**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,D.C. 20549**

**FORM 10-QSB**

**x**                              QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934

**Forthe quarterly period ended June 30, 2005**

**OR**

**o**                                 TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934

**Forthe transition period from                 to                 **

**CommissionFile No. 000-17436**

**CKX, INC.**

(Exact name of Registrantas specified in its charter)

| Delaware                                                                          | **27-0118168**                           |
|-----------------------------------------------------------------------------------|------------------------------------------|
| (State or other jurisdiction of  incorporation or organization)                   | (I.R.S. Employer  Identification Number) |
| **650  Madison Avenue  New York, New York 10022**                                 |
| (Address of Principal Executive Offices and Zip  Code)                            |
| Registrant’s Telephone  Number, Including Area Code: **(212) 838-3100** |
| Securities Registered  Pursuant to Section 12(b) of the Act: **None**   |
| Securities Registered  Pursuant to Section 12(g) of the Act:            |
| **Common Stock, Par Value  $0.01 Per Share**                                      |

 

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

As of August 5, 2005there were 91,457,029 shares of the registrant’s common stock outstanding.

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

 

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**Table of Contents**
| *Part I.   FINANCIAL  INFORMATION* |                                                                                                                                                                                                                                                                    |   |
|---------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| Item 1.                                           | Financial  Statements                                                                                                                                                                                                                                                   |   |   |
|                                              | Condensed  Consolidated Balance Sheets at June 30, 2005, December 31, 2004 and  December 31, 2004 (Predecessor)                                                                                                                                          | 2      |   |
|                                              | Condensed  Consolidated Statements of Operations for the three months ended  June 30, 2005 and 2004 and the three months ended June 30, 2004  (Predecessor)                                                                                                   | 3      |   |
|                                              | Condensed  Consolidated Statements of Operations for the six months ended June 30,  2005 and 2004, the period January 1, 2005 to February 7, 2005  (Predecessor) and the six months ended June 30, 2004 (Predecessor)      | 4      |   |
|                                              | Condensed  Consolidated Statements of Cash Flows for the six months ended June 30,  2005 and 2004, the period January 1, 2005 to February 7, 2005  (Predecessor) and the six months ended June 30, 2004 (Predecessor)      | 5      |   |
|                                              | Condensed  Consolidated Statement of Stockholders’ Equity for the six months ended  June 30, 2005                                                                                                                                         | 6      |   |
|                                              | Notes  to Condensed Consolidated Financial Statements                                                                                                                                                                                                                   | 7      |   |
| Item  2.                                          | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                                                                                                                                                                             | 26     |   |
| Item  3.                                          | Quantitative  and Qualitative Disclosures About Market Risk                                                                                                                                                                                                             | 44     |   |
| Item  4.                                          | Controls  and Procedures                                                                                                                                                                                                                                                | 45     |   |
| *Part II   OTHER  INFORMATION*     |                                                                                                                                                                                                                                                                    |   |
| Item 5                                            | Other  Information.                                                                                                                                                                                                                                                     | 46     |   |
| Item 6                                            | Exhibits                                                                                                                                                                                                                                                                | 46     |   |

 

1

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**CKX, Inc.**

**Condensed Consolidated Balance Sheets**

**(UNAUDITED)**
| ** **                                                                                                                         | ** ** | ** **                                                       | ** ** | ** **            | ** ** | ** ** | **Predecessor**       | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------|------------|-----------------------|------------|------------|-----------------------|------------|
| ** **                                                                                                                         | ** ** | ** **                                                       | ** ** | ** **            | ** ** | ** ** | **Company**           | ** ** |
| ** **                                                                                                                         | ** ** | **June 30,**                                                | ** ** | **December 31,** | ** ** | ** ** | **December 31,** | ** ** |
| ** **                                                                                                                         | ** ** | **2005**                                                         | ** ** | **2004**              | ** ** | ** ** | **2004**              | ** ** |
| ** **                                                                                                                         | ** ** | **(in thousands, except share information)** | ** ** |
| **ASSETS**                                                                                                                         |       |                                                             |       |                  |       |       |                  |       |   |   |   |   |
| Cash and cash equivalents                                                                                                          |       | $                                                                | 28,876     |                  |       | $          | —                |       |   |   |   | $ | 201 |   |   |
| Marketable securities                                                                                                              |       | 68,325                                                           |       |                  | —     |       |                  |       |   | — |   |   |
| Receivables, net of allowance for doubtful accounts  of $78                                                                        |       | 21,165                                                           |       |                  | —     |       |                  |       |   | 2,751 |   |   |
| Inventories                                                                                                                        |       | 1,844                                                            |       |                  | —     |       |                  |       |   | 2,178 |   |   |
| Prepaid expenses                                                                                                                   |       | 732                                                              |       |                  | —     |       |                  |       |   | 764 |   |   |
| Prepaid income taxes                                                                                                               |       | 7,389                                                            |       |                  | —     |       |                  |       |   | — |   |   |
| Deferred tax asset                                                                                                                 |       | 1,196                                                            |       |                  | —     |       |                  |       |   | 1,219 |   |   |
| Total current assets                                                                                                               |       | 129,527                                                          |       |                  | —     |       |                  |       |   | 7,113 |   |   |
| Property and equipment—net                                                                                                    |       | 26,681                                                           |       |                  | —     |       |                  |       |   | 21,158 |   |   |
| Deferred production costs and advances                                                                                             |       | 1,548                                                            |       |                  | —     |       |                  |       |   | — |   |   |
| Receivables                                                                                                                        |       | 4,447                                                            |       |                  |       |       |                  |       |   | — |   |   |
| Other assets                                                                                                                       |       | 10,095                                                           |       |                  | —     |       |                  |       |   | 7,480 |   |   |
| Goodwill                                                                                                                           |       | 149,382                                                          |       |                  | —     |       |                  |       |   | — |   |   |
| Other intangible assets—net                                                                                                   |       | 133,105                                                          |       |                  | —     |       |                  |       |   | — |   |   |
| Deferred tax asset                                                                                                                 |       | —                                                           |       |                  | —     |       |                  |       |   | 281 |   |   |
| **TOTAL ASSETS**                                                                                                                   |       | $                                                                | 454,785    |                  |       | $          | —                |       |   |   |   | $ | 36,032 |   |   |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                                                                                     |       |                                                             |       |                  |       |       |                  |       |   |   |   |   |
| Current liabilities:                                                                                                               |       |                                                             |       |                  |       |       |                  |       |   |   |   |   |
| Accounts payable                                                                                                                   |       | $                                                                | 2,873      |                  |       | $          | 269                   |       |   |   |   | $ | 571 |   |   |
| Accrued expenses                                                                                                                   |       | 9,372                                                            |       |                  | —     |       |                  |       |   | 2,606 |   |   |
| Purchase consideration payable                                                                                                     |       | 34,991                                                           |       |                  | —     |       |                  |       |   | — |   |   |
| Current portion of note payable                                                                                                    |       | 362                                                              |       |                  | —     |       |                  |       |   | 10,508 |   |   |
| Income taxes payable                                                                                                               |       | 535                                                              |       |                  | —     |       |                  |       |   | 328 |   |   |
| Deferred revenue                                                                                                                   |       | 8,128                                                            |       |                  | —     |       |                  |       |   | 5,473 |   |   |
| Total current liabilities                                                                                                          |       | 56,261                                                           |       |                  | 269        |       |                  |       |   | 19,486 |   |   |
| Long-term liabilities:                                                                                                             |       |                                                             |       |                  |       |       |                  |       |   |   |   |   |
| Note payable                                                                                                                       |       | 3,138                                                            |       |                  | —     |       |                  |       |   | 13,074 |   |   |
| Deferred revenue                                                                                                                   |       | 3,727                                                            |       |                  | —     |       |                  |       |   | 2,055 |   |   |
| Other long-term liabilities                                                                                                        |       | 4,115                                                            |       |                  | —     |       |                  |       |   | — |   |   |
| Deferred tax liabilities                                                                                                           |       | 34,711                                                           |       |                  | —     |       |                  |       |   | — |   |   |
| Total liabilities                                                                                                                  |       | 101,952                                                          |       |                  | 269        |       |                  |       |   | 34,615 |   |   |
| Minority interest                                                                                                                  |       | 3,967                                                            |       |                  | —     |       |                  |       |   | — |   |   |
| Redeemable restricted common stock—1,672,170 shares  outstanding at June 30, 2005                                        |       | 23,002                                                           |       |                  | —     |       |                  |       |   | — |   |   |
| Stockholders’  equity:                                                                                                        |       |                                                             |       |                  |       |       |                  |       |   |   |   |   |
| Preferred stock, $.01 par  value, authorized 75,000,000 shares:                                                                    |       |                                                             |       |                  |       |       |                  |       |   |   |   |   |
| Series B—1,491,817 shares issued and outstanding  at June 30, 2005                                                  |       | 22,825                                                           |       |                  | —     |       |                  |       |   | — |   |   |
| Series C—1 share issued and outstanding at  June 30, 2005                                                           |       | —                                                           |       |                  | —     |       |                  |       |   | — |   |   |
| Common stock, $0.01 par value: authorized 200,000,000  shares, 89,772,025 shares issued and outstanding at June 30, 2005 |       | 898                                                              |       |                  | 6,115      |       |                  |       |   | — |   |   |
| Additional paid-in-capital                                                                                                         |       | 353,459                                                          |       |                  | 12,249     |       |                  |       |   | — |   |   |
| Net assets                                                                                                                         |       | —                                                           |       |                  | —     |       |                  |       |   | 1,417 |   |   |
| Accumulated deficit                                                                                                                |       | (39,483                                                          | )          |                  | (18,633    | )          |                  |       |   | — |   |   |
| Deferred compensation                                                                                                              |       | (1,180                                                           | )          |                  | —     |       |                  |       |   | — |   |   |
| Accumulated other comprehensive income (loss)                                                                                      |       | (10,655                                                          | )          |                  | —     |       |                  |       |   | — |   |   |
| Total stockholders’ equity                                                                                                    |       | 325,864                                                          |       |                  | (269       | )          |                  |       |   | 1,417 |   |   |
| **TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                |       | $                                                                | 454,785    |                  |       | $          | —                |       |   |   |   | $ | 36,032 |   |   |

