**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,D.C. 20549**

**FORM 10-QSB/A**

| **x**                                                       | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934**  |
|-------------------------------------------------------------|----------------------------------------------------------------------------------------------------------|
| **For the quarterly period ended  September 30, 2005** |
| **OR**                                                      |
| **o**                                                       | **TRANSITION REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934** |

 

**Forthe transition periodfrom                 to              **

**CommissionFile No. 000-17436**

**CKX, INC.**

(Exact name of Registrantas specified in its charter)

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

 

**650 Madison AvenueNew York, New York 10022**

(Address of PrincipalExecutive Offices and Zip Code)

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

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

Securities RegisteredPursuant to Section 12(g) of the Act:

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

Check whether the issuer (1) filedall reports required to be filed by Section 13 or 15(d) of theExchange Act during the past 12 months (or for such shorter period thatthe registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days. Yes x   No o

As of  November 11, 2005 there were 92,310,508shares of the registrant’s common stock outstanding.

TransitionalSmall Business Disclosure Format (check one) Yes o   No x

 

----

**Explanatory Note:**

This Form 10-QSB/A (the “Amendment”) isbeing filed to reflect a restatement to our previously filed Form 10-QSB(the “Original Filing”) for the quarterly period ended September 30, 2005,that was originally filed with the Securities and Exchange Commission on November 14,2005. This Amendment is being filed to correct an accounting error in thereported income tax expense in the condensed consolidated financial statementsin the Original Filing. Refer to Note 15 to the condensed consolidatedfinancial statements in Item 1 of this Form 10-QSB/A for adiscussion of the nature of the error and the impact of the error on therestated condensed consolidated financial statements. The decision to restatethe condensed consolidated financial statements was previously announced in apress release that was filed with the Securities and Exchange Commission aspart of a Current Report on Form 8-K of CKX, Inc. dated March 7,2006.

Although this Form 10-QSB/A sets forth theOriginal Filing in its entirety, this Form 10-QSB/A only amends andrestates Items 1, 2 and 4 of the Original Filing, in each case, solely asa result of, and to reflect, the restatement, and no other information in theOriginal Filing is amended hereby. In addition, the Original Filing has beenamended to contain currently-dated certifications of our Chief ExecutiveOfficer and Chief Financial Officer which are attached to this Form 10-QSB/Aas Exhibits 31.1, 31.2, 32.1 and 32.2.

Except for the foregoing amended information, this Form 10-QSB/Acontinues to describe conditions as of the date of the Original Filing, and wehave not updated the disclosures contained herein to reflect events thatoccurred after the filing of Form 10-QSB on November 14, 2005. Otherevents occurring after the filing of the Original Filing or other disclosuresnecessary to reflect subsequent events have been addressed in our Annual Reporton Form 10-K for the year ended December 31, 2005 which isbeing filed concurrently with this Form 10-QSB/A.

----

**TABLE OF CONTENTS**

| Part I.  |   | FINANCIAL INFORMATION                                                                                                                                                                                                                                            |   |   |
|---------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|
| Item 1        |   | Financial Statements                                                                                                                                                                                                                                             |   |   |
|          |   | Condensed Consolidated Balance Sheets at September 30,  2005 (Restated), December 31, 2004 and December 31, 2004  (Predecessor)                                                                                                                   |   | 2      |
|          |   | Condensed Consolidated Statements of Operations for  the three months ended September 30, 2005 (Restated) and 2004 and the  three months ended September 30, 2004 (Predecessor)                                                                        |   | 3      |
|          |   | Condensed Consolidated Statements of Operations for  the nine months ended September 30, 2005 (Restated) and 2004, the period  January 1, 2005 to February 7, 2005 (Predecessor) and the nine  months ended September 30, 2004 (Predecessor) |   | 4      |
|          |   | Condensed Consolidated Statements of Cash Flows for  the nine months ended September 30, 2005 (Restated) and 2004, the period  January 1, 2005 to February 7, 2005 (Predecessor) and the nine  months ended September 30, 2004 (Predecessor) |   | 5      |
|          |   | Condensed Consolidated Statement of Stockholders’  Equity (Restated) for the nine months ended September 30, 2005                                                                                                                                      |   | 6      |
|          |   | Notes  to Condensed Consolidated Financial Statements (Restated)                                                                                                                                                                                                 |   | 7      |
| Item 2        |   | Management’s Discussion and Analysis of Financial  Condition and Results of Operations                                                                                                                                                                 |   | 30     |
| Item 3        |   | Quantitative and Qualitative Disclosures About Market  Risk                                                                                                                                                                                                      |   | 50     |
| Item  4       |   | Controls  and Procedures                                                                                                                                                                                                                                         |   | 51     |
| Part II. |   | OTHER INFORMATION                                                                                                                                                                                                                                                |   |   |
| Item 6        |   | Exhibits                                                                                                                                                                                                                                                         |   | 52     |

 

1

----

**CKX, INC.CONDENSED CONSOLIDATEDBALANCE SHEETS**

| ** **                                                                                                                                                                                                                                | ** ** | **September 30,**                                           | ** ** | ** **            | ** ** | ** ** | ** ** | **Predecessor**       | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------|------------|-----------------------|------------|------------|------------|-----------------------|------------|
| ** **                                                                                                                                                                                                                                | ** ** | **2005**                                                         | ** ** | ** **            | ** ** | ** ** | ** ** | **Company(1)**        | ** ** |
| ** **                                                                                                                                                                                                                                | ** ** | **(As Restated,**                                                | ** ** | **December 31,** | ** ** | ** ** | ** ** | **December 31,** | ** ** |
| ** **                                                                                                                                                                                                                                | ** ** | **see Note 15)**                                            | ** ** | **2004**              | ** ** | ** ** | ** ** | **2004**              | ** ** |
| ** **                                                                                                                                                                                                                                | ** ** | **(unaudited)**                                                  | ** ** | ** **            | ** ** | ** ** | ** ** | ** **            | ** ** |
| ** **                                                                                                                                                                                                                                | ** ** | **(in thousands, except share information)** | ** ** |
| **ASSETS**                                                                                                                                                                                                                                |       |                                                             |       |                  |       |       |       |                  |       |   |   |   |   |   |   |
| Cash and cash equivalents                                                                                                                                                                                                                 |       |                                                             | $          | 36,529                |       |       |       | $                     | —     |   |   |   |   |   | $ | 201 |   |   |
| Marketable securities                                                                                                                                                                                                                     |       |                                                             | 80,000     |                  |       |       | —     |                  |       |   |   |   | — |   |   |
| Receivables, net of  allowance for doubtful accounts of $91 at September 30, 2005 and $70 at  December 31, 2004 (Predecessor Company)                                                                                           |       |                                                             | 22,624     |                  |       |       | —     |                  |       |   |   |   | 2,751 |   |   |
| Inventories, net of  allowance for obsolesence of $225 at September 30, 2005 and  December 31, 2004 (Predecessor Company)                                                                                                       |       |                                                             | 2,784      |                  |       |       | —     |                  |       |   |   |   | 2,178 |   |   |
| Prepaid expenses                                                                                                                                                                                                                          |       |                                                             | 1,695      |                  |       |       | —     |                  |       |   |   |   | 764 |   |   |
| Prepaid income taxes                                                                                                                                                                                                                      |       |                                                             | 8,447      |                  |       |       | —     |                  |       |   |   |   | — |   |   |
| Deferred tax asset                                                                                                                                                                                                                        |       |                                                             | 1,285      |                  |       |       | —     |                  |       |   |   |   | 1,219 |   |   |
| Total current assets                                                                                                                                                                                                                      |       |                                                             | 153,364    |                  |       |       | —     |                  |       |   |   |   | 7,113 |   |   |
| Property and  equipment—net                                                                                                                                                                                                          |       |                                                             | 27,799     |                  |       |       | —     |                  |       |   |   |   | 21,158 |   |   |
| Receivables                                                                                                                                                                                                                               |       |                                                             | 2,617      |                  |       |       | —     |                  |       |   |   |   | — |   |   |
| Other assets                                                                                                                                                                                                                              |       |                                                             | 13,251     |                  |       |       | —     |                  |       |   |   |   | 7,480 |   |   |
| Goodwill                                                                                                                                                                                                                                  |       |                                                             | 124,653    |                  |       |       | —     |                  |       |   |   |   | — |   |   |
| Other intangible  assets—net                                                                                                                                                                                                         |       |                                                             | 155,580    |                  |       |       | —     |                  |       |   |   |   | — |   |   |
| Deferred tax assets                                                                                                                                                                                                                       |       |                                                             | 860        |                  |       |       | —     |                  |       |   |   |   | 281 |   |   |
| **TOTAL ASSETS**                                                                                                                                                                                                                          |       |                                                             | $          | 478,124               |       |       |       | $                     | —     |   |   |   |   |   | $ | 36,032 |   |   |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                                                                                                                             |       |                                                             |       |                  |       |       |       |                  |       |   |   |   |   |   |   |
| Current liabilities:                                                                                                                                                                                                                      |       |                                                             |       |                  |       |       |       |                  |       |   |   |   |   |   |   |
| Accounts payable                                                                                                                                                                                                                          |       |                                                             | $          | 1,891                 |       |       |       | $                     | 269        |   |   |   |   |   | $ | 571 |   |   |
| Accrued expenses                                                                                                                                                                                                                          |       |                                                             | 22,872     |                  |       |       | —     |                  |       |   |   |   | 2,606 |   |   |
| Purchase consideration  payable                                                                                                                                                                                                           |       |                                                             | 33,846     |                  |       |       | —     |                  |       |   |   |   | — |   |   |
| Current portion of  long-term debt                                                                                                                                                                                                        |       |                                                             | 362        |                  |       |       | —     |                  |       |   |   |   | 10,508 |   |   |
| Income taxes payable                                                                                                                                                                                                                      |       |                                                             | 1,223      |                  |       |       | —     |                  |       |   |   |   | 328 |   |   |
| Other current liabilities                                                                                                                                                                                                                 |       |                                                             | 1,051      |                  |       |       | —     |                  |       |   |   |   | — |   |   |
| Deferred tax  liabilities                                                                                                                                                                                                                 |       |                                                             | 1,162      |                  |       |       | —     |                  |       |   |   |   | — |   |   |
| Deferred revenue                                                                                                                                                                                                                          |       |                                                             | 7,803      |                  |       |       | —     |                  |       |   |   |   | 5,473 |   |   |
| Total current liabilities                                                                                                                                                                                                                 |       |                                                             | 70,210     |                  |       |       | 269        |                  |       |   |   |   | 19,486 |   |   |
| Long-term liabilities:                                                                                                                                                                                                                    |       |                                                             |       |                  |       |       |       |                  |       |   |   |   |   |   |   |
| Long-term debt                                                                                                                                                                                                                            |       |                                                             | 3,138      |                  |       |       | —     |                  |       |   |   |   | 13,074 |   |   |
| Deferred revenue                                                                                                                                                                                                                          |       |                                                             | 1,839      |                  |       |       | —     |                  |       |   |   |   | 2,055 |   |   |
| Other long-term  liabilities                                                                                                                                                                                                              |       |                                                             | 3,998      |                  |       |       | —     |                  |       |   |   |   | — |   |   |
| Deferred tax liabilities                                                                                                                                                                                                                  |       |                                                             | 38,186     |                  |       |       | —     |                  |       |   |   |   | — |   |   |
| Total liabilities                                                                                                                                                                                                                         |       |                                                             | 117,371    |                  |       |       | 269        |                  |       |   |   |   | 34,615 |   |   |
| Commitments and  contingencies                                                                                                                                                                                                            |       |                                                             |       |                  |       |       |       |                  |       |   |   |   |   |   |   |
| Minority interest                                                                                                                                                                                                                         |       |                                                             | 3,905      |                  |       |       | —     |                  |       |   |   |   | — |   |   |
| Redeemable restricted  common stock—1,672,170 shares outstanding at September 30, 2005                                                                                                                                          |       |                                                             | 23,002     |                  |       |       | —     |                  |       |   |   |   | — |   |   |
| Stockholders’ equity:                                                                                                                                                                                                                |       |                                                             |       |                  |       |       |       |                  |       |   |   |   |   |   |   |
| Preferred stock, $.01 par value, authorized  75,000,000 shares:                                                                                                                                                                           |       |                                                             |       |                  |       |       |       |                  |       |   |   |   |   |   |   |
| Series B—1,491,817  outstanding                                                                                                                                                                                                 |       |                                                             | 22,825     |                  |       |       | —     |                  |       |   |   |   | — |   |   |
| Series C—1  share outstanding                                                                                                                                                                                                   |       |                                                             | —     |                  |       |       | —     |                  |       |   |   |   | — |   |   |
| Common stock, $0.01 par  value: authorized 200,000,000 shares, 90,484,859 shares issued and  outstanding at September 30, 2005 and authorized 100,000,000 shares,  4,283,061 shares issued and outstanding at December 31, 2004 |       |                                                             | 905        |                  |       |       | 6,115      |                  |       |   |   |   | — |   |   |
| Additional  paid-in-capital                                                                                                                                                                                                               |       |                                                             | 363,288    |                  |       |       | 12,249     |                  |       |   |   |   | — |   |   |
| Deferred compensation                                                                                                                                                                                                                     |       |                                                             | (1,181     | )                     |       |       | —     |                  |       |   |   |   | — |   |   |
| Net assets                                                                                                                                                                                                                                |       |                                                             | —     |                  |       |       | —     |                  |       |   |   |   | 1,417 |   |   |
| Accumulated deficit                                                                                                                                                                                                                       |       |                                                             | (36,824    | )                     |       |       | (18,633    | )                     |       |   |   |   | — |   |   |
| Accumulated other  comprehensive loss                                                                                                                                                                                                     |       |                                                             | (15,167    | )                     |       |       | —     |                  |       |   |   |   | — |   |   |
| Total stockholders’  equity                                                                                                                                                                                                          |       |                                                             | 333,846    |                  |       |       | (269       | )                     |       |   |   |   | 1,417 |   |   |
| **TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                                                                                                                       |       |                                                             | $          | 478,124               |       |       |       | $                     | —     |   |   |   |   |   | $ | 36,032 |   |   |

----

(1)        Priorto the acquisition of the Presley Business, the Company did not have anyoperations. As a result, the Presley Business is considered to be a predecessorcompany (“Predessor”). Accordingly, relevant prior year financial informationregarding the Predecessor has been presented herein.

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

2

----

**CKX, INC.CONDENSED CONSOLIDATEDSTATEMENTS OF OPERATIONS(UNAUDITED)**

| ** **                                                                   | ** ** | **Three Months Ended**                                                              | ** ** | ** **                       | ** ** | ** ** | ** ** | **Predecessor**                  | ** ** |
|------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------|------------|----------------------------------|------------|------------|------------|----------------------------------|------------|
| ** **                                                                   | ** ** | **September 30, 2005**                                                              | ** ** | ** **                       | ** ** | ** ** | ** ** | **Company(1)**                   | ** ** |
| ** **                                                                   | ** ** | **(As Restated,**                                                                             | ** ** | **Three Months Ended** | ** ** | ** ** | ** ** | **Three Months Ended** | ** ** |
| ** **                                                                   | ** ** | **see Note 15)**                                                                              | ** ** | **September 30, 2004** | ** ** | ** ** | ** ** | **September 30, 2004** | ** ** |
| ** **                                                                   | ** ** | **(in thousands, except per share and share information)** | ** ** |
| Revenue                                                                      |       |                                                                                          | $          | 59,780                           |       |       |       | $                                | —     |   |   |   |   |   | $ | 12,685 |   |   |
| Operating  expenses:                                                         |       |                                                                                          |       |                             |       |       |       |                             |       |   |   |   |   |   |   |
| Cost of sales                                                                |       |                                                                                          | 33,725     |                             |       |       | —     |                             |       |   |   |   | 2,391 |   |   |
| Selling, general and administrative expenses                                 |       |                                                                                          | 13,482     |                             |       |       | 25         |                             |       |   |   |   | 6,457 |   |   |
| Corporate  expenses                                                          |       |                                                                                          | 3,299      |                             |       |       | —     |                             |       |   |   |   | — |   |   |
| Depreciation and  amortization                                               |       |                                                                                          | 4,401      |                             |       |       | —     |                             |       |   |   |   | 304 |   |   |
| Total operating  expenses                                                    |       |                                                                                          | 54,907     |                             |       |       | 25         |                             |       |   |   |   | 9,152 |   |   |
| Operating income  (loss)                                                     |       |                                                                                          | 4,873      |                             |       |       | (25        | )                                |       |   |   |   | 3,533 |   |   |
| Interest income  (expense), net                                              |       |                                                                                          | 659        |                             |       |       | (5         | )                                |       |   |   |   | (237 | ) |   |
| Other income                                                                 |       |                                                                                          | 1,037      |                             |       |       | —     |                             |       |   |   |   | — |   |   |
| Income (loss)  before income taxes                                           |       |                                                                                          | 6,569      |                             |       |       | (30        | )                                |       |   |   |   | 3,296 |   |   |
| Income tax  expense                                                          |       |                                                                                          | 3,440      |                             |       |       | —     |                             |       |   |   |   | 464 |   |   |
| Income (loss)  before equity in earnings of affiliates and minority interest |       |                                                                                          | 3,129      |                             |       |       | (30        | )                                |       |   |   |   | 2,832 |   |   |
| Equity in  earnings of affiliates                                            |       |                                                                                          | 298        |                             |       |       | —     |                             |       |   |   |   | — |   |   |
| Minority interest                                                            |       |                                                                                          | (312       | )                                |       |       | —     |                             |       |   |   |   | — |   |   |
| Net income (loss)                                                            |       |                                                                                          | 3,115      |                             |       |       | (30        | )                                |       |   |   |   | 2,832 |   |   |
| Dividends on  preferred stock                                                |       |                                                                                          | (456       | )                                |       |       | —     |                             |       |   |   |   | — |   |   |
| Net income (loss)  available to common shareholders                          |       |                                                                                          | $          | 2,659                            |       |       |       | $                                | (30        | ) |   |   |   |   | $ | 2,832 |   |   |
| Income (loss) per  share:                                                    |       |                                                                                          |       |                             |       |       |       |                             |       |   |   |   |   |   |   |
| Basic income  (loss) per common share                                        |       |                                                                                          | $          | 0.03                             |       |       |       | $                                | (0.01      | ) |   |   |   |   |   |   |   |
| Diluted income  (loss) per common share                                      |       |                                                                                          | $          | 0.03                             |       |       |       | $                                | (0.01      | ) |   |   |   |   |   |   |   |
| Average number of  common shares outstanding:                                |       |                                                                                          |       |                             |       |       |       |                             |       |   |   |   |   |   |   |
| Basic                                                                        |       |                                                                                          | 91,858,319 |                             |       |       | 4,283,061  |                             |       |   |   |   |   |   |   |
| Diluted                                                                      |       |                                                                                          | 92,932,174 |                             |       |       | 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 (“Predessor”). Accordingly,relevant prior year financial information regarding the Predecessor has beenpresented herein.

