengths andperformance of our businesses, including the ability to provide cash flows toservice debt. However, a limitation of the use of OIBDA as a performancemeasure is that it does not reflect the periodic costs of certain capitalizedtangible and intangible assets used in generating revenue in our businesses.Accordingly, OIBDA should be considered in addition to, not as a substitutefor, operating income (loss), net income (loss) and other measures of financialperformance reported in accordance with US GAAP because OIBDA is not a GAAPequivalent measurement.

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We have reconciled OIBDA to operating income (loss) inthe following consolidated operating results table for the Company for the yearended December 31, 2005 and for the Predecessor for the year ended December 31,2004 and the period from  January 1,2005 to February 7, 2005.

**CombinedOperating Results Year Ended December 31, 2005**

**Comparedto Predecessor Year Ended December 31, 2004**

Prior to the acquisitionof the Presley Business on February 7, 2005, the Company had nooperations. As a result the Presley Business is considered to be thePredecessor company (the “Predecessor”). To assist in the understanding of theresults of operations of the Company, we have presented supplemental historicalresults of the Predecessor. For the purpose of management’s discussion andanalysis of financial condition and results of operations, we have combined theCompany’s results for the year ended December 31,2005 with that of the Predecessor for the period January 1, 2005 to February 7,2005 and compared that to the results of the Predecessor for the year ended December 31, 2004. Managementbelieves that this provides the most meaningful analysis of the Company’sresults for the year ended December 31, 2005.

| ** **                                                                  | ** ** | **CKX  Year  Ended  December 31,  2005** | ** ** | **Predecessor  Presley  January 1,  2005 To  February 7,  2005** | ** ** | **Combined  Total** | ** ** | **Predecessor  Presley  Year   Ended  December 31,  2004** | ** ** | **Variance** | ** ** |
|-----------------------------------------------------------------------------|------------|-----------------------------------------------|------------|---------------------------------------------------------------------------------|------------|---------------------|------------|----------------------------------------------------------------------|------------|--------------|------------|
| ** **                                                                  | ** ** | **(amounts in thousands)**          |
| Revenue                                                                     |       |                                          | $          | 120,605                                                                         |       |                |       | $                                                                    | 3,442      |         |       | $ | 124,047 |   |   | $ | 41,658 |   |   | $ | 82,389 |   |
| Operating  expenses                                                         |       |                                          | 123,457    |                                                                            |       |                | 2,980      |                                                                 |       | 126,437      |       |   | 31,759 |   |   | 94,678 |   |
| Operating income  (loss)                                                    |       |                                          | (2,852     | )                                                                               |       |                | 462        |                                                                 |       | (2,390       | )          |   | 9,899 |   |   | (12,289 | ) |
| Interest  (expense), net                                                    |       |                                          | (2,820     | )                                                                               |       |                | (115       | )                                                                    |       | (2,935       | )          |   | (1,327 | ) |   | (1,608 | ) |
| Write-off of  unamortized deferred loan costs                               |       |                                          | (1,894     | )                                                                               |       |                | —     |                                                                 |       | (1,894       | )          |   | — |   |   | (1,894 | ) |
| Other income                                                                |       |                                          | 2,970      |                                                                            |       |                | —     |                                                                 |       | 2,970        |       |   | — |   |   | 2,970 |   |
| Income (loss)  before income taxes                                          |       |                                          | (4,596     | )                                                                               |       |                | 347        |                                                                 |       | (4,249       | )          |   | 8,572 |   |   | (11,978 | ) |
| Income tax  expense                                                         |       |                                          | 855        |                                                                            |       |                | 152        |                                                                 |       | 1,007        |       |   | 833 |   |   | 174 |   |
| Income (loss)  before equity in earnings of affiliate and minority interest |       |                                          | (5,451     | )                                                                               |       |                | 195        |                                                                 |       | (5,256       | )          |   | 7,739 |   |   | (12,995 | ) |
| Equity in earnings  of affiliate                                            |       |                                          | 843        |                                                                            |       |                | —     |                                                                 |       | 843          |       |   | — |   |   | 843 |   |
| Minority interest                                                           |       |                                          | (1,296     | )                                                                               |       |                | —     |                                                                 |       | (1,296       | )          |   | — |   |   | (1,296 | ) |
| Income (loss)  from continuing operations                              |       |                                          | (5,904     | )                                                                               |       |                | 195        |                                                                 |       | (5,709       | )          |   | 7,739 |   |   | (13,448 | ) |
| Loss from  discontinued operations                                          |       |                                          | —     |                                                                            |       |                | —     |                                                                 |       | —       |       |   | (246 | ) |   | (246 | ) |
| Net income (loss)                                                           |       |                                          | $          | (5,904                                                                          | )          |                |       | $                                                                    | 195        |         |       | $ | (5,709 | ) |   | $ | 7,493 |   |   | $ | (13,202 | ) |
| Operating income  (loss)                                                    |       |                                          | $          | (2,852                                                                          | )          |                |       | $                                                                    | 462        |         |       | $ | (2,390 | ) |   | $ | 9,899 |   |   | $ | (12,289 | ) |
| Depreciation and  amortization                                              |       |                                          | 14,910     |                                                                            |       |                | 126        |                                                                 |       | 15,036       |       |   | 1,201 |   |   | 13,835 |   |
| OIBDA                                                                       |       |                                          | $          | 12,058                                                                          |       |                |       | $                                                                    | 588        |         |       | $ | 12,646 |   |   | $ | 11,100 |   |   | $ | 1,546 |   |

 

The combined total column has been prepared on adifferent basis of accounting than for the Predecessor for the year ended December 31,2004. The combined total includes the impact of additional depreciation andamortization expense resulting from the fair value accounting of acquiredassets for the Presley Business, 19 Entertainment and MBST. This addedapproximately $13.0 million to operating expenses. In addition, thecombined total includes corporate expenses incurred by the Company of $11.4million and interest expense related to the Presley and 19 Entertainmentshort term senior credit facilities and the Priscilla Presley note of$4.5 million.

***Revenue***

On a combined basis, revenue was $124.0 millionfor the total period as compared to $41.7 million for the Predecessor forthe year ended December 31, 2004. The increase of $82.4 million isprimarily attributable to $70.6 million of revenue at 19 Entertainment forthe period since its acquisition. $9.9 million was attributable to the PresleyBusiness with $5.7 million due to the release of the documentary, “Elvis by thePresleys,*”* and $4.2 million was due to higherlicensing and royalty fees and revenue from Graceland operations. MBSTcontributed $1.9 million in revenue from its date of acquisition.

***Operating Expenses***

Combined operating expenses for the year ended December 31,2005 increased by $94.7 million over the prior period. Of this increase,$69.8 million reflects the operating expenses of 19 Entertainment sinceits acquisition, including $9.6 million of acquisition-related depreciation andamortization expenses. Presley operating costs increased $9.2 million,primarily due to the production costs for “Elvis by the Presleys” and $3.1million of acquisition-related depreciation and amortization expenses. MBST hadoperating costs of $2.1 million, including $0.3 million of acquisition-relateddepreciation and amortization expenses. Corporate overhead costs, including$0.7 million of non-cash compensation, account for $11.4 million of theincrease and $2.2 million represents other costs related to the transitionof the Company in February 2005, including the investment by RFXAcquisition LLC and the acquisition of the Presley Business. Included in the$2.2 million of other costs are $1.1 million of operating costs of anaffiliate of RFX Acquisition LLC, primarily salaries, employee benefits, rentand other overhead costs incurred from November 2004 through February 7,2005, which were reimbursed by the Company upon closing of the RFX AcquisitionLLC investment and the Presley Business acquisition. The remaining costsconsist of legal expenses, listing fees, and due diligence expenses.

***Operating Income (Loss)***

The combined operating loss for the year ended December 31,2005 was $2.4 million, a decline of $12.3 million as compared to the prioryear, primarily due to corporate expenses and acquisition-related amortizationand depreciation expenses of $13.0 million, offset by operating incomegenerated by 19 Entertainment and higher operating income at the PresleyBusiness.

***OIBDA***

Combined OIBDA increased $1.5 million to $12.6 millionfor the year ended December 31, 2005 as higher OIBDA at the PresleyBusiness and OIBDA attributable to 19 Entertainment of $11.0 million forthe period since the date of its acquisition were partially offset by corporateoverhead costs and costs related to the change in control and change inoperating business of the Company described above.

***Interest Expense, net***

Net interest expense of $2.8 million reflects $4.5million of interest costs associated with borrowings incurred to acquire thePresley Business and 19 Entertainment, offset by $1.8 million of interestincome on the unused proceeds from the Company’s public stock offering in June 2005.The Predecessor had interest expense, net of $1.3 million in 2004.

***Deferred Loan Cost Write-Off***

Unamortized deferred loan costs of $1.9 million wereexpensed when the short-term senior loans used to finance the Presley Businessand 19 Entertainment acquisitions were re-paid in June 2005 from theproceeds of the Company’s public offering of common stock.

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***Other Income***

Other income of$3.0 million relates primarily to a foreign exchange gain on the deferredpurchase consideration payable to the sellers of 19 Entertainment, which wasrecorded on the date of acquisition (March 17, 2005) and paid in December 2005.

***Income Taxes***

For the year ended December 31, 2005, the Companyrecorded income tax expense of $0.9 million, reflecting state income taxesof $0.8 million and foreign income taxes of $0.1 million. A federalincome tax benefit of $2.7 million was offset by a valuation allowance due touncertainty of the realization of these tax benefits. Applying the 35% U.S.Federal statutory rate to the pre-tax loss would result in income tax benefitof $1.6 million in 2005. The Company’s actual income tax expense differs fromthis amount as a result of several factors, including non-temporary differences(i.e., certain financial statement items that are not includible in income forincome tax purposes), foreign income taxed at different rates, state and localincome taxes and the valuation allowance. 

The Company recorded no income tax expense for theyears ended December 31, 2004 and 2003.

The Predecessor business was partly held in a truststructure and therefore a portion of the net income was not taxed in the business,resulting in a low effective tax rate for the years ended December 31,2004 and 2003.

As of December 31, 2005 and 2004, the Companyhad federal and state net operating loss carryforwards of $9.3 million and $1.5million, respectively, which begin to expire in 2020.  The use of these losses may be limitedpursuant to Section 382 of the Internal Revenue Code.  The Company also had foreign net operatingloss carryforwards of $16.9 million at December 31, 2005.

***Equity in Earnings of Affiliate***

The Company recorded $0.8million of earnings in Beckham Brand Limited, an unconsolidated affiliateaccounted for under the equity method for the year ended December 31,2005, representing the Company’s share of income. 

***Minority Interest***

The minority interestexpense of $1.3 million reflects a 15% share in the net income of the PresleyBusiness related to the equity interest retained by the former owner.

***Net Income (Loss)***

The combined net loss was $5.7 million for the yearended December 31, 2005 compared to net income for the Predecessor of$7.5 million in 2004.

The results of the Company’sfour reportable segments are discussed below.

***Presley Business***

Combined revenue for thePresley Business was $51.5 million for the year ended December 31, 2005,an increase of $9.9 million, or 24% over the prior year. Combined operatingexpenses for the Presley Business, including acquisition-related depreciationand amortization expenses of $3.1 million, were $41.0 million, an increase of$9.2 million, or 29% over the prior year. Combined operating income for thePresley Business for the year ended December 31, 2005 was $10.5 million,an increase of $0.6 million, or 6% over the prior period.

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***Royalties and Licensing***

Combined revenue relatedto the Royalties and Licensing segment was $21.2 million, an increase of$7.7 million, or 57% over the prior year. $5.7 million of this increasewas due to the production of “Elvis by the Presleys.” The remaining increaserepresents royalties from the release of new digitally enhanced videos and DVDsof Aloha**and ‘68Special,**license fees forthe CBS miniseries on Elvis Presley that aired on the CBS television network inMay 2005, and new licensing activities, including a license agreement withSirius satellite radio for an exclusively Elvis radio channel, offset in partby lower revenue from music and films. Combined operating expenses related tothe Royalties and Licensing segment, including acquisition-related depreciationand amortization expenses of $3.1 million, were $14.0 million compared to $4.5million in the prior period, an increase of $9.5 million, or 211%, dueprimarily to acquisition-related amortization and production costs and otherexpenses for “Elvis by the Presleys.”

***Graceland Operations***

The combined operating results related to GracelandOperations include several revenue streams. Combined tour and exhibit revenuewas $11.7 million, an increase of $0.5 million, or 5% over the prior year.This increase resulted from higher per-visitor spending due to revenueenhancement programs partially offset by a 3% decrease in mansion attendancefrom 568,000 to 551,000. The decrease in attendance in 2005 occurred during thefinal four months of the year. We believe that the decline is due to the impactof Hurricane Katrina and higher gasoline prices which have significantlyimpacted the level of tourism in the Gulf Coast region. Combined revenue fromGraceland’s retail operations was $12.3 million, an increase of$1.2 million, or 11%, due primarily to merchandise sales of $0.5 millionfrom Elvis the Concert, a touring show featuring footage of Elvis synchronizedwith a live band which played 12 dates during 2005, and a $0.4 million increaseover the prior year resulting from a change in the mail order retail business.On April 1, 2004, the operation of that portion of the business wasoutsourced and the Company began to receive a commission based on net salesversus recording sales and cost of sales. In July 2005, this operation wasmoved to a new vendor and the Company again bears the business risk for salesand related expenses. The financial statements include three months of suchrevenue in 2004 and five months in 2005. Combined hotel room revenue was $3.5million, an increase of $0.2 million or 5% as the average occupancy rateimproved slightly from 79% in 2004 to 80% in 2005 and higher yield per room dueto rate increases implemented in the second quarter. Combined operatingexpenses related to Graceland Operations were $27.0 million compared to$27.2 million in the prior period, a decrease of $0.2 million, or 1%, due todecreased general and administrative expenses.

Attendance at Gracelandduring the first two months of 2006 has declined 15% versus the comparableperiod in 2005. We believe that the decline primarily reflects the ongoingimpact of rebuilding efforts in the Gulf Coast region following HurricaneKatrina, and, in part, to unusually high attendance during the comparativeperiod in 2005 resulting from an increase in international travelers duringsuch period for special events celebrating Elvis’ 70th birthday. We are unable to predict when or iftourism levels in the region will return to historical levels.

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**19 Entertainment**

Revenueand operating expenses, including depreciation and amortization expense of$10.2 million ($9.6 million of acquisition-related depreciation andamortization expense), for 19 Entertainment for the period from the date ofacquisition, March 17, through December 31, 2005 were $70.6 millionand $69.8 million, respectively. The following table provides a breakdown of 19Entertainment’s revenue, cost of sales and selling, general and administrativeexpenses for the period:

| ** **                                                                                                    | ** ** | **Revenue**                          | ** ** | **Cost of Sales** | ** ** | ** ** | ** ** |
|---------------------------------------------------------------------------------------------------------------|------------|--------------------------------------|------------|-----------------------------|------------|------------|------------|
| ** **                                                                                                    | ** ** | **(amounts in thousands)** | ** ** | ** **                  | ** ** |
| *American  Idol*(including television production, foreign syndication,  sponsorship, merchandise and touring) |       | $                                    | 25,280     |                        |       | $          | (9,857     | ) |   | $ | 15,423 |   |
| Other *IDOLS* television programs (including license fees and  sponsorship)                                   |       | 8,563                                |       |                        | (917       | )          |       | 7,646 |   |
| *So You  Think You Can Dance*and other television productions                                                 |       | 20,234                               |       |                        | (18,558    | )          |       | 1,676 |   |
| Recorded music  and management clients                                                                        |       | 16,490                               |       |                        | (9,489     | )          |       | 7,001 |   |
|                                                                                                          |       | 70,567                               |       |                        | (38,821    | )          |       | 31,746 |   |
| Selling, general and administrative expenses                                                                  |       |                                 |       |                        |       |       |       | (20,712 | ) |
| Depreciation and  amortization                                                                                |       |                                 |       |                        |       |       |       | (10,219 | ) |
| Operating income                                                                                              |       |                                 |       |                        |       |       |       | $ | 815 |   |
| Operating income                                                                                              |       |                                 |       |                        |       |       |       | $ | 815 |   |
| Depreciation and  amortization                                                                                |       |                                 |       |                        |       |       |       | 10,219 |   |
| OIBDA                                                                                                         |       |                                 |       |                        |       |       |       | $ | 11,034 |   |
|                                                                                                               |            |                                      |            |                             |            |            |            |  |  |  |  |  |

 

*AmericanIdol 4* was broadcast in the U.S. between January and May 2005.Our results of operations for the period from the date of acquisition, March 17,through December 31, 2005 included the broadcast of 18 hours of *American Idol 4* and excluded 20.5 hours which aired prior tothe acquisition date. 

**19 Entertainment—AmendedFox Agreement**

Underthe terms of a November 2005 amendment to the Fox Agreement, Foxhas guaranteed production of at least four more seasons of *American Idol*(2006-2009), with an automaticrenewal for up to two additional seasons upon the show achieving certainminimum ratings in the fourth and potential fifth years of the deal. Fox will pay an additional annual license fee forthese future seasons of *American Idol*, of which 19 Entertainment’s 50% share isas follows: 2006, $9.0 million; 2007, $10.75 million; 2008, $12.75 million;2009, $15.25 million; 2010 and 2011, $17.75 million.**Fox will also pay 19 Entertainment anon-recoupable annual fee of $5.0 million for each of the fifth through ninthseasons of *American Idol*inconsideration for designating SonyBMG as the continuing record label for *American Idol* artists and for featuring certain SonyBMGcontrolled talent on the show. The first of these payments was received priorto December 31, 2005 but has not yet been recognized as revenue since theCompany has not fulfilled its obligations under the agreement.

**MBST**

MBST contributed $1.9million in revenue from the date of acquisition, August 10, 2005, through December 31,2005. Operating expenses, including acquisition-related depreciation andamortization expenses of $0.3 million, were $2.1 million.

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**PredecessorYear Ended December 31, 2004 Compared to Predecessor Year Ended December 31,2003**

Operatingresults for the Presley business for the years ended December 31, 2004 and2003 were as follows:

| ** **                         | ** ** | **2004**                             | ** ** | **2003** | ** ** | **Variance** | ** ** |
|------------------------------------|------------|--------------------------------------|------------|----------|------------|--------------|------------|
| ** **                         | ** ** | **(amounts in thousands)** | ** ** |
| Revenues                           |       | $                                    | 41,658     |     | $          | 44,376       |       | $ | (2,718 | ) |
| Operating expenses                 |       | 30,558                               |       | 32,268   |       | 1,710        |       |
| Depreciation expense               |       | 1,201                                |       | 1,227    |       | 26           |       |
| Operating income                   |       | 9,899                                |       | 10,881   |       | (982         | )          |
| Interest expense                   |       | 1,327                                |       | 1,362    |       | 35           |       |
| Loss from discontinued  operations |       | 246                                  |       | 3,378    |       | 3,132        |       |
| Income tax expense                 |       | 833                                  |       | 813      |       | (20          | )          |
| Net income                         |       | 7,493                                |       | 5,328    |       | 2,165        |       |
|                                    |            |                                      |            |          |            |              |            |  |  |  |

 

***Revenues***

Licensing fees and royalties increased$0.6 million, or 5.0%, from $12.9 million in 2003 to$13.5 million in 2004, largely due to new licensing activities, includinga new license agreement with Sirius Satellite Radio for an exclusively Elvisradio channel and additional licensing agreements in the electronics andcollectibles categories.

Tour and exhibit revenuesincreased by $0.4 million, or 4.0%, from $10.7 million in 2003 to$11.1 million in 2004. This increase resulted primarily from a 6.5%increase in average ticket prices which was partially offset by a 2.5% declinein mansion attendance. Attendance was approximately 567,000 in 2004 compared toapproximately 582,000 in 2003. Revenue from Graceland’s retail operationsdecreased by $4.0 million, or 26.2%, from $15.1 million in 2003 to$11.1 million in 2004. $2.4 million of this variance reflects achange in the operation of the mail order retail business. Graceland gift shoprevenue declined approximately $0.6 million, reflecting the 2.5% decline inattendance and a 7% decline in per capita spending due, in part, to strongersales in 2003 from the carryover benefit of the 25th  Commemoration of the death ofElvis Presley in 2002. Also, there were no *ElvisThe Concert*touring shows in 2004, whereas sales of merchandise attouring shows contributed $0.6 million to merchandise revenues in 2003. Hotelroom revenues were flat in 2004 at $3.3 million as the average annual occupancyrate remained at approximately 80% and there was no material change in theaverage room rate. Apartment rent and other revenues increased by $0.2 million,or 7.8%, from $2.4 million in 2003 to $2.6 million in 2004. Apartment rentincreased $0.1 million due to higher rental rates as occupancy remained flatcompared to 2003.

***Operating Expenses***

Cost of sales declined by $0.8 million or 11.0%, from$7.4 million in 2003 to $6.6 million in 2004, due to the outsourcing of themail order business. Cost of sales as a percentage of Graceland retail revenuewas 59.5% in 2004 compared to 49.3% in 2003, due to reduced margins on the saleof some closeout merchandise and the absence of touring shows in 2004.

Other operating expensesdecreased by $1.0 million, or 3.9%, from $24.9 million in 2003 to$23.9 million in 2004, due to reduced fulfillment and distributionexpenses resulting from the outsourcing of the retail mail order business,partially offset by higher salaries and benefit costs due to annual salaryincreases and additional staff.

***Depreciation Expense***

Depreciation expense wasunchanged at $1.2 million as there were no significant capital expenditureprojects in 2004.

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***Interest Expense***

Interest expense was flatin 2004 due to reduced average borrowings under a line of credit and notespayable, which was partially offset by higher variable rates.

***Income Taxes***

Income tax expenseincreased slightly despite the reduction in pre-tax earnings, reflecting ahigher effective tax rate due to a decrease in the amount of non-taxable trustincome. Certain intellectual property was previously held and related royaltyincome was received by The Promenade Trust, a grantor trust for the benefit ofLisa Marie Presley. Trust income was directly taxable to the beneficiary upondistribution and, therefore, the Presley Business did not pay taxes on thisincome.

***Discontinued Operations***

An additional after-taxprovision of $0.2 million was recorded in 2004 related to the prior yearshutdown of an Elvis-themed restaurant in downtown Memphis. This provisioncovered rent and related expenses expected to be incurred as a sublease wasactively being sought.

***Net Income***

Net income increased from$5.3 million in 2003 to $7.5 million in 2004 due to the decreased loss fromdiscontinued operations, partially offset by reduced operating income.

**Liquidity and Capital Resources**

On June 27, 2005, the Company completed a publicoffering of 23,000,000 shares of its common stock at $11.00 per share, whichyielded $233.0 million in net proceeds, after underwriting discounts andcommissions and offering expenses. The Company repaid $148.0 million of itsprevious loans payable with a portion of the proceeds from the offering. TheCompany used $34.0 million of the proceeds to pay the deferred purchaseconsideration for the acquisition of 19 Entertainment to the sellers on December 15,2005. The remaining proceeds will be used to provide additional long-termcapital to support the growth of the Company’s business, which may includeselect acquisitions of or investments in entertainment properties andbusinesses.

At December 31, 2005, the Company had$3.5 million of debt outstanding under the Priscilla Presley note,$37.0 million in cash and cash equivalents, $42.6 million in marketablesecurities and no outstanding borrowings under its revolving credit facility. Thecash and cash equivalents and marketable securities will be used to provideadditional long-term capital to support the growth of the Company’s business,which may include acquisitions of or investments in entertainment propertiesand businesses that fit our strategic goals. We expect to finance our futureacquisitions of entertainment related businesses from cash on hand, ourrevolving credit facility, new credit facilities, additional debt and equityofferings, issuance of our equity directly to sellers of businesses and cashflow from operations. We believe that our current cash on hand together withthe Company’s revolving credit facility and cash flow from operations will besufficient to fund our current operations.

As a result of the investment by RFX Acquisition LLC,our acquisition of an 85% interest in the Presley Business and our acquisitionof 19 Entertainment, we made changes to our historical capital andfinancial structure. The following highlights the most significant changes:

*Acquisition by RFX Acquisition LLC**—*On February 7, 2005, RFX AcquisitionLLC contributed $3,046,407 in cash to the Company in exchange for 30,389,072newly issued shares of common stock and warrants to purchase (i) 6,828,938shares of common stock at $1.00 per share, (ii) 6,828,938 shares of commonstock at $1.50 per share, and (iii) 6,828,939 shares of common stock at$2.00 per share. 

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Simultaneously with thisexchange, RFX Acquisition LLC also acquired an aggregate of 2,240,397 shares ofcommon stock directly from certain former principal stockholders at a price of$0.10 per share. Immediately following the consummation of its investment inthe Company, RFX Acquisition LLC distributed all of its shares of common stockand its warrants to its members, including our Chief Executive Officer, Mr. Sillerman,and certain members of the Company’s senior management. In order to provideadditional capital to the Company, on February 7, 2005, certain recipientsof the warrants, including Mr. Sillerman, and other members of seniormanagement, exercised an aggregate of five million of the $1.00 warrants foraggregate consideration to the Company of $5.0 million.

*Distributions to Minority Shareholders of Subsidiaries**—*Under the terms of our agreement toacquire an 85% interest in the Presley Business, we are required to make futureminimum annual distributions, in monthly installments, to The Promenade Trustwhich are intended to represent its retained 15% share of the operating incomeof the Presley Business before depreciation and amortization and after incometaxes and capital expenditures. We agreed to make and have made a minimummonthly distribution of $125,000 to The Promenade Trust during the first yearwe operate the Presley Business. At the end of each calendar year, we will makea calculation of the actual amount due to The Promenade Trust based on its 15%ownership interest and make an additional distribution to The Promenade Trustif its actual 15% share is higher than the total distributions paid to ThePromenade Trust over the prior twelve months. If the calculation indicates thatwe have paid more than The Promenade Trust was entitled to, we will reducefuture monthly distributions to The Promenade Trust by such amount. However, wewill always be required to pay The Promenade Trust a minimum annualdistribution of $1.2 million for each full calendar year, irrespective ofthe actual financial results for the business in such year.

*The Presley Contribution and Exchange Agreement**—*We acquired our 85% interest in thePresley Business on February 7, 2005 pursuant to a Contribution andExchange Agreement dated December 15, 2004 and amended on February 7,2005 by and among the Company, The Promenade Trust and RFXAcquisition LLC. At the closing of the acquisition of the PresleyBusiness, The Promenade Trust contributed to the Company 85% of the outstandingequity interests of Elvis Presley Enterprises, Inc. and 85% of theoutstanding membership interests of Elvis Presley Enterprises, LLC. Inexchange, The Promenade Trust received from us, $50,125,000 in cash, 1,491,817shares of Series B Convertible Preferred Stock and one share of Series CConvertible Preferred Stock valued at $22,825,000, and 500,000 shares of commonstock valued at $7.67 per share (which represents the three day average of theclosing sales price of our common stock following the public announcement ofthe acquisition of the Presley Business). In addition, at closing, we repaid$25,121,000 of outstanding indebtedness of the Presley Business. The PromenadeTrust currently owns 15% of the outstanding equity interest in Elvis PresleyEnterprises, Inc. and 15% of the outstanding membership interests of ElvisPresley Enterprises, LLC.

*Series B Convertible Preferred Stock**—*Each share of Series B ConvertiblePreferred Stock has a stated value of $15.30 and entitles the holder to receivean annual dividend calculated at a rate of 8.0% of the stated value. The sharesof Series B Convertible Preferred Stock are convertible by the holder intocommon stock at any time at a conversion price equal to the stated value,subject to adjustments in connection with standard anti-dilution protectionsfor stock splits, stock dividends and reorganizations. The shares of Series BConvertible Preferred Stock become convertible at our option from and after thethird anniversary of the date of issuance if, at any time, the average closingprice of the common stock over a thirty day trading period equals or exceeds150% of the conversion price.

During the period from August 7, 2012 through August 7,2013, we can redeem the outstanding shares of Series B ConvertiblePreferred Stock, in whole or in part, for an aggregate price equal to thestated value plus accrued but unpaid dividends through the date of redemption.If we do not exercise this redemption right, the conversion price for allremaining shares of Series B Convertible Preferred Stock is thereafterreduced to the lower of (i) the conversion price then in effect and (ii) theaverage closing price of the common stock over a thirty day trading periodmeasured as of the last day of the redemption period.

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The Series BConvertible Preferred Stock was valued for accounting purposes at the date ofissuance at its stated value of $15.30 per share, which approximated its fairvalue. In order to determine the fair value of the Series B ConvertiblePreferred Stock, we performed a valuation using a commonly used valuation modelfor pricing convertible equity instruments, taking into account the followingfactors and assumptions:

·       Fairvalue of common stock of $7.67 per share, based on the average closing pricefor the three days following announcement of the acquisition of the PresleyBusiness;

·       An8.5-year term for the Series B Convertible Preferred Stock, based onthe fact that the instrument contains a one-year redemption period endingon August 7, 2013, after which re-pricing of the conversion priceoccurs;

·       Astock price volatility factor of 38%, based on a review of the volatility ofcomparable companies operating in similar industries since we do not have datafor a sufficient period to calculate a reliable rate of volatility based on ourown stock price movements;

·       Adiscount rate of 11.5%, based on credit spreads for high yield issues and apremium to reflect the junior position of the Series B ConvertiblePreferred Stock in our capital structure; and

·       Nodividends on the common shares.

The fair value of the Series B ConvertiblePreferred Stock exceeded the fair value of the common stock issued on the samedate as a result of the mandatory 8% annual dividend on the par value of $15.30and the redemption and conversion features.

The Promenade Trust has the right to require us topurchase for cash all or a portion of its 15% ownership interest in the PresleyBusiness from time to time beginning on January 1, 2008. The price we willbe required to pay to The Promenade Trust will be based on the then currentfair market value of the Presley Business as determined through an appraisalprocess.

*Priscilla Presley Transaction**—*In connection with the acquisition of our85% interest in the Presley Business, we acquired from Priscilla Presley allcommercial rights held by Ms. Presley to use the name “Presley” inconnection with the use and exploitation of the assets acquired from ThePromenade Trust as well as all of Ms. Presley’s rights, if any, to thename “Graceland.” The purchase price for the rights acquired from PriscillaPresley was $6.5 million, with $3.0 million paid in cash at theclosing and $3.5 million paid in the form of an eight year subordinatedpromissory note. The promissory note bears interest at a rate of 5.385% peryear and, therefore, requires annual payments of $550,000.

