** **

**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,D.C. 20549**

**FORM 10-Q**
| **x**      | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**  |
|------------|---------------------------------------------------------------------------------------------------------|
| ** ** | **For the quarterly period ended March 31,  2006**                                                 |
| ** ** | **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 |   | (I.R.S. Employer        |
| incorporation or  organization)  |   | 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**

Indicate by check markwhether the registrant (1) filed all reports required to be filed by Section 13or 15(d) of the Exchange Act of 1934 during the preceding 12 months(or for such shorter period that the registrant was required to file suchreports), and (2) has been subject to such filing requirements for thepast 90 days. Yes x   No o

Indicate by check mark whether the registrant is alarge accelerated filer, an accelerated filer, or a non-accelerated filer (asdefined in Rule 12b-2 of the Exchange Act).

Large acceleratedfiler  o             Acceleratedfiler  o            Non-acceleratedfiler  x

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

As of  May 5, 2006, there were 92,358,772shares of the registrant’s common stock outstanding.

 

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**TABLE OF CONTENTS**
| Part I.  |   | FINANCIAL INFORMATION                                                                                                                                                                             |   |   |
|---------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|
| Item 1        |   | Financial  Statements                                                                                                                                                                             |   |   |
|          |   | Condensed Consolidated Balance Sheets  (Unaudited) at March 31, 2006 and December 31, 2005                                                                                              |   |   |
|          |   | Condensed  Consolidated Statements of Operations (Unaudited) for the three months ended March 31,  2006 and 2005 and the period January 1, 2005 to February 7, 2005  (Predecessor) |   |   |
|          |   | Condensed  Consolidated Statements of Cash Flows (Unaudited) for the three months ended March 31,  2006 and 2005 and the period January 1, 2005 to February 7, 2005  (Predecessor) |   |   |
|          |   | Notes to Condensed Consolidated Financial  Statements (Unaudited)                                                                                                                                 |   |   |
| Item 2        |   | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                                                                                                       |   |   |
| Item 3        |   | Quantitative  and Qualitative Disclosures About Market Risk                                                                                                                                       |   |   |
| Item 4        |   | Controls and Procedures                                                                                                                                                                           |   |   |
| Part II. |   | OTHER INFORMATION                                                                                                                                                                                 |   |   |
| Item 6        |   | Exhibits                                                                                                                                                                                          |   |   |

 

 

1

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**CKX, INC.CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)**
| ** **                                                                                                                                                                               | ** ** | **March 31,**                                                                        | ** ** | **December 31,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                                               | ** ** | **2006**                                                                                  | ** ** | **2005**              | ** ** |
| ** **                                                                                                                                                                               | ** ** | **(in thousands, except share and  per share information)** | ** ** |
| **ASSETS**                                                                                                                                                                               |       |                                                                                      |       |                  |       |
| Cash and cash  equivalents                                                                                                                                                               |       | $                                                                                         | 30,785     |                  | $          | 36,979 |   |
| Marketable  securities, at cost                                                                                                                                                          |       | 39,125                                                                                    |       | 42,625                |       |
| Receivables, net  of allowance for doubtful accounts of $0 at March 31, 2006 and $7 at  December 31, 2005                                                                      |       | 23,359                                                                                    |       | 19,503                |       |
| Inventories, net  of allowance for obsolescence of $381 at March 31, 2006 and $394 at  December 31, 2005                                                                       |       | 2,298                                                                                     |       | 2,850                 |       |
| Prepaid expenses                                                                                                                                                                         |       | 1,922                                                                                     |       | 2,515                 |       |
| Prepaid income  taxes                                                                                                                                                                    |       | 1,477                                                                                     |       | 1,477                 |       |
| Deferred tax  assets                                                                                                                                                                     |       | 150                                                                                       |       | 150                   |       |
| Total current  assets                                                                                                                                                                    |       | 99,116                                                                                    |       | 106,099               |       |
|                                                                                                                                                                                     |       |                                                                                      |       |                  |       |
| Property and  equipment—net                                                                                                                                                         |       | 29,334                                                                                    |       | 26,685                |       |
| Receivables                                                                                                                                                                              |       | 1,456                                                                                     |       | 2,087                 |       |
| Deferred  production costs                                                                                                                                                               |       | 907                                                                                       |       | 428                   |       |
| Other assets                                                                                                                                                                             |       | 16,051                                                                                    |       | 13,210                |       |
| Goodwill                                                                                                                                                                                 |       | 124,617                                                                                   |       | 125,793               |       |
| Other intangible  assets—net                                                                                                                                                        |       | 150,722                                                                                   |       | 150,912               |       |
| Deferred tax  assets                                                                                                                                                                     |       | 3,874                                                                                     |       | 4,914                 |       |
| **TOTAL  ASSETS**                                                                                                                                                                        |       | $                                                                                         | 426,077    |                  | $          | 430,128 |   |
| **LIABILITIES AND STOCKHOLDERS’  EQUITY**                                                                                                                                           | ** ** | ** **                                                                                | ** ** | ** **            | ** ** |
| Current liabilities:                                                                                                                                                                     |       |                                                                                      |       |                  |       |
| Accounts payable                                                                                                                                                                         |       | $                                                                                         | 2,403      |                  | $          | 2,769 |   |
| Accrued expenses                                                                                                                                                                         |       | 13,531                                                                                    |       | 17,612                |       |
| Current portion  of long-term debt                                                                                                                                                       |       | 631                                                                                       |       | 362                   |       |
| Income taxes  payable                                                                                                                                                                    |       | 3,864                                                                                     |       | 732                   |       |
| Other current  liabilities                                                                                                                                                               |       | 672                                                                                       |       | 624                   |       |
| Deferred revenue                                                                                                                                                                         |       | 10,810                                                                                    |       | 12,200                |       |
| Total current  liabilities                                                                                                                                                               |       | 31,911                                                                                    |       | 34,299                |       |
| Long-term liabilities:                                                                                                                                                                   |       |                                                                                      |       |                  |       |
| Long-term debt                                                                                                                                                                           |       | 3,258                                                                                     |       | 3,138                 |       |
| Deferred revenue                                                                                                                                                                         |       | 1,614                                                                                     |       | 1,511                 |       |
| Other long-term  liabilities                                                                                                                                                             |       | 3,949                                                                                     |       | 3,902                 |       |
| Deferred tax  liabilities                                                                                                                                                                |       | 30,871                                                                                    |       | 37,043                |       |
| Total  liabilities                                                                                                                                                                       |       | 71,603                                                                                    |       | 79,893                |       |
|                                                                                                                                                                                     |       |                                                                                      |       |                  |       |
| Minority  interest                                                                                                                                                                       |       | 3,352                                                                                     |       | 3,801                 |       |
| Redeemable  restricted common stock—1,672,170 shares outstanding at March 31, 2006  and December 31, 2005                                                                 |       | 23,002                                                                                    |       | 23,002                |       |
| Commitments and  contingencies                                                                                                                                                           |       |                                                                                      |       |                  |       |
| Stockholders’ equity:                                                                                                                                                               |       |                                                                                      |       |                  |       |
| Preferred stock, $.01  par value, authorized 75,000,000 shares:                                                                                                                          |       |                                                                                      |       |                  |       |
| Series B—1,491,817 outstanding                                                                                                                                                 |       | 22,825                                                                                    |       | 22,825                |       |
| Series C—1 share outstanding                                                                                                                                                   |       | —                                                                                    |       | —                |       |
| Common stock,  $0.01 par value: authorized 200,000,000 shares, 90,532,171 and 90,528,818  shares issued and outstanding at March 31, 2006 and December 31,  2005, respectively |       | 905                                                                                       |       | 905                   |       |
| Additional  paid-in-capital                                                                                                                                                              |       | 363,074                                                                                   |       | 362,833               |       |
| Accumulated  deficit                                                                                                                                                                     |       | (41,334                                                                                   | )          | (43,931               | )          |
| Accumulated  other comprehensive loss                                                                                                                                                    |       | (17,350                                                                                   | )          | (19,200               | )          |
| Total  stockholders’ equity                                                                                                                                                         |       | 328,120                                                                                   |       | 323,432               |       |
| **TOTAL LIABILITIES AND  STOCKHOLDERS’ EQUITY**                                                                                                                                     |       | $                                                                                         | 426,077    |                  | $          | 430,128 |   |

 

