**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, 2006** |
| **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.**(Exactname of Registrant as specified in its charter)

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

 

**650 Madison AvenueNew York, New York 10022**(Addressof Principal Executive Offices and Zip Code)Registrant’s Telephone Number, Including Area Code: (212) 838-3100SecuritiesRegistered Pursuant to Section 12(b) of the Act:NoneSecuritiesRegistered Pursuant to Section 12(g) of the Act:Common Stock, ParValue $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

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer or anon-accelerated filer (as defined in Exchange Act Rule 12b-2).

Large acceleratedfiler o   Accelerated filer x   Non-accelerated filer o

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 June 30, 2006, was$632,914,068.

As of February 27,2007 there were 97,000,051 shares of the registrant’s common stockoutstanding.

DOCUMENTSINCORPORATED BY REFERENCE:  Portions ofthe issuer’s definitive proxy statement to be filed in connection with its 2007Annual 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, 2006**
|           | ** ** | ** **                                                                                                        | ** ** | Page   |
|-----------|------------|-------------------------------------------------------------------------------------------------------------------|------------|--------|
|      | ** ** | **PART I**                                                                                                   |       |   |
| Item 1.   |       | Business                                                                                                          |       | 1      |
| Item 1A.  |       | Risk Factors                                                                                                      |       | 14     |
| Item 1B.  |       | Unresolved Staff Comments                                                                                         |       | 22     |
| Item 2.   |       | Properties                                                                                                        |       | 22     |
| Item 3.   |       | Legal Proceedings                                                                                                 |       | 23     |
| Item 4.   |       | Submission of Matters to a Vote of Security Holders                                                               |       | 23     |
|      | ** ** | **PART II**                                                                                                  |       |   |
| Item 5.   |       | Market for Registrant’s Common Equity, Related  Stockholder Matters and Issuer Purchase of Equity Securities |       | 24     |
| Item  6.  |       | Selected  Financial Data                                                                                          |       | 25     |
| Item 7.   |       | Management’s Discussion and Analysis of Financial  Condition and Results of Operations                       |       | 28     |
| Item 7A.  |       | Quantitative and Qualitative Disclosures About Market  Risk                                                       |       | 49     |
| Item 8.   |       | Financial Statements and Supplementary Data                                                                       |       | 50     |
| Item 9.   |       | Changes in and Disagreements with Accountants on  Accounting and Financial Disclosure                             |       | 89     |
| Item 9A.  |       | Controls and Procedures                                                                                           |       | 89     |
| Item  9B. |       | Other  Information                                                                                                |       | 90     |
|      | ** ** | **PART III**                                                                                                 |       |   |
| Item 10.  |       | Directors, Executive Officers and Corporate Governance                                                            |       | 91     |
| Item 11.  |       | Executive Compensation                                                                                            |       | 91     |
| Item 12.  |       | Security Ownership of Certain Beneficial Owners and  Management and Related Stockholder Matters    |       | 91     |
| Item 13.  |       | Certain Relationships, Related Transactions, and  Director Independence                                           |       | 91     |
| Item 14.  |       | Principal Accounting Fees and Services                                                                            |       | 91     |
|      | ** ** | **PART IV**                                                                                                  |       |   |
| Item 15.  |       | Exhibits and Financial Statement Schedules                                                                        |       | 91     |

 

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**PART I**

**ITEM 1.**                BUSINESS

*CKX, Inc.,together with its subsidiaries and predecessor, will be referred to in this Form 10-KAnnual Report by terms such as “we,” “us,” “our,” “CKX,” the “registrant” andthe “Company,” unless the context otherwise requires.*

We are engaged in theownership, development, management and commercial utilization of entertainmentcontent, including the rights to the name, image and likeness of Elvis Presleyand the operations of Graceland, the rights to the name, image and likeness of MuhammadAli and proprietary rights to the *IDOLS*televisionbrand, 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. Our existingproperties generate recurring revenues across multiple entertainment platforms,including music and television; sponsorship; licensing and merchandising;artist management; themed attractions and touring/live events.

**Presley Business**

On February 7, 2005, we acquired an 85% interestin the entities which own and/or control the commercial utilization of thename, image and likeness of Elvis Presley, the operation of the Gracelandmuseum and related attractions, as well as revenue derived from Elvis Presley’stelevision specials, films and certain of his recorded musical works (the “PresleyBusiness”). The Presley Business consists primarily of two components: first,intellectual property, including the licensing of the name, image, likeness andtrademarks associated with Elvis Presley, as well as other owned and/orcontrolled intellectual property and the collection of royalties from certainmotion pictures, television specials and recorded musical works and musiccompositions; and second, the operation of the Graceland museum and relatedattractions and retail establishments, including Elvis Presley’s HeartbreakHotel and other ancillary real estate assets.

We believe the name, image and likeness of ElvisPresley, as well as related intellectual property assets, are prime examples ofthe type of content that offers opportunities to generate increased revenuesfrom diverse platforms and distribution channels. Elvis is the best-sellingsolo musical recording artist in U.S. history, having sold more than one billionalbums and singles worldwide and having set records for the most albums andsingles that have been certified Gold® and Platinum® by the Recording IndustryAssociation of America. Over the past five years, more than fifteen millionElvis albums have been sold worldwide and an average of approximately 566,000people 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 haveentered into an exclusive arrangement with Cirque du Soleil for the creation, development,production and promotion of Elvis Presley-themed projects, featuring touringand permanent shows, as well as multimedia interactive “Elvis Experiences,”throughout the world. In addition, together with Cirque Du Soleil, we havereached an agreement with MGM MIRAGE to create, produce and present a permanentlive theatrical Vegas-style Cirque du Soleil show based on the life, times andmusic of Elvis Presley. The show, which is expected to open in November 2009,will be presented  at the CityCenter hotel/casino,currently under construction,on the strip in Las Vegas, Nevada.

***Licensing and Intellectual Property***

**Music Rights**

We own co-publishing rights to approximately 650music compositions, most of which were recorded by Elvis Presley. Cherry LaneMusic Publishing Company administers our company’s share of these 

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compositions, along withthe shares of our co-publishers under an administration agreement. Morethan 60% of our publishing income from these compositions for 2006 originatedoutside the United States. The public performance rights for these compositionsare administered by The American Society of Composers, Authors and Publishers(ASCAP) and Broadcast Music, Inc. (BMI), the two largest U.S. basedcompanies which license and distribute royalties for the non-dramaticpublic performances of copyrighted musical works in the United States.

We also own rights to receive royalties from sales ofcertain Elvis records. Under Elvis’ recording contract with RCA (now part ofSony BMG Music Entertainment), he was entitled to receive an artist’s royaltyon record sales. In March 1973, Elvis sold his ongoing record royaltyrights on everything he had recorded up to that time for a lump sum paymentfrom RCA. We continue to receive royalties on sales of records Elvis recordedafter March 1973 and a marketing royalty in exchange for the right to useElvis’ name, image and likeness in connection with the sale and marketing ofcertain newly released compilation records that include music Elvis recordedbefore March 1973.

Sony BMG Music Entertainment (as RCA’s successor)  (“Sony BMG”) generally does not have theright to license master recordings featuring Elvis’ musical performances forany commercial use other than the sale of records. We negotiate, together withSony BMG, when requests are received for the use of these masters in acommercial setting. In addition, we retain the right to approve remixes andedits of any of the master recordings.

**Name, Image andLikeness**

We own the name, image and likeness of Elvis Presleyas well as trademarks in various names and images associated with Elvis. Welicense to others the right to use this intellectual property for merchandisingand other commercial exploitation. In addition, we enter into licenses for theuse of video and audio clips of Elvis from various motion pictures in which hestarred and the television programs which we own.

We believe that our experience and our infrastructurefor exploiting the name, image and likeness of Elvis Presley provide a strongbase upon which to expand our business. We are presently exploring variousmethods of expanding this business which might include purchasing additionalname and likeness rights or entering into agreements to manage name andlikeness rights.

**Television/Video**

We own the rights to two of Elvis’ televisionspecials: “‘68 Special” (1968) and “Aloha From Hawaii” (1973) and, as a resultof this ownership, we have the right to negotiate for revenues associated withthe use of  footage from these specialsin other media and formats. We also own the rights to “Elvis by the Presleys”(2005), a two-hour documentary and four-hour DVD based on andincluding rare archival footage, home movies and photos, and interviews withElvis, his friends and relatives, including Lisa Marie Presley and PriscillaPresley.

**Motion Pictures**

Elvis starred in 31 feature films as an actor and twotheatrically released concert documentary films. Elvis had, and we are entitledto receive, participation royalties in 24 of these films. We have the right to receiveroyalties, but do not own the films themselves or control the content ordistribution of such films.

In addition, we have the rights to and negotiate forrevenues associated with the use of Elvis’ images as extracted from these filmsand 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. 

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We seekto accomplish this through the pursuit of appropriate commercial opportunitiesthat advance and complement our financial strategies while maintaining thedesired branding and positioning for “Elvis” and our other properties. Wecurrently have over 100 licensing arrangements. Examples of our licensedproducts and services (and the corresponding licensees) include: greeting cards(American Greetings Corporation); slot machines (IGT); satellite radio (SiriusSatellite Radio, Inc.); limited edition Reese’s-branded chocolate candy(The Hersheys Company); limited edition wines (Signature Wines); collectiblefigures (McFarlane Toys); calendars and stationary (Mead Corporation); andcoffee (Ugly Mug Coffee Company).

***Graceland Operations***

**Graceland**

Graceland, the 13.5 acre estate which served as theprimary residence of Elvis Presley from 1957 until his passing in 1977, islocated in Memphis, Tennessee. Graceland was first opened to public tours in1982. Over the past five years, Graceland has averaged approximately 566,000visitors per year.

We operate Graceland under the terms of a 90-yearlease with The Promenade Trust, under which 88 years remain. We prepaidapproximately $3.0 million of rent at closing of the acquisition of the PresleyBusiness, and will make monthly payments of $1.00 per month during the term ofthe lease. We own all worldwide rights, title and interest in and to the name “Graceland,”which name may be used at additional themed locations as well as in Memphis,Tennessee.

The focal point of the Graceland business is a guidedmansion tour, which includes a walk through the historic residence, as well asan extensive display of Elvis’ gold records and awards, career mementos, stagecostumes, jewelry, photographs and more. The tour also includes a visit to theMeditation Garden, where Elvis and members of his family have been laid torest.

In addition to the mansion, the Graceland operationsinclude access to an automobile museum featuring vehicles owned and used byElvis, the “Sincerely Elvis”  and “ElvisAfter Dark” museums, which feature changing exhibits of Elvis Presleymemorabilia, a movie theater showing movies starring Elvis, an aviationexhibition featuring the airplanes on which Elvis traveled while on tour,restaurants, a wedding chapel, ticketing and parking. We also own and operateretail stores at Graceland offering Elvis themed merchandise and produceexclusive licensed merchandise for visitors to Graceland.

Adjacent to the Graceland real property is the MeadowOaks Apartments, a 270-unit apartment complex that we own and operate asa result of our acquisition of the Presley Business.

**Elvis Presley’sHeartbreak Hotel**

Adjacent to the mansion and related attractions, wehave, since 1998, operated Elvis Presley’s Heartbreak Hotel, which is marketedprimarily to visitors to Graceland. Elvis Presley’s Heartbreak Hotel is a 128-roomboutique hotel premised on the legendary hospitality and personal style forwhich Elvis Presley was known. The hotel had an average occupancy rate ofapproximately 80% during the year ended December 31, 2006.

**Graceland Expansion**

We have held meetings with government officials inMemphis, Tennessee regarding  preliminaryplans to re-develop and expand the Graceland attraction as the centerpiece ofthe Whitehaven section of Memphis, including building an expanded visitors center, developing newattractions and merchandising shops and building a new boutique conventionhotel. This project is conditioned on a number of factors including obtainingnecessary approvals and concessions from local and state authorities andattracting an appropriate hotel partner. While plans and designs have not beenfinalized, we have outlined significant aspects of the proposal to localgovernment officials. In connection with these expansion plans, in 2006 we 

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acquired 22.9 acres ofadditional land in the area immediately surrounding Graceland, including an18.9 acre RV park and campground located directly across the street from themansion. Although we have not yet determined the exact scope, cost, financingplan and timing of this project, we expect that the re-development of Gracelandwill take several years and will require a substantial financial investment bythe Company.

We will continue to operate the RV park and campgroundin a manner consistent with historical use until such time as we commence ourexpansion of the Graceland property and experience.

**Elvis.com**

We own and operate the official Elvis Presley website,www.elvis.com. The website, which currently receives an average of over 300,000unique visitors each month, includes a detailed history of Elvis Presley andthe Presley Business, including biographical information, information aboutElvis Presley’s awards and achievements, information about Elvis’ friends andfamily and interesting facts about the life and times of Elvis Presley. Thewebsite also offers exclusive downloads such as e-cards, games and on-linetours, as well as direct access to shopelvis.com, our official online storeselling Elvis-branded merchandise. Visitors to the website can also accessElvis Insiders, the official Presley sponsored affinity group where fans pay anannual fee for an “inside” look at Elvis and Graceland.

**Seasonality**

Graceland’s business hashistorically been seasonal with sharply higher numbers of visitors during thelate spring and summer seasons as compared to the fall and winter seasons.

***Partnership with Cirque du Soleil***

**Global Projects**

In May 2006,we entered into an exclusive arrangement with Cirque du Soleil for thecreation, development, production and promotion of “Elvis Presley Projects,”featuring touring and permanent shows, as well as multimedia interactive “ElvisExperiences,” throughout the world. The projects, the first of which isexpected to debut in 2008, consist of:

·       Touringshows that will be produced by Cirque du Soleil and incorporate the name,image, likeness and music of Elvis Presley.

·       Permanentshows at fixed locations that will be produced by Cirque du Soleil andincorporate the name, image, likeness and music of Elvis Presley.

·       Multimediainteractive entertainment “Elvis Experiences” that incorporate the music,memorabilia, audiovisual works, and the life and times of Elvis Presley.

CKX and Cirque du Soleil will each own 50 percent ofeach project, sharing equally in the costs of creating, developing, buildingand producing each project and in the profits and losses from each project. CKXwill also receive royalty payments on various aspects of its intellectualproperty used in the projects.

We have agreed to open at least one touring show inEurope and/or Asia and one “Elvis Experience” outside of the United States by2008. Beginning in 2009, we intend to open at least one project in each of thenext six years. Beginning in 2014, we intend to launch at least one project everytwo years during the next eight years, through 2021.

**Las Vegas Show**

In August 2006 we,together with Cirque Du Soleil, entered into an agreement with MGM MIRAGE tocreate a permanent Elvis Presley show at the CityCenter hotel/casino, which iscurrently under construction in Las Vegas. The show is expected to open withthe hotel in November 2009. The show will 

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consistof a creative combination of live musicians and singers, projections, dance andthe latest in multimedia sound and lighting technology intended to offer  an emotional bond with the audience. TheCityCenter, which will house the show, is expected to open in 2009 on 66 acres on the Las Vegas strip betweenthe Bellagio and Monte Carlo resorts and is expected to feature a soaring 60-story,4,000-room hotel/casino, two 400-room non-gaming hotels, 500,000square feet of retail shops, dining and entertainment venues and nearly 2,800luxury condominiums.

**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-platform approach tothe commercial utilization of its entertainment properties is best illustratedby 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 Limited. (together with its affiliate,FremantleMedia North America, Inc., “FremantleMedia”), the contentbusiness production arm of the RTL Group, Europe’s largest television and radiobroadcast company, is 19 Entertainment’s global television production anddistribution partner for *IDOLS*programmingand Sony BMG is 19 Entertainment’s record label partner with respect to *IDOLS* artists in most major territories around the world.

Though 19Entertainment 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.

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·       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.

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

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

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

·       19 Merchandising Limitedhas the licensing and merchandising rights for the *IDOLS* tours and in the United States and United Kingdom isjointly responsible for off-air sponsorship of the televised programs.

**Television**

The typical model for a 19 Entertainment televisionproject thus far, as demonstrated by the roll out of the *IDOLS* brand, has been the development of acompelling music themed television show that is capable of being broadcast on aglobal basis. Through the initial programming, 19 Entertainment is able togenerate a significant fan base and, ultimately, build substantial ancillaryrevenue streams.

19 Entertainment createdand co-produces the television show *So You Think You Can Dance*,which was initially broadcast in the United States on the Fox BroadcastingNetwork (“Fox”) in the summer of 2005 and aired its second season in the summerof 2006. The show is scheduled for a third season in 2007. In addition totelevision 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 TVLimited/FremantleMedia Agreement**

19 Entertainment, through its wholly owned subsidiary,19 TV Limited, has entered into a worldwide partnership arrangement with FremantleMediafor the production and distribution of the *IDOLS*brand, which gives FremantleMedia the exclusive right to produce (or sublicenseproduction) and distribute *IDOLS*programs and series throughout the world except in the United States,where 19 TV Limited co-produces the *AmericanIdol* series. In the United States, the *AmericanIdol* series airs on Fox, under an agreement between 19 TV Limited,FremantleMedia and Fox, as more fully described below under “Fox Agreement.”

Under the terms ofthe 19 TV Limited/FremantleMedia agreement, the *IDOLS* brand, together with all domain names and trademarksrelating thereto are owned jointly by the parties, two-thirds by 19 TVLimited and one-third by FremantleMedia. In addition to its jointownership of the *IDOLS* brand, 19TV Limited has the right to receive certain fees and revenues relating to thesublicensing of the *IDOLS* brandand the production of television shows based on the *IDOLS* brand and format around the world. Specifically, 19 TVLimited 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;

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

·       a percentage of the netrevenue derived from local merchandising and management deals (outside theUnited States and the United Kingdom). 19 Entertainment and its affiliatesretain 100% of artist management and artist merchandising income from theUnited States and the United Kingdom.

**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 three moreseasons of *American Idol*(2007—2009), with anautomatic renewal for up to two additional seasons upon the show achievingcertain minimum ratings in 2009 and potentially 2010.

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 aired in 2006), Fox pays anadditional license fee directly to 19 TV Limited and FremantleMedia.

In addition to license fees, Fox also pays bonus feesdepending on where the *American Idol*series is rated and ranked in the 18-49 age demographic. 19 TV Limitedand FremantleMedia each receive 50% of the ratings/rankings bonus, with 19 TV Limitedreceiving its share directly from Fox. Fox also pays an executive producer feeper episodic hour, and a format fee equal to a percentage of the approvedproduction budget, of which 19 TV Limited receives 50% and 40%, respectively.

**Recorded Music**

19 Entertainmenthas the exclusive right to select the record company entitled to signcontestants on television shows based on the *IDOLS*brand to long-term recording contracts. In the United States and theUnited Kingdom, 19 Entertainment typically options the recording rights to thetop 24 finalists of each series of each television show based on the *IDOLS* brand, and then enters intorecording agreements with each of the winners and certain finalists. 19Entertainment is currently a party to long-term recording agreements withnumerous 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*    |
| Taylor Hicks     | * *   | *American Idol 5 - Winner*    |
| Katharine McPhee | * *   | *American Idol 5 - Runner-Up* |
| Chris Daughtry   | * *   | *American Idol 5 - Finalist*  |
| Kelly Pickler    | * *   | *American Idol 5 - Finalist*  |
| Will Young       | * *   | *Pop Idol 1 - Winner*         |
| Gareth Gates     | * *   | *Pop Idol 1 - Runner-Up*      |

 

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The *American Idol*and *Pop Idol* winners and finalists listedabove collectively have sold more than 30 million albums in the UnitedStates and United Kingdom alone.

Sony BMG is 19 Entertainment’s partner with respect to*IDOLS*-based recorded music in most majorterritories 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 (“19 Recordings”) enters into recording agreements with thefinalists and then grants an optional exclusive license to a Sony BMG affiliateto select a Sony BMG record company to handle the marketing, manufacturing anddistribution of the records throughout the world. For the first four series of *American Idol* in the United States, RCA was the designatedSony BMG affiliate. 19 Entertainment’s agreement with Ronagold with respect to *American Idol* in the United States expired following *American Idol 4*, which completed its run in May 2005.

In November 2005, 19 Recordings entered into anew agreement with Sony BMG, extending its rights to serve as the recordingpartner with respect to *American Idol*artists and designating Simco Limited, a wholly-owned subsidiary of Sony BMG (“Simco”),as the new record partner for seasons subsequent to *AmericanIdol 4*. In the United States, Simco was granted five successiveoptions to acquire the rights to participate as 19 Recording’s record partner,after which it can require 19 Entertainment to select a designated SonyBMGrecord label in the United States to act as licensee. Each option during thefive year period is contingent upon Simon Cowell acting as on-air judge for thesubject season. The new agreement with Sony BMG and Simco lasts through *American Idol**9*.

In the United States and the United Kingdom, theSonyBMG record company that licenses the winning artist and/or any of thefinalists pays to 19 Recordings a recoupable advance, out of which 19Recordings funds an advance to the finalists/artists. Outside the United Statesand the United Kingdom, the designated SonyBMG record company licenses thewinning artist and/or any of the finalists directly and pays to them advancesand royalties commensurate with the terms of SonyBMG’s usual exclusive recordingagreements for artists with one Platinum selling album prior to signature inthe 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 andTelephony**

19 Entertainment, together with FremantleMedia andFox, is working to extend the reach of the *AmericanIdol* brand across additional media platforms and distributionchannels, starting with the development of an expanded presence on theInternet. Under the terms of the 2005 Fox amendment, Fox has agreed, at its ownexpense, to build and host www.americanidol.com, which serves as the show’sofficial website. 19 TV Limited, FremantleMedia and Fox have agreed to worktogether to develop content for the website. Fox pays 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.

Additionally, 19 TVLimited and FremantleMedia have granted to Fox certain wireless telephonyrights, including 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 

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adoption of cross carrier short messaging serviceswill provide multiple and substantial new opportunities to capitalize on thetremendous popularity of the show and the desire of its fans to interact viamobile devices.

**Sponsorship/Merchandising/Marketing**

19 Entertainment’s sponsorship and merchandisingrevenues are driven primarily by the *IDOLS*brand franchise. Fox has exclusive responsibility for selling on-airmedia on behalf of the *American Idol*series. However, to the extent that media buyers seek any off-airpromotional tie-ins or in program identification rights, these rights canonly be sold with the consent of 19 Entertainment/FremantleMedia. Withrespect to *IDOLS*tours, 19 Entertainment’s staffsolicits sponsors directly and exclusively.

19 Entertainment also options the merchandising rightsfor the top ten contestants for each *American Idol*program and typically signs long-term exclusive merchandising contractswith the winner and certain runners-up. As noted above, all merchandisingand licensing associated with the *American Idol*series is handled by FremantleMedia on a world-wide basis, though 19Entertainment receives 50% of net merchandising revenue.

Recently, 19Entertainment has increased its efforts at leveraging its experience in buildingbrands and generating sponsorship opportunities as it develops marketingrelationships with new partners in diverse areas of media and entertainment.For example:

·       InJanuary 2006, 19 Entertainment entered into a three-year agreement withHonda Racing to generate sponsorships for and to market and promote the HondaFormula One racing team around the world.

·       InJuly 2006, 19 Entertainment formed and obtained a 50% interest in 1966Entertainment Limited, a sports-based talent management company which hasreached an agreement to manage the commercial interest for Team EnglandFootball and its players, including full representation of the squad, and themanagement of the players’ program and relationship with the FootballAssociation and its commercial partners. The results of 1966 EntertainmentLimited are consolidated in our financial statements.

·       In September 2006, thecompany announced the formation of 19 RM Limited, a joint venture withinternationally renowned designer Roland Mouret. Mr. Mouret has signed anemployment agreement with 19 RM Limited with an initial term of five years. Alldesigns created by Mr. Mouret during this five year period will beexclusively owned, marketed and sold by 19 RM Limited.  The results of 19 RM Limited are consolidatedin our financial statements.

**Touring**

With the success of the *IDOLS* brand, touring has become an additional source ofrevenue for 19 Entertainment. As discussed above, when the number ofcontestants on *American Idol* has been narroweddown to the final ten contestants, 19 Entertainment engages the finalists astalent for *American Idol*brandedtours produced by 19 Entertainment. In April 2006, 19 Entertainmententered into an agreement with AEG Live, the Anschutz Entertainment Group’sconcert promotion division, to operate the American Idol Summer Concert Toursthrough and including the summer of 2008. In the summer of 2006, the *American Idol* tour, featuring the finalists from the show’sfifth season, played 60 dates in cities and venues across the United States andCanada.

In September 2006, 19Entertainment launched a live *So You Think You Can Dance*tour featuring contestants from the show’s then just completed second season. Thetour played 37 dates in cities and venues across the United States and Canada.

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**Artist Management**

19 Entertainment continuesto represent its historical roster of clients, including David and VictoriaBeckham (see below under “Beckham Relationship”), 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.

**BeckhamRelationship**

19 Entertainment has developed a number ofrelationships in which it retains an ownership position and which it expects toresult in the creation of valuable properties and projects. For example,19 Entertainment manages Victoria Beckham, a fashion and lifestylepersonality as well as  David Beckham, aglobally recognized soccer player who, it was recently announced, will play forthe Los Angeles Galaxy of United States-based Major League Soccer commencing inJuly 2007. 19 Entertainment represents Mr. Beckham in all of hiscommercial activities including advertising, sponsorship and endorsement activities.In addition, David and Victoria Beckham have agreed to pursue the developmentand exploitation of projects relating to merchandising, products and skills(that do not, with certain exceptions, include the name “Beckham”) exclusivelythrough a joint venture vehicle, Beckham Brand Limited (“BBL”), which is ownedone-third by each of David Beckham, Victoria Beckham, and a subsidiary of19 Entertainment. The exclusive arrangement between the Beckhams and BBL hasrecently been extended through the end of 2011. We believe BBL is positioned toexploit a multitude of opportunities in the United States and worldwide thatwill result from Mr. and Mrs. Beckham’s arrival in the United Statesand the commencement of Mr. Beckham’s career with the L.A. Galaxy.

BBL, together with theAnschutz Entertainment Group, has developed, owns and operates The DavidBeckham Academy in London and its sister academy in Los Angeles. The socceracademies feature multiple soccer fields, classrooms, training rooms and otherfacilities and provides a fun and interactive experience for children, bothboys and girls, of all skill levels.

**Seasonality**

19 Entertainment’s revenueis seasonal in nature, reflecting the timing of our television shows and toursin various markets. Historically, 19 Entertainment has generated higher revenueduring the first three quarters of the calendar year, which corresponds to thedates our *American Idol* and *So You ThinkYou Can Dance*series**air on Fox inthe United States and the timing of the related live tours.

**MBST**

On August 9, 2005, we acquired Morra, Brezner,Steinberg & Tenenbaum Entertainment, Inc. (“MBST”), a leadingmanager of comedic talent and producer of motion pictures and televisionprogramming, and entered into long-term employment agreements with theprincipals of MBST, Larry Brezner, David Steinberg and Steve Tenenbaum, whocontinue to oversee the day-to-day operations of MBST.

MBST is a full service management company with aroster of more than 30 clients, representing an array of Oscar®, Tony®, Emmy®and Grammy® winning artists including Robin Williams, Billy Crystal and WoodyAllen for more than 25 years each, jazz legend John Pizzarelli for more than 10years, comedian Jim Norton and Emmy award winning director Bob Weide, each formore than 3 years. MBST also has had an advisory relationship with AlainBoublil, the author of the Tony® award winning Les Miserables, for more than 15years. In addition to its management activities, MBST or its senior executiveshave been responsible for the production of numerous motion pictures andtelevision productions over the years, including *Arthur*,*Good Morning Vietnam*, *The Vanishing*, *The Greatest Game EverPlayed*and *Match Point*.

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MBST earns revenue through arrangements with artiststhat result in MBST receiving a percentage of the artists’ revenue, fromconsulting fees paid by advisory clients and from participations in and feesfrom films it has produced. In addition, MBST, its executives and otheremployees utilize their experience in sourcing and structuring deals for itshistorical roster of clients to develop and implement revenue enhancementopportunities for the Company’s other entertainment content and divisions.

**Ali Business**

On April 10, 2006, we acquired an 80% interest inthe name, image, likeness and all other rights of publicity of Muhammad Ali,certain trademarks and copyrights owned by Mr. Ali and his affiliates andthe rights to all existing Muhammad Ali license agreements (the “Ali Business”).The Ali Business consists of the commercial exploitation of the name, image,likeness and intellectual property of Muhammad Ali, primarily throughendorsement and licensing arrangements.

The primary revenue sourcecomes from licensing Muhammad Ali’s name and likeness for consumer products,commercials and other uses. Licensing revenue is primarily derived fromlong-term contracts with terms of one to five years. The intellectual propertythat is owned by the Company is licensed to third parties for commercialexploitation under long-term agreements. The Ali Business also generatesrevenue from sports memorabilia signings performed by Mr. Ali.

**InternationalOperations**

We derive a significantportion of our revenue from international markets. Approximately$27.1 million, or 13%, of our revenue for the year ended December 31,2006 was attributable to sales outside the United States.

**Segment Information**

The Company currently has fourreportable segments: Presley Business—Royalties and Licensing, Presley Business—GracelandOperations, 19 Entertainment and the Ali Business. These designations have beenmade as the discrete operating results of these segments are reviewed by theCompany’s chief operating decision maker to assess performance and makeoperating decisions. The operating results of MBST are reported as part ofCorporate and Other for segment purposes. Refer to Item 7, Management’sDiscussion and Analysis of Financial Condition and Results of Operations andfootnote 12 in the accompanying consolidated financial statements forfinancial 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.

**IntellectualProperty**

Our business involves the ownership and distributionof intellectual property. Such intellectual property includes copyrights,trademarks and service marks in names, domain names, logos and characters, 

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rights of publicity,patents or patent applications for inventions related to our products andservices, and licenses of intellectual property rights of various kinds.

Our intellectual property, including the rights to thenames, images, and likenesses of Elvis Presley and Muhammad Ali, and the name,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 adversely affected.

We attempt to protect our intellectual property rightsthrough a combination of patent, trademark, copyright, rights of publicity, andother laws, as well as licensing agreements and third party nondisclosure andassignment agreements. Because of the differences in foreign trademark, patentand other laws concerning proprietary rights, and various foreign and U.S.state laws concerning publicity rights, our intellectual property rights maynot receive the same degree of protection in one jurisdiction as in another.Although we believe that our intellectual property is enforceable in mostjurisdictions, we cannot guarantee such validity or enforceability. Our failureto obtain or maintain adequate protection of our intellectual property rightsfor any reason could have a material adverse effect on our business, financialcondition and results of operations.

We rely on trademarks, trade names, and brand names todistinguish our products from those of our competitors, and have registered orapplied to register some of these trademarks in jurisdictions around the world.In addition, FremantleMedia has registered some of these trademarks, includingthe trademark *American Idol* and its logo, onour behalf. With respect to applications to register trademarks that have notyet been accepted, we cannot assure you that such applications will beapproved. Third parties may oppose the trademark applications, seek to cancelexisting registrations or otherwise challenge our use of the trademarks. Ifthey are successful, we could be forced to re-brand our products andservices, which could result in loss of brand recognition, and could require usto devote resources to advertising and marketing new brands. We also grantthird parties the right to use our trademarks. In an effort to preservetrademark rights, we enter into license agreements with these third partieswhich govern the use of the trademarks, and which require our licensees toabide by quality control standards with respect to the goods and services thatthey provide under the trademarks. Although we make efforts to police the useof the trademarks by our licensees, we cannot make assurances that theseefforts will be sufficient to ensure that our licensees abide by the terms oftheir licenses. In the event that our licensees fail to do so, the trademarkrights could be diluted, or subject to challenge or invalidation.

