**UNITED STATESSECURITIES 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 June 30,  2006** |
| **OR**                                                 |
| **o**                                                  | ** ** | **TRANSITION REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |

 

**For the transitionperiodfrom                 to**

**CommissionFile No. 000-17436**

**CKX, INC.**

(Exact name of Registrant as specified in its charter)

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

 

**650 Madison AvenueNew York, New York 10022**(Address of PrincipalExecutive Offices and Zip Code)

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

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

SecuritiesRegistered Pursuant 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 markwhether the registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer (as defined in Rule 12b-2 of the ExchangeAct).

Large acceleratedfiler  o             Acceleratedfiler  x            Non-acceleratedfiler  o

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

Asof August 4, 2006, there were 92,421,642 shares of the registrant’s commonstock outstanding.

 

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**TABLE OF CONTENTS**

| Part I. |   | FINANCIAL  INFORMATION                                                                                                                                                                         |   |   |
|--------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|
| Item 1       |   | Financial  Statements                                                                                                                                                                          |   |   |
|         |   | Condensed Consolidated  Balance Sheets (Unaudited) at June 30, 2006 and December 31, 2005                                                                                            |   | 2      |
|         |   | Condensed  Consolidated Statements of Operations (Unaudited) for the three months ended June 30,  2006 and 2005                                                                           |   | 3      |
|         |   | Condensed  Consolidated Statements of Operations (Unaudited) for the six months ended June 30,  2006 and 2005 and the period January 1, 2005 to February 7, 2005  (Predecessor) |   | 4      |
|         |   | Condensed  Consolidated Statements of Cash Flows (Unaudited) for the six months ended June 30,  2006 and 2005 and the period January 1, 2005 to February 7, 2005  (Predecessor) |   | 5      |
|         |   | Notes to  Condensed Consolidated Financial Statements (Unaudited)                                                                                                                              |   | 7      |
| Item 2       |   | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                                                                                                    |   | 18     |
| Item 3       |   | Quantitative  and Qualitative Disclosures About Market Risk                                                                                                                                    |   | 34     |
| Item 4       |   | Controls and  Procedures                                                                                                                                                                       |   | 35     |
| Part II |   | OTHER INFORMATION                                                                                                                                                                              |   |   |
| Item 4       |   | Submission of  Matters to a Vote of Security Holders                                                                                                                                           |   | 36     |
| Item 6       |   | Exhibits                                                                                                                                                                                       |   | 37     |

 

 

1

----

**CKX, INC.**

**CONDENSEDCONSOLIDATED BALANCE SHEETS (UNAUDITED)**

| ** **                                                                                                                                                                              | ** ** | **June 30,  2006**                                                                   | ** ** | **December 31,  2005** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------|------------|-----------------------------|------------|
| ** **                                                                                                                                                                              | ** ** | **(in thousands, except share and  per share information)** | ** ** |
| **ASSETS**                                                                                                                                                                              | ** ** | ** **                                                                                | ** ** |                        | ** ** | ** ** |   |
| Cash and cash equivalents                                                                                                                                                               |       | $                                                                                         | 24,897     |                        |       | $ | 36,979 |   |   |
| Marketable securities, at  cost                                                                                                                                                         |       | —                                                                                    |       |                        | 42,625     |   |   |
| Receivables, net of  allowance for doubtful accounts of $42 at June 30, 2006 and $7 at  December 31, 2005                                                                |       | 44,284                                                                                    |       |                        | 19,503     |   |   |
| Inventories, net of  allowance for obsolescence of $491 at June 30, 2006 and $394 at  December 31, 2005                                                                  |       | 2,357                                                                                     |       |                        | 2,850      |   |   |
| Prepaid expenses                                                                                                                                                                        |       | 2,720                                                                                     |       |                        | 2,515      |   |   |
| Prepaid income taxes                                                                                                                                                                    |       | —                                                                                    |       |                        | 1,477      |   |   |
| Deferred tax assets                                                                                                                                                                     |       | 150                                                                                       |       |                        | 150        |   |   |
| Total current assets                                                                                                                                                                    |       | 74,408                                                                                    |       |                        | 106,099    |   |   |
| Property and  equipment—net                                                                                                                                                        |       | 29,861                                                                                    |       |                        | 26,685     |   |   |
| Receivables                                                                                                                                                                             |       | 1,350                                                                                     |       |                        | 2,087      |   |   |
| Deferred production costs                                                                                                                                                               |       | 618                                                                                       |       |                        | 428        |   |   |
| Other assets                                                                                                                                                                            |       | 21,758                                                                                    |       |                        | 13,210     |   |   |
| Goodwill                                                                                                                                                                                |       | 129,769                                                                                   |       |                        | 125,793    |   |   |
| Other intangible  assets—net                                                                                                                                                       |       | 203,145                                                                                   |       |                        | 150,912    |   |   |
| Deferred tax assets                                                                                                                                                                     |       | 4,914                                                                                     |       |                        | 4,914      |   |   |
| **TOTAL ASSETS**                                                                                                                                                                        |       | $                                                                                         | 465,823    |                        |       | $ | 430,128 |   |   |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                                                                                                                                          | ** ** | ** **                                                                                | ** ** |                        | ** ** | ** ** |   |
| Current liabilities:                                                                                                                                                                    |       |                                                                                      |       |                        |       |   |   |
| Accounts payable                                                                                                                                                                        |       | $                                                                                         | 2,551      |                        |       | $ | 2,769 |   |   |
| Accrued expenses                                                                                                                                                                        |       | 26,539                                                                                    |       |                        | 17,612     |   |   |
| Current portion of  long-term debt                                                                                                                                                      |       | 631                                                                                       |       |                        | 362        |   |   |
| Income taxes payable                                                                                                                                                                    |       | 9,335                                                                                     |       |                        | 732        |   |   |
| Other current liabilities                                                                                                                                                               |       | 2,035                                                                                     |       |                        | 624        |   |   |
| Deferred revenue                                                                                                                                                                        |       | 12,124                                                                                    |       |                        | 12,200     |   |   |
| Total current liabilities                                                                                                                                                               |       | 53,215                                                                                    |       |                        | 34,299     |   |   |
| Long-term liabilities:                                                                                                                                                                  |       |                                                                                      |       |                        |       |   |   |
| Long-term debt                                                                                                                                                                          |       | 3,196                                                                                     |       |                        | 3,138      |   |   |
| Deferred revenue                                                                                                                                                                        |       | 3,325                                                                                     |       |                        | 1,511      |   |   |
| Other long-term  liabilities                                                                                                                                                            |       | 4,118                                                                                     |       |                        | 3,902      |   |   |
| Deferred tax liabilities                                                                                                                                                                |       | 30,643                                                                                    |       |                        | 37,043     |   |   |
| Total liabilities                                                                                                                                                                       |       | 94,497                                                                                    |       |                        | 79,893     |   |   |
| Minority interest                                                                                                                                                                       |       | 3,366                                                                                     |       |                        | 3,801      |   |   |
| Redeemable restricted  common stock—1,672,170 shares outstanding at June 30, 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, 90,599,472 and 90,528,818 shares issued  and outstanding at June 30, 2006 and December 31, 2005,  respectively |       | 906                                                                                       |       |                        | 905        |   |   |
| Additional  paid-in-capital                                                                                                                                                             |       | 363,971                                                                                   |       |                        | 362,833    |   |   |
| Accumulated deficit                                                                                                                                                                     |       | (33,792                                                                                   | )          |                        | (43,931    | ) |   |
| Accumulated other  comprehensive loss                                                                                                                                                   |       | (8,952                                                                                    | )          |                        | (19,200    | ) |   |
| Total stockholders’  equity                                                                                                                                                        |       | 344,958                                                                                   |       |                        | 323,432    |   |   |
| **TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                                                                     |       | $                                                                                         | 465,823    |                        |       | $ | 430,128 |   |   |

 

The accompanying notes arean integral part of these condensed consolidated financial statements.

2

----

**CKX,INC.CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)**

| ** **                                                                   | ** ** | **Three Months Ended  June 30, 2006**                                 | ** ** | **Three Months Ended  June 30, 2005** | ** ** |
|------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------|------------|
| ** **                                                                   | ** ** | **(in thousands, except share and per  share information)** | ** ** |
| Revenue                                                                      |       |                                                                                      | $          | 60,210                                                    |       |   |   | $ | 33,402 |   |   |
| Operating expenses:                                                          |       |                                                                                      |       |                                                      |       |   |   |   |   |
| Cost of sales                                                                |       |                                                                                      | 20,483     |                                                      |       |   | 11,590 |   |   |
| Selling, general  and administrative expenses                                |       |                                                                                      | 16,182     |                                                      |       |   | 12,452 |   |   |
| Corporate  expenses                                                          |       |                                                                                      | 4,005      |                                                      |       |   | 2,972 |   |   |
| Depreciation and  amortization                                               |       |                                                                                      | 5,117      |                                                      |       |   | 4,417 |   |   |
| Total operating  expenses                                                    |       |                                                                                      | 45,787     |                                                      |       |   | 31,431 |   |   |
| Operating income                                                             |       |                                                                                      | 14,423     |                                                      |       |   | 1,971 |   |   |
| Interest income                                                              |       |                                                                                      | 248        |                                                      |       |   | 90 |   |   |
| Interest expense                                                             |       |                                                                                      | (234       | )                                                         |       |   | (3,281 | ) |   |
| Write-off of  unamortized deferred loan costs                                |       |                                                                                      | —     |                                                      |       |   | (1,894 | ) |   |
| Other income  (expense)                                                      |       |                                                                                      | (125       | )                                                         |       |   | 1,107 |   |   |
| Income (loss)  before income taxes                                           |       |                                                                                      | 14,312     |                                                      |       |   | (2,007 | ) |   |
| Income tax  expense (benefit)                                                |       |                                                                                      | 6,344      |                                                      |       |   | (720 | ) |   |
| Income (loss)  before equity in earnings of affiliates and minority interest |       |                                                                                      | 7,968      |                                                      |       |   | (1,287 | ) |   |
| Equity in  earnings of affiliates                                            |       |                                                                                      | 530        |                                                      |       |   | 361 |   |   |
| Minority interest                                                            |       |                                                                                      | (500       | )                                                         |       |   | (518 | ) |   |
| Net income (loss)                                                            |       |                                                                                      | 7,998      |                                                      |       |   | (1,444 | ) |   |
| Dividends on  preferred stock                                                |       |                                                                                      | (456       | )                                                         |       |   | (456 | ) |   |
| Net income (loss)  available to common shareholders                          |       |                                                                                      | $          | 7,542                                                     |       |   |   | $ | (1,900 | ) |   |
| Income (loss) per share:                                                     |       |                                                                                      |       |                                                      |       |   |   |   |   |
| Basic income  (loss) per share                                               |       |                                                                                      | $          | 0.08                                                      |       |   |   | $ | (0.03 | ) |   |
| Diluted income  (loss) per share                                             |       |                                                                                      | $          | 0.08                                                      |       |   |   | $ | (0.03 | ) |   |
| Average number of common  shares outstanding:                                |       |                                                                                      |       |                                                      |       |   |   |   |   |
| Basic                                                                        |       |                                                                                      | 92,225,921 |                                                      |       |   | 69,455,184 |   |   |
| Diluted                                                                      |       |                                                                                      | 96,225,503 |                                                      |       |   | 69,455,184 |   |   |

 

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

3

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**CKX, INC.**

**CONDENSEDCONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)**

| ** **                                                                   | ** ** | ** **                                                                                    | ** ** | ** **                                              | ** ** | ** ** | ** ** | ** ** | ** ** | **Predecessor(1)**                                     | ** ** |
|------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------|------------|---------------------------------------------------------|------------|------------|------------|------------|------------|--------------------------------------------------------|------------|
| ** **                                                                   | ** ** | **Six Months Ended  June 30, 2006**                                       | ** ** | **Six Months Ended  June 30, 2005** | ** ** | ** ** | ** ** | ** ** | ** ** | **January 1 to  February 7, 2005** | ** ** |
| ** **                                                                   | ** ** | **(in thousands, except share and per share information)** | ** ** |
| Revenue                                                                      |       |                                                                                          | $          | 101,319                                                 |       |       |       | $          | 43,389     |                                                   |       |   |   |   |   |   | $ | 3,442 |   |   |
| Operating expenses:                                                          |       |                                                                                          |       |                                                    |       |       |       |       |       |                                                   |       |   |   |   |   |   |   |
| Cost of sales                                                                |       |                                                                                          | 33,737     |                                                    |       |       | 13,078     |       |       |                                                   |       |   |   |   | 423 |   |   |
| Selling, general  and administrative  expenses                               |       |                                                                                          | 29,418     |                                                    |       |       | 16,918     |       |       |                                                   |       |   |   |   | 2,431 |   |   |
| Corporate  expenses                                                          |       |                                                                                          | 8,068      |                                                    |       |       | 5,031      |       |       |                                                   |       |   |   |   | — |   |   |
| Depreciation and  amortization                                               |       |                                                                                          | 9,854      |                                                    |       |       | 5,678      |       |       |                                                   |       |   |   |   | 126 |   |   |
| Other costs                                                                  |       |                                                                                          | —     |                                                    |       |       | 2,175      |       |       |                                                   |       |   |   |   | — |   |   |
| Total operating  expenses                                                    |       |                                                                                          | 81,077     |                                                    |       |       | 42,880     |       |       |                                                   |       |   |   |   | 2,980 |   |   |
| Operating income                                                             |       |                                                                                          | 20,242     |                                                    |       |       | 509        |       |       |                                                   |       |   |   |   | 462 |   |   |
| Interest income                                                              |       |                                                                                          | 987        |                                                    |       |       | 115        |       |       |                                                   |       |   |   |   | — |   |   |
| Interest expense                                                             |       |                                                                                          | (369       | )                                                       |       |       | (4,264     | )          |       |                                                   |       |   |   |   | (115 | ) |   |
| Write-off of  unamortized deferred loan costs                                |       |                                                                                          | —     |                                                    |       |       | (1,894     | )          |       |                                                   |       |   |   |   |   |   |   |
| Other income  (expense)                                                      |       |                                                                                          | (416       | )                                                       |       |       | 1,807      |       |       |                                                   |       |   |   |   | — |   |   |
| Income (loss)  before income taxes                                           |       |                                                                                          | 20,444     |                                                    |       |       | (3,727     | )          |       |                                                   |       |   |   |   | 347 |   |   |
| Income tax  expense (benefit)                                                |       |                                                                                          | 9,159      |                                                    |       |       | (1,710     | )          |       |                                                   |       |   |   |   | 152 |   |   |
| Income (loss)  before equity in earnings of affiliates and minority interest |       |                                                                                          | 11,285     |                                                    |       |       | (2,017     | )          |       |                                                   |       |   |   |   | 195 |   |   |
| Equity in  earnings of affiliates                                            |       |                                                                                          | 428        |                                                    |       |       | 361        |       |       |                                                   |       |   |   |   | — |   |   |
| Minority interest                                                            |       |                                                                                          | (662       | )                                                       |       |       | (712       | )          |       |                                                   |       |   |   |   | — |   |   |
| Net income (loss)                                                            |       |                                                                                          | 11,051     |                                                    |       |       | (2,368     | )          |       |                                                   |       |   |   |   | 195 |   |   |
| Dividends on  preferred stock                                                |       |                                                                                          | (912       | )                                                       |       |       | (720       | )          |       |                                                   |       |   |   |   | — |   |   |
| Accretion of  beneficial conversion feature                                  |       |                                                                                          | —     |                                                    |       |       | (17,762    | )          |       |                                                   |       |   |   |   | — |   |   |
| Net income (loss)  available to common  shareholders                         |       |                                                                                          | $          | 10,139                                                  |       |       |       | $          | (20,850    | )                                                      |       |   |   |   |   |   | $ | 195 |   |   |
| Income (loss) per share:                                                     |       |                                                                                          |       |                                                    |       |       |       |       |       |                                                   |       |   |   |   |   |   |   |
| Basic income  (loss) per share                                               |       |                                                                                          | $          | 0.11                                                    |       |       |       | $          | (0.39      | )                                                      |       |   |   |   |   |   |   |   |   |
| Diluted income  (loss) per share                                             |       |                                                                                          | $          | 0.11                                                    |       |       |       | $          | (0.39      | )                                                      |       |   |   |   |   |   |   |   |   |
| Average number of common  shares outstanding:                                |       |                                                                                          |       |                                                    |       |       |       |       |       |                                                   |       |   |   |   |   |   |   |
| Basic                                                                        |       |                                                                                          | 92,215,135 |                                                    |       |       | 53,695,652 |       |       |                                                   |       |   |   |   |   |   |   |
| Diluted                                                                      |       |                                                                                          | 96,206,139 |                                                    |       |       | 53,695,652 |       |       |                                                   |       |   |   |   |   |   |   |

----

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

The accompanying notes arean integral part of these condensed consolidated financial statements.