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

2

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**CKX, INC.CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)**
| ** **                                                                   | ** ** | ** **                                                                                    | ** ** | ** **                       | ** ** | ** ** | ** ** | **Predecessor(1)**             | ** ** |
|------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------|------------|----------------------------------|------------|------------|------------|--------------------------------|------------|
| ** **                                                                   | ** ** | **Three Months Ended**                                                              | ** ** | **Three Months Ended** | ** ** | ** ** | ** ** | **January 1 to**     | ** ** |
| ** **                                                                   | ** ** | **March 31, 2006**                                                                  | ** ** | **March 31, 2005**     | ** ** | ** ** | ** ** | **February 7, 2005** | ** ** |
| ** **                                                                   | ** ** | **(in thousands, except share and per share information)** | ** ** |
| Revenue                                                                      |       | $                                                                                             | 41,109     |                             | $          | 9,987      |       |                           |       | $ | 3,442 |   |
| Operating expenses:                                                          |       |                                                                                          |       |                             |       |       |       |                           |       |
| Cost of sales                                                                |       | 13,254                                                                                        |       | 1,488                            |       |       |       | 423                            |       |
| Selling, general  and administrative expenses                                |       | 13,236                                                                                        |       | 4,466                            |       |       |       | 2,431                          |       |
| Corporate  expenses                                                          |       | 4,063                                                                                         |       | 2,059                            |       |       |       | —                         |       |
| Depreciation and  amortization                                               |       | 4,737                                                                                         |       | 1,261                            |       |       |       | 126                            |       |
| Other costs                                                                  |       | —                                                                                        |       | 2,175                            |       |       |       | —                         |       |
| Total operating  expenses                                                    |       | 35,290                                                                                        |       | 11,449                           |       |       |       | 2,980                          |       |
| Operating income  (loss)                                                     |       | 5,819                                                                                         |       | (1,462                           | )          |       |       | 462                            |       |
| Interest income                                                              |       | 739                                                                                           |       | 25                               |       |       |       | —                         |       |
| Interest expense                                                             |       | (135                                                                                          | )          | (983                             | )          |       |       | (115                           | )          |
| Other income  (expense)                                                      |       | (291                                                                                          | )          | 700                              |       |       |       | —                         |       |
| Income (loss)  before income taxes                                           |       | 6,132                                                                                         |       | (1,720                           | )          |       |       | 347                            |       |
| Income tax  expense (benefit)                                                |       | 2,815                                                                                         |       | (990                             | )          |       |       | 152                            |       |
| Income (loss)  before equity in earnings of affiliates and minority interest |       | 3,317                                                                                         |       | (730                             | )          |       |       | 195                            |       |
| Equity in  earnings (losses) of affiliates                                   |       | (102                                                                                          | )          | —                           |       |       |       | —                         |       |
| Minority  interest                                                           |       | (162                                                                                          | )          | (194                             | )          |       |       | —                         |       |
| Net income  (loss)                                                           |       | 3,053                                                                                         |       | (924                             | )          |       |       | 195                            |       |
| Dividends on  preferred stock                                                |       | (456                                                                                          | )          | (264                             | )          |       |       | —                         |       |
| Accretion of  beneficial conversion feature                                  |       | —                                                                                        |       | (17,762                          | )          |       |       | —                         |       |
| Net income  (loss) available to common shareholders                          |       | $                                                                                             | 2,597      |                             | $          | (18,950    | )          |                           |       | $ | 195 |   |
| Income (loss) per  share:                                                    |       |                                                                                          |       |                             |       |       |       |                           |       |
| Basic income  (loss) per share                                               |       | $                                                                                             | 0.03       |                             | $          | (0.61      | )          |                           |       |   |   |
| Diluted income  (loss) per share                                             |       | $                                                                                             | 0.03       |                             | $          | (0.61      | )          |                           |       |   |   |
| Average number of  common shares outstanding:                                |       |                                                                                          |       |                             |       |       |       |                           |       |
| Basic                                                                        |       | 92,204,229                                                                                    |       | 31,169,140                       |       |       |       |                           |       |
| Diluted                                                                      |       | 96,205,957                                                                                    |       | 31,169,140                       |       |       |       |                           |       |

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(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 (“Predecessor”). Accordingly, relevant prior period financialinformation regarding the Predecessor has been presented herein.

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

3

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**CKX, INC.CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)**
| ** **                                                                            | ** ** | **Three**                                       | ** ** | **Three**                                       | ** ** | ** ** | ** ** | **Predecessor(1)**                                     | ** ** |
|---------------------------------------------------------------------------------------|------------|-------------------------------------------------|------------|-------------------------------------------------|------------|------------|------------|--------------------------------------------------------|------------|
| ** **                                                                            | ** ** | **Months Ended  March 31, 2006** | ** ** | **Months Ended  March 31, 2005** | ** ** | ** ** | ** ** | **January 1 to  February 7, 2005** | ** ** |
| ** **                                                                            | ** ** | ** **                                      | ** ** | **(in thousands)**                         | ** ** | ** ** | ** ** | ** **                                             | ** ** |
| **Cash flows from operating activities:**                                             | ** ** | ** **                                      | ** ** | ** **                                      | ** ** |       |       | ** **                                             | ** ** |
| Net income  (loss)                                                                    |       | $                                               | 3,053      |                                            | $          | (924       | )          |                                                   |       | $ | 195 |   |
| Adjustments to  reconcile net income (loss) to cash provided by operating activities: |       |                                            |       |                                            |       |       |       |                                                   |       |
| Depreciation and  amortization                                                        |       | 4,737                                           |       | 1,261                                           |       |       |       | 126                                                    |       |
| Share-based  payments                                                                 |       | 256                                             |       | —                                          |       |       |       | —                                                 |       |
| Deferred income  taxes                                                                |       | (597                                            | )          | (2,389                                          | )          |       |       | —                                                 |       |
| Minority  interest                                                                    |       | 162                                             |       | 194                                             |       |       |       | —                                                 |       |
| Changes in operating  assets and liabilities:                                         |       |                                            |       |                                            |       |       |       |                                                   |       |
| Receivables                                                                           |       | (3,225                                          | )          | (2,149                                          | )          |       |       | (566                                                   | )          |
| Inventory                                                                             |       | 552                                             |       | 342                                             |       |       |       | 124                                                    |       |
| Deferred  production costs                                                            |       | (479                                            | )          | (108                                            | )          |       |       | —                                                 |       |
| Prepaid expenses                                                                      |       | 593                                             |       | (1,104                                          | )          |       |       | (576                                                   | )          |
| Other assets                                                                          |       | (830                                            | )          | —                                          |       |       |       | —                                                 |       |
| Accounts payable                                                                      |       | (366                                            | )          | 3,169                                           |       |       |       | 854                                                    |       |
| Accrued expenses                                                                      |       | (4,081                                          | )          | 1,207                                           |       |       |       | 194                                                    |       |
| Deferred revenue                                                                      |       | (1,287                                          | )          | 303                                             |       |       |       | 1,410                                                  |       |
| Income taxes  payable                                                                 |       | 3,132                                           |       | 384                                             |       |       |       | 152                                                    |       |
| Other                                                                                 |       | (339                                            | )          | —                                          |       |       |       | —                                                 |       |
| Net cash provided by operating activities                                             |       | 1,281                                           |       | 186                                             |       |       |       | 1,913                                                  |       |
| **Cash flows from investing  activities:**                                            | ** ** | ** **                                      | ** ** | ** **                                      | ** ** |       |       | ** **                                             | ** ** |
| Acquisition of  Presley Business, net of cash acquired of $961                        |       | —                                          |       | (81,706                                         | )          |       |       | —                                                 |       |
| Acquisition of  19 Entertainment, net of cash acquired of $2,528                      |       | —                                          |       | (122,580                                        | )          |       |       | —                                                 |       |
| Acquisition of  certain assets of Elvis-themed museum                                 |       | (3,888                                          | )          | —                                          |       |       |       | —                                                 |       |
| Acquisition of  affiliate                                                             |       | (2,838                                          | )          | —                                          |       |       |       | —                                                 |       |
| Proceeds from  sale of marketable securities                                          |       | 3,500                                           |       | —                                          |       |       |       | —                                                 |       |
| Purchase of  property and equipment                                                   |       | (3,097                                          | )          | (196                                            | )          |       |       | (2                                                     | )          |
| Net cash used in investing activities                                                 |       | (6,323                                          | )          | (204,482                                        | )          |       |       | (2                                                     | )          |
| **Cash flows from financing  activities:**                                            | ** ** | ** **                                      | ** ** | ** **                                      | ** ** |       |       | ** **                                             | ** ** |
| Issuance of  common stock                                                             |       | —                                          |       | 3,058                                           |       |       |       | —                                                 |       |
| Exercise of  warrants                                                                 |       | —                                          |       | 30,000                                          |       |       |       | —                                                 |       |
| Proceeds from  Huff investment                                                        |       | —                                          |       | 43,819                                          |       |       |       | —                                                 |       |
| Proceeds from  credit facilities                                                      |       | —                                          |       | 148,000                                         |       |       |       | —                                                 |       |
| Costs associated  with Huff investment and credit facility                            |       | —                                          |       | (3,207                                          | )          |       |       | —                                                 |       |
| Distributions to  Presley minority interest                                           |       | (611                                            | )          | —                                          |       |       |       | —                                                 |       |
| Principal  payments on debt                                                           |       | (362                                            | )          | —                                          |       |       |       | (185                                                   | )          |
| Dividends paid  on preferred stock                                                    |       | (456                                            | )          | —                                          |       |       |       | —                                                 |       |
| Distributions to  trust beneficiary                                                   |       | —                                          |       | —                                          |       |       |       | (23                                                    | )          |
| Net cash provided by (used in) financing activities                                   |       | (1,429                                          | )          | 221,670                                         |       |       |       | (208                                                   | )          |
| Effect of  exchange rate changes on cash                                              |       | 277                                             |       | (62                                             | )          |       |       | —                                                 |       |
| **Net  increase (decrease) in cash and equivalents**                                  |       | (6,194                                          | )          | 17,312                                          |       |       |       | 1,703                                                  |       |
| **Cash  and cash equivalents - beginning of period**                                  |       | 36,979                                          |       | —                                          |       |       |       | 201                                                    |       |
| **Cash  and cash equivalents - end of period**                                        | ** ** | $                                               | 30,785     |                                            | $          | 17,312     |       |                                                   |       | $ | 1,904 |   |
| **Supplemental Cash flow data:**                                                      | ** ** | ** **                                      | ** ** | ** **                                      | ** ** |       |       | ** **                                             | ** ** |
| Cash paid during the  period for:                                                     |       |                                            |       |                                            |       |       |       |                                                   |       |
| Interest                                                                              |       | $                                               | 188        |                                            | $          | 1          |       |                                                   |       | $ | 172 |   |
| Income taxes                                                                          |       | 296                                             |       | —                                          |       |       |       | 125                                                    |       |

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(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 (“Predecessor”). Accordingly, relevant prior period financialinformation regarding the Predecessor has been presented herein.

The accompanyingnotes are an integral part of these condensed consolidated financial statements.