 

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

2

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**CKX, Inc.Condensed ConsolidatedStatements of Operations(UNAUDITED)**
| ** **                                         | ** ** | ** **                                                                                    | ** ** | ** **                       | ** ** | ** ** | **Predecessor**                  | ** ** |
|----------------------------------------------------|------------|-----------------------------------------------------------------------------------------------|------------|----------------------------------|------------|------------|----------------------------------|------------|
| ** **                                         | ** ** | ** **                                                                                    | ** ** | ** **                       | ** ** | ** ** | **Company**                      | ** ** |
| ** **                                         | ** ** | **Three Months Ended**                                                              | ** ** | **Three Months Ended** | ** ** | ** ** | **Three Months Ended** | ** ** |
| ** **                                         | ** ** | **June 30, 2005**                                                                   | ** ** | **June 30, 2004**      | ** ** | ** ** | **June 30, 2004**      | ** ** |
| ** **                                         | ** ** | **(in thousands, except share and per share information)** | ** ** |
| Revenue                                            |       |                                                                                          | $          | 33,917                           |       |       |                             | $          | — |   |   |   |   | $ | 11,567 |   |   |
| Operating  expenses:                               |       |                                                                                          |       |                             |       |       |                             |       |   |   |   |   |   |   |
| Cost of sales                                      |       |                                                                                          | 11,590     |                             |       |       | —                           |       |   |   |   | 1,891 |   |   |
| Selling, general  and administrative expenses      |       |                                                                                          | 12,452     |                             |       |       | 19                               |       |   |   |   | 5,448 |   |   |
| Corporate  expenses                                |       |                                                                                          | 2,972      |                             |       |       | —                           |       |   |   |   | — |   |   |
| Depreciation and  amortization                     |       |                                                                                          | 4,417      |                             |       |       | —                           |       |   |   |   | 297 |   |   |
| Total operating  expenses                          |       |                                                                                          | 31,431     |                             |       |       | 19                               |       |   |   |   | 7,636 |   |   |
| Operating income                                   |       |                                                                                          | 2,486      |                             |       |       | (19                              | )          |   |   |   | 3,931 |   |   |
| Interest expense, net                              |       |                                                                                          | 3,191      |                             |       |       | 5                                |       |   |   |   | 235 |   |   |
| Write-off of  unamortized deferred loan costs      |       |                                                                                          | 1,894      |                             |       |       | —                           |       |   |   |   | — |   |   |
| Income (loss) before other income and income taxes |       |                                                                                          | (2,599     | )                                |       |       | (24                              | )          |   |   |   | 3,696 |   |   |
| Other income                                       |       |                                                                                          | 1,107      |                             |       |       | —                           |       |   |   |   | 8 |   |   |
| Income (loss) before income taxes                  |       |                                                                                          | (1,492     | )                                |       |       | (24                              | )          |   |   |   | 3,704 |   |   |
| Income tax expense (benefit)                       |       |                                                                                          | (566       | )                                |       |       | —                           |       |   |   |   | 82 |   |   |
| Income (loss) before minority interest             |       |                                                                                          | (926       | )                                |       |       | (24                              | )          |   |   |   | 3,622 |   |   |
| Minority interest                                  |       |                                                                                          | 518        |                             |       |       | —                           |       |   |   |   | — |   |   |
| Net income (loss)                                  |       |                                                                                          | (1,444     | )                                |       |       | (24                              | )          |   |   |   | 3,622 |   |   |
| Dividends on preferred stock                       |       |                                                                                          | (456       | )                                |       |       | —                           |       |   |   |   | — |   |   |
| Net income (loss) available to common stockholders |       |                                                                                          | $          | (1,900                           | )          |       |                             | $          | (24 | ) |   |   |   | $ | 3,622 |   |   |
| Loss per common  share:                            |       |                                                                                          |       |                             |       |       |                             |       |   |   |   |   |   |   |
| Basic and diluted  loss per common share           |       |                                                                                          | $          | (0.03                            | )          |       |                             | $          | (0.01 | ) |   |   |   |   |   |   |
| Average number of  common shares outstanding:      |       |                                                                                          |       |                             |       |       |                             |       |   |   |   |   |   |
| Basic and diluted                                  |       |                                                                                          | 69,455,184 |                             |       |       | 4,283,061                        |       |   |   |   |   |   |

 

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

3

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**CKX, Inc.Condensed Consolidated Statementsof Operations (Continued)(UNAUDITED)**
| ** **                                         | ** ** | ** **                                                                                    | ** ** | ** **                     | ** ** | ** ** | **Predecessor**                | ** ** | **Predecessor**                | ** ** |
|----------------------------------------------------|------------|-----------------------------------------------------------------------------------------------|------------|--------------------------------|------------|------------|--------------------------------|------------|--------------------------------|------------|
| ** **                                         | ** ** | ** **                                                                                    | ** ** | ** **                     | ** ** | ** ** | **Company**                    | ** ** | **Company**                    | ** ** |
| ** **                                         | ** ** | **Six Months Ended**                                                                | ** ** | **Six Months Ended** | ** ** | ** ** | **January 1 to**     | ** ** | **Six Months Ended** | ** ** |
| ** **                                         | ** ** | **June 30, 2005**                                                                   | ** ** | **June 30, 2004**    | ** ** | ** ** | **February 7, 2005** | ** ** | **June 30, 2004**    | ** ** |
| ** **                                         | ** ** | **(in thousands, except share and per share information)** | ** ** |
| Revenue                                            |       |                                                                                          | $          | 43,904                         |       |       |                           | $          | —                         |       |   |   |   | $ | 3,442 |   |   |   | $ | 19,035 |   |   |
| Operating  expenses:                               |       |                                                                                          |       |                           |       |       |                           |       |                           |       |   |   |   |   |   |   |   |   |
| Cost of sales                                      |       |                                                                                          | 13,078     |                           |       |       | —                         |       |                           |       |   | 423 |   |   |   | 2,875 |   |   |
| Selling, general  and administrative expenses      |       |                                                                                          | 16,918     |                           |       |       | 43                             |       |                           |       |   | 2,431 |   |   |   | 11,781 |   |   |
| Corporate  expenses                                |       |                                                                                          | 5,031      |                           |       |       | —                         |       |                           |       |   | — |   |   |   | — |   |   |
| Depreciation and  amortization                     |       |                                                                                          | 5,678      |                           |       |       | —                         |       |                           |       |   | 126 |   |   |   | 594 |   |   |
| Other costs                                        |       |                                                                                          | 2,175      |                           |       |       | —                         |       |                           |       |   | — |   |   |   | — |   |   |
| Total operating  expenses                          |       |                                                                                          | 42,880     |                           |       |       | 43                             |       |                           |       |   | 2,980 |   |   |   | 15,250 |   |   |
| Operating income (loss)                            |       |                                                                                          | 1,024      |                           |       |       | (43                            | )          |                           |       |   | 462 |   |   |   | 3,785 |   |   |
| Interest expense, net                              |       |                                                                                          | 4,149      |                           |       |       | 8                              |       |                           |       |   | 115 |   |   |   | 678 |   |   |
| Write-off of  unamortized deferred loan costs      |       |                                                                                          | 1,894      |                           |       |       | —                         |       |                           |       |   | — |   |   |   | — |   |   |
| Income (loss) before other income and income taxes |       |                                                                                          | (5,019     | )                              |       |       | (51                            | )          |                           |       |   | 347 |   |   |   | 3,107 |   |   |
| Other income                                       |       |                                                                                          | 1,807      |                           |       |       | —                         |       |                           |       |   | — |   |   |   | 8 |   |   |
| Income (loss) before income taxes                  |       |                                                                                          | (3,212     | )                              |       |       | (51                            | )          |                           |       |   | 347 |   |   |   | 3,115 |   |   |
| Income tax expense (benefit)                       |       |                                                                                          | (1,556     | )                              |       |       | —                         |       |                           |       |   | 152 |   |   |   | 98 |   |   |
| Income (loss) before minority interest        |       |                                                                                          | (1,656     | )                              |       |       | (51                            | )          |                           |       |   | 195 |   |   |   | 3,017 |   |   |
| Minority interest                                  |       |                                                                                          | 712        |                           |       |       | —                         |       |                           |       |   | — |   |   |   | — |   |   |
| Net income (loss)                                  |       |                                                                                          | (2,368     | )                              |       |       | (51                            | )          |                           |       |   | 195 |   |   |   | 3,017 |   |   |
| Dividends on preferred stock                       |       |                                                                                          | (720       | )                              |       |       | —                         |       |                           |       |   | — |   |   |   | — |   |   |
| Accretion of  beneficial conversion feature        |       |                                                                                          | (17,762    | )                              |       |       | —                         |       |                           |       |   | — |   |   |   | — |   |   |
| Net income (loss) available to common stockholders |       |                                                                                          | $          | (20,850                        | )          |       |                           | $          | (51                            | )          |   |   |   | $ | 195 |   |   |   | $ | 3,017 |   |   |
| Loss per common share:                             |       |                                                                                          |       |                           |       |       |                           |       |                           |       |   |   |   |   |   |   |   |   |
| Basic and diluted  loss per common share           |       |                                                                                          | $          | (0.39                          | )          |       |                           | $          | (0.01                          | )          |   |   |   |   |   |   |   |   |   |   |
| Average number of  common shares outstanding:      |       |                                                                                          |       |                           |       |       |                           |       |                           |       |   |   |   |   |   |   |   |   |
| Basic and diluted                                  |       |                                                                                          | 53,695,652 |                           |       |       | 4,283,061                      |       |                           |       |   |   |   |   |   |   |   |   |