*The Huff Alternative Fund, L.P.Investment*—Simultaneous with the closing of the investment byRFX Acquisition LLC and our acquisition of the Presley Business, The HuffAlternative Fund, L.P. and its affiliate contributed an aggregate of$43.8 million in cash in exchange for: (i) 2,172,400 shares of Series A ConvertibleRedeemable Preferred Stock, (ii) 3,706,052 newly issued shares of commonstock, (iii) warrants to purchase 1,860,660 shares of common stock at$1.00 per share, (iv) warrants to purchase 1,860,660 shares of commonstock at $1.50 per share, and (v) warrants to purchase 1,860,661 shares ofcommon stock at $2.00 per share. The transaction was consummated in accordancewith a Stock Purchase Agreement dated February 7, 2005. On December 27,2005, the Company filed a shelf registration statement on Form S-3registering for resale the shares held by The Huff Alternative Fund, L.P. inaccordance with the agreements entered into at the time of their initialinvestment in CKX. The registration statement was declared effective by theSecurities and Exchange Commission on January 10, 2006.

*Series A Convertible Redeemable Preferred Stock**—*On March 21, 2005, The HuffAlternative Fund, L.P. and its affiliate exercised their rights to convertall of their 2,172,400 shares of Series A Convertible Redeemable PreferredStock into 6,051,253 shares of common stock. Accordingly, there are currentlyno 

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shares of Series AConvertible Redeemable Preferred Stock outstanding. As a result of the earlyconversion, we recorded a non-cash dividend of $17.8 million in ourfinancial statements.

The terms of the Series A Convertible RedeemablePreferred Stock at issuance and prior to the conversion into common stock aredescribed below.

At issuance, each share of Series A ConvertibleRedeemable Preferred Stock had a stated value of $20.00 per share and wasconvertible into common stock at a conversion price as more fully describedbelow. Holders of the Series A Convertible Redeemable Preferred Stock werenot entitled to any dividends beyond participating on an as converted basis individends declared with respect to the common stock. The shares of Series AConvertible Redeemable Preferred Stock were convertible into common stock atany time at the option of the holder. The shares of Series A ConvertibleRedeemable Preferred Stock were to become convertible at the Company’s optionif, at any time following the third anniversary of issuance, the averageclosing price of the common stock over a thirty day trading period equaled orexceeded $15.00. In addition, if at any time after issuance (i) the totalmarket capitalization of the outstanding shares of common stock equaled orexceeded $500 million, and (ii) the average closing price of thecommon stock over a period of thirty consecutive trading days equaled orexceeded $15.00, the Company would have had the right to convert such number ofshares of Series A Convertible Redeemable Preferred Stock with anaggregate stated value of up to 25% of the market value of all publicly tradedcommon stock (excluding shares held by affiliates of the Company). However, wecould not force conversion of any shares of Series A ConvertibleRedeemable Preferred Stock during the period when the shares of common stock tobe issued upon conversion of the Series A Convertible Redeemable PreferredStock were locked up pursuant to a lock up agreement between the Company andthe holder.

The holders of the Series A ConvertibleRedeemable Preferred Stock had certain anti-dilution protection with respect tothe Series A Convertible Redeemable Preferred Stock. The conversion priceof the Series A Convertible Redeemable Preferred Stock, which was $10.00per share at issuance, was subject to adjustment upon (i) issuances ofcommon stock at a price below $10.00 per share, and (ii) the exercise orconversion of convertible stock, warrants, options (other than employeeincentive stock options) or other similar derivatives relating to common stock,in each case at a price below $10.00 per share.

The terms of the Series A Convertible RedeemablePreferred Stock specifically provided for an adjustment for the issuance of the15,486,815 warrants issued but not exercised by the recipients thereofimmediately following the closing of the investment by RFX Acquisition LLC, butno adjustment in connection with the issuance and exercise of the warrantsreceived by The Huff Alternative Fund, L.P. or The Huff AlternativeParallel Fund, L.P. at the closing of their investment or for the 5,000,000warrants which were issued and exercised immediately following closing. Aftergiving effect to the adjustments described in the preceding sentence, theconversion price of the Series A Convertible Redeemable Preferred Stockbecame $7.18 per share of common stock, so that each share of Series AConvertible Redeemable Preferred Stock was convertible into approximately2.8 shares of common stock.

During the first three years following issuance, theCompany had the option to redeem part or all of the Series A ConvertibleRedeemable Preferred Stock using up to 25% of the proceeds from each registeredpublic offering or private investment in public equity (“PIPE”) transaction asfollows: (i) during the first twelve months following issuance, at a priceof $23.10 per share, and (ii) at all times thereafter, at a price thatwould have provided the holders of the Series A Convertible RedeemablePreferred Stock with an internal rate of return of 15.5% on the shares of Series AConvertible Redeemable Preferred Stock being sold. Upon a liquidation, theholders of the Series A Convertible Redeemable Preferred Stock wereentitled to receive, in preference to the holders of any other class or seriesof the Company’s equity securities (other than the Series B ConvertiblePreferred Stock), a cash amount per share equal to the greater of the statedvalue plus any accrued but unpaid dividends or the amount to which they wouldhave been entitled had they converted to common stock.

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If, after six years following issuance, the aggregatereturn to the holders of the Series A Convertible Redeemable PreferredStock did not equal or exceed 8%, then the holders of the Series AConvertible Redeemable Preferred Stock would have been entitled to receive adistribution of cash or additional shares of Series A ConvertibleRedeemable Preferred Stock in an amount such that the return calculated to suchdate equaled 8%.

In the event that any holder of Series AConvertible Redeemable Preferred Stock had not converted its shares as of theeighth anniversary of the date of issuance, we would have been required toredeem 100% of the outstanding shares of Series A Convertible RedeemablePreferred Stock for an aggregate price equal to the stated value multiplied bythe number of shares of Series A Convertible Redeemable Preferred Stockthen being redeemed plus any return amount owed but not paid in accordance withthe preceding paragraph.

As a result of the redemption right described above,the Series A Convertible Redeemable Preferred Stock was initially recordedas temporary equity. Following the March 21, 2005 conversion into commonstock, the Series A Convertible Redeemable Preferred Stock wasreclassified as permanent equity.

The allocation of the proceeds from the Huff Investmentresulted in a beneficial conversion feature for the Series A ConvertibleRedeemable Preferred Stock in the amount of $17.8 million, which reducedthe carrying value of the Series A Convertible Redeemable Preferred Stockby that amount. This was due, in part, to the allocation of proceeds raised tothe warrants as well as the conversion ratio of one share of preferred stockinto 2.8 shares of common stock, as previously described. This beneficialconversion feature was to be accreted over the eight-year redemption period andrecorded as a preferred dividend. As a result of the conversion describedabove, a non-cash dividend equal to the amount of the unaccretedbeneficial conversion feature of $17.8 million was recognized at thattime.

*19 Entertainment Share Purchase Agreement*—Weacquired 19 Entertainment pursuant to a Share Purchase Agreement dated March 17,2005, by and among the Company, our wholly owned subsidiary, CKX UK HoldingsLimited, 19 Entertainment, Mr. Fuller and the other shareholders of 19 Entertainment,for total consideration consisting of £64.5 million(U.S. $124.4 million) in cash and 1,870,558 unregistered shares ofour common stock valued at $16.83 per share (which represents the average ofthe Company’s closing stock prices for the two days prior to and the day of theacquisition), each paid at closing, and an additional £19.2 million (U.S.$34.0 million) of deferred consideration that was paid in cash on December 15,2005. Mr. Fuller and his nominee company have the right, during a shortperiod following the six-year anniversary of our acquisition of 19Entertainment, to cause us to purchase up to 1.7 million shares of commonstock from them at a price of $13.18 per share.

*The Presley Short Term Senior Loan**—*A portion of the cash consideration forour acquisition of the Presley Business was obtained through a$39.0 million short term senior loan from an affiliate of Bear, Stearns &Co., Inc. The borrower under the Presley short term senior loan was EPEHoldings Corporation, our wholly owned subsidiary, which directly owns 100% ofthe Company’s interests in the Presley Business. The entire balance of thePresley short term senior loan was re-paid on June 27, 2005 with proceedsof the Company’s public offering of common stock.

*The 19 Entertainment Short Term Senior Loan**—*A portion of the cash consideration forour acquisition of 19 Entertainment was obtained through a$109.0 million short term senior loan from an affiliate of Bear, Stearns &Co. Inc. The borrower under the 19 Entertainment short term seniorloan was CKX UK Holdings Limited, our wholly owned subsidiary, whichdirectly owns 100% of 19 Entertainment. We were required to pay a 1%commitment fee upon the funding of the loan. The entire balance of the 19Entertainment short term senior loan was re-paid on June 27, 2005 withproceeds from the Company’s public offering of common stock.

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*Reincorporation*—OnMarch 25, 2005, we merged into our wholly-owned subsidiary,changing, among other things, (i) the name of our company from Sports EntertainmentEnterprises, Inc. to CKX, Inc., (ii) our state of incorporationfrom Colorado to Delaware, and (iii) our capital stock from no par valueto $0.01 par value per share.

*Revolving Credit Facility Commitment*—OnJune 2, 2005, we obtained commitments from Bear Stearns CorporateLending Inc., an affiliate of Bear, Stearns & Co. Inc., asadministrative agent and as a lender, Lehman Commercial Paper Inc., anaffiliate of Lehman Brothers Inc., Credit Suisse and The Bank of New York,as lenders, relating to a 364-day, $50.0 million revolving creditfacility, which commitments were subject to consummation of a stock offering bythe Company and repayment of all amounts outstanding under our short termsenior loans, which occurred on June 27, 2005, as well as the conditionssummarized below. Bear, Stearns & Co. Inc. will act as sole andexclusive advisor, lead arranger and bookrunner in respect of this revolvingcredit facility. As amended on September 22, 2005, the commitments of thelenders to provide the revolving credit facility will expire on the earlier of (i) June 27,2006, and (ii) the date on which we consummate, or (if earlier) obtain adefinitive commitment from a financial institution (whether or not suchfinancial institution is one of the lenders committed under the revolvingcredit facility) for a bank financing (A) in an aggregate principal amountequal to or greater than $50.0 million, and (B) with a term noshorter than that of the revolving credit facility.

Each lender’s commitments and agreements are subjectto satisfaction of customary conditions and the negotiation, execution anddelivery of definitive documentation with respect to the revolving creditfacility satisfactory to such lender and its counsel. Additionally, eachdrawing under the revolving credit facility will be subject to the satisfactionof certain conditions set forth or referred to in the term sheet to thecommitment letter, including the absence of any material adverse change in thebusiness, assets, property, condition (financial or otherwise), results ofoperations or prospects of the Company and our subsidiaries, taken as a whole.We will not have control over the satisfaction of all of these conditions andrequirements, and we cannot assure you that we will be able to satisfy theseconditions and requirements or that we will be able to borrow funds under therevolving credit facility at any particular time or at all.

The proceeds of loans under the revolving creditfacility will be permitted to be used for general corporate purposes (includingworking capital) in the ordinary course of business and to fund futureacquisitions. Amounts borrowed under the revolving credit facility will bearinterest at a rate equal to LIBOR plus 200 basis points, increasing to LIBORplus 250 basis points at any time when $25.0 million in aggregateprincipal amount of loans, letters of credit and swing line loans areoutstanding.

The revolving credit facility will be guaranteed byeach of our direct and indirect present and future subsidiaries other thanElvis Presley Enterprises, Inc., Elvis Presley Enterprises, LLC and any oftheir subsidiaries; provided, however, that any foreign subsidiary of theCompany with respect to which a guarantee granted thereby would, in our goodfaith judgment, result in material adverse tax consequences to the Company,shall not be required to be a guarantor. Obligations under the revolving creditfacility will be secured by security interests in substantially all of theassets of the Company and the guarantors (subject to limitations on capitalstock of foreign subsidiaries).

If the Company borrows under the revolving creditfacility, it will restrict our ability to incur debt, sell assets, merge oracquire businesses, and pay dividends, among other matters, and will require usto maintain certain financial covenants, including (i) a minimum interestcoverage ratio, (ii) a maximum debt to EBITDA ratio, (iii) a minimumamount of EBITDA and (iv) a minimum tangible net worth. If we are unableto comply with or satisfy these covenants, we will not be permitted to borrowamounts under the revolving credit facility and the lenders may be able toaccelerate all amounts then due thereunder. As of December 31, 2005, theCompany is in compliance with all of the financial covenants under therevolving credit facility commitment.

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We have agreed to pay tothe lenders an amount equal to 0.35% per annum of the aggregate commitmentsthereunder, payable in arrears on each one-month anniversary of September 27,2005. Additionally, from and after the closing of the revolving creditfacility, we have agreed to pay a commitment fee calculated at the rate perannum of 0.35% on the average daily unused portion of the revolving creditfacility payable monthly in arrears.

**CashFlow for the Year Ended December 31, 2005, 2004 (Predecessor) and 2003(Predecessor)**

**Operating Activities**

Net cash provided by operating activities was$22.1 million for the year ended December 31, 2005, reflecting thenet loss of $5.9 million, which includes depreciation and amortization expensesof $14.9 million, and a decline in the net working capital levels in thebusiness related primarily to the mid-season timing of our acquisition of 19Entertainment with regards to *American Idol 4*.Additionally, in 2005 the Company received a payment of $5.0 million in advanceof *American Idol 5*, which has not yet beenrecognized as revenue since the Company has not fulfilled its obligations underits agreement with Fox.

Net cash provided by operating activities for thePredecessor was $10.8 million for the year ended December 31, 2004,reflecting the net income of $7.5 million, which includes depreciation andamortization expenses of $1.2 million. Changes in the net working capitallevels from the prior year reflect a reduction in inventory levels from theoutsourcing of the mail order merchandising operation and higher deferredrevenue associated with advances on “Elvis by the Presleys,” offset by anincrease in production costs related to that production.

Net cash provided by operatingactivities for the Predecessor was $9.1 million for the year ended December 31,2003, reflecting net income of $5.3 million, which includes depreciation andamortization expenses of $1.2 million. Changes in the net working capitallevels from the prior year reflect higher production costs for “Elvis by thePresleys” and a decline in deferred licensing revenue, offset by a decline inaccounts receivable due to collections from licensing activities.

**Investing Activities**

Net cash used in investing activities was$288.9 million for the year ended December 31, 2005. Cash paid foracquisitions and related costs were $245.3 million. $80.0 million ofproceeds from the public offering of common stock were invested in marketablesecurities with $37.4 million subsequently redeemed principally to pay thedeferred purchase consideration for 19 Entertainment. Capital expenditures were$1.0 million.

Net cash used in investing activities for thePredecessor was $0.3 million in 2004, primarily resulting from capital expenditures.

Net cash used in investingactivities for the Predecessor was $0.5 million for the year ended December 31,2003, due to capital expenditures of $0.8 million offset in part by proceedsfrom the sale of property and equipment. The increased capital expenditures in2003 were related to the renovations of guest rooms at the Heartbreak Hotel.

**Financing Activities**

Net cash provided by financing activities was $304.1million. The net proceeds from the public offering of common stock afterunderwriting discounts and commissions and other offering costs were $233.0million. The Company received $43.8 million of net proceeds from the Huffinvestment and $30.0 million of net proceeds from warrant exercises.Acquisition-related borrowings of $148.0 million under the short-term creditfacilities in 2005 were repaid on June 27, 2005.

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Net cash used in financing activities for thePredecessor was $10.6 million for the year ended December 31, 2004. Debtprincipal payments of $5.6 million were offset by $2.8 million of line ofcredit borrowings. $7.7 million was distributed to the trust beneficiary.

Net cash used in financingactivities for the Predecessor was $8.3 million for the year ended December 31,2003. Debt principal payments of $3.8 million were offset by $3.9 million ofline of credit borrowings. $8.4 million was distributed to the trustbeneficiary.

**Uses of Capital**

At December 31, 2005, the Company had$3.5 million of debt outstanding under the Priscilla Presley note,$37.0 million in cash and cash equivalents and $42.6 million in marketablesecurities. The cash and cash equivalents and marketable securities will beused to provide additional long-term capital to support the growth of theCompany’s business, which may include acquisitions of or investments inentertainment properties and businesses.

We believe that ourcurrent cash on hand together with the Company’s revolving credit facility andcash flow from operations will be sufficient to fund our operations, includingpayments of interest due under the Priscilla Presley note, dividends on our Series BConvertible Preferred Stock, mandatory minimum distributions to the minorityshareholder in the Presley Business and capital expenditures.

**Capital Expenditures**

We presently anticipate that our capital expendituresfor 2006, including certain deferred maintenance at the Heartbreak Hotel andthe acquisition of additional land at Graceland, will total approximately $5.0million.

On February 23, 2006,we announced preliminary plans to re-develop our Graceland attraction includingan expanded visitors center, developing new attractions and merchandising shopsand building a new boutique convention hotel. This project is conditioned on anumber of factors including obtaining necessary approvals and concessions fromlocal and state authorities and attracting an appropriate hotel partner. Althoughwe have not yet determined the exact scope, cost, financing plan and timing ofthis project, we expect that the re-development of Graceland will take severalyears and will require a substantial financial investment by the Company.

**Dividends**

Our Series B Convertible Preferred Stock requirespayment of a cash dividend of 8% per annum in quarterly installments. On anannual basis, our total dividend payment on the Series B ConvertiblePreferred Stock is $1.8 million. If we fail to make our quarterly dividendpayments to the holders of the Series B Convertible Preferred Stock on atimely basis, the dividend rate increases to 12% and all amounts owing must bepaid within three business days in shares of Common Stock valued at the averageclosing price over the previous 30 consecutive trading days. After such paymentis made, the dividend rate returns to 8%.

We have no intention ofpaying any dividends on our Common Stock for the foreseeable future.

**Commitments and Contingencies**

There are various lawsuits and claims pending againstus and which we have initiated against others. We believe that any ultimateliability resulting from these actions or claims will not have a material adverseeffect on our results of operations, financial condition or liquidity.

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In addition to ourscheduled maturities of debt, obligations to redeem preferred stock andobligations to the seller of the Presley Business and to the sellers of MBST,we have future cash obligations under various types of contracts. We leaseoffice space and equipment under long-term operating leases. We have alsoentered into long-term employment agreements with certain of our executives andother key employees. These contracts typically contain provisions that allow usto terminate the contract with good cause.

Thescheduled maturities as of December 31, 2005 for our credit facilities,future minimum rental commitments under non-cancelable operating leases,minimum payments under employment agreements, guaranteed minimum distributionsto The Promenade Trust and future obligations to the former owners of 19Entertainment are as follows (in thousands):

| ** **                                          | ** ** | **2006**                | ** ** | **2007** | ** ** | **2008** | ** ** | **2009** | ** ** | **2010** | ** ** | **Thereafter** | ** ** | **Total** | ** ** |
|-----------------------------------------------------|------------|-------------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------------|------------|-----------|------------|
| ** **                                          | ** ** | **(in thousands)** | ** ** |
| Debt (including  interest)                          |       | $                       | 550        |     | $          | 550      |       | $        | 550        |     | $          | 550            |       | $         | 550        |   |   | $ | 1,650 |   |   | $ | 4,400 |   |
| Non-cancelable operating  leases                    |       | 2,651                   |       | 2,290    |       | 2,265    |       | 2,225    |       | 1,873    |       |           | 6,185      |      |       | 17,489 |   |
| Employment contracts                                |       | 9,686                   |       | 9,465    |       | 7,875    |       | 7,643    |       | 2,467    |       |           | 2,287      |      |       | 39,423 |   |
| Guaranteed minimum  distributions              |       | 1,200                   |       | 1,200    |       | 1,200    |       | 1,200    |       | 1,200    |       |           |       | (a)       |       | 6,000 |   |
| 19 Entertainment put  right                         |       | —                  |       | —   |       | —   |       | —   |       | —   |       |           | 22,079     | (b)       |       | 22,079 |   |
| Series B  convertible preferred stock dividend |       | 1,826                   |       | 1,826    |       | 1,826    |       | 1,826    |       | 1,826    |       |           |       | (c)       |       | 9,130 |   |
| MBST contingent  consideration                      |       |                    | (d)        | —   |       | —   |       | —   |       | —   |       |           | —     |      |       | — |   |
| Total                                               |       | $                       | 15,913     |     | $          | 15,331   |       | $        | 13,716     |     | $          | 13,444         |       | $         | 7,916      |   |   | $ | 32,201 |   |   | $ | 98,521 |   |

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(a)           In addition to theamounts listed above, we are required to make guaranteed minimum distributionsto The Promenade Trust of at least $1.2 million annually for as long as ThePromenade Trust continues to own 15% in the Presley Business.

(b)          We have granted to theformer holders of capital stock of 19 Entertainment the right, during a shortperiod following the six-year anniversary of our acquisition of19 Entertainment, to cause us to purchase up to 1.7 million shares ofcommon stock from them at a price of $13.18 per share, which is reflected inthe table above.

(c)           We are required to payan annual dividend of $1.8 million per year in quarterly installments on ouroutstanding Series B Convertible Preferred Stock issued in the acquisitionof the Presley Business.

(d)          The purchase price forMBST is subject to a working capital adjustment. $1.1 million was paid to thesellers in cash and $0.5 million in common stock in 2005. The final working capital adjustment will bedetermined in 2006 and could result in additional payments to the sellers thatare expected to be less than $1.0 million. In addition, the sellers mayreceive up to an additional 150,000 restricted shares of common stock uponsatisfaction of certain performance thresholds over the five year periodfollowing the closing.

**Future Acquisitions**

We intend to acquireadditional businesses that fit our strategic goals. We expect to finance ourfuture acquisitions of entertainment related businesses from cash on hand, ourrevolver commitment, new credit facilities, additional debt and equityofferings, issuance of our equity directly to sellers of businesses and cashflow from operations. However, no assurance can be given that we will be ableto obtain adequate financing to complete any potential future acquisitions wemight identify.

As we acquire additionalbusinesses, we expect to incur incremental corporate support costs to manageand operate our business. These costs could include, but may not be limited to,the hiring of additional employees and related operating expenses for legal,finance, audit, human resources and systems functions.

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**Inflation**

Inflation has affected thehistorical performances of the businesses primarily in terms of higheroperating costs for salaries and other administrative expenses. Although theexact impact of inflation is indeterminable, we believe that the PresleyBusiness has offset these higher costs by increasing prices at Graceland andfor intellectual property licenses and that 19 Entertainment has offsetthese higher costs by increasing fees charged for its production services andhigher royalty and sponsorship rates.

**CriticalAccounting Policies**

The preparation of ourfinancial statements in accordance with accounting principles generallyaccepted in the United States of America (“US GAAP”) requires management tomake estimates, judgments and assumptions that affect the reported amounts ofassets and liabilities, disclosures of contingent assets and liabilities at thedate of the financial statements and the reported amount of expenses during thereporting period. On an ongoing basis, we evaluate our estimates based onhistorical experience and on various other assumptions that are believed to bereasonable under the circumstances. The result of these evaluations forms thebasis for making judgments about the carrying values of assets and liabilitiesand the reported amount of expenses that are not readily available from othersources. Actual results may differ from these estimates under differentassumptions. The following accounting policies require significant managementjudgments and estimates.

**Revenue Recognition**

Merchandising/Name andLikeness Licensing Revenue:

A portion of our revenueis derived from licensing rights to third parties to sell merchandise based onintellectual property, including name, image and likeness rights and relatedmarks. Revenue from these activities is recognized when all of the followingconditions are met: (i) pervasive evidence of an arrangement exists; (ii) deliveryhas occurred or services have been rendered; (iii) the price to thelicensee or buyer is fixed or determinable; and (iv) collectibility isreasonably assured. Licensing advances are deferred until earned under thelicensing agreement. Licensing contracts normally provide for quarterlyreporting from the licensee of sales made and royalties due. Guaranteed minimumroyalties are recognized ratably over the term of the license or are based onsales of the related products, if greater.

Royalty Income:

Income from music and filmcontracts is derived from the sale of records and DVDs or from the licensing offilm/music rights to third parties. Revenue from recordings is recognized inaccordance with Statement of Financial Accounting Standards (“SFAS”) No. 50,*Financial Reporting in the Record and MusicIndustry* (“SFAS 50”). Under SFAS 50, revenue is recognized when we: (i) havesigned a non-cancelable contract; (ii) have delivered the rights tothe licensee who is free to exercise them; (iii) have no remainingsignificant obligations to furnish music or records; and (iv) whencollectibility of the full fee is reasonably assured. A significant portion ofroyalty income is paid to us based on the timetable associated with royaltystatements generated by third party processors, and is not typically known byus on a timely basis. This revenue is consequently recognized if the amount ofaccrual is not known or reasonably estimable until receipt of the statementsfrom the third parties. We contract with various agencies to facilitatecollection of royalty income.

When we are entitled toroyalties based on gross receipts, revenue is recognized before deduction ofagency fees, which are included in our financial statements as a component ofcost of sales.

Television Revenue:

We recognize revenue fortelevision productions pursuant to American Institute of Certified PublicAccountants Statement of Position 00-2, *Accountingby Producers or Distributors of Films* (“SOP 00-2”). Thefollowing conditions must be met in order to recognize revenue under SOP 00-2:(i) persuasive 

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evidenceof a sale or licensing arrangement exists; (ii) the program is completeand has been delivered or is available for immediate and unconditionaldelivery; (iii) the license period of the arrangement has begun and thecustomer can begin its exploitation, exhibition or sale; (iv) thearrangement fee is fixed or determinable; and (v) collection of thearrangement fee is reasonably assured. Advance payments received from buyers orlicensees are included in our financial statements as a component of deferredrevenue.

Sponsorship Revenue:

We derive revenue fromsponsorships associated with certain of our television productions and tours.Sponsorship fees relate to either (a) a one-time event, or (b) aperiod of time. Revenue from a one-time event is recognized if: (i) pervasiveevidence of an arrangement exists; (ii) the event has occurred; (iii) theprice is fixed or determinable; and (iv) collectibility is reasonablyassured. Non-refundable advance payments associated with sponsorships over aperiod of time are recognized on a straight line basis over the term of thecontract from the later of the point at which: (a) pervasive evidence ofan arrangement exists; (b) delivery has occurred or services have beenrendered; (c) the price is fixed or determinable; and (d) collectibilityis reasonably assured, or, the beginning of the license period. Sponsorshipadvances are deferred until earned pursuant to the sponsorship agreement.

Management and ProductionServices Revenue:

The Company recognizesrevenue from management and production services at the time the services areprovided. Revenue from the clients’ participation and residuals are recognizedat the time such amounts can be reasonably determined, which is generally uponreceipt of a statement from a third party.

Other Revenue:

Ticket sales for tours andexhibits at Graceland, as well as merchandise sales and food and beverage salesare recognized at point of sale. Advance ticket sales are recorded as deferredrevenue pending the “event date” on the ticket.

**TelevisionProduction Costs**

The Company accounts fortelevision projects in development pursuant to SOP 00-2. Third partycosts incurred in producing television programs for which we have secureddistribution agreements are capitalized and remain unamortized until theproject is distributed or are written off at the time they are determined notto be recoverable. Third party costs incurred in developing concepts for newtelevision programs are expensed as incurred until such time as we have secureddistribution agreements.

The capitalized cost ofproducing television programs are recognized as expense in accordance with theindividual film forecast method specified in SOP 00-2, pursuant towhich we estimate the ratio that revenue which is earned for such programmingin the current period bears to its estimate at the beginning of the currentyear of total revenue to be realized from all media and markets for suchprogramming. Amortization commences in the period in which revenue recognitioncommences. Our management regularly reviews and revises our total revenueestimates for each project, which may result in modifications to the rate ofamortization. If a net loss is projected for a particular project, the relatedcapitalized costs are written down to estimated realizable value.

**ArtistAdvances and Recoupable Recording Costs**

Recoupable recording costsand artist advances, as adjusted for anticipated returns, are recognized inaccordance with SFAS 50, and thus, are charged to expense in the period inwhich the sale of the record takes place. Recoupable recording costs and artistadvances are only capitalized if the past performance and current popularity ofthe artist for whom the recording costs are incurred or to whom the advance ismade provide a sound basis for estimating that the amount capitalized will berecoverable from future royalties to be earned by the artist. Any portion ofrecoupable recording costs or artists advances that 

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subsequentlyappear not to be fully recoverable from future royalties to be earned by theartist are charged to expense during the period in which the loss becomesevident.

**Goodwilland Other Intangible Assets**

Goodwill represents theexcess of purchase price and related costs over the value assigned to the nettangible and identifiable intangible assets of businesses acquired. The Companyfollows SFAS No. 142, *Goodwill andOther Intangible Assets* (“SFAS 142”). In accordance with theprovisions of SFAS 142, goodwill and other intangible assets withindefinite lives are not amortized, but instead are tested for impairmentannually or if certain circumstances indicate a possible impairment may exist.The Company will evaluate the recoverability of goodwill and indefinite livedintangible assets using a two-step impairment test approach at the reportingunit level. In the first step the fair value for the reporting unit is comparedto its book value including goodwill. In the case that the fair value of thereporting unit is less than the book value, a second step is performed whichcompares the implied fair value of the reporting unit’s goodwill to the bookvalue of the goodwill. The fair value for the goodwill is determined based onthe difference between the fair values of the reporting units and the net fairvalues of the identifiable assets and liabilities of such reporting units. Ifthe fair value of the goodwill is less than the book value, the difference isrecognized as an impairment.

SFAS 142 alsorequires that intangible assets with estimable useful lives be amortized overtheir respective estimated useful lives to the estimated residual values. TheCompany performs its annual impairment assessment on goodwill and indefinitelived intangible assets in accordance with the methods prescribed above on thefirst day of its fiscal fourth quarter.