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

3

----

**CKX, INC.CONDENSED CONSOLIDATEDSTATEMENTS OF OPERATIONS(UNAUDITED)**

| ** **                                                                   | ** ** | **Nine Months Ended**                                                               | ** ** | ** **                       | ** ** | ** ** | ** ** | **Predecessor**                | ** ** | **Predecessor**                  | ** ** |
|------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------|------------|----------------------------------|------------|------------|------------|--------------------------------|------------|----------------------------------|------------|
| ** **                                                                   | ** ** | **September 30, 2005**                                                              | ** ** | ** **                       | ** ** | ** ** | ** ** | **Company(1)**                 | ** ** | **Company(1)**                   | ** ** |
| ** **                                                                   | ** ** | **(As Restated,**                                                                             | ** ** | **Nine Months Ended**  | ** ** | ** ** | ** ** | **January 1 to**     | ** ** | **Nine Months Ended**  | ** ** |
| ** **                                                                   | ** ** | **see Note 15)**                                                                              | ** ** | **September 30, 2004** | ** ** | ** ** | ** ** | **February 7, 2005** | ** ** | **September 30, 2004** | ** ** |
| ** **                                                                   | ** ** | **(in thousands, except share and per share information)** | ** ** |
| Revenue                                                                      |       |                                                                                          | $          | 103,169                          |       |       |       | $                              | —     |                             |       |   |   |   | $ | 3,442 |   |   |   | $ | 31,720 |   |   |   |
| Operating expenses:                                                          |       |                                                                                          |       |                             |       |       |       |                           |       |                             |       |   |   |   |   |   |   |   |   |   |
| Cost of sales                                                                |       |                                                                                          | 46,803     |                             |       |       | —     |                           |       |                             |       |   | 423 |   |   |   | 5,267 |   |   |   |
| Selling, general  and administrative expenses                                |       |                                                                                          | 30,400     |                             |       |       | 68         |                           |       |                             |       |   | 2,431 |   |   |   | 18,236 |   |   |   |
| Corporate  expenses                                                          |       |                                                                                          | 8,330      |                             |       |       | —     |                           |       |                             |       |   | — |   |   |   | — |   |   |   |
| Depreciation and  amortization                                          |       |                                                                                          | 10,079     |                             |       |       | —     |                           |       |                             |       |   | 126 |   |   |   | 898 |   |   |   |
| Other costs                                                                  |       |                                                                                          | 2,175      |                             |       |       | —     |                           |       |                             |       |   | — |   |   |   | — |   |   |   |
| Total operating  expenses                                                    |       |                                                                                          | 97,787     |                             |       |       | 68         |                           |       |                             |       |   | 2,980 |   |   |   | 24,401 |   |   |   |
| Operating income  (loss)                                                     |       |                                                                                          | 5,382      |                             |       |       | (68        | )                              |       |                             |       |   | 462 |   |   |   | 7,319 |   |   |   |
| Interest expense,  net                                                       |       |                                                                                          | (3,490     | )                                |       |       | (14        | )                              |       |                             |       |   | (115 | ) |   |   | (916 | ) |   |   |
| Write-off of  unamortized deferred loan costs                                |       |                                                                                          | (1,894     | )                                |       |       | —     |                           |       |                             |       |   | — |   |   |   | — |   |   |   |
| Other income                                                                 |       |                                                                                          | 2,844      |                             |       |       | —     |                           |       |                             |       |   | — |   |   |   | 8 |   |   |   |
| Income (loss)  before income taxes                                           |       |                                                                                          | 2,842      |                             |       |       | (82        | )                              |       |                             |       |   | 347 |   |   |   | 6,411 |   |   |   |
| Income tax  expense                                                          |       |                                                                                          | 1,730      |                             |       |       | —     |                           |       |                             |       |   | 152 |   |   |   | 562 |   |   |   |
| Income (loss)  before equity in earnings of affiliates and minority interest |       |                                                                                          | 1,112      |                             |       |       | (82        | )                              |       |                             |       |   | 195 |   |   |   | 5,849 |   |   |   |
| Equity in earnings of affiliates                                             |       |                                                                                          | 659        |                             |       |       | —     |                           |       |                             |       |   | — |   |   |   | — |   |   |   |
| Minority interest                                                            |       |                                                                                          | (1,024     | )                                |       |       | —     |                           |       |                             |       |   | — |   |   |   | — |   |   |   |
| Net income (loss)                                                            |       |                                                                                          | 747        |                             |       |       | (82        | )                              |       |                             |       |   | 195 |   |   |   | 5,849 |   |   |   |
| Dividends on preferred stock                                                 |       |                                                                                          | (1,176     | )                                |       |       | —     |                           |       |                             |       |   | — |   |   |   | — |   |   |   |
| Accretion of  beneficial conversion feature                                  |       |                                                                                          | (17,762    | )                                |       |       | —     |                           |       |                             |       |   | — |   |   |   | — |   |   |   |
| Net income (loss)  available to common shareholders                          |       |                                                                                          | $          | (18,191                          | )          |       |       | $                              | (82        | )                                |       |   |   |   | $ | 195 |   |   |   | $ | 5,849 |   |   |   |
| Loss per share:                                                              |       |                                                                                          |       |                             |       |       |       |                           |       |                             |       |   |   |   |   |   |   |   |   |   |
| Basic and diluted  loss per share                                       |       |                                                                                          | $          | (0.27                            | )          |       |       | $                              | (0.02      | )                                |       |   |   |   |   |   |   |   |   |   |   |   |
| Average number of common  shares outstanding:                                |       |                                                                                          |       |                             |       |       |       |                           |       |                             |       |   |   |   |   |   |   |   |   |   |
| Basic and diluted                                                            |       |                                                                                          | 66,559,664 |                             |       |       | 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 (“Predessor”). Accordingly,relevant prior year financial information regarding the Predecessor has beenpresented herein.

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

4

----

**CKX, INC.CONDENSED CONSOLIDATEDSTATEMENTS OF CASH FLOWS(UNAUDITED)**

| ** **                                                                            | ** ** | ** **                                                                                 | ** ** | ** **                                                    | ** ** | ** ** | ** ** | **Predecessor Company(1)**                        | ** ** |                                                          |
|---------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------|------------|------------|------------|--------------------------------------------------------|------------|---------------------------------------------------------------|
| ** **                                                                            | ** ** | **Nine Months Ended  September 30, 2005  (As Restated,  see Note 15)** | ** ** | **Nine Months Ended  September 30, 2004** | ** ** | ** ** | ** ** | **January 1 to  February 7, 2005** | ** ** | **Nine Months Ended  September 30, 2004** | ** ** |   |
| ** **                                                                            | ** ** | **(in thousands)**                                                                    | ** ** |                                                          |
| **Cash  flows from operating activities:**                                            |       |                                                                                       |       |                                                          |       |       |       |                                                   |       |                                                          |   |   |   |   |   |   |   |   |   |
| Net income (loss)                                                                     |       |                                                                                       | $          | 747                                                           |       |       |       | $                                                      | (82        | )                                                             |   |   |   |   | $ | 195 |   |   |   | $ | 5,849 |   |   |
| Adjustments to reconcile net income (loss) to cash  provided by operating activities: |       |                                                                                       |       |                                                          |       |       |       |                                                   |       |                                                          |   |   |   |   |   |   |   |   |   |
| Depreciation and amortization                                                         |       |                                                                                       | 10,079     |                                                          |       |       | —     |                                                   |       |                                                          |   |   | 126 |   |   |   | 898 |   |   |
| Non-cash compensation                                                                 |       |                                                                                       | 558        |                                                          |       |       | —     |                                                   |       |                                                          |   |   | — |   |   |   | — |   |   |
| Minority interest                                                                     |       |                                                                                       | 1,024      |                                                          |       |       | —     |                                                   |       |                                                          |   |   | — |   |   |   | — |   |   |
| Changes in operating assets and liabilities:                                          |       |                                                                                       |       |                                                          |       |       |       |                                                   |       |                                                          |   |   |   |   |   |   |   |   |   |
| Receivables                                                                           |       |                                                                                       | 4,750      |                                                          |       |       | —     |                                                   |       |                                                          |   |   | (566 | ) |   |   | (910 | ) |   |
| Inventory                                                                             |       |                                                                                       | (731       | )                                                             |       |       | —     |                                                   |       |                                                          |   |   | 124 |   |   |   | 1,142 |   |   |
| Prepaid expenses                                                                      |       |                                                                                       | (8,929     | )                                                             |       |       | —     |                                                   |       |                                                          |   |   | (576 | ) |   |   | (772 | ) |   |
| Other assets                                                                          |       |                                                                                       | 2,171      |                                                          |       |       | —     |                                                   |       |                                                          |   |   | — |   |   |   | — |   |   |
| Deferred income taxes                                                                 |       |                                                                                       | (112       | )                                                             |       |       | —     |                                                   |       |                                                          |   |   | — |   |   |   | 158 |   |   |
| Accounts payable                                                                      |       |                                                                                       | 197        |                                                          |       |       | —     |                                                   |       |                                                          |   |   | 854 |   |   |   | 138 |   |   |
| Accrued expenses                                                                      |       |                                                                                       | 11,718     |                                                          |       |       | —     |                                                   |       |                                                          |   |   | 194 |   |   |   | 473 |   |   |
| Deferred revenue                                                                      |       |                                                                                       | 703        |                                                          |       |       | —     |                                                   |       |                                                          |   |   | 1,410 |   |   |   | 1,957 |   |   |
| Income taxes payable                                                                  |       |                                                                                       | 744        |                                                          |       |       | —     |                                                   |       |                                                          |   |   | 152 |   |   |   | 497 |   |   |
| Other                                                                                 |       |                                                                                       | 642        |                                                          |       |       | —     |                                                   |       |                                                          |   |   | — |   |   |   | — |   |   |
| Net cash provided by (used in) operating activities                                   |       |                                                                                       | 23,561     |                                                          |       |       | (82        | )                                                      |       |                                                          |   |   | 1,913 |   |   |   | 9,430 |   |   |
| **Cash  flows used in investing activities:**                                         |       |                                                                                       |       |                                                          |       |       |       |                                                   |       |                                                          |   |   |   |   |   |   |   |   |   |
| Acquisition of Presley Business, net of cash acquired  of $961                        |       |                                                                                       | (82,873    | )                                                             |       |       | —     |                                                   |       |                                                          |   |   | — |   |   |   | — |   |   |
| Acquisition of 19 Entertainment, net of cash acquired  of $2,528                      |       |                                                                                       | (125,431   | )                                                             |       |       | —     |                                                   |       |                                                          |   |   | — |   |   |   | — |   |   |
| Acquisition of MBST, net of cash  acquired of $12                                     |       |                                                                                       | (2,514     | )                                                             |       |       | —     |                                                   |       |                                                          |   |   | — |   |   |   | — |   |   |
| Investment in marketable securities                                                   |       |                                                                                       | (80,000    | )                                                             |       |       | —     |                                                   |       |                                                          |   |   | — |   |   |   | — |   |   |
| Purchase of property and equipment                                                    |       |                                                                                       | (669       | )                                                             |       |       | —     |                                                   |       |                                                          |   |   | (2 | ) |   |   | (322 | ) |   |
| Net cash used in investing activities                                                 |       |                                                                                       | (291,487   | )                                                             |       |       | —     |                                                   |       |                                                          |   |   | (2 | ) |   |   | (322 | ) |   |
| **Cash  flows used in financing activities:**                                         |       |                                                                                       |       |                                                          |       |       |       |                                                   |       |                                                          |   |   |   |   |   |   |   |   |   |
| Initial issuance of common stock                                                      |       |                                                                                       | 3,058      |                                                          |       |       | —     |                                                   |       |                                                          |   |   | — |   |   |   | — |   |   |
| Proceeds from public offering of  common stock                                        |       |                                                                                       | 253,000    |                                                          |       |       | —     |                                                   |       |                                                          |   |   | — |   |   |   | — |   |   |
| Underwriting discount and other  offering costs                                       |       |                                                                                       | (20,017    | )                                                             |       |       | —     |                                                   |       |                                                          |   |   | — |   |   |   | — |   |   |
| Exercise of warrants                                                                  |       |                                                                                       | 30,000     |                                                          |       |       | —     |                                                   |       |                                                          |   |   | — |   |   |   | — |   |   |
| Proceeds from Huff Investment                                                         |       |                                                                                       | 43,819     |                                                          |       |       | —     |                                                   |       |                                                          |   |   | — |   |   |   | — |   |   |
| Proceeds from credit facilities                                                       |       |                                                                                       | 148,000    |                                                          |       |       | —     |                                                   |       |                                                          |   |   | — |   |   |   | 1,250 |   |   |
| Costs associated with Huff investment                                                 |       |                                                                                       | —     |                                                          |       |       | —     |                                                   |       |                                                          |   |   | — |   |   |   | — |   |   |
| and credit facility                                                                   |       |                                                                                       | (3,207     | )                                                             |       |       | —     |                                                   |       |                                                          |   |   | — |   |   |   | — |   |   |
| Distributions to Presley minority interest                                            |       |                                                                                       | (874       | )                                                             |       |       |       |                                                   |       |                                                          |   |   |   |   |   |   |   |   |   |
| Principal payments on debt                                                            |       |                                                                                       | (148,390   | )                                                             |       |       | —     |                                                   |       |                                                          |   |   | (185 | ) |   |   | (5,025 | ) |   |
| Dividends paid on preferred stock                                                     |       |                                                                                       | (720       | )                                                             |       |       | —     |                                                   |       |                                                          |   |   | — |   |   |   | — |   |   |
| Increase in due to affiliates                                                         |       |                                                                                       | —     |                                                          |       |       | 82         |                                                   |       |                                                          |   |   | — |   |   |   | — |   |   |
| Distributions to trust beneficiary                                                    |       |                                                                                       | —     |                                                          |       |       | —     |                                                   |       |                                                          |   |   | (23 | ) |   |   | (5,406 | ) |   |
| Net cash provided by (used in) financing activities                                   |       |                                                                                       | 304,669    |                                                          |       |       | 82         |                                                   |       |                                                          |   |   | (208 | ) |   |   | (9,181 | ) |   |
| Effect of exchange rate changes on cash                                               |       |                                                                                       | (214       | )                                                             |       |       | —     |                                                   |       |                                                          |   |   | — |   |   |   | — |   |   |
| **Net increase in cash and equivalents**                                              |       |                                                                                       | 36,529     |                                                          |       |       | —     |                                                   |       |                                                          |   |   | 1,703 |   |   |   | (73 | ) |   |
| **Cash and cash equivalents - beginning of period**                                   |       |                                                                                       | —     |                                                          |       |       | —     |                                                   |       |                                                          |   |   | 201 |   |   |   | 287 |   |   |
| **Cash and cash equivalents - end of period**                                         | ** ** | ** **                                                                                 | $          | 36,529                                                        |       |       |       | $                                                      | —     |                                                          |   |   |   |   | $ | 1,904 |   |   |   | $ | 214 |   |   |
| **Supplemental Cash flow data(Also see note 13):**                                    |       |                                                                                       |       |                                                          |       |       |       |                                                   |       |                                                          |   |   |   |   |   |   |   |   |   |
| Cash paid during  the period for:                                                     |       |                                                                                       |       |                                                          |       |       |       |                                                   |       |                                                          |   |   |   |   |   |   |   |   |   |
| Interest                                                                              |       |                                                                                       | $          | 3,211                                                         |       |       |       | $                                                      | —     |                                                          |   |   |   |   | $ | 172 |   |   |   | $ | 799 |   |   |
| Income taxes                                                                          |       |                                                                                       | 508        |                                                          |       |       | —     |                                                   |       |                                                          |   |   | 125 |   |   |   | 58 |   |   |

----

(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 (“Predessor”).Accordingly, relevant prior year financial information regarding thePredecessor has been presented herein.