 

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

4

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**CKX, Inc.Condensed ConsolidatedStatements of Cash Flows(UNAUDITED)**
| ** **                                                                           | ** ** | ** **                                     | ** ** | ** **                                     | ** ** | ** ** | **Predecessor Company**                       | ** ** |
|--------------------------------------------------------------------------------------|------------|------------------------------------------------|------------|------------------------------------------------|------------|------------|----------------------------------------------------|------------|
| ** **                                                                           | ** ** | **Six Months  Ended June 30,  2005** | ** ** | **Six Months  Ended June 30,  2004** | ** ** | ** ** | **January 1 to  February 7,  2005** | ** ** | **Six Months  Ended June 30,  2004** | ** ** |
| ** **                                                                           | ** ** | **(in thousands)**                        | ** ** |
| **Cash flows from operating activities:**                                            |       |                                           |       |                                           |       |       |                                               |       |   |   |   |   |   |   |   |   |   |   |
| Net income (loss)                                                                    |       |                                           | $          | (2,368                                         | )          |       |                                               | $          | 51 |   |   |   |   | $ | 195 |   |   |   | $ | 3,017 |   |   |
| Adjustments to reconcile net income(loss) to cash  provided by operating activities: |       |                                           |       |                                           |       |       |                                               |       |   |   |   |   |   |   |   |   |   |   |
| Depreciation and  amortization                                                       |       |                                           | 5,678      |                                           |       |       | —                                             |       |   |   |   | 126 |   |   |   | 594 |   |   |
| Non-cash  compensation                                                               |       |                                           | 322        |                                           |       |       | —                                             |       |   |   |   | — |   |   |   | — |   |   |
| (Decrease) increase in operating assets and  liabilities:                            |       |                                           |       |                                           |       |       |                                               |       |   |   |   |   |   |   |   |   |   |   |
| Receivables                                                                          |       |                                           | 3,545      |                                           |       |       | —                                             |       |   |   |   | (566 | ) |   |   | 217 |   |   |
| Inventory                                                                            |       |                                           | 209        |                                           |       |       | —                                             |       |   |   |   | 124 |   |   |   | 1,035 |   |   |
| Deferred production  costs                                                           |       |                                           | 999        |                                           |       |       | —                                             |       |   |   |   | — |   |   |   | — |   |   |
| Prepaid expenses                                                                     |       |                                           | (6,908     | )                                              |       |       | —                                             |       |   |   |   | (576 | ) |   |   | (105 | ) |   |
| Deferred income  taxes                                                               |       |                                           | (2,141     | )                                              |       |       | —                                             |       |   |   |   | — |   |   |   | — |   |   |
| Accounts payable                                                                     |       |                                           | 1,179      |                                           |       |       | —                                             |       |   |   |   | 854 |   |   |   | 183 |   |   |
| Accrued expenses                                                                     |       |                                           | (1,781     | )                                              |       |       | —                                             |       |   |   |   | 194 |   |   |   | (219 | ) |   |
| Other current  liabilities                                                           |       |                                           | —     |                                           |       |       | —                                             |       |   |   |   | 152 |   |   |   | 360 |   |   |
| Minority interest                                                                    |       |                                           | 211        |                                           |       |       | —                                             |       |   |   |   | — |   |   |   | — |   |   |
| Other                                                                                |       |                                           | 1,161      |                                           |       |       | —                                             |       |   |   |   | 1,410 |   |   |   | 852 |   |   |
| Net cash provided by  (used in) operating activities                                 |       |                                           | 106        |                                           |       |       | 51                                                 |       |   |   |   | 1,913 |   |   |   | 5,934 |   |   |
| **Cash flows used in investing activities:**                                         |       |                                           |       |                                           |       |       |                                               |       |   |   |   |   |   |   |   |   |   |   |
| Acquisition of  Presley Business, net of cash acquired of $961                  |       |                                           | (82,857    | )                                              |       |       | —                                             |       |   |   |   | — |   |   |   | — |   |   |
| Acquisition of 19  Entertainment, net of cash acquired of $2,528                |       |                                           | (125,398   | )                                              |       |       | —                                             |       |   |   |   | — |   |   |   | — |   |   |
| Investment in  marketable securities                                                 |       |                                           | (68,319    | )                                              |       |       |                                               |       |   |   |   |   |   |   |   |   |   |   |
| Purchase of  property and equipment                                                  |       |                                           | (496       | )                                              |       |       | —                                             |       |   |   |   | (2 | ) |   |   | (163 | ) |   |
| Net cash used in  investing activities                                               |       |                                           | (277,070   | )                                              |       |       | —                                             |       |   |   |   | (2 | ) |   |   | (163 | ) |   |
| **Cash flows used in financing activities:**                                         |       |                                           |       |                                           |       |       |                                               |       |   |   |   |   |   |   |   |   |   |   |
| Proceeds from initial  issuance of common stock                                      |       |                                           | 3,058      |                                           |       |       | —                                             |       |   |   |   | — |   |   |   | — |   |   |
| Proceeds from  public offering of common stock                                       |       |                                           | 253,000    |                                           |       |       |                                               |       |   |   |   |   |   |   |   |   |   |   |
| Underwriting  discount and other offering costs                                      |       |                                           | (20,017    | )                                              |       |       |                                               |       |   |   |   |   |   |   |   |   |   |   |
| Proceeds from exercise  of warrants                                                  |       |                                           | 30,000     |                                           |       |       | —                                             |       |   |   |   | — |   |   |   | — |   |   |
| Proceeds from Huff  Investment                                                       |       |                                           | 43,819     |                                           |       |       | —                                             |       |   |   |   | — |   |   |   | — |   |   |
| Proceeds from  credit facilities                                                     |       |                                           | 148,000    |                                           |       |       | —                                             |       |   |   |   | — |   |   |   | 1,250 |   |   |
| Costs associated  with Huff investment and credit facility                      |       |                                           | (3,207     | )                                              |       |       | —                                             |       |   |   |   | — |   |   |   | — |   |   |
| Principal payments  on debt                                                          |       |                                           | (148,390   | )                                              |       |       | —                                             |       |   |   |   | (185 | ) |   |   | (2,589 | ) |   |
| Dividends paid                                                                       |       |                                           | (264       | )                                              |       |       | —                                             |       |   |   |   | — |   |   |   | — |   |   |
| Increase in due to  affiliates                                                       |       |                                           | —     |                                           |       |       | 51                                                 |       |   |   |   | — |   |   |   | — |   |   |
| Distributions to  trust beneficiary                                                  |       |                                           | —     |                                           |       |       | —                                             |       |   |   |   | (23 | ) |   |   | (4,443 | ) |   |
| Net cash provided by  (used in) financing activities                                 |       |                                           | 305,999    |                                           |       |       | 51                                                 |       |   |   |   | (208 | ) |   |   | (5,782 | ) |   |
| Effect of exchange  rate changes on cash                                             |       |                                           | (159       | )                                              |       |       | —                                             |       |   |   |   | — |   |   |   | — |   |   |
| **Net  increase in cash and equivalents**                                            |       |                                           | 28,876     |                                           |       |       | —                                             |       |   |   |   | 1,703 |   |   |   | (11 | ) |   |
| **Cash and  cash equivalents—beginning of period**                              |       |                                           | —     |                                           |       |       | —                                             |       |   |   |   | 201 |   |   |   | 287 |   |   |
| **Cash and  cash equivalents—end of period**                                    |       |                                           | $          | 28,876                                         |       |       |                                               | $          | — |   |   |   |   | $ | 1,904 |   |   |   | $ | 276 |   |   |
| **Supplemental Cash flow data(Also see note 13):**                                   |       |                                           |       |                                           |       |       |                                               |       |   |   |   |   |   |   |   |   |   |   |
| Cash paid during the period for:                                                     |       |                                           |       |                                           |       |       |                                               |       |   |   |   |   |   |   |   |   |   |   |
| Interest                                                                             |       |                                           | $          | 3,211                                          |       |       |                                               | $          | — |   |   |   |   | $ | 172 |   |   |   | $ | 806 |   |   |
| Income taxes                                                                         |       |                                           | —     |                                           |       |       | —                                             |       |   |   |   | 125 |   |   |   | — |   |   |