Although we rely on copyright laws to protect theworks of authorship created by us or transferred to us via assignment or byoperation of law as work made for hire, we do not typically register our works.Copyrights in works of U.S. origin authored after January 1, 1978, existas soon as the works are authored and fixed in a tangible medium; however, theworks must be registered before the copyright owners may bring an infringementaction in the United States. Furthermore, if a copyrighted work of U.S. originis not registered within three months of publication of the underlying work orbefore the act of infringement, the copyright owner cannot recover statutorydamages or attorneys’ fees in any U.S. enforcement action; rather, the ownermust prove he suffered actual damages or lost profits. Accordingly, if one ofour unregistered works of U.S. origin is infringed by a third party, we willneed to register the work before we can file an infringement suit in the UnitedStates, and our remedies in any such infringement suit could be limited.Furthermore, copyright laws vary from country to country. Although copyrightsthat arise under U.S. law will be recognized in most other countries (as mostcountries are signatories of the Berne Convention and the Universal CopyrightConvention), we cannot guarantee that courts in other jurisdictions will affordour copyrights with the same treatment as courts in the United States.

In addition to copyright and trademark protection, werely on the rights of publicity to prevent others from commercially exploitingeach of Elvis Presley’s and Muhammad Ali’s name, image and likeness. At thistime, there is no federal statute protecting our rights of publicity to ElvisPresley’s and Muhammad 

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Ali’s names, images andlikenesses. As a result, we must rely on state law to protect these rights.Although most states have recognized the rights of publicity to some extent,not all 50 states have expressly done so through their statutes or theirrespective common law. Thus, there is no guarantee that the rights of publicityare enforceable in every state. Additionally, many countries outside of theUnited States do not recognize the rights of publicity at all or do so in amore limited manner. Thus, there is no guarantee that we will be able toenforce 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, 2006, the Company had a total of 386 full-timeemployees, 160 part-time employees and 18 seasonal employees. Managementconsiders its relations with its employees to be good.

**CompanyOrganization**

The principal executive office of the Company islocated at 650 Madison Avenue, New York, New York 10022 and our telephonenumber is (212) 838-3100.

The 2007 CKX, Inc.Annual Meeting of Stockholders will be held on May 10, 2007 at the officesof Paul Hastings, Janofsky & Walker LLP, 75 East 55th Street,New York, New York 10022.

**AvailableInformation**

The Company is subject to the informationalrequirements of the Securities Exchange Act and files reports and otherinformation with the Securities and ExchangeCommission. Such reports and other information filed by the Company maybe 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 at 1-800-SEC-0330for further information on the operation of the Securities and Exchange Commission’s public reference rooms. The Securities and Exchange Commission alsomaintains an Internet site that contains reports, proxy statements and otherinformation about issuers, like us, who file electronically with the Securities and Exchange Commission. Theaddress of the Securities and ExchangeCommission’s web site is http://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 reportson Form 10-QSB and Form 10-Q, current reports onForm 8-K and amendments to those reports filed pursuant toSection 13(a) or 15(d) of the Securities Exchange Act of 1934,as amended, as soon as reasonably practicable after such documents areelectronically filed with the Securities and Exchange Commission. This referenceto our Internet website does not constitute incorporation by reference in thisreport of the information contained on or hyperlinked from our Internet websiteand such information should not be considered part of this report.

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**ITEM 1A.**        RISK FACTORS

The risks and uncertainties described below are thosethat we currently believe are material to our stockholders.

**Risks Related to Our Business**

**We are dependentupon a limited number of properties which may, over time, decline in popularity.**

We rely heavily upon the continued appeal of the *IDOLS* brand, including the*American Idol* series in the United States and, to a lesserextent, its foreign adaptations. Our revenues and income derived from thosetelevision programs depend primarily upon the initial and continued acceptanceof that programming by the public. Public acceptance of particular programmingis dependent upon, among other things, the quality of the programming, thestrength of networks on which the programming is broadcast, the promotion andscheduling of the programming and the quality and acceptance of competingtelevision programming and other sources of entertainment and information.Popularity of programming can also be negatively impacted by excessivebroadcasting or telecasting of the programming beyond viewers’ saturationthresholds. Any one or more of these factors could result in the *IDOLS* television series losing itspopularity among viewers. Regardless of the reason, a decline in the number oftelevision viewers who tune in to the *American Idol*series and its foreign adaptations could result in lower advertising revenuesfor the networks that broadcast television shows based on the *IDOLS* brand and hurt our ability to sellfuture *IDOLS* format shows. This,in turn, would have a material adverse effect on our business, operatingresults and financial condition.

Wealso rely upon the continued popularity of Elvis Presley and Muhammad Ali andthe market for products that exploit their names, images and likenesses. Althoughwe believe that Elvis’ fans will continue to visit Graceland and purchase Elvis-relatedmerchandise, any tarnishing of the public image of Elvis Presley couldmaterially negatively impact our business and results of operations. Moreover,as the life, times and artistic works of Elvis grow more distant in our past,his popularity may decline. If the public were to lose interest in Elvis orform a negative impression of him, our business, operating results andfinancial condition would be materially and adversely affected.

**We have a short operating history with respect to ourcurrent and proposed businesses, so it will be difficult for investors topredict our future success.**

Ourcompany had no active operations between September 2002 and February 7,2005, the date on which a management group led by Robert F.X. Sillermanacquired control of our company and we acquired the Presley Business. As aresult, we have a limited operating history for you to evaluate in assessingour future prospects. You must consider our business and prospects in light ofthe risks and difficulties we will encounter as a company with a limitedoperating history in our current and proposed businesses. If we are unable tosuccessfully address these risks and difficulties, our business and operatingresults could be materially adversely affected.

**Our success depends, to a significant degree, on ourrelationships with third parties, including our co-producers, televisionbroadcasters, and record companies.**

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 in the United States, namely Fox and FremantleMedia, as well as AEG, thecompany that produces the *American Idol*tour. Similarly, we depend on affiliates of Sony BMG, to make and distributerecordings by *IDOLS* winners inthe United States, the United Kingdom and 

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othersignificant markets and to pay us royalties on record sales and advance usmonies against those royalties. We advance funds to the winners, after theysign recording contracts, from the monies we receive from Sony BMG. We alsorely on Sony BMG to distribute recordings and videos featuring Elvis Presley.Any failure of FremantleMedia, Fox, Sony BMG or other third parties on whom werely to continue to honor their obligations to us and adhere to our past courseof dealing and conduct would have a material adverse effect on our ability torealize continued revenues from the*IDOLS* platform.Revenue from Fox, FremantleMedia, AEG and Sony BMG represent 29%, 8%, 13% and14%, respectively, of the Company’s consolidated revenue for the year ended December 31,2006.

**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 intangible assets.

Thesuccessful integration of any businesses we may acquire in the future is a keyelement of our business strategy. The acquisition and integration of additionalbusinesses involve risks, including:

·       thediversion of management’s time and attention away from operating our businessto acquisition and 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 other administrativesystems to permit effective management.

We may be unable toeffectively integrate businesses we may acquire in the future withoutencountering the difficulties described above. Failure to effectively integratesuch businesses could have a material adverse effect on our business,prospects, results of operations or financial condition. In addition, thecombined companies may not benefit as expected from the integration.

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**We may not be able to manage our expected growth,which could adversely affect our operating 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 compete andto manage our future growth effectively will depend on our ability to implementand improve financial and management information systems on a timely basis andto effect changes in our business, such as implementing internal controls tohandle the increased size of our operations and hiring, training, developingand managing an increasing number of experienced management-level andother employees. Unexpected difficulties during expansion, the failure toattract and retain qualified employees or our inability to respond effectivelyto recent growth or plan for future expansion, could adversely affect ouroperating results.

**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 ability of third parties to successfully market thatcontent. If such third parties exploit 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.

**Our intellectual property rights may be inadequate toprotect our business.**

Our intellectual property,including the rights to the names, images and likenesss of Elvis Presley andMuhammad Ali, and the name, trademark and service mark “American Idol,” ismaterial 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 confidentiality and assignment agreements. Because of the differences inforeign trademark, patent, copyright and other laws concerning proprietaryrights and various foreign and U.S. state laws concerning publicityrights,  our intellectual property rightsmay not receive the same degree of protection in one jurisdiction as inanother. Although we believe that our intellectual property is enforceable inmost jurisdictions, we cannot guarantee such validity or enforceability. Ourfailure to obtain or maintain adequate protection of our intellectual propertyrights for any reason could have a material adverse effect on our business,financial condition and results of operations.

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 jurisdictions around the world. In addition,FremantleMedia has registered on our behalf some trademarks, which we co-own,including the trademark “American Idol” and its logo. With respect toapplications to register trademarks that have not yet been accepted, we cannotassure you that such applications will be approved. Third parties may opposethe trademark applications, seek to cancel existing registrations or otherwisechallenge our use of the trademarks. If they are successful, we could be forcedto re-brand our products, services and content, which could result in loss ofbrand recognition, and could require us to devote resources to advertising andmarketing new brands. We also grant third parties the right to use ourtrademarks. In an effort to preserve trademark rights, we enter into 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. 

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Althoughwe make 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. 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 guarantee thatcourts 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 and Muhammad Ali’s names, imagesand likenesses. At this time, there is no federal statute protecting our rightsof publicity to Elvis Presley’s and Muhammad Ali’s names, images andlikenesses. As a result, we must rely on state law to protect these rights.Although most states have recognized the rights of publicity to some extent,not all 50 states have expressly done so through their statutes or theirrespective common law and certain of those states which have recognized suchrights, have imposed certain limitations on the enforcement of these rights.Consequently, there is no guarantee that the rights of publicity areenforceable in every state. Additionally, many countries outside of the UnitedStates do not recognize the rights of publicity at all or do so in a morelimited manner. Consequently, there is no guarantee that we will be able toenforce our rights of publicity in these countries.

**The departure of or failure to recruit key personnelcould have a detrimental effect 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.

**We may not be able to obtain additional debt or equityfinancing on favorable terms, or at all.**

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

·       generalmarket conditions;

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·       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.

**Our overhead costs may materially adversely affect ourfinancial position and/or stock price.**

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.

**We intend to continue to expand our operationsinternationally, which will expose us 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.

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**Tothe extent we maintain international operations and generate revenues inforeign currencies, and currency exchange rates become unfavorable, our resultsof operations may be adversely affected.**

As weexpand our international operations, more of our customers may pay us inforeign currencies. Currently, we maintain significant operations in the UnitedKingdom and 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 foreignexchange swaps related to transaction exposures, that we may implement tomitigate this risk may not eliminate our exposure to foreign exchangefluctuations. Additionally, hedging programs expose us to risks that couldadversely affect our operating results, including the following:

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

·       Wemay be unable to hedge currency risk for some transactions because of a highlevel of uncertainty or the inability to reasonably estimate our foreign exchangeexposures.

**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 andnon-independent directors and their affiliates will limit your ability toinfluence corporate matters.**

As of February 27,2007, our executive officers and non-independent directors togetherbeneficially own approximately 46% of our outstanding capital stock. Inparticular, Mr. Sillerman, our chief executive officer and chairman of ourboard of directors, beneficially owns approximately 34% of our outstandingcapital stock. Mr. Sillerman therefore has the ability to influence ourmanagement and affairs and the outcome of matters submitted to stockholders forapproval, including the election and removal of directors, amendments to ourcharter, approval of any equity-based employee compensation plan and anymerger, consolidation or sale of all or substantially all of our assets. Thisconcentrated control may limit your ability to influence corporate matters and,as a result, we may take actions that our stockholders do not view asbeneficial. As a result, the market price of our common stock could beadversely affected.

**Wecontinue to need to enhance our internal controls and financial reportingsystems to comply with the Sarbanes-Oxley Act of 2002.**

Pursuant to Section 404 of the Sarbanes-Oxley Act of2002, we are required to evaluate and report on our system of internal controlsin our Annual Report on Form 10-K . Section 404 of the Sarbanes-Oxley Act alsorequires that our independent registered public accounting firm report onmanagement’s evaluation of our system of internal controls. The Company has identifieda material weakness in internal control over financial reporting.  See Item 9A. Controls and Procedures.

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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.

**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 anowner and developer of entertainment content, we may face potential liabilityfor 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.

**Risks Related to Our 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.

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

Certainprovisions of Delaware law and our certificate of incorporation and by-laws mayhave the effect 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.

As aDelaware corporation, by an express provision in our certificate ofincorporation, we have elected to “opt out” of the restrictions under Section 203of the Delaware General Corporation Law regulating corporate takeovers. Ingeneral, Section 203 prohibits a publicly-held Delaware corporation fromengaging, under certain circumstances, in a business combination with aninterested stockholder for a period of three years following the date theperson became an interested stockholder, 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 sharesoutstanding, (1) shares owned by persons who are directors and alsoofficers of the corporation and (2) shares owned by employee stock plansin which employee participants do not have the right to determineconfidentially whether shares held subject to the plan will be tendered in atender 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.

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In this context, abusiness combination includes a merger, asset or stock sale, or othertransaction resulting in a financial benefit to the interested stockholder. Aninterested stockholder is a person who, together with affiliates andassociates, owns or, within three years prior to the determination ofinterested stockholder status owned, 15% or more of a corporation’s outstandingvoting securities.

A Delaware corporation may“opt out” of Section 203 with an express provision in its originalcertificate of incorporation or an express provision in its certificate ofincorporation or by-laws resulting from amendments approved by holders of atleast a majority of the corporation’s outstanding voting shares. We elected to “optout” of Section 203 by an express provision in our original certificate ofincorporation. However, subject to certain restrictions, we may elect by anamendment to our certificate of incorporation to be subject to Section 203.Such an amendment would not, however, restrict a business combination betweenus and an interested stockholder if that stockholder became an interestedstockholder prior to the effective 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.

**ITEM1B.**       UNRESOLVED STAFF COMMENTS

None.

**ITEM2.**                PROPERTIES

Thefollowing table sets forth certain information with respect to the Company’sprincipal locations as of December 31, 2006. These properties were leasedor owned by the Company for use in its operations. We believe that ourfacilities will be suitable for the purposes for which they are employed, areadequately maintained and will be adequate for current requirements andprojected 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                                                     |       | 75,425 square feet   |       | Leases expire in 2009  |       |
| Memphis, TN          |       | Presley Business Offices                                     |       | Offices                                                                   |       | 3,500 square feet    |       | Lease expires in 2023  |       |
| Memphis, TN          | ** ** | Memphis-Graceland RV Park & Campground              |       | RV Park                                                                   |       | 18.9 acres           |       | Owned                  |       |
| Memphis, TN          |       | Commercial Property                                          |       | Land and Building                                                         |       | 3.23 acres           |       | Owned                  |       |
| Memphis, TN          |       | Commercial Property                                          |       | Land and Building                                                         |       | .80 acres            |       | Owned                  |       |
| New York, NY         |       | Corporate Headquarters                                       |       | Offices                                                                   |       | 16,200 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                                                                   |       | 18,568 square feet   |       | Lease expires in 2010  |       |
| Los Angeles, CA      |       | 19 Entertainment Administrative Offices                      |       | Offices                                                                   |       | 14,578 square feet   |       | Lease expires in 2014  |       |
| Los Angeles, CA      |       | MBST Executive and Administrative Offices                    |       | Offices                                                                   |       | 11,910 square feet   |       | Lease expires in 2010  |       |
| Berrien Springs,  MI |       | Ali Business  Executive and Administrative Offices           |       | Offices                                                                   |       | 4,420 square feet    |       | Lease expires in  2009 |       |

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(1)             We closed the restaurant effective September 2003and have negotiated a sublease of the entire space through 2017.

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**ITEM 3.**                LEGALPROCEEDINGS

We are subject to certain claims and litigation in theordinary course of business. It is the opinion of management that the outcomeof such matters will not have a material adverse effect on our consolidatedfinancial position, results of operations or cash flows.

**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, 2006.

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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 2006 and 2005 were as follows:

| ** **                           | ** ** | **2006** | ** ** |
|--------------------------------------|------------|----------|------------|
| ** **                           | ** ** | **High** | ** ** | **Low** | ** ** |
| **The NASDAQ National Market®** |       |     |       |   |   |
| ***Quarters  Ended***                |       |     |       |   |   |
| December 31,  2006              |       | $        | 14.31      |   | $ | 11.15 |   |
| September 30,  2006             |       | $        | 13.39      |   | $ | 8.95 |   |
| June 30,  2006                  |       | $        | 14.23      |   | $ | 12.15 |   |
| March 31, 2006                  |       | $        | 15.14      |   | $ | 11.58 |   |

 

| ** **                                             | ** ** | **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 |   |

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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, 2005 acquisitionof control of our company by a management group led by Robert F.X.Sillerman, and (ii) the Company’s February 7, 2005 acquisition of an85% interest in the Presley Business.

From January 1, 2007through February 27, 2007, the high closing sales price for our CommonStock was $14.00, the low closing sales price was $11.87 and the last closingsales price on February 27, 2007 was $13.45. As of February 27, 2007,there were 1,080 holders of record of our Common Stock.

**Dividend Policy**

We have not paid and have no present intentions to paydividends on its Common Stock.

Our 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 wefail to make a quarterly dividend payment to the holders of the 

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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. All such dividend payments were made on a timely basis.

**SecuritiesAuthorized for Issuance Under Equity Compensation Plans**

Information required by this item with respect toequity compensation plans of the Company is incorporated by reference to theCompany’s Proxy Statement for its 2007 Annual Meeting of Stockholders.

There were no purchases bythe Company or any affiliated purchaser of the Company’s equity securitiesduring 2006 or 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 the Company,we have presented the historical results of the Predecessor. The selectedconsolidated financial data was derived from the audited consolidated financialstatements of the Company as of and for the years ended December 31, 2006and 2005. The data should be read in conjunction with “Management’s Discussionand Analysis of Financial Condition and Results of Operations” and theconsolidated financial statements and the related notes thereto includedelsewhere herein.

The selected historical financial data for each of thethree years ended December 31, 2004 and as of December 31, 2004, 2003and 2002 is represented by that of the Presley Business (as Predecessor) whichhave been derived from the Presley Business’ audited Combined FinancialStatements and Notes thereto, as of December 31, 2004, 2003 and 2002, andfor each of the three 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 selected statement of operations data for theyears ended December 31, 2006 and 2005 includes the results of the PresleyBusiness for the period following its acquisition on February 7, 2005, theresults of 19 Entertainment for the period following its acquisition on March 17,2005, the results of MBST for the period following its acquisition on August 9,2005 and the results of the Ali Business for the period following itsacquisition on April 10, 2006. Refer to Item 7, Management’s Discussionand Analysis of Financial Condition and Results of Operations for discussion ofthe material acquisitions that affect the comparability of the informationincluded in the selected historical financial data.

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| ** **                                                                                             | ** ** | **CKX, Inc.**                         | ** ** | ** ** | ** ** | **Predecessor Company**                | ** ** |
|--------------------------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|------------|------------|---------------------------------------------|------------|
| **(amounts in thousands,  except per share and share information)** | ** ** | **Year Ended December 31,** | ** ** | ** ** | ** ** | **January 1 -  February 7,** | ** ** | **Year Ended December 31,** | ** ** |
| ** **                                                                                             | ** ** | **2006**                                   | ** ** | **2005**   | ** ** | ** **                                  | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
| **Statement of Operations Data:**                                                                      |       |                                       |       |       |       |                                        |       |   |   |   |   |   |   |   |   |   |   |
| Net revenues                                                                                           |       | $                                          | 210,153    |       | $          | 120,605                                     |       |   |   |   | $ | 3,442 |   |   | $ | 41,658 |   | $ | 44,376 |   | $ | 43,644 |   |
| Operating expenses (excluding depreciation and  amortization)                                          |       | 169,717                                    |       | 108,547    |       |                                        |       |   | 2,854 |   |   | 30,558 |   | 32,268 |   | 30,840 |   |
| Depreciation and amortization                                                                          |       | 20,541                                     |       | 14,910     |       |                                        |       |   | 126 |   |   | 1,201 |   | 1,227 |   | 1,123 |   |
| Operating income (loss)                                                                                |       | 19,895                                     |       | (2,852     | )          |                                        |       |   | 462 |   |   | 9,899 |   | 10,881 |   | 11,681 |   |
| Interest income (expense), net                                                                         |       | 240                                        |       | (2,820     | )          |                                        |       |   | (115 | ) |   | (1,327 | ) | (1,362 | ) | (1,623 | ) |
| Write-off of unamortized deferred loan costs                                                           |       | —                                     |       | (1,894     | )          |                                        |       |   | — |   |   | — |   | — |   | — |   |
| Other income (expense)                                                                                 |       | (3,323                                     | )          | 2,970      |       |                                        |       |   | — |   |   | — |   | — |   | — |   |
| Income (loss) from continuing operations before  income taxes                                          |       | 16,812                                     |       | (4,596     | )          |                                        |       |   | 347 |   |   | 8,572 |   | 9,519 |   | 10,058 |   |
| Income tax expense                                                                                     |       | 6,178                                      |       | 855        |       |                                        |       |   | 152 |   |   | 833 |   | 813 |   | 1,863 |   |
| Equity in earnings of affiliate                                                                        |       | 686                                        |       | 843        |       |                                        |       |   | — |   |   | — |   | — |   | — |   |
| Minority interest                                                                                      |       | (2,127                                     | )          | (1,296     | )          |                                        |       |   | — |   |   | — |   | — |   | — |   |
| Income (loss) from continuing operations                                                               |       | 9,193                                      |       | (5,904     | )          |                                        |       |   | 195 |   |   | 7,739 |   | 8,706 |   | 8,195 |   |
| Loss from discontinued operations                                                                      |       | —                                     |       | —     |       |                                        |       |   | — |   |   | (246 | ) | (3,378 | ) | (720 | ) |
| Net income (loss)                                                                                      |       | 9,193                                      |       | (5,904     | )          |                                        |       |   | 195 |   |   | 7,493 |   | 5,328 |   | 7,475 |   |
| Dividends on preferred stock                                                                           |       | (1,824                                     | )          | (1,632     | )          |                                        |       |   | — |   |   | — |   | — |   | — |   |
| Accretion of beneficial conversion feature                                                             |       | —                                     |       | (17,762    | )          |                                        |       |   | — |   |   | — |   | — |   | — |   |
| Net income (loss) applicable to common stockholders                                                    |       | $                                          | 7,369      |       | $          | (25,298                                     | )          |   |   |   | $ | 195 |   |   | $ | 7,493 |   | $ | 5,328 |   | $ | 7,475 |   |
| Basic income (loss) per common share                                                                   |       | $                                          | 0.08       |       | $          | (0.35                                       | )          |   |   |   |   |   |   |   |   |   |   |   |   |
| Diluted income (loss) per common share                                                                 |       | $                                          | 0.08       |       | $          | (0.35                                       | )          |   |   |   |   |   |   |   |   |   |   |   |   |
| Average number of basic common shares outstanding                                                      |       | 92,529,152                                 |       | 71,429,858 |       |                                        |       |   |   |   |   |   |   |   |   |   |   |
| Average number of  diluted common shares outstanding                                                   |       | 93,555,201                                 |       | 71,429,858 |       |                                        |       |   |   |   |   |   |   |   |   |   |   |

 

| ** **                                                    | ** ** | **CKX, Inc.**    | ** ** | ** ** | ** ** | **Predecessor Company** | ** ** |
|---------------------------------------------------------------|------------|-----------------------|------------|------------|------------|------------------------------|------------|
| **(amounts in thousands)**                          | ** ** | **December 31,** | ** ** | ** ** | ** ** | **December 31,**        | ** ** |
| ** **                                                    | ** ** | **2006**              | ** ** | **2005**   | ** ** | ** **                   | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
| **Balance  Sheet Data:**                                      |       |                  |       |       |       |                         |       |   |   |   |   |   |   |
| Cash and cash  equivalents                                    |       | $                     | 36,610     |       | $          | 36,979                       |       |   |   | $ | 201 |   | $ | 287 |   | $ | 855 |   |
| Marketable  securities                                        |       | —                |       | 42,625     |       |                         |       | — |   | — |   | — |   |
| Other current  assets                                         |       | 36,088                |       | 26,495     |       |                         |       | 6,912 |   | 8,188 |   | 9,757 |   |
| Total assets                                                  |       | 474,645               |       | 430,128    |       |                         |       | 36,032 |   | 37,304 |   | 43,124 |   |
| Current  liabilities (excluding current portion of debt) |       | 39,432                |       | 33,937     |       |                         |       | 8,978 |   | 6,949 |   | 8,660 |   |
| Debt                                                          |       | 3,701                 |       | 3,500      |       |                         |       | 23,582 |   | 26,431 |   | 26,326 |   |
| Total liabilities                                             |       | 76,681                |       | 79,893     |       |                         |       | 34,615 |   | 35,645 |   | 38,403 |   |
| Redeemable  restricted common stock                           |       | 23,002                |       | 23,002     |       |                         |       | — |   | — |   | — |   |
| Stockholders’ equity/net  assets                         |       | 371,009               |       | 323,432    |       |                         |       | 1,417 |   | 1,659 |   | 4,721 |   |
|                                                               |            |                       |            |            |            |                              |            |  |  |  |  |  |  |  |  |  |  |  |

 

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**FORWARD LOOKINGSTATEMENTS**

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, and resultsthat might be obtained by pursuing management’s current plans and objectivesare forward-looking statements. You should not place undue reliance onour forward-looking statements because the matters they describe aresubject to known and unknown risks, uncertainties and other unpredictablefactors, 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

*The following management’s discussion and analysis offinancial condition and results of operations of the Company (and itspredecessor) should be read in conjunction with the historical financialstatements and footnotes of the Presley Business, included in the Company’sCurrent Report on Form 8-K/A filed on February 11, 2005, of 19Entertainment Limited, included in the Company’s Current Report on Form 8-K/Afiled on May 27, 2005, of MBST, included in the Company’s Current Reporton Form 8-K/A filed on October 25, 2005, and  the Company’s historical consolidatedfinancial statements and notes thereto included elsewhere in this AnnualReport. Our future results of operations may change materially from thehistorical results of operations reflected in our historical financialstatements.*

**Overview**

We are engaged in the ownership, development andcommercial utilization of entertainment content, including the rights to thename, image and likeness of Elvis Presley and the operations of Graceland, therights to the name, image and likeness of Muhammad Ali and proprietary rightsto the *IDOLS*television brand,including the *American Idol* series in theUnited States and local adaptations of the *IDOLS *televisionshow format which, collectively, air in over 100 countries around the world.Our existing properties generate recurring revenues across multipleentertainment platforms, including music and television; sponsorship; licensingand merchandising; artist management; themed attractions and touring/liveevents.

On February 7, 2005, RFX Acquisition LLC, amanagement group led by Robert F.X. Sillerman, acquired control of the Company(formerly known as Sports Entertainment Enterprises, Inc.) which had beeninactive since it sold all of its assets in August 2002. Simultaneous withthat transaction, the Company acquired an 85% interest in the Presley Business.The former owner of the Presley Business maintains a 15% interest in thebusiness, is entitled to certain future distributions and has other contractualrights. On March 17, 2005, we acquired 100% of the outstanding capitalstock of 19 Entertainment. On August 9, 2005 we acquired 100% of theoutstanding capital stock of MBST. On April 10, 2006, we acquired an 80%interest in the Ali Business. The former owner of the Ali Business maintains a20% interest in the business, is entitled to certain future distributions andhas other contractual rights.

Management’s discussionand analysis of financial condition and results of operations is based on thehistorical financial condition and results of operations of the PresleyBusiness, as predecessor, rather than those of CKX, prior to February 7,2005. Since the results of our acquired businesses are only included in ouroperating results from the dates of acquisition, the timing of thoseacquisitions significantly impacts the comparability of our results on a yearover year basis.

**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 and Licensing segment generates revenuefrom the exploitation of the name, image and likeness of Elvis Presley,including physical and intellectual property owned or created by Elvis Presley 

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during his life. Theprimary revenue source of this segment comes from licensing Elvis’ name andlikeness for consumer products, commercials and other uses and royalties andother income derived from intellectual property created by Elvis includingrecords, movies, videos and music publishing. Licensing revenue is primarilyderived from long-term contracts with terms of one to five years. Although weseek to obtain significant minimum guarantees, our licensing revenue variesbased on the actual product sales generated by licensees. The intellectualproperty created by Elvis during his lifetime which we own has generally beenassigned to third parties for commercial exploitation under long-term agreements.Although we maintain certain controls over the use of this content and, incertain cases, have rights to terminate these agreements if the third partyfails to perform, our revenue from this intellectual property is highlydependant upon the ability of third parties to successfully market the content.

The Graceland Operations segment generates its primaryrevenue from ticket and merchandise sales and related income from public toursof Graceland as well as from the operation of Elvis Presley’s Heartbreak Hoteland the Meadow Oaks apartment complex. Revenue from Graceland has historicallybeen seasonal with sharply higher numbers of visitors during the late springand summer seasons as compared to the fall and winter seasons.

Most of our revenue sources are dependant upon thepublic’s continued interest in Elvis Presley and the intellectual property hecreated.

Our significant costs tooperate the Presley Business include salaries, rent and other general overheadcosts. Most of our costs do not vary significantly with our revenue. Ourdiscretionary costs are generally in our marketing and promotions departmentwhich we primarily incur to maintain and/or increase the number of visitors toGraceland. We also incur expenses in exploring opportunities to bringElvis-related attractions to Las Vegas and other strategic locations throughoutthe world.

**19 Entertainment**

19 Entertainment generates revenue from the creationand production of entertainment properties. Our primary revenue sources includeproduction and license fees and related ratings and rankings bonuses fromtelevision programs, and royalties from the sale of recorded music by artistssigned to our record labels. We also derive revenue from the sale ofmerchandise, sponsorships and tours based on our television programs andrecorded music artists, and fee income from management clients.

The majority of our revenue is derived from productionand license fees and related performance bonuses from producing and licensingthe *IDOLS* television show formatin various countries and ancillary revenue streams from the *IDOLS* brand. Ancillary revenue from the *IDOLS* brand is generated throughagreements which provide us with the option to sign finalists on the *IDOLS* television shows to long-termrecording 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 through agreements with our global televisionproduction and distribution partner, FremantleMedia, and our principal globalrecord label partners Ronagold for seasons *American Idol 1*through *American Idol 4* and Simco for allseasons subsequent to *American Idol 4*.Therefore, we are highly dependent upon the continued ability of these entitiesto successfully maintain the *IDOLS*brand and promote our recording artists.

Other than *American Idol*,which is discussed below, the *IDOLS*television shows are generally produced or licensed under one year contractsunder which each local television network has the right, but not theobligation, to renew the agreement for additional years. Our recording artistsare generally signed to long-term recording contracts under which we andSony BMG have the right, but not the obligation, to require the artist torelease a specified number of albums.

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Our revenue from the *IDOLS*brand is also highly dependent upon the continued success of the *American Idol* series which currently airs on the Foxtelevision network in the United States, and local adaptions of the *IDOLS* television show which air around the world. Ourrevenue is also dependent upon the continued success and productivity of ourrecording artists and management clients. A portion of our revenue from the *American Idol* series is dependent upon the number of hoursof programming we deliver. In the fifth broadcast season, which aired duringour first and second fiscal quarters of 2006, we delivered 45 hours ofprogramming compared to 38.5 hours of programming during the same period of2005, of which 18 hours was broadcast subsequent to the date of acquisition, March 17,2005. On November 28, 2005, 19 Entertainment entered into a series ofagreements with Fox, FremantleMedia and Sony BMG, related to the *American Idol* television program. Under the terms of theagreements, Fox has guaranteed production of at least three, and as many asfive more seasons of *American Idol*.Additional terms of the agreements call for Fox to order a minimum of 37 hoursand a maximum of 45 hours of *American Idol*programmingeach season and to pay 19 Entertainment an increased license fee per season andan annual payment tied to our recording agreement with Sony BMG.