 

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

5

----

**CKX, INC.CONDENSED CONSOLDIATEDSTATEMENT OF STOCKHOLDERS’ EQUITY(IN THOUSANDS, EXCEPT SHARE DATA)(UNAUDITED)**

| ** **                                                                                  | ** ** | **Preferred Stock** | ** ** | ** **                                                    | ** ** | ** **        | ** ** | ** **            | ** **                                        | ** **  | ** ** | ** **   | ** ** | **Accumulated** | ** ** | ** **        | ** **    |
|---------------------------------------------------------------------------------------------|------------|--------------------------|------------|---------------------------------------------------------------|------------|-------------------|------------|-----------------------|---------------------------------------------------|-------------|------------|--------------|------------|-----------------|------------|-------------------|---------------|
| ** **                                                                                  | ** ** | ** **               | ** ** | ** **                                                    | ** ** | ** **        | ** ** | ** **            | ** **                                        | ** **  | ** ** | ** **   | ** ** | ** **      | ** ** | ** **        | ** **    | **Additional** | ** ** | ** ** | ** ** | ** ** | ** ** | **Other** | ** ** | ** ** | ** ** |
| ** **                                                                                  | ** ** | **Series A**        | ** ** | **Series B**                                             | ** ** | **Series C** | ** ** | **Common Stock** | ** **                                        | **Paid-In** | ** ** | **Deferred** | ** ** | **Accumulated** | ** ** | **Comprehensive** | ** **    | ** ** | ** ** |
| ** **                                                                                  | ** ** | **Shares**               | ** ** | **Amount**                                                    | ** ** | **Shares**        | ** ** | **Amount**            | ** **                                        | **Shares**  | ** ** | **Amount**   | ** ** | **Shares**      | ** ** | **Amount**        | ** **    | **Capital** | ** ** | **Compensation** | ** ** | **Deficit** | ** ** | **Income (Loss)** | ** ** | **Total** | ** ** |
| Balance at January 1, 2005                                                             |       | —                   |       | $         — |       | —            |       |                  | $       — |        |       |         | —     |            |       |              | $ — |   |   | 4,283,061 |   |   | $ 6,115 |   |   |   | $ 12,249 |   |   |   | $       — |   |   |   | $ (18,633 | ) |   |   | $         — |   |   | $     (269 | ) |
| Change of par value to $0.01 per share                                                      |       | —                   |       | —                                                        |       | —            |       |                  | —                                            |        |       |         | —     |            |       |              | —        |   |   | — |   |   | (6,072 | ) |   |   | 6,072 |   |   |   | — |   |   |   | — |   |   |   | — |   |   | — |   |
| Issuance of common stock                                                                    |       | —                   |       | —                                                        |       | —            |       |                  | —                                            |        |       |         | —     |            |       |              | —        |   |   | 30,399,072 |   |   | 304 |   |   |   | 3,021 |   |   |   | — |   |   |   | — |   |   |   | — |   |   | 3,325 |   |
| 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          |            |       |              | —        |   |   | 1,398,388 |   |   | 15 |   |   |   | 16,777 |   |   |   | — |   |   |   | — |   |   |   | — |   |   | 39,617 |   |
| Restricted shares issued to independent directors and  employees                            |       | —                   |       | —                                                        |       | —            |       |                  | —                                            |        |       |         | —     |            |       |              | —        |   |   | 124,500 |   |   | 1 |   |   |   | 1,574 |   |   |   | (1,534 | ) |   |   | — |   |   |   | — |   |   | 41 |   |
| Compensation expense recognized for vesting of  restricted stock                            |       | —                   |       | —                                                        |       | —            |       |                  | —                                            |        |       |         | —     |            |       |              | —        |   |   | — |   |   | — |   |   |   | — |   |   |   | 353 |   |   |   | — |   |   |   | — |   |   | 353 |   |
| Shares issued to independent directors                                                      |       | —                   |       | —                                                        |       | —            |       |                  | —                                            |        |       |         | —     |            |       |              | —        |   |   | 5,334 |   |   | — |   |   |   | 73 |   |   |   | — |   |   |   | — |   |   |   | — |   |   | 73 |   |
| 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                                                           |       | —                   |       | —                                                        |       | —            |       |                  | —                                            |        |       |         | —     |            |       |              | —        |   |   | — |   |   | — |   |   |   | — |   |   |   | — |   |   |   | (1,176 | ) |   |   | — |   |   | (1,176 | ) |
| Public offering of common stock                                                             |       | —                   |       | —                                                        |       | —            |       |                  | —                                            |        |       |         | —     |            |       |              | —        |   |   | 23,000,000 |   |   | 230 |   |   |   | 232,753 |   |   |   | — |   |   |   | — |   |   |   | — |   |   | 232,983 |   |
| Net income (a)                                                                              |       | —                   |       | —                                                        |       | —            |       |                  | —                                            |        |       |         | —     |            |       |              | —        |   |   | — |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 747 |   |   |   | — |   |   | 747 |   |
| Other comprehensive income (loss)                                                           |       | —                   |       | —                                                        |       | —            |       |                  | —                                            |        |       |         | —     |            |       |              | —        |   |   | — |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | (15,167 | ) |   | (15,167 | ) |
| Balance at  September 30, 2005 (a)                                                     |       | —                   |       | $         — |       | 1,491,817         |       |                  | $ 22,825                                     |        |       |         | 1          |            |       |              | $ — |   |   | 90,484,859 |   |   | $    905 |   |   |   | $ 363,288 |   |   |   | $ (1,181 | ) |   |   | $ (36,824 | ) |   |   | $ (15,167 | ) |   | $ 333,846 |   |

 

----

(a)         AsRestated, see Note 15

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

6

 

----

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

**1. Overview and Basis ofPresentation**

CKX, Inc. (the “Company”) is engaged in theownership, development and commercial utilization of entertainment content,including the rights to the name, image and likeness of Elvis Presley, theoperations of Graceland and proprietary rights to the *IDOLS*television brand, including theAmerican Idol series in the United States, and more than 30 local adaptationsof the *IDOLS*television showformat which, collectively, air in over 100 countries around the world.

The financial information in this report has not beenaudited, but in the opinion of management all adjustments (consisting only ofnormal recurring adjustments) considered necessary to present fairly suchinformation have been included. The operating results for the three and ninemonths ended September 30, 2004 and 2005 are not necessarily indicative ofresults to be expected for the full year due to the seasonal nature of some ofthe Company’s businesses and due to the timing of the transactions describedbelow. The financial statements included herein should be read in conjunctionwith the financial statements and notes included in the Company’s Annual Reporton Form 10-KSB for the year ended December 31, 2004 and in theCompany’s Current Reports on Form 8-K/A filed on February 11,2005, May 27, 2005 and October 25, 2005.

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,relevant financial information regarding the Predecessor has been presentedherein.

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 the Company changed its namefrom Sports Entertainment Enterprises, Inc. to CKX, Inc., changed itsstate of incorporation from Colorado to Delaware and changed its capital stockfrom no par value to $0.01 par value per share.

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

**2.** Summary of Significant Accounting Policies

**Principles of Consolidation**

The condensed consolidatedfinancial statements include the accounts of all subsidiaries. All intercompanyaccounts and transactions have been eliminated. Certain reclassifications havebeen made to prior periods’ consolidated financial statements to conform to thecurrent period presentation.

7

----

**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 Cash Equivalents**

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

**Marketable Securities**

Marketable securitiesreflect investments in auction rate preferred stocks issued by closed-end fundswith dividend rates re-set every seven to twenty-eight days. These investmentsare classified as current assets based on our intent and ability to use thesesecurities when required to provide capital to support the liquidity needs andgrowth of the Company’s business. These investments are available for sale inaccordance with the provisions of Statement of Financial Accounting Standards (“SFAS”)No. 115, “*Accounting for CertainInvestments in Debt and Equity Securities*” and accordingly arecarried at fair value, which approximates cost at September 30, 2005.Unrealized gains and losses, net of tax, are included in stockholders’ equity.

**Property and Equipment, net**

Property and equipment, net are stated at cost and aredepreciated 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 $0.5 million and $1.3million for the three and nine months ended September 30, 2005 and $0.3million and $0.9 million for the three and nine months ended September 30,2004 (Predecessor) respectively.

Propertyand equipment, net consisted of the following as of September 30, 2005 andDecember 31, 2004 (Predecessor):

| ** **                                       | ** ** | **September 30, 2005** | ** ** | **Useful Lives** | ** ** | **December 31, 2004** | ** ** | **Useful Lives** | ** ** |
|--------------------------------------------------|------------|----------------------------------|------------|-----------------------|------------|---------------------------------|------------|-----------------------|------------|
| ** **                                       | ** ** | **(in thousands)**          | ** ** | ** **            | ** ** | **(in thousands)**         | ** ** | ** **            | ** ** |
| Land                                             |       |                             | $          | 11,518                |       |                            |       | n/a                   |       |   |   | $ | 5,358 |   |   |   | n/a |   |   |
| Buildings and  improvements                      |       |                             | 14,364     |                  |       |                            | 5-20       |                  |       |   | 20,381 |   |   |   | 5-39 |   |   |
| Equipment,  furniture and fixtures               |       |                             | 3,164      |                  |       |                            | 3-7        |                  |       |   | 9,061 |   |   |   | 5-7 |   |   |
|                                             |       |                             | 29,046     |                  |       |                            |       |                  |       |   | 34,800 |   |   |   |   |   |   |
| Less: accumulated  depreciation and amortization |       |                             | (1,247     | )                     |       |                            |       |                  |       |   | (13,642 | ) |   |   |   |   |   |
|                                             |       |                             | $          | 27,799                |       |                            |       |                  |       |   |   | $ | 21,158 |   |   |   |   |   |   |

 

**Revenue Recognition**

Merchandising/Nameand Likeness Licensing Revenue:

A portion of the Company’s revenue is derived fromlicensing rights to third parties to sell merchandise based on intellectualproperty, including name, image and likeness rights and related marks. 

8

----

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:

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

Television and FilmRevenue:

The Company recognizes revenue from television andfilm productions 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 and unconditionaldelivery; (iii) the license period of the arrangement has begun and thecustomer can begin its exploitation, exhibition or sale; (iv) thearrangement fee is fixed or determinable; and (v) collection of thearrangement fee is reasonably assured. Advance payments received from buyers orlicensees are included in the financial statements as a component of deferredrevenue.

SponsorshipRevenue:

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

Management and Production Services Revenue:

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

9

----

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.

**Televisionand Film Production Costs**

The Company accounts for its film and televisionprojects in development pursuant to SOP 00-2. Third party costs incurredin producing television programs and films for which the Company has secureddistribution agreements are capitalized and remain unamortized until theproject is distributed or are written off at the time they are determined notto be recoverable. Third party costs incurred in developing concepts for newtelevision programs and films are expensed as incurred until such time as theCompany has secured distribution agreements.

The capitalized costs ofproducing television and film programs are expensed in accordance with theindividual film forecast method specified in SOP 00-2, pursuant to whichthe Company estimates the ratio that revenue which is earned for suchprogramming in the current period bears to its estimate at the beginning of thecurrent year of total revenue to be realized from all media and markets forsuch programming. Amortization commences in the period in which revenuerecognition commences. Management regularly reviews and revises its totalrevenue estimates for each project, which may result in modifications to therate of amortization. If a net loss is projected for a particular project, therelated capitalized costs are written down to estimated realizable value.

**ArtistAdvances and Recoupable Recording Costs**

Recoupable recording costsand artist advances, as adjusted for anticipated returns, are recognized inaccordance with SFAS 50, and thus, are charged to expense in the period inwhich the sale of the record takes place. Recoupable recording costs and artistadvances are only capitalized if the past performance and current popularity ofthe artist for whom the recording costs are incurred or to whom the advance ismade provide a sound basis for estimating that the amount capitalized will berecoverable from future royalties to be earned by the artist. Any portion ofrecoupable recording costs or artists advances that subsequently appear not tobe fully recoverable from future royalties to be earned by the artist arecharged to expense during the period in which the loss becomes evident.

**Advertising Expense**

Advertising costs areexpensed as incurred.

**Income Taxes**

The Company accounts forits income taxes using SFAS No. 109, *Accountingfor Income Taxes (“SFAS 109”).* Under SFAS 109, deferred incometaxes arise from temporary differences between the financial statement and taxbasis of assets and liabilities. The Company’s deferred taxes primarily resultfrom temporary differences in the recognition of amortization of intangibleassets, depreciation, reserve for bad debts and inventory and accrued vacationfor financial reporting and tax reporting purposes.

**Foreign Currency Translation**

The Company has operationsin several foreign countries, primarily the United Kingdom. In the normalcourse of business these operations are exposed to fluctuations in currencyvalues. Balance sheets of international operations are translated into U.S.dollars at period-end exchange rates while the statements of operations aretranslated at average exchange rates. Adjustments resulting from financial 

10

----

statementtranslations are included as cumulative translation adjustments in accumulatedother comprehensive income.

**Goodwilland Other Intangible 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”). Goodwill and other intangible assets with indefinite livesare not amortized, but instead are tested for impairment annually, or, ifcertain circumstances indicate a possible impairment may exist, in accordancewith the provisions of SFAS 142. The Company will evaluate therecoverability of goodwill and indefinite lived intangible assets using atwo-step impairment test approach at the reporting unit level. In the firststep the fair value for the reporting unit is compared to its book valueincluding goodwill. In the case that the fair value of the reporting unit isless than the book value, a second step is performed which compares the impliedfair value of the reporting unit’s goodwill to the book value of the goodwill.The fair value for the goodwill is determined based on the difference betweenthe 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.

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

The Company will accountfor impairment 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 Companywill evaluate long-lived assets for impairment whenever events or changes incircumstances indicate that the carrying amount of an asset may not berecoverable. Upon such an occurrence, recoverability of assets to be held andused is measured by comparing the carrying amount of an asset to forecastedundiscounted future net cash flows expected to be generated by the asset. Ifthe carrying amount of the asset exceeds its estimated future cash flows, animpairment charge is recognized by the amount by which the carrying amount ofthe asset exceeds the fair value of the asset.

**Investments**

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

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

**Stock-Based Compensation**

In conjunction with thestock-based compensation plan that is more fully described in footnote 10,Stock Plan Awards, the Company adopted SFAS No. 123R, *Share-BasedPayment (“SFAS 123R”),* which requires all companies to measure compensation costs for allshare-based payments (including employee stock options) at fair value andrecognize such costs in the statement of operations. 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.

11

----

**Impactof Recently Issued Accounting Standards**

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

In May 2005, the FASBissued SFAS No. 154, *Accounting Changesand Error Corrections, a replacement of APB Opinion No. 20 and FASBStatement No. 3*. The statement applies to all voluntary changesin accounting principles, requiring retrospective application to prior periods’financial statements of changes in accounting principles. Prior to the issuanceof SFAS No. 154, most voluntary changes in accounting principles wererecognized by including the cumulative effect of changing to the new principlein net income of the period of the change. The statement is effective forfinancial statements for fiscal years beginning after December 15, 2005.The Company does not currently contemplate any voluntary changes in accountingprinciples.

**3.** Capital Structure and Predecessor

Following is a descriptionof changes to the Company’s capital structure that occurred during the ninemonths ended September 30, 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 30,399,072 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 $5,000,000.

**The Presley Acquisition (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 in cash,(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.

CommonStock

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.

12

----

Series BConvertible Preferred Stock

The 1,491,817shares of Series B Convertible Preferred Stock issued in the PresleyAcquisition were valued at $22,825,000. Each share of Series B ConvertiblePreferred Stock has a stated value of $15.30 and entitles the holder to receivean annual dividend calculated at a rate of 8% of the stated value. The Series BConvertible Preferred Stock has been valued for accounting purposes at itsstated value of $15.30 per share, which approximates its fair value. In orderto determine the fair value of the Series B Convertible Preferred Stock,the Company performed a valuation using a commonly used valuation model forpricing convertible equity instruments, taking into account the followingfactors and assumptions:

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

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

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

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

·                    Nodividends on the common shares.

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

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

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

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

Series CConvertible Preferred Stock

The share of Series C Convertible Preferred Stockissued in the Presley Acquisition had nominal value at issuance. The Series CConvertible Preferred Stock is convertible into one share of common stock andis *pari passu* with the commonstock with respect to dividends and distributions upon liquidation. The 

13

----

Series C ConvertiblePreferred Stock is not transferable and automatically converts into one shareof common stock at such time as The Promenade Trust ceases to own at least 50%of the aggregate sum of the outstanding shares of Series B ConvertiblePreferred Stock plus the shares of common stock received upon conversion of theSeries 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 contributed tothe Company an aggregate of $43,319,000 in cash, after fees and expenses, inexchange for: (i) 2,172,400 shares of Series A Convertible RedeemablePreferred Stock, (ii) 3,706,052 newly issued shares of common stock, (iii) warrantsto purchase 1,860,660 shares of common stock at $1.00 per share, (iv) warrantsto purchase 1,860,660 shares of common stock at $1.50 per share, and (v) warrantsto purchase 1,860,661 shares of common stock at $2.00 per share. The Huffinvestment has been allocated based on the relative fair values of thepreferred stock, common stock and warrants. The fair values of common stock andSeries A Convertible Redeemable Preferred Stock were based on the $13.40closing price of the Company’s common stock on February 2, 2005, the dateupon which the Huff Investment was committed and agreed to by all parties. Thefair values of the warrants was based on a Black-Scholes valuation whichincorporated the common stock price of $13.40, a volatility rate of 39% and adiscount rate of 3.7%. The allocation of the proceeds, based on the relativefair values of the securities issued to Huff, 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 AlternativeFund, L.P. and its affiliate exercised their rights to convert all oftheir 2,172,400 shares of Series A Convertible Redeemable PreferredStock into 6,051,253 shares of common stock. Following such conversion,there are currently no shares of Series A Convertible Redeemable PreferredStock outstanding. As a result of the early conversion, we recorded a non-cashdividend of $17.8 million in our financial statements for the three monthsended March 31, 2005. The terms of the Series A ConvertibleRedeemable Preferred Stock at issuance and prior to the conversion into commonstock are described below.

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

14

----

shares of common stock tobe issued upon conversion of the Series A Convertible Preferred Stock werelocked up pursuant to a lockup agreement between the Company and the holder.

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

The terms of the Series A Convertible RedeemablePreferred Stock specifically provided for an adjustment for the issuance of the15,486,815 warrants issued but not exercised by the recipients thereofimmediately following the closing of the Presley Acquisition, but no adjustmentin connection with the issuance and exercise of the warrants received by theHuff Alternative Fund LP or the Huff Alternative Parallel Fund LP atclosing or for the 5,000,000 warrants which were issued and exercisedimmediately following closing. After giving effect to the adjustments describedin 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.

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

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

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

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

The allocation of theproceeds from the Huff Investment resulted in a beneficial conversion featurefor the Series A Convertible Redeemable Preferred Stock in the amount of$17.8 million, which reduced the carrying value of the Series AConvertible Redeemable Preferred Stock by that amount. This was due in part tothe allocation of proceeds raised to the warrants as well as the conversionratio of one share of 

15

----

preferredstock into 2.8 shares of common stock as previously described. This beneficialconversion feature was to be accreted over the eight-year redemption period andrecorded as a preferred dividend. As a result of the conversion describedabove, a non-cash dividend equal to the amount of the unaccretedbeneficial conversion feature of $17.8 million was recognized at thattime.

**Reincorporation**

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

**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 after underwritingdiscounts and commissions and offering expenses. The Company repaid $148.4million of its previous loans payable with a portion of the proceeds from theoffering.

**4. ComprehensiveIncome (Loss)**

Thefollowing table is a reconciliation of the Company’s net income tocomprehensive income (loss) for the three and nine months ended September 30,2005 (in thousands):

| ** **                               | ** ** | **Three Months  Ended  September  30,  2005** | ** ** | **Nine Months  Ended  September 30,  2005** | ** ** |
|------------------------------------------|------------|--------------------------------------------------------------|------------|-------------------------------------------------------|------------|
| Net income (loss)                        |       |                                                         | $          | 3,115                                                 |       |   |   | $ | 747 |   |   |
| Other comprehensive  income (loss):      |       |                                                         |       |                                                  |       |   |   |   |   |
| Foreign currency translation adjustments |       |                                                         | (4,512     | )                                                     |       |   | (15,167 | ) |   |
| Comprehensive loss                       |       |                                                         | $          | (1,397                                                | )          |   |   | $ | (14,420 | ) |   |

 

Foreign currencytranslation adjustments result from the conversion of 19 Entertainment’sfinancial statements for the period of March 18, 2005 to September 30,2005. There were no differences between net income (loss) and comprehensiveincome (loss) for the period January 1, 2005 to February 7, 2005 orfor the nine months ended September 30, 2004.