 

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

5

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**CKX, Inc.**

**Condensed Consolidated Statement of Stockholders’Equity**

**(IN THOUSANDS, EXCEPTSHARE DATA)**

**(UNAUDITED)**
| ** **                                         | ** ** | ** **               | ** ** | ** **                                  | ** ** | ** **        | ** ** | ** **             | ** **                            | ** **  | ** ** | ** **   | ** ** | ** **               | ** ** | ** **        | ** **    | ** **  | ** ** | ** **       | ** ** | ** **    | ** **             | **Accumulated** | ** ** | ** ** | ** **     |
|----------------------------------------------------|------------|--------------------------|------------|---------------------------------------------|------------|-------------------|------------|------------------------|---------------------------------------|-------------|------------|--------------|------------|--------------------------|------------|-------------------|---------------|-------------|------------|------------------|------------|---------------|------------------------|-----------------|------------|------------|----------------|
| ** **                                         | ** ** | **Preferred Stock** | ** ** | ** **                                  | ** ** | ** **        | ** ** | **Additional**         | ** **                            | ** **  | ** ** | **Retained** | ** ** | **Other**                | ** ** | ** **        | ** **    |
| ** **                                         | ** ** | **Series A**        | ** ** | **Series B**                           | ** ** | **Series C** | ** ** | **Common Stock**  | ** **                            | **Paid-In** | ** ** | **Deferred** | ** ** | ** Earnings ** | ** ** | **Comprehensive** | ** **    | ** **  | ** ** |
| ** **                                         | ** ** | **Shares**               | ** ** | **Amount**                                  | ** ** | **Shares**        | ** ** | ** Amount ** | ** **                            | **Shares**  | ** ** | **Amount**   | ** ** | **Shares**               | ** ** | **Amount**        | ** **    | **Capital** | ** ** | **Compensation** | ** ** | **(Deficit)** | ** **             | **Income**      | ** ** | **Total**  | ** **     |
| Balance at  January 1, 2005                   |       | —                   |       | $      — |       | —            |       |                   | $     — |        |       |         | —     |                     |       |              | $ — |        |       | 4,283,061        |       |          | $ 6,115           |            |       |       | $ 12,249  |   |   |   | $    — |   |   |   | $ (18,633 | ) |   |   | $      — |   |   | $    (269 | ) |
| Change of par  value to $0.01 per share            |       | —                   |       | —                                      |       | —            |       |                   | —                                |        |       |         | —     |                     |       |              | —        |        |       | —           |       |          | (6,072                 | )               |       |       | 6,072          |   |   |   | — |   |   |   | — |   |   |   | — |   |   | — |   |
| Issuance of common  shares                         |       | —                   |       | —                                      |       | —            |       |                   | —                                |        |       |         | —     |                     |       |              | —        |        |       | 30,399,072       |       |          | 304                    |            |       |       | 3,021          |   |   |   | — |   |   |   | — |   |   |   | — |   |   | 3,325 |   |
| Huff investment                                    |       | 2,172,400                |       | 17,762                                      |       | —            |       |                   | —                                |        |       |         | —     |                     |       |              | —        |        |       | 3,706,052        |       |          | 37                     |            |       |       | 25,520         |   |   |   | — |   |   |   | — |   |   |   | — |   |   | 43,319 |   |
| Recognition of  beneficial conversion feature |       | —                   |       | (17,762                                     | )          | —            |       |                   | —                                |        |       |         | —     |                     |       |              | —        |        |       | —           |       |          | —                 |            |       |       | 17,762         |   |   |   | — |   |   |   | — |   |   |   | — |   |   | — |   |
| Warrant exercises                                  |       | —                   |       | —                                      |       | —            |       |                   | —                                |        |       |         | —     |                     |       |              | —        |        |       | 21,517,199       |       |          | 215                    |            |       |       | 29,785         |   |   |   | — |   |   |   | — |   |   |   | — |   |   | 30,000 |   |
| Shares issues for  acquisitions                    |       | —                   |       | —                                      |       | 1,491,817         |       |                   | 22,825                                |        |       |         | 1          |                     |       |              | —        |        |       | 698,388          |       |          | 8                      |            |       |       | 7,166          |   |   |   | — |   |   |   | — |   |   |   | — |   |   | 29,999 |   |
| Restricted shares  issued to independent directors |       | —                   |       | —                                      |       | —            |       |                   | —                                |        |       |         | —     |                     |       |              | —        |        |       | 117,000          |       |          | 1                      |            |       |       | 1,429          |   |   |   | (1,180 | ) |   |   | — |   |   |   | — |   |   | 250 |   |
| Conversion of  Series A                       |       |                     |       |                                        |       |              |       |                   |                                  |        |       |         |       |                     |       |              |          |        |       |             |       |          |                   |            |       |       |           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Preferred and  accretion                           |       |                     |       |                                        |       |              |       |                   |                                  |        |       |         |       |                     |       |              |          |        |       |             |       |          |                   |            |       |       |           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| of beneficial                                      |       |                     |       |                                        |       |              |       |                   |                                  |        |       |         |       |                     |       |              |          |        |       |             |       |          |                   |            |       |       |           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| conversion                                         |       |                     |       |                                        |       |              |       |                   |                                  |        |       |         |       |                     |       |              |          |        |       |             |       |          |                   |            |       |       |           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| feature                                            |       | (2,172,400               | )          | —                                      |       | —            |       |                   | —                                |        |       |         | —     |                     |       |              | —        |        |       | 6,051,253        |       |          | 60                     |            |       |       | 17,702         |   |   |   | — |   |   |   | (17,762 | ) |   |   | — |   |   | — |   |
| Series B  preferred dividend                  |       | —                   |       | —                                      |       | —            |       |                   | —                                |        |       |         | —     |                     |       |              | —        |        |       | —           |       |          | —                 |            |       |       | —         |   |   |   | — |   |   |   | (720 | ) |   |   | — |   |   | (720 | ) |
| Public offering of  common stock                   |       | —                   |       | —                                      |       | —            |       |                   | —                                |        |       |         | —     |                     |       |              | —        |        |       | 23,000,000       |       |          | 230                    |            |       |       | 232,753        |   |   |   | — |   |   |   | — |   |   |   | — |   |   | 232,983 |   |
| Net loss                                           |       | —                   |       | —                                      |       | —            |       |                   | —                                |        |       |         | —     |                     |       |              | —        |        |       | —           |       |          | —                 |            |       |       | —         |   |   |   | — |   |   |   | (2,368 | ) |   |   | — |   |   | (2,368 | ) |
| Other  comprehensive Income                        |       | —                   |       | —                                      |       | —            |       |                   | —                                |        |       |         | —     |                     |       |              | —        |        |       | —           |       |          | —                 |            |       |       | —         |   |   |   | — |   |   |   | — |   |   |   | (10,655 | ) |   | (10,655 | ) |
| Balance at June 30,  2005                     |       | —                   |       | $      — |       | 1,491,817         |       |                   | $ 22,825                         |        |       |         | 1          |                     |       |              | $ — |        |       | 89,772,025       |       |          | $   898 |            |       |       | $ 353,459 |   |   |   | $ (1,180 | ) |   |   | $ (39,483 | ) |   |   | $ (10,655 | ) |   | $ 325,864 |   |

 

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

6

 

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

**1.**Overview and Basis ofPresentation

CKX, Inc.(the “Company”) is engaged in the ownership, development and commercialutilization of entertainment content, including the rights to the name, imageand likeness of Elvis Presley, the operations of Graceland and proprietaryrights to the *IDOLS*televisionbrand, including the American Idol series in the United States, the Pop Idolseries in the United Kingdom and local adaptations of the *IDOLS*television show format which,collectively, air in over 30 countries around the world.