The Company accounts forimpairment of long-lived assets in accordance with SFAS 144, *Accounting for the Impairment or Disposal ofLong-Lived Assets* (“SFAS 144”). SFAS 144 establishes auniform accounting model for the disposal of long-lived assets. The Companyevaluates long-lived assets for impairment whenever events or changes incircumstances indicate that the carrying amount of an asset may not berecoverable. Upon such an occurrence, recoverability of assets to be held andused is measured by comparing the carrying amount of an asset to forecastedundiscounted future net cash flows expected to be generated by the asset. Ifthe carrying amount of the asset exceeds its estimated future cash flows, animpairment charge is recognized by the amount by which the carrying amount ofthe asset exceeds the fair value of the asset.

**Uses of Estimates**

The preparation offinancial statements in conformity with accounting principles generally acceptedwithin the United States of America requires management to make estimates andassumptions that affect the reported amounts of assets and liabilities anddisclosure of contingent assets and liabilities at the date of the financialstatements and the reported amounts of revenue and expenses during thereporting period. Actual results could differ materially from those estimates.

**Impactof Recently Issued Accounting Standards**

In December 2004, theFASB issued SFAS No. 153, *Exchanges ofNonmonetary Assets*, an amendment of APB Opinion No. 29. Thisstatement eliminates the exception for nonmonetary exchanges of similarproductive assets under APB No. 29 and replaces it with a generalexception for exchanges of nonmonetary assets that do not have commercial substance.The statement is effective for financial statements for fiscal years beginningafter June 15, 2005. The adoption of the statement is not expected to havea material effect on the Company’s consolidated financial position, results ofoperations and cash flows.

In May 2005, the FASBissued SFAS No. 154, *Accounting Changesand Error Corrections, a replacement of APB Opinion No. 20 and FASBStatement No. 3*. This statement applies to all voluntarychanges in accounting principle, requiring retrospective application to priorperiods’ financial statements 

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ofchanges in accounting principle. Prior to the issuance of SFAS No. 154,most voluntary changes in accounting principle were recognized by including thecumulative effect of changing to the new principle in net income of the periodof the change. The statement is effective for financial statements for fiscalyears beginning after December 15, 2005. The Company does not currentlycontemplate any voluntary changes in accounting principles.

**OffBalance Sheet Arrangements**

As of December 31,2005, we did not have any off balance sheet arrangements as defined inItem 303 (a)(4)(ii) of SEC Regulation S-K.

**ITEM7A.**        QUANTITATIVE ANDQUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to marketrisk arising from changes in market rates and prices, including movements inforeign currency exchange rates and interest rates. To mitigate these risks, wemay utilize derivative financial instruments, among other strategies. We do notuse derivative financial instruments for speculative purposes.

**Interest Rate Risk**

We had $3.5 millionof total debt outstanding at December 31, 2005, none of which was variablerate debt. As such, we do not have significant exposure to changes in interestrates.

Any future borrowings underthe Company’s revolving credit facility commitment would be variable rate debtand the Company would therefore have exposure to interest rate risk.

**Foreign Exchange Risk**

As a result of ouracquisition of 19 Entertainment, we have significant operations outside theUnited States, principally in the United Kingdom. Our foreign operations aremeasured in local currencies. As a result, our financial results could beaffected by factors such as changes in foreign currency exchange rates or weakeconomic conditions in foreign markets in which we operate. For example,assuming a hypothetical strengthening of the U.S. dollar exchange rate with theU.K. pound sterling of 10%, our net loss for the year ended December 31,2005, reflecting 19 Entertainment from the date of acquisition of March 17,2005, would have decreased by approximately $1.7 million, reflecting anexcess of U.K. pound sterling denominated operating expenses, includingdepreciation and amortization expense, over U.K. pound sterling denominated revenue.

As of December 31,2005, we have not entered into any foreign currency option contracts on otherfinancial instruments intended to hedge our exposure to changes in foreignexchange rates. We intend to continue to monitor our operations outside theUnited States and in the future may seek to reduce our exposure to suchfluctuations by entering into foreign currency option contracts or otherhedging arrangements.

**19** EntertainmentPut Option

In connection with theacquisition of 19 Entertainment, certain sellers of 19 Entertainment enteredinto a Put and Call Option Agreement that provided them with certain rightswhereby, during a short period following the six year anniversary of theacquisition, these sellers can exercise a put right to sell 1,672,170 sharesof  common stock to the Company at aprice equal to $13.18 per share. If the Company’s stock price is below $13.18per share during the period that the put is exercisable and the sellersexercise this put right, the Company will have exposure to market risk for theamount that $13.18 per share exceeds the then market price of the stock for thenumber of shares put back to the Company.

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**ITEM8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA**

**Tableof Contents to Consolidated Financial Statements**
|                                                                                                                                                                                                                                              | ** ** | **Page** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------|------------|
| **CKX, Inc.**                                                                                                                                                                                                                           |       |     |       |   |   |
| Reports of  Independent Registered Public Accounting Firms                                                                                                                                                                                   |       |     | 50         |   |   |
| Consolidated Balance Sheets at December 31, 2005  and December 31, 2004 and December 31, 2004 (Predecessor)                                                                                     |       |     | 53         |   |   |
| Consolidated Statements of Operations for the years  ended December 31, 2005, 2004 and 2003, the period January 1, 2005  to February 7, 2005 (Predecessor) and the years ended December 31,  2004 and 2003 (Predecessor) |       |     | 54         |   |   |
| Consolidated  Statements of Cash Flows for the years ended December 31, 2005, 2004 and  2003, the period January 1, 2005 to February 7, 2005 (Predecessor)  and the years ended December 31, 2004 and 2003 (Predecessor) |       |     | 55         |   |   |
| Consolidated  Statement of Stockholders’ Equity for the years ended December 31, 2005,  2004 and 2003                                                                                                                    |       |     | 57         |   |   |
| Notes to Consolidated Financial Statements                                                                                                                                                                                                   |       |     | 58         |   |   |

 

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**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTINGFIRM**

To the Board of Directors and Stockholders ofCKX, Inc.New York, New York

We have audited the accompanying consolidated balancesheets of CKX, Inc. and subsidiary companies (the “Company”) as of December 31,2005, and the related consolidated statements of operations, stockholders’equity, and cash flows for the year then ended. Our audits also included thefinancial statement schedule for the year ended December 31, 2005 listedin the index at Item 15. These financial statements are the responsibility ofthe Company’s management. Our responsibility is to express an opinion on thesefinancial statements based on our audit.

We conducted our audit in accordance with thestandards of the Public Company Accounting Oversight Board (United States). Thosestandards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of materialmisstatement. The Company is not required to have, nor were we engaged toperform, an audit of its internal control over financial reporting. Our auditsincluded consideration of internal control over financial reporting as a basisfor designing audit procedures that are appropriate in the circumstances, butnot for the purpose of expressing an opinion on the effectiveness of theCompany’s internal control over financial reporting. Accordingly, we express nosuch opinion. An audit also includes examining, on a test basis, evidencesupporting the amounts and disclosures in the financial statements, assessingthe accounting principles used and significant estimates made by management, aswell as evaluating the overall financial statement presentation. We believethat our audit provides a reasonable basis for our opinion.

In our opinion, suchconsolidated financial statements present fairly, in all material respects, thefinancial position of the Company as of December 31, 2005, and the resultsof its operations and its cash flows for the year then ended in conformity withaccounting principles generally accepted in the United States of America. Also,in our opinion, such financial statement schedule, when considered in relationto the basic consolidated financial statement taken as a whole, presents fairlyin all material respects, the information set forth therein.

/s/ DELOITTE &TOUCHE LLPNew York, New YorkMarch 13, 2006

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**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTINGFIRM**

To the Board of Directors and Stockholders ofCKX, Inc.New York, New York

We have audited the accompanying combined statement ofnet assets acquired from Promenade Trust (the Presley Business), as defined inNote 1, as of December 31, 2004, and the related combined statements ofoperations and cash flows for each of the two years ended December 31,2004 and 2003, and the combined statements of operations and cash flows for theperiod January 1, 2005 to February 7, 2005. Our audits also includedthe financial statement schedule listed in the index at Item 15 for the periodspresented above. These financial statements are the responsibility of thePresley Business management. Our responsibility is to express an opinion onthese financial statements based on our audits.

We conducted our audits in accordance with theauditing standards of the Public Company Accounting Oversight Board (UnitedStates). Those standards require that we plan and perform the audit to obtainreasonable assurance about whether the financial statements are free ofmaterial misstatement. The Presley Business is not required to have, nor werewe engaged to perform, an audit of its internal control over financialreporting. Our audits included consideration of internal control over financialreporting as a basis for designing audit procedures that are appropriate in thecircumstances but not for the purpose of expressing an opinion on theeffectiveness of the Presley Business’s internal control over financialreporting. Accordingly, we express no such opinion. An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements, assessing the accounting principles used and significantestimates made by management, as well as evaluating the overall financialstatement presentation. We believe that our audits provide a reasonable basisfor our opinion.

In our opinion, such combined financial statementspresent fairly, in all material respects, the combined statements of net assetsacquired from Promenade Trust as of December 31, 2004, and the combinedresults of its operations and its cash flows for each of the two years ended December 31,2004 and 2003 and the period January 1, 2005 to February 7, 2005, inconformity with accounting principles generally accepted in the United Statesof America. Also, in our opinion, such financial statement schedule, whenconsidered in relation to the basic consolidated financial statements taken asa whole, presents fairly in all material respects, the information set forththerein.

As discussed in Note 2, in 2005, the Presley Businesschanged the presentation of its combined statements of cash flows to includethe cash flows from operating and investing activities of discontinuedoperations within the respective categories of operating and investingactivities of the Presley Business and retroactively revised the statement ofcash flows for the year ended December 31,2003 for the change.

/s/ DELOITTE &TOUCHE LLPMemphis, TennesseeMarch 13, 2006

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**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTINGFIRM**

To the Board of Directors and Shareholders ofCKX, Inc. (formerly Sports Entertainment Enterprises, Inc.)Las Vegas, Nevada

We have audited the accompanying balance sheet of CKX, Inc.(formerly Sports Entertainment Enterprises, Inc.) (a Delaware corporation)(the “Company”) as of December 31, 2004, and the related statements ofoperations, shareholders’ equity and cash flows for the years ended December 31,2004 and 2003. These financial statements are the responsibility of the Company’smanagement. Our responsibility is to express an opinion on these financialstatements based on our audit.

We conducted our audit in accordance with thestandards of the Public Company Accounting Oversight Board (United States). Thosestandards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of materialmisstatement. The Company is notrequired to have, nor were we engaged to perform, an audit of its internalcontrol over financial reporting. Our audit included consideration of internalcontrol over financial reporting as a basis for designing audit procedures thatare appropriate in the circumstances, but not for the purpose of expressing anopinion on the effectiveness of the Company’s internal control over financialreporting. Accordingly, we express no such opinion. An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements. An audit also includes assessing the accountingprinciples used and significant estimates made by management, as well asevaluating the overall financial statement presentation. We believe that ouraudit provided a reasonable basis for our opinion.

In our opinion, thefinancial statements referred to above present fairly, in all materialrespects, the financial position of the Company as of December 31, 2004,and the results of their operations and their cash flows for the years ended December 31,2004 and 2003, in conformity with accounting principles generally accepted inthe United States.

/s/ Piercy Bowler Taylor &Kern

Las Vegas, NevadaMarch 25, 2005

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**CKX, INC.CONSOLIDATED BALANCE SHEETS**

| ** **                                                                                                                                                                                         | ** ** | ** **                                                                                | ** ** | ** **            | ** ** | ** ** | ** ** | **Predecessor**       | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------|------------|-----------------------|------------|------------|------------|-----------------------|------------|
| ** **                                                                                                                                                                                         | ** ** | ** **                                                                                | ** ** | ** **            | ** ** | ** ** | ** ** | **Company(1)**        | ** ** |
| ** **                                                                                                                                                                                         | ** ** | **December 31,**                                                                     | ** ** | **December 31,** | ** ** | ** ** | ** ** | **December 31,** | ** ** |
| ** **                                                                                                                                                                                         | ** ** | **2005**                                                                                  | ** ** | **2004**              | ** ** | ** ** | ** ** | **2004**              | ** ** |
| ** **                                                                                                                                                                                         | ** ** | **(in thousands, except share and  per share information)** | ** ** |
| **ASSETS**                                                                                                                                                                                         |       |                                                                                      |       |                  |       |       |       |                  |       |   |   |   |   |   |   |
| Cash and cash  equivalents                                                                                                                                                                         |       |                                                                                      | $          | 36,979                |       |       |       | $                     | —     |   |   |   |   |   | $ | 201 |   |   |
| Marketable  securities, at cost                                                                                                                                                                    |       |                                                                                      | 42,625     |                  |       |       | —     |                  |       |   |   |   | — |   |   |
| Receivables, net  of allowance for doubtful accounts of $7 at December 31, 2005 and $70 at  December 31, 2004 (Predecessor Company)                                                      |       |                                                                                      | 19,503     |                  |       |       | —     |                  |       |   |   |   | 2,751 |   |   |
| Inventories, net  of allowance for obsolescence of $394 at December 31, 2005 and $225 at  December 31, 2004 (Predecessor Company)                                                        |       |                                                                                      | 2,850      |                  |       |       | —     |                  |       |   |   |   | 2,178 |   |   |
| Prepaid expenses                                                                                                                                                                                   |       |                                                                                      | 2,515      |                  |       |       | —     |                  |       |   |   |   | 557 |   |   |
| Prepaid income  taxes                                                                                                                                                                              |       |                                                                                      | 1,477      |                  |       |       | —     |                  |       |   |   |   | 207 |   |   |
| Deferred tax  assets                                                                                                                                                                               |       |                                                                                      | 150        |                  |       |       | —     |                  |       |   |   |   | 1,219 |   |   |
| Total current  assets                                                                                                                                                                              |       |                                                                                      | 106,099    |                  |       |       | —     |                  |       |   |   |   | 7,113 |   |   |
| Property and  equipment—net                                                                                                                                                                   |       |                                                                                      | 26,685     |                  |       |       | —     |                  |       |   |   |   | 21,158 |   |   |
| Receivables                                                                                                                                                                                        |       |                                                                                      | 2,087      |                  |       |       | —     |                  |       |   |   |   | 2,345 |   |   |
| Deferred  production costs                                                                                                                                                                         |       |                                                                                      | 428        |                  |       |       | —     |                  |       |   |   |   | 2,297 |   |   |
| Other assets                                                                                                                                                                                       |       |                                                                                      | 13,210     |                  |       |       | —     |                  |       |   |   |   | 2,838 |   |   |
| Goodwill                                                                                                                                                                                           |       |                                                                                      | 125,793    |                  |       |       | —     |                  |       |   |   |   | — |   |   |
| Other intangible  assets—net                                                                                                                                                                  |       |                                                                                      | 150,912    |                  |       |       | —     |                  |       |   |   |   | — |   |   |
| Deferred tax  assets                                                                                                                                                                               |       |                                                                                      | 4,914      |                  |       |       | —     |                  |       |   |   |   | 281 |   |   |
| **TOTAL  ASSETS**                                                                                                                                                                                  |       |                                                                                      | $          | 430,128               |       |       |       | $                     | —     |   |   |   |   |   | $ | 36,032 |   |   |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                                                                                      |       |                                                                                      |       |                  |       |       |       |                  |       |   |   |   |   |   |   |
| Current liabilities:                                                                                                                                                                               |       |                                                                                      |       |                  |       |       |       |                  |       |   |   |   |   |   |   |
| Accounts payable                                                                                                                                                                                   |       |                                                                                      | $          | 2,769                 |       |       |       | $                     | 269        |   |   |   |   |   | $ | 571 |   |   |
| Accrued expenses                                                                                                                                                                                   |       |                                                                                      | 17,612     |                  |       |       | —     |                  |       |   |   |   | 2,606 |   |   |
| Current portion of  long-term debt                                                                                                                                                                 |       |                                                                                      | 362        |                  |       |       | —     |                  |       |   |   |   | 10,508 |   |   |
| Income taxes  payable                                                                                                                                                                              |       |                                                                                      | 732        |                  |       |       | —     |                  |       |   |   |   | 328 |   |   |
| Other current  liabilities                                                                                                                                                                         |       |                                                                                      | 624        |                  |       |       | —     |                  |       |   |   |   | — |   |   |
| Deferred revenue                                                                                                                                                                                   |       |                                                                                      | 12,200     |                  |       |       | —     |                  |       |   |   |   | 5,473 |   |   |
| Total current  liabilities                                                                                                                                                                         |       |                                                                                      | 34,299     |                  |       |       | 269        |                  |       |   |   |   | 19,486 |   |   |
| Long-term liabilities:                                                                                                                                                                             |       |                                                                                      |       |                  |       |       |       |                  |       |   |   |   |   |   |   |
| Long-term debt                                                                                                                                                                                     |       |                                                                                      | 3,138      |                  |       |       | —     |                  |       |   |   |   | 13,074 |   |   |
| Deferred revenue                                                                                                                                                                                   |       |                                                                                      | 1,511      |                  |       |       | —     |                  |       |   |   |   | 2,055 |   |   |
| Other long-term  liabilities                                                                                                                                                                       |       |                                                                                      | 3,902      |                  |       |       | —     |                  |       |   |   |   | — |   |   |
| Deferred tax  liabilities                                                                                                                                                                          |       |                                                                                      | 37,043     |                  |       |       | —     |                  |       |   |   |   | — |   |   |
| Commitments and contingencies                                                                                                                                                                      |       |                                                                                      |       |                  |       |       |       |                  |       |   |   |   |   |   |   |
| Total liabilities                                                                                                                                                                                  |       |                                                                                      | 79,893     |                  |       |       | 269        |                  |       |   |   |   | 34,615 |   |   |
| Minority interest                                                                                                                                                                                  |       |                                                                                      | 3,801      |                  |       |       | —     |                  |       |   |   |   | — |   |   |
| Redeemable  restricted common stock—1,672,170 shares outstanding at December 31,  2005                                                                                                   |       |                                                                                      | 23,002     |                  |       |       | —     |                  |       |   |   |   | — |   |   |
| Stockholders’ equity:                                                                                                                                                                         |       |                                                                                      |       |                  |       |       |       |                  |       |   |   |   |   |   |   |
| Preferred stock, $.01 par value, authorized  75,000,000 shares:                                                                                                                                    |       |                                                                                      |       |                  |       |       |       |                  |       |   |   |   |   |   |   |
| Series B-1,491,817  outstanding                                                                                                                                                               |       |                                                                                      | 22,825     |                  |       |       | —     |                  |       |   |   |   | — |   |   |
| Series C-1  share outstanding                                                                                                                                                                 |       |                                                                                      | —     |                  |       |       | —     |                  |       |   |   |   | — |   |   |
| Common stock,  $0.01 par value: authorized 200,000,000 shares, 90,528,818 shares issued and  outstanding at December 31, 2005 and 4,283,061 issued and outstanding at  December 31, 2004 |       |                                                                                      | 905        |                  |       |       | 6,115      |                  |       |   |   |   | — |   |   |
| Additional  paid-in-capital                                                                                                                                                                        |       |                                                                                      | 362,833    |                  |       |       | 12,249     |                  |       |   |   |   | — |   |   |
| Net assets                                                                                                                                                                                         |       |                                                                                      | —     |                  |       |       | —     |                  |       |   |   |   | 1,417 |   |   |
| Accumulated  deficit                                                                                                                                                                               |       |                                                                                      | (43,931    | )                     |       |       | (18,633    | )                     |       |   |   |   | — |   |   |
| Accumulated other  comprehensive loss                                                                                                                                                              |       |                                                                                      | (19,200    | )                     |       |       | —     |                  |       |   |   |   | — |   |   |
| Total  stockholders’ equity                                                                                                                                                                   |       |                                                                                      | 323,432    |                  |       |       | (269       | )                     |       |   |   |   | 1,417 |   |   |
| **TOTAL  LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                                                                               |       |                                                                                      | $          | 430,128               |       |       |       | $                     | —     |   |   |   |   |   | $ | 36,032 |   |   |

----

(1)              Represents combined statement of net assets acquiredfrom Promenade Trust. Prior to the acquisition of the Presley Business, the Companydid not have any operations. As a result, the Presley Business is considered tobe a predecessor company (“Predecessor”). Accordingly, relevant prior yearfinancial information regarding the Predecessor has been presented herein.

The accompanying notes are an integral part of these consolidated financial statements.

53

----

**CKX,INC.CONSOLIDATED STATEMENTS OF OPERATIONS**

| ** **                                                                   | ** ** | ** **                                                                                    | ** ** | ** **            | ** ** | ** **            | ** ** | ** ** | ** ** | **Predecessor Company(1)** | ** ** |
|------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------|------------|-----------------------|------------|-----------------------|------------|------------|------------|---------------------------------|------------|
| ** **                                                                   | ** ** | **Year Ended**                                                                           | ** ** | **Year Ended**   | ** ** | **Year Ended**   | ** ** | ** ** | ** ** | **January 1 to**      | ** ** | **Year Ended** | ** ** | **Year Ended** | ** ** |
| ** **                                                                   | ** ** | **December 31,**                                                                         | ** ** | **December 31,** | ** ** | **December 31,** | ** ** | ** ** | ** ** | **February 7,**            | ** ** | **December 31,** | ** ** | **December 31,** | ** ** |
| ** **                                                                   | ** ** | **2005**                                                                                      | ** ** | **2004**              | ** ** | **2003**              | ** ** | ** ** | ** ** | **2005**                        | ** ** | **2004** | ** ** | **2003** | ** ** |
| ** **                                                                   | ** ** | **(in thousands, except per share and share information)** | ** ** |
| Revenue                                                                      |       |                                                                                          | $          | 120,605               |       |                  |       | $          | —     |                            |       |   | $ | — |   |   |   |   |   | $ | 3,442 |   |   |   | $ | 41,658 |   |   |   | $ | 44,376 |   |   |
| Operating expenses:                                                          |       |                                                                                          |       |                  |       |                  |       |       |       |                            |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cost of sales                                                                |       |                                                                                          | 50,533     |                  |       |                  | —     |       |       |                            | —     |   |   |   |   |   | 423 |   |   |   | 6,626 |   |   |   | 7,442 |   |   |
| Selling, general and administrative expenses                                 |       |                                                                                          | 44,477     |                  |       |                  | 100        |       |       |                            | 85         |   |   |   |   |   | 2,431 |   |   |   | 23,932 |   |   |   | 24,826 |   |   |
| Corporate expenses                                                           |       |                                                                                          | 11,362     |                  |       |                  | —     |       |       |                            | —     |   |   |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Depreciation and amortization                                                |       |                                                                                          | 14,910     |                  |       |                  | —     |       |       |                            | —     |   |   |   |   |   | 126 |   |   |   | 1,201 |   |   |   | 1,227 |   |   |
| Other costs                                                                  |       |                                                                                          | 2,175      |                  |       |                  | —     |       |       |                            | —     |   |   |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Total operating expenses                                                     |       |                                                                                          | 123,457    |                  |       |                  | 100        |       |       |                            | 85         |   |   |   |   |   | 2,980 |   |   |   | 31,759 |   |   |   | 33,495 |   |   |
| Operating income (loss)                                                      |       |                                                                                          | (2,852     | )                     |       |                  | (100       | )          |       |                            | (85        | ) |   |   |   |   | 462 |   |   |   | 9,899 |   |   |   | 10,881 |   |   |
| Interest income                                                              |       |                                                                                          | 1,797      |                  |       |                  | —     |       |       |                            | —     |   |   |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Interest expense                                                             |       |                                                                                          | (4,617     | )                     |       |                  | (20        | )          |       |                            | (9         | ) |   |   |   |   | (115 | ) |   |   | (1,327 | ) |   |   | (1,362 | ) |   |
| Write-off of unamortized deferred loan costs                                 |       |                                                                                          | (1,894     | )                     |       |                  | —     |       |       |                            | —     |   |   |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Other income                                                                 |       |                                                                                          | 2,970      |                  |       |                  | —     |       |       |                            | 14         |   |   |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Income (loss) before income taxes                                            |       |                                                                                          | (4,596     | )                     |       |                  | (120       | )          |       |                            | (80        | ) |   |   |   |   | 347 |   |   |   | 8,572 |   |   |   | 9,519 |   |   |
| Income tax expense                                                           |       |                                                                                          | 855        |                  |       |                  | —     |       |       |                            | —     |   |   |   |   |   | 152 |   |   |   | 833 |   |   |   | 813 |   |   |
| Income (loss) before equity in earnings of affiliates  and minority interest |       |                                                                                          | (5,451     | )                     |       |                  | (120       | )          |       |                            | (80        | ) |   |   |   |   | 195 |   |   |   | 7,739 |   |   |   | 8,706 |   |   |
| Equity in earnings of affiliates                                             |       |                                                                                          | 843        |                  |       |                  | —     |       |       |                            | —     |   |   |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Minority interest                                                            |       |                                                                                          | (1,296     | )                     |       |                  | —     |       |       |                            | —     |   |   |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Income (loss) from continuing operations                                     |       |                                                                                          | (5,904     | )                     |       |                  | (120       | )          |       |                            | (80        | ) |   |   |   |   | 195 |   |   |   | 7,739 |   |   |   | 8,706 |   |   |
| Loss from discontinued operations                                            |       |                                                                                          | —     |                  |       |                  | —     |       |       |                            | —     |   |   |   |   |   | — |   |   |   | (246 | ) |   |   | (3,378 | ) |   |
| Net income (loss)                                                            |       |                                                                                          | (5,904     | )                     |       |                  | (120       | )          |       |                            | (80        | ) |   |   |   |   | 195 |   |   |   | 7,493 |   |   |   | 5,328 |   |   |
| Dividends on preferred stock                                                 |       |                                                                                          | (1,632     | )                     |       |                  | —     |       |       |                            | —     |   |   |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Accretion of beneficial conversion feature                                   |       |                                                                                          | (17,762    | )                     |       |                  | —     |       |       |                            | —     |   |   |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Net income (loss) available to common shareholders                           |       |                                                                                          | $          | (25,298               | )          |                  |       | $          | (120       | )                               |       |   | $ | (80 | ) |   |   |   |   | $ | 195 |   |   |   | $ | 7,493 |   |   |   | $ | 5,328 |   |   |
| Income (loss) per share:                                                     |       |                                                                                          |       |                  |       |                  |       |       |       |                            |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic and diluted income (loss) per common share                             |       |                                                                                          | $          | (0.35                 | )          |                  |       | $          | (0.03      | )                               |       |   | $ | (0.02 | ) |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Average number of common  shares outstanding:                                |       |                                                                                          |       |                  |       |                  |       |       |       |                            |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic and diluted                                                            |       |                                                                                          | 71,429,858 |                  |       |                  | 4,283,061  |       |       |                            | 4,283,061  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

----

(1)          Prior to the acquisitionof the Presley Business, the Company did not have any operations. As a result,the Presley Business is considered to be a predecessor company (“Predecessor”).Accordingly, relevant prior year financial information regarding thePredecessor has been presented herein.

The accompanying notes are an integral part of these consolidated financial statements.