4

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**Supplemental CashFlow Information**

**TheCompany had the following non-cash investing and financing activities in thethree months ended March 31, 2006 (in thousands):**
| Common stock  issued to independent directors                                                 |   | $   | 44     |   |
|-----------------------------------------------------------------------------------------------|--------|-----|--------|--------|
| Issuance of note  in connection with the acquisition of certain assets of Elvis-themed museum |   | 750 |   |

 

The Company had thefollowing non-cash investing and financing activities in the three months endedMarch 31, 2005 (in thousands):

 
| Common stock  issued as partial consideration for the acquisition of the Presley Business                           |   | $      | 3,835  |   |
|---------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|
| Series B  Convertible Preferred stock issued as partial consideration for acquisition  of the Presley Business |   | 22,825 |   |
| Issuance of  Priscilla Presley Note in connection with the Presley Business acquisition                             |   | 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    |   |

 

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

5

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

**1. Overview and Basis of Presentation**

**General**

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 and theoperations of Graceland, the rights to the name, image and likeness of MuhammadAli and proprietary rights to the *IDOLS*televisionbrand, including the *American Idol*series in the United States and local adaptations of the *IDOLS*television show format which,collectively, air in over 100 countries around the world.

The financial information in this report for the threemonths ended March 31, 2006 and 2005 has not been audited, but in theopinion of management all adjustments (consisting only of normal recurringadjustments) considered necessary to present fairly such information have beenincluded. The operating results for the three months ended March 31, 2006and 2005 are not necessarily indicative of the results to be expected for thefull year due to the seasonal nature of some of the Company’s businesses. Thefinancial statements included herein should be read in conjunction with thefinancial statements and notes included in the Company’s Annual Report on Form 10-Kfor the year ended December 31, 2005.

On February 7, 2005,RFX Acquisition LLC, an entity formed and controlled by Robert F.X. Sillerman,acquired a controlling interest in the Company (formerly known as SportsEntertainment Enterprises, Inc.), which had been inactive since it soldall of its assets in August 2002. Simultaneous with that transaction, theCompany acquired an 85% interest in the entities which own and/or controlcertain content relating to Elvis Presley (the “Presley Business”). Prior tothe acquisition of the Presley Business, the Company did not have anyoperations. As a result, the Presley Business is considered to be a predecessorcompany (“Predecessor”). Accordingly, relevant financial information regardingthe Predecessor, including financial statements for the period from January 1— February 7, 2005, has been presented. See Note 4 for a description ofthe acquisition.

Simultaneous with the RFX Investment and theacquisition of the Presley Business, The Huff Alternative Fund, L.P. and itsaffiliate contributed to the Company an aggregate of $43.3 million in cash,after fees and expenses, in exchange for: (i) 2,172,400 shares of Series AConvertible Redeemable Preferred Stock, (ii) 3,706,052 newly issued sharesof common stock, (iii) warrants to purchase 1,860,660 shares of commonstock at $1.00 per share, (iv) warrants to purchase 1,860,660 shares ofcommon stock at $1.50 per share, and (v) warrants to purchase 1,860,661shares of common stock at $2.00 per share. 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 RedeemablePreferred Stock into 6,051,253 shares of common stock. Following suchconversion, there are currently no shares of Series A ConvertibleRedeemable Preferred Stock outstanding. As a result of the early conversion, anon-cash dividend of $17.8 million was recorded in our financialstatements for the three months ended March 31, 2005.

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. This beneficial conversionfeature was to be accreted over the eight-year redemption period and recordedas a preferred dividend. As a result of the conversion 

6

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described above, a non-cashdividend equal to the amount of the unaccreted beneficial conversion feature of$17.8 million was recognized at that time.

**CriticalAccounting Policies**

During the three monthsended March 31, 2006, there have been no significant changes to theCompany’s critical accounting policies and estimates as disclosed in theCompany’s Form 10-K for the year ended December 31, 2005.

**2. ComprehensiveIncome (Loss)**

The followingtable is a reconciliation of the Company’s net income (loss) to comprehensiveincome (loss) for the three months ended March 31, 2006 and 2005 (inthousands):

|                                          | ** ** | **Three Months Ended  March 31, 2006** | ** ** | **Three Months Ended  March 31, 2005** | ** ** |
|------------------------------------------|------------|------------------------------------------------------------|------------|------------------------------------------------------------|------------|
| Net income  (loss)                       |       | $                                                          | 3,053      |                                                       | $          | (924 | ) |
| Other comprehensive  income:             |       |                                                       |       |                                                       |       |
| Foreign currency translation adjustments |       | 1,850                                                      |       | 30                                                         |       |
| Comprehensive income  (loss)             |       | $                                                          | 4,903      |                                                       | $          | (894 | ) |

 

Foreign currency translation adjustments result fromthe conversion of 19 Entertainment’s financial statements for the period of March 18,2005 to March 31, 2005 and for the three months ended March 31, 2006.There were no differences between net income (loss) and comprehensive income(loss) for the period January 1, 2005 to February 7, 2005.

**3. Earnings Per Share/Common Shares Outstanding**

Earnings per share is computed in accordance with SFASNo. 128, *Earnings Per Share*.Basic earnings per share is calculated by dividing net income (loss) applicableto common stockholders by the weighted-average number of sharesoutstanding during the period. Diluted earnings per share includes thedeterminants of basic earnings per share and, in addition, gives effect topotentially dilutive common shares. Basic and diluted earnings per share forthe three months ended March 31, 2006 is $0.03 per share. The dilutedearnings per share calculation excludes the impact of the conversion of1,491,817 shares of Convertible Series B Preferred shares because theeffect would be anti-dilutive. Diluted loss per share for the three monthsended March 31, 2005 is the same as basic loss per share because thecalculation is anti-dilutive due to the reported net loss available to commonshareholders. As a result, 6,543,413 shares are excluded from the calculationof diluted earnings per share for the three months ended March 31, 2005since the effect would be anti-dilutive.

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The following table shows the computation of theCompany’s basic and diluted earnings per share for the three months ended March 31,2006 and 2005:
| ** **                                                                        | ** **                                  | **Three Months Ended  March 31, 2006**                                      | ** ** | **Three Months Ended  March 31, 2005** | ** ** |
|-----------------------------------------------------------------------------------|---------------------------------------------|-------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------|------------|
| ** **                                                                        | ** **                                  | **(in thousands, except per share   and share information)** | ** ** |
| Basic income  (loss) per share computation:                                       |                                        |                                                                                            |       |                                                       |       |
| Net income (loss)                                                                 |                                        | $                                                                                               | 3,053      |                                                       | $          | (924 | ) |
| Less:                                                                             | Dividends on preferred  stock               |                                                                                            | (456       | )                                                          | (264       | ) |
|                                                                              | Accretion of  beneficial conversion feature |                                                                                            | —     |                                                       | (17,762    | ) |
| Net income (loss) applicable to common shareholders                               |                                        | $                                                                                               | 2,597      |                                                       | $          | (18,950 | ) |
| Basic common shares outstanding (including  redeemable restricted common stock)   |                                        | 92,204,229                                                                                      |       | 31,169,140                                                 |       |
| Basic income (loss) per share                                                     |                                        | $                                                                                               | 0.03       |                                                       | $          | (0.61 | ) |
| Diluted income (loss) per share computation:                                      |                                        |                                                                                            |       |                                                       |       |
| Net income (loss)                                                                 |                                        | $                                                                                               | 3,053      |                                                       | $          | (924 | ) |
| Less:                                                                             | Dividends on preferred  stock               |                                                                                            | (456       | )                                                          | (264       | ) |
|                                                                              | Accretion of  beneficial conversion feature |                                                                                            | —     |                                                       | (17,762    | ) |
| Net income (loss) applicable to common shareholders                               |                                        | $                                                                                               | 2,597      |                                                       | $          | (18,950 | ) |
| Basic common shares outstanding (including  redeemable restricted common stock)   |                                        | 92,204,229                                                                                      |       | 31,169,140                                                 |       |
| Incremental shares for assumed exercise of warrants  and stock options            |                                        | 4,001,728                                                                                       |       | —                                                     |       |
| Diluted common shares outstanding (including  redeemable restricted common stock) |                                        | 96,205,957                                                                                      |       | 31,169,140                                                 |       |
| Diluted income  (loss) per share                                                  |                                        | $                                                                                               | 0.03       |                                                       | $          | (0.61 | ) |

 

**4. Acquisitions**

*The PresleyBusiness (Predecessor)*

*On February 7,2005, the Company acquired an 85% interest in the entities which own and/orcontrol certain content relating to Elvis Presley (the “Presley Business”). 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. Priorto the acquisition of the Presley Business, the Company did not have anyoperations. As a result, the Presley Business is considered to bea predecessor company (“Predecessor”). For the three months ended March 31,2005, the results of operations of the Presley Business are included in theresults of the Company since the date of acquisition.*

*19 Entertainment*

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. For thethree 

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months ended March 31,2005, the results of operations of 19 Entertainment are included in the resultsof the Company from the date of acquisition. Consideration for the acquisitionconsisted of £64.5 million (US $124.4 million based on the exchangerate at the date of acquisition) in cash, 198,388 unregistered shares of commonstock and 1,672,170 shares of Redeemable Restricted Common Stock, each paid atclosing, with an additional £19.2 million (US $34.0 million) of deferredconsideration that was paid in cash on December 15, 2005.

*MBST*

On August 9, 2005,the Company acquired 100% of Morra, Brezner, Steinberg & TenenbaumEntertainment, Inc. (“MBST”), a manager of comedic talent and producer ofmotion pictures and television programming. The Company acquired MBST forinitial total consideration paid at closing of $1.0 million in cash and 700,000restricted shares of common stock. The purchase price is subject to a workingcapital adjustment, of which $1.1 million in cash and 40,480 shares werepaid to the sellers in 2005. Additional working capital adjustments may be madein 2006 which could result in additional payments to the sellers that areexpected to be less than $1.0 million. In addition, the sellers may receive upto an additional 150,000 shares of common stock upon satisfaction of certainperformance thresholds over the five-year period following the closing. Thereceipt by the sellers of any such shares will be accounted for as additionalpurchase price at the time such performance thresholds are met. The estimatedfair values of the assets acquired and liabilities assumed are based on apreliminary valuation preformed 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.