4

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**CKX, INC.**

**CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)**

| ** **                                                                            | ** ** | ** **                                               | ** ** | ** **                                               | ** ** | ** ** | ** ** | **Predecessor(1)**                                      | ** ** |
|---------------------------------------------------------------------------------------|------------|----------------------------------------------------------|------------|----------------------------------------------------------|------------|------------|------------|---------------------------------------------------------|------------|
| ** **                                                                            | ** ** | **Six Months Ended   June 30, 2006** | ** ** | **Six Months Ended   June 30, 2005** | ** ** | ** ** | ** ** | **January 1 to   February 7, 2005** | ** ** |
| ** **                                                                            | ** ** | ** **                                               | ** ** | **(in thousands)**                                  | ** ** | ** ** | ** ** | ** **                                              | ** ** |
| **Cash flows from operating activities:**                         | ** ** | ** **                                               | ** ** | ** **                                               | ** ** | ** ** | ** ** | ** **                                              | ** ** |
| Net  income (loss)                                                                    |       |                                                     | $          | 11,051                                                   |       |       |       | $                                                       | (2,368     | ) |   |   |   |   | $ | 195 |   |   |
| Adjustments to reconcile  net income (loss) to cash provided by operating activities: |       |                                                     |       |                                                     |       |       |       |                                                    |       |   |   |   |   |   |   |
| Depreciation  and amortization                                                        |       |                                                     | 9,854      |                                                     |       |       | 5,678      |                                                    |       |   |   |   | 126 |   |   |
| Share-based  payments                                                                 |       |                                                     | 496        |                                                     |       |       | 322        |                                                    |       |   |   |   | — |   |   |
| Deferred  income taxes                                                                |       |                                                     | (1,897     | )                                                        |       |       | (2,141     | )                                                       |       |   |   |   | — |   |   |
| Provision  for accounts receivable allowance                                          |       |                                                     | 35         |                                                     |       |       | —     |                                                    |       |   |   |   | — |   |   |
| Provision  for inventory allowance                                                    |       |                                                     | 97         |                                                     |       |       | —     |                                                    |       |   |   |   | — |   |   |
| Minority  interest                                                                    |       |                                                     | 662        |                                                     |       |       | 211        |                                                    |       |   |   |   | — |   |   |
| Changes in operating assets  and liabilities:                                         |       |                                                     |       |                                                     |       |       |       |                                                    |       |   |   |   |   |   |   |
| Receivables                                                                           |       |                                                     | (22,258    | )                                                        |       |       | 3,545      |                                                    |       |   |   |   | (566 | ) |   |
| Inventory                                                                             |       |                                                     | 396        |                                                     |       |       | 209        |                                                    |       |   |   |   | 124 |   |   |
| Prepaid  expenses and other                                                           |       |                                                     | 1,861      |                                                     |       |       | (6,908     | )                                                       |       |   |   |   | (576 | ) |   |
| Other  assets                                                                         |       |                                                     | (6,537     | )                                                        |       |       | —     |                                                    |       |   |   |   | — |   |   |
| Accounts  payable and accrued expenses                                                |       |                                                     | 8,514      |                                                     |       |       | (602       | )                                                       |       |   |   |   | 1,048 |   |   |
| Deferred  revenue                                                                     |       |                                                     | (2,997     | )                                                        |       |       | 2,916      |                                                    |       |   |   |   | 1,410 |   |   |
| Income  taxes payable                                                                 |       |                                                     | 10,077     |                                                     |       |       | 56         |                                                    |       |   |   |   | 152 |   |   |
| Other                                                                                 |       |                                                     | 1,905      |                                                     |       |       | (812       | )                                                       |       |   |   |   | — |   |   |
| Net  cash provided by operating activities                                            |       |                                                     | 11,259     |                                                     |       |       | 106        |                                                    |       |   |   |   | 1,913 |   |   |
| **Cash flows from investing  activities:**                                            | ** ** |                                                     |       |                                                     |       |       |       |                                                    |       |   |   |   |   |   |   |
| Purchases  of businesses, net of cash acquired                                        |       |                                                     | (51,273    | )                                                        |       |       | (208,255   | )                                                       |       |   |   |   | — |   |   |
| Acquisition  of certain assets of Elvis-themed museum                                 |       |                                                     | (3,888     | )                                                        |       |       | —     |                                                    |       |   |   |   | — |   |   |
| Acquisition  of additional interest in affiliate                                      |       |                                                     | (2,838     | )                                                        |       |       | —     |                                                    |       |   |   |   | — |   |   |
| Proceeds  from sale of marketable securities                                          |       |                                                     | 42,625     |                                                     |       |       | —     |                                                    |       |   |   |   | — |   |   |
| Investments  in marketable securities                                                 |       |                                                     | —     |                                                     |       |       | (68,319    | )                                                       |       |   |   |   | — |   |   |
| Purchases  of property and equipment                                                  |       |                                                     | (3,931     | )                                                        |       |       | (496       | )                                                       |       |   |   |   | (2 | ) |   |
| Net  cash used in investing activities                                                |       |                                                     | (19,305    | )                                                        |       |       | (277,070   | )                                                       |       |   |   |   | (2 | ) |   |
| **Cash flows from financing  activities:**                                            | ** ** |                                                     |       |                                                     |       |       |       |                                                    |       |   |   |   |   |   |   |
| Issuance  of common stock                                                             |       |                                                     | —     |                                                     |       |       | 3,058      |                                                    |       |   |   |   | — |   |   |
| Public  offering of common stock                                                      |       |                                                     | —     |                                                     |       |       | 253,000    |                                                    |       |   |   |   | — |   |   |
| Underwriting  discount and other offering costs                                       |       |                                                     | —     |                                                     |       |       | (20,017    | )                                                       |       |   |   |   | — |   |   |
| Exercise  of warrants                                                                 |       |                                                     | —     |                                                     |       |       | 30,000     |                                                    |       |   |   |   | — |   |   |
| Proceeds  from Huff investment                                                        |       |                                                     | —     |                                                     |       |       | 43,819     |                                                    |       |   |   |   | — |   |   |
| Proceeds  from credit facilities                                                      |       |                                                     | —     |                                                     |       |       | 148,000    |                                                    |       |   |   |   | — |   |   |
| Costs  associated with Huff investment and credit facility commitment                 |       |                                                     | —     |                                                     |       |       | (3,207     | )                                                       |       |   |   |   | — |   |   |
| Costs  associated with new revolving credit facility                                  |       |                                                     | (3,086     | )                                                        |       |       | —     |                                                    |       |   |   |   | — |   |   |
| Distributions  to minority interest shareholders                                      |       |                                                     | (986       | )                                                        |       |       | —     |                                                    |       |   |   |   | — |   |   |
| Principal  payments on debt                                                           |       |                                                     | (425       | )                                                        |       |       | (148,390   | )                                                       |       |   |   |   | (185 | ) |   |
| Dividends  paid on preferred stock                                                    |       |                                                     | (912       | )                                                        |       |       | (264       | )                                                       |       |   |   |   | — |   |   |
| Distributions  to trust beneficiary                                                   |       |                                                     | —     |                                                     |       |       | —     |                                                    |       |   |   |   | (23 | ) |   |
| Net  cash provided by (used in) financing activities                                  |       |                                                     | (5,409     | )                                                        |       |       | 305,999    |                                                    |       |   |   |   | (208 | ) |   |
| Effect  of exchange rate changes on cash                                              |       |                                                     | 1,373      |                                                     |       |       | (159       | )                                                       |       |   |   |   | — |   |   |
| **Net  increase (decrease) in cash and equivalents**                                  |       |                                                     | (12,082    | )                                                        |       |       | 28,876     |                                                    |       |   |   |   | 1,703 |   |   |
| **Cash  and cash equivalents - beginning of period**                                  |       |                                                     | 36,979     |                                                     |       |       | —     |                                                    |       |   |   |   | 201 |   |   |
| **Cash  and cash equivalents - end of period**                                        |       |                                                     | $          | 24,897                                                   |       |       |       | $                                                       | 28,876     |   |   |   |   |   | $ | 1,904 |   |   |
| **Supplemental Cash flow data:**                                                      | ** ** |                                                     |       |                                                     |       |       |       |                                                    |       |   |   |   |   |   |   |
| Cash paid during the period  for:                                                     |       |                                                     |       |                                                     |       |       |       |                                                    |       |   |   |   |   |   |   |
| Interest                                                                              |       |                                                     | $          | 197                                                      |       |       |       | $                                                       | 3,211      |   |   |   |   |   | $ | 172 |   |   |
| Income taxes                                                                          |       |                                                     | 979        |                                                     |       |       | —     |                                                    |       |   |   |   | 125 |   |   |

----

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

5

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**Supplemental CashFlow Information**

TheCompany had the following non-cash investing and financing activities in thesix months ended June 30, 2006 (in thousands):

| Issuance of note  in connection with the acquisition of certain assets of Elvis-themed museum |   | $   | 750    |   |
|-----------------------------------------------------------------------------------------------|--------|-----|--------|--------|
| Common stock issued in  connection with acquisition                                           |   | 599 |   |

 

TheCompany had the following non-cash investing and financing activities in thesix months ended June 30, 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 accompanying notes are an integral part of thesecondensed consolidated financial statements.

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

**1. Overview andBasis 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 theoperation 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 threeand six months ended June 30, 2006 and 2005 has not been audited, but inthe opinion of management all adjustments (consisting only of normal recurringadjustments) considered necessary to present fairly such information have beenincluded. The operating results for the three and six months ended June 30,2006 and 2005 are not necessarily indicative of the results to be expected forthe full year due to the seasonal nature of some of the Company’s businesses.The financial 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. Certain prior year amounts have beenreclassified to conform to the Company’s current presentation.

On February 7, 2005, RFX Acquisition LLC, anentity formed and controlled by Robert F.X. Sillerman, acquired a controllinginterest in the Company (formerly known as Sports Entertainment Enterprises, Inc.),which had been inactive since it sold all of its assets in August 2002.Simultaneous with that transaction, the Company acquired an 85% interest in theentities which own and/or control certain content relating to Elvis Presley(the “Presley Business”). Prior to the acquisition of the Presley Business, theCompany did not have any operations. As a result, the Presley Business is consideredto be the predecessor company (“Predecessor”). Accordingly, relevant financialinformation regarding the Predecessor, including financial statements for theperiod from January 1—February 7, 2005, has been presented. See Note4 for a description of the 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, no shares of Series A Convertible Redeemable Preferred Stockremain outstanding.

The allocation of theproceeds from the Huff investment, taking into account, among other things, thevalue of the warrants and the conversion ratio of one share of preferred stockinto 2.8 shares of common stock, resulted in a beneficial conversion featurefor the Series A Convertible Redeemable Preferred Stock in the amount of$17.8 million, which reduced the carrying value of the Series AConvertible Redeemable Preferred Stock by that amount. This beneficialconversion feature was to be accreted over the original eight-year redemptionperiod of the Series A Convertible Redeemable Preferred Stock and recordedas a 

7

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

**Critical AccountingPolicies**

During the six monthsended June 30, 2006, there have been no significant changes to the Company’scritical accounting policies and estimates as disclosed in the Company’s Form 10-Kfor the year ended December 31, 2005.

**2. ComprehensiveIncome (Loss)**

Thefollowing table is a reconciliation of the Company’s net income (loss) tocomprehensive income (loss) for the three and six months ended June 30,2006 and 2005 (in thousands):

| ** **                                | ** ** | **Three Months  Ended June 30,** | ** ** | **Six Months  Ended June 30,** | ** ** |
|-------------------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                | ** ** | **2006**                                        | ** ** | **2005**                                      | ** ** | **2006** | ** ** | **2005** | ** ** |
| Net income (loss)                         |       | $                                               | 7,998      |                                          | $          | (1,444 | ) | $ | 11,051 |   | $ | (2,368 | ) |
| Other  comprehensive income:              |       |                                            |       |                                          |       |   |   |   |   |
| Foreign currency  translation adjustments |       | 8,398                                           |       | (10,625                                       | )          | 10,248 |   | (10,625 | ) |
| Comprehensive income  (loss)              |       | $                                               | 16,396     |                                          | $          | (12,069 | ) | $ | 21,299 |   | $ | (13,023 | ) |

 

Foreign currencytranslation adjustments result from the conversion of 19 Entertainment’sfinancial statements for the period of March 18, 2005 to June 30,2005 and for the six months ended June 30, 2006. No reconciliation betweennet income (loss) and comprehensive income (loss) for the period January 1,2005 to February 7, 2005 is reflected in the table above because therewere no adjustments between net income (loss) and comprehensive income (loss)for such period.