54

----

**CKX,INC.CONSOLIDATED STATEMENTS OF CASH FLOWS**

| ** **                                                                                      | ** ** | ** **              | ** ** | ** **            | ** ** | ** **            | ** ** | ** ** | ** ** | **Predecessor Company (1)** | ** ** |
|-------------------------------------------------------------------------------------------------|------------|-------------------------|------------|-----------------------|------------|-----------------------|------------|------------|------------|---------------------------------------|------------|
| ** **                                                                                      | ** ** | ** **              | ** ** | ** **            | ** ** | ** **            | ** ** | ** ** | ** ** | ** **                            | ** ** | ** ** | ** ** | **Year Ended** | ** ** |
| ** **                                                                                      | ** ** | ** **              | ** ** | ** **            | ** ** | ** **            | ** ** | ** ** | ** ** | ** **                            | ** ** | ** ** | ** ** | **December 31,** | ** ** |
| ** **                                                                                      | ** ** | **Year Ended**     | ** ** | **Year Ended**   | ** ** | **Year Ended**   | ** ** | ** ** | ** ** | **January 1 to**            | ** ** | **Year Ended** | ** ** | **2003** | ** ** |
| ** **                                                                                      | ** ** | **December 31,**   | ** ** | **December 31,** | ** ** | **December 31,** | ** ** | ** ** | ** ** | **February 7,**                  | ** ** | **December 31,** | ** ** | **(Revised,** | ** ** |
| ** **                                                                                      | ** ** | **2005**                | ** ** | **2004**              | ** ** | **2003**              | ** ** | ** ** | ** ** | **2005**                              | ** ** | **2004** | ** ** | **Note 2)** | ** ** |
| ** **                                                                                      | ** ** | **(in thousands)** | ** ** |
| **Cash flows from operating activities:**                                   |       |                    |       |                  |       |                  |       |       |       |                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net income (loss)                                                                               |       |                    | $          | (5,904                | )          |                  |       | $          | (120       | )                                     |       |   | $ | (80 | ) |   |   |   |   | $ | 195 |   |   |   | $ | 7,493 |   |   |   | $ | 5,328 |   |   |
| Adjustments to reconcile net income (loss) to cash  provided by (used in) operating activities: |       |                    |       |                  |       |                  |       |       |       |                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Foreign exchange  gain on deferred purchase consideration                                       |       |                    | (2,800     | )                     |       |                  | —     |       |       |                                  | —     |   |   |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Depreciation and  amortization                                                                  |       |                    | 14,910     |                  |       |                  | —     |       |       |                                  | —     |   |   |   |   |   | 126 |   |   |   | 1,201 |   |   |   | 1,633 |   |   |
| Share-based  payments                                                                           |       |                    | 731        |                  |       |                  | —     |       |       |                                  | —     |   |   |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Minority interest                                                                               |       |                    | 1,296      |                  |       |                  | —     |       |       |                                  | —     |   |   |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Deferred income  taxes                                                                          |       |                    | 123        |                  |       |                  | —     |       |       |                                  | —     |   |   |   |   |   | — |   |   |   | 112 |   |   |   | (1,166 | ) |   |
| Provision for  doubtful accounts                                                                |       |                    | 7          |                  |       |                  | —     |       |       |                                  | —     |   |   |   |   |   | — |   |   |   | (40 | ) |   |   | 80 |   |   |
| Provision for  inventory obsolescence                                                           |       |                    | 394        |                  |       |                  | —     |       |       |                                  | —     |   |   |   |   |   | — |   |   |   | 50 |   |   |   | 50 |   |   |
| Gain on asset  disposal                                                                         |       |                    | —     |                  |       |                  | —     |       |       |                                  | —     |   |   |   |   |   | — |   |   |   | (8 | ) |   |   | (91 | ) |   |
| Impairment of  assets of discontinued operations                                                |       |                    | —     |                  |       |                  | —     |       |       |                                  | —     |   |   |   |   |   | — |   |   |   | 400 |   |   |   | 3,806 |   |   |
| Gain on  extinguishment of debt                                                                 |       |                    | —     |                  |       |                  | —     |       |       |                                  | (14        | ) |   |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Changes in operating assets and liabilities:                                                    |       |                    |       |                  |       |                  |       |       |       |                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Receivables                                                                                     |       |                    | 2,536      |                  |       |                  | —     |       |       |                                  | —     |   |   |   |   |   | (566 | ) |   |   | 41 |   |   |   | 2,370 |   |   |
| Inventory                                                                                       |       |                    | (1,191     | )                     |       |                  | —     |       |       |                                  | —     |   |   |   |   |   | 124 |   |   |   | 1,511 |   |   |   | 54 |   |   |
| Prepaid expenses                                                                                |       |                    | (2,689     | )                     |       |                  | —     |       |       |                                  | —     |   |   |   |   |   | (576 | ) |   |   | (1,344 | ) |   |   | (1,297 | ) |   |
| Other assets                                                                                    |       |                    | 2,010      |                  |       |                  | —     |       |       |                                  | —     |   |   |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Accounts payable                                                                                |       |                    | 987        |                  |       |                  | —     |       |       |                                  | —     |   |   |   |   |   | 854 |   |   |   | 5 |   |   |   | (321 | ) |   |
| Accrued expenses                                                                                |       |                    | 5,449      |                  |       |                  | —     |       |       |                                  | —     |   |   |   |   |   | 194 |   |   |   | (42 | ) |   |   | (141 | ) |   |
| Deferred revenue                                                                                |       |                    | 4,772      |                  |       |                  | —     |       |       |                                  | —     |   |   |   |   |   | 1,410 |   |   |   | 1,159 |   |   |   | (1,201 | ) |   |
| Income taxes  payable                                                                           |       |                    | 240        |                  |       |                  | —     |       |       |                                  | —     |   |   |   |   |   | 152 |   |   |   | 297 |   |   |   | (751 | ) |   |
| Other                                                                                           |       |                    | 1,199      |                  |       |                  | —     |       |       |                                  | —     |   |   |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Net cash provided  by (used in) operating activities                                            |       |                    | 22,070     |                  |       |                  | (120       | )          |       |                                  | (94        | ) |   |   |   |   | 1,913 |   |   |   | 10,835 |   |   |   | 8,353 |   |   |
| **Cash flows from investing activities:**                                                       |       |                    |       |                  |       |                  |       |       |       |                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Acquisition of  Presley Business, net of cash acquired of $961                                  |       |                    | (82,979    | )                     |       |                  | —     |       |       |                                  | —     |   |   |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Acquisition of 19  Entertainment, net of cash acquired of $2,528                                |       |                    | (159,731   | )                     |       |                  | —     |       |       |                                  | —     |   |   |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Acquisition of  MBST, net of cash acquired of $12                                               |       |                    | (2,573     | )                     |       |                  | —     |       |       |                                  | —     |   |   |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Investment in  marketable securities                                                            |       |                    | (80,000    | )                     |       |                  | —     |       |       |                                  | —     |   |   |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Redemption of  marketable securities                                                            |       |                    | 37,375     |                  |       |                  | —     |       |       |                                  | —     |   |   |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Proceeds from sale  of property and equipment                                                   |       |                    | —     |                  |       |                  | —     |       |       |                                  | —     |   |   |   |   |   | — |   |   |   | 8 |   |   |   | 285 |   |   |
| Purchase of  property and equipment                                                             |       |                    | (1,023     | )                     |       |                  | —     |       |       |                                  | —     |   |   |   |   |   | (2 | ) |   |   | (345 | ) |   |   | (921 | ) |   |
| Net cash used in  investing activities                                                          |       |                    | (288,931   | )                     |       |                  | —     |       |       |                                  | —     |   |   |   |   |   | (2 | ) |   |   | (337 | ) |   |   | (636 | ) |   |
| **Cash  flows from financing activities:**                                                      |       |                    |       |                  |       |                  |       |       |       |                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Initial issuance of  common stock                                                               |       |                    | 3,056      |                  |       |                  | —     |       |       |                                  | —     |   |   |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Proceeds from public  offering of common stock                                                  |       |                    | 253,000    |                  |       |                  | —     |       |       |                                  | —     |   |   |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Underwriting discount and  other offering costs                                                 |       |                    | (20,017    | )                     |       |                  | —     |       |       |                                  | —     |   |   |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Exercise of warrants                                                                            |       |                    | 30,000     |                  |       |                  | —     |       |       |                                  | —     |   |   |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Proceeds from Huff  investment                                                                  |       |                    | 43,819     |                  |       |                  | —     |       |       |                                  | —     |   |   |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Proceeds from credit  facilities                                                                |       |                    | 148,000    |                  |       |                  | —     |       |       |                                  | —     |   |   |   |   |   | — |   |   |   | 2,750 |   |   |   | 3,900 |   |   |
| Costs associated  with Huff investment                                                          |       |                    |       |                  |       |                  |       |       |       |                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| and credit facility                                                                             |       |                    | (3,207     | )                     |       |                  | —     |       |       |                                  | —     |   |   |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Distributions to Presley  minority interest                                                     |       |                    | (1,365     | )                     |       |                  | —     |       |       |                                  | —     |   |   |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Principal payments on  debt                                                                     |       |                    | (148,000   | )                     |       |                  | —     |       |       |                                  | —     |   |   |   |   |   | (185 | ) |   |   | (5,599 | ) |   |   | (3,795 | ) |   |
| Dividends paid on  preferred stock                                                              |       |                    | (1,177     | )                     |       |                  | —     |       |       |                                  | —     |   |   |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Increase in due to  affiliates                                                                  |       |                    | —     |                  |       |                  | 120        |       |       |                                  | 94         |   |   |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Distributions to trust  beneficiary                                                             |       |                    | —     |                  |       |                  | —     |       |       |                                  | —     |   |   |   |   |   | (23 | ) |   |   | (7,735 | ) |   |   | (8,390 | ) |   |
| Net cash provided  by (used in) financing activities                                            |       |                    | 304,109    |                  |       |                  | 120        |       |       |                                  | 94         |   |   |   |   |   | (208 | ) |   |   | (10,584 | ) |   |   | (8,285 | ) |   |
| Effect of exchange rate  changes on cash                                                        |       |                    | (269       | )                     |       |                  | —     |       |       |                                  | —     |   |   |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| **Net increase (decrease) in cash  and equivalents**                                            |       |                    | 36,979     |                  |       |                  | —     |       |       |                                  | —     |   |   |   |   |   | 1,703 |   |   |   | (86 | ) |   |   | (568 | ) |   |
| **Cash and cash equivalents  beginning of period**                                              |       |                    | —     |                  |       |                  | —     |       |       |                                  | —     |   |   |   |   |   | 201 |   |   |   | 287 |   |   |   | 855 |   |   |
| **Cash and cash equivalents end of  period**                                                    |       |                    | $          | 36,979                |       |                  |       | $          | —     |                                  |       |   | $ | — |   |   |   |   |   | $ | 1,904 |   |   |   | $ | 201 |   |   |   | $ | 287 |   |   |

 

55

----

**CKX, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)**

 

| ** **                        | ** ** | ** **            | ** ** | ** **            | ** ** | ** **            | ** ** | ** ** | ** ** | **Predecessor Company (1)** | ** ** |
|-----------------------------------|------------|-----------------------|------------|-----------------------|------------|-----------------------|------------|------------|------------|---------------------------------------|------------|
| ** **                        | ** ** | ** **            | ** ** | ** **            | ** ** | ** **            | ** ** | ** ** | ** ** | ** **                            | ** ** | ** ** | ** ** | **Year Ended** | ** ** |
| ** **                        | ** ** | ** **            | ** ** | ** **            | ** ** | ** **            | ** ** | ** ** | ** ** | ** **                            | ** ** | ** ** | ** ** | **December 31,** | ** ** |
| ** **                        | ** ** | **Year Ended**   | ** ** | **Year Ended**   | ** ** | **Year Ended**   | ** ** | ** ** | ** ** | **January 1 to**            | ** ** | **Year Ended** | ** ** | **2003** | ** ** |
| ** **                        | ** ** | **December 31,** | ** ** | **December 31,** | ** ** | **December 31,** | ** ** | ** ** | ** ** | **February 7,**                  | ** ** | **December 31,** | ** ** | **(Revised,** | ** ** |
| ** **                        | ** ** | **2005**              | ** ** | **2004**              | ** ** | **2003**              | ** ** | ** ** | ** ** | **2005**                              | ** ** | **2004** | ** ** | **Note 2)** | ** ** |
| **Supplemental  cash flow data:** |       |                  |       |                  |       |                  |       |       |       |                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash paid during  the period for: |       |                  |       |                  |       |                  |       |       |       |                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest                          |       |                  | $          | 3,254                 |       |                  |       | $          | —     |                                  |       |   | $ | — |   |   |   |   |   | $ | 172 |   |   |   | $ | 1,060 |   |   |   | $ | 1,566 |   |   |
| Income taxes                      |       |                  | 1,668      |                  |       |                  | —     |       |       |                                  | —     |   |   |   |   |   | 125 |   |   |   | 300 |   |   |   | 849 |   |   |
|                                   |            |                       |            |                       |            |                       |            |            |            |                                       |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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(1) Prior to the acquisition of the PresleyBusiness, the Company did not have any operations. As a result, the PresleyBusiness is considered to be a predecessor company (“Predecessor”).Accordingly, relevant prior year financial information regarding thePredecessor has been presented herein.

**Supplemental Cash Flow Information:**

TheCompany had the following non-cash investing and financing activities in theyear ended December 31, 2005 (in thousands):

| Common stock  issued for the acquisition of the Presley Business                                          |   | $      | 3,835  |   |
|-----------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|
| Series B  Convertible Preferred stock issued for acquisition of the Presley Business                 |   | 22,825 |   |
| Issuance of  Priscilla Presley Note for the acquisition of the Presley Business                           |   | 3,500  |   |
| Common stock and  redeemable restricted common stock issued for the acquisition of  19 Entertainment |   | 26,341 |   |
| Conversion of  Series A Convertible Redeemable Preferred Stock to common stock                       |   | 17,762 |   |
| Issuance of  common shares in satisfaction of obligation to former affiliate                              |   | 270    |   |
| Common stock  issued for the acquisition of MBST                                                          |   | 10,123 |   |
| Common stock issued to  independent directors and employees                                               |   | 636    |   |

 

The accompanying notes are an integral part of these consolidated financial statements.

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**CKX, INC.CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY(IN THOUSANDS, EXCEPT SHARE DATA)**

| ** ** | ** ** | ** **               | ** ** | ** **        | ** ** | ** **        | ** ** | ** **            | ** ** | ** **  | ** ** | ** **      | ** ** | ** **        | ** ** | ** ** | ** ** | ** **  | ** ** | ** **  | ** ** | **Accumulated**        | ** ** | ** ** | ** ** |
|------------|------------|--------------------------|------------|-------------------|------------|-------------------|------------|-----------------------|------------|-------------|------------|-----------------|------------|-------------------|------------|------------|------------|-------------|------------|-------------|------------|------------------------|------------|------------|------------|
| ** ** | ** ** | **Preferred Stock** | ** ** | ** **        | ** ** | ** **        | ** ** | **Additional**        | ** ** | ** **  | ** ** | **Other**       | ** ** | ** **        | ** ** |
| ** ** | ** ** | **Series A**        | ** ** | **Series B** | ** ** | **Series C** | ** ** | **Common Stock** | ** ** | **Paid-In** | ** ** | **Accumulated** | ** ** | **Comprehensive** | ** ** | ** ** | ** ** |
| ** ** | ** ** | **Shares**               | ** ** | **Amount**        | ** ** | **Shares**        | ** ** | **Amount**            | ** ** | **Shares**  | ** ** | **Amount**      | ** ** | **Shares**        | ** ** | **Amount** | ** ** | **Capital** | ** ** | **Deficit** | ** ** | **Income (Loss)** | ** ** | **Total**  | ** ** |

| Balance at January 1, 2003                                                       |   | —     |   | $       | — |      | —    |   | $      | — |   |   | — |   |   |   | $      | —     |   |   | 4,283,061  |   | $       | 6,115  |   |   | $       | 12,248  |   |   |    | $      | (18,433 | )       |   |   | $ | —  |   |   | $ | (70     | )      |
|---------------------------------------------------------------------------------------|--------|------------|--------|---------|--------|-----------|-----------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|------------|--------|--------|------------|--------|---------|--------|--------|--------|---------|---------|--------|--------|---------|--------|---------|---------|--------|--------|---|---------|--------|--------|---|---------|--------|
| Common stock issued for services                                                      |   | —     |   | —  |   | —    |      | — |   |   | — |   |   |   |   |   |   | —     |   | — |       |   | 1       |   |   |   | —  |    |   |   | —  |   |    | 1       |   |
| Net loss                                                                              |   | —     |   | —  |   | —    |      | — |   |   | — |   |   |   | — |   |   | —     |   | — |       |   | —  |   |   |   | (80     | )       |   |   | —  |   |    | (80     | )      |
| Balance at December 31, 2003                                                     |   | —     |   | $       | — |      | —    |   | $      | — |   |   | — |   |   |   | $      | —     |   |   | 4,283,061  |   | $       | 6,115  |   |   | $       | 12,249  |   |   |    | $      | (18,513 | )       |   |   | $ | —  |   |   | $ | (149    | )      |
| Net loss                                                                              |   | —     |   | —  |   | —    |      | — |   |   | — |   |   |   | — |   |   | —     |   | — |       |   | —  |   |   |   | (120    | )       |   |   | —  |   |    | (120    | )      |
| Balance at December 31, 2004                                                     |   | —     |   | $       | — |      | —    |   | $      | — |   |   | — |   |   |   | $      | —     |   |   | 4,283,061  |   | $       | 6,115  |   |   | $       | 12,249  |   |   |    | $      | (18,633 | )       |   |   | $ | —  |   |   | $ | (269    | )      |
| Stock issued in settlement of affiliate liability                                     |   | —     |   | —  |   | —    |      | — |   |   | — |   |   |   | — |   |   | 10,000     |   | — |       |   | 270     |   |   |   | —  |    |   |   | —  |   |    | 270     |   |
| Change of par value to $0.01 per share                                                |   | —     |   | —  |   | —    |      | — |   |   | — |   |   |   | — |   |   | —     |   | (6,072 | )          |   | 6,072   |   |   |   | —  |    |   |   | —  |   |    | —  |   |
| Issuance of common stock                                                              |   | —     |   | —  |   | —    |      | — |   |   | — |   |   |   | — |   |   | 30,389,072 |   | 304    |       |   | 2,752   |   |   |   | —  |    |   |   | —  |   |    | 3,056   |   |
| Huff investment                                                                       |   | 2,172,400  |   | 17,762  |   | —    |      | — |   |   | — |   |   |   | — |   |   | 3,706,052  |   | 37     |       |   | 25,520  |   |   |   | —  |    |   |   | —  |   |    | 43,319  |   |
| Recognition of beneficial conversion feature                                          |   | —     |   | (17,762 | )      | —    |      | — |   |   | — |   |   |   | — |   |   | —     |   | — |       |   | 17,762  |   |   |   | —  |    |   |   | —  |   |    | —  |   |
| Warrant exercises                                                                     |   | —     |   | —  |   | —    |      | — |   |   | — |   |   |   | — |   |   | 21,517,199 |   | 215    |       |   | 29,785  |   |   |   | —  |    |   |   | —  |   |    | 30,000  |   |
| Shares issued for acquisitions                                                        |   | —     |   | —  |   | 1,491,817 |      | 22,825 |   |   | 1      |   |   |   | — |   |   | 1,438,868  |   | 15     |       |   | 17,282  |   |   |   | —  |    |   |   | —  |   |    | 40,122  |   |
| Restricted shares issued to independent directors and  employees                      |   | —     |   | —  |   | —    |      | — |   |   | — |   |   |   | — |   |   | 124,500    |   | 1      |       |   | 475     |   |   |   | —  |    |   |   | —  |   |    | 476     |   |
| Shares issued to independent directors                                                |   | —     |   | —  |   | —    |      | — |   |   | — |   |   |   | — |   |   | 8,813      |   | — |       |   | 117     |   |   |   | —  |    |   |   | —  |   |    | 117     |   |
| Stock option expense                                                                  |   | —     |   | —  |   | —    |      | — |   |   | — |   |   |   | — |   |   | —     |   | — |       |   | 94      |   |   |   | —  |    |   |   | —  |   |    | 94      |   |
| Conversion of Series A Preferred and accretion  of beneficial conversion feature |   | (2,172,400 | )      | —  |   | —    |      | — |   |   | — |   |   |   | — |   |   | 6,051,253  |   | 60     |       |   | 17,702  |   |   |   | (17,762 | )       |   |   | —  |   |    | —  |   |
| Series B preferred dividends                                                     |   | —     |   | —  |   | —    |      | — |   |   | — |   |   |   | — |   |   | —     |   | — |       |   | —  |   |   |   | (1,632  | )       |   |   | —  |   |    | (1,632  | )      |
| Public offering of common stock                                                       |   | —     |   | —  |   | —    |      | — |   |   | — |   |   |   | — |   |   | 23,000,000 |   | 230    |       |   | 232,753 |   |   |   | —  |    |   |   | —  |   |    | 232,983 |   |
| Net loss                                                                              |   | —     |   | —  |   | —    |      | — |   |   | — |   |   |   | — |   |   | —     |   | — |       |   | —  |   |   |   | (5,904  | )       |   |   | —  |   |    | (5,904  | )      |
| Other comprehensive income (loss)                                                     |   | —     |   | —  |   | —    |      | — |   |   | — |   |   |   | — |   |   | —     |   | — |       |   | —  |   |   |   | —  |    |   |   | (19,200 | )      |    | (19,200 | )      |
| Balance at  December 31, 2005                                                    |   | —     |   | $       | — |      | 1,491,817 |   | $      | 22,825 |   |   | 1      |   |   |   | $      | —     |   |   | 90,528,818 |   | $       | 905    |   |   | $       | 362,833 |   |   |    | $      | (43,931 | )       |   |   | $ | (19,200 | )      |   | $ | 323,432 |   |

 

The accompanyingnotes are an integral part of these condensed consolidated financialstatements.

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**CKX, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**1.**   Overviewand Basis of Presentation

CKX, Inc. (the “Company”) is engaged in theownership, development and commercial utilization of entertainment content,including the rights to the name, image and likeness of Elvis Presley, theoperations of Graceland and proprietary rights to the *IDOLS*television brand, including the *American Idol* series in the United States, and localadaptations of the *IDOLS*televisionshow format which, collectively, air in over 100 countries around the world.

On February 7, 2005,RFX Acquisition LLC, an entity formed and controlled by Robert F.X. Sillerman,acquired a controlling interest in the Company (formerly known as SportsEntertainment Enterprises, Inc.), which had been inactive since it soldall of its assets in August 2002. Simultaneous with that transaction, theCompany acquired an 85% interest in the entities which own and/or controlcertain content relating to Elvis Presley (the “Presley Business”). Prior tothe acquisition of the Presley Business, the Company did not have anyoperations. As a result, the Presley Business is considered to bea predecessor company (“Predecessor”). Accordingly, relevant financialinformation regarding the Predecessor, including financial statements as of andfor the years ended December 31, 2004 and 2003 and the period from January 1—February 7,2005 has been presented.

Predecessor Combined Financial Statements – Thecombined Presley Business financial statements include certain assets andrelated operations of the Promenade Trust, which is a grantor trust for thebenefit of Lisa-Marie Presley, the daughter of Elvis Presley, consisting ofcertain intellectual property acquired and related royalty income and thefollowing entities and their operations, also acquired, wholly owned by theTrust: Elvis Presley Enterprises, Heartbreak Hotel, LLC, Meadow OaksApartments, Inc., Elvis Anthology, Graceland Entertainment, Inc., and ElvisPresley’s Memphis.  These financialstatements are presented as the Predecessor.

On March 17, 2005 the Company acquired 100% of 19Entertainment Limited (“19 Entertainment”), a private limited companyincorporated under the laws of England and Wales, that is a creator, producer,and promoter of entertainment properties, including the*IDOLS* television show format.

On March 25, 2005, we merged into our wholly-ownedsubsidiary, changing, among other things, (i) the name of our company fromSports Entertainment Enterprises, Inc. to CKX, Inc., (ii) ourstate of incorporation from Colorado to Delaware, and (iii) our capitalstock from no par value to $0.01 par value per share.

On August 9, 2005,the Company acquired 100% of Morra, Brezner, Steinberg & TenenbaumEntertainment, Inc. (“MBST”), a manager of comedic talent and producer ofmotion pictures and television programming.

**2.**   Summaryof Significant Accounting Policies

**Principles of Consolidation**

The consolidated financialstatements include the accounts of all subsidiaries and the Company’s share ofearnings or losses of joint ventures and affiliated companies under the equitymethod of accounting. The interest held by our minority shareholder in thePresley Business is reported as minority interest in the consolidated financialstatements. All intercompany accounts and transactions have been eliminated.Certain amounts on the Predecessor balance sheets have been reclassified toconform to the Company’s current presentation.

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**Use of Estimates**

The preparation offinancial statements in conformity with accounting principles generallyaccepted within the United States of America requires management to makeestimates and assumptions that affect the reported amounts of assets andliabilities and disclosure of contingent assets and liabilities at the date ofthe financial statements and the reported amounts of revenue and expensesduring the reporting period. Actual results could differ materially from thoseestimates.

**Revised Cash Flow Presentation**

Subsequent to the issuance of its combinedfinancial statements for the year ended December 31, 2004, management of thePresley Business determined that the cash flows associated with discontinuedoperations in 2003 should not have been presented as a single line item withinthe Combined Statements of Cash Flows. As a result, during 2005, the Presley Business changed the presentationof its Statement of Cash Flows for 2003 to include the cash flows fromdiscontinued operations within the categories of operating and investingactivities.  A summary of the effects ofthe change for the year ended December 31, 2003 is as follows:

| Net cash flows from operating activities as  previously reported     |   | $     | 9,084  |   |
|----------------------------------------------------------------------|--------|-------|--------|--------|
| Change in net cash flows from discontinued  operations               |   | (731  | )      |
| Net cash flows from operating activities as  currently reported      |   | 8,353 |   |
| Net cash flows used for  investing activities as previously reported |   | $     | (537   | )      |
| Changes in net cash flows used for discontinued  operations          |   | (98   | )      |
| Net cash flows used for investing activities as currently reported   |   | (636  | )      |

 

**Cash and Cash Equivalents**

All highly liquidinvestments with original maturities of three months or less are classified ascash and cash equivalents. The fair value of cash and cash equivalentsapproximates the amounts shown on the financial statements. Cash and cashequivalents consist of unrestricted cash in accounts maintained with majorfinancial institutions.

**Marketable Securities**

Marketable securitiesreflect investments in auction rate preferred stocks issued by closed-end fundswith dividend rates re-set every seven to twenty-eight days. These investmentsare classified as current assets based on our intent and ability to use thesesecurities when required to provide capital to support the liquidity needs andgrowth of the Company’s business. These investments are available for sale inaccordance with the provisions of Statement of Financial Accounting Standards (“SFAS”)No. 115, “*Accounting for CertainInvestments in Debt and Equity Securities*” and accordingly arecarried at fair value, which approximates cost at December 31, 2005.

**Inventory**

Inventory is valued at thelower of cost or market. Cost is determined using the first-in, first outmethod. Allowances are provided for slow-moving or obsolete inventory itemsbased on management’s review of inventory data.

**Property and Equipment, net**

Property and equipment, net are stated at cost anddepreciated using the straight-line method over the estimated useful lives ofthe assets. Expenditures for additions, major renewals, and betterments are 

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capitalized. Maintenanceand repairs not representing betterments are expensed as incurred. Depreciationand amortization expenses were $1.9 million for the year ended December 31,2005, $0.1 million for the period January 1-February 7, 2005(Predecessor) and $1.2 million for the years ended December 31, 2004 and2003 (Predecessor), respectively.

Propertyand equipment, net consisted of the following as of December 31, 2005 and December 31,2004 (Predecessor):

| ** **                                      | ** ** | **December 31, 2005** | ** ** | **Useful Lives** | ** ** | ** ** | ** ** | **(Predecessor)  December 31, 2004** | ** ** | **Useful Lives** | ** ** |
|-------------------------------------------------|------------|---------------------------------|------------|-----------------------|------------|------------|------------|------------------------------------------------|------------|-----------------------|------------|
| ** **                                      | ** ** | **(in thousands)**         | ** ** | ** **            | ** ** | ** ** | ** ** | **(in thousands)**                        | ** ** | ** **            | ** ** |
| Land                                            |       |                            | $          | 10,467                |       |       |       | n/a                                            |       |                  |       |   |   | $ | 5,358 |   |   |   | n/a |   |   |
| Buildings and  improvements                     |       |                            | 14,882     |                  |       |       | 5-20       |                                           |       |                  |       |   | 20,381 |   |   |   | 5-39 |   |   |
| Equipment,  furniture and fixtures              |       |                            | 3,251      |                  |       |       | 3-7        |                                           |       |                  |       |   | 9,061 |   |   |   | 5-7 |   |   |
|                                            |       |                            | 28,600     |                  |       |       |       |                                           |       |                  |       |   | 34,800 |   |   |   |   |   |   |
| Less: accumulated depreciation and amortization |       |                            | (1,915     | )                     |       |       |       |                                           |       |                  |       |   | (13,642 | ) |   |   |   |   |   |
|                                            |       |                            | $          | 26,685                |       |       |       |                                           |       |                  |       |   |   | $ | 21,158 |   |   |   |   |   |   |

 

**Revenue Recognition**

Merchandising/Name and Likeness Licensing Revenue:

A portion of the Company’s revenue is derived fromlicensing rights to third parties to sell merchandise based on intellectualproperty, including name, image and likeness rights and related marks. Revenuefrom these activities is recognized when all of the following conditions aremet: (i) pervasive evidence of an arrangement exists; (ii) deliveryhas occurred or services have been rendered; (iii) the price to thelicensee or buyer is fixed or determinable; and (iv) collectibility isreasonably assured. Licensing advances are deferred until earned under thelicensing agreement. Licensing contracts normally provide for quarterlyreporting from the licensee of sales made and royalties due. Guaranteed minimumroyalties are recognized ratably over the term of the license or are based onsales of the related products, if greater.

Royalty Income:

Income from music and film contracts is derived fromthe sale of records and DVDs or from the licensing of film/music rights tothird parties. Revenue from recordings is recognized in accordance with SFAS No. 50,*Financial Reporting in the Record and MusicIndustry* (“SFAS 50”). Under SFAS 50, revenue is recognized when theCompany: (i) has signed a non-cancelable contract; (ii) has deliveredthe rights to the licensee who is free to exercise them; (iii) has noremaining significant obligations to furnish music or records; and (iv) whencollectibility of the full fee is reasonably assured. A significant portion ofroyalty income is paid to the Company based on the timetable associated withroyalty statements generated by third party processors, and is not typicallyknown by the Company on a timely basis. This revenue is consequently notrecognized if the amount of accrual is not known or reasonably estimable untilreceipt of the statements from the third parties. The Company contracts with variousagencies to facilitate collection of royalty income.

When the Company is entitled to royalties based ongross receipts, revenue is recognized before deduction of agency fees, whichare included in the financial statements as a component of cost of sales.

Television Revenue:

The Company recognizes revenue from televisionproductions pursuant to American Institute of Certified Public AccountantsStatement of Position 00-2, *Accountingby Producers or Distributors of Films* (“SOP 00-2”). Thefollowing conditions must be met in order to recognize revenue under SOP 00-2:

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(i) persuasiveevidence of a sale or licensing arrangement exists; (ii) the program iscomplete and has been delivered or is available for immediate and unconditionaldelivery; (iii) the license period of the arrangement has begun and thecustomer can begin its exploitation, exhibition or sale; (iv) thearrangement fee is fixed or determinable; and (v) collection of thearrangement fee is reasonably assured. Advance payments received from buyers orlicensees are included in the financial statements as a component of deferredrevenue.

Sponsorship Revenue:

The Company derives revenue from sponsorshipsassociated with certain of its television productions and tours. Sponsorshipfees relate to either (a) a one-time event, or (b) a period of time.Revenue from a one-time event are recognized if: (i) pervasive evidence ofan arrangement exists; (ii) the event has occurred; (iii) the priceis fixed or determinable; and (iv) collectibility is reasonably assured.Non-refundable advance payments associated with sponsorships over a period oftime are recognized on a straight line basis over the term of the contract fromthe later of the point at which: (a) pervasive evidence of an arrangementexists; (b) delivery has occurred or services have been rendered; (c) theprice is fixed or determinable; and (d) collectibility is reasonablyassured, or, the beginning of the license period. Sponsorship advances aredeferred until earned pursuant to the sponsorship agreement.

Management and Production Services Revenue:

The Company recognizes revenue from management andproduction services at the time the services are provided. Revenue from theclients’ participation and residuals are recognized at the time such amountscan be reasonably determined, which is generally upon receipt of a statementfrom a third party.

Other Revenue:

Ticket sales for tours andexhibits at Graceland, as well as merchandise sales and food and beverage salesare recognized at point of sale. Advance ticket sales are recorded as deferredrevenue pending the “event date” on the ticket.

**Television Production Costs**

The Company accounts for its television projects indevelopment pursuant to SOP 00-2. Third party costs incurred in producingtelevision programs for which the Company has secured distribution agreementsare capitalized and remain unamortized until the project is distributed or arewritten off at the time they are determined not to be recoverable. Third partycosts incurred in developing concepts for new television programs are expensedas incurred until such time as the Company has secured distribution agreements.