Thefinancial information in this report has not been audited, but in the opinionof management all adjustments (consisting only of normal recurring adjustments)considered necessary to present fairly such information have been included. Theoperating results for the three and six months ended June 30, 2004 and2005 are not necessarily indicative of results to be expected for the full yeardue to the seasonal nature of some of the Company’s businesses and due to thetiming of the transactions described below. The financial statements includedherein should be read in conjunction with the financial statements and notesincluded in the Company’s Annual Report on Form 10-KSB for the year ended December 31,2004 and in the Company’s Current Reports on Form 8-K/A filed on February 11,2005 and May 27, 2005.

On February 7,2005, RFX Acquisition LLC, an entity formed and controlled by Robert F.X.Sillerman, acquired a controlling interest in the Company (formerly known asSports Entertainment Enterprises, Inc.), which had been inactive since itsold all of its assets in August 2002. Simultaneous with that transaction,the Company acquired an 85% interest in the entities which owned and/orcontrolled certain content relating to Elvis Presley (the “Presley Business”).Prior to the acquisition of the Presley Business, the Company did not have anyoperations. As a result, the Presley Business is considered to bea predecessor company (“Predecessor”). Accordingly, relevant financialinformation regarding the Predecessor has been presented herein.

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

On March 25, 2005 the Company changed its namefrom Sports Entertainment Enterprises, Inc. to CKX, Inc., changed itsstate of incorporation from Colorado to Delaware and changed its capital stockfrom no par value to $0.01 par value per share.

**2.**Summary of SignificantAccounting Policies

**Principlesof Consolidation**

The condensed consolidated financial statementsinclude the accounts of all subsidiaries. All intercompany accounts andtransactions have been eliminated.

**Useof Estimates**

The preparation of financial statements in conformitywith accounting principles generally accepted within the United States of Americarequires management to make estimates and assumptions that affect the reportedamounts of assets and liabilities and disclosure of contingent assets andliabilities at the date of the financial statements and the reported amounts ofrevenues and expenses during the reporting period. Actual results could differmaterially from those estimates.

7

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**2. Summary of Significant Accounting Policies(Continued)**

**Cash and Cash Equivalents**

All highly liquid investments with original maturitiesof three months or less are classified as cash and cash equivalents. The fairvalue of cash and cash equivalents approximates the amounts shown on thefinancial statements. Cash and cash equivalents consist of unrestricted cash inaccounts maintained with major financial institutions.

**MarketableSecurities**

Marketable securities reflect investments in auctionrate preferred stocks issued by closed-end funds with dividend rates re-set everyseven to twenty-eight days. These investments are classified as current assetsbased on our intent and ability to use these securities when required toprovide capital to support the liquidity needs and growth of the Company’sbusiness. These investments are available for sale in accordance with theprovisions of Statement of Financial Accounting Standards (“SFAS”) No. 115,“*Accounting for Certain Investments in Debtand Equity Securities*” and accordingly are carried at fair value,which approximates cost at June 30, 2005. Unrealized gains and losses, netof tax, are included in stockholders’ equity.

**Propertyand Equipment, net**

Propertyand equipment, net are stated at cost and are depreciated using thestraight-line method over the estimated useful lives of the assets. Expendituresfor additions, major renewals, and betterments are capitalized. Maintenance andrepairs not representing betterments are expensed as incurred. Depreciation andamortization expenses were $0.6 million and $0.8 million for the three and sixmonths ended June 30, 2005 and $0.3 million and $0.6 million for the threeand six months ended June 30, 2004 respectively.

Property and equipment,net consisted of the following as of June 30, 2005 and December 31, 2004(Predecessor):
| ** **                                       | ** ** | **June 30, 2005** | ** ** | **Useful Lives** | ** ** | **December 31, 2004** | ** ** | **Useful Lives** | ** ** |
|--------------------------------------------------|------------|-----------------------------|------------|-----------------------|------------|---------------------------------|------------|-----------------------|------------|
| ** **                                       | ** ** | **(in thousands)**     | ** ** | ** **            | ** ** | **(in thousands)**         | ** ** | ** **            | ** ** |
| Land                                             |       |                        | $          | 3,246                 |       |                            |       | n/a                   |       |   |   | $ | 5,358 |   |   |   | n/a |   |   |
| Buildings and  improvements                      |       |                        | 18,024     |                  |       |                            | 5-20       |                  |       |   | 20,381 |   |   |   | 5-39 |   |   |
| Equipment, furniture and  fixtures               |       |                        | 6,210      |                  |       |                            | 3-7        |                  |       |   | 9,061 |   |   |   | 5-7 |   |   |
|                                             |       |                        | 27,480     |                  |       |                            |       |                  |       |   | 34,800 |   |   |   |   |   |   |
| Less: accumulated  depreciation and amortization |       |                        | (799       | )                     |       |                            |       |                  |       |   | (13,642 | ) |   |   |   |   |   |
|                                             |       |                        | $          | 26,681                |       |                            |       |                  |       |   |   | $ | 21,158 |   |   |   |   |   |   |

 

**RevenueRecognition**

Merchandising/Nameand Likeness Licensing Revenues:

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

8

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**2. Summaryof Significant Accounting Policies (Continued)**

Royalty Income:

Incomefrom music and film contracts is derived from the sale of records and DVDs orfrom the licensing of film/music rights to third parties. Revenue fromrecordings is recognized in accordance with SFAS No. 50, *Financial Reporting in the Record and Music Industry*(“SFAS 50”). Under SFAS 50, revenue is recognized when the Company: (i) hassigned a non-cancelable contract; (ii) has delivered the rights to thelicensee who is free to exercise them; (iii) has no remaining significantobligations to furnish music or records; and (iv) when collectibility ofthe full fee is reasonably assured. A significant portion of royalty income ispaid to the Company based on the timetable associated with royalty statementsgenerated by third party processors, and is not typically known by the Companyon a timely basis. This revenue is consequently recognized if the amount of accrualis not known or reasonably estimable until receipt of the statements from thethird parties. The Company contracts with various agencies to facilitatecollection of royalty income.

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

Televisionand Film Revenue:

The Company recognizes revenues for television andfilm productions pursuant to American Institute of Certified Public AccountantsStatement of Position 00-2, *Accountingby Producers or Distributors of Films* (“SOP 00-2”). Thefollowing conditions must be met in order to recognize revenue under SOP 00-2:(i) persuasive evidence of a sale or licensing arrangement exists; (ii) theprogram is complete and has been delivered or is available for immediate andunconditional delivery; (iii) the license period of the arrangement hasbegun and the customer can begin its exploitation, exhibition or sale; (iv) thearrangement fee is fixed or determinable; and (v) collection of thearrangement fee is reasonably assured. Advance payments received from buyers orlicensees are included in the financial statements as a component of deferredrevenue.

SponsorshipRevenue:

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

OtherRevenue:

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

**Television and Film Production Costs**

TheCompany accounts for its film and television projects in development pursuantto SOP 00-2. Third party costs incurred in producing television programsand films for which the Company has secured distribution agreements arecapitalized and remain unamortized until the project is distributed or arewritten off at the time they are determined not to be recoverable. Third partycosts incurred in developing 

9

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**2. Summaryof Significant Accounting Policies (Continued)**

concepts for new television programs and films areexpensed as incurred until such time as the Company has secured distributionagreements.

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

**Artist Advances and Recoupable Recording Costs**

Recoupable recording costs and artist advances, asadjusted for anticipated returns, are recognized in accordance with SFAS 50,and thus, are charged to expense in the period in which the sale of the recordtakes place. Recoupable recording costs and artist advances are onlycapitalized if the past performance and current popularity of the artist forwhom the recording costs are incurred or to whom the advance is made provide asound basis for estimating that the amount capitalized will be recoverable fromfuture royalties to be earned by the artist. Any portion of recoupablerecording costs or artists advances that subsequently appear not to be fullyrecoverable from future royalties to be earned by the artist are charged toexpense during the period in which the loss becomes evident.

**AdvertisingExpense**

Advertising costs are expensed as incurred.

**Income Taxes**

The Company accounts for its income taxes using SFAS No. 109,*Accounting for Income Taxes (“SFAS No.109).*Under SFAS 109, deferred income taxes arise from temporary differencesbetween the financial statement and tax basis of assets and liabilities. TheCompany’s deferred taxes primarily result from temporary differences in therecognition of amortization of intangible assets, depreciation, reserve for baddebts and inventory and accrued vacation for financial reporting and taxreporting purposes.