**5. Earnings PerShare/Common Shares Outstanding**

Earnings per share is computed in accordance with SFASNo. 128, *Earnings Per Share*.Basic earnings per share is calculated by dividing net income (loss) applicableto common stockholders by the weighted-average number of sharesoutstanding during the period. Diluted earnings per share includes thedeterminants of basic earnings per share and, in addition, gives effect topotentially dilutive common shares. Diluted earnings per share for the threemonths ended September 30, 2005 is $0.01 per share. This calculationexcludes the impact of the conversion of 1,491,817 shares of Convertible Series BPreferred shares because the effect would be anti-dilutive. Diluted earningsper share for the nine months ended September 30, 2005 is the same asbasic earnings per share because the calculation is anti-dilutive due to thereported net loss available to common shareholders. As a result, 6,423,923shares are excluded from the calculation of diluted earnings per share for thenine months ended September 30, 2005 since the effect would beanti-dilutive.

16

----

Thefollowing table shows the computation of the Company’s basic and dilutedearnings per share for the three and nine months ended September 30, 2005and 2004:

| ** **                                                                                                                      | ** ** | **Three Months Ended  September 30,**                                          | ** ** | **Nine Months Ended  September 30,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                                                                                                      | ** ** | **2005**                                                                                      | ** ** | **2004**                                            | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                                                                                                      | ** ** | **(in thousands, except per share and share information)** | ** ** |
| Basic income (loss) per  share computation:                                                                                     |       |                                                                                          |       |                                                |       |   |   |   |   |
| Net income (loss)                                                                                                               |       | $                                                                                             | 3,115      |                                                | $          | (30 | ) | $ | 747 |   | $ | (82 | ) |
| Less:     Dividends  on preferred stock                                                                     |       | (456                                                                                          | )          | —                                              |       | (1,176 | ) | — |   |
|                Accretion of beneficial conversion feature |       | —                                                                                        |       | —                                              |       | (17,762 | ) | — |   |
| Income (loss) applicable to common shareholders                                                                                 |       | 2,659                                                                                         |       | (30                                                 | )          | (18,191 | ) | (82 | ) |
| Basic common shares outstanding                                                                                                 |       | 91,858,319                                                                                    |       | 4,283,061                                           |       | 66,559,664 |   | 4,283,061 |   |
| Basic income (loss) per share                                                                                                   |       | $                                                                                             | 0.03       |                                                | $          | (0.01 | ) | $ | (0.27 | ) | $ | (0.02 | ) |
| Diluted income  (loss) per share computation:                                                                                   |       |                                                                                          |       |                                                |       |   |   |   |   |
| Net income (loss)                                                                                                               |       | $                                                                                             | 3,115      |                                                | $          | (30 | ) | $ | 747 |   | $ | (82 | ) |
| Less:     Dividends  on preferred stock                                                                     |       | (456                                                                                          | )          | —                                              |       | (1,176 | ) | — |   |
|               Accretion of beneficial conversion feature       |       | —                                                                                        |       | —                                              |       | (17,762 | ) | — |   |
| Income (loss) applicable to common shareholders                                                                                 |       | 2,659                                                                                         |       | (30                                                 | )          | (18,191 | ) | (82 | ) |
| Basic common shares outstanding                                                                                                 |       | 91,858,319                                                                                    |       | 4,283,061                                           |       | 66,559,664 |   | 4,283,061 |   |
| Incremental shares for assumed exercise of warrants  and stock options                                                          |       | 1,073,855                                                                                     |       | —                                              |       | — |   | — |   |
| Diluted common shares outstanding                                                                                               |       | 92,932,174                                                                                    |       | 4,283,061                                           |       | 66,559,664 |   | 4,283,061 |   |
| Diluted income  (loss) per share                                                                                                |       | $                                                                                             | 0.03       |                                                | $          | (0.01 | ) | $ | (0.27 | ) | $ | (0.02 | ) |

 

**6. Acquisitions**

*The PresleyBusiness (Predecessor)*

On February 7, 2005, the Company acquired an 85%interest in entities which control the commercial utilization of the name,image and likeness of Elvis Presley, the operation of Graceland and relatedattractions and revenue derived from Elvis’ music, films, and televisionspecials. The transaction was financed with a contribution of equity and theexercise of warrants by the members of RFX Acquisition LLC, the issuance ofpreferred and common stock to the seller, the purchase of preferred stock, commonstock and warrants by the Huff Alternative Fund, L.P. and an affiliate and ashort-term senior loan from an affiliate of Bear Stearns &Co., Inc.

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

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

 

Thefollowing table summarizes the amounts allocated to the acquired assets andassumed liabilities based on a valuation prepared by an independent appraisalfirm. These amounts have been adjusted to 

17

----

reflect the Company’s 85% ownership interest. Thesignificant assumptions used in the valuation included factors affecting theduration, growth rates and amounts of future cash flows for each income stream,specifically: the future economic outlook for the industry, risks involved inthe business, and the impact of competition and technological changes.

| ** **                | ** ** | **(in thousands)** | ** ** |
|---------------------------|------------|-------------------------|------------|
| Current assets            |       |                    | $          | 12,848 |   |   |
| Property and  equipment   |       |                    | 26,558     |   |   |
| Goodwill                  |       |                    | 14,444     |   |   |
| Intangible assets         |       |                    | 76,840     |   |   |
| Other assets              |       |                    | 9,680      |   |   |
| Assets acquired           |       |                    | 140,370    |   |   |
| Current  liabilities      |       |                    | 10,591     |   |   |
| Deferred tax  liabilities |       |                    | 9,766      |   |   |
| Other liabilities         |       |                    | 5,819      |   |   |
| Liabilities  assumed      |       |                    | 26,176     |   |   |
| Net assets acquired       |       |                    | $          | 114,194 |   |   |

 

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

Theexcess of the purchase price over the fair values of assets acquired andliabilities assumed was allocated to goodwill. The purchase price for thePresley Business was determined based on management’s assessment of thefinancial prospects of the existing business as well as increased value theCompany believes can be derived from pursuing opportunities to generateadditional cash flows. The Company has better access to the public capitalmarkets than the prior owner which it believes will enable it to implement suchopportunities. In addition, the existing senior management team at the PresleyBusiness has significant knowledge and contacts within the media andentertainment industries. The value reflected in these elements of the purchaseprice do not meet the definition of an intangible asset under FAS 141 andis therefore reflected in goodwill. The amounts, in thousands, allocated tointangible assets were attributed to the following categories and relateduseful lives:

| Record, music  publishing, film and video rights              |   | $      | 28,900 |       | 15 years |   |
|---------------------------------------------------------------|--------|--------|--------|------------|----------|--------|
| Relationships  with licensees                                 |   | 2,550  |   | 10 years   |     |
| Rights to use  Presley name                                   |   | 5,525  |   | 10 years   |     |
| Graceland  memorabilia rights                                 |   | 3,740  |   | 40 years   |     |
| Trademarks, publicity  rights and other intellectual property |   | 36,125 |   | Indefinite |     |

 

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

The Company also acquired a 90-year lease onGraceland in the Presley acquisition that has been valued at $4.8 million.

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

18

----

exceeds the net incomeallocated to minority interest, the additional amount will be recorded asadditional minority interest expense.

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

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

*19 Entertainment*

On March 17, 2005, the Company acquired 100% ofthe outstanding capital stock of 19 Entertainment Limited (the “19Entertainment Acquisition”), a United Kingdom-based company that is acreator, producer and promoter of entertainment properties, including the *IDOLS* television show format. Considerationfor the acquisition consisted of £64.5 million (US $124.4 millionbased on the exchange rate at the date of acquisition) in cash and 1,870,558unregistered shares of common stock, each paid at closing, with an additional£19.2 million (US $36.9 million based on the exchange rate at the date ofacquisition; US $33.8 million based on the exchange rate at September 30,2005)  to be paid on the earlier of (i) thirtydays following delivery of the audited results for the acquired company’sfiscal year ended June 30, 2005, and (ii) December 30, 2005. Inaccordance with the terms of the purchase agreement, at the request of the seller,we will pay the deferred consideration in cash. The shares of common stockissued in the 19 Entertainment Acquisition were valued at $16.83 per share(which represents the average of the Company’s closing stock prices for the twodays prior to and the day of the 19 Entertainment Acquisition). The stockprices subsequent to the consummation of the transaction were excluded from theaverage price in accordance with EITF 99-12, *Determination of the Measurement Date for the Market Price of AcquirerSecurities Issued in a Purchase Business Combination*.

In connection with the acquisition of19 Entertainment, certain sellers of 19 Entertainment entered into aPut and Call Option Agreement that provided them with certain rights relatingto the conversion shares whereby, during a short period following the six yearanniversary of the acquisition, the Company can exercise a call right topurchase the common stock of such stockholders at a price equal to $24.72 pershare and these sellers can exercise a put right to sell the common stock tothe Company at a price equal to $13.18 per share. The put and call rightsapply to 1,672,170 of the shares issued in connection with the19 Entertainment acquisition. The put and call option is not afreestanding instrument as defined in SFAS 150, *Accounting for Certain Financial Instruments with Characteristics ofboth Liabilities and Equity,* because it cannot be legally detachedfrom the underlying common stock. The Company evaluated the put and call optionunder SFAS 133, *Accounting forDerivative Instruments and Hedging Activities*, as an embeddedfeature and determined it was not a bifurcatable derivative and, in accordancewith EITF 00-19, *Accounting forDerivative Financial Instruments Indexed to, and Potentially Settled in, aCompany’s Own Stock*, the put and call option was classified as acomponent of equity. As the Company considered the common stock, including theput and call option, as a single equity instrument, and since the stock wasputtable to the Company at the option of these sellers, these shares have beenpresented in the accompanying balance sheet as temporary equity under theheading Redeemable Restricted Common Stock at an estimated fair value inclusiveof the put/call rights at $23.0 million.

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

19

----

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

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

| Fair value of  common stock issued                                                       |   | $       | 3,339   |   |
|------------------------------------------------------------------------------------------|--------|---------|---------|--------|
| Fair value of  redeemable restricted common stock, including put and call agreement |   | 23,002  |    |
| Deferred purchase  consideration                                                         |   | 36,900  |    |
| Cash                                                                                     |   | 124,367 |    |
| Transaction costs                                                                        |   | 3,847   |    |
|                                                                                     |   | $       | 191,455 |   |

 

Thefollowing table summarizes the estimated fair values of the assets acquired andassumed liabilities based on a preliminary valuation prepared by an independentappraisal firm. Accordingly, the purchase price allocations are preliminary andmay be adjusted for changes in estimates of the fair value of the assetsacquired and liabilities assumed. The Company expects that the purchase priceallocations will be finalized by the time it files its annual report on Form 10-KSBfor the year ending December 31, 2005. The significant assumptions used inthe valuation included factors affecting the duration, growth rates and amountsof future cash flows for each income stream, specifically: the future economicoutlook for the industry, risks involved in the business, and the impact ofcompetition and technological changes.

| ** **                | ** ** | **(in thousands)** | ** ** |
|---------------------------|------------|-------------------------|------------|
| Current assets            |       |                    | $          | 26,838 |   |   |
| Property and  equipment   |       |                    | 2,021      |   |   |
| Goodwill                  |       |                    | 110,852    |   |   |
| Intangible assets         |       |                    | 88,939     |   |   |
| Other assets              |       |                    | 2,953      |   |   |
| Assets acquired           |       |                    | 231,603    |   |   |
| Current  liabilities      |       |                    | 8,352      |   |   |
| Deferred tax  liabilities |       |                    | 27,210     |   |   |
| Other liabilities         |       |                    | 4,586      |   |   |
| Liabilities  assumed      |       |                    | 40,148     |   |   |
| Net assets acquired       |       |                    | $          | 191,455 |   |   |

 

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

Theexcess of the purchase price over the fair values of assets acquired andliabilities assumed was allocated to goodwill. The purchase price for19 Entertainment was determined based on management’s assessment of thefinancial prospects of the existing business as well as the increased value theCompany believes can be derived from the development of new assets by thecreative team at 19 Entertainment. These individuals have a track recordof generating new and profitable creative ideas and we believe providing themwith better access to capital as well as a broader asset base upon which tocreate new projects will enhance the value of 19 Entertainment and theCompany’s other assets. The value reflected in these elements of the purchaseprice does not meet the definition of an intangible asset under FAS 141 

20

----

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

| Television  programming                                                     |   | $      | 75,586 |    | 7 years |   |
|-----------------------------------------------------------------------------|--------|--------|--------|---------|---------|--------|
| Artist management,  recording, merchandising and sponsorship contracts |   | 13,353 |   | 5 years |    |

 

At this time management is unable to determine whetherthe amounts allocated to the above intangible assets will change when theCompany finalizes its valuation and if changes are made, the amount of suchchanges. A $1.0 million fluctuation in fair value amounts allocated to theidentified definite lived intangible assets would cause the following increasesor decreases to annual amortization expense (in thousands): televisionprogramming—$143; and artist management, recording, merchandising andsponsorship contracts—$200.

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

*MBST*

On August 9, 2005, the Company acquired Morra,Brezner, Steinberg & Tenenbaum Entertainment, Inc. (“MBST”), amanager of comedic talent and producer of motion pictures and televisionprogramming. The Company acquired MBST for initial total consideration of $1.0million in cash and 700,000 restricted shares of common stock. The shares ofcommon stock issued in the MBST acquisition were valued at $13.74 per share(which represents the average of the Company’s closing stock prices for the twodays prior to, the day of and two days after the terms of the MBST acquisitionwere agreed upon and announced). The purchase price is subject to a workingcapital adjustment, of which $1.1 million has already been paid to thesellers, representing 75% of the preliminary working capital adjustment; thefinal adjustment will be completed in 2006. In addition, the sellers mayreceive up to an additional 150,000 shares of common stock upon satisfaction ofcertain performance thresholds over the five-year period following the closing;the receipt by the sellers of any such shares will be accounted for asadditional purchase price at the time such performance thresholds are met. TheCompany has entered into long-term employment relationships with the principalsof MBST, Larry Brezner, David Steinberg and Steve Tenenbaum, who continue tooversee the day-to-day operations of MBST.

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

| Fair value of  common stock issued |   | $     | 9,618  |   |
|------------------------------------|--------|-------|--------|--------|
| Cash                               |   | 2,101 |   |
| Transaction costs                  |   | 559   |   |
|                               |   | $     | 12,278 |   |

 

21

----

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

| ** **                | ** ** | **(in thousands)** | ** ** |
|---------------------------|------------|-------------------------|------------|
| Current assets            |       |                    | $          | 1,016 |   |   |
| Property and  equipment   |       |                    | 59         |   |   |
| Goodwill                  |       |                    | 8,839      |   |   |
| Intangible assets         |       |                    | 4,501      |   |   |
| Other assets              |       |                    | 92         |   |   |
| Assets acquired           |       |                    | 14,507     |   |   |
| Current  liabilities      |       |                    | 390        |   |   |
| Deferred tax  liabilities |       |                    | 1,839      |   |   |
| Liabilities  assumed      |       |                    | 2,229      |   |   |
| Net assets acquired       |       |                    | $          | 12,278 |   |   |

 

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

Theexcess of the purchase price over the fair values of assets acquired andliabilities assumed was allocated to goodwill. The purchase price for MBST wasdetermined based on management’s assessment of the financial prospects of theexisting business as well as the increased value the Company believes can bederived from pursuing opportunities to generate additional cash flows. Thevalue reflected in these elements of the purchase price does not meet thedefinition of an intangible asset under FAS 141 and is therefore reflectedin goodwill. The preliminary amounts, in thousands, allocated to intangibleassets were attributed to the following categories and related useful lives:

| Artist contracts                       |   | $     | 3,013  |     | 6 years |   |
|----------------------------------------|--------|-------|--------|----------|---------|--------|
| MBST and client  profit participations |   | 1,249 |   | 10 years |    |
| Consulting arrangement                 |   | 239   |   | 5 years  |    |

 

At this time management is unable to determine whetherthe amounts allocated to the above intangible assets will change when theCompany finalizes its valuation and if changes are made, the amount of suchchanges. A $1.0 million fluctuation in fair value amounts allocated to theidentified definite lived intangible assets would cause the following increasesor decreases to annual amortization expense (in thousands): artist contracts—$167;MBST and client profit participations—$100; consulting arrangement—$200.

The results of operationsof MBST are included in the results of the Company since the dates of acquisition.

*Pro FormaInformation*

Thefollowing table summarizes unaudited pro forma financial information assumingthe acquisitions of the Presley Business, 19 Entertainment and MBST andthe related financing transactions had occurred on January 1, 2004 and2005. The unaudited pro forma financial information does not necessarilyrepresent what would have occurred if the transactions had occurred on thedates presented and should 

22

----

not be taken as representative of the Company’s futureconsolidated results of operations or financial position:

| ** **                                 | ** ** | **Nine Months Ended  September 30,**                   | ** ** |
|--------------------------------------------|------------|-----------------------------------------------------------------------|------------|
| ** **                                 | ** ** | **2005**                                                              | ** ** | **2004** | ** ** |
| ** **                                 | ** ** | **(in thousands, except per  share information)** | ** ** |
| Revenue                                    |       | $                                                                     | 131,054    |   | $ | 107,252 |   |
| Net loss  available to common stockholders |       | (14,825                                                               | )          | (4,141 | ) |
| Net loss per common  share:                |       |                                                                  |       |   |   |
| Basic and diluted                          |       | $                                                                     | (0.22      | ) | $ | (0.06 | ) |

 

The results for each period presented reflect theactual borrowing costs of the Company for the nine months ended September 30,2005.

Note that the amounts forthe nine months ended September 30, 2005 exclude non-cash employeecompensation expense associated with the exercise of employee stock options by19 Entertainment employees immediately prior to the Company’s acquisition on March 17,2005 as the exercises were a one time non-recurring event that resulteddirectly from the acquisition of 19 Entertainment by the Company. Thisexpense was $10.4 million after tax, or $(0.16) per share.