The capitalized costs ofproducing television programs are expensed in accordance with the individualfilm forecast method specified in SOP 00-2, pursuant to which the Companyestimates the ratio that revenue which is earned for such programming in thecurrent period bears to its estimate at the beginning of the current year oftotal revenue to be realized from all media and markets for such programming.Amortization commences in the period in which revenue recognition commences.Management regularly reviews and revises its total revenue estimates for eachproject, which may result in modifications to the rate of amortization. If anet loss is projected for a particular project, the related capitalized costsare written down to estimated realizable value.

**ArtistAdvances and Recoupable Recording Costs**

Recoupable recording costsand artist advances, as adjusted for anticipated returns, are recognized inaccordance with SFAS 50, and thus, are charged to expense in the period inwhich the sale of the record takes place. Recoupable recording costs and artistadvances are only capitalized if the past performance 

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andcurrent popularity of the artist for whom the recording costs are incurred orto whom the advance is made provide a sound basis for estimating that theamount capitalized will be recoverable from future royalties to be earned bythe artist. Any portion of recoupable recording costs or artists advances thatsubsequently appear not to be fully recoverable from future royalties to beearned by the artist are charged to expense during the period in which the lossbecomes evident.

**Advertising Expense**

Advertising costs areexpensed as incurred. Advertising expense was $0.7 million, $0.6 million and$0.6 million for the years ended December 31, 2005, 2004 (Predecessor) and2003 (Predecessor) and $0.1 million for the period of January 1–February 7,2005 (Predecessor).

**Income Taxes**

Income taxes are providedusing the asset and liability method prescribed by FASB Statement No. 109,*Accounting for Income Taxes*. Under thismethod, income taxes (i.e., deferred tax assets, deferred tax liabilities,taxes currently payable/refunds receivable and tax expense) are recorded basedon amounts refundable or payable in the current year and include the results ofany difference between U.S. GAAP and tax reporting. Deferred income taxesreflect the tax effect of net operating loss, capital loss and general businesscredit carryforwards and the net tax effects of temporary differences betweenthe carrying amount of assets and liabilities for financial statement andincome tax reporting purposes, as determined under enacted tax laws and rates. Valuationallowances are established when management determines that it is more likelythan not that some portion or all of the deferred tax asset will not berealized. The financial effect of changes in tax laws or rates is accounted forin the period of enactment.

**Foreign Currency**

The Company has operations in several foreigncountries, primarily the United Kingdom. In the normal course of business theseoperations are exposed to fluctuations in currency values. Balance sheets ofinternational operations are translated into U.S. dollars at period-endexchange rates while the statements of operations are translated at averageexchange rates. Adjustments resulting from financial statement translations areincluded as cumulative translation adjustments in accumulated othercomprehensive loss.

Gains and losses from transactionsdenominated in foreign currencies are included in the consolidated statement ofoperations as other income.

**Goodwilland Other Intangible Assets**

Goodwill represents theexcess of purchase price and related costs over the value assigned to the nettangible and identifiable intangible assets of businesses acquired. The Companyfollows SFAS No. 142, *Goodwill andOther Intangible Assets* (“SFAS 142”). In accordance with theprovisions of SFAS 142, goodwill and other intangible assets withindefinite lives are not amortized, but instead are tested for impairmentannually or if certain circumstances indicate a possible impairment may exist.The Company will evaluate the recoverability of goodwill and indefinite livedintangible assets using a two-step impairment test approach at the reportingunit level. In the first step the fair value for the reporting unit is comparedto its book value including goodwill. If the fair value of the reporting unitis less than the book value, a second step is performed which compares theimplied fair value of the reporting unit’s goodwill to the book value of thegoodwill. The fair value for the goodwill is determined based on the differencebetween the fair values of the reporting units and the net fair values of theidentifiable assets and liabilities of such reporting units. If the fair valueof the goodwill is less than the book value, the difference is recognized as animpairment.

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SFAS 142 also requires that intangible assetswith estimable useful lives be amortized over their respective estimated usefullives to the estimated residual values. The Company performs its annualimpairment assessment on goodwill and indefinite lived intangible assets inaccordance with the methods prescribed above on the first day of its fiscalfourth quarter.

The Company accounts for impairment of long-livedassets in accordance with SFAS 144, *Accountingfor the Impairment or Disposal of Long-Lived Assets*(“SFAS 144”). SFAS 144 establishes a uniform accounting model for thedisposal of long-lived assets. The Company evaluates long-lived assets forimpairment whenever events or changes in circumstances indicate that thecarrying amount of an asset may not be recoverable. Upon such an occurrence,recoverability of assets to be held and used is measured by comparing thecarrying amount of an asset to forecasted undiscounted future net cash flowsexpected to be generated by the asset. If the carrying amount of the assetexceeds its estimated future cash flows, an impairment charge is recognized bythe amount by which the carrying amount of the asset exceeds the fair value ofthe asset.

**Investments**

Investments in which the Company has the ability toexercise significant influence over the business and policies of the investee,but contain less than a controlling voting interest, are accounted for usingthe equity method.

Under the equity method,only the Company’s investment in and amounts due to and from the equityinvestee are included in the consolidated balance sheet; only the Company’sshare of the investee’s earnings (losses) is included in the consolidatedoperating results.

**Share-Based Payments**

In conjunction with thestock-based compensation plan that is more fully described in footnote 10,Stock Plan Awards, the Company adopted SFAS No. 123R, *Share-BasedPayment (“SFAS 123R”)* effective January 1, 2005, which requires compensation costs for allshare-based payments (including employee stock options) to be based on theirfair value and to recognize such costs in the statement of operations. TheCompany uses the Black-Scholes pricing model at the date of option grants toestimate the fair value of options granted. Grants with graded vesting areexpensed evenly over the total vesting period. As the Company had noshare-based awards outstanding on the date of adoption of SFAS 123R, there isno retroactive adjustment to be recognized.

**Impactof Recently Issued Accounting Standards**

In December 2004, the FASB issued SFAS No. 153,*Exchanges of Nonmonetary Assets*,an amendment of APB Opinion No. 29. This statement eliminates theexception for nonmonetary exchanges of similar productive assets under APB No. 29and replaces it with a general exception for exchanges of nonmonetary assetsthat do not have commercial substance. The statement is effective for financialstatements for fiscal years beginning after June 15, 2005. The adoption ofthe statement is not expected to have a material effect on the Company’sconsolidated financial position, results of operations or cash flows.

In May 2005, the FASBissued SFAS No. 154, *Accounting Changesand Error Corrections, a replacement of APB Opinion No. 20 and FASBStatement No. 3*. The statement applies to all voluntary changesin accounting principles, requiring retrospective application to prior periods’financial statements of changes in accounting principles. Prior to the issuanceof SFAS No. 154, most voluntary changes in accounting principles wererecognized by including the cumulative effect of changing to the new principlein net income of the period of the change. The statement is effective forfinancial statements for fiscal 

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yearsbeginning after December 15, 2005. The Company does not currentlycontemplate any voluntary changes in accounting principles.

**3.**   CapitalStructure and Predecessor

Following is a descriptionof changes to the Company’s capital structure that occurred during the yearended December 31, 2005:

**The RFX Investment**

On February 7, 2005,RFX Acquisition LLC, an entity formed and controlled by Robert F.X. Sillerman,contributed $3,046,407 in cash to the Company in exchange for 30,389,072 newlyissued shares of common stock and warrants to purchase (i) 6,828,938shares of common stock at $1.00 per share, (ii) 6,828,938 shares of commonstock at $1.50 per share, and (iii) 6,828,939 shares of common stock at$2.00 per share (the “RFX Investment”). Simultaneous with this exchange, RFXAcquisition LLC also acquired an aggregate of 2,240,397 shares of common stockdirectly from certain former principal stockholders at a price of $0.10 pershare. Immediately following the consummation of its investment in the Company,RFX Acquisition LLC distributed all of its shares of common stock and itswarrants to its members, including the Company’s Chief Executive Officer, Mr. Sillerman,and certain members of the Company’s senior management. In order to provideadditional capital to the Company, on February 7, 2005, certain recipientsof the warrants, including Mr. Sillerman and other members of the Company’ssenior management, exercised an aggregate of five million of the $1.00 warrantsfor additional aggregate consideration to the Company of $5.0 million.

**The PresleyAcquisition (Predecessor)**

On February 7, 2005,the Company acquired 85% of the Presley Business (the “Presley Acquisition”)from The Promenade Trust, a Tennessee grantor trust set up by the estate ofElvis Presley, the sole beneficiary of which is Lisa Marie Presley. Theconsideration for the acquisition included: (i) $53.1 million incash, (ii) 1,491,817 shares of Series B Convertible Preferred Stock, (iii) oneshare of Series C Convertible Preferred Stock, (iv) 500,000 shares ofcommon stock and (v) the repayment of $25.1 million in indebtedness.

*Common Stock*

The common stock issued inthe Presley Acquisition was valued at $7.67 per share, which represents thethree day average of the closing sales price of the Company’s common stockfollowing the public announcement of the acquisition of the Presley Business.The Company’s stock price prior to the announcement was not utilized since theCompany had no operations at that time and there was little to no trading inthe stock.

*Series BConvertible Preferred Stock*

The 1,491,817shares of Series B Convertible Preferred Stock issued in the PresleyAcquisition were valued at $22.8 million. Each share of Series BConvertible Preferred Stock has a stated value of $15.30 and entitles theholder to receive an annual dividend calculated at a rate of 8% of the statedvalue. The Series B Convertible Preferred Stock has been valued foraccounting purposes at its stated value of $15.30 per share, which approximatesits fair value. In order to determine the fair value of the Series BConvertible Preferred Stock, the Company performed a valuation using a commonlyused valuation model for pricing convertible equity instruments, taking intoaccount the following factors and assumptions:

·       Fairvalue of common stock of $7.67 per share, based on the average closing pricefor the three days following announcement of the acquisition of the PresleyBusiness;

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·       An8.5-year term for the Series B Convertible Preferred Stock, based onthe fact that the instrument contains a one-year redemption period endingon August 7, 2013, after which re-pricing of the conversion priceoccurs;

·       Astock price volatility factor of 38%, based on a review of the volatility ofcomparable companies operating in similar industries since the Company does nothave data for a sufficient period to calculate a reliable rate of volatilitybased on its own stock price movements;

·       Adiscount rate of 11.5%, based on credit spreads for high yield issues and apremium to reflect the junior position of the Series B ConvertiblePreferred Stock in the Company’s capital structure; and

·       Nodividends on the common shares.

The fair value of the Series B ConvertiblePreferred Stock exceeds the fair value of the common stock issued on the samedate as a result of the mandatory 8% annual dividend on the par value of $15.30and the redemption and conversion features.

The shares of Series B Convertible PreferredStock are convertible by its holders into shares of common stock at any time ata conversion price equal to the stated value, subject to adjustments inconnection with standard anti-dilution protections for stock splits, stockdividends and reorganizations. The shares of Series B ConvertiblePreferred Stock become convertible at the Company’s option from and after thethird anniversary of the date of issuance, if, at any time, the average closingprice of the Company’s common stock over a thirty day trading period equals orexceeds 150% of the conversion price.

During the period beginning August 7, 2012 andending August 7, 2013, the Company can, at its sole discretion, redeem theoutstanding shares of Series B Convertible Preferred Stock, in whole or inpart, for an aggregate price equal to the stated value plus accrued but unpaiddividends through the date of redemption. If the Company does not exercise thisredemption right, the conversion price for all remaining shares of Series BConvertible Preferred Stock is thereafter reduced to the lower of (i) theconversion price then in effect and (ii) the average closing price of theCompany’s common stock over a thirty day trading period measured as of the lastday of the redemption period.

The Series BConvertible Preferred Stock has been classified as permanent equity in theaccompanying financial statements as the security is redeemable in cash solelyat the option of the Company.

*Series CConvertible Preferred Stock*

The share of Series C Convertible Preferred Stockissued in the Presley Acquisition had nominal value at issuance. The Series CConvertible Preferred Stock is convertible into one share of common stock andis *pari passu* with the commonstock with respect to dividends and distributions upon liquidation. The Series CConvertible Preferred Stock is not transferable and automatically converts intoone share of common stock at such time as The Promenade Trust ceases to own atleast 50% of the aggregate sum of the outstanding shares of Series BConvertible Preferred Stock plus the shares of common stock received uponconversion of the Series B Convertible Preferred Stock. The holder of the Series CConvertible Preferred Stock has the right to elect a designee to serve on theCompany’s board of directors for no additional compensation or expense.

The Series CConvertible Preferred Stock has been classified as permanent equity in theaccompanying financial statements as the security is not redeemable and isconvertible solely into one share of the Company’s common stock.

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**The HuffAlternative Fund, L.P. Investment**

Simultaneous with the RFX Investment and the PresleyAcquisition, The Huff Alternative Fund, L.P. and its affiliate (the “Huff Funds”)contributed to the Company an aggregate of $43.3 million in cash, after feesand expenses of $0.5 million, in exchange for: (i) 2,172,400 shares of Series AConvertible Redeemable Preferred Stock, (ii) 3,706,052 newly issued sharesof common stock, (iii) warrants to purchase 1,860,660 shares of commonstock at $1.00 per share, (iv) warrants to purchase 1,860,660 shares ofcommon stock at $1.50 per share, and (v) warrants to purchase 1,860,661shares of common stock at $2.00 per share (the “Huff Investment”). The HuffInvestment has been allocated based on the relative fair values of thepreferred stock, common stock and warrants. The fair values of common stock andSeries A Convertible Redeemable Preferred Stock were based on the $13.40closing price of the Company’s common stock on February 2, 2005, the dateupon which the Huff Investment was committed and agreed to by all parties. Thefair values of the warrants was based on a Black-Scholes valuation whichincorporated the common stock price of $13.40, a volatility rate of 39% and a discountrate of 3.7%. The allocation of the proceeds, based on the relative fair valuesof the securities issued to the Huff Funds were as follows: common stock—$10.9 million;warrants—$14.7 million; and Series A Convertible Redeemable PreferredStock—$17.8 million.

On March 21, 2005, the Huff Funds exercised theirrights to convert all of their 2,172,400 shares of Series AConvertible Redeemable Preferred Stock into 6,051,253 shares of commonstock. Following such conversion, there are currently no shares of Series AConvertible Redeemable Preferred Stock outstanding. The terms of the Series AConvertible Redeemable Preferred Stock at issuance and prior to the conversioninto common stock are described below.

At issuance, each share of Series A ConvertibleRedeemable Preferred Stock had a stated value of $20.00 per share and wasconvertible into common stock at a conversion price as more fully describedbelow. Holders of the Series A Convertible Redeemable Preferred Stock werenot entitled to any dividends beyond participating on an as converted basis individends declared with respect to the common stock. The shares of Series AConvertible Redeemable Preferred Stock were convertible into common stock atany time at the option of the holder. The shares of Series A ConvertibleRedeemable Preferred Stock were to become convertible at the Company’s optionif, at any time following the third anniversary of issuance the average closingprice of the common stock over a thirty day trading period equaled or exceeded $15.00.In addition, if, at any time after issuance, (i) the total marketcapitalization of the outstanding shares of common stock equaled or exceeded$500 million, and (ii) the average closing price of the common stockover a period of thirty consecutive trading days equaled or exceeded $15.00,then the Company would have had the right to convert such number of shares of Series AConvertible Redeemable Preferred Stock with an aggregate stated value of up to25% of the market value of all publicly traded common stock (excluding sharesheld by affiliates of the Company). The Company could not force conversion ofany shares of Series A Convertible Redeemable Preferred Stock during theperiod when the shares of common stock to be issued upon conversion of the Series AConvertible Preferred Stock were locked up pursuant to a lockup agreementbetween the Company and the holder.

The holders of the Series A ConvertibleRedeemable Preferred Stock had certain anti-dilution protection with respect tothe Series A Convertible Redeemable Preferred Stock. The conversion priceof the Series A Convertible Redeemable Preferred Stock, which was $10.00per share at issuance, was subject to adjustment upon (i) issuances ofcommon stock at a price below $10.00 per share, and (ii) the exercise orconversion of convertible stock, warrants, options (other than employeeincentive stock options) or other similar derivatives relating to common stock,in each case at a price below $10.00 per share.

The terms of the Series A Convertible RedeemablePreferred Stock specifically provided for an adjustment for the issuance of the15,486,815 warrants issued but not exercised by the recipients thereofimmediately following the closing of the Presley Acquisition, but no adjustmentin connection with the 

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issuance and exercise ofthe warrants received by the Huff Alternative Fund LP or the HuffAlternative Parallel Fund LP at closing or for the 5,000,000 warrantswhich were issued and exercised immediately following closing. After givingeffect to the adjustments described in the preceding sentence, the conversionprice of the Series A Convertible Redeemable Preferred Stock became $7.18per share of common stock, so that each share of Series A ConvertibleRedeemable Preferred Stock was convertible into approximately 2.8 shares ofcommon stock.

During the first three years following issuance, theCompany had the option to redeem part or all of the Series A ConvertibleRedeemable Preferred Stock using up to 25% of the proceeds from each registeredpublic offering or private investment in public equity (“PIPE”) transaction: (i) duringthe first twelve months following issuance, at a price of $23.10 per share, and(ii) at all times thereafter, at a price that would have provided theholders of the Series A Convertible Redeemable Preferred Stock with aninternal rate of return of 15.5% on the shares of Series A ConvertibleRedeemable Preferred Stock being sold. Upon a liquidation, the holders of the Series AConvertible Redeemable Preferred Stock were entitled to receive in preferenceto the holders of any other class or series of the Company’s equity securities(other than the Series B Convertible Preferred Stock) a cash amount pershare equal to the greater of the stated value plus any accrued but unpaid dividendsor the amount to which they would be entitled had they converted to commonstock.

If, after six years following issuance, the aggregatereturn to the holders of the Series A Convertible Redeemable PreferredStock did not equal or exceed 8%, then the holders of the Series AConvertible Redeemable Preferred Stock would have been entitled to receive adistribution of cash or additional shares of Series A ConvertibleRedeemable Preferred Stock such that the return calculated to such date equaled8% (the “Total Return Amount”).

In the event that any holder of Series AConvertible Redeemable Preferred Stock had not converted its shares as of theeighth anniversary of the date of issuance, the Company would have beenrequired to redeem 100% of the outstanding shares of Series A ConvertibleRedeemable Preferred Stock for an aggregate price equal to the stated valuemultiplied by the number of shares of Series A Convertible RedeemablePreferred Stock then being redeemed plus any Total Return Amount owed but notpaid in accordance with the preceding paragraph.

The allocation of the proceeds from the HuffInvestment resulted in a beneficial conversion feature for the Series AConvertible Redeemable Preferred Stock in the amount of $17.8 million,which reduced the carrying value of the Series A Convertible RedeemablePreferred Stock by that amount. This was due in part to the allocation ofproceeds raised to the warrants as well as the conversion ratio of one share ofpreferred stock into 2.8 shares of common stock as previously described. Thisbeneficial conversion feature was to be accreted over the eight-year redemptionperiod and recorded as a preferred dividend. As a result of the conversiondescribed above, a non-cash dividend equal to the amount of the unaccretedbeneficial conversion feature of $17.8 million was recognized at thattime.

On December 27, 2005,the Company filed a shelf registration statement on Form S-3enabling the Huff Funds to sell certain of their shares of CKX common stock inaccordance with the agreements entered into at the time of the Huff Funds’initial investment with CKX.

**Public Offering ofCommon Stock**

On June 27, 2005, theCompany completed a public offering of 23,000,000 shares of its common stock at$11.00 per share which yielded $233.0 million in net proceeds afterunderwriting discounts and commissions and offering expenses. The Companyrepaid $148.0 million of its previous loans payable with a portion of theproceeds from the offering.

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**4.**   ComprehensiveIncome (Loss)

Thefollowing table is a reconciliation of the Company’s net income (loss) tocomprehensive income (loss) for the year ended December 31, 2005 (inthousands):

| ** **                               | ** ** | **Year Ended  December  31,  2005** | ** ** |
|------------------------------------------|------------|----------------------------------------------------|------------|
| Net loss                                 |       |                                               | $          | (5,904 | ) |   |
| Other comprehensive  loss:               |       |                                               |       |   |   |
| Foreign currency translation adjustments |       |                                               | (19,200    | ) |   |
| Comprehensive loss                       |       |                                               | $          | (25,104 | ) |   |

 

Foreign currencytranslation adjustments result from the conversion of 19 Entertainment’sfinancial statements for the period of March 18, 2005 to December 31,2005. There were no differences between net income (loss) and comprehensiveincome (loss) for the period January 1, 2005 to February 7, 2005 forthe Predecessor or for the years ended December 31, 2004 and 2003 for theCompany or the Predecessor.

**5.**   EarningsPer Share/Common Shares Outstanding

Earnings per share is computed in accordance with SFASNo. 128, *Earnings Per Share*.Basic earnings per share is calculated by dividing net income (loss) applicableto common stockholders by the weighted-average number of sharesoutstanding during the period. Diluted earnings per share includes thedeterminants of basic earnings per share and, in addition, gives effect topotentially dilutive common shares. Diluted earnings per share for the year endedDecember 31, 2005 is the same as basic earnings per share because thecalculation is anti-dilutive due to the reported net loss available to commonshareholders. As a result, 4,297,625 shares, primarily representing outstandingwarrants at December 31, 2005, are excluded from the calculation ofdiluted earnings per share for the year ended December 31, 2005 since theeffect would be anti-dilutive.

Thefollowing table shows the computation of the Company’s basic and dilutedearnings per share for the years ended December 31, 2005, 2004 and 2003:

| ** **                                                                                                          | ** ** | **Year Ended December 31,**                                                | ** ** |
|---------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------|------------|
| ** **                                                                                                          | ** ** | **2005**                                                                                  | ** ** | **2004** | ** ** | **2003** | ** ** |
| ** **                                                                                                          | ** ** | **(in thousands, except per share  and share information)** | ** ** |
| Basic and diluted  loss per share computation:                                                                      |       |                                                                                      |       |   |   |   |   |
| Net loss                                                                                                            |       | $                                                                                         | (5,904     | ) | $ | (120 | ) | $ | (80 | ) |
| Less:   Dividends on preferred stock                                                                      |       | (1,632                                                                                    | )          | — |   | — |   |
|             Accretion  of beneficial conversion feature |       | (17,762                                                                                   | )          | — |   | — |   |
| Loss applicable to common shareholders                                                                              |       | $                                                                                         | (25,298    | ) | $ | (120 | ) | $ | (80 | ) |
| Basic and diluted common shares outstanding  (including redeemable restricted common stock)                         |       | 71,429,858                                                                                |       | 4,283,061 |   | 4,283,061 |   |
| Basic and diluted  loss per share                                                                                   |       | $                                                                                         | (0.35      | ) | $ | (0.03 | ) | $ | (0.02 | ) |

 

**6.**   Acquisitions

*The PresleyBusiness (Predecessor)*

On February 7, 2005, the Company acquired an 85%interest in entities which control the commercial utilization of the name,image and likeness of Elvis Presley, the operation of Graceland and relatedattractions and revenue derived from Elvis’ music, films, and televisionspecials. Consideration for the 

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acquisition consisted ofcash of $53.1 million, 500,000 unregistered shares of common stock, 1,491,817shares of Series B Convertible Preferred Stock, one share of Series CConvertible Preferred Stock and the repayment of $25.1 million in indebtedness.Refer to note 3 for details on the valuation of the equity instruments issued.The cash portion of the transaction was financed with a contribution of equityand the exercise of warrants by the members of RFX Acquisition LLC, theissuance of preferred and common stock to the seller, the purchase of preferredstock, common stock and warrants by the Huff Alternative Fund, L.P. and anaffiliate and a short-term senior loan from an affiliate of BearStearns & Co., Inc.

Theaggregate consideration paid for the acquisition was as follows (in thousands):

| Fair value of  common stock issued    |   | $      | 3,835   |   |
|---------------------------------------|--------|--------|---------|--------|
| Fair value of  preferred stock issued |   | 22,825 |    |
| Repayment of  seller debt             |   | 25,121 |    |
| Note payable                          |   | 3,500  |    |
| Cash                                  |   | 53,125 |    |
| Transaction costs                     |   | 5,788  |    |
|                                  |   | $      | 114,194 |   |

 

Thefollowing table summarizes the amounts allocated to the acquired assets andassumed liabilities based on a valuation prepared by an independent appraisalfirm. These amounts have been adjusted to reflect the Company’s 85% ownershipinterest. The significant assumptions used in the valuation included factorsaffecting the duration, growth rates and amounts of future cash flows for eachincome stream, specifically: the future economic outlook for the industry,risks involved in the business, and the impact of competition and technologicalchanges.

| ** **               | ** ** | **(in thousands)** | ** ** |
|--------------------------|------------|-------------------------|------------|
| Current assets           |       |                    | $          | 13,332 |   |   |
| Property and  equipment  |       |                    | 25,730     |   |   |
| Goodwill                 |       |                    | 14,642     |   |   |
| Intangible assets        |       |                    | 77,945     |   |   |
| Other assets             |       |                    | 10,026     |   |   |
| Assets acquired          |       |                    | 141,675    |   |   |
| Current  liabilities     |       |                    | 10,769     |   |   |
| Deferred tax liabilities |       |                    | 10,893     |   |   |
| Other liabilities        |       |                    | 5,819      |   |   |
| Liabilities  assumed     |       |                    | 27,481     |   |   |
| Net assets acquired      |       |                    | $          | 114,194 |   |   |

 

In accordance with SFAS 109, we have provided fordeferred taxes for the difference between the book and tax basis of the netassets acquired.

The excess of the purchaseprice over the fair values of assets acquired and liabilities assumed wasallocated to goodwill. The purchase price for the Presley Business wasdetermined based on management’s assessment of the financial prospects of theexisting business as well as increased value the Company believes can bederived from pursuing opportunities to generate additional cash flows. TheCompany has better access to the public capital markets than the prior ownerwhich it believes will enable it to implement such opportunities. In addition,the existing senior management team at the Presley Business has significantknowledge and contacts within the media and entertainment industries. The valuereflected in these elements of the purchase price does not meet the definitionof an intangible asset under FAS 141 

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and is therefore reflected in goodwill. The amounts,in thousands, allocated to intangible assets were attributed to the followingcategories and related useful lives:

| Record, music  publishing, film and video rights              |   | $      | 28,900 |       | 15 years |   |
|---------------------------------------------------------------|--------|--------|--------|------------|----------|--------|
| Relationships  with licensees                                 |   | 1,785  |   | 10 years   |     |
| Rights to use  Presley name                                   |   | 5,525  |   | 10 years   |     |
| Graceland  memorabilia rights                                 |   | 3,570  |   | 40 years   |     |
| Trademarks, publicity  rights and other intellectual property |   | 38,165 |   | Indefinite |     |

 

The trademarks, including rights to the name, imageand likeness of Elvis Presley, have indefinite lives and, accordingly, noamortization expense has been recorded in the accompanying consolidatedstatement of operations.

Included in the acquisition, the Company also acquireda 90-year lease on Graceland which has been valued at $4.8 million.

The Company is required to make annual distributionsto the Promenade Trust, in monthly installments, that represent the Trust’s 15%share of the operating income of the Presley Business before depreciation andamortization and after income taxes and capital expenditures. The Company isrequired to pay a minimum annual distribution of $1.2 million to the Trustfor each full calendar year irrespective of the actual operating results forthe business in such year. To the extent that the minimum distribution exceedsthe net income allocated to minority interest, the additional amount will berecorded as additional minority interest expense.

The Promenade Trust has the right to require theCompany to purchase for cash all or a portion of its 15% ownership interest inthe Presley Business from time to time beginning on January 1, 2008. Theprice the Company will be required to pay to The Promenade Trust will be basedon the then current fair market value of the Presley Business as determinedthrough an appraisal process. As the put right is at fair market value, novalue has been assigned for accounting purposes to the put option.

The results of operationsof the Presley Business are included in the results of the Company since thedate of acquisition.

*19 Entertainment*

On March 17, 2005, the Company acquired 100% ofthe outstanding capital stock of 19 Entertainment Limited (the “19Entertainment Acquisition”), a United Kingdom-based company that is acreator, producer and promoter of entertainment properties, including the *IDOLS* television show format.Consideration for the acquisition consisted of £64.5 million (US$124.4 million based on the exchange rate at the date of acquisition) incash, 198,388 unregistered shares of common stock and 1,672,170 shares ofRedeemable Restricted Common Stock (see below), each paid at closing, with anadditional £19.2 million (US $34.0 million) of deferred consideration thatwas paid in cash on December 15, 2005. The shares of common stock issuedin the 19 Entertainment Acquisition were valued at $16.83 per share (whichrepresents the average of the Company’s closing stock prices for the two daysprior to and the day of the 19 Entertainment Acquisition). The stockprices subsequent to the consummation of the transaction were excluded from theaverage price in accordance with EITF 99-12, *Determination of the Measurement Date for the Market Price of AcquirerSecurities Issued in a Purchase Business Combination*.

In connection with the acquisition of19 Entertainment, certain sellers of 19 Entertainment entered into aPut and Call Option Agreement that provided them with certain rights whereby,during a short period following the six year anniversary of the acquisition,the Company can exercise a call right to purchase the common stock of suchstockholders at a price equal to $24.72 per share and these sellers can 

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exercise a put right tosell the common stock to the Company at a price equal to $13.18 per share.The put and call rights apply to 1,672,170 of the shares issued in connectionwith the 19 Entertainment acquisition. The put and call option is not afreestanding instrument as defined in SFAS No. 150, *Accounting for Certain Financial Instruments withCharacteristics of both Liabilities and Equity,* because it cannot belegally detached from the underlying common stock. The Company evaluated theput and call option under SFAS No. 133, *Accounting for Derivative Instruments and Hedging Activities*,as an embedded feature and determined it was not a bifurcatable derivative and,in accordance with EITF 00-19, *Accountingfor Derivative Financial Instruments Indexed to, and Potentially Settled in, aCompany’s Own Stock*. As the Company considered the common stock,including the put and call option, as a single equity instrument, and since thestock was puttable to the Company at the option of these sellers, these shareshave been presented in the accompanying consolidated balance sheet as temporaryequity under the heading Redeemable Restricted Common Stock at an estimatedfair value inclusive of the put/call rights at $23.0 million.