**ForeignCurrency Translation**

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

**Goodwill and Other Intangible Assets**

Goodwillrepresents the excess of purchase price and related costs over the valueassigned to the net tangible and identifiable intangible assets of businessesacquired. The Company follows SFAS No. 142, *Goodwill and Other Intangible Assets* (“SFAS 142”).Goodwill and other intangible assets with indefinite lives are not amortized,but instead are tested for impairment annually, or, if certain circumstancesindicate a possible impairment may exist, in accordance with the provisions ofSFAS 142. The Company will evaluate the recoverability of goodwill andindefinite lived intangible assets using a two-step impairment test approach atthe reporting unit level. In the first step the fair value for the reportingunit is compared to its book value including goodwill. In the case that thefair value of the reporting unit is less 

10

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**2. Summaryof Significant Accounting Policies (Continued)**

than the book value, a second step is performed whichcompares the implied fair value of the reporting unit’s goodwill to the bookvalue of the goodwill. The fair value for the goodwill is determined based onthe difference between the fair values of the reporting units and the net fairvalues of the identifiable assets and liabilities of such reporting units. Ifthe fair value of the goodwill is less than the book value, the difference isrecognized as an impairment.

SFAS 142also requires that intangible assets with estimable useful lives be amortizedover their respective estimated useful lives to the estimated residual values.The Company will perform its annual impairment assessment on goodwill andindefinite lived intangible assets in accordance with the methods prescribedabove on the first day of its fiscal fourth quarter.

The Company will account for impairment of long-livedassets in accordance with SFAS 144, *Accountingfor the Impairment or Disposal of Long-Lived Assets* (“SFAS 144”).SFAS 144 establishes a uniform accounting model for the disposal oflong-lived assets. The Company will evaluate long-lived assets for impairmentwhenever events or changes in circumstances indicate that the carrying amountof an asset may not be recoverable. Upon such an occurrence, recoverability ofassets to be held and used is measured by comparing the carrying amount of anasset to forecasted undiscounted future net cash flows expected to be generatedby the asset. If the carrying amount of the asset exceeds its estimated futurecash flows, an impairment charge is recognized by the amount by which thecarrying amount of the asset exceeds the fair value of the asset.

**Impact of Recently Issued Accounting Standards**

In December 2004,the FASB issued a revision to SFAS No. 123, *Accounting for Stock-Based Compensation*. This revisionwill require us to measure the cost of employee services received in exchangefor an award of equity instruments based on the grant-date fair value of theaward. The cost will be recognized over the period during which an employee isrequired to provide service in exchange for the award. This revised Statementis effective as of the beginning of the first annual reporting period thatbegins after June 15, 2005. This revised Statement will apply to allawards granted after the required effective date and to awards modified,repurchased or canceled after that date. As of the required effective date, wewill apply this revised Statement using a modified version of prospectiveapplication. Under that transition method, compensation cost is recognized onor after the required effective date for the portion of outstanding awards forwhich the requisite service has not yet been rendered, based on the grant-datefair value of those awards calculated under SFAS No. 123 for either recognitionor pro forma disclosures. The Company adopted SFAS No. 123R effective January 1,2005.

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

In May 2005, the FASB issued SFAS No. 154, *Accounting Changes and Error Corrections, areplacement of APB Opinion No. 20 and FASB Statement No. 3*.This statement applies to all voluntary changes in accounting principle,requiring retrospective application to prior periods’ financial statements ofchanges in accounting principle. Prior to the issuance of SFAS No. 154,most voluntary changes in accounting principle were recognized by including thecumulative effect of changing to the new principle in net income of the periodof the change. The statement is effective for financial statements for fiscalyears beginning after December 15, 2005. The Company does not currentlycontemplate any voluntary changes in accounting principles.

11

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**3.**Capital Structure andPredecessor

Following is a description of changes to the Company’scapital structure that occurred during the six months ended June 30, 2005:

**The RFX Investment**

On February 7, 2005, RFX Acquisition LLC, anentity formed and controlled by Robert F.X. Sillerman, contributed $3,046,407in cash to the Company in exchange for 30,464,072 newly issued shares of commonstock and warrants to purchase (i) 6,828,938 shares of common stock at$1.00 per share, (ii) 6,828,938 shares of common stock at $1.50 per share,and (iii) 6,828,939 shares of common stock at $2.00 per share (the “RFX Investment”).Simultaneous with this exchange, RFX Acquisition LLC also acquired an aggregateof 2,240,397 shares of common stock directly from certain former principalstockholders at a price of $0.10 per share. Immediately following theconsummation of its investment in the Company, RFX Acquisition LLC distributedall of its shares of common stock and its warrants to its members, includingthe Company’s Chief Executive Officer, Mr. Sillerman, and certain membersof the Company’s senior management. In order to provide additional capital tothe Company, on February 7, 2005, certain recipients of the warrants,including Mr. Sillerman, and other members of the Company’s seniormanagement, exercised an aggregate of five million of the $1.00 warrants foradditional aggregate consideration to the Company of $5,000,000.

**The Presley Acquisition(Predecessor)**

On February 7, 2005, the Company acquired 85% ofthe Presley Business (the “Presley Acquisition”) from The Promenade Trust, aTennessee grantor trust set up by the estate of Elvis Presley, the solebeneficiary of which is Lisa Marie Presley. The consideration for theacquisition included (i) $53.1 million in cash, (ii) 1,491,817shares of Series B Convertible Preferred Stock, (iii) one share of Series CConvertible Preferred Stock, (iv) 500,000 shares of common stock and (v) therepayment of $25.1 million in indebtedness.

CommonStock

The common stock issued in the Presley Acquisition wasvalued at $7.67 per share, which represents the three day average of theclosing sales price of the Company’s common stock following the publicannouncement of the acquisition of the Presley Business. The Company’s stockprice prior to the announcement was not utilized since the Company had nooperations at that time and there was little to no trading in the stock.

Series BConvertible Preferred Stock

The 1,491,817 shares of Series B ConvertiblePreferred Stock issued in the Presley Acquisition were valued at $22,825,000.Each share of Series B Convertible Preferred Stock has a stated value of$15.30 and entitles the holder to receive an annual dividend calculated at arate of 8% of the stated value. The Series B Convertible Preferred Stockhas been valued for accounting purposes at its stated value of $15.30 pershare, which approximates its fair value. In order to determine the fair valueof the Series B Convertible Preferred Stock, the Company performed avaluation using a commonly used valuation model for pricing convertible equityinstruments, taking into account the following factors and assumptions:

·       Fair value of common stockof $7.67 per share, based on the average closing price for the three daysfollowing announcement of the acquisition of the Presley business;

·       An 8.5-year term forthe Series B Convertible Preferred Stock, based on the fact that theinstrument contains a one-year redemption period ending on August 7,2013, after which re-pricing of the conversion price occurs;

12

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**3. CapitalStructure and Predecessor (Continued)**

·       A stock price volatilityfactor of 38%, based on a review of the volatility of comparable companiesoperating in similiar industries since the Company does not have data for asufficient period to calculate a reliable rate of volatility based on its ownstock price movements;

·       A discount rate of 11.5%,based on credit spreads for high yield issues and a premium to reflect thejunior position of the Series B Convertible Preferred Stock in the Company’scapital structure; and

·       No dividends on the commonshares.

Thefair value of the Series B Convertible Preferred Stock exceeds the fairvalue of the common stock issued on the same date as a result of the mandatory8% annual dividend on the par value of $15.30 and the redemption and conversionfeatures.

Theshares of Series B Convertible Preferred Stock are convertible by itsholders into shares of common stock at any time at a conversion price equal tothe stated value, subject to adjustments in connection with standard anti-dilutionprotections for stock splits, stock dividends and reorganizations. The sharesof Series B Convertible Preferred Stock become convertible at the Company’soption from and after the third anniversary of the date of issuance, if, at anytime, the average closing price of the Company’s common stock over a thirty daytrading period equals or exceeds 150% of the conversion price.

Duringthe period beginning August 7, 2012 and ending August 7, 2013, theCompany can, at its sole discretion, redeem the outstanding shares of Series BConvertible Preferred Stock, in whole or in part, for an aggregate price equalto the stated value plus accrued but unpaid dividends through the date ofredemption. If the Company does not exercise this redemption right, theconversion price for all remaining shares of Series B ConvertiblePreferred Stock is thereafter reduced to the lower of (i) the conversionprice then in effect and (ii) or the average closing price of the Company’scommon stock over a thirty day trading period measured as of the last day ofthe redemption period.

The Series B Convertible Preferred Stock has beenclassified as permanent equity in the accompanying financial statements as thesecurity is redeemable in cash solely at the option of the Company.

Series CConvertible Preferred Stock

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

The Series C Convertible Preferred Stock has beenclassified as permanent equity in the accompanying financial statements as thesecurity is not redeemable and is convertible solely into one share of theCompany’s common stock.