*TransactionsDuring the Three Months Ended March 31, 2006*

In March 2006, the Presley Business completed itspreviously announced acquisition of certain of the assets of an Elvis-themedmuseum located in Las Vegas, Nevada, including certain intellectual propertyrights as well as a substantial portion of the memorabilia formerly on displayat the establishment. The total purchase price for the assets was approximately$4.7 million, $3.9 million (including $0.1 million of transaction costs) ofwhich was paid in cash at closing and $750,000 of which was paid in the form ofa three-year promissory note. The Company paid $2.0 million for the acquiredmemorabilia and $2.7 million for a non-compete agreement from the former ownerswhich will be amortized over five years. The sellers have agreed to permanentlyclose the existing museum and the name of the museum will be retired as part ofthe Company’s overall plan to bring a world-class Elvis-themed attraction toLas Vegas.

In March 2006, 19 Entertainment acquired theremaining 50% of a previously 50%-owned affiliate engaged in the management ofsongwriters and producers. The purchase price for the remaining 50% interestwas £1.6 million (US $2.8 million based on the exchange rate at the date ofacquisition), paid in cash at closing. The Company has performed a preliminaryvaluation of the assets acquired and has made an initial allocation of $0.5million to other intangible assets, which will be amortized over five years,and $2.3 million to goodwill.

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**5. Intangible Assets and Goodwill**

*Intangibleassets and goodwill as of March 31, 2006 consist of (in thousands):*
| ** **                                                                                     | ** ** | **Weighted  Average  Remaining  Useful Life** | ** ** | **Gross  Carrying  Amount** | ** ** | **Intangible  Assets  Acquired  During 2006** | ** ** | **Accumulated  Amortization** | ** ** | **Cumulative  Foreign  Currency  Translation  Adjustments** | ** ** | **Net  Carrying  Amount** | ** ** |
|------------------------------------------------------------------------------------------------|------------|----------------------------------------------------|------------|-----------------------------|------------|----------------------------------------------------|------------|-------------------------------|------------|-------------------------------------------------------------|------------|---------------------------|------------|
| Definite Lived  Intangible Assets:                                                             |       |                                               |       |                        |       |                                               |       |                          |       |                                                        |       |                      |       |
| Presley record,  music publishing, film and video rights                                  |       | 13.8 years                                         |       | $                           | 28,900     |                                               | $          | —                        |       | $                                                           | (2,007     | )                         | $          | — |   | $ | 26,893 |   |
| Other Presley  intangible assets                                                               |       | 15.8 years                                         |       | 10,880                      |       | 2,732                                              |       | (1,752                        | )          | —                                                      |       | 11,860                    |       |
| 19 Entertainment  IDOLS television programming, merchandising and sponsorship contracts        |       | 6.0 years                                          |       | 78,043                      |       | —                                             |       | (9,163                        | )          | (7,466                                                      | )          | 61,414                    |       |
| 19 Entertainment  other artist management, recording, merchandising, and sponsorship contracts |       | 2.7 years                                          |       | 12,526                      |       | 523                                                |       | (3,853                        | )          | (1,095                                                      | )          | 8,101                     |       |
| MBST artist  contracts, profit participation rights and consulting agreement                   |       | 6.4 years                                          |       | 4,745                       |       | —                                             |       | (456                          | )          | —                                                      |       | 4,289                     |       |
|                                                                                           |       |                                               |       | $                           | 135,094    |                                               | $          | 3,255                         |       | $                                                           | (17,231    | )                         | $          | (8,561 | ) | $ | 112,557 |   |
| Indefinite Lived  Intangible Assets:                                                           |       |                                               |       |                        |       |                                               |       |                          |       |                                                        |       |                      |       |
| Trademarks, publicity  rights and other intellectual property                                  |       |                                               |       | $                           | 38,165     |                                               |       |                          |       |                                                        |       |                      | $          | 38,165 |   |

 
| ** **               | ** ** | **Balance at  December 31,  2005** | ** ** | **Goodwill  Acquired  During 2006** | ** ** | **2006  Foreign  Currency  Translation  Adjustment** | ** ** | **Other  Adjustments** | ** ** | **Balance at  March 31,  2006** | ** ** |
|--------------------------|------------|----------------------------------------------|------------|------------------------------------------|------------|------------------------------------------------------|------------|------------------------|------------|-------------------------------------------|------------|
| Goodwill:                |       |                                         |       |                                     |       |                                                 |       |                   |       |                                      |       |
| Presley Business:        |       |                                         |       |                                     |       |                                                 |       |                   |       |                                      |       |
| Royalties and  Licensing |       | $                                            | 6,967      |                                     | $          | —                                               |       | $                      | —     |                                      | $          | (4,535 | ) | $ | 2,432 |   |
| Graceland  Operations    |       | 7,675                                        |       | —                                   |       | —                                               |       | —                 |       | 7,675                                     |       |
| 19 Entertainment         |       | 102,096                                      |       | 2,253                                    |       | 1,108                                                |       | —                 |       | 105,457                                   |       |
| MBST                     |       | 9,055                                        |       | —                                   |       | —                                               |       | (2                     | )          | 9,053                                     |       |
| Total                    |       | $                                            | 125,793    |                                     | $          | 2,253                                                |       | $                      | 1,108      |                                      | $          | (4,537 | ) | $ | 124,617 |   |

* *

*Thefinalization of the Presley Business purchase price allocation resulted in adecrease in goodwill and deferred tax liabilities of $4.5 million in the threemonths ended March 31, 2006*.

**6.Debt**

At March 31, 2006,the Company had total debt of $3.9 million. $3.1 million represents the amountoutstanding under a subordinated promissory note issued in connection with theacquisition of the Presley Business.

In conjunction with thePresley Business acquisition of memorabilia and certain other assets of a LasVegas-based Elvis-themed museum during the first quarter of 2006, the Companyissued a promissory note to the sellers for $750,000, which bears interest at5% per annum and is payable in 36 equal monthly installments.

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**7. Stockholders’ Equity**

At March 31, 2006, the Company had outstandingwarrants to purchase an aggregate of 4,551,597 shares of common stock at anexercise price of $2.00 per share which expire on February 7, 2007, andwarrants to purchase an aggregate of 500,000 shares of common stock at anexercise price of $10.00 per share which expire on February 7, 2008.

**8. Share-Based Payments**

The Company’s 2005 Omnibus Long-Term Incentive CompensationPlan (the “2005 Plan”) was approved by shareholders in March 2005. Underthe 2005 Plan, the maximum number of shares of common stock that may be subjectto stock options, stock awards, deferred shares, or performance shares is4,000,000. Shares available for future grants under the 2005 Plan were3,601,834 at March 31, 2006. In 2005, the Company adopted SFAS No. 123R,*Share-Based Payment (“SFAS 123R”),* whichrequires all companies tomeasure compensation costs for all share-based payments (including employeestock options) at fair value and recognize such costs in the statement ofoperations. Total share-based compensation expense for the three months ended March 31,2006 was $0.3 million, including share-based compensation expense forstock plan awards of $0.2 million.

In January 2006, an aggregate of 3,353 shares ofcommon stock were issued to the Company’s independent directors. These sharesrepresent the portion of the directors’ compensation for the three months endedDecember 31, 2005 that is payable in common stock. The shares have beenvalued at $13.04, the closing stock price on the date issued. The total valueof these shares was expensed as share-based compensation in 2005.

**9. 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 differencesapplicable to the Company in various jurisdictions in which the Companyoperates.

For the three months ended March 31, 2006, theCompany’s effective tax rate was 45.9%. The Company recorded a provision forincome taxes of $2.8 million comprised of federal, state and local and foreigntaxes.

The Company believes that due to its short operatinghistory and the Company’s strategic direction to make additional significantacquisitions in the near future, the Company may not have sufficient taxableincome to utilize its net operating loss carryforwards and foreign tax credits.Therefore, the Company has not provided a tax benefit in the three months endedMarch 31, 2006 related to the net operating loss carryforwards and foreigntax credits.

For the three months ended March 31, 2005, theCompany recorded an income tax benefit of $1.0 million which was comprisedmainly of provisions for foreign taxes relating to the profitable operations of19 Entertainment and state income tax expense relating to the Presley Business,net of a tax benefit on the net operating loss in the United States. For thethree months ended March 31, 2005, the Company’s effective tax rate was57.6%

**10. Segment Information**

As of March 31,2006, the Company had four reportable segments: Presley Business—Royalties and Licensing,Presley Business—Graceland Operations, 19 Entertainment and MBST. Thesedesignations have been made as the discrete operating results of these segmentsare reviewed by the Company’s chief operating decision-maker to assessperformance and make operating decisions. All inter-segment transactionshave been eliminated in the consolidated financial statements.

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The operatingincome (loss) amounts for the Presley Business after its acquisition by theCompany are not directly comparable to the amounts for the Presley Business asPredecessor due to the impact of purchase accounting adjustments made upon theacquisition of the Presley Business on February 7, 2005 which resulted ina substantial increase in the carrying value of fixed and intangible assets anda corresponding increase in depreciation and amortization expense in thepost-acquisition periods.