The value of the Put and Call Option Agreement at March 17,2005, was estimated to be $5.1 million, based upon assumptions of a 6-yearexpected life, volatility of 38% and a discount rate of 4.2% in a Black ScholesOption Pricing Model for each of the put and call option features, and wasrecorded as a reduction of purchase price as part of the purchase accountingfor 19 Entertainment.

The Company financed the cash consideration with ashort-term senior loan from an affiliate of Bear, Stearns &Co. Inc., and proceeds from the exercise of outstanding warrants,including approximately $18,577,154 of proceeds from the exercise by certainmembers of senior management of warrants to acquire 11,910,281 shares of commonstock and approximately $6,422,846 of proceeds from the exercise by the HuffFunds of warrants to acquire 4,606,918 shares of common stock.

The aggregate consideration paid for the acquisitionwas as follows (in thousands):

| Fair value of  common stock issued                                                       |   | $       | 3,339   |   |
|------------------------------------------------------------------------------------------|--------|---------|---------|--------|
| Fair value of  redeemable restricted common stock, including put and call agreement |   | 23,002  |    |
| Cash and deferred  purchase consideration                                                |   | 161,267 |    |
| Transaction costs                                                                        |   | 3,962   |    |
|                                                                                     |   | $       | 191,570 |   |

 

The amount included in the table above for deferredpurchase consideration does not reflect a reduction in the consideration paiddue to the foreign currency translation gain that occurred between the date ofacquisition and the date of payment (December 15, 2005) of approximately$2.8 million, which was recorded as other income on the consolidated statementof operations for the year ended December 31, 2005.

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Thefollowing table summarizes the amounts allocated to the acquired assets andassumed liabilities based on a valuation prepared by an independent appraisalfirm. The significant assumptions used in the valuation included factorsaffecting the duration, growth rates and amounts of future cash flows for eachincome stream, specifically: the future economic outlook for the industry,risks involved in the business, and the impact of competition and technologicalchanges. 

| ** **                | ** ** | **(in thousands)** | ** ** |
|---------------------------|------------|-------------------------|------------|
| Current assets            |       |                    | $          | 21,120 |   |   |
| Property and  equipment   |       |                    | 2,021      |   |   |
| Goodwill                  |       |                    | 114,330    |   |   |
| Intangible assets         |       |                    | 90,569     |   |   |
| Other assets              |       |                    | 3,618      |   |   |
| Assets acquired           |       |                    | 231,658    |   |   |
| Current  liabilities      |       |                    | 8,352      |   |   |
| Deferred tax  liabilities |       |                    | 27,150     |   |   |
| Other liabilities         |       |                    | 4,586      |   |   |
| Liabilities  assumed      |       |                    | 40,088     |   |   |
| Net assets acquired       |       |                    | $          | 191,570 |   |   |

 

In accordance with SFAS 109, we have provided fordeferred taxes for the difference between the book and tax basis of the netassets acquired.

The excess of the purchase price over the fair valuesof assets acquired and liabilities assumed was allocated to goodwill. Thepurchase price for 19 Entertainment was determined based on management’sassessment of the financial prospects of the existing business as well as theincreased value the Company believes can be derived from the development of newassets by the creative team at 19 Entertainment. These individuals have atrack record of generating new and profitable creative ideas and we believeproviding them with better access to capital as well as a broader asset baseupon which to create new projects will enhance the value of19 Entertainment and the Company’s other assets. The value reflected inthese elements of the purchase price does not meet the definition of anintangible asset under FAS 141 and is therefore reflected in goodwill. Theamounts, in thousands, allocated to intangible assets were attributed to thefollowing categories and related useful lives:

| *IDOLS*television  programming, merchandising and sponsorship contracts                                        |   | $      | 78,043 |      | 7 years |   |
|----------------------------------------------------------------------------------------------------------------|--------|--------|--------|-----------|---------|--------|
| Other merchandising and  sponsorship, recording, artist management, and television  programming contracts |   | 12,526 |   | 2-4 years |    |

 

The results of operationsof 19 Entertainment are included in the results of the Company since the dateof acquisition.

*MBST*

On August 9, 2005, the Company acquired Morra,Brezner, Steinberg & Tenenbaum Entertainment, Inc. (“MBST”), amanager of comedic talent and producer of motion pictures and televisionprogramming. The Company acquired MBST for initial total consideration of $1.0million in cash and 700,000 restricted shares of common stock. The shares ofcommon stock issued in the MBST acquisition were valued at $13.74 per share(which represents the average of the Company’s closing stock prices for the twodays prior to, the day of and two days after the terms of the MBST acquisitionwere agreed upon and announced). The purchase price is subject to a workingcapital adjustment, of which $1.1 million in cash and 40,480 shares valuedat $0.5 million have already been paid to the sellers. The final 

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workingcapital adjustment will be determined in 2006 and could result in additionalpayments to the sellers that are expected to be less than $1.0 million. Inaddition, the sellers may receive up to an additional 150,000 shares of commonstock upon satisfaction of certain performance thresholds over the five-yearperiod following the closing. The receipt by the sellers of any such shareswill be accounted for as additional purchase price at the time such performancethresholds are met. The Company has entered into long-term employmentrelationships with the principals of MBST, Larry Brezner, David Steinberg andSteve Tenenbaum, who continue to oversee the day-to-day operations of MBST.

The aggregate consideration paid for the acquisitionwas as follows (in thousands):

| Fair value of  common stock issued |   | $     | 10,123 |   |
|------------------------------------|--------|-------|--------|--------|
| Cash                               |   | 2,085 |   |
| Transaction costs                  |   | 570   |   |
|                               |   | $     | 12,778 |   |

 

The following tablesummarizes the estimated fair values of the assets acquired and liabilitiesassumed on August 9, 2005. The estimated fair values are based on apreliminary valuation performed by management. The Company has engaged anindependent appraisal firm to perform a valuation of the assets acquired andliabilities assumed. Accordingly, the initial purchase price allocations arepreliminary and may be adjusted for changes in estimates of the fair value ofthe assets acquired and liabilities assumed. The significant assumptions usedin the valuation included the duration, growth rates and amounts of future cashflows for each income stream.

| ** **                | ** ** | **(in thousands)** | ** ** |
|---------------------------|------------|-------------------------|------------|
| Current assets            |       |                    | $          | 1,016 |   |   |
| Property and  equipment   |       |                    | 59         |   |   |
| Goodwill                  |       |                    | 9,055      |   |   |
| Intangible assets         |       |                    | 4,745      |   |   |
| Other assets              |       |                    | 92         |   |   |
| Assets acquired           |       |                    | 14,967     |   |   |
| Current  liabilities      |       |                    | 350        |   |   |
| Deferred tax  liabilities |       |                    | 1,839      |   |   |
| Liabilities assumed       |       |                    | 2,189      |   |   |
| Net assets acquired       |       |                    | $          | 12,778 |   |   |

 

In accordance with SFAS No. 109, we have providedfor deferred taxes for the difference between the book and tax basis of the netassets acquired.

The excess of the purchase price over the fair valuesof assets acquired and liabilities assumed was allocated to goodwill. Thepurchase price for MBST was determined based on management’s assessment of thefinancial prospects of the existing business as well as the increased value theCompany believes can be derived from pursuing opportunities to generateadditional cash flows. The value reflected in these elements of the purchaseprice does not meet the definition of an intangible asset under FAS 141and is therefore reflected in goodwill. The preliminary amounts, in thousands,allocated to intangible assets were attributed to the following categories andrelated useful lives:

| Artist contracts                       |   | $     | 3,013  |     | 6 years |   |
|----------------------------------------|--------|-------|--------|----------|---------|--------|
| MBST and client  profit participations |   | 1,493 |   | 10 years |    |
| Consulting arrangement                 |   | 239   |   | 5 years  |    |

 

At this time management is unable to determine whetherthe amounts allocated to the above intangible assets will change when theCompany finalizes its valuation and if changes are made, the amount 

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of such changes. A$1.0 million fluctuation in fair value amounts allocated to the identifieddefinite lived intangible assets would cause the following increases ordecreases to annual amortization expense (in thousands): artist contracts—$167;MBST and client profit participations—$100; consulting arrangement—$200.

The results of operationsof MBST are included in the results of the Company since the date ofacquisition.

*Pro FormaInformation*

The following tablesummarizes unaudited pro forma financial information for the Company assumingthe acquisitions of the Presley Business, 19 Entertainment and MBST andthe related financing transactions had occurred on January 1, 2004 and2005. The unaudited pro forma financial information does not necessarilyrepresent what would have occurred if the transactions had occurred on thedates presented and should not be taken as representative of the Company’sfuture consolidated results of operations or financial position:

| ** **                                 | ** ** | **Year Ended  December 31,**                                | ** ** |
|--------------------------------------------|------------|-----------------------------------------------------------------------|------------|
| ** **                                 | ** ** | **2005**                                                              | ** ** | **2004** | ** ** |
| ** **                                 | ** ** | **(in thousands, except per  share information)** | ** ** |
| Revenue                                    |       | $                                                                     | 147,788    |   | $ | 140,252 |   |
| Net loss  available to common stockholders |       | (20,948                                                               | )          | (671 | ) |
| Net loss per  common share:                |       |                                                                  |       |   |   |
| Basic and diluted                          |       | $                                                                     | (0.29      | ) | $ | (0.01 | ) |

 

The results for each period presented reflect theactual borrowing costs of the Company for the year ended December 31,2005.

Note that the amounts forthe year ended December 31, 2005 exclude non-cash employee compensationexpense associated with the exercise of employee stock options by 19Entertainment employees immediately prior to the Company’s acquisition on March 17,2005 as the exercises were a one time non-recurring event that resulteddirectly from the acquisition of 19 Entertainment by the Company. Thisexpense was $10.4 million after tax, or $(0.15) per share.

**7.**                 IntangibleAssets and Goodwill

Intangible assets which have finite lives are beingamortized on a straight-line basis over periods from 2 to 15 years.Amortization expense for the year ended December 31, 2005 was$13.0 million. The projected annual amortization expense for intangibleassets for the next five years ending December 31, assuming no furtheracquisitions or dispositions, is: 2006—$16.9 million, 2007—$16.6 million,  2008—$15.6 million, 2009—$14.1 million and2010—$13.7 million.

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Intangibleassets and goodwill as of December 31, 2005 consist of (in thousands):

| ** **                                                                                     | ** ** | **Weighted  Average  Remaining  Useful Life** | ** ** | **Gross  Carrying  Amount** | ** ** | **Accumulated  Amortization** | ** ** | **Foreign  Currency  Translation  Adjustments** | ** ** | **Net  Carrying  Amount** | ** ** |
|------------------------------------------------------------------------------------------------|------------|----------------------------------------------------|------------|-----------------------------|------------|-------------------------------|------------|-------------------------------------------------|------------|---------------------------|------------|
| Definite Lived Intangible  Assets:                                                             |       |                                               |       |                        |       |                          |       |                                            |       |                      |       |   |   |   |   |
| Presley record,  music publishing, film and video rights                                  |       | 14.1 years                                         |       | $                           | 28,900     |                          |       | $                                               | (1,521     | )                         |       |   | $ | — |   |   | $ | 27,379 |   |
| Other Presley  intangible assets                                                               |       | 18.9 years                                         |       | 10,880                      |       |                          | (1,566     | )                                               |       |                      | —     |   |   | 9,314 |   |
| 19 Entertainment  IDOLS television programming, merchandising and sponsorship contracts        |       | 6.2 years                                          |       | 78,043                      |       |                          | (6,583     | )                                               |       |                      | (8,165     | ) |   | 63,295 |   |
| 19 Entertainment  other artist management, recording, merchandising, and sponsorship contracts |       | 2.8 years                                          |       | 12,526                      |       |                          | (3,044     | )                                               |       |                      | (1,187     | ) |   | 8,295 |   |
| MBST artist  contracts, profit participation rights and consulting agreement                   |       | 6.9 years                                          |       | 4,745                       |       |                          | (281       | )                                               |       |                      | —     |   |   | 4,464 |   |
|                                                                                           |       |                                               |       | $                           | 135,094    |                          |       | $                                               | (12,995    | )                         |       |   | $ | (9,352 | ) |   | $ | 112,747 |   |
| Indefinite Lived  Intangible Assets:                                                           |       |                                               |       |                        |       |                          |       |                                            |       |                      |       |   |   |   |   |
| Trademarks, publicity  rights and other intellectual property                                  |       |                                               |       | $                           | 38,165     |                          |       |                                            |       |                      |       |   |   |   | $ | 38,165 |   |

 

|  

** **       | ** ** | **Balance at  January 1,  2005** | ** ** | **Goodwill  Acquired  During 2005** | ** ** | **Foreign  Currency  Translation  Adjustments** | ** ** | **Balance at  December 31,  2005** | ** ** |
|--------------------------|------------|--------------------------------------------|------------|------------------------------------------|------------|-------------------------------------------------|------------|----------------------------------------------|------------|
| Goodwill:                |       |                                       |       |                                     |       |                                            |       |                                         |       |   |   |   |   |   |   |   |   |
| Presley Business:        |       |                                       |       |                                     |       |                                            |       |                                         |       |   |   |   |   |   |   |   |   |
| Royalties and  Licensing |       |                                       | $          | —                                   |       |                                            |       | $                                            | 6,967      |   |   |   | $ | — |   |   |   | $ | 6,967 |   |   |
| Graceland  Operations    |       |                                       | —     |                                     |       |                                            | 7,675      |                                         |       |   | — |   |   |   | 7,675 |   |   |
| 19 Entertainment         |       |                                       | —     |                                     |       |                                            | 114,330    |                                         |       |   | (12,234 | ) |   |   | 102,096 |   |   |
| MBST                     |       |                                       | —     |                                     |       |                                            | 9,055      |                                         |       |   | — |   |   |   | 9,055 |   |   |
| Total                    |       |                                       | $          | —                                   |       |                                            |       | $                                            | 138,027    |   |   |   | $ | (12,234 | ) |   |   | $ | 125,793 |   |   |

 

**8.   Debt**

In connection with ourpublic offering of common stock (see Note 3), the Company repaid$39.4 million, plus accrued and unpaid interest, owed to an affiliate ofBear, Stearns & Co. Inc., under a short term senior credit facilityincurred in connection with the acquisition of the Presley Business. The loanwas repaid at 101% of its principal amount. The Company also paid$109.0 million, plus accrued and unpaid interest, owed to an affiliate ofBear, Stearns & Co. Inc., under a short term senior credit facilityincurred in connection with the acquisition of 19 Entertainment. Bothshort term senior loans were due to mature on February 6, 2006.

In June 2005, theCompany expensed $1.9 million of unamortized deferred loan costs upon repaymentof the short term senior loans.

The average interest rateon the Presley loan and the 19 Entertainment loan was 6.91% and 7.07%,respectively, for the periods outstanding in 2005.

At December 31, 2005,the Company had total indebtedness of $3.5 million. This debt represents theamount outstanding under a subordinated promissory note issued to PriscillaPresley on February 7, 2005 

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inconnection with the acquisition of all commercial rights held by Ms. Presleyto use the name “Presley” in connection with the use and exploitation of theassets acquired with the Presley Business as well as all of Ms. Presley’srights, if any, to the name “Graceland.” The note bears interest at the rate of5.385% percent per annum. The principal and interest under the note are payablein seven consecutive equal annual installments of principal and interest of$550,000 each, due and payable on the first through the seventh anniversariesof the date of the note, with an eighth and final installment of principal andinterest in the amount of $549,858, due and payable on the eighth anniversaryof the date of the note.

The Company hascommitments for a $50.0 million revolving credit facility with variousinstitutions with Bear Stearns & Co. acting as the lead arranger andbookrunner (the “lenders”). As amended on September 22, 2005, thecommitments of the lenders to provide the revolving credit facility will expireon the earlier of (i) June 27, 2006, and (ii) the date on whichthe Company consummates, or (if earlier) obtains a definitive commitment from afinancial institution (whether or not such financial institution is one of thelenders committed under the revolving credit facility) for a bank financing (A) inan aggregate principal amount equal to or greater than $50.0 million, and (B) witha term no shorter than that of the revolving credit facility.

Thescheduled repayments of debt outstanding as of December 31, 2005, are asfollows:

| ** **                                   | ** ** | **(in thousands)** | ** ** |
|----------------------------------------------|------------|-------------------------|------------|
| **Years Ending December 31,** | ** ** | ** **              | ** ** | ** ** | ** ** |
| 2006                                         |       |                    | $          | 362 |   |   |
| 2007                                         |       |                    | 381        |   |   |
| 2008                                         |       |                    | 401        |   |   |
| 2009                                         |       |                    | 423        |   |   |
| 2010                                         |       |                    | 446        |   |   |
| Thereafter                                   |       |                    | 1,487      |   |   |
|                                         |       |                    | $          | 3,500 |   |   |
|                                              |            |                         |            |  |  |  |  |  |

 

As of December 31,2004, the Predecessor had debt outstanding of approximately $23.6 million thatwas subsequently repaid by the Company on February 7, 2005 as part of theacquisition of the Presley Business.

**9.   Stockholders’Equity**

On February 4, 2005,prior management of the Company issued 10,000 unregistered shares of commonstock in satisfaction of a $270,000 obligation to a former affiliate. Inaddition, in connection with the RFX Acquisition investment, certain formerprincipal stockholders purchased warrants to acquire 500,000 shares of commonstock at an exercise price of $10.00 per share. The aggregate purchase pricefor the warrants was $10,000 in cash.

At December 31, 2005,the Company had outstanding warrants to purchase 4,551,597 shares of commonstock at an exercise price of $2.00 per share which expire on February 7,2007, and warrants to purchase 500,000 shares of common stock at an exerciseprice of $10.00 per share which expire on February 7, 2008.

**10.   Share-BasedPayments**

The Company’s 2005 OmnibusLong-Term Incentive Compensation Plan (the “2005 Plan”) was approved byshareholders in March 2005. Under the Plan, the maximum number of sharesof common stock that may be subject to stock options, stock awards, deferredshares, or performance shares is 4,000,000. Shares available for future grantsunder the 2005 Plan were 3,605,187 at December 31, 2005.

In August 2005 and inOctober 2005, 5,334 shares and 3,479 shares, respectively, of common stockwere issued to the Company’s independent directors. These shares represent theportion of the directors’ 

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compensationthat is payable in common stock. The shares have been valued at $13.68 and$12.57, respectively, the closing stock prices on the dates issued. The totalvalue of these shares of $0.1 million has been expensed as share-basedcompensation.

*Restricted Stock Grants*

On February 8, 2005,the Company granted 42,000 shares of restricted common stock to the Company’sindependent directors. The restricted shares vest ratably on each of the firstthree anniversaries of the date of grant. The shares were valued at $14.40, theclosing stock price on the date of grant. The total value of these shares of$0.6 million is being expensed ratably over the three-year vesting period.

In June 2005, 75,000shares of restricted common stock were granted to two independent directors.These grants were in consideration for services provided in connection with theCompany’s public offering of common stock that went beyond the normalrequirements of serving as a director or on a committee of the board ofdirectors as well as for the commitment of each of the individuals to continueto serve as chairmen of board committees and serve on the board of directorsfor a five year period. The total value of the award, based on the offeringprice of $11.00 per share, was $0.8 million. $0.2 million was charged tonon-cash compensation expense at the date of grant, representing the additionalcommitment to the stock offering. The remaining $0.6 million is beingrecognized ratably over the remaining five-year requisite service period.

The Company issued 7,500restricted shares to employees in the year ended December 31, 2005,subject to various vesting requirements. These shares were valued at $0.1million at the dates of grant and will be charged to non-cash compensationexpense ratably over the vesting periods, which do not exceed three years.

*Stock Option Grants*

The Company granted261,500 stock options to employees on July 19, 2005. The options expire 10years from the date of grant. All options were granted with an exercise priceequal to the market price on the date of grant, which was $12.20. The optionsvest 30% on the third anniversary from the date of grant; 30% on the fourth anniversaryfrom the date of grant; and 40% on the fifth anniversary from the date ofgrant. None of the outstanding options were exercisable at December 31,2005.

Thefair value of the options granted was $4.84. The fair value was estimated usingthe Black-Scholes option pricing model based on the weighted averageassumptions of:

| Risk-free rate |   | 4.0       | %           |
|----------------|--------|-----------|-------------|
| Volatility     |   | 38.0      | %           |
| Expected life  |   | 5.0  |  years |
| Dividend yield |   | 0.0       | %           |

 

Compensation expense forstock option grants is being recognized ratably over the five year vestingperiod, assuming 90% of the options will ultimately vest.

Asummary of the status of the Company’s stock options as of December 31,2005 and changes during the year ended December 31, 2005 is presentedbelow:

| ** **                                     | ** ** | **Options** | ** ** | **Weighted Average  Exercise Price** | ** ** |
|------------------------------------------------|------------|-------------|------------|------------------------------------------------|------------|
| Granted                                        |       | 261,500     |       |                                           | $          | 12.20 |   |   |
| Exercised                                      |       | —      |       |                                           | —     |   |   |
| Forfeited                                      |       | (2,000      | )          |                                           | 12.20      |   |   |
| Balance  outstanding at December 31, 2005 |       | 259,500     |       |                                           | $          | 12.20 |   |   |
| Balance exercisable at  December 31, 2005 |       | —      |       |                                           | —     |   |   |

 

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The weighted averageremaining contractual life of the stock options outstanding at December 31,2005 is 9.58 years. Compensation expense for restricted stock grants and stockplan awards for the year ended December 31, 2005 was $0.6 million.

**11.   IncomeTaxes**

Domesticand foreign income from continuing operations are as follows:

| ** **                               | ** ** | ** **                             | ** ** | ** **                             | ** ** | ** **                             | ** ** | ** ** | ** ** | **Predecessor**                       | ** ** |
|------------------------------------------|------------|----------------------------------------|------------|----------------------------------------|------------|----------------------------------------|------------|------------|------------|---------------------------------------|------------|
| ** **                               | ** ** | **Year Ended  December 31,** | ** ** | **Year Ended  December 31,** | ** ** | **Year Ended  December 31,** | ** ** | ** ** | ** ** | **January 1-  February 7,** | ** ** | **Year Ended  December 31,** | ** ** | **Year Ended  December 31,** | ** ** |
| **(in thousands)**                  | ** ** | ** **                             | ** ** | **2005**                               | ** ** | **2004**                               | ** ** | **2003**   | ** ** | ** **                            | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
| Domestic  operations                |       |                                   | $          | (3,334                                 | )          |                                   |       | $          | (120       | )                                     |       |   | $ | (80 | ) |   |   |   |   | $ | 347 |   |   |   | $ | 8,572 |   |   |   | $ | 9,519 |   |   |
| Foreign  operations.                     |       |                                   | (1,262     | )                                      | ** ** | ** **                             | **—** |       | ** ** | ** **                            | **—** |   |   |   |   |   |   |   | ** ** | ** ** | **—** |   | ** ** | ** ** | **—** |   |   |
| Total income (loss)  before income taxes |       |                                   | $          | (4,596                                 | )          |                                   |       | $          | (120       | )                                     |       |   | $ | (80 | ) |   |   |   |   |   |   |   |   | $ | 347 |   |   |   | $ | 8,572 |   |   |
|                                          |            |                                        |            |                                        |            |                                        |            |            |            |                                       |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

Theprovision for income taxes consists of the following:

| ** **                    | ** ** | ** **                             | ** ** | ** **                             | ** ** | ** **                             | ** ** | ** ** | ** ** | **Predecessor**                       | ** ** |
|-------------------------------|------------|----------------------------------------|------------|----------------------------------------|------------|----------------------------------------|------------|------------|------------|---------------------------------------|------------|
| ** **                    | ** ** | **Year Ended  December 31,** | ** ** | **Year Ended  December 31,** | ** ** | **Year Ended  December 31,** | ** ** | ** ** | ** ** | **January 1-  February 7,** | ** ** | **Year Ended  December 31,** | ** ** | **Year Ended  December 31,** | ** ** |
| **(in thousands)**       | ** ** | ** **                             | ** ** | **2005**                               | ** ** | **2004**                               | ** ** | **2003**   | ** ** | ** **                            | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
| Current provision  (benefit)  |       |                                   |       |                                   |       |                                   |       |       |       |                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Federal                       |       |                                   | $          | —                                 |       |                                   |       | $          | —     |                                  |       |   | $ | — |   |   |   |   |   | $ | 128 |   |   |   | $ | 485 |   |   |   | $ | 322 |   |   |
| Foreign                       |       |                                   | 11         |                                   |       |                                   | —     |       |       |                                  | —     |   |   |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| State                         |       |                                   | 732        |                                   |       |                                   | —     |       |       |                                  | —     |   |   |   |   |   | 30 |   |   |   | 82 |   |   |   | 78 |   |   |
|                          |       |                                   | 743        |                                   |       |                                   | —     |       |       |                                  | —     |   |   |   |   |   | 158 |   |   |   | 567 |   |   |   | 400 |   |   |
| Deferred provision  (benefit) |       |                                   |       |                                   |       |                                   |       |       |       |                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Federal                       |       |                                   | (12        | )                                      |       |                                   | —     |       |       |                                  | —     |   |   |   |   |   | (6 | ) |   |   | 266 |   |   |   | 413 |   |   |
| Foreign                       |       |                                   | 51         |                                   |       |                                   | —     |       |       |                                  | —     |   |   |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| State                         |       |                                   | 73         |                                   |       |                                   | —     |       |       |                                  | —     |   |   |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
|                          |       |                                   | 112        |                                   |       |                                   | —     |       |       |                                  | —     |   |   |   |   |   | (6 | ) |   |   | 266 |   |   |   | 413 |   |   |
| Total income tax expenses     |       |                                   | $          | 855                                    |       |                                   |       | $          | —     |                                  |       |   | $ | — |   |   |   |   |   | $ | 152 |   |   |   | $ | 833 |   |   |   | $ | 813 |   |   |
|                               |            |                                        |            |                                        |            |                                        |            |            |            |                                       |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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Income tax expense asreported is different than income tax expense computed by applying thestatutory federal rate of 35% in 2005 and 34% in 2004 and 2003. The differencesare as follows:

| ** **                                    | ** ** | ** **                             | ** ** | ** **                             | ** ** | ** **                             | ** ** | ** ** | ** ** | **Predecessor**                       | ** ** |
|-----------------------------------------------|------------|----------------------------------------|------------|----------------------------------------|------------|----------------------------------------|------------|------------|------------|---------------------------------------|------------|
| ** **                                    | ** ** | **Year Ended  December 31,** | ** ** | **Year Ended  December 31,** | ** ** | **Year Ended  December 31,** | ** ** | ** ** | ** ** | **January 1-  February 7,** | ** ** | **Year Ended  December 31,** | ** ** | **Year Ended  December 31,** | ** ** |
| **(in thousands)**                       | ** ** | ** **                             | ** ** | **2005**                               | ** ** | **2004**                               | ** ** | **2003**   | ** ** | ** **                            | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
| Expense (benefit) at  statutory federal rate  |       |                                   | $          | (1,609                                 | )          |                                   |       | $          | (41        | )                                     |       |   | $ | (27 | ) |   |   |   |   | $ | 121 |   |   |   | $ | 2,914 |   |   |   | $ | 3,237 |   |   |
| Effect of state and local income taxes        |       |                                   | 523        |                                   |       |                                   | —     |       |       |                                  | —     |   |   |   |   |   | 31 |   |   |   | 74 |   |   |   | 44 |   |   |
| Foreign earnings.                             |       |                                   | (222       | )                                      |       |                                   | —     |       |       |                                  | —     |   |   |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Valuation allowance                           |       |                                   | 2,748      |                                   |       |                                   | 41         |       |       |                                  | 27         |   |   |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Income taxed directly to minority shareholder |       |                                   | (353       | )                                      |       |                                   | —     |       |       |                                  | —     |   |   |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Non taxable trust income                      |       |                                   | —     |                                   |       |                                   | —     |       |       |                                  | —     |   |   |   |   |   | — |   |   |   | (2,324 | ) |   |   | (2,544 | ) |   |
| Other                                         |       |                                   | (232       | )                                      |       |                                   | —     |       |       |                                  | —     |   |   |   |   |   | — |   |   |   | 169 |   |   |   | 76 |   |   |
| Income tax expense                            |       |                                   | $          | 855                                    |       |                                   |       | $          | —     |                                  |       |   | $ | — |   |   |   |   |   | $ | 152 |   |   |   | $ | 833 |   |   |   | $ | 813 |   |   |
|                                               |            |                                        |            |                                        |            |                                        |            |            |            |                                       |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

A current federal taxbenefit of $2.7 million was offset by a valuation allowance due to uncertaintyof the realization of these tax benefits.

The Predecessor reported incometax benefits in 2004 and 2003 of $0.2 million and $1.7 million, respectively,related to discontinued operations.