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

Earnings per share is computed in accordance with SFASNo. 128, *Earnings Per Share*.Basic earnings per share is calculated by dividing net income (loss) applicableto common stockholders by the weighted-average number of sharesoutstanding during the period. Diluted earnings per share includes thedeterminants of basic earnings per share and, in addition, gives effect topotentially dilutive common shares. Basic and diluted earnings per share forthe three and six months ended June 30, 2006 are $0.08 and $0.11,respectively. The diluted earnings per share calculations exclude the impact ofthe conversion of 1,491,817 shares of Convertible Series B Preferredshares and the impact of the conversion of all outstanding employee share-basedstock plan awards because the effects would be anti-dilutive. Basic and dilutedloss per share for the three and six months ended June 30, 2005 is thesame as basic loss per share because the calculation is anti-dilutive due tothe reported net loss available to common shareholders. As a result, 3,999,582and 3,991,004 shares are excluded from the calculation of diluted earnings pershare for the three and six months ended June 30, 2005, respectively.

8

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Thefollowing table shows the computation of the Company’s basic and dilutedearnings per share for the three and six months ended June 30, 2006 and2005:

| ** **                                                                        | ** ** | **Three Months Ended June 30,**                                           | ** ** | **Six Months Ended June 30,** | ** ** |
|-----------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                                        | ** ** | **2006**                                                                                      | ** ** | **2005**                                          | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                                                                        | ** ** | **(in thousands, except share and per share information)** | ** ** |
| Basic income  (loss) per share computation:                                       |       |                                                                                          |       |                                              |       |   |   |   |   |
| Net income (loss)                                                                 |       | $                                                                                             | 7,998      |                                              | $          | (1,444 | ) | $ | 11,051 |   | $ | (2,368 | ) |
| Less: Dividends  on preferred stock                                               |       | (456                                                                                          | )          | (456                                              | )          | (912 | ) | (720 | ) |
| Accretion of beneficial  conversion feature                                       |       | —                                                                                        |       | —                                            |       | — |   | (17,762 | ) |
| Net income (loss) applicable to common shareholders                               |       | $                                                                                             | 7,542      |                                              | $          | (1,900 | ) | $ | 10,139 |   | $ | (20,850 | ) |
| Basic common shares outstanding (including  redeemable restricted common stock)   |       | 92,225,921                                                                                    |       | 69,455,184                                        |       | 92,215,135 |   | 53,695,652 |   |
| Basic income (loss) per share                                                     |       | $                                                                                             | 0.08       |                                              | $          | (0.03 | ) | $ | 0.11 |   | $ | (0.39 | ) |
| Diluted income  (loss) per share computation:                                     |       |                                                                                          |       |                                              |       |   |   |   |   |
| Net income (loss)                                                                 |       | $                                                                                             | 7,998      |                                              | $          | (1,444 | ) | $ | 11,051 |   | $ | (2,368 | ) |
| Less: Dividends on preferred stock                                                |       | (456                                                                                          | )          | (456                                              | )          | (912 | ) | (720 | ) |
| Accretion of beneficial conversion feature                                        |       | —                                                                                        |       | —                                            |       | — |   | (17,762 | ) |
| Net income (loss) applicable to common shareholders                               |       | $                                                                                             | 7,542      |                                              | $          | (1,900 | ) | $ | 10,139 |   | $ | (20,850 | ) |
| Basic common shares outstanding (including  redeemable restricted common stock)   |       | 92,225,921                                                                                    |       | 69,455,184                                        |       | 92,215,135 |   | 53,695,652 |   |
| Incremental shares for assumed exercise of warrants  and stock options            |       | 3,999,582                                                                                     |       | —                                            |       | 3,991,004 |   | — |   |
| Diluted common shares outstanding (including  redeemable restricted common stock) |       | 96,225,503                                                                                    |       | 69,455,184                                        |       | 96,206,139 |   | 53,695,652 |   |
| Diluted income  (loss) per share                                                  |       | $                                                                                             | 0.08       |                                              | $          | (0.03 | ) | $ | 0.11 |   | $ | (0.39 | ) |

 

**4. Acquisitions**

*The PresleyBusiness (Predecessor)*

On February 7, 2005, the Company acquired an 85%interest in the Presley Business. The consideration for the acquisitionincluded (i) $53.1 million in cash, (ii) 1,491,817 shares of Series BConvertible Preferred Stock, (iii) one share of Series C ConvertiblePreferred Stock, (iv) 500,000 shares of common stock and (v) therepayment of $25.1 million in indebtedness. Prior to the acquisition ofthe Presley Business, the Company did not have any operations. The results ofoperations of the Presley Business are included in the results of the Companysince the date of acquisition and in the financial statements of thePredecessor for the period from January 1—February 7, 2005.

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In March 2006, thePresley Business acquired certain assets of an Elvis-themed museum located inLas Vegas, Nevada, including certain intellectual property rights as well as asubstantial portion of the memorabilia formerly on display at theestablishment. The total purchase price for the assets was approximately $4.7million, $3.9 million (including $0.1 million of transaction costs) of whichwas paid in cash at closing and $0.8 million of which was paid in the form of athree-year promissory note (see note 6). The Company paid $2.0 million for theacquired memorabilia and $2.7 million for a non-compete agreement from theformer owners which is being amortized over five years. The sellers have agreedto permanently close the existing museum and the name of the museum will beretired as part of the Company’s overall plan to bring a world-classElvis-themed attraction to Las Vegas.

*19 Entertainment*

On March 17, 2005 the Company acquired 100% of 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. Considerationfor the acquisition consisted of £64.5 million (US $124.4 millionbased on the exchange rate at the date of acquisition) in cash, 198,388unregistered shares of common stock and 1,672,170 shares of redeemablerestricted common stock, each paid at closing, with an additional£19.2 million (US $34.0 million based on the exchange rate at the date ofpayment) of deferred consideration that was paid in cash on December 15,2005. The results of operations of 19 Entertainment are included in the resultsof the Company since the date of acquisition.

In March 2006, 19Entertainment acquired the remaining 50% of a previously 50%-owned affiliateengaged in the management of songwriters and producers. The purchase price forthe remaining 50% interest was £1.6 million (US $2.8 million based on theexchange rate at the date of acquisition), paid in cash at closing. The Companyhas performed a preliminary valuation of the assets acquired and has made aninitial allocation of $0.5 million to other intangible assets, which will beamortized over five years, and $2.3 million to goodwill.

*MBST*

On August 9, 2005,the Company acquired 100% of Morra, Brezner, Steinberg & TenenbaumEntertainment, Inc. (“MBST”), a manager of comedic talent and producer ofmotion pictures and television programming. The Company acquired MBST forinitial total consideration paid at closing of $1.0 million in cash and 700,000unregistered shares of common stock. The purchase price is subject to a workingcapital adjustment, of which $1.1 million in cash and 40,480 unregisteredshares were paid to the sellers in 2005. Additional working capital adjustmentsmay be made in 2006 which could result in additional payments to the sellersthat are expected to be less than $0.5 million. In addition, the sellersmay receive up to an additional 150,000 shares of common stock uponsatisfaction of certain performance thresholds over the five-year periodfollowing the closing. The receipt by the sellers of any such shares will beaccounted for as additional purchase price at the time such performancethresholds are met. The allocation of the fair values to the assets acquiredand liabilities assumed was based on a valuation prepared by an independentappraisal firm. The results of operations of MBST are included in the resultsof the Company since the date of acquisition.

*The Ali Business*

On April 10, 2006, the Company acquired an 80%interest in the name, image, likeness and all other rights of publicity ofMuhammad Ali, certain trademarks and copyrights owned by Mr. Ali and hisaffiliates and the rights to all existing Muhammad Ali license agreements (the “AliBusiness”). The Company acquired the Ali Business for $50.0 million in cash,which was funded from cash on hand, and incurred an additional $2.1 million intransaction costs. The Ali Business will be operated through a newly formed 

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company named Muhammad AliEnterprises LLC. The Muhammad Ali Family Trust, whose sole trustees areMuhammad Ali and his wife, Yolanda Ali, has historically owned and operated theAli Business and has retained a 20% interest in the Ali Business.

Thefollowing table summarizes the estimated fair values of the assets acquired andliabilities assumed on April 10, 2006. These amounts have been adjusted toreflect the Company’s 80% ownership interest. The estimated fair values arebased on a preliminary valuation performed by management. The Company hasengaged an independent appraisal firm to perform a valuation of the assetsacquired and liabilities assumed. The initial purchase price allocations arepreliminary and may be adjusted for changes in estimates of the fair value ofthe assets acquired and liabilities assumed. The Company expects that thepurchase price allocations will be finalized by the time it files its annualreport on Form 10-K for the year ended December 31, 2006. Thesignificant assumptions used in the valuation included factors affecting theduration, growth rates and amounts of future cash flows.

| ** **                | ** ** | **(in thousands)** | ** ** |
|---------------------------|------------|-------------------------|------------|
| Current assets            |       |                    | $          | 2,760 |   |   |
| Intangible assets         |       |                    | 54,376     |   |   |
| Other assets              |       |                    | 73         |   |   |
| Assets acquired           |       |                    | 57,209     |   |   |
| Current  liabilities      |       |                    | 2,027      |   |   |
| Deferred tax  liabilities |       |                    | 144        |   |   |
| Other liabilities         |       |                    | 2,939      |   |   |
| Liabilities  assumed      |       |                    | 5,110      |   |   |
| Net assets acquired       |       |                    | $          | 52,099 |   |   |

 

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

Thepreliminary amounts allocated to intangible assets were attributed to thefollowing categories and related useful lives (dollar amounts in thousands):

| Trademarks,  publicity rights and other intellectual property |   | $54,056 |   | indefinite |   |
|---------------------------------------------------------------|--------|---------|--------|------------|--------|
| Relationships with  licensees                                 |   | 320     |   | 3 years    |   |

 

At this time management is unable to determine whetherthe amounts allocated to the above intangible assets will change when theCompany finalizes its valuation and if changes are made, the amount of suchchanges. A $1.0 million fluctuation in fair value amounts allocated to therelationships with licensees intangible asset would increase or decrease annualamortization expense by $0.3 million.

The Ali Trust, as the holder of a 20% interest in theAli Business, is entitled to certain preferred minimum distributions of certaincash flow from the Ali Business. During the first twelve month period followingclosing, the amount of the annual minimum distribution will be $0.5 million. Inaddition, the Ali Trust has the right to receive an additional 5% membershipinterest in the Ali Business effective as of the end of the calendar year inwhich the total compound internal rate of return to the Company on its initial$50 million investment equals or exceeds (i) 30% on a cumulative basisduring the five year period following the closing date or (ii) 25% on acumulative basis for any period commencing on the closing date and ending atany time after the fifth anniversary of the closing date. The Ali Trust alsohas the right to require the Company to purchase all of its remaining ownershipinterest in the Ali Business beginning on the fifth anniversary of theacquisition at a price based on the then current fair market value.

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

*Pro FormaInformation*

Thefollowing table summarizes unaudited pro forma financial information for theCompany assuming the acquisitions and the related financing transactions hadoccurred on January 1, 2006 and 2005. The unaudited pro forma financial informationdoes not necessarily represent what would have occurred if the transactions hadoccurred on the dates presented and should not be taken as representative ofthe Company’s future consolidated results of operations or financial position:

| ** **                                          | ** ** | **Six Months Ended  June 30,**                         | ** ** |
|-----------------------------------------------------|------------|-----------------------------------------------------------------------|------------|
| ** **                                          | ** ** | **2006**                                                              | ** ** | **2005** | ** ** |
| ** **                                          | ** ** | **(in thousands, except  per Share information)** | ** ** |
| Revenue                                             |       | $                                                                     | 104,926    |   | $ | 70,785 |   |
| Net income (loss)  available to common stockholders |       | $                                                                     | 11,349     |   | $ | (17,439 | ) |
| Net income (loss)  per common share:                |       |                                                                  |       |   |   |
| Basic                                               |       | $                                                                     | 0.12       |   | $ | (0.32 | ) |
| Diluted                                             |       | $                                                                     | 0.12       |   | $ | (0.32 | ) |

 

Note that the amounts for the six months ended June 30,2005 exclude non-cash employee compensation expense associated with theexercise of employee stock options by 19 Entertainment employees immediatelyprior to the Company’s acquisition on March 17, 2005. The exercises were aone time non-recurring event that resulted directly from the acquisitionof 19 Entertainment by the Company. This expense was $10.4 millionafter tax, or $(0.19) per share.

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**5. IntangibleAssets and Goodwill**

Intangibleassets and goodwill as of June 30, 2006 consist of (dollar amounts inthousands): 

| ** **                                                                                     | ** ** | **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                                  |       |                                               | 13.6 years |                        |       |                                               | $          | 28,900                        |       |                                                        |       | $                         | —     |   |   |   | $ | (2,493 | ) |   |   | $ | — |   |   |   | $ | 26,407 |   |   |
| Other Presley  intangible assets                                                               |       |                                               | 15.7 years |                        |       |                                               | 10,880     |                          |       |                                                        | 2,742      |                      |       |   | (2,079 | ) |   |   | — |   |   |   | 11,543 |   |   |
| 19 Entertainment  IDOLS television programming, merchandising and sponsorship contracts        |       |                                               | 5.8 years  |                        |       |                                               | 78,043     |                          |       |                                                        | —     |                      |       |   | (11,851 | ) |   |   | (4,740 | ) |   |   | 61,452 |   |   |
| 19 Entertainment  other artist management, recording, merchandising, and sponsorship contracts |       |                                               | 2.4 years  |                        |       |                                               | 12,526     |                          |       |                                                        | 523        |                      |       |   | (4,714 | ) |   |   | (730 | ) |   |   | 7,605 |   |   |
| MBST artist  contracts, profit participation rights and other intangible assets                |       |                                               | 5.4 years  |                        |       |                                               | 4,270      |                          |       |                                                        | —     |                      |       |   | (646 | ) |   |   | — |   |   |   | 3,624 |   |   |
| Ali Business  relationships with licensees                                                     |       |                                               | 2.8 years  |                        |       |                                               | —     |                          |       |                                                        | 320        |                      |       |   | (27 | ) |   |   | — |   |   |   | 293 |   |   |
|                                                                                           |       |                                               |       |                        |       |                                               | $          | 134,619                       |       |                                                        |       | $                         | 3,585      |   |   |   | $ | (21,810 | ) |   |   | $ | (5,470 | ) |   |   | $ | 110,924 |   |   |

 

| ** **                                                    | ** ** | **Balance at  December 31,  2005** | ** ** | **Indefinite  Lived  Intangible  Assets  Acquired  During 2006** | ** ** | **Balance at  June 30,  2006** | ** ** | ** ** | ** ** | ** ** | ** ** |
|---------------------------------------------------------------|------------|----------------------------------------------|------------|-----------------------------------------------------------------------|------------|------------------------------------------|------------|------------|------------|------------|------------|
| Indefinite Lived Intangible Assets:            |       |                                         |       |                                                                  |       |                                     |       |       |       |       |       |   |   |   |   |   |   |   |   |
| Trademarks, publicity  rights and other intellectual property | ** ** | ** **                                   | $          | 38,165                                                                |       |                                     |       | $          | 54,056     |       |       | $ | 92,221 |   |   |   |   |   |   |   |   |   |
|                                                               |            |                                              |            |                                                                       |            |                                          |            |            |            |            |            |  |  |  |  |  |  |  |  |  |  |  |

 

| ** **                       | ** ** | **Balance at  December 31,  2005** | ** ** | **Goodwill  Acquired  During 2006** | ** ** | **2006  Foreign  Currency  Translation  Adjustment** | ** ** | **Other  Adjustments** | ** ** | **Balance at  June 30,  2006** | ** ** |
|----------------------------------|------------|----------------------------------------------|------------|------------------------------------------|------------|------------------------------------------------------|------------|------------------------|------------|------------------------------------------|------------|
| Goodwill:                        |       |                                         |       |                                     |       |                                                 |       |                   |       |                                     |       |   |   |   |   |   |   |   |   |
| Presley royalties  and licensing |       |                                         | $          | 6,967                                    |       |                                                 |       | $                      | —     |                                     |       |   | $ | — |   |   |   | $ | (4,535 | ) |   | $ | 2,432 |   |
| Presley Graceland  operations    |       |                                         | 7,675      |                                     |       |                                                 | —     |                   |       |                                     | —     |   |   |   | — |   |   | 7,675 |   |
| 19 Entertainment                 |       |                                         | 102,096    |                                     |       |                                                 | 2,384      |                   |       |                                     | 5,749      |   |   |   | — |   |   | 110,229 |   |
| MBST                             |       |                                         | 9,055      |                                     |       |                                                 | —     |                   |       |                                     | —     |   |   |   | 378 |   |   | 9,433 |   |
| Total                            |       |                                         | $          | 125,793                                  |       |                                                 |       | $                      | 2,384      |                                     |       |   | $ | 5,749 |   |   |   | $ | (4,157 | ) |   | $ | 129,769 |   |

 

The finalization of thePresley Business purchase price allocation resulted in a decrease in goodwilland deferred tax liabilities of $4.5 million in the six months ended June 30,2006.