19 Entertainment’s revenue is seasonal in nature,reflecting the timing of our television shows and tours in various markets.Historically, 19 Entertainment generated higher revenue during the first threequarters of the calendar year, which corresponds to the dates our *American Idol* and *So You Think You Can Dance*series air on Fox in the United States. 19 Entertainment’s revenuesreflect its contractual share of the *IDOLS*television revenue representing producer, format and licensing fees as well asratings and ratings bonuses and do not include the revenues earned or theproduction costs incurred directly by our production and distribution partner,FremantleMedia. 19 Entertainment records all of the television and sponsorshiprevenue for *So You Think You Can Dance* and ouroperating expenses include the contractual share that we distribute to ourproduction partners.

Our significant costs tooperate 19 Entertainment include salaries and other compensation,royalties, tour expenses, rents and general overhead costs. Our discretionarycosts include salary and overhead costs incurred in the development of newentertainment content.

**Ali Business**

The Ali Business consists of the commercialexploitation of the name, image, likeness and intellectual property of MuhammadAli, primarily through endorsement and licensing arrangements.

The primary revenue source comes from licensingMuhammad Ali’s name and likeness for consumer products, commercials and otheruses. Licensing revenue is primarily derived from long-term contracts withterms of one to five years. Although we seek to obtain significant minimum guarantees,our licensing revenue varies based on the actual product sales generated bylicensees. The intellectual property that is owned by the Company is licensedto third parties for commercial exploitation under long-term agreements.Although we maintain certain controls over the use of this content and, incertain cases, have rights to terminate these agreements if the third partyfails to perform, our revenue from this intellectual property is highlydependant upon the ability of third parties to successfully market the content.Most of our revenue sources are dependant upon the public’s continued interestin Muhammad Ali and associated intellectual property. The Ali Business alsogenerates revenue from sports memorabilia signings performed by Mr. Ali.

Our significant costs tooperate the Ali Business include commissions, salaries and other generaloverhead costs. With the exception of commissions, most of our costs do notvary significantly with our revenue.

 

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**Other**

MBST is a full service management company representingan array of leading entertainers including Robin Williams, Billy Crystal andWoody Allen. In addition to its management activities, MBST produces motionpictures.

MBST earns revenue through arrangements with artiststhat result in MBST receiving a percentage of the artists’ performance revenue,from consulting fees paid by advisory clients and from participations in filmsit has produced. Executives and other employees of MBST are also activelyinvolved in developing and implementing revenue enhancement opportunities forthe Company’s other entertainment content and assets.

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

**Use of OIBDAN**

We evaluate our operating performance based on severalfactors, including operating income (loss) before non-cash depreciationof tangible assets, non-cash amortization of intangible assets andnon-cash compensation expense (which we refer to as “OIBDAN”). We considerOIBDAN to be an important indicator of the operational strengths andperformance of our businesses and the critical measure our chief operatingdecision-maker (CEO) uses to manage and evaluate our businesses, including theability to provide cash flows to service debt. However, a limitation of the useof OIBDAN as a performance measure is that it does not reflect the periodiccosts of certain capitalized tangible and intangible assets used in generatingrevenue in our businesses or stock-based compensation expense. Accordingly,OIBDAN should be considered in addition to, not as a substitute for, operatingincome (loss), net income (loss) and other measures of financial performancereported in accordance with accounting principles generally accepted in theUnited States of America (“US GAAP”) as OIBDAN is not a US GAAP equivalentmeasurement.

We have reconciled OIBDANto operating income (loss) in the following consolidated operating resultstable for the Company for the year ended December 31, 2006 and 2005 andfor the Predecessor for the year ended December 31, 2004 and the periodfrom  January 1, 2005 to February 7,2005.

**Consolidated Operating Results Year Ended December 31,2006**

**Compared to Combined Year Ended December 31, 2005**

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 compared theresults of the Company for the year ended December 31, 2006 with theCompany’s results for the year ended December 31,2005 combined with that of the Predecessor for the period January 1, 2005to February 7, 2005. Although the combined 2005 financial information doesnot comply with US GAAP, management is providing this information solely toexplain changes in results of operations for the periods presented in thefinancial statements. The combined total column has been prepared on adifferent accounting basis than the Company for the period ended December 31,2006. The combined total excludes the impact of additional depreciation andamortization expense resulting from the application of fair value accountingfor acquired assets of the Presley Business for the predecessor period January 1,2005 to February 7, 2005.

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| ** **                     | ** ** | **CKX  Year  Ended  December 31,  2006** | ** ** | ** ** | ** ** | **CKX  Year  Ended  December 31,  2005** | ** ** | **Predecessor  Presley  January 1,  2005 to  February 7,  2005** | ** ** | **Combined  Total** | ** ** | **Variance** | ** ** |
|--------------------------------|------------|-----------------------------------------------|------------|------------|------------|-----------------------------------------------|------------|---------------------------------------------------------------------------------|------------|---------------------|------------|--------------|------------|
| ** **                     | ** ** | **(amounts in thousands)**          | ** ** |
| Revenue                        |       |                                          | $          | 210,153    |       |                                          |       |                                                                            |       | $                   | 120,605    |         |       |   | $ | 3,442 |   |   | $ | 124,047 |   | $ | 86,106 |   |
| Operating  expenses            |       |                                          | 190,258    |       |       |                                          |       |                                                                            | 123,457    |                |       |         | 2,980      |   |   | 126,437 |   | 63,821 |   |
| Operating income  (loss)       |       |                                          | 19,895     |       |       |                                          |       |                                                                            | (2,852     | )                   |       |         | 462        |   |   | (2,390 | ) | 22,285 |   |
| Income tax  expense            |       |                                          | 6,178      |       |       |                                          |       |                                                                            | 855        |                |       |         | 152        |   |   | 1,007 |   | 5,171 |   |
| Net income (loss)              |       |                                          | 9,193      |       |       |                                          |       |                                                                            | (5,904     | )                   |       |         | 195        |   |   | (5,709 | ) | 14,902 |   |
| Operating income (loss)        |       |                                          | $          | 19,895     |       |                                          |       |                                                                            |       | $                   | (2,852     | )            |       |   | $ | 462 |   |   | $ | (2,390 | ) | $ | 22,285 |   |
| Depreciation and  amortization |       |                                          | 20,541     |       |       |                                          |       |                                                                            | 14,910     |                |       |         | 126        |   |   | 15,036 |   | 5,505 |   |
| Non-cash  compensation         |       |                                          | 1,052      |       |       |                                          |       |                                                                            | 731        |                |       |         | —     |   |   | 731 |   | 321 |   |
| OIBDAN                         |       |                                          | $          | 41,488     |       |                                          |       |                                                                            |       | $                   | 12,789     |         |       |   | $ | 588 |   |   | $ | 13,377 |   | $ | 28,111 |   |

 

The 2006 results reflect afull year of results for 19 Entertainment and MBST as well as the results forthe Ali Business from the date of its acquisition on April 10, 2006. Inaddition, revenue growth in 2006 was driven by 19 Entertainment, whichbenefited from the continued success and growth of its television programming,primarily *American Idol*, which reflects the newFox agreement entered into in 2005, and *So You Think You CanDance,* which reflects an increase in the number of broadcast hours..Higher operating expenses for the year ended December 31, 2006 resultedfrom higher overall costs at 19 Entertainment to support the revenue growth anda full year of amortization expense related to acquired intangible assets,offset by a decrease in overall costs at the Presley Business.

**Presley Business—Royaltiesand Licensing**

Thefollowing table provides a breakdown of Presley Business—Royalties andLicensing revenue, cost of sales, selling, general and administrative expensesand OIBDAN for the years ended December 31, 2006 and 2005 (combined, aspreviously described):

| ** **                                                                    | ** ** | **2006**                             | ** ** | **2005  combined** | ** ** | **Variance** | ** ** |
|-------------------------------------------------------------------------------|------------|--------------------------------------|------------|--------------------|------------|--------------|------------|
| ** **                                                                    | ** ** | **(amounts in thousands)** | ** ** |
| Revenue                                                                       |       | $                                    | 13,699     |               |       | $            | 21,172     |   |   | $ | (7,473 | ) |
| Cost of sales                                                                 |       | (476                                 | )          |               | (5,503     | )            |       | (5,027 | ) |
| Selling, general and  administrative expense, excluding non-cash compensation |       | (4,326                               | )          |               | (5,419     | )            |       | (1,093 | ) |
| OIBDAN                                                                        |       | $                                    | 8,897      |               |       | $            | 10,250     |   |   | $ | (1,353 | ) |
| OIBDAN                                                                        |       | $                                    | 8,897      |               |       | $            | 10,250     |   |   | $ | (1,353 | ) |
| Depreciation and  amortization                                                |       | (2,582                               | )          |               | (3,040     | )            |       | 458 |   |
| Non-cash compensation                                                         |       | (15                                  | )          |               | (6         | )            |       | (9 | ) |
| Operating income                                                              |       | $                                    | 6,300      |               |       | $            | 7,204      |   |   | $ | (904 | ) |

 

The decrease in royaltiesand licensing revenue was largely due to $5.7 million of revenue generated in2005 from the television broadcast of “Elvis by the Presleys,” and the releaseof a related DVD and book. The remaining decrease reflects $2.4 million inlower royalties in 2006 compared to 2005 from the sales of DVDs of the “Alohafrom Hawaii” and “‘68 Special” concerts which were re-released in 2004, licensefees of $0.7 million in 2005 for a separate television miniseries and adecline in revenue from commercials and other projects of $0.4 million.Partially offsetting these revenue declines was the receipt of $0.6 millionfrom a royalty audit settlement with Sony BMG in 2006, increased merchandiselicensing royalties of $0.7 million and $0.4 million in revenue from other newDVD releases.

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Cost of sales decreased$5.0 primarily due to production costs of $5.4 million related to “Elvis by thePresleys” in 2005. The decrease in selling, general and administrative expenseswas primarily attributable to $0.5 million of legal and professional fees specificallyfor “Elvis by the Presleys” in 2005 and a $0.6 million decrease in other legaland professional fees.

**Presley Business—Graceland Operations**

The following tableprovides a breakdown of the Presley Business—Graceland Operations revenue, costof sales, selling, general and administrative expenses and OIBDAN for the yearsended December 31, 2006 and 2005 (combined, as previously described):

| ** **                                                                    | ** ** | **2006**                             | ** ** | **2005  combined** | ** ** | **Variance** | ** ** |
|-------------------------------------------------------------------------------|------------|--------------------------------------|------------|--------------------|------------|--------------|------------|
| ** **                                                                    | ** ** | **(amounts in thousands)** | ** ** |
| Revenue                                                                       |       | $                                    | 35,081     |               | $          | 30,358       |       |   | $ | 4,723 |   |   |
| Cost of sales                                                                 |       | (7,258                               | )          | (6,426             | )          |         | 832        |   |   |
| Selling, general and  administrative expense, excluding non-cash compensation |       | (23,569                              | )          | (19,094            | )          |         | 4,475      |   |   |
| OIBDAN                                                                        |       | $                                    | 4,254      |               | $          | 4,838        |       |   | $ | (584 | ) |   |
| OIBDAN                                                                        |       | $                                    | 4,254      |               | $          | 4,838        |       |   | $ | (584 | ) |   |
| Depreciation and  amortization                                                |       | (1,823                               | )          | (1,473             | )          |         | (350       | ) |   |
| Non-cash compensation                                                         |       | (40                                  | )          | (5                 | )          |         | (35        | ) |   |
| Operating income                                                              |       | $                                    | 2,391      |               | $          | 3,360        |       |   | $ | (969 | ) |   |

 

Graceland Operations tourand exhibit revenue of $13.0 million in 2006 accounted for $1.4 million of theincrease in Graceland Operations revenue. The increase resulted from an 11%increase in per visitor spending and a 0.5% increase in attendance from 551,292in 2005 to 554,193 in 2006. After an 8.2% decrease in visitors in the firsthalf of 2006, which we believe was due to the continued impact of HurricaneKatrina and higher gasoline prices, attendance increased by 8.7% in the secondhalf of the year compared to the prior year period. Per visitor spendingimprovement is partially due to an increase in the number of visitors choosingthe VIP premium tour option.

Retail operations revenueof $13.9 million in 2006 accounted for $1.5 million of the overall increase inrevenue. The increase of $1.5 million in retail operations resulted in partfrom a change in July 2005 to the mail order retail business where theCompany now bears the business risk for revenue and related expenses andtherefore records revenue and cost of sales. This change contributed $0.7million of additional revenue in 2006. During the first seven months of 2005,mail order retail sales were outsourced and the Company received a commissionbased on net sales. Other Graceland retail sales increased by $0.8 million, or9.5%, in 2006, which is primarily attributable to an increase in per visitorspending of 4.4% and the increase in attendance.

$1.2 million of therevenue increase was due to ticket sales from the non-recurring *Elvis the Concert* performed in Australia, New Zealand andThailand in October 2006. Other revenue, primarily hotel room revenue andother property operations, also increased in 2006 over the prior year.

Graceland operations costof sales increased $0.8 million, or 13%, due primarily to $0.9 million of costsassociated with*Elvis the Concert*. Gracelandoperations selling, general and administrative expenses increased $4.5 million,or 23%, due to $1.2 million of professional services and related costsassociated with the potential redevelopment of the Graceland attraction and ournew initiatives with Cirque du Soleil for the creation, development, production and promotion of touring andpermanent shows, including a permanent Elvis Presley show at theCityCenter hotel/casino in Las Vegas, higher fulfillment and distribution costsfor the mail order retail sales business and a general increase in operatingcosts.

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**19 Entertainment**

Revenue for 19Entertainment was $151.2 million for the year ended December 31, 2006, anincrease of $80.6 million, or 114%, over the prior period from the date ofacquisition, March 17, 2005, through December 31, 2005. Operatingexpenses for 19 Entertainment, including amortization expense of intangibleassets of $14.5 million, were $123.2 million, an increase of $53.4 million, or76%, over the prior period. The following tables provide a breakdown of 19Entertainment’s revenue, cost of sales, selling, general and administrativeexpenses, other costs and OIBDAN for the year ended December 31, 2006 andfor the period from the date of acquisition (March 17, 2005) through December 31,2005:

| **Year ended December 31, 2006**                                                           | ** ** | **Revenue**                          | ** ** | **Cost of Sales** | ** ** | ** ** | ** ** |
|----------------------------------------------------------------------------------------------------------------|------------|--------------------------------------|------------|-----------------------------|------------|------------|------------|
| ** **                                                                                                     | ** ** | **(amounts in thousands)** | ** ** | ** **                  | ** ** |
| *American Idol*  (including television production, foreign syndication, sponsorship,  merchandise and touring) |       | $                                    | 67,710     |                        |       | $          | (20,499    | ) |   | $ | 47,211 |   |
| Other *IDOLS* television programs (including license fees and  sponsorship)                                    |       | 8,605                                |       |                        | (77        | )          |       | 8,528 |   |
| *So You Think You Can Dance*  and other television productions                                                 |       | 38,240                               |       |                        | (31,335    | )          |       | 6,905 |   |
| Recorded music,  management clients and other                                                                  |       | 36,663                               |       |                        | (18,432    | )          |       | 18,231 |   |
|                                                                                                           |       | $                                    | 151,218    |                        |       | $          | (70,343    | ) |   | $ | 80,875 |   |
| Selling, general and  administrative expenses, excluding non-cash compensation                                 |       |                                 |       |                        |       |       |       | (34,730 | ) |
| Other costs                                                                                                    |       |                                 |       |                        |       |       |       | (2,669 | ) |
| OIBDAN                                                                                                         |       |                                 |       |                        |       |       |       | $ | 43,476 |   |
| OIBDAN                                                                                                         |       |                                 |       |                        |       |       |       | $ | 43,476 |   |
| Depreciation and  amortization                                                                                 |       |                                 |       |                        |       |       |       | (15,195 | ) |
| Non-cash compensation                                                                                          |       |                                 |       |                        |       |       |       | (220 | ) |
| Operating income                                                                                               |       |                                 |       |                        |       |       |       | $ | 28,061 |   |

 

| **Period from date of acquisition (March 17, 2005) through December 31, 2005** | ** ** | **Revenue**                          | ** ** | **Cost of Sales** | ** ** | ** ** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------|------------|-----------------------------|------------|------------|------------|
| ** **                                                                                                                            | ** ** | **(amounts in thousands)** | ** ** | ** **                  | ** ** |
| *American Idol*  (including television production, foreign syndication, sponsorship, merchandise  and touring)                        |       | $                                    | 25,280     |                        |       | $          | (9,857     | ) |   | $ | 15,423 |   |
| Othe*r 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, excluding non-cash compensation                                                        |       |                                 |       |                        |       |       |       | (20,637 | ) |
| OIBDAN                                                                                                                                |       |                                 |       |                        |       |       |       | $ | 11,109 |   |
| OIBDAN                                                                                                                                |       |                                 |       |                        |       |       |       | $ | 11,109 |   |
| Depreciation and  amortization                                                                                                        |       |                                 |       |                        |       |       |       | (10,219 | ) |
| Non-cash compensation                                                                                                                 |       |                                 |       |                        |       |       |       | (75 | ) |
| Operating income                                                                                                                      |       |                                 |       |                        |       |       |       | $ | 815 |   |
|                                                                                                                                       |            |                                      |            |                             |            |            |            |  |  |  |  |  |

 

The revenue increase of$80.6 million in the year ended December 31, 2006 over the prior period isprimarily due to the full year of CKX ownership in 2006, an increase in revenuefor *American Idol* 5 due to the November 2005amended Fox agreement and improved touring results, increased broadcast hoursof *So You Think You Can Dance* andhigher revenue from recording artists. 19 Entertainment’s revenue is seasonalin nature, reflecting the timing of our television shows and tours in variousmarkets. Historically, 19 Entertainment has generated higher revenue during thefirst three quarters of the calendar year, which corresponds to the dates our *American Idol* and *So You Think You Can Dance*series air on Fox in the United States and the timing of the related livetours.

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*American Idol 5*aired45 series hours in the U.S. between January and May 2006. 19Entertainment recognized $9.0 million in incremental guaranteed licensefees in 2006 from the amended Fox agreement. In addition to the license fees,Fox also paid higher bonus fees in 2006 reflecting the higher ratings for *American Idol**5*in its targeted demographics. *The American Idol 5* tour played 60 dates as compared to40 dates for the *American Idol 4* tour in the prior period. *The American Idol5* tour benefited fromstrong ticket sales, better terms with the tour promoter and higher sponsorshiprevenues. Revenues for *So You Think You CanDance* increased to$38.1 million from $18.4 million in the prior year reflecting an increase inbroadcast hours to 30 hours ascompared to 17.5 hours in the prior year and the launch of a tour in 2006.Music revenues increased over the prior year period reflecting the continuing successof prior *American Idol* artists and due to an annual fee of$5.0 million paid by Fox to 19 Entertainment beginning with *American Idol 5* for designating Sony BMG as the continuingrecord label for *American**Idol* artists and for featuring certain Sony BMG controlledtalent on the show.

*American Idol 4*aired38.5 hours in the U.S. in 2005. Our results of operations for the period fromthe date of acquisition, March 17, 2005, through December 31, 2005included the broadcast of 18.0 hours of *AmericanIdol 4* and excluded 20.5 hours which aired prior to the acquisitiondate.

Operating expensesincreased by $53.4 million in the year ended December 31, 2006 over theprior period due to the full year of CKX ownership in 2006, the cost ofproducing additional hours of the *So You Think You Can Dance*television program, higher tour costs, increased music royalties and higherselling, general and administrative expenses. Other costs of $2.7 millionrepresenting foreign exchange losses generated at 19 Entertainment fromtransactions denominated in non-UK pound sterling currencies, primarily theU.S. dollar, reflect the significant weakening of the U.S. dollar in 2006.

**Ali Business**

The Ali Businesscontributed $4.1 million in revenue for the period from the date of acquisition(April 10, 2006) to December 31, 2006, $1.3 million of which wasrelated to sports memorabilia signings by Mr. Ali. Operating expenses forthe period were $2.7 million. OIBDAN was $1.5 million for the period from thedate of acquisition to December 31, 2006.

**Corporate and Other**

***MBST***

MBST contributed $6.1 million and $1.9 million inrevenue for the year ended December 31, 2006 and for the period from thedate of acquisition (August 9, 2005) through December 31, 2005,respectively. Operating expenses for the same periods, includingacquisition-related amortization expenses of $0.7 million and $0.3 million,respectively, were $5.9 million and $2.1 million, respectively. OIBDAN was $1.0million and break-even for the year ended December 31, 2006 and for theperiod from the date of acquisition through December 31, 2005,respectively.

***Corporate Expenses and Other Costs***

The Company incurredcorporate overhead expenses of $15.2 million and $11.4 million in the yearsended December 31, 2006 and 2005, respectively. The increase of $3.8million reflects a full year of corporate operations in 2006, increasedheadcount and increased accounting and audit-related expenses arising from theinitial year of compliance with the requirements of the Sarbanes-Oxley Act of2002.

During the year ended December 31,2006, the Company incurred $3.2 million of acquisition-related costs, consistingof third party due diligence costs for potential acquisitions that are notlikely to be consummated. For the year ended December 31, 2005, theCompany incurred $2.2 million of other costs related to the transition of theCompany from an entity with no operations.

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***Interest Income/Expense, net***

The Company had netinterest income of $0.2 million for the year ended December 31, 2006,attributable to $1.4 million in interest income generated from cash andmarketable securities, offset in part by $1.2 million of interest expense onthe Company’s debt and costs associated with maintaining the Company’srevolving credit facilities. The Company had net interest expense of $2.8million for the combined 2005 period attributable to interest costs associatedwith borrowings incurred to finance the acquisitions of the Presley Businessand 19 Entertainment. These borrowings were repaid in June 2005 with theproceeds from the Company’s public offering of common stock.

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

In the prior year,unamortized deferred loan costs of $1.9 million were expensed when theshort-term senior loans used to finance the Presley Business and 19Entertainment acquisitions were re-paid in June 2005 from the proceeds ofthe Company’s public offering of common stock.

***Other Income (Expense)***

Other expense of $3.3million for the year ended December 31, 2006 relates to foreign exchange lossesgenerated as a result of short-term intercompany loans between 19 Entertainmentand the parent company that were denominated in U.S. dollars. These loans weresettled through the declaration of an intercompany dividend before the end ofthe year.

Other income of $3.0million for the year ended December 31, 2005 was primarily a result of aforeign exchange gain on the Company’s deferred purchase consideration payablefor 19 Entertainment, which was recorded on the date of acquisition (March 17,2005) and paid in December 2005.

***Income Taxes***

For the year ended December 31,2006, the Company recorded income tax expense of $6.2 million, reflectingfederal income taxes of $1.7 million, state income taxes of $0.9 million andforeign income taxes of $3.6 million. The federal expense is net of a taxbenefit of $2.9 million due to the reversal of a valuation allowance recordedin the prior year which relates to the utilization of net operating loss carryforwards.Applying the 35% U.S. Federal statutory rate to the Company’s pre-tax incomewould result in income tax expense of $5.9 million in 2006. The Company’sactual income tax expense differs from this amount as a result of severalfactors, including permanent differences (i.e., certain financial statementitems that are not includable in income for income tax purposes), foreignincome taxed at different rates, state and local income taxes and the reversalof the valuation allowance.

The deferred tax assets atDecember 31, 2006 were reduced by a valuation allowance of $28.6 million,principally relating to uncertainty regarding the future realizability of taxbenefits related to 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, 2006,the Company has approximately $1.9 million in foreign net operating losscarryforwards that may also have limits on utilization.

For the year ended December 31,2005, the Company recorded income tax expense of $0.9 million, reflecting stateincome taxes of $0.8 million and foreign income taxes of $0.1 million. Afederal income tax benefit of $2.7 million was offset by a valuation allowancedue to uncertainty of the realization of these tax benefits. Applying the 35%U.S. Federal statutory rate to the pre-tax loss would result in income taxbenefit of $1.6 million in 2005. The Company’s actual income tax expensediffers from this amount as a result of several factors, including permanentdifferences, foreign income taxed at different rates, state and local incometaxes and the valuation allowance.

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***Equity in Earnings of Affiliates***

The Company recorded $0.7and $0.8 million of earnings in unconsolidated affiliates for the years ended December 31,2006 and 2005, respectively, reflecting primarily the Company’s investment inBeckham Brands Limited.

***Minority Interest***

Minority interest expenseof $2.1 million and $1.3 million for the years ended December 31, 2006 and2005, respectively, reflect shares in the net income of the Presley Businessand the Ali Business related to the equity interests retained by the formerowners.

**CombinedOperating Results Year Ended December 31, 2005Compared to Predecessor Year Ended December 31, 2004**

Priorto the acquisition of the Presley Business on February 7, 2005, theCompany had no operations. As a result the Presley Business is considered to bethe Predecessor company (the “Predecessor”). To assist in the understanding ofthe results of operations of the Company, we have presented supplementalhistorical results of the Predecessor. For the purpose of management’sdiscussion and analysis of financial condition and results of operations, wehave combined the Company’s results for the year ended December 31, 2005 with that of the Predecessor for the periodJanuary 1, 2005 to February 7, 2005. The results of operations of thePredecessor and CKX are not necessarily comparable, in part due to the changein basis resulting from the Company’s acquisition of the Predecessor. Althoughthe combined 2005 financial information does not comply with US GAAP,management is providing this information solely to explain changes in resultsof operations for the periods presented in the financial statements. Thecombined total column has been prepared on a different accounting basis thanthe Company for the year ended December 31, 2005. The combined totalexcludes the impact of additional depreciation and amortization expenseresulting from the application of fair value accounting for acquired assets forthe Presley Business for the predecessor period January 1, 2005 to February 7,2005. 

| ** **              | ** ** | ** **                           | ** ** | **Predecessor**      | ** ** | ** **   | ** ** | ** ** | ** ** | **Predecessor**       | ** ** | ** **   | ** ** |
|-------------------------|------------|--------------------------------------|------------|----------------------|------------|--------------|------------|------------|------------|-----------------------|------------|--------------|------------|
| ** **              | ** ** | **CKX**                              | ** ** | **Presley**          | ** ** | ** **   | ** ** | ** ** | ** ** | **Presley**           | ** ** | ** **   | ** ** |
| ** **              | ** ** | **Year**                             | ** ** | **January 1,**  | ** ** | ** **   | ** ** | ** ** | ** ** | **Year**              | ** ** | ** **   | ** ** |
| ** **              | ** ** | **Ended**                            | ** ** | **2005 To**     | ** ** | ** **   | ** ** | ** ** | ** ** | **Ended**             | ** ** | ** **   | ** ** |
| ** **              | ** ** | **December 31,**                | ** ** | **February 7,** | ** ** | **Combined** | ** ** | ** ** | ** ** | **December 31,** | ** ** | ** **   | ** ** |
| ** **              | ** ** | **2005**                             | ** ** | **2005**             | ** ** | **Total**    | ** ** | ** ** | ** ** | **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 | ) |
| Income tax expense      |       |                                 | 855        |                 |       |         | 152        |       |       | 1,007                 |       |         |       |   | 833 |   |   | 174 |   |
| Net income (loss)       |       |                                 | (5,904     | )                    |       |         | 195        |       |       | (5,709                | )          |         |       |   | 7,493 |   |   | (13,202 | ) |
| OIBDAN                  |       |                                 | 12,789     |                 |       |         | 588        |       |       | 13,377                |       |         |       |   | 11,100 |   |   | 2,277 |   |
|                         |            |                                      |            |                      |            |              |            |            |            |                       |            |              |            |  |  |  |  |  |  |  |  |  |  |  |

 

The combined total columnhas been prepared on a different basis of accounting than for the Predecessorfor the year ended December 31, 2004. The combined total includes theimpact of additional depreciation and amortization expense resulting from thefair value accounting of acquired assets for the Presley Business,19 Entertainment and MBST. This added approximately $13.0 million tooperating expenses. In addition, the combined total includes corporate expensesincurred by the Company of $11.4 million and interest expense related to thePresley and 19 Entertainment short-term senior credit facilities and thePriscilla Presley note of $4.5 million.

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***Revenue***

On a combined basis,revenue was $124.0 million for the combined 2005 period as compared to$41.7 million for the Predecessor for the year ended December 31,2004. The increase of $82.4 million is primarily attributable to $70.6million of revenue at 19 Entertainment from the date of its acquisition.$9.9 million was attributable to the Presley Business with $5.7 million due tothe release of the documentary, “Elvis by the Presleys,*”*and $4.2 million was due to higher licensing and royalty fees and revenue fromGraceland operations. MBST contributed $1.9 million in revenue from its date ofacquisition.

***Operating Expenses***

Combined operatingexpenses for the year ended December 31, 2005 increased by$94.7 million over the prior period. Of this increase, $69.8 millionreflects the operating expenses of 19 Entertainment since its acquisition,including $9.6 million of acquisition-related depreciation and amortizationexpenses. Presley operating costs increased $9.2 million, primarily due to theproduction costs for “Elvis by the Presleys” and $3.1 million ofacquisition-related depreciation and amortization expenses. MBST had operatingcosts 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 operatingloss for the year ended December 31, 2005 was $2.4 million, a decline of$12.3 million as compared to the prior year, primarily due to corporateexpenses and acquisition-related amortization and depreciation expenses of$13.0 million, offset by operating income generated by 19 Entertainment andhigher operating income at the Presley Business.

***OIBDAN***

Combined OIBDAN increased$2.3 million to $13.4 million for the year ended December 31, 2005 ashigher OIBDAN at the Presley Business and OIBDAN attributable to 19Entertainment of $11.1 million for the period since the date of itsacquisition were partially offset by corporate overhead costs and costs relatedto the change in control and change in operating business of the Company describedabove.

***InterestExpense, net***

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

***Deferred Loan CostWrite-Off***

Unamortized deferred loancosts of $1.9 million were expensed when the short-term senior loans used to financethe Presley Business and 19 Entertainment acquisitions were re-paid in June 2005from the proceeds 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 Company recorded income tax expense of $0.9 million, reflectingstate income taxes of $0.8 million and foreign income taxes of$0.1 million. A federal income tax benefit of $2.7 million was offset by avaluation allowance due to uncertainty of the realization of these tax benefits.Applying the 35% U.S. Federal statutory rate to the pre-tax loss would resultin income tax benefit of $1.6 million in 2005. The Company’s actual income taxexpense differs from this amount as a result of several factors, includingnon-temporary differences (i.e., certain financial statement items that are notincludible in income for income tax purposes), foreign income taxed atdifferent rates, state and local income taxes and the valuation  allowance.

The Company recorded noincome tax expense for the year ended December 31, 2004.

The Predecessor businesswas partly held in a trust structure and therefore a portion of the net incomewas not taxed in the business, resulting in a low effective tax rate for theyear ended December 31, 2004.

***Equity in Earningsof 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 year ended December 31, 2005 compared to net incomefor 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.

***Royalties andLicensing***

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**from Hawaii*”*and“‘68 Special”,**license fees for the CBSminiseries on Elvis Presley that aired on the CBS television network in May 2005,and new licensing activities, including a 

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licenseagreement with Sirius Satellite Radio for an exclusively Elvis radio channel,offset in part by lower revenue from music and films. Combined operatingexpenses related to the Royalties and Licensing segment, includingacquisition-related depreciation and amortization expenses of $3.1 million,were $14.0 million compared to $4.5 million in the prior period, an increase of$9.5 million, or 211%, due primarily to acquisition-related amortization andproduction costs and other expenses for “Elvis by the Presleys.”