**7. Intangible Assets and Goodwill**

Intangible assets which have finite lives are beingamortized on a straight-line basis over periods from 5 to 15 years.Amortization expense for the three and nine months ended September 30,2005 was $3.9 million and $8.8 million, respectively. The projected annualamortization expense for intangible assets, assuming no further acquisitions ordispositions, is approximately $12.8 million for the year ending December 31,2005 and approximately $16.0 million for each of the following four yearsending December 31.

Intangibleassets as of September 30, 2005 consist of (in thousands):

| ** **                                                                               | ** ** | **Gross  Carrying  Amount** | ** ** | **Accumulated  Amortization** | ** ** | **Foreign  Currency  Translation  Adjustments** | ** ** | **Net  Carrying  Amount** | ** ** |
|------------------------------------------------------------------------------------------|------------|-----------------------------|------------|-------------------------------|------------|-------------------------------------------------|------------|---------------------------|------------|
| Definite Lived  Intangible Assets:                                                       |       |                        |       |                          |       |                                            |       |                      |       |   |   |   |   |
| Presley record,  music publishing, film and video rights                            |       | $                           | 28,900     |                          |       | $                                               | (1,036     | )                         |       |   | $ | — |   |   | $ | 27,864 |   |
| Other Presley  intangible assets                                                         |       | 11,815                      |       |                          | (1,361     | )                                               |       |                      | —     |   |   | 10,454 |   |
| 19 Entertainment  television programming                                                 |       | 75,586                      |       |                          | (4,070     | )                                               |       |                      | (4,120     | ) |   | 67,396 |   |
| 19 Entertainment  artist management, recording, merchandising, and sponsorship contracts |       | 13,353                      |       |                          | (2,253     | )                                               |       |                      | (1,748     | ) |   | 9,352 |   |
| MBST                                                                                     |       | 4,501                       |       |                          | (112       | )                                               |       |                      | —     |   |   | 4,389 |   |
|                                                                                     |       | $134,155                    |       |                          | $          | (8,832                                          | )          |                      |       | $ | (5,868 | ) |   | $ | 119,455 |   |
| Indefinite Lived  Intangible Assets:                                                     |       |                        |       |                          |       |                                            |       |                      |       |   |   |   |   |
| Trademarks, publicity  rights and other intellectual property                            |       | $                           | 36,125     |                          |       |                                            |       |                      |       |   |   |   | $ | 36,125 |   |

 

23

----

 

| ** **              | ** ** | **Balance at  January 1,  2005** | ** ** | **Goodwill  Acquired  During 2005** | ** ** | **Foreign  Currency  Translation  Adjustments** | ** ** | **Balance at  September 30,  2005** | ** ** |
|-------------------------|------------|--------------------------------------------|------------|------------------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| Goodwill:               |       |                                       |       |                                     |       |                                            |       |                                          |       |   |   |   |   |   |   |   |   |
| Presley Business:       |       |                                       |       |                                     |       |                                            |       |                                          |       |   |   |   |   |   |   |   |   |
| Royalties and Licensing |       |                                       | $          | —                                   |       |                                            |       | $                                             | 3,065      |   |   |   | $ | — |   |   |   | $ | 3,065 |   |   |
| Graceland Operations    |       |                                       | —     |                                     |       |                                            | 11,379     |                                          |       |   | — |   |   |   | 11,379 |   |   |
| 19 Entertainment        |       |                                       | —     |                                     |       |                                            | 110,852    |                                          |       |   | (9,482 | ) |   |   | 101,370 |   |   |
| MBST                    |       |                                       | —     |                                     |       |                                            | 8,839      |                                          |       |   | — |   |   |   | 8,839 |   |   |
| Total                   |       |                                       | $          | —                                   |       |                                            |       | $                                             | 134,135    |   |   |   | $ | (9,482 | ) |   |   | $ | 124,653 |   |   |

 

**8.Debt**

In connection with our public offering of common stock(see Note 3), the Company repaid $39.4 million, plus accrued andunpaid interest, owed to an affiliate of Bear, Stearns & Co. Inc.,under a short term senior credit facility incurred in connection with theacquisition of the Presley Business. The loan was repaid at 101% of itsprincipal amount. The Company also paid $109.0 million, plus accrued andunpaid interest, owed to an affiliate of Bear, Stearns & Co. Inc.,under a short term senior credit facility incurred in connection with theacquisition of 19 Entertainment. Both short term senior loans were due tomature on February 6, 2006.

In June 2005, the Company expensed $1.9 millionof unamortized deferred loan costs upon repayment of the short term seniorloans.

The average interest rate on the Presley loan and the19 Entertainment loan was 6.91% and 7.07%, respectively, for the periodsoutstanding in 2005.

At September 30,2005, the Company had total indebtedness of $3.5 million. This debt representsthe amount outstanding under a subordinated promissory note issued to PriscillaPresley in connection with the acquisition of all commercial rights held by Ms. Presleyto use the name “Presley” in connection with the use and exploitation of theassets acquired in the Presley Acquisition as well as all of Ms. Presley’srights, if any, to the name “Graceland.” The note bears interest at the rate of5.385% percent per annum. The principal and interest under the note are payablein seven consecutive equal annual installments of principal and interest of$550,000 each, due and payable on the first through the seventh anniversariesof the date of the note, with an eighth and final installment of principal andinterest in the amount of $549,858, due and payable on the eighth anniversaryof the date of the note.

**9. Stockholders’ Equity**

On February 4, 2005, prior management of theCompany issued 10,000 unregistered shares of common stock in satisfaction of a$270,000 obligation to a former affiliate. In addition, in connection with theRFX Acquisition investment, certain former principal stockholders purchasedwarrants to acquire 500,000 shares of common stock at an exercise price of$10.00 per share. The aggregate purchase price for the warrants was $10,000 incash.

In August 2005, 5,334 shares of common stock wereissued to the Company’s independent directors. These shares represent theportion of the directors’ compensation for the six months ended June 30,2005 that is payable in common stock. The shares have been valued at $13.68,the closing stock price on the date issued. The total value of these shares hasbeen expensed as non-cash compensation.

At September 30,2005, the Company had outstanding warrants to purchase 4,551,597 shares ofcommon stock at an exercise price of $2.00 per share which expire on February 7,2007, and warrants to 

24

----

purchase500,000 shares of common stock at an exercise price of $10.00 per share whichexpire on February 7, 2008.

**10. Stock Plan Awards**

The Company’s 2005 OmnibusLong-Term Incentive Compensation Plan (the “2005 Plan”) was approved byshareholders in March 2005. Under the Plan, the maximum number of sharesof common stock that may be subject to stock options, stock awards, deferredshares, or performance shares is 4,000,000. Shares available for future grantsunder the 2005 Plan were 3,608,666 at September 30, 2005.

*Restricted StockGrants*

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 is being expensed ratably overthe three-year vesting period.

In June 2005, 75,000 shares of restricted commonstock were granted to two independent directors. These grants were inconsideration for services provided in connection with the Company’s publicoffering of common stock that went beyond the normal requirements of serving asa director or on a committee of the board of directors as well as for thecommitment of each of the individuals to continue to serve as chairmen of boardcommittees and serve on the board of directors for a five year period. Thetotal of the award, based on the offering price of $11.00 per share, was $0.8million. $0.2 million was charged to non-cash compensation expense in the threemonths ended June 30, 2005, representing the additional commitment to thestock offering. The remaining $0.6 million is being recognized ratably overthe remaining five-year requisite service period.

The Company issued 7,500restricted shares to employees in the three months ended September 30,2005, subject to various vesting requirements. These shares were valued at thedates of grant and will be charged to non-cash compensation expense ratablyover the vesting periods, which do not exceed three years.

*Stock Option Grants*

The Company granted 261,500 stock options to employeesand consultants on July 19, 2005. The options expire 10 years from thedate of grant. All options were granted at current market price on the date ofgrant, which was $12.20. The options vest 30% on the third anniversary from thedate of grant; 30% on the fourth anniversary from the date of grant; and 40% onthe fifth anniversary from the date of grant. None of the outstanding optionswere exercisable at September 30, 2005.

The fair value of theoptions granted was $4.84. The fair value was estimated using the Black-Scholesoption pricing model based on the weighted average assumptions of:

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

 

Non-cash compensation expense for stock option grantsis being recognized ratably over the five year vesting period, assuming 90% ofthe options will ultimately vest.

Non-cash compensationexpense for stock plan awards for the three and nine months ended September 30,2005 was $0.2 million and $0.5 million, respectively.

25

----

**11. Income Taxes**

In calculating the provision for income taxes on aninterim basis, the Company uses an estimate of the annual effective tax ratebased upon the facts and circumstances known. The Company’s effective tax rateis based on expected income, statutory tax rates and permanent differencesbetween financial statement and tax return income applicable to the Company invarious jurisdictions in which the Company operates.

For the three months ended September 30, 2005,the Company recorded federal income tax expense of $2.3 million, state incometax expense of $0.8 million and foreign income tax expense of $0.3 million.

For the nine months ended September 30,2005, the Company recorded federal income tax expense of $0.1 million, stateincome tax expense of $1.3 million and foreign income tax expense of $0.3million.

**12. Segment Information**

The Company currently has four reportable segments:Presley Business—Royalties and Licensing, Presley Business—GracelandOperations, 19 Entertainment and MBST. All inter-segment transactionshave been eliminated in the consolidated financial statements.

26

----

Theoperating income (loss) amounts for the Presley Business after acquisition bythe Company are not directly comparable to the amounts for the Presley Businessas Predecessor due to the impact of purchase accounting adjustments made uponthe acquisition of the Presley Business on February 7, 2005 which resultedin a substantial increase in the carrying value of fixed and intangible assetsand a corresponding increase in depreciation and amortization expense in thepost-acquisition periods.

| ** **                                            | ** ** | **Presley Business**            | ** ** | ** **                | ** ** | ** **            | ** ** | ** ** | ** ** | ** **                        | ** ** |
|-------------------------------------------------------|------------|--------------------------------------|------------|---------------------------|------------|-----------------------|------------|------------|------------|-----------------------------------|------------|
| **Segment Information**                          | ** ** | **Royalties and  Licensing**    | ** ** | **Graceland  Operations** | ** ** | **19  Entertainment** | ** ** | **MBST**   | ** ** | **Corporate**

**and other** | ** ** | **Total** | ** ** |
| ** **                                            | ** ** | **(amounts in thousands)** | ** ** |
| Three months ended  September 30, 2005           |       |                                 |       |                      |       |                  |       |       |       |                              |       |   |   |   |   |   |   |   |   |   |   |
| Revenue                                               |       |                                 | $          | 2,837                     |       |                  |       | $          | 10,465     |                              |       |   | $ | 45,793 |   |   | $ | 685 |   |   | $ | — |   |   | $ | 59,780 |   |
| Operating income  (loss)                              |       |                                 | $          | 550                       |       |                  |       | $          | 2,364      |                              |       |   | $ | 5,441 |   |   | $ | (139 | ) |   | $ | (3,343 | ) |   | $ | 4,873 |   |
| Three months ended  September 30, 2004           |       |                                 |       |                      |       |                  |       |       |       |                              |       |   |   |   |   |   |   |   |   |   |   |
| Revenue                                               |       |                                 | $          | —                    |       |                  |       | $          | —     |                              |       |   | $ | — |   |   | $ | — |   |   | $ | — |   |   | $ | — |   |
| Operating income  (loss)                              |       |                                 | $          | —                    |       |                  |       | $          | —     |                              |       |   | $ | — |   |   | $ | — |   |   | $ | (25 | ) |   | $ | (25 | ) |
| Three months ended  September 30, 2004           |       |                                 |       |                      |       |                  |       |       |       |                              |       |   |   |   |   |   |   |   |   |   |   |
| (Predecessor):                                        |       |                                 |       |                      |       |                  |       |       |       |                              |       |   |   |   |   |   |   |   |   |   |   |
| Revenue                                               |       |                                 | $          | 3,206                     |       |                  |       | $          | 9,479      |                              |       |   | $ | — |   |   | $ | — |   |   | $ | — |   |   | $ | 12,685 |   |
| Operating income  (loss)                              |       |                                 | $          | 2,447                     |       |                  |       | $          | 1,086      |                              |       |   | $ | — |   |   | $ | — |   |   | $ | — |   |   | $ | 3,533 |   |
| Nine months ended  September 30, 2005            |       |                                 |       |                      |       |                  |       |       |       |                              |       |   |   |   |   |   |   |   |   |   |   |
| Revenue                                               |       |                                 | $          | 15,567                    |       |                  |       | $          | 22,405     |                              |       |   | $ | 64,512 |   |   | $ | 685 |   |   | $ | — |   |   | $ | 103,169 |   |
| Operating income  (loss)                              |       |                                 | $          | 4,382                     |       |                  |       | $          | 3,964      |                              |       |   | $ | 7,724 |   |   | $ | (139 | ) |   | $ | (10,549 | ) |   | $ | 5,382 |   |
| Nine months ended  September 30, 2004            |       |                                 |       |                      |       |                  |       |       |       |                              |       |   |   |   |   |   |   |   |   |   |   |
| Revenue                                               |       |                                 | $          | —                    |       |                  |       | $          | —     |                              |       |   | $ | — |   |   | $ | — |   |   | $ | — |   |   | $ | — |   |
| Operating income  (loss)                              |       |                                 | $          | —                    |       |                  |       | $          | —     |                              |       |   | $ | — |   |   | $ | — |   |   | $ | (68 | ) |   | $ | (68 | ) |
| Period January 1,  2005 to February 7, 2005 |       |                                 |       |                      |       |                  |       |       |       |                              |       |   |   |   |   |   |   |   |   |   |   |
| (Predecessor):                                        |       |                                 |       |                      |       |                  |       |       |       |                              |       |   |   |   |   |   |   |   |   |   |   |
| Revenue                                               |       |                                 | $          | 1,702                     |       |                  |       | $          | 1,740      |                              |       |   | $ | — |   |   | $ | — |   |   | $ | — |   |   | $ | 3,442 |   |
| Operating income  (loss)                              |       |                                 | $          | 1,167                     |       |                  |       | $          | (705       | )                                 |       |   | $ | — |   |   | $ | — |   |   | $ | — |   |   | $ | 462 |   |
| Nine months ended  September 30, 2004            |       |                                 |       |                      |       |                  |       |       |       |                              |       |   |   |   |   |   |   |   |   |   |   |
| (Predecessor):                                        |       |                                 |       |                      |       |                  |       |       |       |                              |       |   |   |   |   |   |   |   |   |   |   |
| Revenue                                               |       |                                 | $          | 9,110                     |       |                  |       | $          | 22,610     |                              |       |   | $ | — |   |   | $ | — |   |   | $ | — |   |   | $ | 31,720 |   |
| Operating income  (loss)                              |       |                                 | $          | 6,150                     |       |                  |       | $          | 1,169      |                              |       |   | $ | — |   |   | $ | — |   |   | $ | — |   |   | $ | 7,319 |   |
| Segment assets at  September 30, 2005       |       |                                 | $          | 68,364                    |       |                  |       | $          | 73,513     |                              |       |   | $ | 235,634 |   |   | $ | 14,455 |   |   | $ | 86,158 |   |   | $ | 478,124 |   |

 

**13. Related Party Transactions**

Included in the Condensed Consolidated Statement ofOperations for the nine months ended September 30, 2005 are$2.2 million of costs related to the transition of the Company from anentity with no operations. These costs include $1.2 million of operatingcosts of an affiliate of RFX Acquisition LLC, primarily salaries, employeebenefits, rent and other overhead costs incurred from November 2004through February 7, 2005, which, pursuant to certain agreements, werereimbursed by CKX upon closing of the 

27

----

RFX Acquisition LLCinvestment and the Presley Acquisition. The remaining costs consist of legalexpenses, listing fees, and due diligence expenses.

Immediately prior to theconsummation of the various transactions resulting in our acquisition of thePresley Business, the Company entered into a sublease for 16,810 square feetfor its principal corporate offices in New York, New York. The prior subtenantsfrom whom the Company assumed the terms of the sublease were FXM, Inc. (“FXM”)and MJX Asset Management LLC (“MJX”). Mr. Sillerman is the managing memberof MJX and is the principal stockholder of FXM. Certain other executiveofficers of the Company are also investors in MJX and FXM. The terms of theCompany’s sublease are identical to those which governed FXM’s and MJX’soccupation of such space. In accordance with certain requirements set forth inthe existing sublease for the space, FXM was required to remain as a guarantorto the Company’s obligations under the sublease. While the Company was not yetsubject to the rules and regulations of The NASDAQ National Market®, thetransaction was ratified by the independent members of the board of directorsof the Company in accordance with The NASDAQ National Market’s® rules foraffiliated transactions.

**14. Supplemental Cash Flow Information**

**TheCompany had the following non-cash investing and financing activities in thenine months ended September 30, 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                                                         |   | 9,618  |   |

 

**15. Restatement ofFinancial Statements**

Subsequent to the issuance of the Company’s condensedconsolidated financial statements for the period ended September 30, 2005,the Company’s management determined that income tax expense was overstated dueto an error in the calculation of foreign taxes. As a result, the condensedconsolidated statements of operations for the three and nine month periodsended September 30, 2005 have been restated from the amounts previouslyreported.

The Company changed the presentation on its condensedconsolidated statements of operations to reflect equity in earnings ofaffiliates below income (loss) before income taxes based on underlying characteristicsof the related investments.