The finalization of theMBST purchase price allocation resulted in a $0.4 million increase ingoodwill and a corresponding decrease in intangible assets in the six monthsended June 30, 2006.

**6. Debt**

At June 30, 2006, the Company had $3.1 millionoutstanding under a subordinated promissory note issued in connection with theacquisition of the Presley Business. In conjunction with the Presley Business 

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acquisition of memorabiliaand certain other assets of a Las Vegas-based Elvis-themed museum during thefirst quarter of 2006, the Company issued a promissory note to the sellers,which bears interest at 5% per annum and is payable in 36 equal monthlyinstallments. The Company has $0.7 million outstanding under this note at June 30,2006.

On May 24, 2006, theCompany entered into a $125.0 million revolving credit agreement (the “CreditFacility”) with various lenders, including Bear, Stearns & Co. Inc.,which acted as the sole lead arranger and bookrunner. As of June 30, 2006,the Company had not drawn on the Credit Facility. Loans under the CreditFacility are guaranteed by all of the Company’s wholly-owned domesticsubsidiaries and certain of its wholly-owned foreign subsidiaries. The loansare secured by a pledge of certain assets of the Company and its subsidiaryguarantors, including ownership interests in all wholly-owned domesticsubsidiaries, substantially all wholly-owned foreign subsidiaries and certainsubsidiaries that are not wholly-owned. The Credit Facility replaced theCompany’s previous $50.0 million financing commitment. Loans under the CreditFacility are available to the Company for general corporate purposes and tofinance future acquisitions and joint ventures.

**7. Stockholders’Equity**

At June 30, 2006, theCompany had outstanding warrants to purchase an aggregate of 4,551,597 sharesof common stock at an exercise price of $2.00 per share which expire on February 7,2007, and warrants to purchase an aggregate of 500,000 shares of common stockat an exercise price of $10.00 per share which expire on February 7, 2008.

**8. Share-BasedPayments**

The Company’s 2005 OmnibusLong-Term Incentive Compensation Plan (the “2005 Plan”) was approved by theCompany’s stockholders in March 2005. Under the 2005 Plan, the maximumnumber of shares of common stock that may be subject to stock options, stockawards, deferred shares, or performance shares is 4,000,000. Shares availablefor future grants under the 2005 Plan were 3,393,033 at June 30, 2006. In2005, the Company adopted SFAS No. 123R, *Share-BasedPayment (“SFAS 123R”),* which requires companies to measure compensation costs for all share-basedpayments (including employee stock options) at fair value and recognize suchcosts in the statement of operations. Total share-based compensation expensefor the three and six months ended June 30, 2006 was $0.2 million and $0.5million, respectively.

**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 six months ended June 30, 2006, theCompany’s effective tax rate was 44.8%. The Company recorded a provision forincome taxes of $6.3 million and $9.2 million for the three and six monthsended June 30, 2006, respectively, comprised of federal, state and localand foreign taxes.

Given the Company’s short operating history and itsstrategic direction to make additional significant acquisitions in the nearfuture, the Company believes there is uncertainty as to whether the Company’snet operating loss carryforwards and foreign tax credits are realizable. Therefore,the Company has not provided a tax benefit in the three and six months ended June 30,2006 related to the net operating loss carryforwards and foreign tax creditswhen calculating its estimated annual effective tax rate. The Company willcontinue to evaluate this conclusion throughout the remainder of the year. Ifthe Company concludes in the future that it is more likely than not that thenet operating loss carry forwards and foreign 

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tax credits arerealizable, the estimated tax rate will be reduced accordingly and the benefitfor such items will be recognized at that time. As of June 30, 2006, theCompany had approximately $9.3 million of federal net operating losscarryforwards and $11.7 million of foreign net operating loss carryforwards forwhich no benefit has currently been recorded.

In 2005, deferred tax assets were reduced by avaluation allowance of $31.4 million, principally relating to uncertaintyregarding the future realizability of tax benefits related to net operatingloss carryforwards and foreign tax credits. When $27.2 million of thesevaluation allowances are reversed in future periods, the reversals will becredited to goodwill in accordance with FAS 109.

For the three and sixmonths ended June 30, 2005, the Company recorded income tax benefits of$0.7 million and $1.7 million, respectively, which were comprised mainly ofprovisions for foreign taxes relating to the profitable operations of 19Entertainment 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 the six months ended June 30, 2005,the Company’s effective tax rate was 45.9%.

**10. SegmentInformation**

As of June 30, 2006, the Company had fivereportable segments: Presley Business—Royalties and Licensing, Presley Business—GracelandOperations, 19 Entertainment, MBST and the Ali Business. These designationshave been made as the discrete operating results of these segments are reviewedby the Company’s chief operating decision-maker to assess performance and makeoperating decisions. All inter-segment transactions have been eliminatedin the consolidated financial statements.

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

The Company evaluates its operating performance basedon several factors, including a financial measure of operating income (loss)before non-cash depreciation of tangible assets and non-cashamortization of intangible assets (which we refer to as “OIBDA”).

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| ** **                                                               | ** ** | **Presley Business**         | ** ** | ** **                | ** ** | ** **            | ** ** | ** ** | ** ** | ** **            | ** ** | ** **                    | ** ** |
|--------------------------------------------------------------------------|------------|-----------------------------------|------------|---------------------------|------------|-----------------------|------------|------------|------------|-----------------------|------------|-------------------------------|------------|
| **Segment Information**                                             | ** ** | **Royalties and  Licensing** | ** ** | **Graceland  Operations** | ** ** | **19  Entertainment** | ** ** | **MBST**   | ** ** | **Ali Business** | ** ** | **Corporate  and other** | ** ** | **Total** | ** ** |
| ** **                                                               | ** ** | **(amounts in  thousands)**       | ** ** |
| **Three  months ended June 30, 2006:**                                   |       |                              |       |                      |
| Revenue                                                                  |       |                              | $          | 3,568                     |       |                  |       | $          | 9,198      |                  |       |                          | $          | 42,503 |   |   | $ | 2,275 |   |   | $ | 2,666 |   |   |   | $ | — |   |   | $ | 60,210 |   |
| Operating income  (loss)                                                 |       |                              | $          | 1,698                     |       |                  |       | $          | 1,351      |                  |       |                          | $          | 13,364 |   |   | $ | 792 |   |   | $ | 1,245 |   |   |   | $ | (4,027 | ) |   | $ | 14,423 |   |
| Depreciation and  amortization                                           |       |                              | $          | 646                       |       |                  |       | $          | 494        |                  |       |                          | $          | 3,726 |   |   | $ | 198 |   |   | $ | 31 |   |   |   | $ | 22 |   |   | $ | 5,117 |   |
| OIBDA                                                                    |       |                              | $          | 2,344                     |       |                  |       | $          | 1,845      |                  |       |                          | $          | 17,090 |   |   | $ | 990 |   |   | $ | 1,276 |   |   |   | $ | (4,005 | ) |   | $ | 19,540 |   |
| **Three months ended June 30,  2005:**                              |       |                              |       |                      |       |                  |       |       |       |                  |       |                          |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Revenue                                                                  |       |                              | $          | 10,284                    |       |                  |       | $          | 8,588      |                  |       |                          | $          | 14,530 |   |   | $ | — |   |   | $ | — |   |   |   | $ | — |   |   | $ | 33,402 |   |
| Operating income  (loss)                                                 |       |                              | $          | 2,545                     |       |                  |       | $          | 1,928      |                  |       |                          | $          | 473 |   |   | $ | — |   |   | $ | — |   |   |   | $ | (2,975 | ) |   | $ | 1,971 |   |
| Depreciation and  amortization                                           |       |                              | $          | 1,167                     |       |                  |       | $          | 306        |                  |       |                          | $          | 2,941 |   |   | $ | — |   |   | $ | — |   |   |   | $ | 3 |   |   | $ | 4,417 |   |
| OIBDA                                                                    |       |                              | $          | 3,712                     |       |                  |       | $          | 2,234      |                  |       |                          | $          | 3,414 |   |   | $ | — |   |   | $ | — |   |   |   | $ | (2,972 | ) |   | $ | 6,388 |   |
| **Six months ended June 30,  2006:**                                |       |                              |       |                      |       |                  |       |       |       |                  |       |                          |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Revenue                                                                  |       |                              | $          | 6,615                     |       |                  |       | $          | 14,375     |                  |       |                          | $          | 73,882 |   |   | $ | 3,781 |   |   | $ | 2,666 |   |   |   | $ | — |   |   | $ | 101,319 |   |
| Operating income  (loss)                                                 |       |                              | $          | 3,044                     |       |                  |       | $          | 220        |                  |       |                          | $          | 22,928 |   |   | $ | 915 |   |   | $ | 1,245 |   |   |   | $ | (8,110 | ) |   | $ | 20,242 |   |
| Depreciation and  amortization                                           |       |                              | $          | 1,291                     |       |                  |       | $          | 836        |                  |       |                          | $          | 7,274 |   |   | $ | 380 |   |   | $ | 31 |   |   |   | $ | 42 |   |   | $ | 9,854 |   |
| OIBDA                                                                    |       |                              | $          | 4,335                     |       |                  |       | $          | 1,056      |                  |       |                          | $          | 30,202 |   |   | $ | 1,295 |   |   | $ | 1,276 |   |   |   | $ | (8,068 | ) |   | $ | 30,096 |   |
| **Six months ended June 30,  2005:**                                |       |                              |       |                      |       |                  |       |       |       |                  |       |                          |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Revenue                                                                  |       |                              | $          | 12,730                    |       |                  |       | $          | 11,940     |                  |       |                          | $          | 18,719 |   |   | $ | — |   |   | $ | — |   |   |   | $ | — |   |   | $ | 43,389 |   |
| Operating income  (loss)                                                 |       |                              | $          | 3,830                     |       |                  |       | $          | 1,605      |                  |       |                          | $          | 2,283 |   |   | $ | — |   |   | $ | — |   |   |   | $ | (7,209 | ) |   | 509 |   |
| Depreciation and  amortization                                           |       |                              | $          | 1,786                     |       |                  |       | $          | 488        |                  |       |                          | $          | 3,401 |   |   | $ | — |   |   | $ | — |   |   |   | $ | 3 |   |   | 5,678 |   |
| OIBDA                                                                    |       |                              | $          | 5,616                     |       |                  |       | $          | 2,093      |                  |       |                          | $          | 5,684 |   |   | $ | — |   |   | $ | — |   |   |   | $ | (7,206 | ) |   | $ | 6,187 |   |
| **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 June 30, 2006                                |       |                              | $          | 77,949                    |       |                  |       | $          | 59,417     |                  |       |                          | $          | 229,791 |   |   | $ | 14,000 |   |   | $ | 56,452 |   |   |   | $ | 28,214 |   |   | $ | 465,823 |   |
| Segment assets at December 31,  2005                                |       |                              | $          | 76,694                    |       |                  |       | $          | 56,693     |                  |       |                          | $          | 202,764 |   |   | $ | 14,195 |   |   | $ | — |   |   |   | $ | 79,782 |   |   | $ | 430,128 |   |

 

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

| ** **                                   | ** ** | **Three Months Ended** | ** ** | **Six Months Ended ** | ** ** | ** ** | ** ** | **Predecessor**            | ** ** |       |
|----------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|------------|------------|----------------------------|------------|------------|
| ** **                                   | ** ** | **June 30,**                | ** ** | **June 30,**               | ** ** | ** ** | ** ** | **January 1 to** | ** ** |       |
| **(amounts in thousands)**         | ** ** | **2006**                         | ** ** | **2005**                        | ** ** | **2006**   | ** ** | **2005**                   | ** ** | ** ** | ** ** | **February 7, 2005** | ** ** |
| OIBDA                                        |       | $                                | 19,540     |                            | $          | 6,388      |       | $                          | 30,096     |       | $ | 6,187 |   |   |   |   | $ | 588 |   |   |   |
| Depreciation and amortization                |       | (5,117                           | )          | (4,417                          | )          | (9,854     | )          | (5,678                     | )          |       |   |   | (126 | ) |   |   |
| Interest income                              |       | 248                              |       | 90                              |       | 987        |       | 115                        |       |       |   |   | — |   |   |
| Interest expense                             |       | (234                             | )          | (3,281                          | )          | (369       | )          | (4,264                     | )          |       |   |   | (115 | ) |   |
| Write-off of unamortized deferred loan costs |       | —                           |       | (1,894                          | )          | —     |       | (1,894                     | )          |       |   |   | — |   |   |
| Equity in earnings of affiliates             |       | 530                              |       | 361                             |       | 428        |       | 361                        |       |       |   |   | — |   |   |
| Other income (expense)                       |       | (125                             | )          | 1,107                           |       | (416       | )          | 1,807                      |       |       |   |   | — |   |   |
| Income tax benefit (expense)                 |       | (6,344                           | )          | 720                             |       | (9,159     | )          | 1,710                      |       |       |   |   | (152 | ) |   |
| Minority interest                            |       | (500                             | )          | (518                            | )          | (662       | )          | (712                       | )          |       |   |   | — |   |   |
| Net income (loss)                            |       | $                                | 7,998      |                            | $          | (1,444     | )          | $                          | 11,051     |       | $ | (2,368 | ) |   |   |   | $ | 195 |   |   |
|                                              |            |                                  |            |                                 |            |            |            |                            |            |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

*** * * * ***

**FORWARD LOOKINGSTATEMENTS**

Inaddition to historical information, this Form 10-Q (this “QuarterlyReport”) contains forward-looking statements within the meaning of Section 27Aof the Securities Act of 1933, as amended, and Section 21E of theSecurities Exchange Act of 1934, as amended. Forward-looking statementsare those that predict or describe future events or trends and that do notrelate 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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**Item 2. Management’sDiscussion and Analysis of Financial Condition and Results of Operations**

*Management’s discussion and analysis of financialcondition and results of operations should be read in conjunction with thehistorical financial statements and footnotes of the registrant included in itsAnnual Report on Form 10-K for the year ended December 31,2005. Our future results of operations may change materially from thehistorical results of operations reflected in our historical financialstatements.*

**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 entities whichown and/or control certain content relating to Elvis Presley (the “PresleyBusiness”). The former owner of the Presley Business maintains a 15% interestin the business and is entitled to certain future distributions and has othercontractual rights. On March 17, 2005, the Company acquired 100% of theoutstanding capital stock of 19 Entertainment Limited. On August 9,2005 we acquired 100% of the outstanding capital stock of Morra, Brezner,Steinberg & Tenenbaum Entertainment, Inc. (“MBST”). On April 10,2006, the Company acquired an 80% interest in the name, image and likeness andall other rights of publicity of Muhammad Ali, certain trademarks andcopyrights owned by Mr. Ali and his affiliates and the rights to allexisting Muhammad Ali license agreements (the “Ali Business”). The former ownerof the Ali Business maintains a 20% interest in the business and is entitled tocertain future distributions and has other contractual rights.