***GracelandOperations***

The combined operatingresults related to Graceland Operations include several revenue streams.Combined tour and exhibit revenue was $11.7 million, an increase of$0.5 million, or 5% over the prior year. This increase resulted fromhigher per-visitor spending due to revenue enhancement programs partiallyoffset by a 3% decrease in mansion attendance from 568,000 to 551,000. Thedecrease in attendance in 2005 occurred during the final four months of theyear. We believe that the decline was due to the impact of Hurricane Katrinaand higher gasoline prices which have significantly impacted the level oftourism in the Gulf Coast region. Combined revenue from Graceland’s retailoperations was $12.3 million in 2005, an increase of $1.2 million, or 11%,due primarily to merchandise sales of $0.5 million from Elvis the Concert, atouring show featuring footage of Elvis synchronized with a live band whichplayed 12 dates during 2005, and a $0.4 million increase over the prior yearresulting from a change in the mail order retail business. On April 1,2004, the operation of that portion of the business was outsourced and theCompany began to receive a commission based on net sales versus recording salesand cost of sales. In July 2005, this operation was moved to a new vendorand the Company again bears the business risk for sales and related expenses.The financial statements include three months of such revenue in 2004 and fivemonths in 2005. Combined hotel room revenue was $3.5 million, an increase of$0.2 million or 5% as the average occupancy rate improved slightly from 79% in2004 to 80% in 2005 and higher yield per room due to rate increases implementedin the second quarter. Combined operating expenses related to GracelandOperations were $27.0 million compared to $27.2 million in the priorperiod, a decrease of $0.2 million, or 1%, due to decreased general andadministrative expenses.

**19 Entertainment**

Revenue and operatingexpenses, including depreciation and amortization expense of $10.2 million($9.6 million of acquisition-related depreciation and amortization expense),for 19 Entertainment for the period from the date of acquisition, March 17,through December 31, 2005 were $70.6 million and $69.8 million,respectively. The following table provides a breakdown of 19 Entertainment’srevenue, cost of sales and selling, general and administrative expenses for theperiod:

| ** **                                                                                                    | ** ** | **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, excluding non-cash compensation                                |       |                                 |       |                        |       |       |       | (20,712 | ) |
| Depreciation and  amortization                                                                                |       |                                 |       |                        |       |       |       | (10,219 | ) |
| Operating income                                                                                              |       |                                 |       |                        |       |       |       | $ | 815 |   |
| Operating income                                                                                              |       |                                 |       |                        |       |       |       | $ | 815 |   |
| Depreciation and  amortization                                                                                |       |                                 |       |                        |       |       |       | 10,219 |   |
| Non-cash compensation                                                                                         |       |                                 |       |                        |       |       |       | 75 |   |
| OIBDAN                                                                                                        |       |                                 |       |                        |       |       |       | $ | 11,109 |   |

 

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

**Other**

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.

**Liquidity and Capital Resources**

*Revolving Credit Facility—**On*May 24, 2006,the Company entered into a $125.0 million revolving credit agreement (the “CreditFacility”) with various lenders, including Bear, Stearns & Co. Inc.Loans under the Credit Facility are guaranteed by all of the Company’swholly-owned domestic subsidiaries and certain of its wholly-owned foreignsubsidiaries. The loans are secured by a pledge of certain assets of theCompany and its subsidiary guarantors, including ownership interests in allwholly-owned domestic subsidiaries, substantially all wholly-owned foreignsubsidiaries and certain subsidiaries that are not wholly-owned. The CreditFacility replaced the Company’s previous $50.0 million financing commitment. Asof December 31, 2006, the Company had not drawn on the Credit Facility.Loans under the Credit Facility are available to the Company for generalcorporate purposes and to finance future acquisitions and joint ventures. Baserate loans under the Credit Facility will bear interest at a rate equal to thegreater of (i) the prime rate or (ii) the federal funds rate, plus 50basis points. Eurodollar loans under the Credit Facility will bear interest ata rate determined by a formula based on a published Telerate rate, adjusted forthe reserve requirements prescribed for eurocurrency funding by a member bankof the Federal Reserve, plus 150 basis points. Any loans under the CreditFacility must be repaid by May 24, 2011. A commitment fee of 0.50% on thedaily unused portion of the Credit Facility is payable monthly in arrears. TheCredit Facility requires the Company and its subsidiaries to maintain certainfinancial covenants, including (a) a maximum debt to EBITDA ratio of 4.5to 1.0 and (b) a minimum EBITDA to interest expense ratio. Under the termsof the Credit Facility, EBITDA is defined as consolidated net income plusincome tax expense, interest expense, depreciation and amortization expense,extraordinary charges and non-cash charges and minus interest income,extraordinary gains and any other non-cash income. The Credit Facility alsocontains covenants that regulate the Company’s and its subsidiaries’ incurrenceof debt, disposition of property and capital expenditures.

At December 31, 2006,the Company had $3.7 million of debt outstanding under the PriscillaPresley note and a note issued in connection with the acquisition of certainassets of an Elvis-themed museum, $36.6 million in cash and cashequivalents and no outstanding borrowings under its revolving credit facility.The cash and cash equivalents will be used to provide additional long-termcapital to support the growth of the Company’s business, which may includeacquisitions of or investments in entertainment properties and businesses thatfit our strategic goals. We expect to finance our future acquisitions ofentertainment related businesses from cash on hand, our revolving creditfacility, new credit facilities, additional debt and equity offerings, issuanceof our equity directly to sellers of businesses and cash flow from operations.We believe that our current cash on hand together with the Company’s revolvingcredit facility and cash flow from operations will be sufficient to fund ourcurrent operations.

**Cash Flow for the Year Ended December 31, 2006,2005  and 2004 (Predecessor)**

**Operating Activities**

Net cash provided byoperating activities was $29.9 million for the year ended December 31,2006, reflecting the net income of $9.2 million, which includes depreciationand amortization expenses of 

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$20.5 million.Operating cash flow was unfavorably impacted compared to the prior year due toincome tax payments made in 2006.

Net cash provided byoperating activities was $22.1 million for the year ended December 31,2005, reflecting the net loss of $5.9 million, which includes depreciation andamortization expenses of $14.9 million, and a decline in net workingcapital levels in the business related primarily to the mid season timing ofour acquisition of 19 Entertainment with regards to *AmericanIdol 4*. Additionally, in 2005 the Company received a payment of $5.0million in advance of *American Idol*5, which had not yet been recognized as revenue since the company had not yetfulfilled its obligations under its agreement with Fox.

Net cash provided byoperating activities for the Predecessor was $10.8 million for the year ended December 31,2004, reflecting the net income of $7.5 million, which includes depreciationand amortization 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.

**Investing Activities**

Net cash used in investingactivities was $33.0 million for the period ended December 31, 2006. Cashpaid for the Ali Business, certain assets of a Las Vegas-based Elvis-themedmuseum, a company that provides marketing services to advertisers to buildrelationships between consumers and their brands and 50% of a previously50%-owned affiliate by 19 Entertainment totaled $64.9 million. The Company sold$42.6 million of marketable securities during the period ended December 31,2006. Capital expenditures of $10.7 million included the purchase of additionalland adjacent to Graceland and improvements to the Heartbreak Hotel.

Net cash used in investingactivities was $288.9 million for the year ended December 31, 2005.Cash paid for acquisitions and related costs were $245.3 million. $80.0million of proceeds from the June 2005 public offering of common stock wereinvested in marketable securities with $37.4 million subsequently redeemedprincipally to pay the deferred purchase consideration for 19 Entertainment.Capital expenditures were $1.0 million.

Net cash used in investingactivities for the Predecessor was $0.3 million in 2004, primarily resultingfrom capital expenditures.

**Financing Activities**

Cash used in financingactivities was $0.8 million for the year ended December 31, 2006. Duringthe period ended December 31, 2006, the Company made payments totaling$3.1 million for costs associated with the new revolving credit facility,distributions to minority interest shareholders of $2.0 million, principalpayments on notes payable of $0.8 million and dividend payments of $1.8 millionto the holder of the Series B Convertible Preferred Stock, offset byproceeds from warrant exercises of $6.9 million.

Net cash provided byfinancing activities was $304.1 million for the year ended December 31,2005. 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.

Net cash used in financingactivities for the Predecessor was $10.6 million for the year ended December 31,2004. Debt principal payments of $5.6 million were offset by $2.8 million ofline of credit borrowings. $7.7 million was distributed to the trust beneficiary.

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**Uses of Capital**

At December 31, 2006,the Company had $3.7 million of debt outstanding and $36.6 million in cash andcash equivalents.

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 current operations,including payments of interest and principal due on the Company’s debt,dividends on our Series B Convertible Preferred Stock, mandatory minimumdistributions to the minority shareholder in the each of the Presley Businessand Ali Business, capital expenditures and our investment in the Elvis Presleyshow in Las Vegas (as described in Commitments and Contingencies below).

**Capital Expenditures**

We presently anticipatethat our capital expenditures for 2007, primarily related to land purchases inthe vicinity around Graceland, will total approximately $9.0 million.

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.Although we have not yet determined the exact scope, cost, financing plan andtiming of this project, we expect that the re-development of Graceland willtake several years and will require a substantial financial investment by theCompany.

**Dividends**

Our Series BConvertible Preferred Stock requires payment of a cash dividend of 8% per annumin quarterly installments. On an annual basis, our total dividend payment onthe Series B Convertible Preferred Stock is $1.8 million. If we failto make our quarterly dividend payments to the holders of the Series BConvertible Preferred Stock on a timely basis, the dividend rate increases to12% and all amounts owing must be paid within three business days in shares ofCommon Stock valued at the average closing price over the previous 30consecutive trading days. After such payment is made, the dividend rate returnsto 8%. All such dividend payments were made on a timely basis.

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

**Commitments and 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.

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.

On August 17, 2006,the Company announced that, together with its subsidiaries, Elvis PresleyEnterprises, Inc. and Elvis Presley Enterprises LLC, it has reached anagreement with Cirque du Soleil and MGM MIRAGE (“MGM”) to create a permanentElvis Presley show at MGM’s CityCenter hotel/casino, which is currently underconstruction in Las Vegas. The new Elvis Presley show is expected to open withthe CityCenter hotel/casino in November 2009. CKX and Cirque du Soleilhave each agreed to pay one-half of the creative development and productioncosts of the new Elvis Presley show. CKX expects its 

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portionof the investment to be approximately $24 million, with the largest amount expectedto be funded in the later stages of development.

Thescheduled maturities as of December 31, 2006 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 The MuhammadAli Family Trust and future obligations to the former owners of 19Entertainment are as follows (in thousands):

| ** **                                         | ** ** | **2007**                | ** ** | **2008** | ** ** | **2009** | ** ** | **2010** | ** ** | **2011** | ** ** | **Thereafter** | ** ** | **Total** | ** ** |
|----------------------------------------------------|------------|-------------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------------|------------|-----------|------------|
| ** **                                         | ** ** | **(in thousands)** | ** ** |
| Debt (including interest)                          |       |                    | $          | 821      |       |     | $          | 809      |       | $        | 613        |           | $          | 550       |       | $ | 550 |   |   | $ | 1,100 |   |   | $ | 4,443 |   |
| Non-cancelable operating leases                    |       |                    | 3,134      |     |       | 3,281    |       | 3,261    |       | 2,711    |       | 1,388          |       |      | 5,352      |   |   | 19,127 |   |
| Employment contracts                               |       |                    | 16,873     |     |       | 15,255   |       | 14,911   |       | 4,091    |       | 1,420          |       |      | 1,727      |   |   | 54,277 |   |
| Guaranteed minimum distributions                   |       |                    | 1,700      |     |       | 1,700    |       | 1,700    |       | 1,700    |       | 1,700          |       |      |       | (a) |   | 8,500 |   |
| 19 Entertainment put right                         |       |                    | —     |     |       | —   |       | —   |       | —   |       | —         |       |      | 22,039     | (b) |   | 22,039 |   |
| Series B convertible preferred stock dividend |       |                    | 1,826      |     |       | 1,826    |       | 1,826    |       | 1,826    |       | 1,826          |       |      |       | (c) |   | 9,130 |   |
| MBST contingent consideration                      |       |                    | —     |     |       | —   |       | —   |       | —   |       | —         |       |      | —     | (d) |   | — |   |
| MAE contingent consideration                       |       |                    | —     |     |       | —   |       | —   |       | —   |       | —         |       |      | —     | (e) |   | — |   |
| Total                                              |       |                    | $          | 24,354   |       |     | $          | 22,871   |       | $        | 22,311     |           | $          | 10,878    |       | $ | 6,884 |   |   | $ | 30,218 |   |   | $ | 117,516 |   |

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(a)              We are required to make guaranteed minimumdistributions to the minority interest shareholder of at least $1.2 millionannually for as long as the minority interest shareholder continues to own 15%of the Presley Business. We are also required to make guaranteed minimumdistributions to the minority interest shareholder of at least $0.5 millionannually for as long as the minority interest shareholder continues to own 20%of the Ali Business.

(b)             We have granted to the former holders ofcapital stock of 19 Entertainment the right, during a short period beginning March 17,2011, to cause us to purchase up to 1.7 million shares of common stockfrom them at a price of $13.18 per share, which is reflected in the tableabove.

(c)              We are required to pay an annual dividendof $1.8 million per year in quarterly installments on our outstanding Series BConvertible Preferred Stock issued in the acquisition of the Presley Business.

(d)             The sellers of MBST may receive up to150,000 additional restricted shares of common stock upon satisfaction ofcertain performance thresholds during the period ending August 9, 2010.

(e)              The Ali Trust has the right to receive anadditional 5% membership interest in the Ali Business effective as of the endof the calendar year in which the total compound internal rate of return to theCompany on its initial $50 million investment equals or exceeds (i) 30% ona cumulative basis during the period ending April 10, 2011 or (ii) 25%on a cumulative basis for any period commencing on the acquisition date andending at any time after April 10, 2011. The Ali Trust also has the rightto require the Company to purchase all of its remaining ownership interest inthe Ali Business beginning on the fifth anniversary of the acquisition at aprice based on the then current fair market value.

**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 equity offerings,issuance of our equity directly to sellers of businesses and cash flow fromoperations. However, no assurance can be given that we will be able to obtainadequate financing to complete any potential future acquisitions we mightidentify.

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.

**Application of Critical Accounting Policies**

The preparation of ourfinancial statements in accordance with US GAAP requires management to makeestimates, judgments and assumptions that affect the reported amounts of assetsand liabilities, disclosures of contingent assets and liabilities at the dateof the financial statements and the reported amount of revenues and expensesduring the reporting period. Management considers an accounting 

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estimateto be critical if it requires assumptions to be made about matters that werehighly uncertain at the time the estimate was made and changes in the estimateor different estimates could have a material effect on the Company’s results ofoperations. On an ongoing basis, we evaluate our estimates and assumptions,including those related to television production costs, artist advances andrecoupable recording costs, goodwill and other intangible assets, income taxesand share based payments. The Company bases its estimates on historicalexperience and on various other assumptions that are believed to be reasonableunder the circumstances. The result of these evaluations forms the basis formaking judgments about the carrying values of assets and liabilities and thereported amount of revenues and expenses that are not readily available fromother sources. Actual results may differ from these estimates under differentassumptions. We have discussed the development, selection, and disclosure ofour critical accounting policies with the Audit Committee of the Company’sBoard of Directors.

The Company continuouslymonitors its estimates and assumptions to ensure any business or economicchanges impacting these estimates and assumptions are reflected in the Company’sfinancial statements on a timely basis, including the sensitivity to change theCompany’s critical accounting policies.

The following accountingpolicies require significant management judgments and estimates.

**Television Production Costs**

The Company accounts fortelevision projects in development pursuant to American Institute of CertifiedPublic Accountants Statement of Position (“SOP”) No. 00-2, *Accounting by Producers or Distributors of Films* (“SOP 00-2”).Third party costs incurred in producing television programs for which we havesecured distribution agreements are capitalized and remain unamortized untilthe project is distributed or are written off at the time they are determinednot to be recoverable. Third party costs incurred in developing concepts fornew television programs are expensed as incurred until such time as we havesecured distribution 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. The estimate of revenue is based upon the Company’s contractualrights with respect to certain television projects and are calculated on anindividual production basis for these programs. Amortization commences in theperiod in which revenue recognition commences. Our management regularly reviewsand revises our total revenue estimates for each project, which may result inmodifications to the rate of amortization as estimates of total revenue canchange due to a variety of factors, including a change in the number of hoursof programming and foreign distribution opportunities for its programs. If anet loss is projected for a particular project, the related capitalized costsare written down to estimated realizable value.

**Artist Advances and Recoupable Recording Costs**

Recoupable recording costsand artist advances, as adjusted for anticipated returns, are recognized inaccordance with Statement of Financial Accounting Standards (“SFAS”) No. 50,*Financial Reporting in the Record and MusicIndustry* (“SFAS 50”) and thus, are charged to expense in the periodin which the sale of the record takes place. Recoupable recording costs andartist advances are only capitalized based on management’s judgment that pastperformance and current popularity of the artist for whom the recording costsare incurred or to whom the advance is made provide a sound basis forestimating that the amount capitalized will be recoverable from futureroyalties to be earned by the artist. Our management determines therecoverability of artist advances and recoupable recording costs on anartist-by-artist basis based on the success of prior records and projects andcosts are only capitalized if the artist has developed a track record ofsuccess. Any portion of recoupable recording costs or artists advances thatsubsequently 

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appearnot to be fully recoverable from future royalties to be earned by the artistare charged to expense during the period in which the loss becomes evident.

**Goodwill and Other Intangible Assets**

Significant estimates andassumptions are made by management in the allocation of fair values to assetsacquired and liabilities assumed in business combinations. The excess of thepurchase price over the fair values of assets acquired and liabilities assumedare allocated to goodwill. Elements of the purchase price that meet therequirements in SFAS 141, *Business Combinations*,are valued as intangible assets upon acquisition. The significant assumptionsused in these valuations include the duration or useful life of the assets, growthrates and amounts of future cash flows for each income stream. To determinethese factors, management specifically makes assumptions regarding the futureeconomic outlook for the industry, risks involved in the business and theimpact of competition and technological changes.

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 performs itsannual impairment assessment on goodwill and indefinite lived intangible assetsin accordance with the methods prescribed below on the first day of its fiscalfourth quarter.

The Company has evaluatedthe recoverability of goodwill using a two-step impairment test approach at thereporting unit level. In the first step the fair value for the reporting unitis compared to its book value including goodwill. The estimates of fair valueof a reporting unit are determined primarily using a discounted cash flowanalysis. A discounted cash flow analysis requires the Company to make variousjudgmental assumptions including assumptions about future cash flows, growthrates and discount rates. The assumptions about future cash flows and growthrates are based on the Company’s internal budget and business plans. Discountrate assumptions are based on an assessment of the risk inherent in therespective reporting units. In the case that the fair value of the reportingunit is 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.

The Company has alsoperformed the impairment test for its intangible assets with indefinite lives,which consists of a comparison of the fair value of the intangible asset withits carrying value. Significant assumptions inherent in this test includeestimates of royalty rates and discount rates. Discount rate assumptions arebased on an assessment of the risk inherent in the respective intangibleassets. Assumptions about royalty rates are based on the rates at which similarbrands and trademarks are being licensed in the marketplace.

The Company performed itsimpairment assessment on long-lived assets, including intangible assets andgoodwill, in accordance with the methods prescribed above. The Companyconcluded that no impairment existed as of October 1, 2006, the date ofits assessment.

**Income Taxes**

The Company accounts forincome taxes in accordance with SFAS 109, *Accounting for IncomeTaxes*(“SFAS 109”), which requires that deferred tax assets andliabilities be recognized, using enacted tax rates, for the effect of temporarydifferences between the book and tax basis of recorded assets and liabilities. SFAS109 also requires that deferred tax assets be reduced by a valuation allowanceif it is more likely than 

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not thatsome portion or all of the deferred tax assets will not be realized. In determiningthe future tax consequences of events that have been recognized in ourfinancial statements or tax returns, judgment is required.

In calculating theprovision for income taxes on an interim basis, the Company uses an estimate ofthe annual effective tax rate based upon the facts and circumstances known. TheCompany’s effective tax rate is based on expected income, statutory tax ratesand permanent differences between financial statement and tax return incomeapplicable to the Company in the various jurisdictions in which the Companyoperates. Significant judgment is required in determining the Company’seffective tax rate and in evaluating the Company’s tax position. Based on anevaluation of the Company’s tax positions, the Company believes that it isappropriately accrued under SFAS No. 5, “Accounting for Contingencies,”for all probable and estimable expenses. All periods presented utilized thesesame basic assumptions. At year end, the actual effective tax rate iscalculated based upon the actual results for the full fiscal year, taking intoconsideration facts and circumstances known at year end. In determining theneed for a valuation allowance, the historical and projected financialperformance of the operation that is recording a net deferred tax asset isconsidered along with any other pertinent information.

In the future, certainevents could occur that would materially affect the Company’s estimates andassumptions regarding deferred taxes. Changes in current tax laws andapplicable enacted tax rates could affect the valuation of deferred tax assetsand liabilities, thereby impacting the Company’s income tax provision.

**Share-Based Payments**

In accordance with SFAS123R, *Share-Based Payment*, the fair value ofstock options is estimated as of the grant date based on a Black-Scholes optionpricing model. Judgment is required in determining certain of the inputs to themodel, specifically the expected life of options and volatility. As a result ofthe Company’s short operating history, no reliable historical data is availablefor expected lives and forfeitures. We estimated the expected lives of theoptions granted using an estimate of anticipated future employee exercisebehavior, which is partly based on the vesting schedule. We estimated forfeituresbased on management’s experience with other public companies. The expectedvolatility is based on the Company’s historical share price volatility, and ananalysis of comparable public companies operating in our industry.

**Impact of RecentlyIssued Accounting Standards**

In February 2006, theFinancial Accounting Standards Board (“FASB”) issued SFAS No. 155,*Accounting**for Certain Hybrid Financial Instruments* (“SFAS 155”), whichamends SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities,and SFAS No. 140, Accounting for Transfers and Servicing of FinancialAssets and Extinguishments of Liabilities. SFAS 155 provides, among otherthings, that (i) for embedded derivatives which would otherwise berequired to be bifurcated from their host contracts and accounted for at fairvalue in accordance with SFAS 133 an entity may make an irrevocable election,on an instrument-by-instrument basis, to measure thehybrid financial instrument at fair value in its entirety, with changesin fair value recognized in earnings and (ii) concentrations of creditrisk in the form of subordination are not considered embedded derivatives. SFAS155 is effective for all financial instruments acquired, issued or subject toremeasurement after January 1, 2007. The adoption of SFAS 155 is notexpected to have a material impact on the Company’s financial statements.

In July 2006, theFASB issued Financial Accounting Standards Interpretation (“FIN”) No. 48, *Accounting for Uncertainty in Income Taxes*(“FIN 48”). FIN 48 prescribes a recognition threshold and measurementprocess for recording in the financial statements uncertain tax positions takenor expected to be taken in a tax return. FIN 48 also provides guidance onderecognition, classification, interest and penalties, accounting in interimperiods, disclosures and transitions. The Company has completed an initial 

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evaluationof the January 1, 2007 adoption of FIN 48 and has preliminarily determinedthat the adoption will not have a material impact on the Company’s financialposition or results of operations.

In September 2006,the FASB issued SFAS No. 157, *Fair Value Measurements.*SFAS 157 defines fair value, establishes a framework for measuring fair value,and expands disclosures about fair value measurements. The provisions of SFAS157 are effective for the Company beginning after January 1, 2008. TheCompany has not completed its assessment of the impact of adopting SFAS 157 on its2007 financial statements.

In September 2006, the SECreleased Staff Accounting Bulletin No. 108, *Considering the Effects ofPrior Year Misstatements when Quantifying Misstatements in Current YearFinancial Statements* (“SAB 108”). SAB 108 provides guidance on theSEC’s views regarding quantifying the materiality of financial statementmisstatements, including misstatements that were not material to prior years’financial statements. SAB 108 is effective for the Company’s fiscal year endedafter November 15, 2006.  Theapplication of SAB 108 required the Company to quantify the impact ofcorrecting all misstatements, including both the carryover and reversingeffects of prior year misstatements, on the current year financial statements.The initial adoption of SAB 108 had no impact on the financial statements.

In February 2007, the FASBissued SFAS No. 159 (“SFAS 159”), *The Fair Value Option forFinancial Assets and Financial Liabilities*, providing companies withan option to report selected financial assets and liabilities. SFAS 159’sobjective is to reduce both complexity in accounting for financial instrumentsand the volatility in earnings caused by measuring related assets andliabilities differently. US GAAP requires different measurement attributesfor different assets and liabilities that can create artificial volatility inearnings. SFAS 159 helps to mitigate this type of accounting-induced volatilityby enabling companies to report related assets and liabilities at fair value,which would likely reduce the need for companies to comply with detailed rulesfor hedge accounting. SFAS 159 also establishes presentation and disclosurerequirements designed to facilitate comparisons between companies that choosedifferent measurement attributes for similar types of asset and liabilities. SFAS 159requires companies to provide additional information that will help investorsand other users of financial statements more easily understand the effect ofthe Company’s choice to use fair value on its earnings. It also requiresentities to display the fair value of those assets and liabilities for whichthe Company has chosen to use fair value on the face of the balance sheet. SFAS159 is effective for fiscal years beginning after November 15, 2007. TheCompany has not completed its assessment of the impact of adopting SFAS 159on its financial statements.

**Off Balance SheetArrangements**

As of December 31,2006, we did not have any off balance sheet arrangements as defined inItem 303 (a)(4)(ii) of SEC Regulation S-K.

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**ITEM 7A.**        QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to marketrisk arising from changes in market rates and prices, including movements inforeign currency exchange rates, interest rates and the market price of ourcommon stock. To mitigate these risks, we may utilize derivative financialinstruments, among other strategies. We do not use derivative financialinstruments for speculative purposes.

**Interest Rate Risk**

We had $3.7 million of total debt outstanding at December 31,2006, none of which was variable rate debt. As such, we do not have significantexposure to changes in interest rates.

Any future borrowingsunder the Company’s revolving credit facility would be variable rate debt andthe Company would therefore have exposure to interest rate risk.

**Foreign ExchangeRisk**

We have significant operations outside the UnitedStates, principally in the United Kingdom. Some of our foreign operations aremeasured in local currencies. As a result, our financial results could be affectedby factors such as changes in foreign currency exchange rates or weak economicconditions in foreign markets in which we operate.

Assuming a hypothetical weakening of the U.S. dollarexchange rate with the U.K. pound sterling of 10%, our net income for the yearended December 31, 2006 would have decreased by approximately$3.0 million, reflecting an excess of U.K. pound sterling denominatedoperating expenses over U.K. pound sterling denominated revenue.

As of December 31,2006, 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 shares ofcommon stock to the Company at a price equal to $13.18 per share. If theCompany’s stock price is below $13.18 per share during the period that the putis exercisable and the sellers exercise this put right, the Company will haveexposure to market risk for the amount that $13.18 per share exceeds the thenmarket price of the stock for the number of shares put back to the Company.

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**ITEM 8.**                FINANCIALSTATEMENTS AND SUPPLEMENTARY DATA

**Tableof Contents to Financial Statements**

|                                                                                                                                                                                                                                                                               | ** ** | **Page** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------|------------|
| **CKX, Inc.**                                                                                                                                                                                                                                                            | ** ** |     | ** ** | ** ** |   |
| Reports of Independent Registered Public Accounting  Firms                                                                                                                                                                                                                    |       |     | 51         | ** ** |   |
| Consolidated Balance Sheets at December 31, 2006  and 2005                                                                                                                                                                                                               |       |     | 56         | ** ** |   |
| Consolidated Statements of Operations for the years  ended December 31, 2006, 2005, and 2004, and Combined Statements of Operations  for the period January 1, 2005 to February 7, 2005 (Predecessor)  and the year ended December 31, 2004(Predecessor)  |       |     | 57         | ** ** |   |
| Consolidated Statements of Cash Flows for the years  ended December 31, 2006, 2005, and 2004, and Combined Statements of Cash  Flows for the period January 1, 2005 to February 7, 2005  (Predecessor) and the year ended December 31, 2004 (Predecessor) |       |     | 58         | ** ** |   |
| Consolidated Statement of Stockholders’ Equity for the  years ended December 31, 2006, 2005,and 2004                                                                                                                                                                |       |     | 60         | ** ** |   |
| Notes to Financial Statements                                                                                                                                                                                                                                                 |       |     | 61         | ** ** |   |

 

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**REPORT OFINDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

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

We have audited the accompanying consolidated balancesheets of CKX, Inc. and subsidiaries (the “Company”) as of December 31,2006 and 2005, and the related consolidated statements of operations,stockholders’ equity, and cash flows for each of the two years in the periodended December 31, 2006. Our audits also included the financial statementschedule listed in the Index at Item 15. These financial statements and thefinancial statement schedule are the responsibility of the Company’s management.Our responsibility is to express an opinion on the financial statements and thefinancial statement schedule based on our audits.

We conducted our audits 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. An audit includes examining, on a test basis, evidence supportingthe amounts and disclosures in the financial statements. An audit also includesassessing the accounting principles used and significant estimates made bymanagement, as well as evaluating the overall financial statement presentation.We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statementspresent fairly, in all material respects, the financial position of CKX, Inc.and subsidiaries as of December 31, 2006 and 2005, and the results oftheir operations and their cash flows for each of the two years in the periodended December 31, 2006, in conformity with accounting principlesgenerally accepted in the United States of America. Also, in our opinion, thefinancial statement schedule, when considered in relation to the basicconsolidated financial statements taken as a whole, presents fairly, in allmaterial respects, the information set forth therein.

We have also audited, inaccordance with the standards of the Public Company Accounting Oversight Board(United States), the effectiveness of the Company’s internal control overfinancial reporting as of December 31, 2006, based on the criteriaestablished in *Internal Control—IntegratedFramework* issued by the Committee of Sponsoring Organizations of theTreadway Commission and our report dated March 1, 2007 expressed anunqualified opinion on management’s assessment of the effectiveness of theCompany’s internal control over financial reporting and an adverse opinion onthe effectiveness of the Company’s internal control over financial reportingbecause of a material weakness.

| /s/ DELOITTE & TOUCHE LLP |   |
|------------------------------------|--------|
| New York, New York                 |   |
| March 1,  2007                |   |

 

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**REPORT OFINDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

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

We have audited the accompanying combined statementsof operations and cash flows related to the net assets acquired of the PromenadeTrust (the “Presley Business”) for the year ended December 31, 2004, andfor the period January 1, 2005 to February 7, 2005. Our audits alsoincluded the financial statement schedule listed in the index at Item 15. Thesecombined financial statements and the financial statement schedule are theresponsibility of the management of the Presley Business. Our responsibility isto express an opinion on the financial statements and financial statementschedule 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 andsignificant estimates made by management, as well as evaluating the overallfinancial statement presentation. We believe that our audits provide areasonable basis for our opinion.

In ouropinion, such combined financial statements present fairly, in all materialrespects, the combined results of the operations and the cash flows of the PresleyBusiness for the year ended December 31, 2004 and the period January 1,2005 to February 7, 2005, in conformity with accounting principlesgenerally accepted in the United States of America. Also, in our opinion, thefinancial statement schedule, when considered in relation to the basic combinedfinancial statements taken as a whole, presents fairly in all materialrespects, the information set forth therein.
| /s/ DELOITTE & TOUCHE  LLP |   |
|-------------------------------------|--------|
| Memphis,  Tennessee                 |   |
| March 13,  2006                |   |

 

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**REPORT OFINDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

Board of DirectorsCKX, Inc. (formerly Sports Entertainment Enterprises, Inc.)Las Vegas, Nevada

We have audited the accompanying statement ofoperations, shareholders’ equity and cash flows for the year ended December 31,2004, of CKX, Inc. (formerly Sports Entertainment Enterprises, Inc.)(a Delaware corporation) (the “Company”). These financial statements are theresponsibility of the Company’s management. Our responsibility is to express anopinion on these financial 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 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 provides a reasonable basis for our opinion.