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

| ** **                             | ** ** | **As of September 30, 2005** | ** **                                                                |
|----------------------------------------|------------|----------------------------------------|---------------------------------------------------------------------------|
| ** **                             | ** ** | **As previously  reported**       | ** **                                                                | **As restated** | ** ** |
| ** **                             | ** ** | **(in thousands)**                | ** **                                                                |
| Prepaid income  taxes                  |       |                                   | $                                                                         | 6,572 |   |   |   | $ | 8,447 |   |   |
| Deferred tax  assets, non-current      |       |                                   |             — |   |   |   |          860 |   |   |
| Deferred tax  liabilities, non-current |       |                                   |     37,326                                                 |   |   |   |     38,186 |   |   |
| Accumulated deficit                    |       |                                   |   (38,699                                                            | ) |   |   |   (36,824 | ) |   |

 

28

----

 

| ** **                                                             | ** ** | **Three Months Ended ** | ** **                   | **Nine Months Ended**  | ** ** |
|------------------------------------------------------------------------|------------|----------------------------------------|------------------------------|----------------------------------|------------|
| ** **                                                             | ** ** | **September 30, 2005**       | ** **                   | **September 30, 2005** | ** ** |
| **(amounts in thousands, except share data)** | ** ** | **As previously  reported**       | ** **                   | **As restated**             | ** ** | **As previously  reported** | ** ** | **As restated** | ** ** |
| Income (loss)  before income taxes                                     |       |                                   | $                            | 6,867                            |       |   |   | $ | 6,569 |   |   |   | $ | 3,501 |   |   |   | $ | 2,842 |   |   |
| Income tax  expense                                                    |       |                                   |   5,315                 |                             |       |   |   3,440 |   |   |   | 3,605 |   |   |   | 1,730 |   |   |
| Net income (loss)                                                      |       |                                   |   1,240                 |                             |       |   |   3,115 |   |   |   |     (1,128 | ) |   |   |          747 |   |   |
| Net income (loss)  available to common shareholders               |       |                                   |      784 |                             |       |   |   2,659 |   |   |   |   (20,066 | ) |   |   |   (18,191 | ) |   |
| Basic and diluted income  (loss) per common share                      |       |                                   |     0.01      |                             |       |   |     0.03 |   |   |   |        (0.30 | ) |   |   |        (0.27 | ) |   |

 

*** * * * ***

**FORWARDLOOKING STATEMENTS**

In addition to historicalinformation, this Form 10-QSB (this “Quarterly Report”) containsforward-looking statements within the meaning of Section 27A of theSecurities Act of 1933, as amended, and Section 21E of the SecuritiesExchange Act of 1934, as amended. Forward-looking statements are thosethat predict or describe future events or trends and that do not relate solelyto historical matters. You can generally identify forward-lookingstatements as statements containing the words “believe,” “expect,” “will,” “anticipate,”“intend,” “estimate,” “project,” “assume” or other similar expressions,although not all forward-looking statements contain these identifyingwords. All statements in this Quarterly Report regarding our future strategy,future operations, projected financial position, estimated future revenue,projected costs, future prospects, and results that might be obtained bypursuing management’s current plans and objectives are forward-lookingstatements. You should not place undue reliance on our forward-lookingstatements because the matters they describe are subject to known and unknownrisks, uncertainties and other unpredictable factors, many of which are beyondour control. Our forward-looking statements are based on the informationcurrently available to us and speak only as of the date on which this QuarterlyReport was filed with the Securities and Exchange Commission (“SEC”). Weexpressly disclaim any obligation to issue any updates or revisions to ourforward-looking statements, even if subsequent events cause ourexpectations to change regarding the matters discussed in those statements.Over time, our actual results, performance or achievements will likely differfrom the anticipated results, performance or achievements that are expressed orimplied by our forward-looking statements, and such difference might besignificant and materially adverse to our stockholders.

29

----

**Item2.        Management’s Discussion andAnalysis of Financial Condition and Results of Operations**

*Management’s discussion and analysis of financialcondition and results of operations should be read in conjunction with thehistorical financial statements and footnotes of the registrant, included inits Annual Report on Form 10-KSB for the year ended December 31,2004, and of the Presley Business, included in the Company’s Current Report on Form 8-K/Afiled on February 11, 2005, of 19 Entertainment Limited, included in theCompany’s Current Report on Form 8-K/A filed on May 27, 2005and of MBST, included in the Company’s Current Report on Form 8-K/Afiled on October 25, 2005. Our future results of operations may changematerially from the historical results of operations reflected in ourhistorical financial statements.*

**Restatement of PreviouslyIssued Financial Statements**

Management’s Discussionand Analysis of Financial Condition and Results of Operations has been revisedfor the effects of the restatement discussed in Note 15 to the condensedconsolidated financial statements in Item 1 of the Form 10-QSB/A.

**General**

We are engaged in theownership, development and commercial utilization of entertainment content,including the rights to the name, image and likeness of Elvis Presley, theoperations of Graceland and proprietary rights to the *IDOLS* television brand, including theAmerican Idol series in the United States, and 30 local adaptations of the *IDOLS* television show format which,collectively, air in over 100 countries around the world.

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

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. The historical financial statements of the Presley Business and relatedmanagement’s discussion and analysis of financial condition and results ofoperations reflect 100% of the Presley Business.

As a result of theseacquisitions, we have made changes to the historical capital and financialstructure of the Company, which is noted below under “Liquidity and CapitalResources.”

**Presley Business**

The Presley Businessconsists of generating revenue from the name and likeness of Elvis Presley,including physical and intellectual property owned or created by Elvis Presleyduring his life. Our primary revenue sources include ticket sales and relatedincome from public tours of Graceland, income 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. We also derive revenue from theoperation of Elvis Presley’s Heartbreak Hotel and the Meadow Oaks apartmentcomplex. Most of our revenue sources are dependant upon the public’s continuedinterest in Elvis and the intellectual property he created.

Revenue from tours ofGraceland has historically been seasonal with sharply higher numbers ofvisitors during the late spring and summer months as compared to the fall andwinter seasons.

30

----

Licensing revenue isprimarily derived from long-term contracts with terms of two to ten years.Although we seek to obtain significant minimum guarantees, our licensingrevenue varies based on the actual product sales generated by licensees.

The intellectual propertycreated by Elvis during his lifetime which we own has generally been assignedto 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.

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.

**19 Entertainment**

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

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

Most of our *IDOLS* related revenue is generated throughagreements with our global television production and distribution partner,FremantleMedia Limited, and our global record label partner, Ronagold Limited,a subsidiary of SonyBMG Music Entertainment. Therefore, we are highly dependentupon the continued ability of these entities to successfully maintain the *IDOLS* brand and promote our recordingartists.

The *IDOLS* television shows, which have airedin over 100 countries, are generally produced or licensed under one yearcontracts under 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 andSonyBMG Music Entertainment have the right, but not the obligation, to requirethe artist to release a specified number of albums.

Our revenue from the *IDOLS*brand is also highly dependent upon the continued success of the American Idolseries which currently airs on the Fox television network. Our revenue is alsodependent upon the continued success and productivity of our other recordingartists and management clients. A portion of our revenue from the American Idolseries is dependent upon the number of hours of programming we deliver. In ourrecently completed fourth broadcast season, which aired during our first andsecond fiscal quarters of 2005, we delivered 38.5 hours of programming comparedto 42.5 hours of programming during the same period of 2004. This net declineof 4 hours which occurred in the second quarter reduced revenue and operatingincome before depreciation and amortization (OIBDA) derived from this programin the second fiscal quarter of 2005 compared to 2004.

19 Entertainment’s revenueis seasonal in nature, reflecting the timing of our television shows and toursin various markets. Historically, 19 Entertainment generated higher revenueduring the first half of 

31

----

the calendar year,which corresponds to the dates our American Idol series airs on the Foxtelevision network in the United States. 19 Entertainment’s revenues reflectits contractual share of the Idol television revenue representing producer,format and licensing fees as well as ratings and ratings bonuses and do notinclude the revenues earned directly by our production and distribtutionpartner, FremantleMedia Limited. In 2005, 19 Entertainment will generateadditional revenue during the second half of the year, reflecting revenue fromits new television show *So You Think You Can Dance*,which aired in the third quarter on Fox. A significant portion of our revenuefrom the American Idol television show is paid to us in the second half of thecalendar year.

Our significant costs tooperate 19 Entertainment include salaries and other compensation, rentsand general overhead costs. Our discretionary costs include salary and overheadcosts incurred in the development of new television projects and investmentsmade in trying to establish successful recording careers for artists who haveappeared as finalists on the *IDOLS*television series.

**MBST**

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

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

Our significant costs tooperate MBST include salaries, rent and general overhead costs. Most of thesecosts do not vary significantly with our revenue.

**Use of OIBDA**

We evaluate our operatingperformance based on several factors, including our primary financial measureof operating income (loss) before non-cash depreciation of tangibleassets and non-cash amortization of intangible assets (which we refer toas “OIBDA”). We consider OIBDA to be an important indicator of the operationalstrengths and performance of our businesses, including the ability to providecash flows to service debt. However, a limitation of the use of OIBDA as aperformance measure is that it does not reflect the periodic costs of certaincapitalized tangible and intangible assets used in generating revenue in ourbusinesses. Accordingly, OIBDA should be considered in addition to, not as asubstitute for, operating income (loss), net income (loss) and other measuresof financial performance reported in accordance with US GAAP because OIBDA isnot a GAAP equivalent measurement.

We have reconciled OIBDAto operating income in the following consolidated operating results tables forthe three and nine months ended September 30, 2005.

32

----

**ConsolidatedOperating Results—Three Months Ended September 30, 2005**

**Comparedto Predecessor Three Months Ended September 30, 2004**

Priorto the acquisition of the Presley Business on February 7, 2005, theCompany had no operations. As a result, the Presley Business is considered thePredecessor company. To assist in the understanding of the results ofoperations of the Company, we have presented supplemental historical results ofthe Predecessor. Management believes this provides the most meaningful analysisof the Company’s results for the three months ended September 30, 2005.

| ** **                                                            | ** ** | **CKX  Three Months  Ended  September 30, 2005** | ** ** | **Predecessor  Presley  Three Months  Ended  September 30, 2004** | ** ** | **Variance** | ** ** |
|-----------------------------------------------------------------------|------------|-----------------------------------------------------------------|------------|----------------------------------------------------------------------------------|------------|--------------|------------|
| ** **                                                            | ** ** | **(amounts in thousands)**                            | ** ** |
| Revenue                                                               |       |                                                            | $          | 59,780                                                                           |       |         |       | $ | 12,685 |   |   | $ | 47,095 |   |
| Operating  expenses                                                   |       |                                                            | 54,907     |                                                                             |       |         | 9,152      |   |   | 45,755 |   |
| Operating income                                                      |       |                                                            | 4,873      |                                                                             |       |         | 3,533      |   |   | 1,340 |   |
| Interest income  (expense), net                                       |       |                                                            | 659        |                                                                             |       |         | (237       | ) |   | 896 |   |
| Other income                                                          |       |                                                            | 1,037      |                                                                             |       |         | —     |   |   | 1,037 |   |
| Income before  income taxes                                           |       |                                                            | 6,569      |                                                                             |       |         | 3,296      |   |   | 3,273 |   |
| Income tax  expense                                                   |       |                                                            | 3,440      |                                                                             |       |         | 464        |   |   | 2,976 |   |
| Income before  equity in earnings of affiliates and minority interest |       |                                                            | 3,129      |                                                                             |       |         | 2,832      |   |   | 297 |   |
| Equity in  earnings of affiliates                                     |       |                                                            | 298        |                                                                             |       |         | —     |   |   | 298 |   |
| Minority interest                                                     |       |                                                            | (312       | )                                                                                |       |         | —     |   |   | (312 | ) |
| Net income                                                            |       |                                                            | $          | 3,115                                                                            |       |         |       | $ | 2,832 |   |   | $ | 283 |   |
| Operating income                                                      |       |                                                            | $          | 4,873                                                                            |       |         |       | $ | 3,533 |   |   | $ | 1,340 |   |
| Depreciation and  amortization                                        |       |                                                            | 4,401      |                                                                             |       |         | 304        |   |   | 4,097 |   |
| OIBDA                                                                 |       |                                                            | $          | 9,274                                                                            |       |         |       | $ | 3,837 |   |   | $ | 5,437 |   |

 

The CKX financialstatements for the three months ended September 30, 2005 are prepared on adifferent basis of accounting than the Predecessor financial statements for thethree months ended September 30, 2004. The CKX results include the impactof additional depreciation and amortization expense resulting from the fairvalue accounting of acquired assets for the Presley Business, 19 Entertainmentand MBST. This added approximately $3.9 million to operating expenses.

***Revenue***

Revenue for the threemonths ended September 30, 2005 was $59.8 million as compared to$12.7 million for the Predecessor for the three months ended September 30,2004. The increase of $47.1 million is attributable to $45.8 million ofrevenue for 19 Entertainment and $0.7 million of revenue for MBST. Therevenue for the Presley Business increased $0.6 million compared to the priorperiod.

***Operating Expenses***

Operating expenses were$54.9 million for the three months ended September 30, 2005 as compared to$9.2 million for the Predecessor for the three months ended September 30,2004, an increase of $45.7 million. Of this increase, $40.4 millionrepresents the operating expenses of 19 Entertainment, $0.8 million for MBST,$1.2 million represents increased operating expenses for the Presley Businessand $3.3 million of the increase represents corporate overhead costs.Acquisition-related amortization and depreciation expense accounted for $3.9million of the increased operating expenses. Operating expenses include$0.2 million of non-cash compensation expense.

33

----

***Operating Income***

Operating income increased$1.3 million to $4.9 million due to the operating income generated by 19 Entertainmentpartially offset by corporate expenses and acquisition-related amortization anddepreciation expense.

***OIBDA***

Combined OIBDA increased$5.4 million to $9.3 million for the three months ended September 30,2005 due primarily to OIBDA of $8.6 million attributable to 19 Entertainmentfor the period since the date of its acquisition which was partially offset bycorporate overhead costs.

***Interest Expense, net***

The Company had netinterest income of $0.7 million for the three months ended September 30,2005 due to the invested proceeds from the Company’s public offering of commonstock at the end of the second quarter, compared to interest expense of $0.2 millionfor the predecessor company.

***Other Income***

Other income of$1.0 million relates primarily to foreign exchange gains.

***Income Taxes***

For the three months endedSeptember 30, 2005, the Company recorded income tax expense of $3.4 million,reflecting federal income tax expense of $2.3 million, state income taxesof $0.8 million and foreign income tax expense of $0.3 million. ThePredecessor business was partly held in a trust structure and therefore aportion of the net income was not taxed in the business, resulting in a loweffective tax rate.

***Equity in Earnings of Affiliates***

The Company recorded $0.3million of earnings in unconsolidated affiliates for the three months endedSeptember 30, 2005.

***Minority Interest***

The minority interestexpense of $0.3 million reflects a 15% share in the net income of thePresley Business related to the equity interest retained by the former owner.

***Net Income***

The Company had net incomeof $3.1 million in 2005 compared to net income for the Predecessor of $2.8 millionfor the same period in 2004.

**Presley Business**

Revenue for the Presley Business for the three monthsended September 30, 2005 was $13.3 million, an increase of $0.6 millionover the three months ended September 30, 2004. Royalty and licensingrevenue was $2.8 million, a decrease of $0.4 million, or 13%, due to timing of royalties reported on merchandiselicensing. Tour and exhibit revenue was $3.9 million, an increaseof $0.7 million, or 22%. This increase resulted from higher per visitorspending due to an increase in full package tour purchases and other revenueenhancement programs. Attendance for the quarter was down 8% from 196,000 to181,000 mostly due to lower attendance in September 2005 believed to berelated to the affects of Hurricane Katrina and higher gas prices. Revenue fromGraceland’s retail operations was $4.6 million, an increase of $0.2 million,or 5%, due to revenue received from Elvis the Concert merchandise sales of $0.5 million.In 

34

----

addition in July 2005,the mail order retail business was moved to a new vendor and the Company nowbears the business risk for sales and related expenses. Accordingly, $0.2million of mail order revenue is included in 2005 compared to the prior yearquarter when the Company received a commission for sales from its mail ordervendor.  Hotel room revenue was $1.1million, an increase of $0.1 million, or 10%, due to the average occupancyrate increasing to 95% from 92% and higher room rates.

Operating expenses,excluding acquisition-related depreciation and amortization expenses, were $9.3 millioncompared to $9.2 million in the prior period, an increase of $0.1 million.

**19 Entertainment**

Revenue for 19 Entertainment was $45.8 millionfor the three months ended September 30, 2005. Film and television revenuewas $23.6 million, of which $21.6 million relates to the broadcast of*So You Think You Can Dance*, a new seriesthat was broadcast on the Fox network in the United States. Touring revenue was$10.0 million, reflecting the American Idol 4 tour in the UnitedStates. Sponsorship and Merchandising revenue was $7.4 million, most ofwhich relates to the *IDOLS* format.Music revenue was $4.3 million reflecting royalties primarily on albums of*IDOLS* winners. Revenue from artistmanagement was $0.5 million.

Operating expenses,excluding acquisition-related depreciation and amortization expenses, were $37.2 million.Cost of sales, which represents costs directly associated with televisionproduction and other ventures including royalties to artists, was $31.2 million,which includes $19.9 million related to *So You ThinkYou Can Dance*. Selling, general and administrative expenses were$6.0 million.

**MBST**

MBST contributed $0.7million in revenue since the date of acquisition on August 9, 2005. Operatingexpenses, excluding acquisition-related depreciation and amortization expenses,were $0.7 million.