Management’s discussionand analysis of financial condition and results of operations is based on thehistorical financial condition and results of operations of the PresleyBusiness, as Predecessor, rather than those of CKX, prior to February 7, 2005.The historical financial statements of the Presley Business and relatedmanagement’s discussion and analysis of financial condition and results ofoperations reflect 100% of the Presley Business.

**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 

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minimum guarantees, ourlicensing revenue varies based on the actual product sales generated bylicensees. The intellectual property created by Elvis during his lifetime thatis owned by the Company has generally been assigned to third parties forcommercial exploitation under long-term agreements. Although we maintaincertain controls over the use of this content and, in certain cases, haverights to terminate these agreements if the third party fails to perform, ourrevenue from this intellectual property is highly dependant upon the ability ofthird parties to successfully market the content.

The Graceland 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 Presley Business revenue sources are dependantupon the public’s continued interest in Elvis Presley and the intellectualproperty he created.

Our significant costs tooperate the Presley Business include salaries, rent and other general overheadcosts. Most of our costs do not vary significantly with our revenue. Ourdiscretionary costs are generally in our marketing and promotions departmentwhich we primarily incur to maintain and/or increase the number of visitors toGraceland. We may also incur discretionary expenses in exploring opportunitiesto bring Elvis-related attractions to Las Vegas and other strategic locationsthroughout 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 19 Entertainment’s revenue is derivedfrom production and license fees and related performance bonuses from producingand licensing the *IDOLS*television show format in various countries and ancillary revenue streams fromthe *IDOLS* brand. Ancillaryrevenue from the *IDOLS* brand isgenerated through agreements which provide us with the option to sign finalistson the *IDOLS* television shows tolong-term recording contracts, concert tours we produce featuring *IDOLS* finalists and the sale ofsponsorships and merchandise involving the *IDOLS*brand 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 from the *IDOLS*brand is highly dependent upon the continued success of the *American Idol* series, which currently airs on the Foxtelevision network in the United States, and local adaptations of the *IDOLS* television show which air around the world. Ourrevenue is also dependent upon the continued success and productivity of ourrecording artists and management clients. A portion of our revenue from 

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the *AmericanIdol* series is dependent upon the number of hours of programming wedeliver. In the fourth broadcast season, which aired during our first andsecond fiscal quarters of 2005, we delivered 38.5 hours of programming. Wedelivered 45 hours of programming for the fifth season of American Idol, whichaired in the first and second quarters of 2006. On November 28, 2005, 19Entertainment entered into a series of agreements with Fox, FremantleMedia andSonyBMG/Simco, related to our ownership interest in the *AmericanIdol* television program. Under the terms of the new agreement withFox, Fox has guaranteed at least three (2007-2009) and as many as fivemore seasons of *American Idol*. The new agreementwith Fox requires Fox to order a minimum of 37 hours and a maximum of 45 hoursof *American Idol*programming each seasonand to pay 19 Entertainment and FremantleMedia an increased license fee perseason. Fox is also required to pay an annual fee to 19 Entertainment tied toour 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.

19 Entertainment also generates significant revenuefrom its television show *So You Think You Can Dance*.The show, which originally aired on Fox in the third quarter of 2005, commencedairing its second season in May 2006. 19 Entertainment records 100% of thetelevision and sponsorship revenue and related production and other expensesfrom *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 tooperate 19 Entertainment include salaries and other compensation, rentsand general overhead costs. Our discretionary costs include salary and overheadcosts incurred in the development of new entertainment content.

**MBST**

MBST is a full service management company with aroster of 30 clients, representing an array of leading entertainers includingRobin Williams, Billy Crystal and Woody Allen. MBST also has an advisoryrelationship with Apple Corps Ltd., the holding corporation for the Beatles. Inaddition to its management activities, MBST produces motion pictures.

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

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

**Ali Business**

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

The primary revenue source comes from licensingMuhammad Ali’s name and likeness for consumer products, commercials and otheruses. Licensing revenue is primarily derived from long-term contracts 

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with terms of one to fiveyears. Although we seek to obtain significant minimum guarantees, our licensingrevenue varies based on the actual product sales generated by licensees. Theintellectual property that is owned by the Company has generally been assignedto third parties for commercial exploitation under long-term agreements.Although we maintain certain controls over the use of this content and, incertain cases, have rights to terminate these agreements if the third partyfails to perform, our revenue from this intellectual property is highlydependant upon the ability of third parties to successfully market the content.Most of our revenue sources are dependant upon the public’s continued interestin Muhammad Ali and associated intellectual property. The Ali Business alsogenerates revenue from sports memorabilia signings performed by Mr. Ali.

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

**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.

We have reconciled OIBDAto operating income in the following consolidated operating results tables forthe three and six months ended June 30, 2006 and 2005.

**Consolidated Operating Results Three Months Ended June 30,2006Compared to Three Months Ended June 30, 2005**

| ** **                                                                   | ** ** | **Three Months  Ended  June 30,  2006** | ** ** | **Three Months  Ended  June 30,  2005** | ** ** | **Variance** | ** ** |
|------------------------------------------------------------------------------|------------|---------------------------------------------------|------------|---------------------------------------------------|------------|--------------|------------|
| ** **                                                                   | ** ** | **(in thousands)**                           | ** ** |
| Revenue                                                                      |       |                                              | $          | 60,210                                            |       |         |       | $ | 33,402 |   |   | $ | 26,808 |   |
| Operating  expenses                                                          |       |                                              | 45,787     |                                              |       |         | 31,431     |   |   | 14,356 |   |
| Operating income                                                             |       |                                              | 14,423     |                                              |       |         | 1,971      |   |   | 12,452 |   |
| Interest  (expense), net                                                     |       |                                              | 14         |                                              |       |         | (3,191     | ) |   | 3,205 |   |
| Write-off of  unamortized deferred loan costs                                |       |                                              | —     |                                              |       |         | (1,894     | ) |   | 1,894 |   |
| Other income  (loss)                                                         |       |                                              | (125       | )                                                 |       |         | 1,107      |   |   | (1,232 | ) |
| Income (loss)  before income taxes                                           |       |                                              | 14,312     |                                              |       |         | (2,007     | ) |   | 16,319 |   |
| Income tax  expense (benefit)                                                |       |                                              | 6,344      |                                              |       |         | (720       | ) |   | 7,064 |   |
| Income (loss)  before equity in earnings of affiliates and minority interest |       |                                              | 7,968      |                                              |       |         | (1,287     | ) |   | 9,255 |   |
| Equity in  earnings of affiliates                                            |       |                                              | 530        |                                              |       |         | 361        |   |   | 169 |   |
| Minority interest                                                            |       |                                              | (500       | )                                                 |       |         | (518       | ) |   | 18 |   |
| Net income (loss)                                                            |       |                                              | $          | 7,998                                             |       |         |       | $ | (1,444 | ) |   | $ | 9,442 |   |
| Operating income                                                             |       |                                              | $          | 14,423                                            |       |         |       | $ | 1,971 |   |   | $ | 12,452 |   |
| Depreciation and  amortization                                               |       |                                              | 5,117      |                                              |       |         | 4,417      |   |   | 700 |   |
| OIBDA                                                                        |       |                                              | $          | 19,540                                            |       |         |       | $ | 6,388 |   |   | $ | 13,152 |   |

 

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***Revenue***

Revenue was$60.2 million for the three months ended June 30, 2006 compared to$33.4 million for the same period in 2005. The increase of $26.8 millionis primarily attributable to a $28.0 million increase in revenue at19 Entertainment for the three months ended June 30, 2006, reflectinghigher revenue associated with *American Idol*and *So You Think You Can Dance*. Revenue atthe Presley Business was $12.8 million for the three months ended June 30,2006, a decrease of $6.1 million compared to revenue of $18.9 million in theprior period. The decrease at the Presley Business is primarily attributable toa decline in licensing and royalty fees due to licensing income received in2005 from the release of “Elvis by the Presleys,” an Elvis-themed televisionshow which aired on network television in 2005. MBST contributed $2.3 millionin revenue for the three months ended June 30, 2006. The Ali Businesscontributed $2.6 million in revenue for the period from the date of acquisition(April 10, 2006) to June 30, 2006.

***Operating Expenses***

Operating expenses for thethree months ended June 30, 2006 increased by $14.4 million over thesame period in 2005. Of this increase, $15.1 million reflects the increase inoperating expenses of 19 Entertainment for the three months ended June 30,2006, primarily related to the timing of the broadcast of *So You ThinkYou Can Dance*, which began airing in the second quarter of 2006rather than the third quarter in 2005. Presley Business operating costsdecreased $4.7 million, primarily due to costs related to “Elvis by thePresleys” that were incurred in 2005. MBST incurred operating costs of $1.5million in the three months ended June 30, 2006. The Ali Business incurredoperating costs of $1.4 million for the period from the date of its acquisition(April 10, 2006) through June 30, 2006. Corporate expenses increasedby $1.1 million for the three months ended June 30, 2006, reflectingadditional operating costs associated with exploring potential acquisitions andadditional strategic opportunities, increased headcount and audit-relatedexpenses.

***Operating Income***

Operating income for thethree months ended June 30, 2006 was $14.4 million, compared to operatingincome of $2.0 million for the three months ended June 30, 2005. Theincrease is attributable to $13.4 million of operating income generated in thecurrent period by 19 Entertainment, up from $0.5 million for the three monthsended June 30, 2005, $0.8 million of operating income generated by MBST in2006 and $1.2 million of operating income generated by the Ali Business in theperiod from the date of acquisition to June 30, 2006, partially offset bya $1.4 million decrease in operating income at the Presley Business and a $1.1million increase in corporate expenses.

***OIBDA***

OIBDA increased by $13.2million to $19.5 million for the three months ended June 30, 2006. Theincrease in OIBDA was primarily attributable to increases at 19 Entertainment,MBST and the Ali Business of $13.7 million, $1.0 million and $1.3 million,respectively, partially offset by lower OIBDA of $1.7 million at the PresleyBusiness and a $1.1 million increase in corporate expenses.

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

The Company had net interestincome of less than $0.1 million for the three months ended June 30, 2006as interest income on cash and short-term investments was offset by interestexpense on the Company’s debt and costs associated with maintaining the Company’srevolving credit facilities. The Company had net interest expense of $3.2million for the 2005 period, primarily attributable to interest costsassociated with borrowings incurred to finance the acquisitions of the PresleyBusiness and 19 Entertainment.

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

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

***Other Income (Loss)***

Other loss of$0.1 million for the three months ended June 30, 2006 was primarily aresult of foreign exchange losses generated at 19 Entertainment fromtransactions denominated in non-UK pound sterling currencies. Other income of$1.1 million for the three months ended June 30, 2005 was primarily aresult of 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 June 30, 2006, theCompany’s effective tax rate was 44.3%. The Company recorded a provision forincome taxes of $6.3 for the three months ended June 30, 2006, comprisedof federal, state and local and foreign taxes.

Given the Company’s short operating history and itsstrategic direction to make additional significant acquisitions in the nearfuture, the Company believes there is uncertainty as to whether the Company’snet operating loss carryforwards and foreign tax credits are realizable. Therefore,the Company has not provided a tax benefit in the three months ended June 30,2006 related to the net operating loss carryforwards and foreign tax creditswhen calculating its estimated annual effective tax rate. The Company willcontinue to evaluate this conclusion throughout the remainder of the year. Ifthe Company concludes in the future that it is more likely than not that thenet operating loss carry forwards and foreign tax credits are realizable, theestimated tax rate will be reduced accordingly and the benefit for such itemswill be recognized at that time. As of June 30, 2006, the Company hadapproximately $9.3 million of federal net operating loss carryforwards and $11.7million of net operating loss carryforwards for which no benefit has currentlybeen recorded.

In 2005, deferred tax assets were reduced by avaluation allowance of $31.4 million, principally relating to uncertaintyregarding the future realizability of tax benefits related to net operatingloss carryforwards and foreign tax credits. When $27.2 million of thesevaluation allowances are reversed in future periods, the reversals will becredited to goodwill in accordance with FAS 109.

For the three and six months ended June 30, 2005,the Company recorded income tax benefits of $0.7 million and $1.7 million,respectively, which were comprised mainly of provisions for foreign taxesrelating to the profitable operations of 19 Entertainment and state income taxexpense relating to the Presley Business, net of a tax benefit on the netoperating loss in the United States.  Forthe six months ended June 30, 2005, the Company’s effective tax rate was45.9%.

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***Equity in Earningsof Affiliates***

The Company recorded $0.5million of earnings in unconsolidated affiliates for the three months ended June 30,2006 compared to $0.4 million for the comparable year period.

***Minority Interest***

Minority interest expenseof $0.5 million for the three months ended June 30, 2006 reflects a15% share in the net income of the Presley Business related to the equityinterest retained by the former owner and a 20% share in the net income of theAli Business related to the equity interest retained by the former owner.

***Net Income***

Net income was $8.0million for the three months ended June 30, 2006 compared to a net loss of$1.4 million for the period in 2005.

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

**Presley Business**

Revenue for the PresleyBusiness was $12.8 million for the three months ended June 30, 2006, adecrease of  $6.1 million, or 32% fromthe prior year period. Operating expenses for the Presley Business were $9.7million, a decrease of $4.7 million, or 33% from the prior year period.Operating income for the Presley Business for the three months ended June 30,2006 was $3.1 million, a decrease of $1.4 million, or 31% from the priorperiod. OIBDA for the Presley Business was $4.2 million for the three monthsended June 30, 2006, a decrease of $1.7 million, or 29% from the prioryear period.