In our opinion, thefinancial statements referred to above present fairly, in all materialrespects, the results of the Company’s operations and their cash flows for theyear ended December 31, 2004, in conformity with accounting principlesgenerally accepted in the United States.
| PIERCY BOWLER  TAYLOR & KERN                      |   |
|------------------------------------------------------------|--------|
| Certified Public  Accountants & Business Advisors |   |
| A Professional  Corporation                                |   |

 

Las Vegas, NevadaMarch 25, 2005

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**REPORT OFINDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

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

We have audited management’s assessment, included inthe accompanying Management’s Report on Internal Controls over FinancialReporting, that CKX, Inc. and subsidiaries (the “Company”) did notmaintain effective internal control over financial reporting as of December 31,2006 because of the effect of the material weakness identified in management’sassessment, based on criteria established in *InternalControl—Integrated Framework*issued by the Committee of SponsoringOrganizations of the Treadway Commission. The Company’s management isresponsible for maintaining effective internal control over financial reportingand for its assessment of the effectiveness of internal control over financialreporting. Our responsibility is to express an opinion on management’sassessment and an opinion on the effectiveness of the Company’s internalcontrol over financial reporting 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 effective internal control over financial reporting wasmaintained in all material respects. Our audit included obtaining an understandingof internal control over financial reporting, evaluating management’sassessment, testing and evaluating the design and operating effectiveness ofinternal control, and performing such other procedures as we considerednecessary in the circumstances. We believe that our audit provides a reasonablebasis for our opinions.

A company’s internal control over financial reportingis a process designed by, or under the supervision of, the company’s principalexecutive and principal financial officers, or persons performing similarfunctions, and effected by the company’s board of directors, management, andother personnel to provide reasonable assurance regarding the reliability offinancial reporting and the preparation of financial statements for external purposesin accordance with generally accepted accounting principles. A company’sinternal control over financial reporting includes those policies andprocedures that (1) pertain to the maintenance of records that, inreasonable detail, accurately and fairly reflect the transactions anddispositions of the assets of the company; (2) provide reasonableassurance that transactions are recorded as necessary to permit preparation offinancial statements in accordance with generally accepted accounting principles,and that receipts and expenditures of the company are being made only inaccordance with authorizations of management and directors of the company; and (3) providereasonable assurance regarding prevention or timely detection of unauthorizedacquisition, use, or disposition of the company’s assets that could have amaterial effect on the financial statements.

Because of the inherent limitations of internalcontrol over financial reporting, including the possibility of collusion orimproper management override of controls, material misstatements due to erroror fraud may not be prevented or detected on a timely basis. Also, projectionsof any evaluation of the effectiveness of the internal control over financialreporting to future periods are subject to the risk that the controls maybecome inadequate because of changes in conditions, or that the degree ofcompliance with the policies or procedures may deteriorate.

A material weakness is a significant deficiency, orcombination of significant deficiencies, that results in a more than remotelikelihood that a material misstatement of the annual or interim financialstatements will not be prevented or detected. The following material weaknesshas been identified and included in management’s assessment: managementidentified a material weakness in the controls over the accounting for foreignexchange gains and losses on intercompany loans. This material weakness wasconsidered in determining the nature, timing, and extent of audit tests appliedin our audit of the consolidated financial statements and the financialstatement schedule for the year ended December 31, 

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2006 of the Company andthis report does not affect our report on such financial statements and thefinancial statement schedule.

In our opinion, management’s assessment that theCompany did not maintain effective internal control over financial reporting asof December 31, 2006, is fairly stated, in all material respects, based onthe criteria established in *Internal Control—IntegratedFramework*issued by the Committee of Sponsoring Organizations of theTreadway Commission. Also in our opinion, because of the effect of the materialweakness described above on the achievement of the objections of the controlcriteria, the Company has not maintained effective internal control overfinancial reporting as of December 31, 2006, based on the criteriaestablished in *Internal Control—IntegratedFramework*issued by the Committee of Sponsoring Organizations of theTreadway Commission.

Wehave also audited, in accordance with the standards of the Public CompanyAccounting Oversight Board (United States), the consolidated financialstatements and the financial statement schedule as of and for the year ended December 31, 2006 of the Company andour report dated March 1, 2007 expressed**an unqualified opinion on those financial statements and thefinancial statement schedule.
| /s/ DELOITTE & TOUCHE LLP | ** ** |
|------------------------------------|------------|
| New York, New York                 |
| March 1,  2007                |

 

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**CKX, INC.CONSOLIDATED BALANCE SHEETS**

| ** **                                                                                                                                                                                         | ** ** | **December 31,**                          | ** ** | **December 31,** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                                                         | ** ** | **2006**                                       | ** ** | **2005**              | ** ** |
| ** **                                                                                                                                                                                         | ** ** | **in thousands, except per**    | ** ** |
| ** **                                                                                                                                                                                         | ** ** | **share and share information** | ** ** |
| **ASSETS**                                                                                                                                                                                         | ** ** |                                           | ** ** | ** **            |       |   | ** ** | ** ** |   |
| Current assets:                                                                                                                                                                                    |       |                                           |       |                  |       |   |   |   |   |
| Cash and cash equivalents                                                                                                                                                                          |       |                                           | $          | 36,610                |       |   |   | $ | 36,979 |   |   |
| Marketable securities, at fair value                                                                                                                                                               |       |                                           | —     |                  |       |   | 42,625 |   |   |
| Receivables, net of allowance for doubtful accounts  of $457 at December 31, 2006 and $7 at December 31, 2005                                                                            |       |                                           | 23,364     |                  |       |   | 19,503 |   |   |
| Inventories, net of allowance for obsolescence of  $636 at December 31, 2006 and $394 at December 31, 2005                                                                               |       |                                           | 2,192      |                  |       |   | 2,850 |   |   |
| Prepaid expenses                                                                                                                                                                                   |       |                                           | 2,758      |                  |       |   | 2,515 |   |   |
| Prepaid income taxes                                                                                                                                                                               |       |                                           | 7,014      |                  |       |   | 1,477 |   |   |
| Deferred tax assets                                                                                                                                                                                |       |                                           | 760        |                  |       |   | 150 |   |   |
| Total current assets                                                                                                                                                                               |       |                                           | 72,698     |                  |       |   | 106,099 |   |   |
| Property and equipment—net                                                                                                                                                                    |       |                                           | 35,329     |                  |       |   | 26,685 |   |   |
| Receivables                                                                                                                                                                                        |       |                                           | 1,274      |                  |       |   | 2,087 |   |   |
| Deferred production costs                                                                                                                                                                          |       |                                           | —     |                  |       |   | 428 |   |   |
| Other assets                                                                                                                                                                                       |       |                                           | 20,394     |                  |       |   | 13,210 |   |   |
| Goodwill                                                                                                                                                                                           |       |                                           | 143,946    |                  |       |   | 125,793 |   |   |
| Other intangible assets—net                                                                                                                                                                   |       |                                           | 199,805    |                  |       |   | 150,912 |   |   |
| Deferred tax assets                                                                                                                                                                                |       |                                           | 1,199      |                  |       |   | 4,914 |   |   |
| **TOTAL ASSETS**                                                                                                                                                                                   |       |                                           | $          | 474,645               |       |   |   | $ | 430,128 |   |   |
| **LIABILITIES AND STOCKHOLDERS’  EQUITY**                                                                                                                                                     | ** ** |                                           | ** ** | ** **            |       |   | ** ** | ** ** |   |
| Current liabilities:                                                                                                                                                                               |       |                                           |       |                  |       |   |   |   |   |
| Accounts payable                                                                                                                                                                                   |       |                                           | $          | 8,121                 |       |   |   | $ | 2,769 |   |   |
| Accrued expenses                                                                                                                                                                                   |       |                                           | 16,831     |                  |       |   | 17,612 |   |   |
| Current portion of long-term debt                                                                                                                                                                  |       |                                           | 631        |                  |       |   | 362 |   |   |
| Income taxes payable                                                                                                                                                                               |       |                                           | —     |                  |       |   | 732 |   |   |
| Other current liabilities                                                                                                                                                                          |       |                                           | 1,988      |                  |       |   | 624 |   |   |
| Deferred revenue                                                                                                                                                                                   |       |                                           | 12,492     |                  |       |   | 12,200 |   |   |
| Total current liabilities                                                                                                                                                                          |       |                                           | 40,063     |                  |       |   | 34,299 |   |   |
| Long-term liabilities:                                                                                                                                                                             |       |                                           |       |                  |       |   |   |   |   |
| Long-term debt                                                                                                                                                                                     |       |                                           | 3,070      |                  |       |   | 3,138 |   |   |
| Deferred revenue                                                                                                                                                                                   |       |                                           | 2,566      |                  |       |   | 1,511 |   |   |
| Other long-term liabilities                                                                                                                                                                        |       |                                           | 4,359      |                  |       |   | 3,902 |   |   |
| Deferred tax liabilities                                                                                                                                                                           |       |                                           | 26,623     |                  |       |   | 37,043 |   |   |
| Total liabilities                                                                                                                                                                                  |       |                                           | 76,681     |                  |       |   | 79,893 |   |   |
| Minority interest                                                                                                                                                                                  |       |                                           | 3,953      |                  |       |   | 3,801 |   |   |
| Redeemable restricted common stock—1,672,170 shares  outstanding at December 31, 2006 and 2005                                                                                           |       |                                           | 23,002     |                  |       |   | 23,002 |   |   |
| Commitments and  contingencies                                                                                                                                                                     |       |                                           |       |                  |       |   |   |   |   |
| Stockholders’  equity:                                                                                                                                                                        |       |                                           |       |                  |       |   |   |   |   |
| Preferred stock, $.01 par  value, authorized 75,000,000 shares:                                                                                                                                    |       |                                           |       |                  |       |   |   |   |   |
| Series B-1,491,817 shares outstanding                                                                                                                                                         |       |                                           | 22,825     |                  |       |   | 22,825 |   |   |
| Series C-1 share outstanding                                                                                                                                                                  |       |                                           | —     |                  |       |   | — |   |   |
| Common stock, $0.01 par value: authorized 200,000,000  shares, 94,237,075 shares issued and outstanding at December 31, 2006  and 90,528,818 issued and outstanding at December 31, 2005 |       |                                           | 942        |                  |       |   | 905 |   |   |
| Additional paid-in-capital                                                                                                                                                                         |       |                                           | 373,115    |                  |       |   | 362,833 |   |   |
| Accumulated deficit                                                                                                                                                                                |       |                                           | (36,562    | )                     |       |   | (43,931 | ) |   |
| Accumulated other comprehensive income (loss)                                                                                                                                                      |       |                                           | 10,689     |                  |       |   | (19,200 | ) |   |
| Total stockholders’ equity                                                                                                                                                                    |       |                                           | 371,009    |                  |       |   | 323,432 |   |   |
| **TOTAL  LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                                                                               |       |                                           | $          | 474,645               |       |   |   | $ | 430,128 |   |   |

 

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

56

----

**CKX, INC.STATEMENTS OF OPERATIONS**

| ** **                                                                   | ** ** | ** **                                                                                    | ** ** | ** **            | ** ** | **Combined**                    | ** ** |
|------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------|------------|-----------------------|------------|---------------------------------|------------|
| ** **                                                                   | ** ** | **Consolidated**                                                                              | ** ** | ** **            | ** ** | **Predecessor Company(1)** | ** ** |
| ** **                                                                   | ** ** | **Year Ended**                                                                           | ** ** | **Year Ended**   | ** ** | **Year Ended**             | ** ** | ** ** | ** ** | **January 1 to** | ** ** | **Year Ended** | ** ** |
| ** **                                                                   | ** ** | **December 31,**                                                                         | ** ** | **December 31,** | ** ** | **December 31,**           | ** ** | ** ** | ** ** | **February 7,** | ** ** | **December 31,** | ** ** |
| ** **                                                                   | ** ** | **2006**                                                                                      | ** ** | **2005**              | ** ** | **2004**                        | ** ** | ** ** | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                                                   | ** ** | **(in thousands, except per share and share information)** | ** ** |
| Revenue                                                                      |       | $                                                                                             | 210,153    |                  | $          | 120,605                         |       |   | $ | — |   |   |   |   |   | $ | 3,442 |   |   |   | $ | 41,658 |   |   |
| Operating expenses:                                                          |       |                                                                                          |       |                  |       |                            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Cost of sales                                                                |       | 79,893                                                                                        |       | 50,533                |       |                            | —     |   |   |   |   |   | 423 |   |   |   | 6,626 |   |   |
| Selling, general and administrative expenses                                 |       | 68,760                                                                                        |       | 44,477                |       |                            | 100        |   |   |   |   |   | 2,431 |   |   |   | 23,932 |   |   |
| Corporate expenses                                                           |       | 15,236                                                                                        |       | 11,362                |       |                            | —     |   |   |   |   |   | — |   |   |   | — |   |   |
| Depreciation and amortization                                                |       | 20,541                                                                                        |       | 14,910                |       |                            | —     |   |   |   |   |   | 126 |   |   |   | 1,201 |   |   |
| Acquisition-related costs                                                    |       | 3,159                                                                                         |       | —                |       |                            | —     |   |   |   |   |   | — |   |   |   | — |   |   |
| Other costs                                                                  |       | 2,669                                                                                         |       | 2,175                 |       |                            | —     |   |   |   |   |   | — |   |   |   | — |   |   |
| Total operating expenses                                                     |       | 190,258                                                                                       |       | 123,457               |       |                            | 100        |   |   |   |   |   | 2,980 |   |   |   | 31,759 |   |   |
| Operating income (loss)                                                      |       | 19,895                                                                                        |       | (2,852                | )          |                            | (100       | ) |   |   |   |   | 462 |   |   |   | 9,899 |   |   |
| Interest income                                                              |       | 1,406                                                                                         |       | 1,797                 |       |                            | —     |   |   |   |   |   | — |   |   |   | — |   |   |
| Interest expense                                                             |       | (1,166                                                                                        | )          | (4,617                | )          |                            | (20        | ) |   |   |   |   | (115 | ) |   |   | (1,327 | ) |   |
| Write-off of unamortized deferred loan costs                                 |       | —                                                                                        |       | (1,894                | )          |                            | —     |   |   |   |   |   | — |   |   |   | — |   |   |
| Other income (expense)                                                       |       | (3,323                                                                                        | )          | 2,970                 |       |                            | —     |   |   |   |   |   | — |   |   |   | — |   |   |
| Income (loss) before income taxes                                            |       | 16,812                                                                                        |       | (4,596                | )          |                            | (120       | ) |   |   |   |   | 347 |   |   |   | 8,572 |   |   |
| Income tax expense                                                           |       | 6,178                                                                                         |       | 855                   |       |                            | —     |   |   |   |   |   | 152 |   |   |   | 833 |   |   |
| Income (loss) before equity in earnings of affiliates  and minority interest |       | 10,634                                                                                        |       | (5,451                | )          |                            | (120       | ) |   |   |   |   | 195 |   |   |   | 7,739 |   |   |
| Equity in earnings of affiliates                                             |       | 686                                                                                           |       | 843                   |       |                            | —     |   |   |   |   |   | — |   |   |   | — |   |   |
| Minority interest                                                            |       | (2,127                                                                                        | )          | (1,296                | )          |                            | —     |   |   |   |   |   | — |   |   |   | — |   |   |
| Income (loss) from continuing operations                                     |       | 9,193                                                                                         |       | (5,904                | )          |                            | (120       | ) |   |   |   |   | 195 |   |   |   | 7,739 |   |   |
| Loss from discontinued operations                                            |       | —                                                                                        |       | —                |       |                            | —     |   |   |   |   |   | — |   |   |   | (246 | ) |   |
| Net income (loss)                                                            |       | 9,193                                                                                         |       | (5,904                | )          |                            | (120       | ) |   |   |   |   | 195 |   |   |   | 7,493 |   |   |
| Dividends on preferred stock                                                 |       | (1,824                                                                                        | )          | (1,632                | )          |                            | —     |   |   |   |   |   | — |   |   |   | — |   |   |
| Accretion of beneficial conversion feature                                   |       | —                                                                                        |       | (17,762               | )          |                            | —     |   |   |   |   |   | — |   |   |   | — |   |   |
| Net income (loss) available to common shareholders                           |       | $                                                                                             | 7,369      |                  | $          | (25,298                         | )          |   | $ | (120 | ) |   |   |   |   | $ | 195 |   |   |   | $ | 7,493 |   |   |
| Income (loss) per share:                                                     |       |                                                                                          |       |                  |       |                            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic income (loss) per share                                                |       | $                                                                                             | 0.08       |                  | $          | (0.35                           | )          |   | $ | (0.03 | ) |   |   |   |   |   |   |   |   |   |   |   |
| Diluted income (loss) per share                                              |       | $                                                                                             | 0.08       |                  | $          | (0.35                           | )          |   | $ | (0.03 | ) |   |   |   |   |   |   |   |   |   |   |   |
| Average number of common  shares outstanding:                                |       |                                                                                          |       |                  |       |                            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                                                        |       | 92,529,152                                                                                    |       | 71,429,858            |       |                            | 4,283,061  |   |   |   |   |   |   |   |   |   |   |   |   |
| Diluted                                                                      |       | 93,555,201                                                                                    |       | 71,429,858            |       |                            | 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 financial statements.

57

----

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

| ** **                                                                                                                           | ** ** | **Consolidated**        | ** ** | ** **            | ** ** | **Combined**          | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|-----------------------|------------|-----------------------|------------|
| ** **                                                                                                                           | ** ** | ** **              | ** ** | ** **            | ** ** | ** **            | ** ** | ** ** | ** ** | **Predecessor Company(1)** | ** ** |
| ** **                                                                                                                           | ** ** | **Year Ended**     | ** ** | **Year Ended**   | ** ** | **Year Ended**   | ** ** | ** ** | ** ** | **January 1 to** | ** ** | **Year Ended** | ** ** |
| ** **                                                                                                                           | ** ** | **December 31,**   | ** ** | **December 31,** | ** ** | **December 31,** | ** ** | ** ** | ** ** | **February 7,** | ** ** | **December 31,** | ** ** |
| ** **                                                                                                                           | ** ** | **2006**                | ** ** | **2005**              | ** ** | **2004**              | ** ** | ** ** | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                                                                                                           | ** ** | **(in thousands)** | ** ** |
| **Cash flows from operating activities:**                                                                        | ** ** |                    | ** ** | ** **            |       |                  | ** ** | ** ** |   |   | ** ** | ** ** |   |   |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Net income (loss)                                                                                                                    |       |                    | $          | 9,193                 |       |                  |       | $ | (5,904 | ) |   |   | $ | (120 | ) |   |   |   |   | $ | 195 |   |   |   | $ | 7,493 |   |   |
| 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                                                                                                        |       |                    | 20,541     |                  |       |                  | 14,910     |   |   |   | — |   |   |   |   |   | 126 |   |   |   | 1,201 |   |   |
| Unrealized foreign currency gains and losses                                                                                         |       |                    | 3,996      |                  |       |                  | —     |   |   |   | — |   |   |   |   |   | — |   |   |   | — |   |   |
| Share-based payments                                                                                                                 |       |                    | 1,052      |                  |       |                  | 731        |   |   |   | — |   |   |   |   |   | — |   |   |   | — |   |   |
| Minority interest                                                                                                                    |       |                    | 2,127      |                  |       |                  | 1,296      |   |   |   | — |   |   |   |   |   | — |   |   |   | — |   |   |
| Deferred income taxes                                                                                                                |       |                    | (2,009     | )                     |       |                  | 123        |   |   |   | — |   |   |   |   |   | — |   |   |   | 112 |   |   |
| Non-cash interest expense                                                                                                            |       |                    | 390        |                  |       |                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Provision for accounts receivable allowance                                                                                          |       |                    | 450        |                  |       |                  | 7          |   |   |   | — |   |   |   |   |   | — |   |   |   | (40 | ) |   |
| Provision for inventory allowance                                                                                                    |       |                    | 242        |                  |       |                  | 394        |   |   |   | — |   |   |   |   |   | — |   |   |   | 50 |   |   |
| Gain on asset disposal                                                                                                               |       |                    | —     |                  |       |                  | —     |   |   |   | — |   |   |   |   |   | — |   |   |   | (8 | ) |   |
| Impairment of assets of discontinued operations                                                                                      |       |                    | —     |                  |       |                  | —     |   |   |   | — |   |   |   |   |   | — |   |   |   | 400 |   |   |
| Changes in operating assets  and liabilities:                                                                                        |       |                    |       |                  |       |                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Receivables                                                                                                                          |       |                    | (1,677     | )                     |       |                  | 2,536      |   |   |   | — |   |   |   |   |   | (566 | ) |   |   | 41 |   |   |
| Inventory                                                                                                                            |       |                    | 662        |                  |       |                  | (1,191     | ) |   |   | — |   |   |   |   |   | 124 |   |   |   | 1,511 |   |   |
| Prepaid expenses                                                                                                                     |       |                    | 1,210      |                  |       |                  | (1,212     | ) |   |   | — |   |   |   |   |   | (576 | ) |   |   | (1,344 | ) |   |
| Prepaid income taxes                                                                                                                 |       |                    | (5,512     | )                     |       |                  | (1,477     | ) |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other assets                                                                                                                         |       |                    | (2,404     | )                     |       |                  | 2,010      |   |   |   | — |   |   |   |   |   | — |   |   |   | — |   |   |
| Accounts payable and accrued expenses                                                                                                |       |                    | 4,376      |                  |       |                  | 6,436      |   |   |   | — |   |   |   |   |   | 1,048 |   |   |   | (37 | ) |   |
| Deferred revenue                                                                                                                     |       |                    | (3,388     | )                     |       |                  | 4,772      |   |   |   | — |   |   |   |   |   | 1,410 |   |   |   | 1,159 |   |   |
| Income taxes payable                                                                                                                 |       |                    | (768       | )                     |       |                  | 240        |   |   |   | — |   |   |   |   |   | 152 |   |   |   | 297 |   |   |
| Other liabilities                                                                                                                    |       |                    | 1,447      |                  |       |                  | 1,199      |   |   |   | — |   |   |   |   |   | — |   |   |   | — |   |   |
| Net cash provided by (used in) operating activities                                                                                  |       |                    | 29,928     |                  |       |                  | 22,070     |   |   |   | (120 | ) |   |   |   |   | 1,913 |   |   |   | 10,835 |   |   |
| **Cash flows from investing  activities:**                                                                                           | ** ** |                    | ** ** | ** **            |       |                  | ** ** | ** ** |   |   | ** ** | ** ** |   |   |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Purchases of businesses, net of cash acquired of $1,787 and $3,501 in  the years ended December 31, 2006 and 2005, respectively |       |                    | (60,993    | )                     |       |                  | (245,283   | ) |   |   | — |   |   |   |   |   | — |   |   |   | — |   |   |
| Acquisition of certain assets of Elvis-themed museum                                                                                 |       |                    | (3,928     | )                     |       |                  | —     |   |   |   | — |   |   |   |   |   | — |   |   |   | — |   |   |
| Investment in marketable securities                                                                                                  |       |                    | —     |                  |       |                  | (80,000    | ) |   |   | — |   |   |   |   |   | — |   |   |   | — |   |   |
| Proceeds from sale of marketable securities                                                                                          |       |                    | 42,625     |                  |       |                  | 37,375     |   |   |   | — |   |   |   |   |   | — |   |   |   | 8 |   |   |
| Additions to property and equipment, net                                                                                             |       |                    | (10,684    | )                     |       |                  | (1,023     | ) |   |   | — |   |   |   |   |   | (2 | ) |   |   | (345 | ) |   |
| Net cash used in investing activities                                                                                                |       |                    | (32,980    | )                     |       |                  | (288,931   | ) |   |   | — |   |   |   |   |   | (2 | ) |   |   | (337 | ) |   |
| **Cash flows from financing  activities:**                                                                                           | ** ** |                    | ** ** | ** **            |       |                  | ** ** | ** ** |   |   | ** ** | ** ** |   |   |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Issuance of common stock                                                                                                             |       |                    | 6,911      |                  |       |                  | 33,056     |   |   |   | — |   |   |   |   |   | — |   |   |   | — |   |   |
| Public offering of common stock                                                                                                      |       |                    | —     |                  |       |                  | 253,000    |   |   |   | — |   |   |   |   |   | — |   |   |   | — |   |   |
| Underwriting discount and other offering costs                                                                                       |       |                    | —     |                  |       |                  | (20,017    | ) |   |   | — |   |   |   |   |   | — |   |   |   | — |   |   |
| Proceeds from Huff investment                                                                                                        |       |                    | —     |                  |       |                  | 43,819     |   |   |   | — |   |   |   |   |   | — |   |   |   | — |   |   |
| Proceeds from credit facilities                                                                                                      |       |                    | —     |                  |       |                  | 148,000    |   |   |   | — |   |   |   |   |   | — |   |   |   | 2,750 |   |   |
| Costs associated with Huff  investment                                                                                               |       |                    |       |                  |       |                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| and credit facility                                                                                                                  |       |                    | —     |                  |       |                  | (3,207     | ) |   |   | — |   |   |   |   |   | — |   |   |   | — |   |   |
| Debt issuance costs for new revolving credit facility                                                                                |       |                    | (3,158     | )                     |       |                  | —     |   |   |   | — |   |   |   |   |   | — |   |   |   | — |   |   |
| Distributions to minority interest shareholders                                                                                      |       |                    | (1,967     | )                     |       |                  | (1,365     | ) |   |   | — |   |   |   |   |   | — |   |   |   | — |   |   |
| Principal payments on debt                                                                                                           |       |                    | (759       | )                     |       |                  | (148,000   | ) |   |   | — |   |   |   |   |   | (185 | ) |   |   | (5,599 | ) |   |
| Dividends paid on preferred stock                                                                                                    |       |                    | (1,824     | )                     |       |                  | (1,177     | ) |   |   | — |   |   |   |   |   | — |   |   |   | — |   |   |
| Increase in due to affiliates                                                                                                        |       |                    | —     |                  |       |                  | —     |   |   |   | 120 |   |   |   |   |   | — |   |   |   | — |   |   |
| Distributions to trust beneficiaries                                                                                                 |       |                    | —     |                  |       |                  | —     |   |   |   | — |   |   |   |   |   | (23 | ) |   |   | (7,735 | ) |   |
| Net cash provided by (used in) financing activities                                                                                  |       |                    | (797       | )                     |       |                  | 304,109    |   |   |   | 120 |   |   |   |   |   | (208 | ) |   |   | (10,584 | ) |   |
| Effect of exchange rate changes on cash                                                                                              |       |                    | 3,480      |                  |       |                  | (269       | ) |   |   | — |   |   |   |   |   | — |   |   |   | — |   |   |
| **Net increase (decrease) in cash and equivalents**                                                                                  |       |                    | (369       | )                     |       |                  | 36,979     |   |   |   | — |   |   |   |   |   | 1,703 |   |   |   | (86 | ) |   |
| **Cash and cash equivalents, beginning of period**                                                                                   |       |                    | 36,979     |                  |       |                  | —     |   |   |   | — |   |   |   |   |   | 201 |   |   |   | 287 |   |   |
| **Cash and cash equivalents, end of period**                                                                                         |       |                    | $          | 36,610                |       |                  |       | $ | 36,979 |   |   |   | $ | — |   |   |   |   |   | $ | 1,904 |   |   |   | $ | 201 |   |   |

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| **Supplemental cash flow data (in thousands):** |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|-------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| Cash paid during the period for:                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest                                        |   |   | $      | 514    |   |   |   | $      | 3,254  |   |   |   | $      | — |   |   |   |   |   | $      | 172    |   |   |   | $ | 1,060 |   |   |
| Income taxes                                    |   |   | 15,118 |   |   |   | 1,668  |   |   |   | — |   |   |   |   |   | 125    |   |   |   | 300    |   |   |
|                                                 |        |        |        |        |        |        |        |        |        |        |        |        |        |        |        |        |        |        |        |        |        |        |        |  |  |  |  |  |

 

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(1)   Prior to the acquisition of the Presley Business, the Company didnot have any operations. As a result, the Presley Business is considered to bea predecessor company (“Predecessor”). Accordingly, relevant prior yearfinancial information regarding the Predecessor has been presented herein.

**Supplemental CashFlow Information:**

The Company had the following non-cash investing andfinancing activities in the year ended December 31, 2006 (in thousands):

| Issuance of note  in connection with the acquisition of certain assets of Elvis-themed museum |   | $     | 750    |   |
|-----------------------------------------------------------------------------------------------|--------|-------|--------|--------|
| Common stock  issued in connection with acquisitions                                          |   | 2,387 |   |
| Accrued but unpaid  Series B Convertible Preferred Stock Dividends                       |   | 456   |   |

The Company had thefollowing non-cash investing and financing activities in the year 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 |   |
| Accrued but unpaid  Series B Convertible Preferred Stock Dividends                                   |   | 456    |   |

 

The accompanying notes are an integral part of these financialstatements.

 

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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, 2004                                                       |   | —     |   | $       | — |      | —    |   |   | $      | — |   |   |   | — |   |   |   | $      | —     |   |   | 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 |   |
| Warrant exercises                                                                     |   | —     |   | —  |   | —    |      |   | — |   |   |   | — |   |   |   | — |   |   | 3,455,219  |   |   | 35         |   |   |   | 6,876   |   |   |   | —  |    |   |   | —  |   |    | 6,911   |   |
| Shares issued for acquisitions                                                        |   | —     |   | —  |   | —    |      |   | — |   |   |   | — |   |   |   | — |   |   | 221,683    |   |   | 2          |   |   |   | 2,385   |   |   |   | —  |    |   |   | —  |   |    | 2,387   |   |
| Shares issued to independent directors                                                |   | —     |   | —  |   | —    |      |   | — |   |   |   | — |   |   |   | — |   |   | 16,355     |   |   | —     |   |   |   | 576     |   |   |   | —  |    |   |   | —  |   |    | 576     |   |
| Restricted shares issued to employees                                                 |   | —     |   | —  |   | —    |      |   | — |   |   |   | — |   |   |   | — |   |   | 15,000     |   |   | —     |   |   |   | 70      |   |   |   | —  |    |   |   | —  |   |    | 70      |   |
| Stock option expense                                                                  |   | —     |   | —  |   | —    |      |   | — |   |   |   | — |   |   |   | — |   |   | —     |   |   | —     |   |   |   | 375     |   |   |   | —  |    |   |   | —  |   |    | 375     |   |
| Series B preferred dividends                                                     |   | —     |   | —  |   | —    |      |   | — |   |   |   | — |   |   |   | — |   |   | —     |   |   | —     |   |   |   | —  |   |   |   | (1,824  | )       |   |   | —  |   |    | (1,824  | )      |
| Net income                                                                            |   | —     |   | —  |   | —    |      |   | — |   |   |   | — |   |   |   | — |   |   | —     |   |   | —     |   |   |   | —  |   |   |   | 9,193   |    |   |   | —  |   |    | 9,193   |   |
| Other comprehensive income                                                            |   | —     |   | —  |   | —    |      |   | — |   |   |   | — |   |   |   | — |   |   | —     |   |   | —     |   |   |   | —  |   |   |   | —  |    |   |   | 29,889  |   |    | 29,889  |   |
| Balance at December 31, 2006                                                     |   | —     |   | $       | — |      | 1,491,817 |   |   | $      | 22,825 |   |   |   | 1      |   |   |   | $      | —     |   |   | 94,237,075 |   |   | $      | 942     |   |   |   | $       | 373,115 |   |   |    | $      | (36,562 | )       |   |   | $ | 10,689  |   |   | $ | 371,009 |   |

 

The accompanying notes are an integral part of these financialstatements.