The Companyevaluates its operating performance based on several factors, including afinancial measure of operating income (loss) before non-cash depreciationof tangible assets and non-cash amortization of intangible assets (whichwe refer to as “OIBDA”).

 
| ** **                                                               | ** ** | **Presley Business**            | ** ** | ** **                | ** ** | ** **            | ** ** | ** ** | ** ** | ** **                    | ** ** |
|--------------------------------------------------------------------------|------------|--------------------------------------|------------|---------------------------|------------|-----------------------|------------|------------|------------|-------------------------------|------------|
| **Segment Information**                                             | ** ** | **Royalties and  Licensing**    | ** ** | **Graceland  Operations** | ** ** | **19  Entertainment** | ** ** | **MBST**   | ** ** | **Corporate  and other** | ** ** | **Total** | ** ** |
| ** **                                                               | ** ** | **(amounts in thousands)** | ** ** |
| **Three months ended  March 31, 2006:**                             |       |                                 |       |                      |       |                  |       |       |       |                          |       |   |   |
| Revenue                                                                  |       | $                                    | 3,046      |                      | $          | 5,178                 |       | $          | 31,379     |                          | $          | 1,506 |   | $ | — |   | $ | 41,109 |   |
| Operating income  (loss)                                                 |       | $                                    | 1,346      |                      | $          | (1,131                | )          | $          | 9,564      |                          | $          | 123 |   | $ | (4,083 | ) | $ | 5,819 |   |
| Depreciation and  amortization                                           |       | $                                    | 645        |                      | $          | 342                   |       | $          | 3,548      |                          | $          | 182 |   | $ | 20 |   | $ | 4,737 |   |
| OIBDA                                                                    |       | $                                    | 1,991      |                      | $          | (789                  | )          | $          | 13,112     |                          | $          | 305 |   | $ | (4,063 | ) | $ | 10,556 |   |
| **Three months ended  March 31, 2005:**                             |       |                                 |       |                      |       |                  |       |       |       |                          |       |   |   |
| Revenue                                                                  |       | $                                    | 2,446      |                      | $          | 3,352                 |       | $          | 4,189      |                          | $          | — |   | $ | — |   | $ | 9,987 |   |
| Operating income  (loss)                                                 |       | $                                    | 1,285      |                      | $          | (323                  | )          | $          | 1,810      |                          | $          | — |   | $ | (4,234 | ) | $ | (1,462 | ) |
| Depreciation and  amortization                                           |       | $                                    | 619        |                      | $          | 182                   |       | $          | 460        |                          | $          | — |   | $ | — |   | $ | 1,261 |   |
| OIBDA                                                                    |       | $                                    | 1,904      |                      | $          | (141                  | )          | $          | 2,270      |                          | $          | — |   | $ | (4,234 | ) | $ | (201 | ) |
| **Period January 1, 2005 to  February 7, 2005 (Predecessor):** |       |                                 |       |                      |       |                  |       |       |       |                          |       |   |   |
| Revenue                                                                  |       | $                                    | 1,702      |                      | $          | 1,740                 |       | $          | —     |                          | $          | — |   | $ | — |   | $ | 3,442 |   |
| Operating income  (loss)                                                 |       | $                                    | 1,167      |                      | $          | (705                  | )          | $          | —     |                          | $          | — |   | $ | — |   | $ | 462 |   |
| Depreciation and  amortization                                           |       | $                                    | —     |                      | $          | 126                   |       | $          | —     |                          | $          | — |   | $ | — |   | $ | 126 |   |
| OIBDA                                                                    |       | $                                    | 1,167      |                      | $          | (579                  | )          | $          | —     |                          | $          | — |   | $ | — |   | $ | 588 |   |
| **Asset Information:**                                                   | ** ** | ** **                           | ** ** | ** **                | ** ** | ** **            | ** ** | ** ** | ** ** | ** **                    | ** ** | ** ** | ** ** |
| Segment assets  at March 31, 2006                              |       | $                                    | 78,663     |                      | $          | 58,558                |       | $          | 205,636    |                          | $          | 14,323 |   | $ | 68,897 |   | $ | 426,077 |   |
| Segment assets at  December 31, 2005                                |       | $                                    | 76,694     |                      | $          | 56,693                |       | $          | 202,764    |                          | $          | 14,195 |   | $ | 79,782 |   | $ | 430,128 |   |

 

Below is areconciliation of the Company’s OIBDA to net income (loss):

** **

|                                           | ** ** | ** **                                     | ** ** | ** **                                         | ** ** | ** ** | ** ** | **Predecessor**                                | ** ** |
|-------------------------------------------|------------|------------------------------------------------|------------|----------------------------------------------------|------------|------------|------------|------------------------------------------------|------------|
| **(amounts in thousands)**      | ** ** | **Three  Months  Ended  March 31,  2006** | ** ** | **Three  Months Ended  March 31,  2005** | ** ** | ** ** | ** ** | **January 1  to  February 7,  2005** | ** ** |
| OIBDA                                     |       | $                                              | 10,556     |                                               | $          | (201       | )          |                                           |       | $ | 588 |   |
| Depreciation and amortization             |       | (4,737                                         | )          | (1,261                                             | )          |       |       | (126                                           | )          |
| Interest income                           |       | 739                                            |       | 25                                                 |       |       |       | —                                         |       |
| Interest expense                          |       | (135                                           | )          | (983                                               | )          |       |       | (115                                           | )          |
| Equity in earnings (losses) of affiliates |       | (102                                           | )          | —                                             |       |       |       | —                                         |       |
| Other income (expense)                    |       | (291                                           | )          | 700                                                |       |       |       | —                                         |       |
| Income tax benefit (expense)              |       | (2,815                                         | )          | 990                                                |       |       |       | (152                                           | )          |
| Minority interest                         |       | (162                                           | )          | (194                                               | )          |       |       | —                                         |       |
| Net income (loss)                         |       | $                                              | 3,053      |                                               | $          | (924       | )          |                                           |       | $ | 195 |   |

 

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**11. Subsequent Event**

**On April 10, 2006, the Companyacquired an 80% interest in the name, image and likeness and all other rightsof publicity of Muhammad Ali, certain trademarks owned by Mr. Ali and hisaffiliates and the rights to all existing Muhammad Ali license agreements. Thetotal consideration for the acquisition of these rights and assets was $50.0million, paid in cash at closing. The business will be operated through a newlyformed limited liability company named G.O.A.T. LLC. Mr. Ali, throughaffiliates, will retain a 20% interest in the business and his wife, Lonnie Ali,will serve as a member of the Management Board of G.O.A.T. LLC.**

*** * * * ***

**FORWARD LOOKINGSTATEMENTS**

In addition to historical information, this Form 10-Q(this “Quarterly Report”) contains forward-looking statements within themeaning of Section 27A of the Securities Act of 1933, as amended, and Section 21Eof the Securities Exchange Act of 1934, as amended. Forward-lookingstatements are those that predict or describe future events or trends and thatdo not relate solely to 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.

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**Item2.**                          Management’sDiscussion and Analysis of Financial Condition and Results of Operations

*Management’sdiscussion and analysis of financial condition and results of operations shouldbe read in conjunction with the historical financial statements and footnotesof the registrant, included in its Annual Report on Form 10-K forthe year ended December 31, 2005. Our future results of operations maychange materially from the historical results of operations reflected in ourhistorical financial statements.*

**General**

We are engaged in the ownership, development andcommercial utilization of entertainment content, including the rights to thename, image and likeness of Elvis Presley and the operations of Graceland, therights to the name, image and likeness of Muhammad Ali and proprietary rightsto the *IDOLS*television brand,including the *American Idol* series in theUnited States and local adaptations of the *IDOLS*television show format which, collectively, air in over 100countries around the world.

On February 7, 2005, RFX Acquisition LLC, amanagement group led by Robert F.X. Sillerman, acquired control of the Company(formerly known as Sports Entertainment Enterprises, Inc.) which had beeninactive since it sold all of its assets in August 2002. Simultaneous withthat transaction, the Company acquired an 85% interest in the Presley Business.The former owner of the Presley Business maintains a 15% interest in thebusiness, is entitled to certain future distributions and has other contractualrights. On March 17, 2005, we acquired 100% of the outstanding capitalstock of 19 Entertainment Limited. On August 9, 2005 we acquired 100%of the outstanding capital stock of Morra, Brezner, Steinberg &Tenenbaum Entertainment, Inc. (“MBST”). On April 10, 2006, theCompany acquired an 80% interest in the name, image and likeness and all otherrights of publicity of Muhammad Ali, certain trademarks owned by Mr. Aliand his affiliates and the rights to all existing Muhammad Ali licenseagreements.

Management’s discussion and analysis of financialcondition and results of operations is based on the historical financialcondition and results of operations of the Presley Business, as Predecessor,rather than those of CKX, prior to February 7, 2005. The historicalfinancial statements of the Presley Business and related management’sdiscussion and analysis of financial condition and results of operationsreflect 100% of the Presley Business.

**Presley Business**

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

The Royalties and Licensing segment generates revenuefrom the name, image and likeness of Elvis Presley, including physical andintellectual property owned or created by Elvis Presley during his life. Theprimary revenue source of this segment comes from licensing Elvis’ name andlikeness for consumer products, commercials and other uses and royalties andother income derived from intellectual property created by Elvis includingrecords, movies, videos and music publishing. Licensing revenue is primarilyderived from long-term contracts with terms of one to ten years. Although weseek to obtain significant minimum guarantees, our licensing revenue variesbased on the actual product sales generated by licensees. The intellectualproperty created by Elvis during his lifetime that is owned by the Company hasgenerally been assigned to third parties for commercial exploitation underlong-term agreements. Although we maintain certain controls over the use ofthis content and, in certain cases, have rights to 

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terminate theseagreements if the third party fails to perform, our revenue from thisintellectual property is highly dependant upon the ability of third parties tosuccessfully market the content.

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

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

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

**19 Entertainment**

19 Entertainment generates revenue from the creation,production and ownership of entertainment properties. Our primary revenuesources include production and license fees and related ratings and rankingsbonuses from television programs, and royalties from the sale of recorded musicby artists signed to our record labels. We also derive revenue from the sale ofmerchandise, sponsorships and tours based on our television programs andrecorded music artists, and fee income from management clients.

The majority of our revenue is derived from productionand license fees and related performance bonuses from producing and licensingthe *IDOLS* television show formatin various countries and ancillary revenue streams from the *IDOLS* brand. Ancillary revenue from the *IDOLS* brand is generated throughagreements which provide us with the option to sign finalists on the *IDOLS* television shows to long-termrecording contracts, concert tours we produce featuring *IDOLS* finalists and the sale ofsponsorships and merchandise involving the *IDOLS*brand and finalists.