**The Huff Alternative Fund,L.P. Investment**

Simultaneous with the RFXInvestment and the Presley Acquisition, The Huff Alternative Fund, L.P. and itsaffiliate contributed to the Company an aggregate of $43,319,000 in cash, afterfees 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 

13

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**3. Capital Structure and Predecessor (Continued)**

to purchase 1,860,661 shares of common stock at $2.00per share. The Huff investment has been allocated based on the relative fairvalues of the preferred stock, common stock and warrants. The fair values ofcommon stock and Series A Convertible Redeemable Preferred Stock werebased on the $13.40 closing price of the Company’s common stock on February 2,2005, the date upon which the Huff Investment was committed and agreed to byall parties. The fair values of the warrants was based on a Black-Scholesvaluation which incorporated the common stock price of $13.40, a volatilityrate of 39% and a discount rate of 3.7%. The allocation of the proceeds, basedon the relative fair values of the securities issued to Huff, were as follows:common stock—$10.9 million; warrants—$14.7 million; and Series AConvertible Redeemable Preferred Stock—$17.8 million.

On March 21,2005, The Huff Alternative Fund, L.P. and its affiliate exercised theirrights to convert all of their 2,172,400 shares of Series AConvertible Redeemable Preferred Stock into 6,051,253 shares of commonstock. Following such conversion, there are currently no shares of Series AConvertible Redeemable Preferred Stock outstanding. As a result of the earlyconversion, we have recorded a non-cash dividend of $17.8 million inour financial statements for the three months ended March 31, 2005. Theterms of the Series A Convertible Redeemable Preferred Stock at issuanceand prior to the conversion into common stock are described below.

Atissuance, each share of Series A Convertible Redeemable Preferred Stockhad a stated value of $20.00 per share and was convertible into common stock ata conversion price as more fully described below. Holders of the Series AConvertible Redeemable Preferred Stock were not entitled to any dividendsbeyond participating on an as converted basis in dividends declared withrespect to the common stock. The shares of Series A Convertible RedeemablePreferred Stock were convertible into common stock at any time at the option ofthe holder. The shares of Series A Convertible Redeemable Preferred Stockwere to become convertible at the Company’s option if, at any time followingthe third anniversary of issuance the average closing price of the common stockover a thirty day trading period equaled or exceeded $15.00. In addition, if,at any time after issuance, (i) the total market capitalization of theoutstanding shares of common stock equaled or exceeded $500 million, and (ii) theaverage closing price of the common stock over a period of thirty consecutivetrading days equaled or exceeded $15.00, then the Company would have had theright to convert such number of shares of Series A Convertible RedeemablePreferred Stock with an aggregate stated value of up to 25% of the market valueof all publicly traded common stock (excluding shares held by affiliates of theCompany). The Company could not force conversion of any shares of Series AConvertible Redeemable Preferred Stock during the period when the shares ofcommon stock to be issued upon conversion of the Series A ConvertiblePreferred Stock were locked up pursuant to a lockup agreement between the Companyand the holder.

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

14

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**3.**CapitalStructure and Predecessor (Continued)

The terms of the Series A Convertible RedeemablePreferred Stock specifically provided for an adjustment for the issuance of the15,486,815 warrants issued but not exercised by the recipients thereof immediatelyfollowing the closing of the Presley Acquisition, but no adjustment inconnection with the issuance and exercise of the warrants received by the HuffAlternative Fund LP or the Huff Alternative Parallel Fund LP atclosing or for the 5,000,000 warrants which were issued and exercisedimmediately following closing. After giving effect to the adjustments describedin the preceding sentence, the conversion price of the Series AConvertible Redeemable Preferred Stock became $7.18 per share of common stock, sothat each share of Series A Convertible Redeemable Preferred Stock wasconvertible into approximately 2.8 shares of common stock.

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

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

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

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

The allocation of theproceeds from the Huff Investment resulted in a beneficial conversion featurefor the Series A Convertible Redeemable Preferred Stock in the amount of$17.8 million, which reduced the carrying value of the Series AConvertible Redeemable Preferred Stock by that amount. This was due in part tothe allocation of proceeds raised to the warrants as well as the conversionratio of one share of preferred stock into 2.8 shares of common stock aspreviously described. This beneficial conversion feature was to be accretedover the eight-year redemption period and recorded as a preferred dividend. Asa result of the conversion described above, a non-cash dividend equal tothe amount of the unaccreted beneficial conversion feature of$17.8 million was recognized at that time.

15

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**3. CapitalStructure and Predecessor (Continued)**

**Reincorporation**

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

**Public Offering ofCommon Stock**

On June 27, 2005, theCompany completed a public offering of 23,000,000 shares of its common stock at$11.00 per share which yielded $233.0 million in net proceeds afterunderwriting discounts and commissions and offering expenses. The Companyrepaid $148.4 million of its previous loans payable with a portion of theproceeds from the offering.

**4. Comprehensive Income (Loss)**

Thefollowing table is a reconciliation of the Company’s net loss to comprehensiveloss for the three and six months ended June 30, 2005:
| ** **                               | ** ** | **Three Months  Ended  June 30, 2005** | ** ** | **Six Months  Ended  June 30, 2005** | ** ** |
|------------------------------------------|------------|-------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                               | ** ** | **(in thousands)**                               | ** ** |
| Net loss                                 |       |                                                  | $          | (1,444                                              | )          |   |   | $ | (2,368 | ) |   |
| Other  comprehensive income (loss):      |       |                                                  |       |                                                |       |   |   |   |   |
| Foreign currency translation adjustments |       |                                                  | (10,625    | )                                                   |       |   | (10,655 | ) |   |
| Comprehensive loss                       |       |                                                  | $          | (12,069                                             | )          |   |   | $ | (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. There were no differences between net income (loss) and comprehensiveincome (loss) for the period January 1, 2005 to February 7, 2005 orfor the six months ended June 30, 2004.

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

Earnings per share iscomputed in accordance with SFAS No. 128, *EarningsPer Share*. Basic earnings per share is calculated by dividing netincome (loss) applicable to common stockholders by the weighted-averagenumber of shares outstanding during the period. Diluted earnings per shareincludes the determinants of basic earnings per share and, in addition, giveseffect to potentially dilutive common shares. Diluted earnings per share is notpresented because the calculation is anti-dilutive due to the reported netloss. As a result, 6,543,415 shares are excluded from the calculation ofdiluted earnings per share for the three months and six months ended June 30,2005, respectively, since the effect would be anti-dilutive.

**6. Acquisitions**

*The PresleyBusiness (Predecessor)*

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

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**6. Acquisitions(Continued)**

The aggregateconsideration paid for the acquisition was as follows:
| ** **                            | ** ** | **(in thousands)** | ** ** |
|---------------------------------------|------------|-------------------------|------------|
| Fair value of  common stock issued    |       |                    | $          | 3,835 |   |   |
| Fair value of  preferred stock issued |       |                    | 22,825     |   |   |
| Repayment of seller  debt             |       |                    | 25,121     |   |   |
| Note payable                          |       |                    | 3,500      |   |   |
| Cash                                  |       |                    | 53,125     |   |   |
| Transaction costs                     |       |                    | 5,788      |   |   |
|                                  |       |                    | $          | 114,194 |   |   |

 

Thefollowing table summarizes the preliminary amounts allocated to the acquiredassets and assumed liabilities based on a preliminary valuation prepared by anindependent appraisal firm. These amounts have been adjusted to reflect theCompany’s 85% ownership interest. 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 quarterlyreport on Form 10-QSB for the quarter ending September 30, 2005. Thesignificant assumptions used in the valuation included factors affecting theduration, growth rates and amounts of future cash flows for each income stream,specifically: the future economic outlook for the industry, risks involved inthe business, and the impact of competition and technological changes.
| ** **                | ** ** | **(in thousands)** | ** ** |
|---------------------------|------------|-------------------------|------------|
| Current assets            |       |                    | $          | 12,848 |   |   |
| Property and  equipment   |       |                    | 25,034     |   |   |
| Goodwill                  |       |                    | 26,734     |   |   |
| Intangible assets         |       |                    | 76,500     |   |   |
| Other assets              |       |                    | 6,277      |   |   |
| Assets acquired           |       |                    | 147,393    |   |   |
| Current  liabilities      |       |                    | 10,591     |   |   |
| Deferred tax  liabilities |       |                    | 16,789     |   |   |
| Other liabilities         |       |                    | 5,819      |   |   |
| Liabilities  assumed      |       |                    | 33,199     |   |   |
| Net assets acquired       |       |                    | $          | 114,194 |   |   |

 

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

Reflected in the purchase price for the PresleyBusiness is $3.0 million in prepaid rent for a 90-year lease on Graceland.