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Significantcomponents of the Company’s net deferred tax assets (liabilities) are asfollows:

| ** **                                          | ** ** | ** **            | ** ** | ** **            | ** ** | ** ** | ** ** | **Predecessor**       | ** ** |
|-----------------------------------------------------|------------|-----------------------|------------|-----------------------|------------|------------|------------|-----------------------|------------|
| ** **                                          | ** ** | **December 31,** | ** ** | **December 31,** | ** ** | ** ** | ** ** | **December 31,** | ** ** |
| **(in thousands)**                             | ** ** | ** **            | ** ** | **2005**              | ** ** | **2004**   | ** ** | ** **            | ** ** | **2004** | ** ** |
| Deferred income tax assets:                         |       |                  |       |                  |       |       |       |                  |       |   |   |   |   |   |   |
| Current                                             |       |                  |       |                  |       |       |       |                  |       |   |   |   |   |   |   |
| Inventory                                           |       |                  | $          | 398                   |       |       |       | $                     | —     |   |   |   |   |   | $ | 180 |   |   |
| Accounts receivable                                 |       |                  | 527        |                  |       |       | —     |                  |       |   |   |   | 645 |   |   |
| Other                                               |       |                  | —     |                  |       |       | —     |                  |       |   |   |   | 394 |   |   |
| Current deferred income  tax assets                 |       |                  | 925        |                  |       |       | —     |                  |       |   |   |   | 1,219 |   |   |
| Non-current                                         |       |                  |       |                  |       |       |       |                  |       |   |   |   |   |   |   |
| Future foreign tax  credits                         |       |                  | 27,150     |                  |       |       | —     |                  |       |   |   |   | — |   |   |
| Property and equipment                              |       |                  | 561        |                  |       |       | —     |                  |       |   |   |   | 226 |   |   |
| Net operating loss  carryforwards                   |       |                  | 7,271      |                  |       |       | 531        |                  |       |   |   |   | — |   |   |
| Other                                               |       |                  | 562        |                  |       |       | —     |                  |       |   |   |   | 55 |   |   |
| Non-current deferred  income tax assets             |       |                  | 35,544     |                  |       |       | 531        |                  |       |   |   |   | 281 |   |   |
| Total deferred income  tax assets                   |       |                  | 36,469     |                  |       |       | 531        |                  |       |   |   |   | 1,500 |   |   |
| Less: valuation  allowance                          |       |                  | (31,405    | )                     |       |       | (531       | )                     |       |   |   |   | — |   |   |
| Total deferred income  tax assets, net              |       |                  | 5,064      |                  |       |       | —     |                  |       |   |   |   | 1,500 |   |   |
| Deferred tax liabilities:                           |       |                  |       |                  |       |       |       |                  |       |   |   |   |   |   |   |
| Intangible asset basis  difference                  |       |                  | (37,043    | )                     |       |       | —     |                  |       |   |   |   | — |   |   |
| Total deferred income  tax liabilities              |       |                  | (37,043    | )                     |       |       | —     |                  |       |   |   |   | — |   |   |
| Total deferred income tax assets (liabilities), net |       |                  | $          | (31,979               | )          |       |       | $                     | —     |   |   |   |   |   | $ | 1,500 |   |   |
|                                                     |            |                       |            |                       |            |            |            |                       |            |  |  |  |  |  |  |  |  |  |  |  |

 

The 2005 deferred tax assets were reduced by avaluation allowance of $31.4 million, principally relating to uncertaintyregarding the future realizability of tax benefits related to net operating losscarryforwards and foreign tax credits. When $27.2 million of these valuationallowances are reversed in future years, the reversals will be credited togoodwill in accordance with FAS 109.

At December 31, 2005and 2004, the Company had federal and state net operating loss carryforwards ofapproximately $9.3 million and $1.5 million, respectively, which begin toexpire in 2020. The utilization of these losses may be limited pursuant to Section 382of the Internal Revenue Code. The Company also had foreign net operating losscarryforwards of $16.9 million at December 31, 2005.

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**12.   Segment Information**

The Company currently has four reportable segments:Presley Business—Royalties and Licensing, Presley Business—GracelandOperations, 19 Entertainment and MBST. These designations have been made as thediscrete operating results of these segments are reviewed by the Company’schief operating decision maker to assess performance and make operatingdecisions. All inter-segment transactions have been eliminated in theconsolidated financial statements.

The operating income (loss) amounts for the PresleyBusiness after acquisition by the Company are not directly comparable to theamounts for the Presley Business as Predecessor due to the impact of purchaseaccounting adjustments made upon the acquisition of the Presley Business on February 7,2005 which resulted in a substantial increase in the carrying value of fixedand intangible assets and a corresponding increase in depreciation andamortization expense in the post-acquisition periods.

The Company evaluates its operating performance basedon several factors, including a financial measure of operating income (loss)before non-cash depreciation of tangible assets and non-cashamortization of intangible assets (which we refer to as “OIBDA”). The Companyconsiders OIBDA to be an important indicator of the operational strengths andperformance of our businesses, including the ability to provide cash flows toservice debt. However, a limitation of the use of OIBDA as a performancemeasure is that it does not reflect the periodic costs of certain capitalizedtangible and intangible assets used in generating revenue in our businesses.Accordingly, OIBDA should be considered in addition to, not as a substitutefor, operating income (loss), net income (loss) and other measures of financialperformance reported in accordance with US GAAP because OIBDA is not a GAAPequivalent measurement.

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| ** **                                                               | ** ** | **Presley Business**            | ** ** | ** **                | ** ** | ** **            | ** ** | ** ** | ** ** | ** **                    | ** ** |
|--------------------------------------------------------------------------|------------|--------------------------------------|------------|---------------------------|------------|-----------------------|------------|------------|------------|-------------------------------|------------|
| **Segment Information**                                             | ** ** | **Royalties and  Licensing**    | ** ** | **Graceland  Operations** | ** ** | **19  Entertainment** | ** ** | **MBST**   | ** ** | **Corporate  And other** | ** ** | **Total** | ** ** |
| ** **                                                               | ** ** | **(amounts in thousands)** | ** ** |
| **Year ended December 31,  2005:**                                  |       |                                 |       |                      |       |                  |       |       |       |                          |       |   |   |   |   |   |   |   |   |   |   |
| Revenue                                                                  |       |                                 | $          | 19,470                    |       |                  |       | $          | 28,618     |                          |       |   | $ | 70,567 |   |   | $ | 1,950 |   |   | $ | — |   |   | $ | 120,605 |   |
| Operating income(loss)                                                   |       |                                 | $          | 6,037                     |       |                  |       | $          | 4,065      |                          |       |   | $ | 815 |   |   | $ | (219 | ) |   | $ | (13,550 | ) |   | $ | (2,852 | ) |
| Depreciation and amortization                                       |       |                                 | $          | 3,040                     |       |                  |       | $          | 1,347      |                          |       |   | $ | 10,219 |   |   | $ | 291 |   |   | $ | 13 |   |   | $ | 14,910 |   |
| OIBDA                                                                    |       |                                 | $          | 9,077                     |       |                  |       | $          | 5,412      |                          |       |   | $ | 11,034 |   |   | $ | 72 |   |   | $ | (13,537 | ) |   | $ | 12,058 |   |
| **Year ended December 31,  2004:**                                  |       |                                 |       |                      |       |                  |       |       |       |                          |       |   |   |   |   |   |   |   |   |   |   |
| Revenue                                                                  |       |                                 | $          | —                    |       |                  |       | $          | —     |                          |       |   | $ | — |   |   | $ | — |   |   | $ | — |   |   | $ | — |   |
| Operating income (loss)                                                  |       |                                 | $          | —                    |       |                  |       | $          | —     |                          |       |   | $ | — |   |   | $ | — |   |   | $ | (100 | ) |   | $ | (100 | ) |
| Depreciation and amortization                                       |       |                                 | $          | —                    |       |                  |       | $          | —     |                          |       |   | $ | — |   |   | $ | — |   |   | $ | — |   |   | $ | — |   |
| OIBDA                                                                    |       |                                 | $          | —                    |       |                  |       | $          | —     |                          |       |   | $ | — |   |   | $ | — |   |   | $ | (100 | ) |   | $ | (100 | ) |
| **Year ended December 31,  2003:**                                  |       |                                 |       |                      |       |                  |       |       |       |                          |       |   |   |   |   |   |   |   |   |   |   |
| Revenue                                                                  |       |                                 | $          | —                    |       |                  |       | $          | —     |                          |       |   | $ | — |   |   | $ | — |   |   | $ | — |   |   | $ | — |   |
| Operating income (loss)                                                  |       |                                 | $          | —                    |       |                  |       | $          | —     |                          |       |   | $ | — |   |   | $ | — |   |   | $ | (85 | ) |   | $ | (85 | ) |
| Depreciation and amortization                                       |       |                                 | $          | —                    |       |                  |       | $          | —     |                          |       |   | $ | — |   |   | $ | — |   |   | $ | — |   |   | $ | — |   |
| OIBDA                                                                    |       |                                 | $          | —                    |       |                  |       | $          | —     |                          |       |   | $ | — |   |   | $ | — |   |   | $ | (85 | ) |   | $ | (85 | ) |
| **Period January 1, 2005 to  February 7, 2005 (Predecessor):** |       |                                 |       |                      |       |                  |       |       |       |                          |       |   |   |   |   |   |   |   |   |   |   |
| Revenue                                                                  |       |                                 | $          | 1,702                     |       |                  |       | $          | 1,740      |                          |       |   | $ | — |   |   | $ | — |   |   | $ | — |   |   | $ | 3,442 |   |
| Operating income (loss)                                                  |       |                                 | $          | 1,167                     |       |                  |       | $          | (705       | )                             |       |   | $ | — |   |   | $ | — |   |   | $ | — |   |   | $ | 462 |   |
| Depreciation and amortization                                       |       |                                 | $          | —                    |       |                  |       | $          | 126        |                          |       |   | $ | — |   |   | $ | — |   |   | $ | — |   |   | $ | 126 |   |
| OIBDA                                                                    |       |                                 | $          | 1,167                     |       |                  |       | $          | (579       | )                             |       |   | $ | — |   |   | $ | — |   |   | $ | — |   |   | $ | 588 |   |
| **Year ended December 31,  2004**                                   |       |                                 |       |                      |       |                  |       |       |       |                          |       |   |   |   |   |   |   |   |   |   |   |
| **(Predecessor):**                                                       |       |                                 |       |                      |       |                  |       |       |       |                          |       |   |   |   |   |   |   |   |   |   |   |
| Revenue                                                                  |       |                                 | $          | 13,506                    |       |                  |       | $          | 28,152     |                          |       |   | $ | — |   |   | $ | — |   |   | $ | — |   |   | $ | 41,658 |   |
| Operating income (loss)                                                  |       |                                 | $          | 8,981                     |       |                  |       | $          | 918        |                          |       |   | $ | — |   |   | $ | — |   |   | $ | — |   |   | $ | 9,899 |   |
| Depreciation and amortization                                       |       |                                 | $          | —                    |       |                  |       | $          | 1,201      |                          |       |   | $ | — |   |   | $ | — |   |   | $ | — |   |   | $ | 1,201 |   |
| OIBDA                                                                    |       |                                 | $          | 8,981                     |       |                  |       | $          | 2,119      |                          |       |   | $ | — |   |   | $ | — |   |   | $ | — |   |   | $ | 11,100 |   |
| **Year ended December 31,  2003**                                   |       |                                 |       |                      |       |                  |       |       |       |                          |       |   |   |   |   |   |   |   |   |   |   |
| **(Predecessor):**                                                       |       |                                 |       |                      |       |                  |       |       |       |                          |       |   |   |   |   |   |   |   |   |   |   |
| Revenue                                                                  |       |                                 | $          | 12,861                    |       |                  |       | $          | 31,515     |                          |       |   | $ | — |   |   | $ | — |   |   | $ | — |   |   | $ | 44,376 |   |
| Operating income (loss)                                                  |       |                                 | $          | 10,669                    |       |                  |       | $          | 212        |                          |       |   | $ | — |   |   | $ | — |   |   | $ | — |   |   | $ | 10,881 |   |
| Depreciation and amortization                                       |       |                                 | $          | —                    |       |                  |       | $          | 1,227      |                          |       |   | $ | — |   |   | $ | — |   |   | $ | — |   |   | $ | 1,227 |   |
| OIBDA                                                                    |       |                                 | $          | 10,669                    |       |                  |       | $          | 1,439      |                          |       |   | $ | — |   |   | $ | — |   |   | $ | — |   |   | $ | 12,108 |   |
| **Asset Information:**                                                   |       |                                 |       |                      |       |                  |       |       |       |                          |       |   |   |   |   |   |   |   |   |   |   |
| Segment assets at December 31, 2005                                 |       |                                 | $          | 76,694                    |       |                  |       | $          | 56,693     |                          |       |   | $ | 202,764 |   |   | $ | 14,195 |   |   | $ | 79,782 |   |   | $ | 430,128 |   |
| Segment assets at December 31, 2004                                      |       |                                 | $          | 6,927                     |       |                  |       | $          | 29,105     |                          |       |   | — |   |   | — |   |   | — |   |   | $ | 36,032 |   |
| Segment assets at  December 31, 2003                                     |       |                                 | $          | 5,672                     |       |                  |       | $          | 31,632     |                          |       |   | — |   |   | — |   |   | — |   |   | $ | 37,304 |   |
| Investment in  affiliates at December 31, 2005                      |       |                                 | $          | —                    |       |                  |       | $          | —     |                          |       |   | $ | 805 |   |   | $ | — |   |   | $ | — |   |   | $ | 805 |   |

 

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| ** **                                                                                                  | ** ** | **Presley Business**            | ** ** | ** **                | ** ** | ** **            | ** ** | ** ** | ** ** | ** **                    | ** ** |
|-------------------------------------------------------------------------------------------------------------|------------|--------------------------------------|------------|---------------------------|------------|-----------------------|------------|------------|------------|-------------------------------|------------|
| ** **                                                                                                  | ** ** | **Royalties and  Licensing**    | ** ** | **Graceland  Operations** | ** ** | **19  Entertainment** | ** ** | **MBST**   | ** ** | **Corporate  And other** | ** ** | **Total** | ** ** |
| ** **                                                                                                  | ** ** | **(amounts in thousands)** | ** ** |
| Purchase of  property and equipment for year ended December 31, 2005                                   |       |                                 | $          | —                    |       |                  |       | $          | 643        |                          |       |   | $ | 131 |   |   |   | $ | 11 |   |   |   | $ | 238 |   |   | $ | 1,023 |   |
| Purchase of  property and equipment for period January 1, 2005 to February 7,  2005 (Predecessor) |       |                                 | $          | —                    |       |                  |       | $          | 2          |                          |       |   | $ | — |   |   |   | $ | — |   |   |   | $ | — |   |   | $ | 2 |   |
| Purchase of  property and equipment for year ended December 31, 2004 (Predecessor)                     |       |                                 | $          | —                    |       |                  |       | $          | 345        |                          |       |   | $ | — |   |   |   | $ | — |   |   |   | $ | — |   |   | $ | 345 |   |
| Purchase of property and  equipment for year ended December 31, 2003 (Predecessor)                     |       |                                 | $          | —                    |       |                  |       | $          | 823        |                          |       |   | $ | — |   |   |   | $ | — |   |   |   | $ | 98 |   |   | $ | 921 |   |

 

Below is a reconciliation of the Company’s OIBDA tonet income (loss):

| ** **                                    | ** ** | ** ** | ** ** | ** **                                   | ** ** | ** **                                   | ** ** | ** **                                   | ** ** | ** ** | ** ** | **Predecessor Company** | ** ** |
|-----------------------------------------------|------------|------------|------------|----------------------------------------------|------------|----------------------------------------------|------------|----------------------------------------------|------------|------------|------------|------------------------------|------------|
| **(amounts in  thousands)**                   | ** ** | ** ** | ** ** | **Year Ended  December 31,  2005** | ** ** | **Year Ended  December 31,  2004** | ** ** | **Year Ended  December 31,  2003** | ** ** | ** ** | ** ** | ** **                   | ** ** | **January to  February 7,  2005** | ** ** | **Year Ended  December 31,  2004** | ** ** | **Year Ended  December 31,**

**2003** | ** ** |
| OIBDA                                         |       |       | $          | 12,058                                       |       |                                         |       | $                                            | (100       | )          |       |                         | $          | (85 | ) |   |   |   |   |   |   | $ | 588 |   |   |   | $ | 11,100 |   |   |   | $ | 12,108 |   |   |
| Depreciation and  amortization                |       |       | (14,910    | )                                            |       |                                         | —     |                                         |       |       | —     |                         |       |   |   |   |   |   | (126 | ) |   |   | (1,201 | ) |   |   | (1,227 | ) |   |
| Interest income                               |       |       | 1,797      |                                         |       |                                         | —     |                                         |       |       | —     |                         |       |   |   |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Interest (expense)                            |       |       | (4,617     | )                                            |       |                                         | (20        | )                                            |       |       | (9         | )                            |       |   |   |   |   |   | (115 | ) |   |   | (1,327 | ) |   |   | (1,362 | ) |   |
| Write-off of  unamortized deferred loan costs |       |       | (1,894     | )                                            |       |                                         | —     |                                         |       |       | —     |                         |       |   |   |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Equity in earnings  of affiliates             |       |       | 843        |                                         |       |                                         | —     |                                         |       |       | —     |                         |       |   |   |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Other income                                  |       |       | 2,970      |                                         |       |                                         | —     |                                         |       |       | 14         |                         |       |   |   |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Income tax expense                            |       |       | (855       | )                                            |       |                                         | —     |                                         |       |       | —     |                         |       |   |   |   |   |   | (152 | ) |   |   | (833 | ) |   |   | (813 | ) |   |
| Minority interest                             |       |       | (1,296     | )                                            |       |                                         | —     |                                         |       |       | —     |                         |       |   |   |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Loss from  discontinued operations.           |       |       | —     |                                         |       |                                         | —     |                                         |       |       | —     |                         |       |   |   |   |   |   | — |   |   |   | (246 | ) |   |   | (3,378 | ) |   |
| Net income (loss)                             |       |       | $          | (5,904                                       | )          |                                         |       | $                                            | (120       | )          |       |                         | $          | (80 | ) |   |   |   |   |   |   | $ | 195 |   |   |   | $ | 7,493 |   |   |   | $ | 5,328 |   |   |
|                                               |            |            |            |                                              |            |                                              |            |                                              |            |            |            |                              |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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The Company had revenuefrom international markets totaling $27.7 million for the year ended December 31,2005, of which $5.8 million was attributable to the Royalties and Licensingsegment and $21.9 million was attributable to the 19 Entertainment segment. ThePredecessor had revenue from international markets totaling $2.9 million and$3.2 million for the years ended December 31, 2004 and 2003, respectively,all of which was attributable to the Royalties and Licensing segment. TheCompany had revenue from three customers that each represent greater than 10%of the Company’s total revenue. Two customers accounted for $23.3 million and$12.3 million, respectively, of the 19 Entertainment segment’s total revenue. Theother customer accounted for $12.0 million of the 19 Entertainment segment’stotal revenue and $6.0 million of the Royalties and Licensing segment’s totalrevenue.

**13.**   Commitments andContingencies

**Commitments**

Totalrent expense for the Company under operating leases was $2.0 million, $0.1million and $0.1 million and $0.5 million and $0.5 million for the years ended December 31,2005, 2004 and 2003 and the years ended December 31, 2004 and 2003(Predecessor), respectively, and $0.1 million for the period January 1—February 7,2005 (Predecessor). Minimum rental commitments under noncancelable operatingleases are as follows:

| ** **                        | ** ** | **(in thousands)** | ** ** |
|-----------------------------------|------------|-------------------------|------------|
| **Year Ending December 31,** |       |                    |       |   |   |
| 2006                              |       |                    | $          | 2,651 |   |   |
| 2007                              |       |                    | 2,290      |   |   |
| 2008                              |       |                    | 2,265      |   |   |
| 2009                              |       |                    | 2,225      |   |   |
| 2010                              |       |                    | 1,873      |   |   |
| Thereafter                        |       |                    | 6,185      |   |   |
|                              |       |                    | $          | 17,489 |   |   |

 

The Company is required to make guaranteed minimumdistributions to The Promenade Trust of at least $1.2 million annually for aslong as The Promenade Trust continues to own 15% in the Presley Business. Inaddition, the purchase price for MBST is subject****toa working capital adjustment, of which $1.1 million was paid to the sellers incash and $0.5 million in common stock in 2005. The final working capital adjustment will bedetermined in 2006 and could result in additional payments to the sellers thatare expected to be less than $1.0 million. In addition, the sellers ofMBST may receive up to an additional 150,000 restricted shares of common stockupon satisfaction of certain performance thresholds over the five year periodfollowing the closing.

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TheCompany has entered into employment contracts with certain key executives andemployees, which include provisions for severance payments and benefits payablein the event of specified terminations of employment. Expected payments underemployment contracts are as follows:

| ** **                         | ** ** | **(in thousands)** | ** ** |
|------------------------------------|------------|-------------------------|------------|
| **Year  Ending December 31,** |       |                    |       |   |   |
| 2006                               |       |                    | $          | 9,686 |   |   |
| 2007                               |       |                    | 9,465      |   |   |
| 2008                               |       |                    | 7,875      |   |   |
| 2009                               |       |                    | 7,643      |   |   |
| 2010                               |       |                    | 2,467      |   |   |
| Thereafter                         |       |                    | 2,287      |   |   |
|                               |       |                    | $          | 39,423 |   |   |

 

**Contingencies**

There are various lawsuitsand claims pending against us and which we have initiated against others. Webelieve that any ultimate liability resulting from these actions or claims willnot have a material adverse effect on our results of operations, financialcondition or liquidity.

**14.**   Related PartyTransactions

Included in the consolidated statement of operationsfor the year ended December 31, 2005 are $2.2 million of costsrelated to the transition of the Company from an entity with no operations.These costs include $1.2 million of operating costs of an affiliate of RFXAcquisition LLC, primarily salaries, employee benefits, rent and other overheadcosts incurred from November 2004 through February 7, 2005, which,pursuant to certain agreements, were reimbursed by CKX upon closing of the RFXAcquisition LLC investment and the Presley Acquisition. The remaining costsconsist of legal expenses, listing fees, and due diligence expenses.

Immediately prior to the consummation of the varioustransactions resulting in our acquisition of the Presley Business, the Companyentered into a sublease for 16,810 square feet for its principal corporateoffices in New York, New York. The prior subtenants from whom the Companyassumed the terms of the sublease were FXM, Inc. (“FXM”) and MJX AssetManagement LLC (“MJX”). Mr. Sillerman is the managing member of MJX and isthe principal stockholder of FXM. Certain other executive officers of theCompany are also investors in MJX and FXM. The terms of the Company’s subleaseare identical to those which governed FXM’s and MJX’s occupation of such space.In accordance with certain requirements set forth in the existing sublease forthe space, FXM was required to remain as a guarantor to the Company’sobligations under the sublease. While the Company was not yet subject to the rules andregulations of The NASDAQ National Market®, the transaction was ratified by theindependent members of the board of directors of the Company in accordance withThe NASDAQ National Market’s® rules for affiliated transactions.

Priscilla Presley, themother of Lisa Marie Presley, the sole beneficiary of the trust which owned thePresley Business prior to February 7, 2005, made appearances on behalf ofthe Presley Business prior to its acquisition on February 7, 2005. Therelated salary expense was approximately $0.9 million for the years ended December 31,2004 and 2003 (Predecessor) and $0.1 million for the period January 1—February 7,2005 (Predecessor). 

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**15.**   Retirement Plan

The Company adopted thePredecessor’s defined contribution plan in 2005 covering U.S. employees whohave met eligibility requirements. The Company matches 100% on the first 3% and50% on the next 2% of what an employee contributes to the plan. The Company’smatching contribution for the year ended December 31, 2005 was $0.3million. The Predecessor’s matching contribution for the years ended December 31,2004 and 2003 were $0.3 million and $0.3 million, respectively. The Predecessor’smatching contribution for the period January 1—February 7, 2005 wasless than $0.1 million.

**16.**   DiscontinuedOperations Impairment and Loss (Predecessor)

Asresult of recurring losses by the restaurant operation of the Predecessor,management closed the restaurant in September 2003. The restaurant had nooperating results for the year ended December 31, 2004. The results of therestaurant operation are included in discontinued operations for the year endedDecember 31, 2003. Summary operating results for the discontinuedoperation for the year ended December 31, 2003 were as follows:

| ** **                     | ** ** | **(in thousands)** | ** ** |
|--------------------------------|------------|-------------------------|------------|
| Revenue                        |       |                    | $          | 2,012 |   |   |
| Pre-tax loss                   |       |                    | $          | (1,037 | ) |   |
| Discontinued loss, net  of tax |       |                    | $          | (653 | ) |   |

 

Theimpairment loss for the discontinued operation for the years ended December 31,2004 and 2003 (Predecessor) were as follows: 

| ** **                                        | ** ** | **Year Ended  December 31,** | ** ** |
|---------------------------------------------------|------------|----------------------------------------|------------|
| ** **                                        | ** ** | **2004**                               | ** ** | **2003** | ** ** |
| ** **                                        | ** ** | **(in thousands)**                | ** ** |
| Impairment loss  on net assets and other accruals |       | $                                      | (400       | ) | $ | (4,425 | ) |
| Tax benefit                                       |       | 154                                    |       | 1,700 |   |
|                                              |       | $                                      | (246       | ) | $ | (2,725 | ) |

 

The liability included on the Company’s consolidatedbalance sheet related to the restaurant lease as of December 31, 2005 was$0.4 million and as of December 31, 2004 and 2003, the Predecessor’sliability was $0.7 million.

86

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**17.   UnauditedQuarterly Financial Information **

In theopinion of the Company’s management, all adjustments, consisting of normalrecurring accruals considered necessary for a fair presentation have beenincluded on a quarterly basis. Certain prior quarter amounts have beenreclassified for current period presentation. All amounts for all periods shownare in thousands, except share information.

| **For the year ended  December 31, 2005** | ** ** | ** ** | ** ** | **First  Quarter** | ** ** | **Second  Quarter** | ** ** | **Third  Quarter** | ** ** | **Fourth  Quarter** | ** ** | **Total** | ** ** |
|--------------------------------------------------------------------|------------|------------|------------|--------------------|------------|---------------------|------------|--------------------|------------|---------------------|------------|-----------|------------|
| Revenues, net                                                      |       | $          | 9,987      |               | $          | 33,402              |       | $                  | 59,780     |                | $          | 17,436    |       | $ | 120,605 |   |
| Depreciation and  amortization                                     |       | 1,261      |       | 4,417              |       | 4,401               |       | 4,831              |       | 14,910              |       |
| Operating income  (loss)                                           |       | (1,462     | )          | 1,971              |       | 4,873               |       | (8,234             | )          | (2,852              | )          |
| Other income                                                       |       | 700        |       | 1,107              |       | 1,037               |       | 126                |       | 2,970               |       |
| Income tax  expense (benefit)                                      |       | (990       | )          | (720               | )          | 3,440               |       | (875               | )          | 855                 |       |
| Equity in  earnings of affiliates                                  |       | —     |       | 361                |       | 298                 |       | 184                |       | 843                 |       |
| Minority interest                                                  |       | (194       | )          | (518               | )          | (312                | )          | (272               | )          | (1,296              | )          |
| Net income (loss)                                                  |       | (924       | )          | (1,444             | )          | 3,115               |       | (6,651             | )          | (5,904              | )          |
| Dividends on  preferred stock                                      |       | (264       | )          | (456               | )          | (456                | )          | (456               | )          | (1,632              | )          |
| Accretion of  beneficial conversion feature                        |       | (17,762    | )          | —             |       | —              |       | —             |       | (17,762             | )          |
| Net income (loss)  available to commons shareholders               |       | (18,950    | )          | (1,900             | )          | 2,659               |       | (7,107             | )          | (25,298             | )          |
| Basic and diluted  income (loss) per common share                  |       | $          | (0.61      | )                  | $          | (0.03               | )          | $                  | 0.03       |                | $          | (0.08     | )          | $ | (0.35 | ) |
| Basic common  shares outstanding                                   |       | 31,169,140 |       | 69,455,184         |       | 91,858,319          |       | 92,165,348         |       | 71,429,858          |       |
| Diluted common shares  outstanding                                 |       | 31,169,140 |       | 69,455,184         |       | 92,932,174          |       | 92,165,348         |       | 71,429,858          |       |

 

| **For the year ended  December 31, 2004** | ** ** | ** ** | ** ** | **First  Quarter** | ** ** | **Second  Quarter** | ** ** | **Third  Quarter** | ** ** | **Fourth  Quarter** | ** ** | **Total** | ** ** |
|--------------------------------------------------------------------|------------|------------|------------|--------------------|------------|---------------------|------------|--------------------|------------|---------------------|------------|-----------|------------|
| Revenues, net                                                      |       | $          | —     |               | $          | —              |       | $                  | —     |                | $          | —    |       | $ | — |   |
| Selling, general  and administration expenses                      |       | 24         |       | 19                 |       | 25                  |       | 32                 |       | 100                 |       |
| Interest expenses                                                  |       | 3          |       | 6                  |       | 5                   |       | 6                  |       | 20                  |       |
| Net income (loss)  available to commons shareholders               |       | (27        | )          | (25                | )          | (30                 | )          | (38                | )          | (120                | )          |
| Basic and diluted  income (loss) per common share                  |       | $          | (0.01      | )                  | $          | (0.00               | )          | $                  | (0.01      | )                   | $          | (0.01     | )          | $ | (0.03 | ) |
| Basic common  shares outstanding                                   |       | 4,283,061  |       | 4,283,061          |       | 4,283,061           |       | 4,283,061          |       | 4,283,061           |       |
| Diluted common shares  outstanding                                 |       | 4,283,061  |       | 4,283,061          |       | 4,283,061           |       | 4,283,061          |       | 4,283,061           |       |

 

| **For the year ended  December 31, 2004  (Predecessor)** | ** ** | ** ** | ** ** | **First  Quarter** | ** ** | **Second  Quarter** | ** ** | **Third  Quarter** | ** ** | **Fourth  Quarter** | ** ** | **Total** | ** ** |
|-----------------------------------------------------------------------------------|------------|------------|------------|--------------------|------------|---------------------|------------|--------------------|------------|---------------------|------------|-----------|------------|
| Revenues, net                                                                     |       | $          | 7,468      |               | $          | 11,567              |       | $                  | 12,685     |                | $          | 9,938     |       | $ | 41,658 |   |
| Depreciation and  amortization                                                    |       | 297        |       | 297                |       | 304                 |       | 303                |       | 1,201               |       |
| Operating income  (loss)                                                          |       | (147       | )          | 3,931              |       | 3,533               |       | 2,582              |       | 9,899               |       |
| Other income                                                                      |       | 16         |       | 82                 |       | 464                 |       | 271                |       | 833                 |       |
| Net income (loss)                                                                 |       | (607       | )          | 3,622              |       | 2,832               |       | 1,646              |       | 7,493               |       |
|                                                                                   |            |            |            |                    |            |                     |            |                    |            |                     |            |           |            |  |  |  |  |  |

 

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**ITEM 9.**                CHANGESIN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

**ITEM 9A.**        CONTROLSAND PROCEDURES

In connection with the audit of the financialstatements of the Presley Business for the year ended December 31, 2004,management identified, and Deloitte & Touche LLP, our independentregistered public accounting firm, communicated certain material weaknesses ininternal controls which existed prior to our acquiring control of the PresleyBusiness.  Prior to our acquisition on February 7,2005, the Presley Business was a privately owned company and, therefore, wasnot required to maintain the same level of internal controls as a publiccompany in the United States. The material weaknesses identified at the PresleyBusiness included deficiencies in the number of accounting staff, the financialclosing and reporting process, accounting for licensing arrangements andinventory management. Since acquiring the Presley business, we have addressedthe deficiencies and material weaknesses identified including hiring a new VicePresident of Finance and other accounting staff and engaging outside consultantsto implement new controls and procedures at the Presley Business. As a result,management believes the material weaknesses described above have been addressedand resolved.