Most of our *IDOLS*related revenue is paid under agreements with our global television productionand distribution partner, FremantleMedia Limited, and our principal globalrecord label partners, Ronagold Limited (an affiliate of SonyBMG) for *American Idol*seasons one through four and Simco Limited (anaffiliate of SonyBMG) for all seasons subsequent to *AmericanIdol 4*. Therefore, we are highly dependent upon the continuedability of these entities to successfully maintain the *IDOLS* brand and promote our recordingartists.

Other than *American Idol*,which is discussed below, the *IDOLS*television shows are generally produced or licensed under one year contractswhereby each local television network has the right, but not the obligation, torenew the agreement for additional years. Our recording artists are generallysigned to long-term recording contracts with 19 Recordings covering aspecified number of albums over an allotted timeframe.

Our revenue fromthe *IDOLS* brand is highlydependent upon the continued success of the *American Idol* serieswhich currently airs on the Fox television network in the United States, andlocal adaptations of the *IDOLS*television show which air around the world. Our revenue is also dependent uponthe continued success and productivity of our recording artists and managementclients. A portion of our revenue from the *American Idol*series is dependent upon the number of hours of programming we deliver. In thefourth broadcast season, which aired during our first and second fiscalquarters of 2005, we delivered 38.5 hours of programming. We delivered 30.5hours of the fifth season of American Idol in the first quarter of 2006 andexpect to deliver an additional 14.5 hours during the second quarter of 2006.  On November 28, 2005, 19 Entertainmententered into a series of agreements with Fox, FremantleMedia and SonyBMG/Simco,

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relatedto its ownership interest in the *American Idol*television program. Under the terms of the new agreement with Fox, Fox hasguaranteed at least four (which includes the currently airing fifth season),and as many as six more seasons of *American Idol*. Thenew agreement with Fox requires Fox to order a minimum of 37.0 hours and amaximum of 45.0 hours of *American Idol*programmingeach season and to pay 19 Entertainment and FremantleMedia an increased licensefee per season. Fox is also required to pay an annual fee to 19 Entertainmenttied to our new recording agreement with SonyBMG.

19 Entertainment’s revenue and OIBDA are seasonal innature, reflecting the timing of our television shows and tours in variousmarkets. Historically, 19 Entertainment generated higher revenue and OIBDAduring the first half of the calendar year, which corresponds to the dates our *American Idol* series airs on Fox in the United States. 19Entertainment’s revenues reflect its contractual share of the *IDOLS* television revenue representing producer, format andlicensing fees as well as ratings and rankings bonuses and do not include therevenues earned or the production costs incurred directly by our production anddistribution partner, FremantleMedia.

In 2006, 19 Entertainment will also generatesignificant revenue during the second half of the year from its television show*So You Think You Can Dance*, whichoriginally aired on Fox in the summer of 2005 and has been renewed for airingin the summer of 2006. 19 Entertainment records 100% of the television andsponsorship revenue and related production and other expenses from *So You Think You Can Dance*. The contractual share of therevenue that we are required to pay to our production partner is reflected in19 Entertainment’s operating expenses.

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

**MBST**

MBST is a full service management company with aroster of more than 35 clients, representing an array of leading entertainersincluding Robin Williams, Billy Crystal and Woody Allen. MBST also has anadvisory relationship with Apple Corps, the holding corporation for theBeatles. In addition to its management activities, MBST produces motionpictures.

MBST earns revenue through arrangements with artiststhat result in MBST receiving a percentage of the artists’ performance revenue,from consulting fees paid by advisory clients and from participations in filmsit has produced.

The Company intends to capitalize on the experience ofMBST, its executives and other employees in sourcing and structuring deals forits historical roster of clients to develop and implement revenue enhancementopportunities for the Company’s other current and to-be acquired entertainmentcontent.

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

**Use of OIBDA**

We evaluate our operating performance based on severalfactors, including a financial measure of operating income (loss) before non-cashdepreciation of tangible assets and non-cash amortization of intangibleassets (which we refer to as “OIBDA”). We consider OIBDA to be an importantindicator of the operational strengths and performance of our businesses,including the ability to provide cash flows to service debt. However, alimitation of the use of OIBDA as a performance measure is that it does notreflect the periodic costs of certain capitalized tangible and intangibleassets used in generating revenue in our businesses. Accordingly, OIBDA shouldbe considered in addition to, not as a substitute for, operating income (loss),net income (loss) and other measures of financial performance reported inaccordance with US GAAP because OIBDA is not a GAAP equivalent measurement.

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We have reconciled OIBDA to operating income in thefollowing consolidated operating results tables for the three months ended March 31,2006 and 2005.

**Consolidated Operating Results Three Months Ended March 31,2006Compared to Combined Three Months Ended March 31, 2005**

Prior to theacquisition of the Presley Business on February 7, 2005, the Company hadno operations. As a result the Presley Business is considered to be thepredecessor 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 compared the results ofthe Company for the three months ended March 31,2006 to the Company’s results for the three months ended March 31, 2005 combined with thatof the Predecessor for the period January 1, 2005 to February 7, 2005.Management believes that this provides the most meaningful analysis of theCompany’s results for the three months ended March 31, 2006 and 2005.
| ** **                                                                   | ** ** | **CKX  Three Months  Ended  March 31,  2006** | ** ** | ** ** | ** ** | **CKX  Three Months  Ended  March 31,  2005** | ** ** | **Predecessor  January 1 to  February 7,  2005** | ** ** | **Combined  Total** | ** ** | **Variance** | ** ** |
|------------------------------------------------------------------------------|------------|---------------------------------------------------------|------------|------------|------------|---------------------------------------------------------|------------|-----------------------------------------------------------------|------------|---------------------|------------|--------------|------------|
|                                                                         |       |                                                    |       |       |       |                                                    |       |                                                            |       |                |       |         |       |
| Revenue                                                                      |       | $                                                       | 41,109     |       |       |                                                    | $          | 9,987                                                           |       | $                   | 3,442      |         | $          | 13,429 |   | $ | 27,680 |   |
| Operating  expenses                                                          |       | 35,290                                                  |       |       |       | 11,449                                                  |       | 2,980                                                           |       | 14,429              |       | 20,861       |       |
| Operating income  (loss)                                                     |       | 5,819                                                   |       |       |       | (1,462                                                  | )          | 462                                                             |       | (1,000              | )          | 6,819        |       |
| Interest  (expense), net                                                     |       | 604                                                     |       |       |       | (958                                                    | )          | (115                                                            | )          | (1,073              | )          | 1,677        |       |
| Other income                                                                 |       | (291                                                    | )          |       |       | 700                                                     |       | —                                                          |       | 700                 |       | (991         | )          |
| Income (loss)  before income taxes                                           |       | 6,132                                                   |       |       |       | (1,720                                                  | )          | 347                                                             |       | (1,373              | )          | 7,505        |       |
| Income tax  expense (benefit)                                                |       | 2,815                                                   |       |       |       | (990                                                    | )          | 152                                                             |       | (838                | )          | 3,653        |       |
| Income (loss)  before equity in earnings of affiliates and minority interest |       | 3,317                                                   |       |       |       | (730                                                    | )          | 195                                                             |       | (535                | )          | 3,852        |       |
| Equity in  earnings (losses) of affiliates                                   |       | (102                                                    | )          |       |       | —                                                  |       | —                                                          |       | —              |       | (102         | )          |
| Minority  interest                                                           |       | (162                                                    | )          |       |       | (194                                                    | )          | —                                                          |       | (194                | )          | 32           |       |
| Net income  (loss)                                                           |       | $                                                       | 3,053      |       |       |                                                    | $          | (924                                                            | )          | $                   | 195        |         | $          | (729 | ) | $ | 3,782 |   |
| Operating income  (loss)                                                     |       | $                                                       | 5,819      |       |       |                                                    | $          | (1,462                                                          | )          | $                   | 462        |         | $          | (1,000 | ) | $ | 6,819 |   |
| Depreciation and  amortization                                               |       | 4,737                                                   |       |       |       | 1,261                                                   |       | 126                                                             |       | 1,387               |       | 3,350        |       |
| OIBDA                                                                        |       | $                                                       | 10,556     |       |       |                                                    | $          | (201                                                            | )          | $                   | 588        |         | $          | 387 |   | $ | 10,169 |   |

 

The combined total column has been prepared on adifferent basis of accounting than for the Company for the period ended March 31,2006. The combined total excludes the impact of additional depreciation andamortization expense resulting from the fair value accounting of acquiredassets for the Presley Business for the predecessor period January 1, 2005to February 7, 2005.

***Revenue***

Revenue was $41.1 million for the three monthsended March 31, 2006 compared to $13.4 million for the combined 2005period. The increase of $27.7 million is primarily attributable to $31.4 millionof revenue at 19 Entertainment for the three months ended March 31,2006, up from $4.2 million from its date of acquisition (March 17, 2005)to March 31, 2005. Revenue at the Presley Business was $8.2 million forthe three months ended March 31, 2006, a decrease of $1.0 million comparedto revenue of $9.2 million in the combined 2005 period. The decrease at thePresley Business is primarily attributable to a decline in licensing androyalty fees due to licensing income received in the first quarter of 2005 froman Elvis-themed mini-series which aired on the CBS television network in 2005.MBST contributed $1.5 million in revenue for the three months ended March 31,2006.

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***Operating Expenses***

Operating expenses for the three months ended March 31,2006 increased by $20.9 million over the combined prior period. Of thisincrease, $19.4 million reflects the increase in operating expenses of19 Entertainment for the three months ended March 31, 2006,reflecting the timing of the acquisition which resulted in only a partialquarter of operating expenses being recorded in the first quarter of 2005.Presley Business operating costs increased $0.2 million to $8.0 million,including $0.6 million of acquisition-related depreciation and amortizationexpenses, in 2006 from $7.8 million in the combined 2005 period. MBST hadoperating costs of $1.4 million in the first three months of 2006, including$0.2 million of acquisition-related depreciation and amortization expenses.Corporate expenses increased by $2.1 million for the three months ended March 31,2006, reflecting the timing of the RFX Acquisition LLC acquisition of theCompany, which resulted in only a partial quarter of corporate expenses beingrecorded in 2005 and additional operating costs for increased headcount andaudit-related expenses. For the three months ended March 31, 2005, theCompany incurred $2.2 million of other costs related to the transition ofthe Company from an entity with no operations.