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

**1.**   Overviewand Basis of Presentation

CKX, Inc. (the “Company”) is engaged in theownership, development, management and commercial utilization of entertainmentcontent, including the rights to the name, image and likeness of Elvis Presleyand the operation of Graceland, the rights to the name, image and likeness ofMuhammad Ali 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, anentity formed and controlled by Robert F.X. Sillerman, acquired a controllinginterest in 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 theentities which own and/or control certain content relating to Elvis Presley(the “Presley Business”). Prior to the acquisition of the Presley Business, theCompany did not have any operations. As a result, the Presley Business isconsidered to be a predecessor company (“Predecessor”). Accordingly, relevantfinancial information regarding the Predecessor, including financial statementsfor the year ended December 31, 2004 and the period from January 1—February 7,2005 has been presented.

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% ofMorra, Brezner, Steinberg & Tenenbaum Entertainment, Inc. (“MBST”),a manager of comedic talent and producer of motion pictures and televisionprogramming.

On April 10, 2006,the Company acquired an 80% interest in the name, image and likeness and allother rights of publicity of Muhammad Ali, certain trademarks and copyrightsowned by Mr. Ali and his affiliates and the rights to all existingMuhammad Ali license agreements (the “Ali Business”).

**2.**   Summaryof Significant Accounting Policies

**Principles ofConsolidation**

The consolidated financial statements include theaccounts of all subsidiaries and the Company’s share of earnings or losses ofjoint ventures and affiliated companies under the equity method of accounting.The interests held by our minority shareholders in the Presley Business and theAli Business are reported as minority interest in the consolidated financialstatements. All intercompany accounts and transactions have been eliminated.

Any variable interestentities for which the Company is the primary beneficiary, as defined inFinancial Accounting Standards Board Interpretation 46(R), *Consolidationof Variable Interest Entities*, are consolidated.

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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.

**Cash and CashEquivalents**

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.

**MarketableSecurities**

At December 31, 2005,marketable securities reflect investments in auction rate preferred stocksissued by closed-end funds with dividend rates re-set every seven totwenty-eight days. These investments were classified as current assets based onour intent and ability to use these securities when required to provide capitalto support the liquidity needs and growth of the Company’s business. Theseinvestments were available for sale in accordance with the provisions ofStatement of Financial Accounting Standards (“SFAS”) No. 115, *Accounting for Certain Investments in Debt and EquitySecurities* and accordingly were carried at fair value, whichapproximated cost at December 31, 2005. The Company had no marketablesecurities at December 31, 2006.

**Inventory**

Inventory, all of which isfinished goods, is valued at the lower of cost or market. Cost is determinedusing the first-in, first out method. Allowances are provided for slow-movingor obsolete inventory items based on management’s review of inventory data.

**Property andEquipment, 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 arecapitalized. Maintenance and repairs not representing betterments are expensedas incurred. Depreciation and amortization expenses were $2.2****million****and $1.9million for the years ended December 31, 2006 and 2005, respectively, $0.1million for the period January 1-February 7, 2005 (Predecessor)and $1.2 million for the year ended December 31, 2004 (Predecessor).

Propertyand equipment, net consisted of the following as of December 31, 2006 and2005 :

| ** **                                      | ** ** | **December 31, 2006** | ** ** | **December 31, 2005** | ** ** | **Useful Lives** | ** ** |
|-------------------------------------------------|------------|---------------------------------|------------|---------------------------------|------------|-----------------------|------------|
| ** **                                      | ** ** | **(in thousands)**         | ** ** | **(in thousands)**         | ** ** | ** **            | ** ** |
| Land                                            |       |                            | $          | 17,512                          |       |                  |       | $ | 10,467 |   |   |   | n/a |   |   |
| Buildings and  improvements                     |       |                            | 16,839     |                            |       |                  | 14,882     |   |   |   | 5-20 |   |   |
| Equipment,  furniture and fixtures              |       |                            | 5,503      |                            |       |                  | 3,251      |   |   |   | 3-7 |   |   |
|                                            |       |                            | 39,854     |                            |       |                  | 28,600     |   |   |   |   |   |   |
| Less: accumulated depreciation and amortization |       |                            | (4,525     | )                               |       |                  | (1,915     | ) |   |   |   |   |   |
|                                            |       |                            | $          | 35,329                          |       |                  |       | $ | 26,685 |   |   |   |   |   |   |

 

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**FinancialInstruments**

The Company’s financial instruments represent certainreceivables, long-term licensing arrangements and long-term debt. To estimatethe fair value of such financial instruments, the Company uses discounted cashflow models and assumptions that are based on market conditions and risksexisting at each balance sheet date. All methods of assessing fair value resultin a general approximation of value, and such value may never actually berealized.

**Revenue Recognition**

Merchandising/Name, Image and Likeness LicensingRevenue:

A portion of the Company’s revenue is derived from licensingrights to third parties to sell merchandise based on intellectual property,including name, image and likeness rights and related marks. Revenue from theseactivities is recognized when all of the following conditions are met: (i) pervasiveevidence of an arrangement exists; (ii) delivery has occurred or serviceshave been rendered; (iii) the price to the licensee or buyer is fixed ordeterminable; and (iv) collectibility is reasonably assured. Licensingadvances are deferred until earned under the licensing agreement. Licensingcontracts normally provide for quarterly reporting from the licensee of salesmade and royalties due. Guaranteed minimum royalties are recognized ratablyover the term of the license or are based on sales of the related products, ifgreater.

Royalty Income:

Royalty income from music and film contracts isderived from the sale of records and DVDs or from the licensing of film/musicrights to third parties. Revenue from recordings is recognized in accordancewith SFAS No. 50, *Financial Reportingin the Record and Music Industry* (“SFAS 50”). Under SFAS 50, revenueis recognized when the Company: (i) has signed a non-cancelable contract; (ii) hasdelivered the rights to the licensee who is free to exercise them; (iii) hasno remaining 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 until the amount is either known or reasonably estimable or untilreceipt of the statements from the third parties. The Company contracts withvarious agencies 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 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:(i) persuasive evidence of a sale or licensing arrangement exists; (ii) theprogram is complete and has been delivered or is available for immediate andunconditional delivery; (iii) the license period of the arrangement hasbegun and the customer 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 is recognized when: (i) pervasive evidenceof an arrangement exists; (ii) the event has 

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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 Production Services Revenue:

The Company recognizes revenue from management andproduction services at the time the services are provided. Revenue earned basedon clients’ performances is earned when documentation that the client hasperformed the service is received; this revenue is typically based on acontractual percentage of the clients’ earnings. Revenue from the clients’participation and residuals are recognized at the time such amounts can bereasonably determined, which is generally upon receipt of a statement from athird 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. Revenue resulting from hotelroom rentals is recognized concurrent with room usage. Apartment rental revenueis recognized over the term of the rental lease. Revenue from concerts andother tours is recognized when the tour date is completed. The Company alsoderives a small portion of its revenue from other sources related to itsprincipal business activities, such as subscriber fees related to the officialElvis website and revenue from Internet and telephony rights granted. Managementconsiders these revenue streams to be immaterial to the financial statements asa whole.

**TelevisionProduction 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 party costsincurred in developing concepts for new television programs are expensed asincurred 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.

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**Artist Advances andRecoupable Recording Costs**

Recoupable recording costsand artist advances are recorded in accordance with SFAS 50, and thus, arecharged to expense in the period in which the sale of the record takes place.Recoupable recording costs and artist advances are only capitalized if the pastperformance and current popularity of the artist for whom the recording costsare incurred or to whom the advance is made provide a sound basis forestimating that the amount capitalized will be recoverable from futureroyalties to be earned by the artist. Any portion of recoupable recording costsor artists advances that subsequently appear not to be fully recoverable fromfuture royalties to be earned by the artist are charged to expense during theperiod in which the loss becomes evident. The Company had capitalized artistadvances of $1.1 million as of December 31, 2006. There were nocapitalized advances as of December 31, 2005.

**Advertising Expense**

Advertising costs areexpensed as incurred except for production costs, which are deferred andexpensed when advertisements run for the first time. Advertising costs chargedto expense were $1.3 million, $0.7 million and $0.6 million for the years endedDecember 31, 2006, 2005 and 2004 (Predecessor) and $0.1 million for theperiod of January 1 to February 7, 2005 (Predecessor). Advertisingcosts deferred and included in prepaid expenses were $0.2 million as of December 31,2006; no advertising costs were deferred at December 31, 2005.

**Website DevelopmentCosts**

The Company expenses asincurred the costs of maintenance and minor enhancements to the features andfunctionality of its websites.

**Income Taxes**

Income taxes are providedusing the asset and liability method prescribed by SFAS No. 109, *Accounting for Income Taxes*. Under this method, income taxes(i.e., deferred tax assets, deferred tax liabilities, taxes currentlypayable/refunds receivable and tax expense) are recorded based on amountsrefundable or payable in the current year and include the results of anydifference between U.S. GAAP and tax reporting. Deferred income taxes reflectthe tax effect of net operating loss, capital loss and general business creditcarryforwards and the net tax effects of temporary differences between thecarrying amount of assets and liabilities for financial statement and incometax reporting purposes, as determined under enacted tax laws and rates.Valuation allowances are established when management determines that it is morelikely than 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.

**Acquisition-relatedCosts**

The Company expenses acquisition-related third partydue diligence costs for potential acquisitions if and when a determination ismade that the acquisition will not be consummated.

**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. Translation gains and losses related to long-term andpermanently invested intercompany balances are recorded in accumulated othercomprehensive loss.

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Gains and losses from transactions denominated inforeign currencies are included in the statement of operations. For the yearended December 31, 2006, the Company had foreign currency losses of $2.7million as a result of transactions denominated in non-UK pound sterlingcurrencies, primarily the U.S. dollar, at 19 Entertainment due to the weakeningof the dollar. These losses are recorded as other costs within operatingincome.

In 2006, the Company incurred an additional $3.3million foreign currency loss related to short-term intercompany  loans between 19 Entertainment and the parentcompany that were denominated in U.S. dollars. These loans were settled throughthe declaration of an intercompany dividend before the end of the year. Thisloss is reflected in the statement of operations in other expense.

**Goodwill and OtherIntangible Assets**

Goodwill represents the excess of purchase price andrelated costs over the value assigned to the net tangible and identifiableintangible assets of businesses acquired. The Company follows SFAS No. 142,*Goodwill and Other Intangible Assets*(“SFAS 142”). In accordance with the provisions of SFAS 142, goodwilland other intangible assets with indefinite lives are not amortized, but aretested for impairment annually or if certain circumstances indicate a possibleimpairment may exist. The Company performs its annual impairment assessment ongoodwill and indefinite lived intangible assets in accordance with the methodsprescribed above on the first day of its fiscal fourth quarter. The Company hastested its goodwill and indefinite lived intangible assets for impairment andno impairment was identified at the reporting unit level.

SFAS 142 also requires that intangible assetswith estimable useful lives be amortized over their respective estimated usefullives to the estimated residual values.

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 would be recognized by the amount by which the carryingamount of the asset exceeds the fair value of the asset.

**Equity 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 investmentin and amounts due to and from the equity investee are included in theconsolidated balance sheet; only the Company’s share of the investee’s earnings(losses) is included in the consolidated operating results.

Equity investments of $1.8million and $0.8 million as of December 31, 2006 and 2005, respectively,primarily related to Beckham Brand Limited, are included in other assets on theaccompanying consolidated balance sheets.

**Share-BasedPayments**

In conjunction with thestock-based compensation plan that is more fully described in footnote 10,Share-Based Payments, the Company records compensation expense for all share-based payments 

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(including employee stock options) based on theirfair value over the requisite service period. The Company uses theBlack-Scholes pricing model at the date of option grants to estimate the fairvalue of options granted. Grants with graded vesting are expensed evenly overthe total vesting period.

**Impact of RecentlyIssued Accounting Standards**

In February 2006, the Financial AccountingStandards Board (“FASB”) issued SFAS No. 155,*Accounting for CertainHybrid Financial Instruments*, which amends SFAS 133, *Accounting for Derivative Instruments and Hedging Activities*,and SFAS 140, Accounting for Transfers and Servicing of Financial Assets andExtinguishments of Liabilities. SFAS 155 provides, among other things, that (i) forembedded derivatives which would otherwise be required to be bifurcated fromtheir host contracts and accounted for at fair value in accordance with SFAS133 an entity may make an irrevocable election, on an instrument-by-instrument basis, to measure thehybrid financial instrument at fair value in its entirety, with changes in fairvalue recognized in earnings and (ii) concentrations of credit riskin the form of subordination are not considered embedded derivatives. SFAS 155is effective for all financial instruments acquired, issued or subject toremeasurement after January 1, 2007. The adoption of SFAS 155 is notexpected to have a material impact on the Company’s financial statements.

In July 2006, the FASB issued FinancialAccounting Standards Interpretation No. 48, *Accounting for Uncertainty in Income Taxes* (“FIN 48”).FIN 48 prescribes a recognition threshold and measurement process forrecording in the financial statements uncertain tax positions taken or expectedto be taken in a tax return. FIN 48 also provides guidance onderecognition, classification, interest and penalties, accounting in interimperiods, disclosures and transitions. The Company has completed an initialevaluation of the January 1, 2007 adoption of FIN 48 and has determinedthat the adoption will not have a material impact on the Company’s financialposition or results of operations.

In September 2006, the FASB issued SFAS No. 157,*Fair Value Measurements.* SFAS 157defines fair value, establishes a framework for measuring fair value, andexpands disclosures about fair value measurements. The provisions of SFAS 157are effective for the Company beginning after January 1, 2008. The Companyhas not completed its assessment of the impact of SFAS 157 on its financialstatements following adoption.

In September 2006, the SEC released Staff AccountingBulletin No. 108, *Considering the Effects of Prior YearMisstatements when Quantifying Misstatements in Current Year FinancialStatements* (“SAB 108”). SAB 108 provides guidance on the SEC’s viewsregarding quantifying the materiality of financial statement misstatements,including misstatements that were not material to prior years’ financialstatements. SAB 108 is effective for the Company’s fiscal years ended afterNovember 15, 2006.  The applicationof SAB 108 requires the Company to quantify the impact of correcting allmisstatements, including both the carryover and reversing effects of prior yearmisstatements, on the current year financial statements. The initial adoptionof SAB 108 had no impact on the financial statements.

In February 2007, the FASB issued SFAS No. 159 (“SFAS159”), *The Fair Value Option for Financial Assets andFinancial Liabilities*, providing companies with an option to reportselected financial assets and liabilities at fair value. SFAS 159’sobjective is to reduce both complexity in accounting for financial instrumentsand the volatility in earnings caused by measuring related assets andliabilities differently. US GAAP has required different measurementattributes for different assets and liabilities that can create artificialvolatility in earnings. SFAS 159 helps to mitigate this type ofaccounting-induced volatility by enabling companies to report related assetsand liabilities at fair value, which would likely reduce the need for companiesto comply with detailed rules for hedge accounting. SFAS 159 also establishespresentation and disclosure requirements designed to facilitate comparisonsbetween companies that choose different measurement attributes for similartypes of asset and liabilities. SFAS 159 requires companies to provideadditional information that will help investors and other users of financialstatements to more easily 

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understand the effect ofthe Company’s choice to use fair value on its earnings. It also requiresentities to display the fair value of those assets and liabilities for whichthe Company has chosen to use fair value on the face of the balance sheet. SFAS159 is effective for fiscal years beginning after November 15, 2007. TheCompany is currently evaluating the impact of the adoption of SFAS 159 onits financial statements.

**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.

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*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;

·                    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.

The holders of the Series B Preferred Stock votewith the holders of Common Stock on all matters on an as converted basis andvote separately as a class with respect to authorizing any of the following: (i) anincrease in the authorized number of shares of Series B Preferred Stock, (ii) theissuance of additional shares of Series B Preferred Stock, (iii) thecreation or issuance of any equity securities having rights, preferences orprivileges senior to or on parity with the Series B Preferred Stock, (iv) amendingthe Company’s Certificate of Incorporation or By-Laws in a manner that isadverse to the Series B Preferred Stock, (v) the declaration orpayment of dividends on equity securities ranking on a parity with or junior tothe Series B Preferred Stock, and (vi) the repurchase or redemptionof any of the Company’s outstanding equity securities other than shares of the Series BPreferred Stock.

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.

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Upon a liquidation, the holders of the Series BPreferred Stock are entitled to receive in preference to the holders of anyother class or series of the Company’s equity securities, a cash amount pershare equal to the greater of (x) the stated value plus accrued but unpaiddividends, or (y) the amount to which they would be entitled to receivehad they converted into Common Stock.

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.

**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 Huff Investmenthas been allocated based on the relative fair values of the preferred stock,common stock and warrants. The fair values of common stock and Series AConvertible Redeemable Preferred Stock were based on the $13.40 closing priceof the Company’s common stock on February 2, 2005, the date upon which theHuff Investment was committed and agreed to by all parties. The fair values ofthe warrants was based on a Black-Scholes valuation which incorporatedthe common stock price of $13.40, a volatility rate of 39% and a discount rateof 3.7%. The allocation of the proceeds, based on the relative fair values ofthe 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 

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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 terms of the Series A Convertible RedeemablePreferred Stock specifically provided for an adjustment to the conversion priceupon the issuance of the 15,486,815 warrants issued but not exercised by therecipients thereof immediately following the closing of the PresleyAcquisition, but no adjustment in connection with the issuance and exercise ofthe warrants received by the Huff Alternative Fund LP or the Huff AlternativeParallel Fund LP at closing or for the 5,000,000 warrants which wereissued and exercised immediately following closing. After giving effect to theadjustments described in the preceding sentence, the conversion price of the Series AConvertible Redeemable Preferred Stock became $7.18 per share of common stock,so that each share of Series A Convertible Redeemable Preferred Stock wasconvertible into approximately 2.8 shares of common stock.

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 a distribution of cash or additionalshares of Series A Convertible Redeemable Preferred Stock such that thereturn calculated to such date equaled 8%.

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 theunaccreted beneficial conversion feature of $17.8 million was recognizedat that time.

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 years ended December 31, 2006 and 2005(in thousands):

| ** **                               | ** ** | **Year Ended  December  31,  2006** | ** ** | **Year Ended  December  31,  2005** | ** ** |
|------------------------------------------|------------|----------------------------------------------------|------------|----------------------------------------------------|------------|
| Net income (loss)                        |       |                                               | $          | 9,193                                              |       |   |   | $ | (5,904 | ) |   |
| Other comprehensive  income (loss):      |       |                                               |       |                                               |       |   |   |   |   |
| Foreign currency translation adjustments |       |                                               | 29,889     |                                               |       |   | (19,200 | ) |   |
| Comprehensive income  (loss)             |       |                                               | $          | 39,082                                             |       |   |   | $ | (25,104 | ) |   |

 

Foreign currencytranslation adjustments result from the conversion of 19 Entertainment’sfinancial statements. No reconciliation between net income (loss) andcomprehensive income (loss) for the period January 1, 2005 to February 7,2005 for the Predecessor or the year ended December 31, 2004 for theCompany or the Predecessor is reflected in the table above because there wereno adjustments between net income (loss) and comprehensive income (loss) forsuch period.

**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. Basic and diluted earnings per share forthe year ended December 31, 2006 are both $0.08. The diluted earnings pershare calculations exclude the impact of the conversion of 1,491,817 shares of Series BConvertible Preferred shares and the impact of the conversion of alloutstanding employee share based stock plan awards because the effect would beanti-dilutive. Diluted loss per share for the year ended December 31, 2005is the same as basic loss per share because the conversion of all potentiallyissuable common shares would be anti-dilutive. As a result, 4,297,625 sharesare excluded from the calculation of diluted earnings per share for the yearended December 31, 2005.

Thefollowing table shows the computation of the Company’s basic and dilutedearnings per share for the years ended December 31, 2006, 2005 and 2004:

| ** **                                                                        | ** ** | **Year Ended December 31,**                                                | ** ** |
|-----------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------|------------|
| ** **                                                                        | ** ** | **2006**                                                                                  | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                                                        | ** ** | **(in thousands, except share  and per share information)** | ** ** |
| Basic income (loss) per share computation:                                        |       |                                                                                      |       |   |   |   |   |
| Net income (loss)  applicable to common shareholders                              |       | $                                                                                         | 7,369      |   | $ | (25,298 | ) | $ | (120 | ) |
| Basic common shares  outstanding (including redeemable restricted common stock)   |       | 92,529,152                                                                                |       | 71,429,858 |   | 4,283,061 |   |
| Basic income (loss) per  share                                                    |       | $                                                                                         | 0.08       |   | $ | (0.35 | ) | $ | (0.03 | ) |
| Diluted income (loss) per share computation:                                      |       |                                                                                      |       |   |   |   |   |
| Net income (loss) applicable  to common shareholders                              |       | $                                                                                         | 7,369      |   | $ | (25,298 | ) | $ | (120 | ) |
| Basic common shares  outstanding (including redeemable restricted common stock)   |       | 92,529,152                                                                                |       | 71,429,858 |   | 4,283,061 |   |
| Incremental shares for  assumed exercise of warrants                              |       | 1,026,049                                                                                 |       | — |   | — |   |
| Diluted common shares  outstanding (including redeemable restricted common stock) |       | 93,555,201                                                                                |       | 71,429,858 |   | 4,283,061 |   |
| Diluted income (loss) per share                                                   |       | $                                                                                         | 0.08       |   | $ | (0.35 | ) | $ | (0.03 | ) |

 

 

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**6.**   Acquisitions

*The Presley Business (Predecessor)*

On February 7, 2005,the Company acquired an 85% interest in the Presley Business. The considerationfor the acquisition included (i) $53.1 million in cash,(ii) 1,491,817 shares of Series B Convertible Preferred Stock,(iii) one share of Series C Convertible Preferred Stock,(iv) 500,000 shares of common stock and (v) the repayment of$25.1 million in indebtedness. Prior to the acquisition of the PresleyBusiness, the Company did not have any operations. The results of operations ofthe Presley Business are included in the results of the Company since the dateof acquisition.

In March 2006, thePresley Business acquired certain assets of an Elvis-themed museum located inLas Vegas, Nevada, including certain intellectual property rights as well as asubstantial portion of the memorabilia formerly on display at theestablishment. The total purchase price for the assets was approximately $4.7million, $3.9 million (including $0.1 million of transaction costs) of whichwas paid in cash in full at closing and $0.8 million of which was paid in theform of a three-year promissory note (see note 9). The Company paid $2.0million for the acquired memorabilia and $2.7 million for a non-competeagreement from the former owners which is being amortized over five years. Thesellers permanently closed the museum and the name of the museum has beenretired as part of the Company’s overall plan to bring a world-classElvis-themed attraction to Las Vegas.

*19 Entertainment*

On March 17, 2005,the Company acquired 100% of 19 Entertainment Limited (“19 Entertainment”), acompany that is a creator, producer, and promoter of entertainment properties,including the*IDOLS* televisionshow format. Consideration for the acquisition consisted of £64.5 million($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, each paid at closing, with an additional£19.2 million ($34.0 million based on the exchange rate at the date ofpayment) of deferred consideration that was paid in cash on December 15,2005. The results of operations of 19 Entertainment are included in the resultsof the Company since the date of acquisition.

In March 2006, 19Entertainment acquired the remaining 50% of a previously 50%-owned affiliateengaged in the management of songwriters and producers. The purchase price forthe remaining 50% interest was £1.6 million ($2.8 million based on the exchangerate at the date of acquisition), paid in cash at closing. The Company hasperformed a valuation of the assets acquired and liabilities assumed and hasmade an allocation of $0.7 million to other intangible assets, which will beamortized over five years, and $2.4 million to goodwill.

In August 2006, 19Entertainment acquired 100% of the outstanding capital stock of a companyengaged in marketing services and the creation and promotion of consumer brandawareness. Consideration paid at closing for the acquisition consisted of £3.5million in cash ($6.7 million based on the exchange rate at the date ofacquisition) and 139,553 shares of common stock valued at £0.7 million($1.3 million based on the exchange rate at the date of acquisition). TheCompany has performed a valuation of the assets acquired and liabilitiesassumed and has made an allocation of $2.5 million to other intangible assets,which will be amortized over five years, and $4.8 million to goodwill.

*MBST*

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. The Company acquired MBST forinitial total consideration of $10.6 million, of which $1.0 million incash was paid at closing, and 700,000 unregistered shares of common stock. Thepurchase price was subject to a working capital adjustment, of which$1.1 million in cash and 40,480 unregistered shares valued at $0.5 millionwere paid to the sellers in 2005 and $0.2 million in cash and 

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38,130unregistered shares valued at $0.5 million were paid to the sellers in 2006 asa final settlement. In addition, the sellers may receive up to an additional150,000 shares of common stock upon satisfaction of certain performancethresholds over the five-year period following the closing. The receipt by thesellers of any such shares will be accounted for as additional purchase priceat the time such performance thresholds are met. The allocation of the fairvalues to the assets acquired and liabilities assumed was based on a valuationprepared by an independent appraisal firm. The results of operations of MBSTare included in the results of the Company since the date of acquisition.

*The Ali Business*

On April 10, 2006,the Company acquired an 80% interest in the name, image, likeness and all otherrights of publicity of Muhammad Ali, certain trademarks and copyrights owned byMr. Ali and his affiliates and the rights to all existing Muhammad Ali licenseagreements (the “Ali Business”). The Company acquired the Ali Business for$50.0 million in cash and incurred an additional $2.1 million in transactioncosts. The Muhammad Ali Family Trust has retained a 20% interest in the AliBusiness.

Thefollowing table summarizes the fair values of the assets acquired andliabilities assumed on April 10, 2006. These amounts have been adjusted toreflect the Company’s 80% ownership interest. The significant assumptions usedin the valuation included factors affecting the duration, growth rates andamounts of future cash flows.

| ** **          | ** ** | **(in thousands)** | ** ** |
|---------------------|------------|-------------------------|------------|
| Current assets      |       |                    | $          | 3,006 |   |   |
| Intangible assets   |       |                    | 52,599     |   |   |
| Deferred tax assets |       |                    | 1,387      |   |   |
| Other assets        |       |                    | 73         |   |   |
| Assets acquired     |       |                    | 57,065     |   |   |
| Current liabilities |       |                    | 2,027      |   |   |
| Other liabilities   |       |                    | 2,939      |   |   |
| Liabilities assumed |       |                    | 4,966      |   |   |
| Net assets acquired |       |                    | $          | 52,099 |   |   |

 

In accordance with SFASNo. 109, the Company has provided for deferred taxes for the differencebetween the book and tax basis of the net assets acquired.

The purchase price for theAli Business was determined based on management’s assessment of the financialprospects of the existing business as well as the increased value the Companybelieves can be derived from pursuing additional licensing opportunities. Theamounts allocated to intangible assets of $52.6 million were attributed totrademarks, publicity rights and other intellectual property and weredetermined to have indefinite lives.

The Ali Trust, as theholder of a 20% interest in the Ali Business, is entitled to certain preferredminimum distributions of certain cash flow from the Ali Business. During thefirst twelve month period following closing, the amount of the annual minimumdistribution will be $0.5 million. In addition, the Ali Trust has the right toreceive an additional 5% membership interest in the Ali Business effective asof the end of the calendar year in which the total compound internal rate ofreturn to the Company on its initial $50 million investment equals or exceeds(i) 30% on a cumulative basis during the five year period following theclosing date or (ii) 25% on a cumulative basis for any period commencingon the closing date and ending at any time after the fifth anniversary of theclosing date. The Ali Trust also has the right to require the Company topurchase all of its remaining ownership interest in the Ali Business beginningon the fifth anniversary of the acquisition at a price based on the thencurrent fair market value.

The results of operationsof the Ali Business are included in the results of the Company since the dateof acquisition.

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**Pro Forma Information**

Thefollowing table summarizes unaudited pro forma financial information for theCompany assuming the acquisitions of the Presley Business,19 Entertainment, MBST and the Ali Business acquisitions and the relatedfinancing transactions had occurred on January 1, 2006 and 2005. Theunaudited pro forma financial information does not necessarily represent whatwould have occurred if the transactions had occurred on the dates presented andshould not be taken as representative of the Company’s future consolidatedresults of operations or financial position:

| ** **                                          | ** ** | **Year Ended  December 31,**                                      | ** ** |
|-----------------------------------------------------|------------|-----------------------------------------------------------------------------|------------|
| ** **                                          | ** ** | **2006**                                                                    | ** ** | **2005** | ** ** |
| ** **                                          | ** ** | **(in thousands, except   per share information)** | ** ** |
| Revenue                                             |       | $                                                                           | 213,760    |   | $ | 151,578 |   |
| Net income (loss)  available to common stockholders |       | $                                                                           | 8,281      |   | $ | (21,398 | ) |
| Net income (loss) per common share:                 |       |                                                                        |       |   |   |
| Basic and diluted                                   |       | $                                                                           | 0.09       |   | $ | (0.30 | ) |

 

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 onMarch 17, 2005. The exercise was a one time non-recurring event thatresulted directly from the acquisition of 19 Entertainment by the Company.This expense was $14.8 million before tax, or $(0.21) per share.