35

----

**CombinedOperating Results Nine Months Ended September 30, 2005**

**Compared toPredecessor Nine Months Ended September 30, 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. To assist in the understanding of the results ofoperations of the Company, we have presented supplemental historical results ofthe Predecessor. For the purpose of management’s discussion and analysis offinancial condition and results of operations, we have combined the Company’sresults for the nine months ended September 30,2005 with that of the Predecessor for the period January 1, 2005 to February 7,2005 and compared that to the results of the Predecessor for the nine monthsended September 30, 2004.Management believes that this provides the most meaningful analysis of theCompany’s results for the nine months ended September 30, 2005.

| ** **                                                                   | ** ** | **CKX  Nine Months  Ended  September 30,  2005** | ** ** | **Predecessor  Presley  January 1,  2005 To  February 7,  2005** | ** ** | **Combined  Total** | ** **   | ** ** | ** ** | **Predecessor  Presley  Nine Months  Ended  September 30,  2004** | ** ** | **Variance** | ** ** |
|------------------------------------------------------------------------------|------------|------------------------------------------------------------|------------|---------------------------------------------------------------------------------|------------|---------------------|--------------|------------|------------|-----------------------------------------------------------------------------|------------|--------------|------------|
| ** **                                                                   | ** ** | **(amounts in thousands)**                       | ** ** |
| Revenue                                                                      |       |                                                       | $          | 103,169                                                                         |       |                |         | $          | 3,442      |                                                                        |       |         | $          | 106,611 |   |   |   |   |   | $ | 31,720 |   |   |   | $ | 74,891 |   |   |
| Operating expenses                                                           |       |                                                       | 97,787     |                                                                            |       |                | 2,980        |       |       |                                                                        | 100,767    |         |       |   |   |   | 24,401 |   |   |   | 76,366 |   |   |
| Operating income                                                             |       |                                                       | 5,382      |                                                                            |       |                | 462          |       |       |                                                                        | 5,844      |         |       |   |   |   | 7,319 |   |   |   | (1,475 | ) |   |
| Interest  (expense), net                                                     |       |                                                       | (3,490     | )                                                                               |       |                | (115         | )          |       |                                                                        | (3,605     | )            |       |   |   |   | (916 | ) |   |   | (2,689 | ) |   |
| Write-off of  unamortized deferred loan costs                           |       |                                                       | (1,894     | )                                                                               |       |                | —  |       |       |                                                                        | (1,894     | )            |       |   |   |   | —  |   |   |   | (1,894 | ) |   |
| Other income                                                                 |       |                                                       | 2,844      |                                                                            |       |                | —       |       |       |                                                                        | 2,844      |         |       |   |   |   | 8 |   |   |   | 2,836 |   |   |
| Income before  income taxes                                                  |       |                                                       | 2,842      |                                                                            |       |                | 347          |       |       |                                                                        | 3,189      |         |       |   |   |   | 6,411 |   |   |   | (3,222 | ) |   |
| Income tax expense                                                           |       |                                                       | 1,730      |                                                                            |       |                | 152          |       |       |                                                                        | 1,882      |         |       |   |   |   | 562 |   |   |   | 1,320 |   |   |
| Income (loss) before  equity in earnings of affiliates and minority interest |       |                                                       | 1,112      |                                                                            |       |                | 195          |       |       |                                                                        | 1,307      |         |       |   |   |   | 5,849 |   |   |   | (4,542 | ) |   |
| Equity in earnings  of affiliates                                            |       |                                                       | 659        |                                                                            |       |                | —       |       |       |                                                                        | 659        |         |       |   |   |   | — |   |   |   | 659 |   |   |
| Minority interest                                                            |       |                                                       | (1,024     | )                                                                               |       |                | —       |       |       |                                                                        | 1,024      |         |       |   |   |   | — |   |   |   | (1,024 | ) |   |
| Net income (loss)                                                            |       |                                                       | $          | 747                                                                             |       |                |         | $          | 195        |                                                                        |       |         | $          | 942 |   |   |   |   |   | $ | 5,849 |   |   |   | $ | (4,907 | ) |   |
| Operating income                                                             |       |                                                       | $          | 5,382                                                                           |       |                |         | $          | 462        |                                                                        |       |         | $          | 5,844 |   |   |   |   |   | $ | 7,319 |   |   |   | $ | (1,475 | ) |   |
| Depreciation and  amortization                                               |       |                                                       | 10,079     |                                                                            |       |                | 126          |       |       |                                                                        | 10,205     |         |       |   |   |   | 898 |   |   |   | 9,307 |   |   |
| OIBDA                                                                        |       |                                                       | $          | 15,461                                                                          |       |                |         | $          | 588        |                                                                        |       |         | $          | 16,049 |   |   |   |   |   | $ | 8,217 |   |   |   | $ | 7,832 |   |   |

 

The combined total columnhas been prepared on a different basis of accounting than for the Predecessorfor the period ended September 30, 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 $8.8 million tooperating expenses. In addition, the combined total includes interest expenserelated to the Presley and 19 Entertainment short term senior creditfacilities and the Priscilla Presley Note of $4.1 million.

***Revenue***

On a combined basis,revenue was $106.6 million for the combined total period as compared to$31.7 million for the Predecessor for the nine months ended September 30,2004. The increase of $74.9 million is primarily attributable to$64.5 million of revenue at 19 Entertainment for the period since itsacquisition. $9.7 million was attributable to the Presley Business with $5.7million due to the release of the documentary, “Elvis by the Presleys,*”* and $3.6 million was due to higher licensing and royaltyfees and revenue from Graceland operations. MBST contributed $0.7 million inrevenue since its date of acquisition.

36

----

***Operating Expenses***

Combined operatingexpenses for the nine months ended September 30, 2005 increased by$76.3 million over the prior period. Of this increase, $56.8 millionreflects the operating expenses of 19 Entertainment since its acquisition.Presley operating costs increased $8.2 million, primarily due to the productioncosts for “Elvis by the Presleys”. MBST had operating costs of $0.8 million. Corporateoverhead costs account for $8.3 million of the increase and $2.2 millionrepresents costs related to the transition of the Company including the RFXInvestment and the Presley Acquisition. Included in the $2.2 million ofother costs are $1.1 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, whichwere reimbursed by the Company upon closing of the RFX Acquisition LLCinvestment and the Presley Acquisition. The remaining costs consist of legalexpenses, listing fees, and due diligence expenses. Acquisition-relatedamortization and depreciation expense accounts for $8.8 million of theincreased operating expenses. Operating expenses include $0.6 million ofnon-cash compensation expense.

***Operating Income***

Combined operating incomedeclined $1.5 million to $5.8 million due to operating income generated by 19Entertainment and higher operating income at the Presley Business, offset bycorporate expenses and acquisition-related amortization and depreciationexpenses.

***OIBDA***

Combined OIBDA increased$7.8 million to $16.1 million for the nine months ended September 30, 2005as higher OIBDA at the Presley Business and OIBDA attributable to 19Entertainment of $14.3 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 Companydescribed above.

***Interest Expense***

Interest expense increasedby $2.7 million due to the interest costs associated with borrowingsincurred to acquire the Presley Business and 19 Entertainment.

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

Unamortized deferred loancosts of $1.9 million were expensed when the short-term senior loans used tofinance the Presley and 19 Entertainment acquisitions were re-paid on June 27,2005 from the proceeds of the Company’s public offering of common stock.

***Other Income***

Other income of$2.8 million relates primarily to foreign exchange gains.

37

----

***Income Tax***

For the nine months endedSeptember 30, 2005, the Company recorded income tax expense of $1.7 million,reflecting federal income taxes of $0.1 million, state income taxes of $1.3 millionand foreign income taxes of $0.3 million. The provision reflects a foreignprovision on U.K. income associated with 19 Entertainment and the effect ofcertain changes in estimates associated with acquisitions. The Predecessorbusiness was partly held in a trust structure and therefore a portion of thenet income was not taxed in the business, resulting in a low effective taxrate.

***Equity in Earnings of Affiliates***

The Company recorded $0.7million of earnings in unconsolidated affiliates for the nine months endedSeptember 30, 2005.

***Minority Interest***

Theminority interest expense of $1.0 million reflects a 15% share in the netincome of the Presley Business related to the equity interest retained by theformer owner.

***Net Income***

The combined net income was $0.9 million in 2005compared to net income for the Predecessor of $5.8 million for the sameperiod in 2004.

**Presley Business**

Revenue for the Presley Business was $41.5 million forthe nine months ended September 30, 2005, an increase of $9.7 million, or31%. Licensing and royalty revenue was $17.3 million, an increase of$8.2 million, or 89%. $5.7 million of this increase was due to theproduction of “Elvis by the Presleys.” The remaining increase representsroyalties from the release of digitally enhanced videos and DVDs of *Aloha*and *68Special,*license fees for the CBS miniseries on Elvis Presley thatalso aired on the CBS television network in May 2005, and new licensingactivities, including a license agreement with Sirius satellite radio for anexclusively Elvis radio channel. Tour and exhibit revenue was $9.4 million, anincrease of $0.6 million, or 7%. This increase resulted from higherper-visitor spending due to revenue enhancement programs offset slightly by a2% decrease in mansion attendance from 458,000 to 449,000. Revenue fromGraceland’s retail operations was $9.8 million, an increase of$0.6 million, or 7%, due to the Elvis the Concert merchandise sales of $0.5million offset slightly by a $0.1 million decline resulting from a change inthe mail order retail business. On April 1, 2004, the operation of thatportion of the business was outsourced and the Company began to receive acommission based on net sales versus recording sales and cost of sales. In July 2005,this operation was moved to a new vendor and the Company again bears the businessrisk for sales and related expenses. The financial statements include fourmonths of such revenue in 2004 and two months in 2005. Hotel room revenue was$2.7 million, an increase of $0.1 million or 4% as the average occupancy ratewas flat at 83% due to renovations in 2005 offset by higher yield per room dueto rate increases implemented in the second quarter.

Operating expenses,excluding acquisition-related depreciation and amortization expenses, were$30.1 million compared to $24.4 million in the prior period, an increaseof $5.6 million, or 23%, due primarily to production costs and other expensesfor “Elvis by the Presleys”.

**19 Entertainment**

Revenue for 19 Entertainment was $64.5 million for theperiod from the date of acquisition, March 17, 2005, through September 30,2005. Film and television revenue is largely derived from the *IDOLS* franchise as well as the broadcast of *So You Think You Can Dance*and represents contractualpayments for each broadcast, ratings-based bonuses and a share of American Idolprogram sponsorship 

38

----

fees and several smallprojects. Film and television revenue was $30.3 million, $21.6 million for *So You Think You Can Dance*, $4.5 million of which related tothe broadcast of American Idol 4 with the remaining revenue related primarilyto *IDOLS*overseas fees. Touring revenue was$10.0 million, largely from the American Idol 4 tour in the United States. Sponsorshipand Merchandising revenue was $14.4 million. Music revenue was$8.5 million and management revenue was $1.3 million.

Operating expenses,excluding acquisition-related depreciation and amortization expense, were$50.8 million. Cost of sales, which represents costs directly associatedwith *IDOL* and other ventures includingroyalties to artists, was $37.1 million. Selling, general and administrativeexpenses were $13.1 million.

**MBST**

MBST contributed $0.7million in revenue since the date of acquisition on August 10, 2005. Operatingexpenses, excluding acquisition-related depreciation and amortization expenses,were $0.7 million.

**Liquidity andCapital Resources**

On June 27, 2005, the Company completed a publicoffering of 23,000,000 shares of its common stock at $11.00 per share, whichyielded $233.0 million in net proceeds, after underwriting discounts andcommissions and offering expenses. The Company repaid $148.4 million of itsprevious loans payable with a portion of the proceeds from the offering. TheCompany intends to use $33.8 million of the proceeds to pay the deferredpurchase consideration for the acquisition of 19 Entertainment to the sellerslater this year. The remaining proceeds will be used to provide additionallong-term capital to support the growth of the Company’s business, which mayinclude select acquisitions of or investments in entertainment properties andbusinesses.

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

*Acquisition by RFX Acquisition LLC**—*On February 7, 2005, RFX AcquisitionLLC contributed $3,046,407 in cash to the Company in exchange for 30,464,072newly issued shares of common stock and warrants to purchase (i) 6,828,938shares of common stock at $1.00 per share, (ii) 6,828,938 shares of commonstock at $1.50 per share, and (iii) 6,828,939 shares of common stock at$2.00 per share. Simultaneously with this exchange, RFX Acquisition LLC alsoacquired an aggregate of 2,240,397 shares of common stock directly from certainformer principal stockholders at a price of $0.10 per share. Immediatelyfollowing the consummation of its investment in the Company, RFX AcquisitionLLC distributed all of its shares of common stock and its warrants to itsmembers, including our Chief Executive Officer, Mr. Sillerman, and certainmembers of the Company’s senior management. In order to provide additionalcapital to the Company, on February 7, 2005, certain recipients of thewarrants, including Mr. Sillerman, and other members of senior management,exercised an aggregate of five million of the $1.00 warrants for aggregateconsideration to the Company of $5,000,000.

*Distributions to Minority Shareholders of Subsidiaries**—*Under the terms of our agreement toacquire an 85% interest in the Presley Business, we are required to make futureminimum annual distributions, in monthly installments, to The Promenade Trustwhich are intended to represent its 15% share of the operating income of the PresleyBusiness before depreciation and amortization and after income taxes andcapital expenditures. We have agreed that during the first year we operate thePresley Business we will make a minimum monthly distribution of $125,000 to ThePromenade Trust. At the end of each calendar year, we will make a calculationof the actual amount due to The Promenade Trust based on its 15% ownershipinterest and make an additional distribution to The Promenade Trust if itsactual 15% share is higher than the total distributions paid to The PromenadeTrust over the prior twelve months. If the calculation indicates that we havepaid more than The Promenade Trust was entitled to, we will reduce 

39

----

future monthlydistributions to The Promenade Trust by such amount. However, we will always berequired to pay The Promenade Trust a minimum annual distribution of$1.2 million for each full calendar year, irrespective of the actualfinancial results for the business in such year.

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

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

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

The Series BConvertible Preferred Stock has been valued for accounting purposes at itsstated value of $15.30 per share, which approximates its fair value. In orderto determine the fair value of the Series B Convertible Preferred Stock,we performed a valuation using a commonly used valuation model for pricingconvertible equity instruments, taking into account the following factors andassumptions:

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

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

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

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

·       Nodividends on the common shares.

40

----

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

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

*The Huff Alternative Fund, L.P.Investment*—Simultaneous with the closing of the investment byRFX Acquisition LLC and our acquisition of the Presley Business, The HuffAlternative Fund, L.P. and its affiliate contributed an aggregate of$43.8 million in cash in exchange for: (i) 2,172,400 shares of Series A ConvertibleRedeemable Preferred Stock, (ii) 3,706,052 newly issued shares of commonstock, (iii) warrants to purchase 1,860,660 shares of common stock at$1.00 per share, (iv) warrants to purchase 1,860,660 shares of commonstock at $1.50 per share, and (v) warrants to purchase 1,860,661 shares ofcommon stock at $2.00 per share. The transaction was consummated in accordancewith a Stock Purchase Agreement dated February 7, 2005.

*Series A Convertible Redeemable Preferred Stock**—*On March 21, 2005, The HuffAlternative Fund, L.P. and its affiliate exercised their rights to convertall of their 2,172,400 shares of Series A Convertible Redeemable PreferredStock into 6,051,253 shares of common stock. Accordingly, there are currentlyno shares of Series A Convertible Redeemable Preferred Stock outstanding. Asa result of the early conversion, we recorded a non-cash dividend of$17.8 million in our financial statements for the three months ended March 31,2005.

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

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

41

----

The holders of the Series A Convertible RedeemablePreferred Stock had certain anti-dilution protection with respect to the Series AConvertible Redeemable Preferred Stock. The conversion price of the Series AConvertible Redeemable Preferred Stock, which was $10.00 per share at issuance,was subject to adjustment upon (i) issuances of common stock at a pricebelow $10.00 per share, and (ii) the exercise or conversion of convertiblestock, warrants, options (other than employee incentive stock options) or othersimilar derivatives relating to common stock, in each case at a price below$10.00 per share.

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

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

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

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

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

The allocation of the proceeds from the 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.This beneficial conversion feature was to be accreted over the eight-yearredemption period and recorded as a preferred dividend. As a result of theconversion described above, a non-cash dividend equal to the amount ofthe unaccreted beneficial conversion feature of $17.8 million wasrecognized at that time.

42

----

*19 Entertainment Share Purchase Agreement*—Weacquired 19 Entertainment pursuant to a Share Purchase Agreement dated March 17,2005, by and among the Company, our wholly owned subsidiary, CKX UK HoldingsLimited, 19 Entertainment, Mr. Fuller and the other shareholders of19 Entertainment, for total consideration consisting of £64.5 million(U.S. $124.4 million) in cash and 1,870,558 unregistered shares ofour common stock valued at $16.83 per share (which represents the average of theCompany’s closing stock prices for the two days prior to and the day of theacquisition), each paid at closing, and an additional £19.2 million (U.S.$36.9 million, based on the exchange rate at closing of the acquisition;U.S.$33.8 million based on the exchange rate at September 30, 2005) to bepaid on the earlier of (i) thirty days following delivery of the auditedfinancial statements of 19 Entertainment for its fiscal year ending June 30,2005, and (ii) December 30, 2005. In accordance with the terms of thepurchase agreement, at the request of the seller, we will pay the deferredconsideration in cash. Mr. Fuller and his nominee company have the right,during a short period following the six-year anniversary of ouracquisition of 19 Entertainment, to cause us to purchase up to 1.7 millionshares of common stock from them at a price of $13.18 per share.

Pursuant to Mr. Fuller’s new employmentagreement, he will continue to serve as Chief Executive Officer of 19Entertainment. The employment agreement is for a term of six years, andprovides for the base salary, bonus, incentive compensation, and other benefitsfor Mr. Fuller. Mr. Fuller is expected to play a key role in planningand implementing our overall creative direction.

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

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

*Reincorporation*—OnMarch 25, 2005, we merged into our wholly-owned subsidiary,changing, among other things, (i) the name of our company from SportsEntertainment Enterprises, Inc. to CKX, Inc., (ii) our state ofincorporation from Colorado to Delaware, and (iii) our capital stock fromno par value to $0.01 par value per share.

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

43

----

facility) for, a bankfinancing (A) in an aggregate principal amount equal to or greater than$50.0 million, and (B) with a term no shorter than that of therevolving credit facility.

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

The revolving credit facility will mature on the 364thday after the closing of the revolving credit facility. The proceeds of loansunder the revolving credit facility will be permitted to be used for generalcorporate purposes (including working capital) in the ordinary course ofbusiness and to fund future acquisitions. Amounts borrowed under the revolvingcredit facility will bear interest at a rate equal to LIBOR plus 200 basispoints, increasing to LIBOR plus 250 basis points at any time when$25.0 million in aggregate principal amount of loans, letters of creditand swing line loans are outstanding.

The revolving credit facility will be guaranteed byeach of our direct and indirect present and future subsidiaries other thanElvis Presley Enterprises, Inc., Elvis Presley Enterprises, LLC and any oftheir subsidiaries; provided, however, that any foreign subsidiary of the Companywith respect to which a guarantee granted thereby would, in our good faithjudgment, result in material adverse tax consequences to the Company, shall notbe required to be a guarantor. Obligations under the revolving credit facilitywill be secured by security interests in substantially all of the assets of theCompany and the guarantors (subject to limitations on capital stock of foreignsubsidiaries).

The revolving credit facility will restrict ourability to incur debt, sell assets, merge or acquire businesses, and paydividends, among other matters, and will require us to maintain certainfinancial covenants, including (i) a minimum interest coverage ratio, (ii) amaximum debt to EBITDA ratio, (iii) a minimum amount of EBITDA and (iv) aminimum tangible net worth. If we are unable to comply with or satisfy thesecovenants, we will not be permitted to borrow amounts under the revolvingcredit facility and the lenders may be able to accelerate all amounts then duethereunder.