***Operating Income***

Operating income for the three months ended March 31,2006 was $5.8 million, compared to a combined operating loss of $1.0 millionfor the 2005 period. The increase is attributable to $9.6 million of operatingincome generated in the current period by 19 Entertainment, up from $1.8million from its date of acquisition to March 31, 2005, $0.1 million ofoperating income generated by MBST in 2006 and a $0.1 million decrease incorporate expenses for the current period, partially offset by a $1.2 milliondecrease in operating income at the Presley Business.

***OIBDA***

OIBDA increased by $10.2 million to $10.6 million forthe three months ended March 31, 2006 as higher OIBDA attributable to 19Entertainment and MBST of $10.8 million and $0.3 million, respectively,for the three months ended March 31, 2006, and a $0.2 million decrease incorporate and other expenses were partially offset by lower OIBDA of $1.1million at the Presley Business.

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

The Company had net interest income of $0.6 millionfor the three months ended March 31, 2006, attributable to incomegenerated from cash and marketable securities. The Company had net interestexpense of $1.1 million for the combined 2005 period attributable to interestcosts associated with borrowings incurred to finance the acquisitions of thePresley Business and 19 Entertainment.

***Other Income (Loss)***

Other loss of $0.3 million for the three monthsended March 31, 2006 was primarily foreign exchange losses generated at19 Entertainment from transactions denominated in non-UK pound sterlingcurrencies. Other income of $0.7 million for the three months ended March 31,2005 was primarily foreign exchange gain on the Company’s deferred purchaseconsideration payable for 19 Entertainment.

***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 differencesapplicable to the Company in various jurisdictions in which the Companyoperates.

For the three months ended March 31, 2006, theCompany’s effective tax rate was 45.9%. The Company recorded a provision forincome taxes of $2.8 million comprised of federal, state and local and foreigntaxes.

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The Company believes that due to its short operatinghistory and the Company’s strategic direction to make additional significant acquisitionsin the near future, the Company may not have sufficient taxable income toutilize its net operating loss carryforwards and foreign tax credits. Therefore,the Company has not provided a tax benefit in the three months ended March 31,2006 related to the net operating loss carryforwards and foreign tax credits.

For the three months ended March 31, 2005, theCompany recognized a net income tax benefit of $0.8 million for the combinedperiod. This net benefit reflects foreign income tax expense related to theprofitable operations of the 19 Entertainment business, state income taxexpense related to the Presley business and a federal income tax benefitrelated to the overall loss incurred.

***Equity in Earnings (Losses) of Affiliates***

The Company recorded $0.1 million of losses inunconsolidated affiliates for the three months ended March 31, 2006.

***Minority Interest***

Minority interest expense of $0.2 million for thethree months ended March 31, 2006 reflects a 15% share in the net incomeof the Presley Business related to the equity interest retained by the formerowner.

***Net Income***

Net income was $3.1million in 2006 compared to combined net loss of $0.7 million for thecombined period in 2005.

The results of theCompany’s four reportable segments are discussed below.

**Presley Business**

Revenue for the Presley Business was $8.2 million forthe three months ended March 31, 2006, a decrease of $1.0 million, or 11%from the combined prior year period. Operating expenses for the PresleyBusiness, including acquisition-related depreciation and amortization expensesof $0.6 million, were $8.0 million, an increase of $0.2 million, or 3% from thecombined prior year period. Operating income for the Presley Business for thethree months ended March 31, 2006 was $0.2 million, a decrease of $1.2million, or 86% from the prior period. OIBDA for the Presley Business was $1.2million for the three months ended March 31, 2006, a decrease of $1.1million, or 48% from the combined prior year period.

***Royalties and Licensing***

Revenue related to the Royalties and Licensing segmentwas $3.0 million, a decrease of $1.1 million, or 27% from the prior year combinedperiod. This decrease was largely due to the CBS television mini-series revenuereceived in 2005. In addition, music publishing revenue was slightly lower thanthe prior period and revenue from the 2004 release of digitally enhanced videosand DVD’s of “‘68 Special” and “Aloha from Hawaii” declined in 2006 from 2005. Partiallyoffsetting these revenue declines was $0.6 million in the three months ended March 31,2006 from a royalty audit settlement with SonyBMG.  Operating expenses related to the Royaltiesand Licensing segment, including acquisition-related depreciation andamortization expenses of $0.6 million in 2006 and 2005, were $1.7 million forthe three months ended March 31, 2006 and 2005. OIBDA related to theRoyalties and Licensing segment was $2.0 million for the three months ended March 31,2006.

***Graceland Operations***

The operating results related to Graceland Operationsinclude several sources of revenue. Tour and exhibit revenue for the threemonths ended March 31, 2006 was $1.8 million, a decrease of$0.1 million, or 4% from the prior year. This decrease resulted from a 12%decline in visitors from 96,800 to 85,000 partially offset by a 9% increase inper visitor spending. We believe that the decline in attendance was due to thecontinued impact of Hurricane Katrina and higher gasoline prices which havesignificantly impacted 

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the level of tourism inthe Gulf Coast region. We are unable to predict when or if tourism levels inthe region will return to historical levels. Additionally, January 2005was also positively affected by unusually high attendance from internationaltravelers for special events celebrating Elvis’ 70th birthday and the first three months of 2006were negatively affected by unusually harsh winter weather which closed Gracelandfor part of two weekends. Revenue from Graceland’s retail operations was $2.1million, an increase of $0.2 million, or 10%, due primarily to a change inJuly 2005 to the mail order retail business where the Company now bearsthe business risk for sales and related expenses and therefore records salesand cost of sales. During the first three months of 2005, mail order retailsales were outsourced and the Company received a commission based on net sales.In addition, there was a 6% reduction in on-site retail sales attributed to thedecline in attendance. The reduction in on-site retail sales was offset byhigher sales of inventory to distributors as the Company exited the directwholesale business. Hotel room revenue was $0.6 million, which was flat againstthe prior year, as the average occupancy rate decreased slightly from 61% in2005 to 57% in 2006 but was offset by a higher yield per room due to rateincreases implemented in the second quarter of 2005. Operating expenses relatedto Graceland Operations were $6.3 million compared to $6.1 million in theprior period, an increase of $0.2 million, or 3%, due to fulfillment anddistribution costs for the mail order retail sales business. OIBDA related tothe Graceland Operations segment was ($0.8) million for the three months ended March 31,2006.

**19 Entertainment**

Revenue and operating expenses, including depreciationand amortization expense of $3.5 million ($3.4 million of acquisition-relateddepreciation and amortization expense), for 19 Entertainment for the threemonths ended March 31, 2006 were $31.4 million and $21.8 million,respectively. Revenue and operating expenses, including depreciation andamortization expense of $0.5 million ($0.4 million of acquisition-relateddepreciation and amortization expense), for the period from the date ofacquisition, March 17, 2005, through March 31, 2005 were $4.2 millionand $2.4 million, respectively. The following table provides a breakdown of 19Entertainment’s revenue, cost of sales and selling, general and administrativeexpenses for the three months ended March 31, 2006:
| ** **                                                                                                    | ** ** | **Revenue**                          | ** ** | **Cost of Sales** | ** ** | ** ** | ** ** |
|---------------------------------------------------------------------------------------------------------------|------------|--------------------------------------|------------|-----------------------------|------------|------------|------------|
| ** **                                                                                                    | ** ** | **(amounts in thousands)** | ** ** |
| *American  Idol*(including television production, foreign syndication,  sponsorship, merchandise and touring) |       | $                                    | 13,868     |                        | $          | (4,167     | )          | $ | 9,701 |   |
| Other *IDOLS*television programs (including license fees and  sponsorship)                                    |       | 2,426                                |       | (28                         | )          | 2,398      |       |
| Other television  productions                                                                                 |       | 1,231                                |       | (1,139                      | )          | 92         |       |
| Recorded music,  management clients and other                                                                 |       | 13,854                               |       | (6,844                      | )          | 7,010      |       |
|                                                                                                          |       | 31,379                               |       | (12,178                     | )          | 19,201     |       |
|                                                                                                          |       |                                 |       |                        |       |       |       |
| Selling, general  and administrative expenses                                                                 |       |                                 |       |                        |       | (6,089     | )          |
| Depreciation and  amortization                                                                                |       |                                 |       |                        |       | (3,548     | )          |
| Operating income                                                                                              |       |                                 |       |                        |       | $          | 9,564      |   |
|                                                                                                          |       |                                 |       |                        |       |       |       |
| Operating income                                                                                              |       |                                 |       |                        |       | $          | 9,564      |   |
| Depreciation and  amortization                                                                                |       |                                 |       |                        |       | 3,548      |       |
| OIBDA                                                                                                         |       |                                 |       |                        |       | $          | 13,112     |   |
|                                                                                                               |            |                                      |            |                             |            |            |            |  |  |  |

 

*American Idol 5* began airing inthe U.S. in January 2006 and 30.5 hours of a forecasted 45.0 total serieshours were broadcast in the quarter ended March 31, 2006. Beginning in2006, 19 Entertainment is recording revenue for *AmericanIdol 5* based upon the November 2005 amended Fox agreement. 19Entertainment will recognize the $9.0 million in incremental guaranteedlicense fees it will receive from Fox in 2006 from the amended Fox agreementratably as the hours aired; $6.1 million of the incremental guaranteedlicense fee was recognized in the three months ended March 31, 2006 basedon the hours broadcast. 19 Entertainment also receives a premium license feeper hour from Fox on an escalating scale for broadcast hours in excess of 26.5hours per season, which are recorded as the milestone broadcast episodes areaired. During the first quarter of 2006, premium license fee revenue wasrecorded for 4.0 hours. In addition to the license fees, Fox also pays bonusfees depending on where the *American Idol*series is rated and ranked in certain demographics at the conclusion of thebroadcast season. These fees will be recorded as revenue at the conclusion ofthe broadcast season when the final ratings and rankings are known. Additionally,an annual fee of $5.0 million paid by Fox to 19 Entertainment for designatingSonyBMG as the continuing record label for *American*Idolartists and for featuring certain SonyBMG controlled talent on the show hasbeen recorded in full in the three months ended March 31, 2006 as theobligations under the agreement governing this payment have been fulfilled.