**7. IntangibleAssets and Goodwill**

Intangibleassets as of December 31, 2006 consist of (dollar amounts in thousands): 

| ** **                                                                                          | ** ** | **Weighted  Average  Remaining  Useful Life** | ** ** | **Gross  Carrying  Amount** | ** ** | **Intangible  Assets  Acquired  During 2006** | ** ** | **Accumulated  Amortization** | ** ** | **Net  Carrying  Amount** | ** ** |
|-----------------------------------------------------------------------------------------------------|------------|----------------------------------------------------|------------|-----------------------------|------------|----------------------------------------------------|------------|-------------------------------|------------|---------------------------|------------|
| Definite Lived  Intangible Assets:                                                                  |       |                                               |       |                        |       |                                               |       |                          |       |                      |       |   |   |   |   |
| Presley record,  music publishing, film and video rights                                       |       | 13.1 years                                         |       | $                           | 28,900     |                                               |       | $                             | —     |                      |       |   | $ | (3,466 | ) |   | $ | 25,434 |   |
| Other Presley  intangible assets                                                                    |       | 15.2 years                                         |       | 10,880                      |       |                                               | 2,742      |                          |       |                      | (2,715     | ) |   | 10,907 |   |
| 19 Entertainment  IDOLS television programming, merchandising and  sponsorship relationships   |       | 5.3 years                                          |       | 79,340                      |       |                                               | —     |                          |       |                      | (18,812    | ) |   | 60,528 |   |
| 19 Entertainment  other artist management, recording, merchandising, and sponsorship  relationships |       | 2.4 years                                          |       | 12,733                      |       |                                               | 3,321      |                          |       |                      | (7,126     | ) |   | 8,928 |   |
| MBST artist  contracts, profit participation rights and other intangible assets                     |       | 4.9 years                                          |       | 4,270                       |       |                                               | —     |                          |       |                      | (1,026     | ) |   | 3,244 |   |
|                                                                                                |       |                                               |       | $                           | 136,123    |                                               |       | $                             | 6,063      |                      |       |   | $ | (33,145 | ) |   | $ | 109,041 |   |

 

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Thegross carrying amount of intangible assets  of $136.1 million in the table abovediffers from the amount of $125.5 million in the table below due primarilyto foreign currency movements of $11.2 million, offset by a decline of $0.6 millionrelating to the Company’s finalization of its accounting for prior yearacquisitions.

| ** **                                                    | ** ** | **Balance at  December 31,  2005** | ** ** | **Indefinite  Lived  Intangible  Assets  Acquired  During 2006** | ** ** | **Balance at  December 31,  2006** | ** ** |
|---------------------------------------------------------------|------------|----------------------------------------------|------------|-----------------------------------------------------------------------|------------|----------------------------------------------|------------|
| Indefinite Lived Intangible Assets:            |       |                                         |       |                                                                  |       |                                         |       |   |   |   |   |   |   |
| Trademarks, publicity  rights and other intellectual property |       |                                         | $          | 38,165                                                                |       |                                         |       | $ | 52,599 |   |   |   | $ | 90,764 |   |   |
|                                                               |            |                                              |            |                                                                       |            |                                              |            |  |  |  |  |  |  |  |  |  |

 

Intangibleassets as of December 31, 2005 consist of (dollar amounts in thousands): 

| ** **                                                                                          | ** ** | **Gross  Carrying  Amount** | ** ** | **Accumulated  Amortization** | ** ** | **Net  Carrying  Amount** | ** ** |
|-----------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|-------------------------------|------------|---------------------------|------------|
| Definite Lived  Intangible Assets:                                                                  |       |                        |       |                          |       |                      |       |   |   |
| Presley record,  music publishing, film and video rights                                       |       | $                           | 28,900     |                          |       | $                         | (1,521     | ) |   | $ | 27,379 |   |
| Other Presley  intangible assets                                                                    |       | 10,880                      |       |                          | (1,566     | )                         |       | 9,314 |   |
| 19 Entertainment  IDOLS television programming, merchandising and sponsorship relationships         |       | 69,878                      |       |                          | (6,583     | )                         |       | 63,295 |   |
| 19 Entertainment  other artist management, recording, merchandising, and sponsorship  relationships |       | 11,339                      |       |                          | (3,044     | )                         |       | 8,295 |   |
| MBST artist  contracts, profit participation rights and other intangible assets                     |       | 4,745                       |       |                          | (281       | )                         |       | 4,464 |   |
|                                                                                                |       | $                           | 125,742    |                          |       | $                         | (12,995    | ) |   | $ | 112,747 |   |
| Indefinite Lived  Intangible Assets:                                                                |       |                        |       |                          |       |                      |       |   |   |
| Trademarks, publicity  rights and other intellectual property                                       |       | $                           | 38,165     |                          |       |                      |       |   | $ | 38,165 |   |

 

Amortizationexpense for definite lived intangible assets was $18.4 million and $13.0million for the years ended December 31, 2006 and 2005, respectively. AtDecember 31, 2006, the projected annual amortization expense for definitelived intangible assets for the next five years, assuming no furtheracquisitions or dispositions, is as follows:

| **Years Ending December 31,** | ** ** | ** ** | ** ** | **(in thousands)** | ** ** |
|----------------------------------------------|------------|------------|------------|-------------------------|------------|
| 2007                                         |       |       | $          | 18,500                  |       |   |
| 2008                                         |       |       | 17,500     |                    |       |
| 2009                                         |       |       | 15,900     |                    |       |
| 2010                                         |       |       | 15,200     |                    |       |
| 2011                                         |       |       | 14,100     |                    |       |

 

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Goodwillas of December 31, 2006 consists of (dollar amounts in thousands): 

| ** **                       | ** ** | **Balance at  December 31,  2005** | ** ** | **Goodwill  Acquired  During 2006** | ** ** | **2006  Foreign  Currency  Translation  Adjustment** | ** ** | **Other  Adjustments** | ** ** | **Balance at  December 31,  2006** | ** ** |
|----------------------------------|------------|----------------------------------------------|------------|------------------------------------------|------------|------------------------------------------------------|------------|------------------------|------------|----------------------------------------------|------------|
| Presley royalties  and licensing |       |                                         | $          | 6,967                                    |       |                                                 |       | $                      | —     |                                         |       |   | $ | — |   |   |   | $ | (4,535 | ) |   |   | $ | 2,432 |   |   |   |
| Presley Graceland  operations    |       |                                         | 7,675      |                                     |       |                                                 | —     |                   |       |                                         | —     |   |   |   | — |   |   |   | 7,675 |   |   |   |
| 19 Entertainment                 |       |                                         | 102,096    |                                     |       |                                                 | 7,212      |                   |       |                                         | 14,649     |   |   |   | (215 | ) |   |   | 123,742 |   |   |   |
| MBST                             |       |                                         | 9,055      |                                     |       |                                                 | —     |                   |       |                                         | —     |   |   |   | 1,042 |   |   |   | 10,097 |   |   |   |
| Total                            |       |                                         | $          | 125,793                                  |       |                                                 |       | $                      | 7,212      |                                         |       |   | $ | 14,649 |   |   |   | $ | (3,708 | ) |   |   | $ | 143,946 |   |   |   |

 

The finalization of the Presley Business purchaseprice allocation resulted in a decrease in goodwill and deferred taxliabilities of $4.5 million in the year ended December 31, 2006. Thefinalization of the 19 Entertainment purchase price allocation resulted in adecrease in goodwill and deferred tax liabilities of $0.2 million in the yearended December 31, 2006.

The finalization of the MBST purchase price allocationresulted in a $0.3 million increase in goodwill and a correspondingdecrease in intangible assets in the year ended December 31, 2006. In2006, the Company paid $0.2 million in cash and issued common shares valued at$0.5 million to the sellers of MBST as a final working capital adjustment.

**8.**   Debt

At December 31, 2006, the Company had $3.1million outstanding under a subordinated promissory note issued in connectionwith the acquisition of the Presley Business, which bears interest at the rateof 5.385 percent per annum. The principal and interest under the note arepayable in equal annual installments of principal and interest of $550,000each, with the final installment of principal and interest due and payable onFebruary 7, 2013.

At December 31, 2006, the Company had $0.6million outstanding under a note issued in connection with the PresleyBusiness’ acquisition of memorabilia and certain other assets of a LasVegas-based Elvis-themed museum during the first quarter of 2006, which bearsinterest at 5% per annum and is payable in 36 equal monthly installments.

The carrying amount of the Company’s debt approximatesfair value.

Thescheduled repayments of debt outstanding as of December 31, 2006, are asfollows:

| **Years Ending December 31,** | ** ** | ** ** | ** ** | **(in thousands)** | ** ** |
|----------------------------------------------|------------|------------|------------|-------------------------|------------|
| 2007                                         |       |       | $          | 631                     |       |   |
| 2008                                         |       |       | 651        |                    |       |
| 2009                                         |       |       | 486        |                    |       |
| 2010                                         |       |       | 446        |                    |       |
| 2011                                         |       |       | 470        |                    |       |
| Thereafter                                   |       |       | 1,017      |                    |       |
|                                         |       |       | $          | 3,701                   |       |   |

 

On May 24, 2006, the Company entered into a$125.0 million revolving credit agreement (the “Credit Facility”) with variouslenders, including Bear, Stearns & Co. Inc. As of December 31,2006, the Company had not drawn on the Credit Facility. The Credit Facility isguaranteed by all of the Company’s wholly-owned domestic subsidiaries andcertain of its wholly-owned foreign subsidiaries. The Credit Facility issecured by a pledge of certain assets of the Company and its subsidiaryguarantors, including ownership interests in all wholly-owned domesticsubsidiaries, substantially all wholly-owned foreign subsidiaries and certainsubsidiaries that are not wholly-owned. Loans under the Credit Facility areavailable to the 

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Company for generalcorporate purposes and to finance future acquisitions and joint ventures. TheCredit Facility requires the Company and its subsidiaries to maintain certainfinancial covenants as well as non-financial covenants that regulate theCompany’s and its subsidiaries’ incurrence of debt, disposition of property andcapital expenditures. The Company incurred $3.2 million in debt issuance costsrelated to the Credit Facility that are being amortized over the five year termof the agreement.

In connection with our public offering of common stockon June 27, 2005 (see Note 3), the Company repaid $39.4 million,plus accrued and unpaid interest, owed to an affiliate of Bear,Stearns & Co. Inc., under a short-term senior credit facility incurredin connection with the acquisition of the Presley Business. The loan was repaidat 101% of its principal amount. The Company also paid $109.0 million,plus accrued and unpaid interest, owed to an affiliate of Bear, Stearns &Co. Inc., under a short-term senior credit facility incurred in connection withthe acquisition of 19 Entertainment. Both short-term senior loans were dueto mature on February 6, 2006.

In June 2005, the Company expensed$1.9 million of unamortized deferred loan costs upon repayment of theshort-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.

**9.**    Stockholders’Equity

At December 31, 2006 and 2005, the Company hadoutstanding warrants to purchase 1,096,378 and 4,551,597 shares of commonstock, respectively, at an exercise price of $2.00 per share which expired onFebruary 7, 2007, and warrants to purchase 500,000 shares of common stockat an exercise price of $10.00 per share which expire on February 7, 2008issued to former shareholders in the initial capitalization of the Company inFebruary 2005.

In the year endedDecember 31, 2006, a total of 3,455,219 warrants with an exercise price of$2.00 were exercised. The remaining 1,096,378 warrants with an exercise priceof $2.00 were exercised in the first quarter of 2007. Warrants representing975,063 shares of Company common stock in the aggregate, were exercisedpursuant to a cashless exercise option which resulted in the issuance by theCompany of 813,227 shares of common stock.

**10.**   Share-BasedPayments

The Company’s 2005 OmnibusLong-Term Incentive Compensation Plan (the “2005 Plan”) was approved byshareholders in March 2005. Under the 2005 Plan, the maximum number ofshares of common stock that may be subject to stock options, stock awards,deferred shares, or performance shares is 4,000,000. The Company issued 16,355shares to directors as compensation in the year ended December 31, 2006.Shares available for future grants under the 2005 Plan were 3,395,332 atDecember 31, 2006 and 3,605,187 at December 31, 2005.

***RestrictedStock Grants***

On February 8, 2005, the Company granted 42,000shares of restricted common stock to the Company’s independent directors. Therestricted shares vest ratably on each of the first three anniversaries of thedate of grant. The shares were valued at $14.40, the closing stock price on thedate of grant. The total value of these shares of $0.6 million is beingexpensed ratably over the three-year requisite service period.

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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 normal requirementsof serving as a director or on a committee of the board of directors as well asfor the commitment of each of the individuals to continue to serve as chairmenof board committees and serve on the board of directors for a five year period.The total value of the award, based on the offering price of $11.00 per share,was $0.8 million. $0.2 million was charged to non-cash compensation expense atthe date of grant, representing the additional commitment to the stockoffering. The remaining $0.6 million is being recognized ratably over theremaining five-year requisite service period.

The Company issued 15,000restricted shares to employees valued at $0.2 million at the dates of grant and7,500 restricted shares valued at $0.1 million at the dates of grant in theyears ended December 31, 2006 and 2005, respectively, subject to variousvesting requirements. These shares are charged to non-cash compensation expenseratably over the vesting periods, which do not exceed three years.

*Stock Option Grants*

The Company granted 218,000 stock options to employeesduring 2006. The options expire 10 years from the date of grant and weregranted with an exercise price equal to the market price on the date of grant.208,000 of the options granted in 2006 vest 30% on the third anniversary fromthe dates of grant; 30% on the fourth anniversary from the date of grant; and40% on the fifth anniversary from the date of grant. The remainder of theoptions vest at the rate of 20%-33% per year commencing on the effectivedate of the grant.

Thefair values of the options granted were between $5.31 and $5.80 per share, witha weighted average fair value of $5.75 per share. The fair values were eachestimated using the Black-Scholes option pricing model based on the weightedaverage assumptions of:

| Risk-free rate |   | 5.0  | %           |   |
|----------------|--------|------|-------------|--------|
| Volatility     |   | 38.0 | %           |   |
| Expected life  |   | 7.5  |  years |   |
| Dividend yield |   | 0.0  | %           |   |

 

The Company granted261,500 stock options to employees in 2005. The options expire 10 years fromthe date of grant. All options were granted with an exercise price equal to themarket price on the date of grant. The options granted in 2005 vest 30% on thethird anniversary from the date of grant; 30% on the fourth anniversary fromthe date of grant; and 40% on the fifth anniversary from the date of grant.

Thefair value of the options granted was $4.84 per share. The fair value wasestimated using the Black-Scholes option pricing model based on the weightedaverage assumptions 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 75% of the options will ultimately vest. None of theoutstanding options were exercisable at December 31, 2006.

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Asummary of the status of the Company’s stock options as of December 31,2006 and 2005 and changes during the years then ended are presented below:

| ** **                                | ** ** | **2006**    | ** ** | **2005**                                       | ** ** |
|-------------------------------------------|------------|-------------|------------|------------------------------------------------|------------|
| ** **                                | ** ** | **Options** | ** ** | **Weighted Average  Exercise Price** | ** ** | **Options** | ** ** | **Weighted Average  Exercise Price** | ** ** |
| Balance  outstanding at beginning of year |       | 259,500     |       |                                           | $          | 12.20 |   |   | — |   |   |   |   |   |
| Granted                                   |       | 218,000     |       |                                           | $          | 13.88 |   |   | 261,500 |   |   | $ | 12.20 |   |   |
| Exercised                                 |       | —      |       |                                           | —     |   |   | — |   |   | — |   |   |
| Forfeited                                 |       | (37,500     | )          |                                           | $          | 12.87 |   |   | (2,000 | ) |   | $ | 12.20 |   |   |
| Balance  outstanding at end of year       |       | 440,000     |       |                                           | $          | 12.97 |   |   | 259,500 |   |   | $ | 12.20 |   |   |
| Balance exercisable at  end of year       |       | —      |       |                                           | —     |   |   | — |   |   | — |   |   |

 

Total compensation cost not yet recognized for stockoptions as of December 31, 2006 is $1.8 million and the weightedaverage future period for recognizing this cost is 3.9 years. The weightedaverage remaining life of outstanding stock options is 8.9 years. Totalcompensation cost not yet recognized for restricted stock grants as ofDecember 31, 2006 is $0.8 million and the weighted average remaining vestingperiod is 2.5 years.

Compensation expense forstock plan awards for the years ended December 31, 2006 and 2005 were $0.8million and $0.6 million, respectively.

**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,** | ** ** |
| **(in thousands)**                  | ** ** | ** **                             | ** ** | **2006**                               | ** ** | **2005**                               | ** ** | **2004**   | ** ** | ** **                            | ** ** | **2005** | ** ** | **2004** | ** ** |
| Domestic  operations                     |       |                                   | $          | (9,692                                 | )          |                                   |       | $          | (3,334     | )                                     |       |   | $ | (120 | ) |   |   |   |   | $ | 347 |   |   |   | $ | 8,572 |   |   |
| Foreign  operations                      |       |                                   | 26,504     |                                   | ** ** | ** **                             | (1,262     | )          | ** ** | ** **                            | **—** |   |   |   |   |   | — |   | ** ** | ** ** | **—** |   |   |
| Total income (loss)  before income taxes |       |                                   | $          | 16,812                                 |       |                                   |       | $          | (4,596     | )                                     |       |   | $ | (120 | ) |   |   |   |   | $ | 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,** | ** ** |
| **(in thousands)**       | ** ** | ** **                             | ** ** | **2006**                               | ** ** | **2005**                               | ** ** | **2004**   | ** ** | ** **                            | ** ** | **2005** | ** ** | **2004** | ** ** |
| Current provision  (benefit)  |       |                                   |       |                                   |       |                                   |       |       |       |                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Federal                       |       |                                   | $          | 2,089                                  |       |                                   |       | $          | —     |                                  |       |   | $ | — |   |   |   |   |   | $ | 128 |   |   |   | $ | 485 |   |   |
| Foreign                       |       |                                   | 5,030      |                                   |       |                                   | 11         |       |       |                                  | —     |   |   |   |   |   | — |   |   |   | — |   |   |
| State                         |       |                                   | 1,068      |                                   |       |                                   | 732        |       |       |                                  | —     |   |   |   |   |   | 30 |   |   |   | 82 |   |   |
|                          |       |                                   | 8,187      |                                   |       |                                   | 743        |       |       |                                  | —     |   |   |   |   |   | 158 |   |   |   | 567 |   |   |
| Deferred provision  (benefit) |       |                                   |       |                                   |       |                                   |       |       |       |                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Federal                       |       |                                   | (368       | )                                      |       |                                   | (12        | )          |       |                                  | —     |   |   |   |   |   | (6 | ) |   |   | 266 |   |   |
| Foreign                       |       |                                   | (1,484     | )                                      |       |                                   | 51         |       |       |                                  | —     |   |   |   |   |   | — |   |   |   | — |   |   |
| State                         |       |                                   | (157       | )                                      |       |                                   | 73         |       |       |                                  | —     |   |   |   |   |   | — |   |   |   | — |   |   |
|                          |       |                                   | (2,009     | )                                      |       |                                   | 112        |       |       |                                  | —     |   |   |   |   |   | (6 | ) |   |   | 266 |   |   |
| Total income tax  expenses    |       |                                   | $          | 6,178                                  |       |                                   |       | $          | 855        |                                  |       |   | $ | — |   |   |   |   |   | $ | 152 |   |   |   | $ | 833 |   |   |
|                               |            |                                        |            |                                        |            |                                        |            |            |            |                                       |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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Incometax expense as reported is different than income tax expense computed byapplying the statutory federal rate of 35% in 2006 and 2005 and 34% in 2004.The differences are as follows:

| ** **                                       | ** ** | ** **                             | ** ** | ** **                             | ** ** | ** **                             | ** ** | ** ** | ** ** | **Predecessor**                       | ** **                      |
|--------------------------------------------------|------------|----------------------------------------|------------|----------------------------------------|------------|----------------------------------------|------------|------------|------------|---------------------------------------|---------------------------------|
| ** **                                       | ** ** | **Year Ended  December 31,** | ** ** | **Year Ended  December 31,** | ** ** | **Year Ended  December 31,** | ** ** | ** ** | ** ** | **January 1-  February 7,** | ** **                      | **Year Ended  December 31,** | ** ** |
| **(in thousands)**                          | ** ** | ** **                             | ** ** | **2006**                               | ** ** | **2005**                               | ** ** | **2004**   | ** ** | ** **                            | ** **                      | **2005** | ** ** | **2004** | ** ** |
| Expense (benefit)  at statutory federal rate     |       |                                   | $          | 5,884                                  |       |                                   |       | $          | (1,609     | )                                     |                            |   | $ | (41 | ) |   |   |   |   | $ | 121 |   |   |   | $ | 2,914 |   |   |
| Effect of state and local income taxes           |       |                                   | 1,002      |                                   |       |                                   | 523        |       |       |                                  | —                          |   |   |   |   |   | 31 |   |   |   | 74 |   |   |
| Foreign earnings.                                |       |                                   | 686        |                                   |       |                                   | (222       | )          |       |                                  | —                          |   |   |   |   |   | — |   |   |   | — |   |   |
| Valuation allowance                              |       |                                   | (2,947     | )                                      |       |                                   | 2,748      |       |       |                                  | 41                              |   |   |   |   |   | — |   |   |   | — |   |   |
| Income taxed directly to minority interests |       |                                   | (378       | )                                      |       |                                   | (353       | )          |       |                                  | —                          |   |   |   |   |   | — |   |   |   | — |   |   |
| Non taxable trust income                         |       |                                   | —     |                                   |       |                                   | —     |       |       |                                  | —                          |   |   |   |   |   | — |   |   |   | (2,324 | ) |   |
| Foreign exchange                                 |       |                                   | 1,154      |                                   |       |                                   | —     |       |       |                                  | —      |   |   |   |   |   | — |   |   |   | — |   |   |
| Permanent items                                  |       |                                   | 777        |                                   |       |                                   | (232       | )          |       |                                  | —                          |   |   |   |   |   | — |   |   |   | 169 |   |   |
| Income tax expense                               |       |                                   | $          | 6,178                                  |       |                                   |       | $          | 855        |                                  |                            |   | $ | — |   |   |   |   |   | $ | 152 |   |   |   | $ | 833 |   |   |
|                                                  |            |                                        |            |                                        |            |                                        |            |            |            |                                       |                                 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

The income tax expense for 2006 is net of a federaltax benefit of $2.9 million due to the reversal of a valuation allowanceestablished in 2005 for net operating losses due to the Company generatingtaxable income.

The Predecessor reported income tax benefits in 2004of $0.2 million, related to discontinued operations.

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

| ** **                                           | ** ** | **December 31,** | ** ** | **December 31,** | ** ** |
|------------------------------------------------------|------------|-----------------------|------------|-----------------------|------------|
| **(in thousands)**                              | ** ** | ** **            | ** ** | **2006**              | ** ** | **2005** | ** ** |
| Deferred income tax  assets:                         |       |                  |       |                  |       |   |   |   |   |
| Current                                              |       |                  |       |                  |       |   |   |   |   |
| Inventory                                            |       |                  | $          | 334                   |       |   |   | $ | 398 |   |   |
| Accounts receivable                                  |       |                  | 426        |                  |       |   | 527 |   |   |
| Current deferred  income tax assets                  |       |                  | 760        |                  |       |   | 925 |   |   |
| Non-current                                          |       |                  |       |                  |       |   |   |   |   |
| Future foreign tax credits                           |       |                  | 28,104     |                  |       |   | 27,150 |   |   |
| Net operating loss carryforwards                     |       |                  | 781        |                  |       |   | 7,271 |   |   |
| Deferred revenue                                     |       |                  | 616        |                  |       |   | — |   |   |
| Property and equipment                               |       |                  | —     |                  |       |   | 561 |   |   |
| Other                                                |       |                  | 281        |                  |       |   | 562 |   |   |
| Non-current  deferred income tax assets              |       |                  | 29,782     |                  |       |   | 35,544 |   |   |
| Total deferred  income tax assets                    |       |                  | 30,542     |                  |       |   | 36,469 |   |   |
| Less: valuation  allowance                           |       |                  | (28,583    | )                     |       |   | (31,405 | ) |   |
| Total deferred  income tax assets, net               |       |                  | 1,959      |                  |       |   | 5,064 |   |   |
| Deferred tax  liabilities:                           |       |                  |       |                  |       |   |   |   |   |
| Intangible asset basis difference                    |       |                  | (25,207    | )                     |       |   | (37,043 | ) |   |
| Property and equipment                               |       |                  | (1,061     | )                     |       |   | — |   |   |
| Other                                                |       |                  | (355       | )                     |       |   | — |   |   |
| Total deferred  income tax liabilities               |       |                  | (26,623    | )                     |       |   | (37,043 | ) |   |
| Total deferred income  tax assets (liabilities), net |       |                  | $          | (24,664               | )          |   |   | $ | (31,979 | ) |   |
|                                                      |            |                       |            |                       |            |  |  |  |  |  |  |  |  |

 

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The deferred tax assets at December 31, 2006 werereduced by a valuation allowance of $28.6 million, principally relating touncertainty regarding the future realizability of tax benefits related toforeign tax credits. When $27.2 million of these valuation allowances arereversed in future years, the reversals will be credited to goodwill inaccordance with FAS 109.

At December 31, 2006, theCompany has approximately $1.9 million of foreign net operating losscarryforwards that may have limits on utilization.

Deferred income taxes of$0.1 million have been provided on the undistributed earnings of a foreignaffiliate accounted for under the equity method, because the Company does not planto permanently reinvest those earnings.

**12.**   Segment Information

The Company currently hasfour reportable segments: Presley Business—Royalties and Licensing, PresleyBusiness—Graceland Operations, 19 Entertainment and the Ali Business. Theoperating results of MBST are reported as part of Corporate and Other forsegment purposes. These designations have been made as the discrete operatingresults of these segments are reviewed by the Company’s chief operatingdecision maker to assess performance and make operating decisions. All inter-segmenttransactions have been eliminated in the consolidated financial statements.

The operating income(loss) amounts for the Presley Business after acquisition by the Company arenot directly comparable to the amounts for the Presley Business as Predecessor dueto the impact of purchase accounting adjustments made upon the acquisition ofthe Presley Business on February 7, 2005 which resulted in a substantialincrease in the carrying value of fixed and intangible assets and acorresponding increase in depreciation and amortization expense in thepost-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 and non-cash compensation (which we refer toas “OIBDAN”). The Company considers OIBDAN to be an important indicator of theoperational strengths and performance of our businesses and the criticalmeasure the chief operating decision maker (CEO) uses to manage and evaluateour businesses, including the ability to provide cash flows to service debt.However, a limitation of the use of OIBDAN as a performance measure is that itdoes not reflect the periodic costs of certain capitalized tangible andintangible assets used in generating revenue in our businesses or stock-basedcompensation expense. Accordingly, OIBDAN should be considered in addition to,not as a substitute for, operating income (loss), net income (loss) and othermeasures of financial performance reported in accordance with US GAAP as OIBDANis not a GAAP equivalent measurement.

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| ** **                                                               | ** ** | **Presley Business**            | ** ** | ** **     | ** ** | ** **        | ** ** | **Corporate** | ** ** | ** **                                                | ** ** |
|--------------------------------------------------------------------------|------------|--------------------------------------|------------|----------------|------------|-------------------|------------|---------------|------------|-----------------------------------------------------------|------------|
| ** **                                                               | ** ** | **Royalties and**               | ** ** | **Graceland**  | ** ** | **19**            | ** ** | **Ali**       | ** ** | **and**                                                   | ** ** | ** ** | ** ** |
| **Segment Information**                                             | ** ** | **Licensing**                        | ** ** | **Operations** | ** ** | **Entertainment** | ** ** | **Business**  | ** ** | **    Other    ** | ** ** | **Total** | ** ** |
| ** **                                                               | ** ** | **(amounts in thousands)** | ** ** |
| **Year ended December 31,  2006:**                                  |       |                                 |       |           |       |              |       |          |       |                                                      |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Revenue                                                                  |       |                                 | $          | 13,699         |       |              |       | $             | 35,081     |                                                      |       |   | $ | 151,218 |   |   |   | $ | 4,065 |   |   |   | $ | 6,090 |   |   | $ | 210,153 |   |
| Operating income (loss)                                                  |       |                                 | $          | 6,300          |       |              |       | $             | 2,391      |                                                      |       |   | $ | 28,061 |   |   |   | $ | 1,404 |   |   |   | $ | (18,261 | ) |   | $ | 19,895 |   |
| Depreciation and amortization                                            |       |                                 | $          | 2,582          |       |              |       | $             | 1,823      |                                                      |       |   | $ | 15,195 |   |   |   | $ | 67 |   |   |   | $ | 874 |   |   | $ | 20,541 |   |
| OIBDAN                                                                   |       |                                 | $          | 8,897          |       |              |       | $             | 4,254      |                                                      |       |   | $ | 43,476 |   |   |   | $ | 1,481 |   |   |   | $ | (16,620 | ) |   | $ | 41,488 |   |
| **Year ended December 31,  2005:**                                  | ** ** |                                 |       |           |       |              |       |          |       |                                                      |       |   |   |   |   |   | ** ** |   |   |   | ** ** | ** ** | ** ** |
| Revenue                                                                  |       |                                 | $          | 19,470         |       |              |       | $             | 28,618     |                                                      |       |   | $ | 70,567 |   |   |   | $ | — |   |   |   | $ | 1,950 |   |   | $ | 120,605 |   |
| Operating income (loss)                                                  |       |                                 | $          | 6,037          |       |              |       | $             | 4,065      |                                                      |       |   | $ | 815 |   |   |   | $ | — |   |   |   | $ | (13,769 | ) |   | $ | (2,852 | ) |
| Depreciation and amortization                                            |       |                                 | $          | 3,040          |       |              |       | $             | 1,347      |                                                      |       |   | $ | 10,219 |   |   |   | $ | — |   |   |   | $ | 304 |   |   | $ | 14,910 |   |
| OIBDAN                                                                   |       |                                 | $          | 9,083          |       |              |       | $             | 5,417      |                                                      |       |   | $ | 11,109 |   |   |   | $ | — |   |   |   | $ | (12,820 | ) |   | $ | 12,789 |   |
| **Year ended December 31,  2004:**                                  | ** ** |                                 |       |           |       |              |       |          |       |                                                      |       |   |   |   |   |   | ** ** |   |   |   | ** ** | ** ** | ** ** |
| Revenue                                                                  |       |                                 | $          | —         |       |              |       | $             | —     |                                                      |       |   | $ | — |   |   |   | $ | — |   |   |   | $ | — |   |   | $ | — |   |
| Operating income (loss)                                                  |       |                                 | $          | —         |       |              |       | $             | —     |                                                      |       |   | $ | — |   |   |   | $ | — |   |   |   | $ | (100 | ) |   | $ | (100 | ) |
| Depreciation and amortization                                            |       |                                 | $          | —         |       |              |       | $             | —     |                                                      |       |   | $ | — |   |   |   | $ | — |   |   |   | $ | — |   |   | $ | — |   |
| OIBDAN                                                                   |       |                                 | $          | —         |       |              |       | $             | —     |                                                      |       |   | $ | — |   |   |   | $ | — |   |   |   | $ | (100 | ) |   | $ | (100 | ) |
| **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 |   |
| OIBDAN                                                                   |       |                                 | $          | 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 |   |
| OIBDAN                                                                   |       |                                 | $          | 8,981          |       |              |       | $             | 2,119      |                                                      |       |   | $ | — |   |   |   | $ | — |   |   |   | $ | — |   |   | $ | 11,100 |   |

 

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| ** **                                                                                                  | ** ** | **Presley Business**            | ** ** | ** **     | ** ** | ** **        | ** ** | **Corporate** | ** ** | ** **                                                | ** ** |
|-------------------------------------------------------------------------------------------------------------|------------|--------------------------------------|------------|----------------|------------|-------------------|------------|---------------|------------|-----------------------------------------------------------|------------|
| ** **                                                                                                  | ** ** | **Royalties and**               | ** ** | **Graceland**  | ** ** | **19**            | ** ** | **Ali**       | ** ** | **and**                                                   | ** ** | ** ** | ** ** |
| ** **                                                                                                  | ** ** | **Licensing**                        | ** ** | **Operations** | ** ** | **Entertainment** | ** ** | **Business**  | ** ** | **    Other    ** | ** ** | **Total** | ** ** |
| ** **                                                                                                  | ** ** | **(amounts in thousands)** | ** ** |
| **Asset  Information:**                                                                                     |       |                                 |       |           |       |              |       |          |       |                                                      |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Segment  assets at December 31, 2006                                                                   |       |                                 | $          | 73,705         |       |              |       | $             | 62,440     |                                                      |       |   | $ | 222,122 |   |   |   | $ | 54,806 |   |   |   | $ | 61,572 |   |   | $ | 474,645 |   |
| Segment  assets at December 31, 2005                                                                   |       |                                 | $          | 76,694         |       |              |       | $             | 56,693     |                                                      |       |   | $ | 202,764 |   |   |   | $ | — |   |   |   | $ | 93,977 |   |   | $ | 430,128 |   |
| Investment  in affiliates at December 31, 2006                                                         |       |                                 | $          | —         |       |              |       | $             | —     |                                                      |       |   | $ | 1,793 |   |   |   | $ | — |   |   |   | $ | — |   |   | $ | 1,793 |   |
| Investment  in affiliates at December 31, 2005                                                         |       |                                 | $          | —         |       |              |       | $             | —     |                                                      |       |   | $ | 805 |   |   |   | $ | — |   |   |   | $ | — |   |   | $ | 805 |   |
| Purchase  of property and equipment for year ended December 31, 2006                                   |       |                                 | $          | —         |       |              |       | $             | 8,748      |                                                      |       |   | $ | 1,690 |   |   |   | $ | 11 |   |   |   | $ | 235 |   |   | $ | 10,684 |   |
| Purchase  of property and equipment for year ended December 31, 2005                                   |       |                                 | $          | —         |       |              |       | $             | 643        |                                                      |       |   | $ | 131 |   |   |   | $ | — |   |   |   | $ | 249 |   |   | $ | 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 |   |

 

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

| ** **                                    | ** ** | ** **                                   | ** ** | ** **                                   | ** ** | ** **                                   | ** ** | ** ** | ** ** | **Predecessor Company**                | ** ** |
|-----------------------------------------------|------------|----------------------------------------------|------------|----------------------------------------------|------------|----------------------------------------------|------------|------------|------------|---------------------------------------------|------------|
| **(amounts in thousands)**          | ** ** | **Year Ended  December 31,  2006** | ** ** | **Year Ended  December 31,  2005** | ** ** | **Year Ended  December 31,  2004** | ** ** | ** ** | ** ** | **January to  February 7,  2005** | ** ** | **Year Ended  December 31,  2004** | ** ** |
| OIBDAN                                        |       |                                         | $          | 41,488                                       |       |                                         |       | $          | 12,789     |                                        |       |   | $ | (100 | ) |   |   |   |   | $ | 588 |   |   |   | $ | 11,100 |   |   |
| Depreciation and  amortization                |       |                                         | (20,541    | )                                            |       |                                         | (14,910    | )          |       |                                        | —     |   |   |   |   |   | (126 | ) |   |   | (1,201 | ) |   |
| Non-cash compensation                         |       |                                         | (1,052     | )                                            |       |                                         | (731       | )          |       |                                        |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest income                               |       |                                         | 1,406      |                                         |       |                                         | 1,797      |       |       |                                        | —     |   |   |   |   |   | — |   |   |   | — |   |   |
| Interest (expense)                            |       |                                         | (1,166     | )                                            |       |                                         | (4,617     | )          |       |                                        | (20        | ) |   |   |   |   | (115 | ) |   |   | (1,327 | ) |   |
| Write-off of  unamortized deferred loan costs |       |                                         | —     |                                         |       |                                         | (1,894     | )          |       |                                        | —     |   |   |   |   |   | — |   |   |   | — |   |   |
| Equity in  earnings of affiliates             |       |                                         | 686        |                                         |       |                                         | 843        |       |       |                                        | —     |   |   |   |   |   | — |   |   |   | — |   |   |
| Other income  (expense)                       |       |                                         | (3,323     | )                                            |       |                                         | 2,970      |       |       |                                        | —     |   |   |   |   |   | — |   |   |   | — |   |   |
| Income tax  expense                           |       |                                         | (6,178     | )                                            |       |                                         | (855       | )          |       |                                        | —     |   |   |   |   |   | (152 | ) |   |   | (833 | ) |   |
| Minority interest                             |       |                                         | (2,127     | )                                            |       |                                         | (1,296     | )          |       |                                        | —     |   |   |   |   |   | — |   |   |   | — |   |   |
| Loss from  discontinued operations.           |       |                                         | —     |                                         |       |                                         | —     |       |       |                                        | —     |   |   |   |   |   | — |   |   |   | (246 | ) |   |
| Net income (loss)                             |       |                                         | $          | 9,193                                        |       |                                         |       | $          | (5,904     | )                                           |       |   | $ | (120 | ) |   |   |   |   | $ | 195 |   |   |   | $ | 7,493 |   |   |

 

Based upon the location of customers, the Company hadrevenue from international markets totaling $27.1 million for the year ended December 31,2006, of which $3.3 million was attributable to the Royalties and Licensingsegment and $23.8 million was attributable to the 19 Entertainment segment. Forthe year 

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ended December 31,2005 the Company had revenue from international markets totaling $27.7 million,of which $5.8 million was attributable to the Royalties and Licensing segmentand $21.9 million was attributable to the 19 Entertainment segment. $14.7 millionof 2006 international revenue was from the United Kingdom. Assets based in theUnited Kingdom are $203.8 million. In 2006, the Company had revenue fromthree customers that each represented greater than 10% of the Company’s totalrevenue. Three customers accounted for $60.1 million, $26.9 million and $16.4million, respectively, of the 19 Entertainment segment’s total revenue. For theyear ended December 31, 2006, an additional customer accounted for $27.3 millionof the 19 Entertainment segment’s total revenue and $2.6 million of theRoyalties and Licensing segment’s total revenue.