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

**CashFlow for the Nine Months Ended September 30, 2005**

**Operating Activities**

Net cash provided byoperating activities was $23.6 million for the nine months ended September 30,2005, reflecting the net income of $0.7 million, which includes depreciationand amortization expenses of $10.1 million, and declines in the workingcapital levels in the business related primarily to the seasonality of AmericanIdol.

44

----

**Investing Activities**

Net cash used in investingactivities was $291.5 million for the nine months ended September 30,2005. Cash paid for acquisitions and related costs were $210.8 million.$80.0 million of proceeds from the public offering of common stock wereinvested in marketable securities. Capital expenditures were $0.7 million.

**Financing Activities**

Cash provided by financingactivities was $304.7 million. The net proceeds from the public offering ofcommon stock after underwriting discounts and commissions and other offeringcosts were $233.0 million. The Company received $43.8 million of netproceeds from the Huff investment and $30.0 million proceeds from warrantexercises. Acquisition-related borrowings of $148.0 million under theshort-term credit facilities in 2005 were repaid on June 27, 2005.

**Uses of Capital**

At September 30, 2005, the Company had$3.5 million of debt outstanding under the Priscilla Presley note and$36.5 million in cash and cash equivalents and $80.0 million in marketablesecurities. The Company intends to use approximately $33.8 million to paythe deferred purchase consideration for the acquisition of19 Entertainment later this year. The remaining cash and cash equivalentsand marketable securities will be used to provide additional long-term capitalto support the growth of the Company’s business, which may include acquisitionsof or investments in entertainment properties and businesses.

We believe that ourcurrent cash on hand together with cash flow from operations will be sufficientto fund our current operations, including payments of interest due under thePriscilla Presley note, the deferred purchase consideration for 19 Entertainment,dividends on our Series B Convertible Preferred Stock, mandatory minimumdistributions to the minority shareholder in the Presley Business and capitalexpenditures.

**Capital Expenditures**

We presently anticipatethat our capital expenditures for the remainder of 2005 will include ongoingimprovements at the Presley Business and 19 Entertainment and we alsoexpect to incur additional capital expenditures at the corporate level toimplement new information technology and financial systems. We expect spendingfor the remainder of the year to be less than $0.5 million.

**Future Acquisitions**

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

**Dividends**

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

45

----

We have no intention ofpaying any dividends on our common stock for the foreseeable future.

**Commitments and Contingencies**

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

In addition to our scheduled maturities of debt,obligations to redeem preferred stock and obligations to the seller of thePresley Business, to the seller of 19 Entertainment and to the sellers ofMBST, we have future cash obligations under various types of contracts. Welease office space and equipment under long-term operating leases. We have alsoentered into long-term employment agreements with certain of our executives andother key employees. These contracts typically contain provisions that allow usto terminate the contract with good cause.

Thescheduled maturities as of September 30, 2005 for our credit facilities,future minimum rental commitments under non-cancelable operating leases,minimum payments under employment agreements, guaranteed minimum distributionsto The Promenade Trust and future obligations to the former owners of 19Entertainment are as follows (in thousands):

| ** **                              | ** ** | **Three Months Ended** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** **     | ** ** | ** ** | ** ** |
|-----------------------------------------|------------|----------------------------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|----------------|------------|------------|------------|
| ** **                              | ** ** | **December 31,**            | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** **     | ** ** | ** ** | ** ** |
| ** **                              | ** ** | **2005**                         | ** ** | **2006**   | ** ** | **2007**   | ** ** | **2008**   | ** ** | **2009**   | ** ** | **Thereafter** | ** ** | **Total**  | ** ** |
| ** **                              | ** ** | **(in thousands)**          | ** ** |
| Debt facilities                         |       |                             | $          | —     |       |       | $          | 550        |       | $          | 550        |           | $          | 550        |       | $ | 550 |   |   | $ | 1,300 |   |   | $ | 3,500 |   |
| Non-cancelable operating leases    |       |                             | 650        |       |       | 2,740      |       | 2,426      |       | 2,426      |       | 2,461          |       |       | 6,653      |   |   | 17,356 |   |
| Employment contracts                    |       |                             | 1,781      |       |       | 7,010      |       | 6,743      |       | 5,815      |       | 5,954          |       |       | 4,679      |   |   | 31,982 |   |
| Guaranteed minimum distributions        |       |                             | 300        |       |       | 1,200      |       | 1,200      |       | 1,200      |       | 1,200          |       |       |       | (a) |   | 5,100 |   |
| 19 Entertainment deferred consideration |       |                             | 33,846     | (b)        |       | —     |       | —     |       | —     |       | —         |       |       | —     |   |   | 33,846 |   |
| 19 Entertainment put right              |       |                             | —     |       |       | —     |       | —     |       | —     |       | —         |       |       | 22,079     | (c) |   | 22,079 |   |
| MBST contingent consideration      |       |                             | —     | (d)        |       | —     |       | —     |       | —     |       | —         |       |       |       | (d) |   | — |   |
| Total                                   |       |                             | $     | 36,577     |       |       | $     | 11,500     |       | $     | 10,919     |           | $     | 9,991      |       | $  | 10,165 |   |   | $ | 34,711 |   |   | $ | 113,863 |   |

----

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

(b)          We owe an additional$33.8 million of consideration for the acquisition of19 Entertainment, to be paid in cash in the fourth quarter of 2005.

(c)           We have granted to theformer holders of capital stock of 19 Entertainment the right, during a shortperiod following the six-year anniversary of our acquisition of 19 Entertainment,to cause us to purchase up to 1.7 million shares of common stock from themat a price of $13.18 per share, which is reflected in the table above. We havealso granted them the same right with respect to additional shares, if any,issued to Mr. Fuller and his nominee company as additional consideration,as described under “CKX, Inc.—Notes to Condensed Consolidated FinancialStatements—Note 6—Acquisitions—19 Entertainment.”

(d)  The purchaseprice for MBST is subject to a working capital adjustment. $1.1 million waspaid to the sellers at Closing, which represented 75% of the preliminaryworking capital. The final adjustment will be completed in 2006. In addition,the sellers may receive up to an additional 150,000 restricted shares of commonstock upon satisfaction of certain performance thresholds over the five yearperiod following the closing.

46

----

**Inflation**

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

**Critical Accounting Policies**

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

**Revenue Recognition**

Merchandising/Name and Likeness Licensing Revenue:

A portion of our 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:

Income from music and film contracts is derived fromthe sale of records and DVDs or from the licensing of film/music rights tothird parties. Revenue from recordings is recognized in accordance withStatement of Financial Accounting Standards (“SFAS”) No. 50, *Financial Reporting in the Record and Music Industry*(“SFAS 50”). Under SFAS 50, revenue is recognized when we: (i) have signeda non-cancelable contract; (ii) have delivered the rights to thelicensee who is free to exercise them; (iii) have no remaining significantobligations to furnish music or records; and (iv) when collectibility ofthe full fee is reasonably assured. A significant portion of royalty income ispaid to us based on the timetable associated with royalty statements generatedby third party processors, and is not typically known by us on a timely basis.This revenue is consequently recognized if the amount of accrual is not knownor reasonably estimable until receipt of the statements from the third parties.We contract with various agencies to facilitate collection of royalty income.

When we are entitled to royalties based on grossreceipts, revenue is recognized before deduction of agency fees, which areincluded in our financial statements as a component of cost of sales.

47

----

Television and Film Revenue:

We recognize revenue for television and filmproductions 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) the program is complete and has been delivered or is available forimmediate and unconditional delivery; (iii) the license period of thearrangement has begun and the customer can begin its exploitation, exhibitionor sale; (iv) the arrangement fee is fixed or determinable; and(v) collection of the arrangement fee is reasonably assured. Advancepayments received from buyers or licensees are included in our financialstatements as a component of deferred revenue.

Sponsorship Revenue:

We derive revenue from sponsorships associated withcertain of our television productions and tours. Sponsorship fees relate toeither (a) a one-time event, or (b) a period of time. Revenue from aone-time event is recognized if: (i) pervasive evidence of an arrangementexists; (ii) the event has occurred; (iii) the price is fixed ordeterminable; and (iv) collectibility is reasonably assured.Non-refundable advance payments associated with sponsorships over a period oftime are recognized on a straight line basis over the term of the contract fromthe later of the point at which: (a) pervasive evidence of an arrangementexists; (b) delivery has occurred or services have been rendered;(c) the price is fixed or determinable; and (d) collectibility isreasonably 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 from theclients’ participation and residuals are recognized at the time such amountscan be reasonably determined, which is generally upon receipt of a statementfrom a third party.

Other Revenue:

Ticket sales for tours and exhibits at Graceland, aswell as merchandise sales and food and beverage sales are recognized at pointof sale. Advance ticket sales are recorded as deferred revenue pending the“event date” on the ticket.

**Televisionand Film Production Costs**

The Company accounts for film and television projectsin development pursuant to SOP 00-2. Third party costs incurred inproducing television programs and films for which we have secured distributionagreements are capitalized and remain unamortized until the project isdistributed or are written off at the time they are determined not to berecoverable. Third party costs incurred in developing concepts for newtelevision programs and films are expensed as incurred until such time as wehave secured distribution agreements.

The capitalized cost ofproducing television and film programs are recognized as expense in accordancewith the individual film forecast method specified in SOP 00-2,pursuant to which we estimate the ratio that revenue which is earned for suchprogramming in the current period bears to its estimate at the beginning of thecurrent year of total revenue to be realized from all media and markets forsuch programming. Amortization commences in the period in which revenuerecognition commences. Our management regularly reviews and revises our totalrevenue estimates for each project, which may result in modifications to the rateof amortization. If a net loss is projected for a particular project, therelated capitalized costs are written down to estimated realizable value.

48

----

**ArtistAdvances and Recoupable Recording Costs**

Recoupable recording costsand artist advances, as adjusted for anticipated returns, are recognized inaccordance with SFAS 50, and thus, are charged to expense in the period inwhich the sale of the record takes place. Recoupable recording costs and artistadvances are only capitalized if the past performance and current popularity ofthe artist for whom the recording costs are incurred or to whom the advance ismade provide a sound basis for estimating that the amount capitalized will berecoverable from future royalties to be earned by the artist. Any portion ofrecoupable recording costs or artists advances that subsequently appear not tobe fully recoverable from future royalties to be earned by the artist arecharged to expense during the period in which the loss becomes evident.

**Goodwilland Other Intangible 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”). Goodwill and other intangible assets with indefinite livesare not amortized, but instead are tested for impairment annually, or, ifcertain circumstances indicate a possible impairment may exist, in accordancewith the provisions of SFAS 142. The Company will evaluate therecoverability of goodwill and indefinite lived intangible assets using atwo-step impairment test approach at the reporting unit level. In the firststep the fair value for the reporting unit is compared to its book valueincluding goodwill. In the case that the fair value of the reporting unit isless than the book value, a second step is performed which compares the impliedfair value of the reporting unit’s goodwill to the book value of the goodwill.The fair value for the goodwill is determined based on the difference betweenthe 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.

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

The Company will accountfor impairment 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 Companywill evaluate long-lived assets for impairment whenever events or changes incircumstances indicate that the carrying amount of an asset may not berecoverable. Upon such an occurrence, recoverability of assets to be held andused is measured by comparing the carrying amount of an asset to forecastedundiscounted future net cash flows expected to be generated by the asset. Ifthe carrying amount of the asset exceeds its estimated future cash flows, animpairment charge is recognized by the amount by which the carrying amount ofthe asset exceeds the fair value of the asset.

**Uses of Estimates**

The preparation offinancial statements in conformity with accounting principles 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.

**Impactof Recently Issued Accounting Standards**

In December 2004, the FASB issued a revision toSFAS No. 123, *Accounting for Stock-BasedCompensation*. This revision requires us to measure the cost ofemployee services received in exchange for 

49

----

an award of equityinstruments based on the grant-date fair value of the award. The cost isrecognized over the period during which an employee is required to provideservice in exchange for the award. The Company adopted SFAS No. 123Reffective January 1, 2005. See footnote 10, Stock Plan Awards, for furtherdiscussion.

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

In May 2005, the FASBissued SFAS No. 154, *Accounting Changesand Error Corrections, a replacement of APB Opinion No. 20 and FASBStatement No. 3*. This statement applies to all voluntarychanges in accounting principle, requiring retrospective application to priorperiods’ financial statements of changes in accounting principle. Prior to theissuance of SFAS No. 154, most voluntary changes in accounting principlewere recognized by including the cumulative effect of changing to the newprinciple in net income of the period of the change. The statement is effectivefor financial statements for fiscal years beginning after December 15,2005. The Company does not currently contemplate any voluntary changes inaccounting principles.

**Off Balance Sheet Arrangements**

As of September 30,2005, we did not have any off balance sheet arrangements as defined inItem 303 (a)(4)(ii) of SEC Regulation S-K.

**Item 3.**                        QuantitativeAnd Qualitative Disclosure About Market Risk

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

**Interest Rate Risk**

We had $3.5 millionof total debt outstanding at September 30, 2005, none of which wasvariable rate debt. As such, we are not exposed to changes in interest rates.

**Foreign ExchangeRisk**

As a result of our acquisition of 19 Entertainment, wehave significant operations outside the United States, principally in theUnited Kingdom. Our foreign operations are measured in local currencies. As aresult, our financial results could be affected by factors such as changes inforeign currency exchange rates or weak economic conditions in foreign marketsin which we operate. For example, assuming a hypothetical fluctuation of the exchangerate between the U.S. dollar and the U.K. pound sterling of 10%, the net impactto our net loss for the nine months ended September 30, 2005, reflecting19 Entertainment from the date of acquisition of March 17, 2005, wouldhave been approximately $0.1 million.

Historically, 19Entertainment, as a U.K. based enterprise, entered into foreign currency optioncontracts to hedge its exposure to certain U.S. dollar denominated revenue. Dueto the recent timing of our acquisitions, we are currently evaluating whatstrategies, if any, we should adopt to minimize our exposure to foreigncurrency fluctuations.

50

----

**Item4.**                        Controlsand Procedures

In connection with theaudit of the financial statements of the Presley Business for the year ended December 31,2004, management identified, and Deloitte & Touche LLP, ourindependent registered public accounting firm, communicated certain materialweaknesses in internal controls which existed prior to our acquiring control ofthe Presley Business. The material weaknesses identified at the PresleyBusiness include deficiencies in the number of accounting staff, the financialclosing and reporting process, accounting for licensing arrangements andinventory management.

Prior to our acquisition on February 7, 2005, thePresley Business was a privately owned company and, therefore, was not requiredto maintain the same level of internal controls as a public company in theUnited States. Since acquiring the Presley Business, we have been working toaddress the material weaknesses identified. Actions taken to date includehiring a new Vice President of Finance and other accounting staff, engagingoutside consultants to implement new controls and procedures at the PresleyBusiness. As of the date of this filing, we have remediated all materialweaknesses.

Management, with the participation of the Company’schief executive officer, Robert F.X. Sillerman, and its chief financialofficer, Thomas P. Benson, has evaluated the effectiveness of the Company’sdisclosure controls and procedures (as defined in the Securities Exchange Actof 1934 Rules 13a-15 (e) or 15d-15 (e)) as of September 30, 2005.  Based on this evaluation, the chief executiveofficer and financial officer have concluded that, as of that date, disclosurecontrols and procedures required by paragraph (b) of Exchange Act rules 13a-15or 15d-15, were not effective because of the identification of a materialweakness in internal control over financial reporting, which the Company viewsas an integral part of its disclosure controls and procedures.  The material weakness relates to theineffective oversight and review of the Company’s accounting for incometaxes.  This weakness resulted in amaterial error and restatement of previously issued financial statements.

Management intends to implement additional oversightand review procedures designed to strengthen the internal control relating tothe accounting for income taxes.  Additionally,the Company intends to hire additional staff with the requisite knowledgenecessary to properly account for foreign and domestic income taxes.

51

----

**Part II—Other Information**

**Item 6.**                        Exhibits

| **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             |       | Form of Amended  and Restated By-Laws (Previously filed as Exhibit 3.2 to the  Form 10-KSB filed March 31, 2005, and incorporated herein by  reference).                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 4.2             |       | Registration  Rights Agreement, dated March 17, 2005, by and among the Company, Simon  Robert Fuller and Fuller Nominees Limited (Previously filed as  Exhibit 4.2 to the Form 10-QSB for the period ended  March 31, 2005, and incorporated herein by reference).                                                                                                                                                                                                                                                                                                                     |
| 4.3             |       | 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).                                                                                                                                                                                                                                                                                                                                                   |
| 4.4             |       | 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).                                                                                                                                                                                                                                                                                                                                                                |
| 4.5             |       | Form of  Common Stock Purchase Warrant, dated as of February 7, 2005, to purchase  shares of common stock of the Company (Previously filed as Exhibit 4.6  to the Form 8-K/A filed February 11, 2005, and incorporated  herein by reference).                                                                                                                                                                                                                                                                                                                                     |
| 4.6             |       | Form of  Promissory Term Note made on February 7, 2005, payable to Priscilla  Presley (Previously filed as Exhibit 4.8 to the Form 8-K/A  filed February 11, 2005, and incorporated herein by reference).                                                                                                                                                                                                                                                                                                                                                                         |
| 10.1            |       | Agreement and  Plan of Merger, dated as of July 22, 2005, by and among the Company,  MBST Acquisition Corp. and Focus Acquisition Corp. and Lawrence Brezner,  David Steinberg and Stephen Tenenbaum, The Lawrence Brezner Living  Trust, The Steinberg/Thayer Living Trust, and The Tenenbaum Living Trust and  Morra, Brezner, Steinberg & Tenenbaum Entertainment, Inc.,  Focus Enterprises, Inc. and StepTeco, Inc. (filed as  Exhibit 10.1 to the Form 10-QSB for the period ended  September 30, 2005, and incorporated herein by reference.). |
| 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).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |

 

 

52

----

**SIGNATURES**

Pursuantto the requirements of the Securities Exchange Act of 1934, the Registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.

|                                                  | CKX, INC. |
|--------------------------------------------------|-----------|
|                                             | BY:       | /s/ ROBERT F.X. SILLERMAN |
|                                             |      | Name: | Robert F.X. Sillerman |
|                                             |      | Title: | *Chief Executive Officer and*

*Chairman of the Board* |
|                                             | BY:       | /s/ THOMAS P. BENSON |
|                                             |      | Name: | Thomas P. Benson |
|                                             |      | Title: | *Chief Financial Officer, Executive Vice  President and Treasurer* |
| DATE:    March 13, 2006 |      |   |   |

 

53

----