***Royalties andLicensing***

Revenue related to theRoyalties and Licensing segment was $3.6 million for the three months ended June 30,2006, a decrease of $6.7 million, or 65% from the prior year. Thisdecrease in 2006 was largely due to $5.5 million of revenue generated in 2005from the broadcast of “Elvis by the Presleys” and the release of a four-hourDVD and a book version of the documentary. In addition, revenue from the 2004release of digitally enhanced videos and DVD’s of “68 Special” and “Aloha fromHawaii” declined by $1.3 million in 2006 from 2005. The Royalties and Licensingsegment incurred operating expenses of $1.9 million and $7.7 million for thethree months ended June 30, 2006 and 2005, respectively, which includedacquisition-related depreciation and amortization expenses of $0.6 million and$1.2 million in 2006 and 2005, respectively. $5.3 million of the decrease wasattributable to production costs and other expenses for “Elvis by the Presleys”in 2005, offset by a $0.1 million increase in other operating expenses. OIBDAwas $2.3 million for the three months ended June 30, 2006, compared to$3.7 million for the prior year period.

***GracelandOperations***

The operating resultsrelated to Graceland Operations include several sources of revenue. Tour andexhibit revenue for the three months ended June 30, 2006 was $3.8 million,an increase of $0.3 million, or 9% over the prior year. This increaseresulted from a 14% increase in per visitor spending partially offset by a 6%decline in visitors from 171,100 to 161,000. Per visitor spending improvementis partially due to an increase in visitors choosing the VIP premium tour thatallows certain privileges not available with the other tours. We believe thatthe decline in attendance was due to the continued impact of Hurricane Katrina inAugust 2005 and higher gasoline prices which have significantly reducedthe level of tourism in 

24

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the GulfCoast region, especially among international and group travelers. We are unableto predict when or if tourism levels in the region will return to historicallevels. However, certain events in the second quarter of 2006, including thetaping of an episode of *American Idol*at Graceland, which aired in April and the visit by President Bush and thePrime Minister of Japan at the end of June have generated favorablepublicity which we believe has contributed to an increase in attendance of 6%in July 2006 over the prior year. Revenue from Graceland’s retailoperations was $3.5 million, an increase of $0.2 million, or 6% over theprior year, due primarily to a change in July 2005 to the mail orderretail business where the Company now bears the business risk for sales andrelated expenses and therefore records sales and cost of sales. During thesecond quarter of 2005, mail order retail sales were outsourced and the Companyreceived a commission based on net sales. In addition, there was a 1% increasein on-site retail sales attributed to an increase in per visitor spending of 7%partially offset by the decline in attendance of 6%. Hotel room revenue was$1.1 million, an increase of $0.1 million or 10% over the prior year, as theaverage occupancy rate increased from 92% in 2005 to 94% in 2006 and animprovement in yield per room due to rate increases implemented in April of2006. Operating expenses were $7.8 million compared to $6.7 million in theprior period, an increase of $1.1 million, or 16%, due to amortization relatedto the purchase of rights to an Elvis-themed museum in Las Vegas, fulfillmentand distribution costs for the mail order retail sales business and higherprofessional services and related costs associated with exploring the potentialredevelopment of the Graceland attraction. OIBDA was $1.9 million for the threemonths ended June 30, 2006, compared to $2.2 million in the prior yearperiod.

**19 Entertainment**

Revenueand operating expenses, including $3.5 million of acquisition-relateddepreciation and amortization expenses, for 19 Entertainment for the threemonths ended June 30, 2006 were $42.5 million and $29.1 million,respectively. Revenue and operating expenses, including $2.8 million ofacquisition-related depreciation and amortization expenses, for the threemonths ended June 30, 2005 were $14.5 million and $14.0 million,respectively. The following table provides a breakdown of 19 Entertainment’srevenue, cost of sales and selling, general and administrative expenses for thethree months ended June 30, 2006:

| ** **                                                                                                     | ** ** | **Revenue**                          | ** ** | **Cost of Sales** | ** ** | ** ** | ** ** |
|----------------------------------------------------------------------------------------------------------------|------------|--------------------------------------|------------|-----------------------------|------------|------------|------------|
| ** **                                                                                                     | ** ** | **(amounts in thousands)** | ** ** |
| *American  Idol* (including television production, foreign syndication,  sponsorship, merchandise and touring) |       | $                                    | 21,205     |                        |       | $          | (2,616     | ) |   | $ | 18,589 |   |
| Other *IDOLS* television programs (including license fees and  sponsorship)                                    |       | 2,963                                |       |                        | (33        | )          |       | 2,930 |   |
| Other television  productions                                                                                  |       | 15,314                               |       |                        | (12,915    | )          |       | 2,399 |   |
| Recorded music,  management clients and other                                                                  |       | 3,021                                |       |                        | (1,978     | )          |       | 1,043 |   |
|                                                                                                           |       | 42,503                               |       |                        | (17,542    | )          |       | 24,961 |   |
| Selling, general  and administrative expenses                                                                  |       |                                 |       |                        |       |       |       | (7,871 | ) |
| Depreciation and  amortization                                                                                 |       |                                 |       |                        |       |       |       | (3,726 | ) |
| Operating income                                                                                               |       |                                 |       |                        |       |       |       | $ | 13,364 |   |
| Operating income                                                                                               |       |                                 |       |                        |       |       |       | $ | 13,364 |   |
| Depreciation and  amortization                                                                                 |       |                                 |       |                        |       |       |       | 3,726 |   |
| OIBDA                                                                                                          |       |                                 |       |                        |       |       |       | $ | 17,090 |   |
|                                                                                                                |            |                                      |            |                             |            |            |            |  |  |  |  |  |

 

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Revenue and operating expenses increased by$28.0 million and $15.1 million, respectively, in the three monthsended June 30, 2006 over the prior period primarily due to the recordingof revenue for *American Idol 5*based uponthe November 2005 amended Fox agreement and the shift in the commencement ofairing of *So You Think You Can Dance*from thethird quarter of 2005 to the second quarter of 2006. *American Idol 5* began airing in theU.S. in January 2006 and the final 14.5 hours of the 45.0 hours that airedduring the season were broadcast in the quarter ended June 30, 2006. 19Entertainment recognized $9.0 million in incremental guaranteed licensefees from Fox in 2006 from the amended Fox agreement ratably as the hoursaired. $2.9 million of the incremental guaranteed license fee wasrecognized in the three months ended June 30, 2006 based on the hoursbroadcast. 19 Entertainment also receives a premium license fee per hour fromFox on an escalating scale for broadcast hours in excess of 26.5 hours perseason, which are recorded as the additional broadcast episodes are aired.During the second quarter of 2006, premium license fee revenue was recorded for14.5 hours. In addition to the license fees, Fox also pays bonus fees dependingon the ratings and rankings of the *American Idol*series in certain demographics over of the broadcast season. Bonus fees wererecorded as revenue in the three months ended June 30, 2006 when the finalratings and rankings were determined. Also recorded as revenue in the threemonths ended June 30, 2006 was 19 Entertainment’s share of the productionsavings.

*American Idol 4*was broadcast in the U.S. between January and May 2005. Our resultsof operations for the three months ended June 30, 2005 included thebroadcast of 14.0 hours of *American Idol 4*.

**MBST**

MBST contributed $2.3million in revenue for the three months ended June 30, 2006. Operatingexpenses, including acquisition-related depreciation and amortization expensesof $0.2 million, were $1.5 million. OBIDA was $1.0 million for the three monthsended June 30, 2006.

**Ali Business**

The Ali Businesscontributed $2.6 million in revenue for the period from the date of acquisition(April 10, 2006) to June 30, 2006, of which $1.3 million related tosports memorabilia signings by Mr. Ali. Operating expenses were $1.4million. OBIDA was $1.3 million for the period from the date of acquisition to June 30,2006.

**Consolidated Operating Results Six Months Ended June 30,2006Compared to Combined Six Months Ended June 30, 2005**

Prior to the acquisitionof the Presley Business on February 7, 2005, the Company had nooperations. As a result, the Presley Business is considered to be thepredecessor company. 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 six months ended June 30,2006 to the Company’s results for the six months ended June 30, 2005 combined with that of the Predecessor for theperiod January 1, 2005 to February 7, 2005. Management believes thatthis provides the most meaningful analysis of the Company’s results for the sixmonths ended June 30, 2006 and 2005.

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| ** **                                                                   | ** ** | **CKX  Six Months  Ended  June 30,  2006** | ** ** | ** ** | ** ** | **CKX  Six Months  Ended  June 30,  2005** | ** ** | **Predecessor  January 1 to  February 7,  2005** | ** ** | **Combined  Total** | ** ** | **Variance** | ** ** |
|------------------------------------------------------------------------------|------------|------------------------------------------------------|------------|------------|------------|------------------------------------------------------|------------|-----------------------------------------------------------------|------------|---------------------|------------|--------------|------------|
| ** **                                                                   | ** ** | ** **                                           | ** ** | ** ** | ** ** | **(in thousands)**                              | ** ** | ** **                                                      | ** ** |
| Revenue                                                                      |       |                                                 | $          | 101,319    |       |                                                 |       |                                                            |       | $                   | 43,389     |         |       |   | $ | 3,442 |   |   |   | $ | 46,831 |   |   | $ | 54,488 |   |
| Operating  expenses                                                          |       |                                                 | 81,077     |       |       |                                                 |       |                                                            | 42,880     |                |       |         | 2,980      |   |   |   | 45,860 |   |   | 35,217 |   |
| Operating income                                                             |       |                                                 | 20,242     |       |       |                                                 |       |                                                            | 509        |                |       |         | 462        |   |   |   | 971 |   |   | 19,271 |   |
| Interest  (expense), net                                                     |       |                                                 | 618        |       |       |                                                 |       |                                                            | (4,149     | )                   |       |         | (115       | ) |   |   | (4,264 | ) |   | 4,882 |   |
| Write-off of  unamortized deferred loan costs                                |       |                                                 | —     |       |       |                                                 |       |                                                            | (1,894     | )                   |       |         | —     |   |   |   | (1,894 | ) |   | 1,894 |   |
| Other income  (loss)                                                         |       |                                                 | (416       | )          |       |                                                 |       |                                                            | 1,807      |                |       |         | —     |   |   |   | 1,807 |   |   | (2,223 | ) |
| Income (loss) before  income taxes                                           |       |                                                 | 20,444     |       |       |                                                 |       |                                                            | (3,727     | )                   |       |         | 347        |   |   |   | (3,380 | ) |   | 23,845 |   |
| Income tax  expense (benefit)                                                |       |                                                 | 9,159      |       |       |                                                 |       |                                                            | (1,710     | )                   |       |         | 152        |   |   |   | (1,558 | ) |   | 10,717 |   |
| Income (loss)  before equity in earnings of affiliates and minority interest |       |                                                 | 11,285     |       |       |                                                 |       |                                                            | (2,017     | )                   |       |         | 195        |   |   |   | (1,822 | ) |   | 13,107 |   |
| Equity in  earnings of affiliates                                            |       |                                                 | 428        |       |       |                                                 |       |                                                            | 361        |                |       |         | —     |   |   |   | 361 |   |   | 67 |   |
| Minority interest                                                            |       |                                                 | (662       | )          |       |                                                 |       |                                                            | (712       | )                   |       |         | —     |   |   |   | (712 | ) |   | 50 |   |
| Net income (loss)                                                            |       |                                                 | $          | 11,051     |       |                                                 |       |                                                            |       | $                   | (2,368     | )            |       |   | $ | 195 |   |   |   | $ | (2,173 | ) |   | $ | 13,224 |   |
| Operating income                                                             |       |                                                 | $          | 20,242     |       |                                                 |       |                                                            |       | $                   | 509        |         |       |   | $ | 462 |   |   |   | $ | 971 |   |   | $ | 19,271 |   |
| Depreciation and  amortization                                               |       |                                                 | 9,854      |       |       |                                                 |       |                                                            | 5,678      |                |       |         | 126        |   |   |   | 5,804 |   |   | 4,050 |   |
| OIBDA                                                                        |       |                                                 | $          | 30,096     |       |                                                 |       |                                                            |       | $                   | 6,187      |         |       |   | $ | 588 |   |   |   | $ | 6,775 |   |   | $ | 23,321 |   |

 

The combined total columnhas been prepared on a different accounting basis than the Company for theperiod ended June 30, 2006. The combined total excludes the impact ofadditional depreciation and amortization expense resulting from the fair valueaccounting of acquired assets for the Presley Business for the predecessorperiod January 1, 2005 to February 7, 2005.

***Revenue***

Revenue was$101.3 million for the six months ended June 30, 2006 compared to$46.8 million for the combined 2005 period. The increase of$54.5 million is primarily attributable to $73.9 million of revenueat 19 Entertainment for the six months ended June 30, 2006, up from$18.7 million from its date of acquisition (March 17, 2005) to June 30,2005. Revenue at the Presley Business was $21.0 million for the six monthsended June 30, 2006, a decrease of $7.1 million compared to revenue of$28.1 million in the combined 2005 period. The decrease at the Presley Businessis primarily attributable to a decline in licensing and royalty fees due tolicensing income received in the first half of 2005 from the release of thedocumentary “Elvis by the Presleys,” which aired on network television in 2005.MBST contributed $3.8 million in revenue for the six months ended June 30,2006. The Ali Business contributed $2.6 million in revenue for the period fromthe date of acquisition to June 30, 2006.

***Operating Expenses***

Operating expenses for thesix months ended June 30, 2006 were $81.1 million, representing anincrease of $35.2 million over the combined prior period. Of thisincrease, $34.6 million reflects the increase in operating expenses of19 Entertainment for the six months ended June 30, 2006, compared tothe date of acquisition (March 17, 2005) through June 30, 2005,including $3.7 million in additional acquisition-related depreciation andamortization expenses. Presley Business operating costs decreased $4.5 millionto $17.7 million in 2006, including $0.5 million in decreasedacquisition-related depreciation and amortization expenses as a result of thefinalization of the purchase valuation. MBST had operating costs of $2.8million in the first six months of 2006. The Ali Business had operating costsof $1.4 million in 

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theperiod from the date of acquisition to June 30, 2006. Corporate expensesincreased by $0.9 million for the six months ended June 30, 2006, reflectingthe timing of the RFX Acquisition LLC acquisition of the Company, whichresulted in only a partial period of corporate expenses being recorded in 2005and additional operating costs associated with exploring potential acquisitionsand additional strategic opportunities, increased headcount and audit-relatedexpenses. For the six months ended June 30, 2005, the Company incurred$2.2 million of other costs related to the transition of the Company froman entity with no operations.