**13.**   Commitments andContingencies

**Commitments**

Totalrent expense for the Company under operating leases was **$**2.9million, $2.0 million and  $0.1 millionfor the years ended December 31, 2006, 2005, and 2004, respectively, $0.5million for the year ended December 31, 2004 (Predecessor) and $0.1million for the period January 1—February 7, 2005 (Predecessor).Minimum rental commitments under noncancelable operating leases are as follows:

| ** **                         | ** ** | **(in thousands)** | ** ** |
|------------------------------------|------------|-------------------------|------------|
| **Year  Ending December 31,** |       |                    |       |   |   |
| 2007                               |       |                    | $          | 3,134 |   |   |
| 2008                               |       |                    | 3,281      |   |   |
| 2009                               |       |                    | 3,261      |   |   |
| 2010                               |       |                    | 2,711      |   |   |
| 2011                               |       |                    | 1,388      |   |   |
| Thereafter                         |       |                    | 5,352      |   |   |
|                               |       |                    | $          | 19,127 |   |   |

 

The Company is required tomake guaranteed minimum distributions to The Promenade Trust of at least $1.2million annually for as long as The Promenade Trust continues to own 15% in thePresley Business. The Company is required to make guaranteed minimumdistributions to The Muhammad Ali Family Trust of at least $0.5 millionannually for as long as The Muhammad Ali Family Trust continues to own 20% inthe Ali Business. These distributions are a component of the minority interestliability.

The sellers of MBST mayreceive up to an additional 150,000 restricted shares of common stock uponsatisfaction of certain performance thresholds over the five year periodfollowing the closing.

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,** |       |                    |       |   |   |
| 2007                               |       |                    | $          | 16,873 |   |   |
| 2008                               |       |                    | 15,255     |   |   |
| 2009                               |       |                    | 14,911     |   |   |
| 2010                               |       |                    | 4,091      |   |   |
| 2011                               |       |                    | 1,420      |   |   |
| Thereafter                         |       |                    | 1,727      |   |   |
|                               |       |                    | $          | 54,277 |   |   |

 

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On August 17, 2006,the Company announced that, together with its subsidiaries, Elvis PresleyEnterprises, Inc. and Elvis Presley Enterprises LLC, it has reached anagreement with Cirque du Soleil and MGM MIRAGE (“MGM”) to create a permanentElvis Presley show at MGM’s CityCenter hotel/casino, which is currently underconstruction in Las Vegas. The new Elvis Presley show is expected to open withthe CityCenter hotel/casino in November 2009. CKX and Cirque du Soleilhave each agreed to pay one-half of the creative development and productioncosts of the new Elvis Presley show. CKX expects its portion of the investmentto be approximately $24 million, with the largest amount expected to be fundedin the later stages of development.

**Contingencies**

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

**14.**   RelatedParty Transactions

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 therules and regulations of The NASDAQ National Market®, the transaction wasratified by the independent members of the board of directors of the Company inaccordance with The NASDAQ National Market’s® rules for affiliatedtransactions.

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 year ended December 31,2004 (Predecessor) and $0.1 million for the period January 1—February 7,2005 (Predecessor).

**15.**   RetirementPlan

The Company adopted the Predecessor’s definedcontribution plan in 2005 covering U.S. employees who have met eligibilityrequirements. The Company matches 100% on the first 3% and 50% on the next 2%of what an employee contributes to the plan. The Company’s matchingcontribution for the year ended December 31, 2006 and 2005 was $0.4million and $0.3 million, respectively. The Predecessor’s matching contributionfor the year ended December 31, 2004 and the period January 1—February 7,2005 was $0.3 million and less than $0.1 million, respectively.

86

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

As result of recurringlosses by the restaurant operation of the Predecessor, management closed therestaurant in September 2003. The restaurant had no operating results forthe year ended December 31, 2004.

The impairment loss forthe discontinued operation for the year ended December 31, 2004(Predecessor) was as follows: 

| ** **                                        | ** ** | **Year Ended  December 31,** | ** ** |
|---------------------------------------------------|------------|----------------------------------------|------------|
| ** **                                        | ** ** | **2004**                               | ** ** |
| ** **                                        | ** ** | **(in thousands)**                | ** ** |
| Impairment loss  on net assets and other accruals |       |                                   | $          | (400 | ) |   |
| Tax benefit                                       |       |                                   | 154        |   |   |
|                                              |       |                                   | $          | (246 | ) |   |

 

The liability included onthe Company’s consolidated balance sheet related to the restaurant lease as of December 31,2005 was $0.4 million. There is no liability as of December 31, 2006.

**17.**   Unaudited QuarterlyFinancial Information(Restated)

In the opinion of theCompany’s management, all adjustments, consisting of normal recurring accrualsconsidered necessary for a fair presentation have been included on a quarterlybasis. Certain prior quarter amounts have been reclassified for current periodpresentation.

As a result of theseasonality of the Company’s businesses, including the timing of the airing ofits principal television properties, the Company generated lower revenue, aloss from operations and a net loss during the fourth quarter of the yearsended December 31, 2006 and 2005.

**Restatement**

Subsequent to the issuanceof the Company’s condensed consolidated financial statements for the periodsended March 31, 2006, June 30, 2006 and September 30, 2006, theCompany’s management determined that certain foreign exchange losses on short-termintercompany loans were incorrectly recorded in other comprehensive income(loss) on the Company’s balance sheet rather than as a component of otherincome (expense). 19 Entertainment transferred cash generated from operationsto the parent company at various times throughout 2006 through intercompanyloans. The cash transfers were expected to be settled with the declaration of adividend, which subsequently occurred in November 2006. The Companysubsequently determined that the loans were not considered permanent under FASBNo. 52, *Foreign Currency Translation,* andtherefore the foreign currency movements on the loans prior to the date of thedividend declaration should have been recorded as a component of other income(expense).

The Company alsodetermined that it is more appropriate to disclose operating-related foreignexchange gains and losses as a component of operating income rather than as acomponent of other income (expense) in its consolidated statement of operationswhich had been its practice in its 2006 and 2005 interim financial statements.The Company has therefore restated its 2006 quarterly financial information toreflect this reclassification. No reclassification was made for 2005 becausethe impact was insignificant.

87

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Asummary of the significant effects of the restatement is as follows:

| ** **                                                         | ** ** | **Three Months Ended** | ** ** | **Three Months Ended** | ** ** | **Three Months Ended** | ** ** |
|--------------------------------------------------------------------|------------|----------------------------------|------------|----------------------------------|------------|----------------------------------|------------|
| ** **                                                         | ** ** | **March 31, 2006**     | ** ** | **June 30, 2006**      | ** ** | **September 30, 2006** | ** ** |
| **(in thousands, except per share data)** | ** ** | **As previously  reported** | ** ** | **As restated**             | ** ** | **As previously  reported** | ** ** | **As restated** | ** ** | **As previously  reported** | ** ** | **As restated** | ** ** |
| Operating income                                                   |       |                             | $          | 5,819                            |       |                             |       | $ | 5,528 |   |   |   | $ | 14,423 |   |   |   | $ | 14,299 |   |   |   | $ | 12,711 |   |   |   | $ | 12,222 |   |   |
| Other income (expense)                                             |       |                             | (291       | )                                |       |                             | (151       | ) |   |   | (125 | ) |   |   | (881 | ) |   |   | (690 | ) |   |   | (861 | ) |   |
| Income tax expense                                                 |       |                             | 2,815      |                             |       |                             | 2,746      |   |   |   | 6,344 |   |   |   | 5,954 |   |   |   | 2,956 |   |   |   | 2,790 |   |   |
| Net income                                                         |       |                             | 3,053      |                             |       |                             | 2,971      |   |   |   | 7,998 |   |   |   | 7,508 |   |   |   | 8,745 |   |   |   | 8,251 |   |   |
| Net income available to common shareholders                        |       |                             | 2,597      |                             |       |                             | 2,515      |   |   |   | 7,542 |   |   |   | 7,052 |   |   |   | 8,289 |   |   |   | 7,795 |   |   |
| Basic income per common share                                      |       |                             | 0.03       |                             |       |                             | 0.03       |   |   |   | 0.08 |   |   |   | 0.08 |   |   |   | 0.09 |   |   |   | 0.08 |   |   |
| Diluted income per  common share                                   |       |                             | 0.03       |                             |       |                             | 0.03       |   |   |   | 0.08 |   |   |   | 0.07 |   |   |   | 0.09 |   |   |   | 0.08 |   |   |

 

| ** **                                                         | ** ** | **Six Months Ended**   | ** ** | **Nine Months Ended**  | ** ** |
|--------------------------------------------------------------------|------------|----------------------------------|------------|----------------------------------|------------|
| ** **                                                         | ** ** | **June 30, 2006**      | ** ** | **September 30, 2006** | ** ** |
| **(in thousands, except per share data)** | ** ** | **As previously  reported** | ** ** | **As restated**             | ** ** | **As previously  reported** | ** ** | **As restated** | ** ** |
| Operating income                                                   |       |                             | $          | 20,242                           |       |   |   | $ | 19,827 |   |   |   | $ | 32,953 |   |   |   | $ | 32,049 |   |   |
| Other income (expense)                                             |       |                             | (416       | )                                |       |   | (1,032 | ) |   |   | (1,106 | ) |   |   | (1,893 | ) |   |
| Income tax expense                                                 |       |                             | 9,159      |                             |       |   | 8,700 |   |   |   | 12,115 |   |   |   | 11,490 |   |   |
| Net income                                                         |       |                             | 11,051     |                             |       |   | 10,479 |   |   |   | 19,796 |   |   |   | 18,730 |   |   |
| Net income available to common shareholders                        |       |                             | 10,139     |                             |       |   | 9,567 |   |   |   | 18,428 |   |   |   | 17,362 |   |   |
| Basic income per common share                                      |       |                             | 0.11       |                             |       |   | 0.10 |   |   |   | 0.20 |   |   |   | 0.19 |   |   |
| Diluted income per  common share                                   |       |                             | 0.11       |                             |       |   | 0.10 |   |   |   | 0.19 |   |   |   | 0.18 |   |   |

 

All amounts for all periods shown are in thousands,except share information.

| **For the year ended  December 31, 2006** | ** ** | ** ** | ** ** | **First  Quarter  (as restated)** | ** ** | **Second  Quarter  (as restated)** | ** ** | **Third  Quarter  (as restated)** | ** ** | **Fourth  Quarter** | ** ** | **Total** | ** ** |
|--------------------------------------------------------------------|------------|------------|------------|-----------------------------------|------------|-----------------------------------------|------------|----------------------------------------|------------|---------------------|------------|-----------|------------|
| Revenue                                                            |       | $          | 41,109     |                              | $          | 60,210                                  |       | $                                      | 76,522     |                | $          | 32,312    |       | $ | 210,153 |   |
| Depreciation and  amortization                                     |       | 4,737      |       | 5,117                             |       | 5,309                                   |       | 5,378                                  |       | 20,541              |       |
| Operating income  (loss)                                           |       | 5,528      |       | 14,299                            |       | 12,222                                  |       | (12,154                                | )          | 19,895              |       |
| Other expense                                                      |       | (151       | )          | (881                              | )          | (861                                    | )          | (1,430                                 | )          | (3,323              | )          |
| Income tax  expense (benefit)                                      |       | 2,746      |       | 5,954                             |       | 2,790                                   |       | (5,312                                 | )          | 6,178               |       |
| Equity (loss) in  earnings of affiliates                           |       | (102       | )          | 530                               |       | 296                                     |       | (38                                    | )          | 686                 |       |
| Minority interest                                                  |       | (162       | )          | (500                              | )          | (372                                    | )          | (1,093                                 | )          | (2,127              | )          |
| Net income (loss)                                                  |       | 2,971      |       | 7,508                             |       | 8,251                                   |       | (9,537                                 | )          | 9,193               |       |
| Dividends on  preferred stock                                      |       | (456       | )          | (456                              | )          | (456                                    | )          | (456                                   | )          | (1,824              | )          |
| Net income (loss)  available to common shareholders                |       | 2,515      |       | 7,052                             |       | 7,795                                   |       | (9,993                                 | )          | 7,369               |       |
| Basic income  (loss) per common share                              |       | $          | 0.03       |                              | $          | 0.08                                    |       | $                                      | 0.08       |                | $          | (0.11     | )          | $ | 0.08 |   |
| Diluted income  (loss) per common share                            |       | $          | 0.03       |                              | $          | 0.07                                    |       | $                                      | 0.08       |                | $          | (0.11     | )          | $ | 0.08 |   |
| Basic common  shares outstanding                                   |       | 92,204,229 |       | 92,225,921                        |       | 92,327,445                              |       | 93,348,704                             |       | 92,529,152          |       |
| Diluted common shares  outstanding                                 |       | 96,205,957 |       | 96,225,503                        |       | 96,096,416                              |       | 93,348,704                             |       | 93,555,201          |       |

 

88

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| **For the year ended  December 31, 2005** | ** ** | ** ** | ** ** | **First  Quarter** | ** ** | **Second  Quarter** | ** ** | **Third  Quarter** | ** ** | **Fourth  Quarter** | ** ** | **Total** | ** ** |
|--------------------------------------------------------------------|------------|------------|------------|--------------------|------------|---------------------|------------|--------------------|------------|---------------------|------------|-----------|------------|
| Revenue                                                            |       | $          | 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          |       |

 

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

None.

**ITEM 9A.**        CONTROLSAND PROCEDURES

**Disclosure Controls**

The Company maintains disclosure controls andprocedures that are designed to ensure that information required to bedisclosed in the Company’s reports filed with the Securities and ExchangeCommission (SEC) is recorded, processed, summarized and reported withinthe time periods specified in the SEC’s rules and forms, and that suchinformation is accumulated and communicated to the Company’s management,including its Chief Executive Officer (CEO) and Chief Financial Officer(CFO), as appropriate, to allow timely decisions regarding required disclosure.

As of December 31, 2006, an evaluation wasperformed under the supervision and with the participation of the Company’smanagement, including the CEO and CFO, of the effectiveness of the design andoperation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) underthe U.S. Securities Exchange Act of 1934). Based on that evaluation, theCompany’s management, including the CEO and CFO, concluded that the Company’sdisclosure controls and procedures were not effective as of December 31,2006 as a result of the material weakness described below.

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**Management’s AnnualReport on Internal Controls Over Financial Reporting**

Pursuant to Section 404of the Sarbanes-Oxley Act of 2002 (Section 404) and as defined in Rules 13a-15(f) underthe U.S. Securities Exchange Act of 1934, management is required to provide thefollowing report on the Company’s internal control over financial reporting:

1.                 The Company’smanagement is responsible for establishing and maintaining adequate internalcontrol over financial reporting for the Company.

2.                 The Company’smanagement has evaluated the system of internal control using the Committee ofSponsoring Organizations of the Treadway Commission (COSO) framework.Management has selected the COSO framework for its evaluation as it is acontrol framework recognized by the SEC and the Public Company AccountingOversight Board that is free from bias, permits reasonably consistentqualitative and quantitative measurement of the Company’s internal controls, issufficiently complete so that relevant controls are not omitted and is relevantto an evaluation of internal controls over financial reporting.

3.                 Based onmanagement’s evaluation under this framework, the Company determined that itsinternal control over financial reporting was not effective due to thefollowing material weakness:

The Company determined that it lacked effectivecontrols to ensure compliance with Financial Accounting Standards No. 52, *Foreign Currency Translation,* regarding foreign exchangegains and losses on certain short-term intercompany loans.  The Company initially recorded foreignexchange translation adjustments on these loans in other comprehensive income(loss) on the balance sheet.  The Companysubsequently determined that currency movements on these loans should have beenrecorded as a component of other income (expense).   The Company lacked an effective assessmentprocess to determine the proper accounting for the loans. 

This error resulted in the Company restating itsinterim financial results for 2006 and therefore management has concluded thatit represents a material weakness in internal control over financialreporting.  As a result of the materialweakness management has concluded that its internal control over financialreporting was ineffective.

In light of the material weaknesses described above,the Company performed additional procedures to provide assurance that itsconsolidated financial statements were prepared in accordance with accountingprinciples generally accepted in the United States of America (“GAAP”).

4.                 Management’sevaluation of internal control over financial reporting during thefourth Quarter of 2006 determined that thepreviously identified material weakness in accounting for income taxes had beenremediated and therefore no longer represents a material weakness.

5.                 Exceptas described above, there has not been any changes in the Company’s internalcontrol over financial reporting (as such term is defined in Rules 13a-15(f)and 15d-15(f) under the Exchange Act) during the Company’s fiscal fourthquarter that have materially affected, or are reasonably likely to materiallyaffect, the Company’s internal control over financial reporting.

6.                 TheCompany’s independent registered public accounting firm, Deloitte &Touche LLP, has issued their report on management’s assessment as to theeffectiveness of internal control over financial reporting. This report islocated on page 54 of this Form 10-K.

**ITEM 9B.**       OTHERINFORMATION

None.

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**PART III**

**ITEM 10.**         DIRECTORS,EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

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 2007.

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 to be filed in connection with the annual meeting of stockholders tobe held in May 2007.

**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 to be filed in connection withthe annual meeting of stockholders to be held in May 2007.

**ITEM 13.**         CERTAINRELATIONSHIPS, RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Incorporated by referencefrom the information captioned “Related Party Transactions” included in ourProxy Statement to be filed in connection with the annual meeting of stockholdersto be held in May 2007.

**ITEM 14.**         PRINCIPALACCOUNTING FEES AND SERVICES

Incorporated by referencefrom the information captioned “Services Provided by the Independent PublicAccountant and Fees Paid” included in our Proxy Statement to be filed inconnection with the annual meeting of stockholders to be held in May 2007.

**PART IV**

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

**FinancialStatements**

See Table of Contents to FinancialStatements at page 50.

**Financial StatementSchedule**

Schedule II—Valuation and Qualifying Accounts forthe years ended December 31, 2006, 2005 (CKX) and 2004 (Predecessor).

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**Financial StatementSchedule**

**SCHEDULE II**

**CKX, Inc.VALUATION AND QUALIFYING ACCOUNTSYEARS ENDED DECEMBER 31, 2006, 2005 AND 2004 (CKX) and 2004 (PREDECESSOR)(DOLLARS IN THOUSANDS)**

| ** **                       | ** ** | **Balance at**   | ** ** | **Additions Charged**        | ** ** | ** **                      | ** ** | ** **     | ** ** | ** **                  | ** ** |
|----------------------------------|------------|-----------------------|------------|-----------------------------------|------------|---------------------------------|------------|----------------|------------|-----------------------------|------------|
| ** **                       | ** ** | **Beginning of** | ** ** | **(Credited) to Costs** | ** ** | **Additions Charged**      | ** ** | ** **     | ** ** | **Balance at**         | ** ** |
| **Description**                  | ** ** | **Period**            | ** ** | **and Expenses**             | ** ** | **to Other Accounts** | ** ** | **Deductions** | ** ** | **End of Period** | ** ** |
| **2006**                         |       |                  |       |                              |       |                            |       |           |       |                        |       |   |   |   |   |   |   |   |   |   |   |
| Accounts receivable              |       |                  |       |                              |       |                            |       |           |       |                        |       |   |   |   |   |   |   |   |   |   |   |
| Allowance for  doubtful accounts |       |                  | $          | 7                                 |       |                            |       | $              | 251        |                        |       |   | $ | 227 |   |   |   | $ | (28 | ) |   |   | $ | 457 |   |   |
| Inventory                        |       |                  |       |                              |       |                            |       |           |       |                        |       |   |   |   |   |   |   |   |   |   |   |
| Allowance for  obsolescence      |       |                  | 394        |                              |       |                            | 296        |           |       |                        | —     |   |   |   | (54 | ) |   |   | 636 |   |   |
| Deferred taxes                   |       |                  |       |                              |       |                            |       |           |       |                        |       |   |   |   |   |   |   |   |   |   |   |
| Valuation  allowance             |       |                  | 31,405     |                              |       |                            | (2,947     | )              |       |                        | 125        |   |   |   |   |   |   |   | 28,583 |   |   |
| Total                            |       |                  | $          | 31,806                            |       |                            |       | $              | (2,400     | )                           |       |   | $352 |   |   |   | $ | (82 | ) |   |   | $29,676 |   |   |
| **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  (Predecessor)**          |       |                  |       |                              |       |                            |       |           |       |                        |       |   |   |   |   |   |   |   |   |   |   |
| Accounts receivable              |       |                  |       |                              |       |                            |       |           |       |                        |       |   |   |   |   |   |   |   |   |   |   |
| Allowance for  doubtful accounts |       |                  | $          | 110                               |       |                            |       | $              | —     |                        |       |   | $ | — |   |   |   | $ | (40 | ) |   |   | $ | 70 |   |   |
| Inventory                        |       |                  |       |                              |       |                            |       |           |       |                        |       |   |   |   |   |   |   |   |   |   |   |
| Allowance for  obsolescence      |       |                  | 175        |                              |       |                            | 50         |           |       |                        | —     |   |   |   | — |   |   |   | 225 |   |   |
| Total                            | ** ** |                  | $          | 285                               |       |                            |       | $              | 50         |                        |       |   | $ | — |   |   |   | $ | (40 | ) |   |   | $ | 295 |   |   |

 

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**Exhibits**

The documents set forthbelow are filed herewith or incorporated herein by reference to the locationindicated.

| 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              |       | 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).                                                                                                                                                                                             |
| 4.2              |       | 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).                                                                                                                                                                                                         |
| 4.3              |       | 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  filed May 16, 2005, and incorporated herein by reference).                                                                                                                                                                                |
| 4.4              |       | 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).                                                                                                                                                                               |
| 4.5              |       | 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).                                                                                                                                                                                                                  |
| 4.6              |       | 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             |       | Lease Agreement, dated as of February 7, 2005,  by and between The Promenade Trust and the Company 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).                                                                                                                                                                 |
| 10.2             |       | 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).                                                                                                                                                                                                               |
| 10.3             |       | 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).                                                                                                                                                                                                |
| 10.4             |       | 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). |
| 10.6             |       | 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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| 10.7  |   | 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). |
|-------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.8  |   | 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).                                                                                                                              |
| 10.9  |   | 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).                                                                                                                         |
| 10.10 |   | 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).                                                                                                                                                           |
| 10.9  |   | 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).                                                                                                                                 |
| 10.10 |   | 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).                                                                                                                                                                     |
| 10.11 |   | 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).                                                                                                                                                                                                                                                                                                      |
| 10.12 |   | 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).                                                                                                                                                                                                                                                                                                         |
| 10.13 |   | 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).                                                                                                                                                                                                                                                                                                             |
| 10.14 |   | 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).                                                                                                                                                                                                                                                                                                           |
| 10.15 |   | 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).                                                                                                                                                                                                                                     |
| 10.16 |   | 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).                                                                                                                                                                                                                           |
| 10.17 |   | 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).                                                                                                                                                 |

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| 10.18 |   | 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).                                                                                                                                                                                                                                                                                                                    |
|-------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.19 |   | 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.                                                                                                                                                                                                                         |
| 10.20 |   | 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  (Previously filed as Exhibit 10.31 to the Form 10-Q for the  three months ended June 30, 2006, and incorporated herein by reference).                                                                                                                                                                                                                                                                                                          |
| 10.21 |   | Agreement between 19 Recordings Limited and Ronagold  Limited, dated November 28, 2005, amending the terms of the SonyBMG  Agreement (Previously filed as Exhibit 10.32 to the Form 10-Q  for the three months ended June 30, 2006, and incorporated herein by  reference).                                                                                                                                                                                                                                                                                                                                                                     |
| 10.22 |   | Binding Heads of Terms among Fox Broadcasting  Company, FremantleMedia North America Inc. and 19 TV Limited regarding the *American Idol*television series  (Previously filed as Exhibit 10.33 to the Form 10-Q for the  three months ended June 30, 2006, and incorporated herein by reference).                                                                                                                                                                                                                                                                                                                                                    |
| 10.23 |   | Revolving Credit Agreement, dated as of May 24,  2006, among the Company, the several banks and other financial institutions  or entities from time to time parties thereto, Bear, Stearns & Co.  Inc., as exclusive advisor, sole lead arranger and sole bookrunner, UBS  Securities LLC and The Bank of New York, as co-syndication agents, Lehman  Commercial Paper, Inc. and Credit Suisse, as codocumentation agents and  Bear Stearns Corporate Lending Inc., as administrative agent (Previously  filed as Exhibit 10.1 to the Form 10-Q for the three months  ended June 30, 2006, and incorporated herein by reference). |
| 10.24 |   | Letter Agreement, dated April 10, 2006, among  the Company, CKX G.O.A.T. Holding Corp. (formerly GOAT  Acquisition, Inc.) Muhammad Ali Enterprises LLC (formerly G.O.A.T. LLC),  G.O.A.T., Inc. and Muhammad Ali and Yolanda E. Ali, each individually  and as trustees of the Muhammad Ali Family Trust, dated October 22, 2002  (Previously filed at Exhibit 10.2 to the Form 10-Q for the  three months ended June 30, 2006, and incorporated herein by reference).                                                                                                                                                           |
| 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).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 21.1  |   | List of Subsidiaries (Filed herewith).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 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 (Filed herewith).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 31.2  |   | Certification of  Principal Financial Officer (Filed herewith).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 32.1  |   | Section 1350  Certification of Principal Executive Officer (Filed herewith).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 32.2  |   | Section 1350  Certification of Principal Financial Officer (Filed herewith).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |

 

95

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**SIGNATURES**

Pursuant to therequirements of Section 13 or 15(d) of the Securities and ExchangeAct of 1934, the registrant has duly caused this Report to be signed on itsbehalf of the undersigned thereunto duly authorized.

**CKX, Inc.**
| By:      | /s/ ROBERT F.X. SILLERMAN                                          |   | March 1, 2007 |
|----------|--------------------------------------------------------------------|--------|---------------|
| * * | *Robert F.X. Sillerman*                                            |   |          |
| * * | *Chief Executive Officer and Chairman of the Board*                |   |          |
| By:      | /s/ THOMAS P. BENSON                                               |   | March 1, 2007 |
|     | *Thomas P. Benson*                                                 |   | * *      |
| * * | *Chief Financial Officer, Executive Vice President  and Treasurer* |   |          |

 

Pursuantto the requirements of the Securities Exhange Act of 1934, this Report has beensigned below by the following persons on behalf of the registrant and in thecapacities and on the dates indicated
| By:      | /s/ ROBERT F.X. SILLERMAN                      |     | March 1, 2007 |
|----------|------------------------------------------------|----------|---------------|
| * * | *Robert F.X. Sillerman, Chairman of the Board* | * * |          |
| By:      | /s/ MICHAEL G. FERREL                          |     | March 1, 2007 |
| * * | *Michael G. Ferrel, Director*                  | * * |          |
| By:      | /s/ MITCHELL J. SLATER                         |     | March 1, 2007 |
| * * | *Mitchell J. Slater, Director*                 | * * |          |
| By:      | /s/ HOWARD J. TYTEL                            |     | March 1, 2007 |
| * * | *Howard J. Tytel, Director*                    | * * |          |
| By:      | /s/ EDWIN M. BANKS                             |     | March 1, 2007 |
| * * | *Edwin M. Banks, Director*                     | * * |          |
| By:      | /s/ EDWARD BLEIER                              |     | March 1, 2007 |
| * * | *Edward Bleier, Director*                      | * * |          |
| By:      | /s/ JERRY L. COHEN                             |     | March 1, 2007 |
| * * | *Jerry L. Cohen, Director*                     | * * |          |
| By:      | /s/ SIMON FULLER                               |     | March 1, 2007 |
| * * | *Simon Fuller, Director*                       | * * |          |
| By:      | /s/ CARL D. HARNICK                            |     | March 1, 2007 |
| * * | *Carl D. Harnick, Director*                    | * * |          |
| By:      | /s/ JACK LANGER                                |     | March 1, 2007 |
| * * | *Jack Langer, Director*                        | * * |          |
| By:      | /s/ JOHN D. MILLER                             |     | March 1, 2007 |
| * * | *John D. Miller, Director*                     | * * |          |
| By:      | /s/ BRUCE MORROW                               |     | March 1, 2007 |
| * * | *Bruce Morrow, Director*                       | * * |          |
| By:      | /s/ PRISCILLA PRESLEY                          |     | March 1, 2007 |
| * * | *Priscilla Presley, Director*                  | * * |          |

 

96

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**INDEXTO EXHIBITS**

| Exhibit No. | ** ** | **Description**                                                         |
|------------------|------------|-------------------------------------------------------------------------|
| 21.1             |       | 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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