Management, with the participation of the Company’schief executive officer, Robert F.X. Sillerman, and its chief financialofficer, Thomas P. Benson, has evaluated the effectiveness of the Company’sdisclosure controls and procedures (as defined in the Securities Exchange Actof 1934 Rules 13a-15 (e) or 15d-15 (e)) as of December 31, 2005.  Based on this evaluation, the chief executiveofficer and financial officer have concluded that, as of that date, disclosurecontrols and procedures required by paragraph (b) of Exchange Act rules 13a-15or 15d-15, were not effective because of the identification of a materialweakness in internal control over financial reporting, which the Company viewsas an integral part of its disclosure controls and procedures.  The material weakness relates to theineffective oversight and review of the Company’s accounting for incometaxes.  

In the fourth quarter of 2005, management implementedadditional oversight and review procedures designed to strengthen the internalcontrol at its acquired businesses and is confident that, as of the date ofthis filing, the Company has substantially completed the process of fullyremediating its deficient controls and procedures at these entities.  As for accounting for income taxes, theCompany intends to hire additional staff with the requisite knowledge necessaryto properly account for foreign and domestic income taxes.

**ITEM 9B.**       OTHERINFORMATION

None.

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**PART III**

**ITEM 10.**         DIRECTORSAND EXECUTIVE OFFICERS OF THE REGISTRANT

Incorporated by reference from the informationcaptioned under the headings “CKX Board of Directors,” “Executive Officers andDirectors of CKX, Inc.” and “Section 16(a) Beneficial OwnershipReporting Compliance” included in our Proxy Statement to be filed in connectionwith the annual meeting of stockholders to be held in May 2006.

The Company has adopted aCode of Business Conduct and Ethics, which is applicable to all our employeesand directors, including our principal executive officer, principal financialofficer and principal accounting officer. The Company has also adopted aseparate Code of Ethics for Senior Financial Management that applies to ourChief Executive Officer, Chief Financial Officer, Director of Legal andGovernmental Affairs and other officers in our finance and accountingdepartment. The codes of conduct and ethics are posted on our website locatedat www.ckx.com. 

**ITEM 11.**         EXECUTIVECOMPENSATION

Incorporated by referencefrom the information captioned “Executive Compensation” included in our ProxyStatement in connection with the annual meeting of stockholders to be held in May 2006.

**ITEM 12.**         SECURITYOWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERMATTERS

Incorporated by referencefrom the information captioned “Security Ownership of Certain Beneficial Ownersand Management” included in our Proxy Statement in connection with the annualmeeting of stockholders to be held in May 2006.

**ITEM 13.**         CERTAINRELATIONSHIPS AND RELATED TRANSACTIONS

Incorporated by referencefrom the information captioned “Related Party Transactions” included in ourProxy Statement in connection with the annual meeting of stockholders to beheld in May 2006.

**ITEM 14.**         PRINCIPALACCOUTANT FEES AND SERVICES

Incorporated by referencefrom the information captioned “Services Provided by the Independent PublicAccountant and Fees Paid” included in our Proxy Statement in connection withthe annual meeting of stockholders to be held in May 2006.

**PART IV**

**ITEM 15.**         EXHIBITS,FINANCIAL STATEMENTS AND SCHEDULES

**FinancialStatements**

See Table of Contents toConsolidated Financial Statements at page 49.

**Financial StatementSchedule**

Schedule II—Valuation and Qualifying Accounts forthe years ended December 31, 2005 (CKX), 2004 and 2003 (CKX andPredecessor)

89

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**FinancialStatement Schedule**

**SCHEDULEII**

**CKX, Inc.VALUATION AND QUALIFYING ACCOUNTSYEARS ENDED DECEMBER 31, 2005 (CKX), 2004 AND 2003 (CKX AND PREDECESSOR)(DOLLARS IN THOUSANDS)**

| ** **                       | ** ** | **Balance at**   | ** ** | **Additions Charged** | ** ** | ** **                      | ** ** | ** **     | ** ** | ** **                  | ** ** |
|----------------------------------|------------|-----------------------|------------|----------------------------|------------|---------------------------------|------------|----------------|------------|-----------------------------|------------|
| ** **                       | ** ** | **Beginning of** | ** ** | **to Costs**          | ** ** | **Additions Charged**      | ** ** | ** **     | ** ** | **Balance at**         | ** ** |
| **Description**                  | ** ** | **Period**            | ** ** | **and Expenses**      | ** ** | **to Other Accounts** | ** ** | **Deductions** | ** ** | **End of Period** | ** ** |
| **2005**                         |       |                  |       |                       |       |                            |       |           |       |                        |       |   |   |   |   |   |   |   |   |   |   |
| Accounts receivable              |       |                  |       |                       |       |                            |       |           |       |                        |       |   |   |   |   |   |   |   |   |   |   |
| Allowance for doubtful  accounts |       |                  | $          | —                     |       |                            |       | $              | 27         |                        |       |   | $ | — |   |   |   | $ | (20 | ) |   |   | $ | 7 |   |   |
| Inventory                        |       |                  |       |                       |       |                            |       |           |       |                        |       |   |   |   |   |   |   |   |   |   |   |
| Allowance for  obsolescence      |       |                  | $          | —                     |       |                            |       | $              | 394        |                        |       |   | $ | — |   |   |   | $ | — |   |   |   | $ | 394 |   |   |
| Deferred taxes                   |       |                  |       |                       |       |                            |       |           |       |                        |       |   |   |   |   |   |   |   |   |   |   |
| Valuation allowance              |       |                  | $          | —                     |       |                            |       | $              | —     |                        |       |   | $ | 31,405 |   |   |   | $ | — |   |   |   | $ | 31,405 |   |   |
| Total                            |       |                  | $          | —                     |       |                            |       | $              | 421        |                        |       |   | $ | 31,405 |   |   |   | $ | (20 | ) |   |   | $ | 31,806 |   |   |
| **2004**                         |       |                  |       |                       |       |                            |       |           |       |                        |       |   |   |   |   |   |   |   |   |   |   |
| Accounts receivable              |       |                  |       |                       |       |                            |       |           |       |                        |       |   |   |   |   |   |   |   |   |   |   |
| Allowance for doubtful  accounts |       |                  | $          | —                     |       |                            |       | $              | —     |                        |       |   | $ | — |   |   |   | $ | — |   |   |   | $ | — |   |   |
| Inventory                        |       |                  |       |                       |       |                            |       |           |       |                        |       |   |   |   |   |   |   |   |   |   |   |
| Allowance for  obsolescence      |       |                  | $          | —                     |       |                            |       | $              | —     |                        |       |   | $ | — |   |   |   | $ | — |   |   |   | $ | — |   |   |
| Total                            |       |                  | $          | —                     |       |                            |       | $              | —     |                        |       |   | $ | — |   |   |   | $ | — |   |   |   | $ | — |   |   |
| **2003**                         |       |                  |       |                       |       |                            |       |           |       |                        |       |   |   |   |   |   |   |   |   |   |   |
| Accounts receivable              |       |                  |       |                       |       |                            |       |           |       |                        |       |   |   |   |   |   |   |   |   |   |   |
| Allowance for doubtful  accounts |       |                  | $          | —                     |       |                            |       | $              | —     |                        |       |   | $ | — |   |   |   | $ | — |   |   |   | $ | — |   |   |
| Inventory                        |       |                  |       |                       |       |                            |       |           |       |                        |       |   |   |   |   |   |   |   |   |   |   |
| Allowance for  obsolescence      |       |                  | $          | —                     |       |                            |       | $              | —     |                        |       |   | $ | — |   |   |   | $ | — |   |   |   | $ | — |   |   |
| Total                            |       |                  | $          | —                     |       |                            |       | $              | —     |                        |       |   | $ | — |   |   |   | $ | — |   |   |   | $ | — |   |   |
| **2004 (Predecessor)**           |       |                  |       |                       |       |                            |       |           |       |                        |       |   |   |   |   |   |   |   |   |   |   |
| Accounts receivable              |       |                  |       |                       |       |                            |       |           |       |                        |       |   |   |   |   |   |   |   |   |   |   |
| Allowance for doubtful  accounts |       |                  | $          | 110                        |       |                            |       | $              | —     |                        |       |   | $ | — |   |   |   | $ | (40 | ) |   |   | $ | 70 |   |   |
| Inventory                        |       |                  |       |                       |       |                            |       |           |       |                        |       |   |   |   |   |   |   |   |   |   |   |
| Allowance for  obsolescence      |       |                  | $          | 175                        |       |                            |       | $              | 50         |                        |       |   | $ | — |   |   |   | $ | — |   |   |   | $ | 225 |   |   |
| Total                            |       |                  | $          | 285                        |       |                            |       | $              | 50         |                        |       |   | $ | — |   |   |   | $ | (40 | ) |   |   | $ | 295 |   |   |
| **2003 (Predecessor)**           |       |                  |       |                       |       |                            |       |           |       |                        |       |   |   |   |   |   |   |   |   |   |   |
| Accounts receivable              |       |                  |       |                       |       |                            |       |           |       |                        |       |   |   |   |   |   |   |   |   |   |   |
| Allowance for doubtful  accounts |       |                  | $          | 30                         |       |                            |       | $              | 80         |                        |       |   | $ | — |   |   |   | $ | — |   |   |   | $ | 110 |   |   |
| Inventory                        |       |                  |       |                       |       |                            |       |           |       |                        |       |   |   |   |   |   |   |   |   |   |   |
| Allowance for  obsolescence      |       |                  | $          | 125                        |       |                            |       | $              | 50         |                        |       |   | $ | — |   |   |   | $ | — |   |   |   | $ | 175 |   |   |
| Total                            |       |                  | $          | 155                        |       |                            |       | $              | 130        |                        |       |   | $ | — |   |   |   | $ | — |   |   |   | $ | 285 |   |   |

 

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**Exhibits**

Thedocuments set forth below are filed herewith or incorporated herein byreference to the location indicated.
| Exhibit No. | ** **                  | **Description** |
|------------------|-----------------------------|-----------------|
|             |  3.1    |            |   | Certificate of  Incorporation (Previously filed as Exhibit 3.1 to the Form 10-KSB  filed March 31, 2005, and incorporated herein by reference). |
|             |  3.2              |            |   | Bylaws (Previously filed  as Exhibit 3.2 to the Form 10-KSB filed March 31, 2005,  and incorporated herein by reference). |
|             |  4.1                   |            |   | Specimen Common Stock Certificate  (Previously filed as Exhibit 4.1 to the Form 10-KSB filed  March 31, 2005, and incorporated herein by reference). |
|             |  4.2                   |            |   | Registration Rights  Agreement, dated February 7, 2005 between the Company and The Huff  Alternative Fund, L.P. (Previously filed as Exhibit 4.4 to the  Form 8-K/A filed February 11, 2005, and incorporated herein  by reference). |
|             |  4.3                   |            |   | Registration Rights  Agreement, dated February 7, 2005 between the Company and The Promenade  Trust (Previously filed as Exhibit 4.5 to the Form 8-K/A  filed February 11, 2005, and incorporated herein by reference). |
|             |  4.4                   |            |   | Registration Rights  Agreement, dated March 17, 2005, by and among the Company, Simon Robert  Fuller and Fuller Nominees Limited (Previously filed as Exhibit 4.2 to  the Form 10-QSB for the three months ended March 31, 2005,  and incorporated herein by reference). |
|             |  4.5                   |            |   | Form of Common  Stock Purchase Warrant, dated as of February 7, 2005, to purchase shares  of common stock of the Company (Previously filed as Exhibit 4.6 to the  Form 8-K/A filed February 11, 2005, and incorporated herein  by reference). |
|             |  4.6                   |            |   | Form of Promissory  Term Note made on February 7, 2005, payable to Priscilla Presley  (Previously filed as Exhibit 4.8 to the Form 8-K/A filed  February 11, 2005, and incorporated herein by reference). |
|             |  4.7                   |            |   | Letter Agreement, dated  June 6, 2005 among the Company, The Huff Alternative Fund, L.P. and The  Huff Alternative Parallel Fund, L.P. (Previously filed as Exhibit 4.9 to  Amendment No. 3 to Form S-1/A (Registration Statement No. 333-123995) filed June 21,  2005, and incorporated herein by reference). |
|             | 10.1                        |            |   | Contribution and  Exchange Agreement dated as of December 15, 2004 between the Company,  The Promenade Trust and RFX Acquisition LLC (Previously filed as  Exhibit 10.1 to the Form 8-K/A filed February 11, 2005,  and incorporated herein by reference). |
|             | 10.2                        |            |   | Amendment to the  Contribution and Exchange Agreement dated as of February 7, 2005 between  the Company, The Promenade Trust and RFX Acquisition LLC (Previously filed as  Exhibit 10.2 to the Form 8-K/A filed February 11, 2005,  and incorporated herein by reference). |
|             | 10.3                        |            |   | Purchase Agreement,  dated as of December 15, 2004, by and among the Company, Ronald S.  Boreta, Vaso Boreta, John Boreta, Boreta Enterprises Ltd., ASI Group LLC and  RFX Acquisition LLC (Previously filed as Exhibit 10.3 to the Form 8-K/A  filed February 11, 2005, and incorporated herein by reference). |
|                  |                             |                 |  |  |  |

91

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|        | 10.4  |   |   | Amendment to  Purchase Agreement, dated as of February 7, 2005, by and among the  Company, Ronald S. Boreta, Vaso Boreta, John Boreta, Boreta Enterprises Ltd.,  ASI Group LLC and RFX Acquisition LLC (Previously filed as Exhibit 10.4  to the Form 8-K/A filed February 11, 2005, and incorporated  herein by reference).                                                                                                                                      |
|--------|-------|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | 10.5  |   |   | Stock Purchase  Agreement, dated as of December 15, 2004, by and among Ronald S. Boreta,  Vaso Boreta, John Boreta, Boreta Enterprises Ltd., ASI Group LLC and RFX  Acquisition LLC (Previously filed as Exhibit 10.5 to the Form 8-K/A  filed February 11, 2005, and incorporated herein by reference).                                                                                                                                                          |
|   | 10.6  |   |   | Amendment to Stock  Purchase Agreement, dated as of February 7, 2005, by and among Ronald S.  Boreta, Vaso Boreta, John Boreta, Boreta Enterprises Ltd., ASI Group LLC and  RFX Acquisition LLC (Previously filed as Exhibit 10.6 to the Form 8-K/A  filed February 11, 2005, and incorporated herein by reference).                                                                                                                                              |
|   | 10.7  |   |   | Stock Purchase Agreement  dated as of February 7, 2005, by and between the Company and The Huff  Alternative Fund, L.P. and affiliates (Previously filed as Exhibit 10.7  to the Form 8-K/A filed February 11, 2005, and incorporated  herein by reference).                                                                                                                                                                                                      |
|   | 10.8  |   |   | Stock Pledge Agreement,  dated as of February 7, 2005, by and among RFX Acquisition LLC, Ronald  S. Boreta, John Boreta and Boreta Enterprises, Ltd. (Previously filed as  Exhibit 10.8 to the Form 8-K/A filed February 11, 2005,  and incorporated herein by reference).                                                                                                                                                                                        |
|   | 10.9  |   |   | Lease Agreement, dated  as of February 7, 2005, by and between The Promenade Trust and Elvis  Presley Enterprises, Inc. with respect to the Graceland property  (Previously filed as Exhibit 10.9 to the Form 8-K/A filed  February 11, 2005, and incorporated herein by reference).                                                                                                                                                                         |
|   | 10.10 |   |   | Elvis Presley  Enterprises, Inc. Shareholders Agreement, dated as of February 7,  2005 (Previously filed as Exhibit 10.10 to the Form 8-K/A  filed February 11, 2005, and incorporated herein by reference).                                                                                                                                                                                                                                                 |
|   | 10.11 |   |   | Amended and Restated  Operating Agreement of Elvis Presley Enterprises, LLC, dated as of  February 7, 2005 (Previously filed as Exhibit 10.11 to the  Form 8-K/A filed February 11, 2005, and incorporated herein  by reference).                                                                                                                                                                                                                                 |
|   | 10.12 |   |   | Bridge Loan Credit  Agreement dated as of February 7, 2005 among the Company, EPE Holding  Corporation, certain financial institutions or entities from time to time,  Bear, Stearns & Co., Inc., as sole lead arranger, and Bear  Stearns Corporate Lending Inc., as administrative agent (Previously filed as  Exhibit 10.12 to the Form 8-K/A filed February 11, 2005,  and incorporated herein by reference).                                   |
|   | 10.13 |   |   | Bridge Loan Credit  Agreement, dated as of March 17, 2005, among the Company, CKX UK  Holdings Limited, the several banks and other financial institutions or  entities from time to time, Bear, Stearns & Co. Inc., as sole lead  arranger, and Bear Stearns Corporate Lending Inc., as administrative agent  (Previously filed as Exhibit 10.22 to the Form 10-QSB for the  three months ended March 31, 2005, and incorporated herein by  reference). |
|   | 10.14 |   |   | Agreement for the sale  and purchase of the entire issued share capital of 19 Entertainment Limited,  dated March 17, 2005 among Simon Robert Fuller, Fuller Nominees LTD,  Ingenious Ventures LTD, the Company and CKX UK Holdings Limited (Previously  filed as Exhibit 10.21 to the Form 10-QSB for the three  months ended March 31, 2005, and incorporated herein by reference).                                                                             |

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|        | 10.15 |   |   | Amended and Restated  Bridge Loan Credit Agreement, dated as of March 17, 2005, among the  Company, EPE Holding Corporation, the several banks and other financial  institutions or entities from time to time, Bear, Stearns & Co.  Inc., as sole lead arranger, and Bear Stearns Corporate Lending Inc., as  administrative agent (Previously filed as Exhibit 10.13 to the  Form 10-QSB for the three months ended March 31, 2005, and  incorporated herein by reference). |
|--------|-------|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | 10.16 |   |   | Agreement (the “Fox  Letter Agreement”) between 19 TV Limited, FremantleMedia North  America, Inc. and Fox Broadcasting Company, dated April 22, 2002  (Previously filed as Exhibit 10.15 to Amendment No. 3 to  Form S-1/A (Registration  Statement No. 333-123995) filed June 21, 2005, and  incorporated herein by reference).                                                                                                                             |
|   | 10.17 |   |   | Letter Agreement,  between Pearson Television Operations BV, (predecessor in interest to  FremantleMedia North America, Inc.) and 19 TV Limited, dated  July 6, 2001 (Previously filed as Exhibit 10.16 to Amendment  No. 3 to Form S-1/A (Registration  Statement No. 333-123995) filed June 21, 2005, and  incorporated herein by reference).                                                                                                                         |
|   | 10.18 |   |   | Agreement (the “SonyBMG  Agreement”), between 19 Recordings Limited and Ronagold Limited, dated  February 8, 2002, as amended (Previously filed as Exhibit 10.17 to  Amendment No. 3 to Form S-1/A (Registration Statement No. 333-123995) filed June 21,  2005, and incorporated herein by reference).                                                                                                                                                            |
|   | 10.19 |   |   | Agreement, between 19 TV  Limited, FremantleMedia North America, Inc. and Fox Broadcasting  Company, amending the Fox Letter Agreement, dated May 15, 2003  (Previously filed as Exhibit 10.23 to Amendment No. 3 to  Form S-1/A (Registration  Statement No. 333-123995) filed June 21, 2005, and  incorporated herein by reference).                                                                                                                                  |
|   | 10.20 |   |   | Letter Agreement between  19 Recordings Limited and Ronagold Limited, amending the SonyBMG Agreement,  dated October 14, 2004 (Previously filed as Exhibit 10.24 to  Amendment No. 3 to Form S-1/A (Registration Statement No. 333-123995) filed June 21,  2005, and incorporated herein by reference).                                                                                                                                                                      |
|   | 10.21 |   |   | Employment Agreement  between the Company and Robert F.X. Sillerman (Previously filed as  Exhibit 10.18 to Form S-1 filed April 11, 2005, and incorporated herein by reference).                                                                                                                                                                                                                                                                                                            |
|   | 10.22 |   |   | Employment Agreement  between the Company and Mitchell J. Slater (Previously filed as  Exhibit 10.19 to Form S-1 filed April 11, 2005, and incorporated herein by reference).                                                                                                                                                                                                                                                                                                               |
|   | 10.23 |   |   | Employment Agreement  between the Company and Howard J. Tytel (Previously filed as  Exhibit 10.20 to Form S-1 filed April 11, 2005, and incorporated herein by reference).                                                                                                                                                                                                                                                                                                                  |
|   | 10.24 |   |   | Employment Agreement  between the Company and Thomas P. Benson (Previously filed as  Exhibit 10.21 to Form S-1 filed April 11, 2005, and incorporated herein by reference).                                                                                                                                                                                                                                                                                                                 |
|   | 10.25 |   |   | Employment Agreement  between the Company and Michael G. Ferrel (Previously filed as  Exhibit 10.27 to Amendment No. 1 to Form S-1/A (Registration Statement No. 333-123995)  filed May 19, 2005, and incorporated herein by reference).                                                                                                                                                                                                                                          |
|   | 10.26 |   |   | Director’s Service  Agreement, dated March 17, 2005 between 19 Entertainment Limited and  Simon Robert Fuller (Previously filed as Exhibit 10.19 to the  Form 10-QSB for the three months ended March 31, 2005, and  incorporated herein by reference).                                                                                                                                                                                                                           |

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|        | 10.27            |   |     | Confidentiality,  Non-Competition, Non-Solicitation, and Non-Recruitment Agreement, dated as of  March 17, 2005 by and between Simon Robert Fuller, the Company and CKX  UK Holdings Limited (Previously filed as Exhibit 10.20 to the  Form 10-QSB for the three months ended March 31, 2005, and  incorporated herein by reference).                                                                                                                                                                                                                                                                 |
|--------|------------------|--------|----------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | 10.28            |   |     | Shareholders Agreement  dated June 22, 2004 between 19 Merchandising Limited, David Beckham,  Victoria Beckham and Beckham Brand Limited (Previously filed as  Exhibit 10.28 to Amendment No. 1 to Form S-1/A (Registration Statement No. 333-123995)  filed May 19, 2005, and incorporated herein by reference).                                                                                                                                                                                                                                                                            |
|   | 10.29            |   |     | Revolving Credit  Facility Commitment Letter, dated June 2, 2005, among the Company, Bear,  Stearns & Co. Inc., Bear Stearns Corporate Lending Inc., Credit  Suisse, Lehman Commercial Paper Inc. and The Bank of New York (Previously  filed as Exhibit 10.29 to Amendment No. 2 to Form S-1/A  (Registration Statement No. 333-123995)  filed June 6, 2005, and incorporated herein by reference).                                                                                                                                                                                |
|   | 10.30            |   |     | Agreement and Plan of  Merger, dated as of July 22, 2005, by and among the Company,  MBST Acquisition Corp. and Focus Acquisition Corp. and Lawrence Brezner,  David Steinberg and Stephen Tenenbaum, The Lawrence Brezner Living  Trust, The Steinberg/Thayer Living Trust, and The Tenenbaum Living Trust and  Morra, Brezner, Steinberg & Tenenbaum Entertainment, Inc.,  Focus Enterprises, Inc. and StepTeco, Inc. (Previously filed as  Exhibit 10.1 to the Form 10-QSB for the three months ended  September 30, 2005, and incorporated herein by reference). |
|   | *10.31           |   |     | Agreement among 19  Recordings Limited, 19 TV Limited, Simco Limited, CKX UK Holdings Limited, 19  Entertainment Limited and Sony BMG Music Entertainment (UK) Limited, dated  November 28, 2005.                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   | *10.32           |   |     | Agreement between 19  Recordings Limited and Ronagold Limited, dated November 28, 2005,  amending the terms of the SonyBMG Agreement.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   | *10.33           |   | * * | Binding Heads of Terms  among Fox Broadcasting Company, FremantleMedia North America Inc. and 19 TV  Limited regarding the*American Idol*  television series*.*                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   |   14.1 |   |     | Code of Ethics  (Previously filed as Exhibit 14.1 to the Form 8-K/A filed  February 11, 2005, and incorporated herein by reference).                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   | *21.2            |   |     | List of Subsidiaries.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   | *23.1            |   |     | Consent of Deloitte  & Touche LLP relating to CKX, Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   | *23.2            |   |     | Consent of Deloitte  & Touche LLP relating to the Presley Business.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   | *23.3            |   |     | Consent of Piercy Bowler  Taylor & Kern relating to CKX, Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   | *31.1            |   |     | Certification of Principal  Executive Officer.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|   | *31.2            |   |     | Certification of  Principal Financial Officer.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|   | *32.1            |   |     | Section 1350  Certification of Principal Executive Officer.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   | *32.2            |   |     | Section 1350  Certification of Principal Financial Officer.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |

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*                    Filedherewith.

94

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**SIGNATURES**

Pursuantto the requirements of Section 13 or 15(d) of the Securities ExchangeAct of 1934, the registrant has duly caused this Report to be signed on itsbehalf by the undersigned thereunto r duly authorized.
| **CKX, Inc.** |     |                                                                    |
|--------------------|----------|-------------------------------------------------------------------------|
| By:                |     |  /s/ ROBERT  F.X. SILLERMAN                                   |   | March  13, 2006 |
| * *           | * * | *Robert F.X. Sillerman*                                                 |   |   |
| * *           | * * | *Chief Executive Officer and Chairman of the Board*                     |   |   |
| By:                |     | /s/ THOMAS P. BENSON                                               |   | March  13, 2006 |
| * *           | * * | *Thomas P. Benson*                                                      |   |   |
| * *           | * * | *Chief Financial Officer, Executive Vice  President and Treasurer* |   |

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, this Report has been signed below by the followingpersons on behalf of the registrant and in the capacities and on the datesindicated.

| By:      |     |  /s/ ROBERT  F.X. SILLERMAN          |   | March  13, 2006 |
|----------|----------|------------------------------------------------|--------|-----------------|
| * * | * * | *Robert F.X. Sillerman, Chairman of the Board* |   |            |
| By:      |     |  /s/ MICHAEL  G. FERREL              |   | March  13, 2006 |
| * * | * * | *Michael G. Ferrel, Director*                  |   |            |
| By:      |     | /s/ MITCHELL J. SLATER                    |   | March  13, 2006 |
| * * | * * | *Mitchell J. Slater, Director*                 |   |            |
| By:      |     | /s/ HOWARD J. TYTEL                       |   | March  13, 2006 |
| * * | * * | *Howard J. Tytel, Director*                    |   |            |
| By:      |     | /s/ THOMAS P. BENSON                      |   | March  13, 2006 |
| * * | * * | *Thomas P. Benson, Director*                   |   |            |
| By:      |     | /s/ EDWIN M. BANKS                        |   | March  13, 2006 |
| * * | * * | *Edwin M. Banks, Director*                     |   |            |
| By:      |     | /s/ EDWARD BLEIER                         |   | March  13, 2006 |
| * * | * * | *Edward Bleier, Director*                      |   |            |
| By:      |     | /s/ JERRY L. COHEN                        |   | March  13, 2006 |
| * * | * * | *Jerry L. Cohen, Director*                     |   |            |
| By:      |     | /s/ SIMON FULLER                          |   | March  13, 2006 |
| * * | * * | *Simon Fuller, Director*                       |   |            |
| By:      |     | /s/ CARL D. HARNICK                       |   | March  13, 2006 |
| * * | * * | *Carl D. Harnick, Director*                    |   |            |

95

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| By:      |     | /s/ JACK LANGER               |   | March  13, 2006 |
|----------|----------|-------------------------------|--------|-----------------|
| * * | * * | *Jack Langer, Director*       |   |            |
| By:      |     | /s/ JOHN D. MILLER       |   | March  13, 2006 |
| * * | * * | *John D. Miller, Director*    |   |            |
| By:      |     | /s/ BRUCE MORROW         |   | March  13, 2006 |
| * * | * * | *Bruce Morrow, Director*      |   |            |
| By:      |     | /s/ PRISCILLA PRESLEY         |   | March  13, 2006 |
| * * | * * | *Priscilla Presley, Director* |   |            |
| By:      |     | /s/  BIRAME N. SOCK           |   | March  13, 2006 |
| * * | * * | *Birame N. Sock, Director*    |   |            |

 

96

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**INDEX TO EXHIBITS**
| Exhibit No. | ** ** | **Description** |
|------------------|------------|-----------------|
|             | 10.31      |            |   | Agreement among 19  Recordings Limited, 19 TV Limited, Simco Limited, CKX UK Holdings Limited, 19  Entertainment Limited and Sony BMG Music Entertainment (UK) Limited, dated  November 28, 2005. |
|             | 10.32      |            |   | Agreement between 19  Recordings Limited and Ronagold Limited, dated November 28, 2005,  amending the terms of the SonyBMG Agreement. |
|             | 10.33      |            | * * | Binding Heads of Terms  among Fox Broadcasting Company, FremantleMedia North America Inc. and 19 TV  Limited regarding the*American Idol*  television series*.* |
|             | 21.2       |            |   | List of Subsidiaries. |
|             | 23.1       |            |   | Consent of Deloitte  & Touche LLP relating to CKX, Inc. |
|             | 23.2       |            |   | Consent of Deloitte  & Touche LLP relating to the Presley Business. |
|             | 23.3       |            |   | Consent of Piercy Bowler  Taylor & Kern relating to CKX, Inc. |
|             | 31.1       |            |   | Certification of  Principal Executive Officer. |
|             | 31.2       |            |   | Certification of  Principal Financial Officer. |
|             | 32.1       |            |   | Section 1350  Certification of Principal Executive Officer. |
|             | 32.2       |            |   | Section 1350  Certification of Principal Financial Officer. |

 

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