***Operating Income***

Operating income for thesix months ended June 30, 2006 was $20.3 million, compared to combinedoperating income of $1.0 million for the 2005 period. The increase isattributable to $22.9 million of operating income generated in the currentperiod by 19 Entertainment, up from $2.3 million from its date of acquisitionthrough June 30, 2005, $1.0 million of operating income generated by MBSTin 2006, $1.2 million of operating income generated by the Ali Business in theperiod from the date of acquisition to June 30, 2006, partially offset bya $0.9 million increase in corporate expenses for the current period and a $2.6million decrease in operating income at the Presley Business.

***OIBDA***

OIBDA increased by $23.3million to $30.1 million for the six months ended June 30, 2006 as higherOIBDA attributable to 19 Entertainment, MBST and the Ali Business of$24.5 million, $1.3 million and $1.3 million, respectively, for the sixmonths ended June 30, 2006 were partially offset by a $0.9 millionincrease in corporate and other expenses and lower OIBDA of $2.9 million at thePresley Business.

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

The Company had netinterest income of $0.6 million for the six months ended June 30, 2006,attributable to $1.0 million in interest income generated from cash andmarketable securities, offset in part by $0.4 million of interest expense onthe Company’s debt and costs associated with maintaining the Company’srevolving credit facilities. The Company had net interest expense of $4.3million for the combined 2005 period attributable to interest costs associatedwith borrowings incurred to finance the acquisitions of the Presley Businessand 19 Entertainment. These borrowings were repaid in June 2005 with theproceeds from the Company’s public stock offering on June 27, 2005.

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

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

***Other Income (Loss)***

Other loss of $0.4 million for the six monthsended June 30, 2006 was primarily a result of foreign exchange lossesgenerated at 19 Entertainment from transactions denominated in non-UKpound sterling currencies. Other income of $1.8 million for the six monthsended June 30, 2005 was primarily a result of foreign exchange gain on theCompany’s deferred purchase consideration payable for 19 Entertainment.

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***Income Taxes***

In calculating theprovision for income taxes on an interim basis, the Company uses an estimate ofthe annual effective tax rate based upon the facts and circumstances known. TheCompany’s effective tax rate is based on expected income, statutory tax ratesand permanent differences applicable to the Company in various jurisdictions inwhich the Company operates.

For the six months ended June 30,2006, the Company’s effective tax rate was 44.8%. The Company recorded aprovision for income taxes of and $9.2 million for the six months ended June 30,2006, comprised of federal, state and local and foreign taxes.

Given the Company’s shortoperating history and its strategic direction to make additional significantacquisitions in the near future, the Company believes there is uncertainty asto whether the Company’s net operating loss carryforwards and foreign taxcredits are realizable. Therefore, the Company has not provided a tax benefitin the six months ended June 30, 2006 related to the net operating losscarryforwards and foreign tax credits when calculating its estimated annualeffective tax rate. The Company will continue to evaluate this conclusionthroughout the remainder of the year. If the Company concludes in the futurethat it is more likely than not that the net operating loss carry forwards andforeign tax credits are realizable, the estimated tax rate will be reducedaccordingly and the benefit for such items will be recognized at that time. Asof June 30, 2006, the Company had approximately $9.3 million of federalnet operating loss carryforwards and $11.7 million of net operating losscarryforwards for which no benefit has currently been recorded.

In 2005, deferred taxassets were reduced by a valuation allowance of $31.4 million, principallyrelating to uncertainty regarding the future realizability of tax benefitsrelated to net operating loss carryforwards and foreign tax credits. When $27.2million of these valuation allowances are reversed in future periods, thereversals will be credited to goodwill in accordance with FAS 109.

For the three and sixmonths ended June 30, 2005, the Company recorded income tax benefits of$0.7 million and $1.7 million, respectively, which were comprised mainly ofprovisions for foreign taxes relating to the profitable operations of 19Entertainment 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 the six months ended June 30, 2005,the Company’s effective tax rate was 45.9%.

***Equity inEarnings  of Affiliates***

The Company recorded $0.4million of earnings in unconsolidated affiliates for the six months ended June 30,2006 compared to $0.4 million in the 2005 period.

***Minority Interest***

Minority interest expenseof $0.7 million for the six months ended June 30, 2006 reflects a 15%share in the net income of the Presley Business related to the equity interestretained by the former owner and a 20% share in the net income of the AliBusiness related to the equity interest retained by the former owner.

***Net Income***

Net income was $11.1million in 2006 compared to combined net loss of $2.2 million for thecombined period in 2005.

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

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**Presley Business**

Revenue for the PresleyBusiness was $21.0 million for the six months ended June 30, 2006, adecrease of $7.1 million, or 25% from the combined prior year period. Operatingexpenses for the Presley Business, including acquisition-related depreciationand amortization expenses of $1.3 million in 2006 and $1.8 million in 2005,were $17.7 million, a decrease of $4.5 million, or 20% from the combined prioryear period. Operating income for the Presley Business for the six months endedJune 30, 2006 was $3.3 million, a decrease of $2.6 million, or 44% fromthe combined prior year period. OIBDA for the Presley Business was $5.4 millionfor the six months ended June 30, 2006, a decrease of $2.9 million, or 35%from the combined prior year period.

***Royalties andLicensing***

Revenue related to theRoyalties and Licensing segment was $6.6 million, a decrease of$7.8 million, or 54% from the prior year combined period. This decrease in2006 was largely due to $5.5 million of revenue generated in 2005 from thebroadcast of “Elvis by the Presleys” and the release of a four-hour DVD and abook version of the documentary. The remaining decrease represents higher 2005royalties from the 2004 release of digitally enhanced videos and DVDs of “‘68Special” and “Aloha from Hawaii”, license fees received in 2005 for a separateCBS mini-series and a decline in revenue from commercials and other projects of$2.9 million in 2006. Partially offsetting these revenue declines was thereceipt of $0.6 million from a royalty audit settlement with SonyBMG during thefirst quarter of 2006. Operating expenses were $3.6 million and $9.4 millionfor the six months ended June 30, 2006 and 2005, respectively, includingacquisition-related depreciation and amortization expenses of $1.3 million in2006 and $1.8 million in 2005. $5.3 million of the decrease was attributable toproduction costs and other expenses for “Elvis by the Presleys” in 2005.  OIBDA related to the Royalties and Licensingsegment was $4.3 million for the six months ended June 30, 2006, comparedto $6.8 million in the combined prior year period.

***GracelandOperations***

The operating resultsrelated to Graceland Operations include several sources of revenue. Tour andexhibit revenue for the six months ended June 30, 2006 was $5.6 million,an increase of $0.2 million, or 3% over the prior year. This increaseresulted from a 12% increase in per visitor spending partially offset by an 8%decline in visitors from 267,900 to 246,100. Per visitor spending improvementis partially due to an increase in visitors choosing the VIP premium tour. Webelieve that the decline in attendance is due to the continued impact ofHurricane Katrina and higher gasoline prices which have significantly impactedthe level of tourism in the Gulf Coast region, especially in international andgroup tourism. We are unable to predict when or if tourism levels in the regionwill return to historical levels. Additionally, January 2005 was alsopositively affected by unusually high attendance from international travelersfor special events celebrating Elvis’ 70th  birthday and the first three months of 2006 werenegatively affected by unusually harsh winter weather which closed Gracelandfor part of two weekends. However, certain events in the second quarter of 2006including the taping of an episode of *American Idol*at Graceland, which aired in April and the visit by President Bush andthe  Prime Minister of Japan at the endof June also generated favorable publicity which we believe hascontributed to an increase in attendance of 6% in July 2006 over the prioryear. Revenue from Graceland’s retail operations for the six months ended June 30,2006 was $5.6 million, an increase of $0.4 million, or 8%, due primarilyto a change in July 2005 to the mail order retail business where theCompany now bears the business risk for sales and related expenses andtherefore records sales and cost of sales. During the first six months of 2005,mail order retail sales were outsourced and the Company received a commissionbased on net sales. For the six months ended June 30, 2006, Gracelandon-site retail sales decreased 1.5% over the prior year attributed to the 8%decline in attendance, partially offset by an increase in per visitor spendingof  7%. Hotel room revenue was $1.7million in the 2006 period, an increase of less than $0.1 million or 2% overthe prior year. Operating expenses related to Graceland Operations were $14.1million compared to $12.8 million in the prior 

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period,an increase of $1.3 million, or 10%, due to amortization related to thepurchase of rights to an Elvis-themed museum in Las Vegas, fulfillment anddistribution costs for the mail order retail sales business, higherprofessional services and related costs associated with exploring the potentialredevelopment of the Graceland attraction and higher advertising costs. OIBDArelated to the Graceland Operations segment was $1.1 million for the six monthsended June 30, 2006, compared to $1.5 million in the combined prioryear period.

**19 Entertainment**

Revenueand operating expenses, including $6.9 million of acquisition-relateddepreciation and amortization expense, for 19 Entertainment for the six monthsended June 30, 2006 were $73.9 million and $51.0 million, respectively.Revenue and operating expenses, including $3.2 million of acquisition-relateddepreciation and amortization expense, for the period from the date ofacquisition, March 17, 2005, through June 30, 2005 were $18.7 millionand $16.4 million, respectively. The following table provides a breakdown of 19Entertainment’s revenue, cost of sales and selling, general and administrativeexpenses for the six months ended June 30, 2006:

| ** **                                                                                                     | ** ** | **Revenue**                          | ** ** | **Cost of Sales** | ** ** | ** ** | ** ** |
|----------------------------------------------------------------------------------------------------------------|------------|--------------------------------------|------------|-----------------------------|------------|------------|------------|
| ** **                                                                                                     | ** ** | **(amounts in thousands)** | ** ** |
| *American  Idol* (including television production, foreign syndication,  sponsorship, merchandise and touring) |       | $                                    | 35,072     |                        |       | $          | (6,782     | ) |   | $ | 28,290 |   |
| Other *IDOLS* television programs (including license fees and  sponsorship)                                    |       | 5,389                                |       |                        | (62        | )          |       | 5,327 |   |
| Other television  productions                                                                                  |       | 16,546                               |       |                        | (14,054    | )          |       | 2,492 |   |
| Recorded music,  management clients and other                                                                  |       | 16,875                               |       |                        | (8,822     | )          |       | 8,053 |   |
|                                                                                                           |       | 73,882                               |       |                        | (29,720    | )          |       | 44,162 |   |
| Selling, general  and administrative expenses                                                                  |       |                                 |       |                        |       |       |       | (13,960 | ) |
| Depreciation and  amortization                                                                                 |       |                                 |       |                        |       |       |       | (7,274 | ) |
| Operating income                                                                                               |       |                                 |       |                        |       |       |       | $ | 22,928 |   |
| Operating income                                                                                               |       |                                 |       |                        |       |       |       | $ | 22,928 |   |
| Depreciation and  amortization                                                                                 |       |                                 |       |                        |       |       |       | 7,274 |   |
| OIBDA                                                                                                          |       |                                 |       |                        |       |       |       | $ | 30,202 |   |
|                                                                                                                |            |                                      |            |                             |            |            |            |  |  |  |  |  |

 

Revenue and operatingexpenses increased by $55.2 million and $34.6 million, respectively,in the six months ended June 30, 2006 over the prior period primarily dueto the recording of revenue for *American Idol 5*based upon the November 2005 amended Fox agreement, the shift in thecommencement of airing *So You Think You Can Dance*from the third quarter of 2005 to the second quarter of 2006 and therecognition of a full six months of CKX ownership in 2006. *American Idol 5*began airing in theU.S. in January 2006 and 45 total series hours were broadcast in the sixmonths ended June 30, 2006. 19 Entertainment recognized $9.0 millionin incremental guaranteed license fees in 2006 from the amended Fox agreementas all of the hours in the broadcast season had aired. 19 Entertainment alsoreceives a premium license fee per hour from Fox on an escalating scale forbroadcast hours in excess of 26.5 hours per season, which are recorded as theadditional broadcast episodes are aired. During the six months ended June 30,2006, premium license fee revenue was recorded for 18.5 hours. In addition tothe license fees, Fox also pays bonus fees depending on the ratings andrankings of *American Idol* series in certaindemographics over of the broadcast season. These fees have been recorded asrevenue at the conclusion of the broadcast season when the final ratings andrankings were known. Also recorded as revenue in the six months ended June 30,2006 was 19 Entertainment’s share of the production savings. Additionally, anannual 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 has 

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been recorded inthe six months ended June 30, 2006 as the obligations under the agreementgoverning this payment have been fulfilled.

*American Idol 4***wasbroadcast in the United States between January and May 2005. Ourresults of operations for the period from the date of acquisition, March 17,2005, through June 30, 2005 included the broadcast of 18.0 hours of *American Idol 4* and excluded 20.5 hours which aired prior tothe acquisition date.

**MBST**

MBST contributed $3.8million in revenue for the six months ended June 30, 2006. Operating expenses,including acquisition-related depreciation and amortization expenses of $0.3million, were $2.8 million. OBIDA was $1.3 million for the six months ended June 30,2006.

**Ali Business**

The Ali Businesscontributed $2.6 million in revenue for the period from the date of acquisitionto June 30, 2006 of which $1.3 million related to sports memorabiliasignings by Mr. Ali. Operating expenses were $1.4 million. OBIDA was $1.3million for the period from the date of acquisition to June 30, 2006.

**Liquidity and Capital Resources**

*Revolving Credit Facility*-On May 24, 2006, the Company entered into a $125.0 million revolvingcredit agreement (the “Credit Facility”) with various lenders, including Bear,Stearns & Co. Inc., which acted as the sole lead arranger and solebookrunner. Loans under the Credit Facility are guaranteed by all of theCompany’s wholly-owned domestic subsidiaries and certain of its wholly-ownedforeign subsidiaries. The loans are secured by a pledge of certain assets ofthe Company and its subsidiary guarantors, including ownership interests in allwholly-owned domestic subsidiaries, substantially all wholly-owned foreignsubsidiaries and certain subsidiaries that are not wholly-owned. The CreditFacility replaced the Company’s previous $50.0 million financing commitment. Asof June 30, 2006, the Company had not drawn on the Credit Facility. Loansunder the Credit Facility are available to the Company for general corporatepurposes and to finance future acquisitions and joint ventures. Base rate loansunder the Credit Facility will bear interest at a rate equal to the greater of (i) theprime rate or (ii) the federal funds rate, plus 50 basis points. Eurodollarloans under the Credit Facility will bear interest at a rate determined by aformula based on a published Telerate rate, adjusted for the reserverequirements prescribed for eurocurrency funding by a member bank of theFederal Reserve, plus 150 basis points. Any loans under the Credit Facilitymust be repaid by May 24, 2011. A commitment fee of 0.50% on the dailyunused portion of the Credit Facility is payable monthly in arrears. The CreditFacility requires the Company and its subsidiaries to maintain certainfinancial covenants, including (a) a maximum debt to EBITDA ratio of 4.5to 1.0 and (b) a minimum EBITDA to interest expense ratio. Under the termsof the Credit Facility, EBITDA is defined as consolidated net income plusincome tax expense, interest expense, depreciation and amortization expense,extraordinary charges and non-cash charges and minus interest income,extraordinary gains and any other non-cash income. The Credit Facility alsocontains covenants that regulate the Company’s and its subsidiaries’ incurrenceof debt, disposition of property and capital expenditures.