*American Idol 4* was broadcast inthe U.S. between January and May 2005. Our results of operations forthe period from the date of acquisition, March 17, 2005, through March 31,2005 included the broadcast of 4.0 hours of *American Idol 4*and excluded 20.5 hours which aired prior to the acquisition date.

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**MBST**

MBST contributed $1.5 million in revenue for the threemonths ended March 31, 2006. Operating expenses, including acquisition-relateddepreciation and amortization expenses of $0.2 million, were $1.4 million. OBIDAwas $0.3 million for the three months ended March 31, 2006.

**Liquidity andCapital Resources**

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

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

If the Company borrows under the revolving creditfacility, it will restrict our ability to incur debt, sell assets, merge oracquire businesses, and pay dividends, among other matters, and will require usto maintain certain financial covenants, including (i) a minimum interestcoverage ratio, (ii) a maximum debt to EBITDA ratio, (iii) a minimumamount of EBITDA and (iv) a minimum tangible net worth. If we are unableto comply with or satisfy these covenants, we will not be permitted to borrowamounts under the revolving credit facility and the lenders may be able toaccelerate all amounts then due thereunder. As of March 31, 2006, theCompany is in compliance with all of the financial covenants under therevolving credit facility commitment.

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.

We are currently in negotiations with a group ofbanks, including the parties to the existing revolving credit facilitycommitment, regarding a new long-term $125 million revolving credit facilitywhich would replace the existing revolving credit facility commitment. Weexpect that the new long-term revolving credit facility will include financialcovenants and other restrictions which are generally similar to those in theexisting revolving credit facility commitment. No assurance can be given thatwe will be able to arrange a new long-term revolving credit facility.

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**Cash Flow for the Three Months Ended March 31,2006 and 2005**

**OperatingActivities**

Net cash provided byoperating activities was $1.3 million for the three months ended March 31,2006, reflecting net income of $3.1 million, which includes depreciation andamortization expenses of $4.7 million, offset, in part, by the impact ofchanges in working capital levels in the business related primarily to theseasonality of American Idol.

Net cash provided by operating activities was $0.2million for the three months ended March 31, 2005 as the net loss of $0.9million was offset by depreciation and amortization expenses of $1.3 million.

**InvestingActivities**

Net cash used ininvesting activities was $6.3 million for the three months ended March 31,2006. Cash paid for memorabilia and certain other assets of a Las Vegas-basedElvis-themed museum by the Presley Business and for 50% of a previously50%-owned affiliate by 19 Entertainment totaled $6.7 million. The Company sold$3.5 million of marketable securities during the three months ended March 31,2006. Capital expenditures of $3.1 million included the purchase ofadditional land adjacent to Graceland and improvements to the Heartbreak Hotel.

Net cash used in investing activities was $204.5million for the three months ended March 31, 2005. Cash paid foracquisitions and related costs was $204.3 million. Capital expenditures was$0.2 million.

**FinancingActivities**

Cash used in financingactivities was $1.4 million for the three months ended March 31, 2006.During the three months ended March 31, 2006, the Company madedistributions to the Presley minority interest shareholder of $0.6 million,principal payments on the Priscilla Presley note of $0.3 million and dividendpayments of $0.5 million to the holder of the Series B ConvertiblePreferred Stock.

Cash provided byfinancing activities was $221.7 million for the three months ended March 31,2005, reflecting $145.3 million of net proceeds from the short-term seniorcredit facilities, $43.3 million of net proceeds from the Huff investment,$30.0 million of proceeds from warrant exercises and $3.1 million from theissuance of common stock.

**Uses of Capital**

At March 31, 2006, the Company had $3.9 millionof debt outstanding, $30.8 million in cash and cash equivalents and $39.1million in marketable securities. On April 10, 2006, the Company acquiredan 80% interest in the name, image and likeness, intellectual property andcertain contractual rights of Muhammad Ali for $50.0 million in cash. Theremaining cash and cash equivalents and marketable securities will be used toprovide additional long-term capital to support the growth of the Company’sbusiness, which may include acquisitions of or investments in entertainmentproperties and businesses.

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

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**Capital Expenditures**

We presently anticipate that our total capitalexpenditures for the remainder of 2006, including additional deferredmaintenance at the Heartbreak Hotel, will total approximately $2.0 million.

On February 23, 2006, we announced preliminaryplans to re-develop our Graceland attraction including an expanded visitorscenter, developing new attractions and merchandising shops and building a newboutique convention hotel. This project is conditional on a number of factors,including obtaining necessary approvals and concessions from local and stateauthorities and attracting an appropriate hotel partner. Although we have notyet determined the exact scope, cost, financing plan and timing of thisproject, we expect that the re-development of Graceland will take several yearsand could require a substantial financial investment by the Company.

**FutureAcquisitions**

We intend to acquire additional businesses that fitour strategic goals. We expect to finance our future acquisitions ofentertainment related businesses from cash on hand, our revolving creditfacility 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% per annum.

We have no intention of paying any dividends on ourcommon stock for the foreseeable future.

**Commitments andContingencies**

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 certain sellers of 19 Entertainment and to thesellers of MBST and the Ali Business, we have future cash obligations undervarious types of contracts. We lease office space and equipment under long-termoperating leases. We have also entered into long-term employment agreementswith certain of our executives and other key employees. These contractstypically contain provisions that allow us to terminate the contract with goodcause.

**Inflation**

Inflation has affected the historical performances ofthe businesses primarily in terms of higher operating costs for salaries andother administrative expenses. Although the exact impact of inflation isindeterminable, we believe that the Presley Business has offset these highercosts by increasing prices at Graceland and for intellectual property licensesand that 19 Entertainment has offset these higher costs by increasing feescharged for its production services and higher royalty and sponsorship rates.

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**Critical Accounting Policies**

During the three months ended March 31, 2006,there have been no significant changes related to the Company’s criticalaccounting policies and estimates as disclosed in the Company’s Form 10-Kfor the year ended December 31, 2005.

**Off Balance SheetArrangements**

As of March 31, 2006, we did not have any offbalance sheet arrangements as defined in Item 303 (a)(4)(ii) ofSEC Regulation S-K.

**Item3.**                          QuantitativeAnd Qualitative Disclosure About Market Risk

We are exposed to market risk arising from changes inmarket rates and prices, including movements in foreign currency exchangerates, interest rates and the market price of our common stock. To mitigatethese risks, we may utilize derivative financial instruments, among otherstrategies. We do not use derivative financial instruments for speculativepurposes.

**Interest Rate Risk**

We had $3.9 millionof total debt outstanding at March 31, 2006, none of which was variablerate debt. Accordingly, we are not currently exposed to changes in interestrates.

Any future borrowings under the Company’s revolvingcredit facility commitment would be variable rate debt and the Company wouldtherefore have exposure to interest rate risk.

**Foreign ExchangeRisk**

As a result of our acquisition of 19 Entertainment, wehave significant operations outside the United States, principally in theUnited Kingdom. Some of our foreign operations are conducted in localcurrencies. As a result, our financial results could be affected by factorssuch as changes in foreign currency exchange rates or weak economic conditionsin foreign markets in which we operate. For example, assuming a hypotheticalstrengthening of the U.S. dollar exchange rate with the U.K. pound sterling of10%, our net income for the three months ended March 31, 2006, would havedecreased by approximately $0.5 million, reflecting an excess of U.K.pound sterling denominated operating expenses over U.K. pound sterling denominatedrevenue.

As of March 31, 2006, we have not entered intoany foreign currency option contracts or other financial instruments intendedto hedge our exposure to changes in foreign exchange rates. We intend tocontinue to monitor our operations outside the United States and in the futuremay seek to reduce our exposure to such fluctuations by entering into foreigncurrency option contracts or other hedging arrangements.

**19 Entertainment Put Option**

In connection with the acquisition of 19 Entertainment,certain sellers of 19 Entertainment entered into a Put and Call OptionAgreement that provides them with certain rights whereby, during a short periodfollowing the six year anniversary of the acquisition, these sellers canexercise a put right to sell 1,672,170 shares of  the Company’s common stock to the Company ata price equal to $13.18 per share. If the Company’s stock price is below $13.18per share during the period that the put is exercisable and the sellersexercise this put right, the Company will have exposure to market risk for theamount that $13.18 per share exceeds the then market price of the stock for thenumber of shares put back to the Company.

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**Item 4.**                          Controlsand Procedures

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 March 31,2006. Based on this evaluation, the chief executive officer and financialofficer have concluded that, as of that date, disclosure controls andprocedures 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 materialweakness relates to the ineffective oversight and review of the Company’saccounting for income taxes.

Management intends to implement additional oversightand review procedures designed to strengthen the internal control relating tothe accounting for income taxes.

In April 2006, the Company engaged an independentaccounting firm to assist with the Company’s accounting for income taxes,beginning with the three months ended March 31, 2006.

 

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**Part II—Other Information —**

**Item6.**                          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              |       | 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).                                                     |
| 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).                                                                                                                                                                                                      |

 

 

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**SIGNATURES**

Pursuant to therequirements of the Securities Exchange Act of 1934, the Registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.
|                                               | 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:    May 9, 2006 |           |   |   |

 

 

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