**Cash Flow for the Six Months Ended June 30, 2006and 2005**

**Operating Activities**

Net cash provided byoperating activities was $11.3 million for the six months ended June 30,2006, reflecting net income of $11.1 million, which includes depreciation andamortization expenses of $9.8 million, offset, in part, by the impact ofchanges in working capital levels in the business related primarily to theseasonality of *American Idol*and *So You Think You Can Dance*.

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Net cash provided byoperating activities was $0.1 million for the six months ended June 30,2005 as the net loss of $2.4 million was offset by depreciation andamortization expenses of $5.7 million.

**Investing Activities**

Net cash used in investingactivities was $19.3 million for the six months ended June 30, 2006.Cash paid for the Ali Business, certain assets of a Las Vegas-basedElvis-themed museum and for 50% of a previously 50%-owned affiliate by 19Entertainment totaled $58.0 million. The Company sold $42.6 million ofmarketable securities during the six months ended June 30, 2006. Capitalexpenditures of $3.9 million included the purchase of additional landadjacent to Graceland and improvements to the Heartbreak Hotel.

Net cash used in investingactivities was $277.1 million for the six months ended June 30, 2005. Cashpaid as consideration for acquisitions and related costs were $208.3 million.Capital expenditures were $0.5 million.

**Financing Activities**

Cash used in financingactivities was $5.4 million for the six months ended June 30, 2006. Duringthe six months ended June 30, 2006, the Company made payments totaling$3.1 million for costs associated with the new revolving credit facility,distributions to minority interest shareholders of $1.0 million, principal paymentson notes payable of $0.4 million and dividend payments of $0.9 million to theholder of the Series B Convertible Preferred Stock.

Cash provided by financingactivities was $306.0 million for the six months ended June 30, 2005,reflecting $145.3 million of net proceeds from the short-term senior creditfacilities, $43.3 million of net proceeds from the Huff investment, $30.0million of proceeds from warrant exercises and $3.1 million from the issuanceof common stock.

**Uses of Capital**

At June 30, 2006, theCompany had $3.8 million of debt outstanding and $24.9 million incash and cash equivalents.

We believe that ourcurrent cash on hand together with the Company’s revolving credit facility andcash flow from operations will be sufficient to fund our current operations,including payments of interest and principal due on the Company’s debt,dividends on our Series B Convertible Preferred Stock, mandatory minimumdistributions to the minority shareholder in the each of the Presley Businessand Ali Business and capital expenditures.

**Capital Expenditures**

We presently anticipatethat our total capital expenditures for the remainder of 2006, primarilyrelated to land purchases in the vicinity around Graceland and additionaldeferred maintenance at the Heartbreak Hotel, will total approximately $7.0million.

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

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**Future Acquisitions**

We intend to acquireadditional businesses that fit our strategic goals. We expect to finance ourfuture acquisitions of entertainment related businesses from cash on hand, ourrevolving credit facility, 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 BConvertible Preferred Stock requires payment of a cash dividend of 8% per annumin quarterly installments. On an annual basis, our total dividend payment onthe Series B Convertible Preferred Stock is $1.8 million. If we failto make our quarterly dividend payments to the holders of the Series BConvertible Preferred Stock on a timely basis, the dividend rate increases to12% and all amounts owing must be paid within three business days in shares ofcommon stock valued at the average closing price over the previous 30 consecutivetrading days. After such payment is made, the dividend rate returns to 8% perannum.

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

**Commitments and Contingencies**

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

In addition to ourscheduled maturities of debt, obligations to redeem preferred stock andobligations to the seller of the Presley Business, to certain sellers of19 Entertainment and to the sellers of MBST and the Ali Business, we havefuture cash obligations under various types of contracts. We lease office spaceand equipment under long-term operating leases. We have also entered intolong-term employment agreements with certain of our executives and other keyemployees. These employment agreements typically contain provisions that allowus to terminate the contract with good cause.

**Inflation**

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

**Critical Accounting Policies**

During the six monthsended June 30, 2006, there have been no significant changes related to theCompany’s critical accounting policies and estimates as disclosed in theCompany’s Form 10-K for the year ended December 31, 2005.

**Off Balance Sheet Arrangements**

As of June 30, 2006,we did not have any off balance sheet arrangements as defined inItem 303 (a) (4) (ii) of SEC Regulation S-K.

**Item3. Quantitative And Qualitative Disclosure About Market Risk**

We are exposed to marketrisk arising from changes in market rates and prices, including movements inforeign currency exchange rates, interest rates and the market price of ourcommon stock. To mitigate 

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theserisks, we may utilize derivative financial instruments, among other strategies.We do not use derivative financial instruments for speculative purposes.

**Interest Rate Risk**

We had $3.8 millionof total debt outstanding at June 30, 2006, none of which was variablerate debt. Accordingly, we are not currently exposed to changes in interestrates.

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

**Foreign Exchange Risk**

We have significantoperations outside the United States, principally in the United Kingdom. Someof our foreign operations are conducted in local currencies. As a result, ourfinancial results could be affected by factors such as changes in foreigncurrency exchange rates or weak economic conditions in foreign markets in whichwe operate.

Assuming a hypotheticalweakening of the U.S. dollar exchange rate with the U.K. pound sterling of 10%,our net income for the six months ended June 30, 2006 would have decreasedby approximately $2.1 million, reflecting an excess of U.K. pound sterlingdenominated operating expenses over U.K. pound sterling denominated revenue.

As of June 30, 2006,we have not entered into any foreign currency option contracts or otherfinancial instruments intended to hedge our exposure to changes in foreignexchange rates. We intend to continue to monitor our operations outside theUnited States and in the future may seek to reduce our exposure to suchfluctuations by entering into foreign currency option contracts or otherhedging arrangements.

**19 Entertainment Put Option**

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

**Item4. Controls and Procedures**

Management, with theparticipation of the Company’s chief executive officer, Robert F.X. Sillerman,and its chief financial officer, Thomas P. Benson, has evaluated theeffectiveness of the Company’s disclosure controls and procedures (as definedin the Securities Exchange Act of 1934 Rules 13a-15 (e) or 15d-15(e)) as of June 30, 2006. Based on this evaluation, the chief executiveofficer and financial officer have concluded that, as of that date, disclosurecontrols and procedures required by paragraph (b) of Exchange Act rules 13a-15or 15d-15, were not effective because of the identification of a materialweakness in internal control over financial reporting, which the Company viewsas an integral part of its disclosure controls and procedures. The materialweakness relates to the ineffective oversight and review of the Company’saccounting for income taxes.

Management has begun toimplement additional oversight and review procedures designed to strengthen theinternal control relating to the accounting for income taxes.

In April 2006, theCompany engaged an independent accounting firm to assist with the Company’saccounting for income taxes.

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**Part II—OtherInformation**

**Item 4. Submissionof Matters to a Vote of Security Holders**

Two proposals were submitted to a vote of, andapproved by, the stockholders of the Company at an annual meeting ofstockholders held on May 12, 2006. The first proposal was for the electionof 12 directors to the Company’s board of directors and the second proposal wasfor the ratification of the appointment of Deloitte & Touche LLP toserve as the Company’s independent registered public accounting firm for itsfiscal year ending December 31, 2006. Additional information about theproposals can be found in the Company’s Definitive Proxy Statement on Schedule14A, filed with the Securities and Exchange Commission on April 4, 2006.

Of the 93,846,159 shares of stock issued andoutstanding and entitled to vote at the annual meeting, 85,945,299 shares wererepresented in person or by proxy, which constitutes approximately 91.6% of thetotal votes entitled to be cast at the meeting.  Each share of common stock outstanding is entitledto one vote. Each share of the Company’s Series B Convertible PreferredStock and Series C Convertible Preferred Sock is entitled to vote on an asconverted basis, with each share entitled to one vote.

The votes for eachproposal were cast as follows:

**Proposal 1—Election of Directors**

| ** **             | ** ** | **Number of  Shares Voted For** | ** ** | **Number of  Shares Withheld** | ** ** |
|------------------------|------------|------------------------------------------------|------------|------------------------------------------|------------|
| Robert F.X.  Sillerman |       |                                           | 85,758,203 |                                     |       |   | 187,096 |   |   |
| Michael G. Ferrel      |       |                                           | 85,758,203 |                                     |       |   | 187,096 |   |   |
| Simon Fuller           |       |                                           | 85,758,203 |                                     |       |   | 187,096 |   |   |
| Mitchell J. Slater     |       |                                           | 85,757,903 |                                     |       |   | 187,396 |   |   |
| Howard J. Tytel        |       |                                           | 85,757,203 |                                     |       |   | 188,096 |   |   |
| Edwin M. Banks         |       |                                           | 85,803,943 |                                     |       |   | 141,356 |   |   |
| Edward Bleier          |       |                                           | 85,809,543 |                                     |       |   | 135,756 |   |   |
| Jerry L. Cohen         |       |                                           | 85,809,543 |                                     |       |   | 135,756 |   |   |
| Carl D. Harnick        |       |                                           | 85,810,342 |                                     |       |   | 134,957 |   |   |
| Jack Langer            |       |                                           | 85,731,744 |                                     |       |   | 213,555 |   |   |
| John D. Miller         |       |                                           | 85,731,744 |                                     |       |   | 213,555 |   |   |
| Bruce Morrow           |       |                                           | 85,809,543 |                                     |       |   | 135,756 |   |   |

 

**In addition, the holder of theCompany’s Series C Convertible Preferred Stock is entitled to elect onemember to the Company’s board of directors. The holder of the Series CConvertible Preferred stock confirmed in writing its election ofMs. Priscilla Presley to continue to serve on the Company’s board ofdirectors as the Series C Director until the next annual meeting of theCompany’s stockholders or earlier removal by the holder of the Series CConvertible Preferred Stock, in accordance with the Company’s Certificate ofIncorporation.**

**Proposal 2—Ratificationof the Appointment of Deloitte & Touche LLP to serve as  the Company’s Independent Registered PublicAccounting Firm for its fiscal year ending December 31, 2006.**

| **FOR**    |   | **AGAINST** |   | **ABSTAIN** |
|------------|--------|-------------|--------|-------------|
| 85,677,703 |   | 134,656     |   | 132,940     |

 

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**Item6. Exhibits **

| Exhibit No. | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.1              |       | Certificate of Incorporation (Previously filed as  Exhibit 3.1 to the Form 10-KSB filed June 30, 2005, and  incorporated herein by reference).                                                                                                                                                                                                                                                                                                                                                                      |
| 3.2              |       | By-Laws (Previously  filed as Exhibit 3.2 to the Form 10-KSB filed June 30,  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 June 30, 2005, and  incorporated herein by reference).                                                                                                                                                                                                                                              |
| 4.3              |       | Registration Rights  Agreement, dated February 7, 2005 between the Company and The Huff  Alternative Fund, L.P. (Previously filed as Exhibit 4.4 to the  Form 8-K/A filed February 11, 2005, and incorporated herein  by reference).                                                                                                                                                                                                                                                                           |
| 4.4              |       | Registration Rights  Agreement, dated February 7, 2005 between the Company and The Promenade  Trust (Previously filed as Exhibit 4.5 to the Form 8-K/A  filed February 11, 2005, and incorporated herein by reference).                                                                                                                                                                                                                                                                                        |
| 4.5              |       | Form of Common  Stock Purchase Warrant, dated as of February 7, 2005, to purchase shares  of common stock of the Company (Previously filed as Exhibit 4.6 to the  Form 8-K/A filed February 11, 2005, and incorporated herein  by reference).                                                                                                                                                                                                                                                             |
| 4.6              |       | Form of Promissory  Term Note made on February 7, 2005, payable to Priscilla Presley  (Previously filed as Exhibit 4.8 to the Form 8-K/A filed  February 11, 2005, and incorporated herein by reference).                                                                                                                                                                                                                                                                                                 |
| 10.1             |       | Revolving Credit  Agreement, dated as of May 24, 2006, among the Company, the several  banks and other financial institutions or entities from time to time parties  thereto, Bear, Stearns & Co. Inc., as exclusive advisor, sole lead  arranger and sole bookrunner, UBS Securities LLC and The Bank of New York, as  co-syndication agents, Lehman Commercial Paper, Inc. and Credit Suisse,  as co-documentation agents and Bear Stearns Corporate Lending Inc., as  administrative agent (Filed herewith). |
| 10.2             |       | Letter Agreement, dated  April 10, 2006, among the Company, CKX G.O.A.T. Holding Corp. (formerly  GOAT Acquisition, Inc.) Muhammad Ali Enterprises LLC (formerly G.O.A.T. LLC),  G.O.A.T., Inc. and Muhammad Ali and Yolanda E. Ali, each individually  and as trustees of the Muhammad Ali Family Trust, dated October 22, 2002  (Filed herewith).                                                                                                                                                                 |
| 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**

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

|                                                  |   | CKX, Inc.             |
|--------------------------------------------------|--------|----------------------------|
|                                             |   |                       |   |   |
|                                             | BY:    | /s/ ROBERT F.X.  SILLERMAN |
|                                             |   | Name:                      |   | Robert F.X. Sillerman |
|                                             |   | Title:                     | * * | *Chief Executive Officer and Chairman of the Board* |
|                                             |   |                       |   |   |
|                                             | BY:    | /s/ THOMAS  P. BENSON      |
|                                             |   | Name:                      |   | Thomas P. Benson |
|                                             |   | Title:                     | * * | *Chief Financial Officer, Executive Vice  President and Treasurer* |
|                                             |   |                       |   |   |
| DATE:    August 8, 2006 |   |                       |   |   |

 

38

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**INDEXTO EXHIBITS**

| Exhibit No. | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.1             |       | Revolving Credit Agreement, dated as of May 24,  2006, among the Company, the several banks and other financial institutions  or entities from time to time parties thereto, Bear, Stearns & Co.  Inc., as exclusive advisor, sole lead arranger and sole bookrunner, UBS  Securities LLC and The Bank of New York, as co-syndication agents, Lehman  Commercial Paper, Inc. and Credit Suisse, as co-documentation agents and  Bear Stearns Corporate Lending Inc., as administrative agent. |
|             |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.2             |       | Letter Agreement, dated April 10, 2006, among  the Company, CKX G.O.A.T. Holding Corp. (formerly GOAT Acquisition, Inc),  Muhammad Ali Enterprises LLC (formerly G.O.A.T. LLC),   G.O.A.T., Inc. and Muhammad Ali and Yolanda E. Ali, each individually  and as Trustees of the Muhammad Ali Family Trust, dated October 22,  2002.                                                                                                                                                          |
|             |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 31.1             |       | Certification of Principal Executive Officer.                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|             |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 31.2             |       | Certification of Principal Financial Officer.                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|             |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 32.1             |       | Section 1350 Certification of Principal  Executive Officer.                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|             |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 32.2             |       | Section 1350 Certification of Principal  Financial Officer.                                                                                                                                                                                                                                                                                                                                                                                                                                                 |

 

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