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

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**6. Acquisitions(Continued)**

and istherefore reflected in goodwill. The preliminary amounts allocated tointangible assets were attributed to the following categories and relateduseful lives:
| ** **                                                    | ** ** | **(Amounts  in thousands)** | ** ** | ** ** | ** ** |
|---------------------------------------------------------------|------------|----------------------------------|------------|------------|------------|
| Record, music  publishing, film and video rights              |       |                             | $          | 21,000     |       |   | 15 years |   |
| Relationships  with licensees                                 |       |                             | 12,000     |       |       | 5 years |   |
| Rights to use  Presley name                                   |       |                             | 5,500      |       |       | 10 years |   |
| Trademarks, publicity  rights and other intellectual property |       |                             | 38,000     |       |       | n/a |   |

 

At this time management is unable to determine whetherthe amounts allocated to the above intangible assets and the Graceland leasewill change when the Company finalizes its valuation and if changes are made,the amount of such changes. A $1.0 million fluctuation in fair valueamounts allocated to the identified definite lived intangible assets and theGraceland lease would cause the following increases or decreases to annualamortization expense: record, music publishing, film and video rights—$67,667;relationships with licensees—$200,000; rights to use Presley name—$100,000; andthe Graceland lease—$11,111.

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

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

The Promenade Trust hasthe right to require the Company to purchase for cash all or a portion of its15% ownership interest in the Presley Business from time to time beginning on January 1,2008. The price the Company will be required to pay to The Promenade Trust willbe based on the then current fair market value of the Presley Business asdetermined through an appraisal process. As the put right is at fair marketvalue, no value has been assigned for accounting purposes to the put option.The results of operations of the Presley Business are included in the resultsof the Company since the date of acquisition.

*19 Entertainment*

On March 17, 2005, the Company acquired 100% ofthe outstanding capital stock of 19 Entertainment Limited (the “19Entertainment Acquisition”), a United Kingdom-based company that is acreator, producer and promoter of entertainment properties, including the *IDOLS* television show format. The acquisitionwas completed with £64.5 million (US $124.4 million) in cash and1,870,558 unregistered shares of common stock, each paid at closing, with anadditional £19.2 million (US $36.9 million based on the exchange rate atclosing of the acquisition; US $35.0 million based on the exchange rate atJune 30, 2005) in either cash or common stock to be paid on the earlier of (i)thirty days following delivery of the audited results for the acquired company’sfiscal year ended June 30, 2005, and (ii) December 30, 2005. We willpay at least $7.9 million of the deferred consideration in cash. Theremaining deferred consideration for the 19 Entertainment acquisition will bepaid in cash, or, if requested by certain of the sellers, in shares of commonstock. The shares of common stock issued in the 19 Entertainment Acquisitionwere valued at $16.83 per share (which represents the average of the Company’sclosing stock prices for the two days prior 

18

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**6. Acquisitions(Continued)**

to and the day of the 19 EntertainmentAcquisition). The stock prices subsequent to the consummation of thetransaction were excluded from the average price in accordance with EITF 99-12,*Determination of the Measurement Date forthe Market Price of Acquirer Securities Issued in a Purchase BusinessCombination*.

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

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

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

Theaggregate consideration paid for the acquisition was as follows:
| ** **                                                                                           | ** ** | **(in thousands)** | ** ** |
|------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|
| Fair value of  common stock issued                                                                   |       |                    | $          | 3,339 |   |   |
| Fair value of  redeemable restricted common stock, including put and call agreement   |       |                    | 23,002     |   |   |
| Deferred purchase  consideration                                                                     |       |                    | 36,900     |   |   |
| Cash                                                                                                 |       |                    | 124,367    |   |   |
| Transaction costs                                                                                    |       |                    | 3,847      |   |   |
|                                                                                                 |       |                    | $          | 191,455 |   |   |

 

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**6.**Acquisitions(Continued)

Thefollowing table summarizes the estimated fair values of the assets acquired andliabilities assumed on March 17, 2005. The estimated fair values are basedon a preliminary valuation performed by management. The Company has engaged anindependent appraisal firm to perform a valuation of the assets acquired andliabilities assumed. Accordingly, the initial purchase price allocations arepreliminary and may be adjusted for changes in estimates of the fair value ofthe assets acquired and liabilities assumed. The Company expects that thepurchase price allocations will be finalized by the time it files its quarterlyreport on Form 10-QSB for the quarter ending September 30, 2005. Thesignificant assumptions used in the valuation included the duration, growthrates and amounts of future cash flows for each income stream.
| ** **                | ** ** | **(in thousands)** | ** ** |
|---------------------------|------------|-------------------------|------------|
| Current assets            |       |                    | $          | 26,004 |   |   |
| Property and  equipment   |       |                    | 2,021      |   |   |
| Goodwill                  |       |                    | 128,762    |   |   |
| Intangible assets         |       |                    | 65,000     |   |   |
| Other assets              |       |                    | 2,106      |   |   |
| Assets acquired           |       |                    | 223,893    |   |   |
| Current  liabilities      |       |                    | 8,352      |   |   |
| Deferred tax  liabilities |       |                    | 19,500     |   |   |
| Other liabilities         |       |                    | 4,586      |   |   |
| Liabilities  assumed      |       |                    | 32,438     |   |   |
| Net assets acquired       |       |                    | $          | 191,455 |   |   |

 

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

Theexcess of the purchase price over the fair values of assets acquired andliabilities assumed was allocated to goodwill. The purchase price for19 Entertainment was determined based on management’s assessment of thefinancial prospects of the existing business as well as the increased value theCompany believes can be derived from the development of new assets by thecreative team at 19 Entertainment. These individuals have a track recordof generating new and profitable creative ideas and we believe providing themwith better access to capital as well as a broader asset base upon which tocreate new projects will enhance the value of 19 Entertainment and the Company’sother assets. The value reflected in these elements of the purchase price doesnot meet the definition of an intangible asset under FAS 141 and istherefore reflected in goodwill. The preliminary amounts allocated tointangible assets were attributed to the following categories and relateduseful lives:
| ** **                                                                                                | ** ** | **(Amounts  in thousands)** | ** ** | ** ** | ** ** |
|-----------------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|------------|------------|
| Television  programming                                                                                   |       |                             | $          | 35,000     |       |   | 7 years |   |
| Artist management,  recording, merchandising and sponsorship contracts      |       |                             | 30,000     |       |       | 5 years |   |

 

At this time management is unable to determine whetherthe amounts allocated to the above intangible assets will change when theCompany finalizes its valuation and if changes are made, the amount of suchchanges. A $1.0 million fluctuation in fair value amounts allocated to theidentified definite lived intangible assets would cause the following increasesor decreases to annual amortization expense: television programming—$142,857;and artist management, recording, merchandising and sponsorship contracts—$200,000.

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**6. Acquisitions(Continued)**

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

*Pro FormaInformation*

Thefollowing table summarizes unaudited pro forma financial information assumingthe acquisition of the Presley Business and 19 Entertainment and the relatedfinancing transactions had occurred on January 1, 2004 and 2005. Theunaudited pro forma financial information does not necessarily represent whatwould have occurred if the transactions had occurred on the dates presented andshould not be taken as representative of the Company’s future consolidatedresults of operations or financial position:
| ** **                                 | ** ** | **Six Months Ended**                                   | ** ** |
|--------------------------------------------|------------|------------------------------------------------------------------|------------|
| ** **                                 | ** ** | **June 30,**                                                | ** ** |
| ** **                                 | ** ** | **2005**                                                         | ** ** | **2004** | ** ** |
| ** **                                 | ** ** | **(in thousands except  per share amounts)** | ** ** |
| Revenues                                   |       | $                                                                | 66,138     |   | $ | 79,505 |   |
| Net loss  available to common stockholders |       | $                                                                | (19,972    | ) | $ | (3,266 | ) |
| Net loss per common  share:                |       |                                                             |       |   |   |
| Basic and diluted                          |       | $                                                                | (0.37      | ) | $ | (0.06 | ) |

 

Note that the amounts forthe six months ended June 30, 2005 exclude non-cash employee compensationexpense associated with the exercise of employee stock options by 19Entertainment employees immediately prior to the Company’s acquisition on March 17,2005 as the exercises were a one time non-recurring event that resulteddirectly from the acquisition of 19 Entertainment by the Company. This expensewas $10.4 million after tax, or $(0.19) per share.

**7. Intangible Assets and Goodwill**

Intangible assets which have finite lives are beingamortized on a straight-line basis over periods from 5 to 15 years.Amortization expense for the three and six months ended June 30, 2005 was$3.8 million and $4.9 million, respectively. The projected annual amortizationexpense for intangible assets, assuming no further acquisitions ordispositions, is approximately $13 million for the year ending December 31,2005 and $15.4 million for each of the following four years ending December 31.

Intangible assets as of June 30,2005 consist of:
| ** **                                                                               | ** ** | **Gross**    | ** ** | ** **       | ** ** | ** **      | ** ** | **Net**      | ** ** |
|------------------------------------------------------------------------------------------|------------|--------------|------------|------------------|------------|-----------------|------------|--------------|------------|
| ** **                                                                               | ** ** | **Carrying** | ** ** | **Accumulated**  | ** ** | ** **      | ** ** | **Carrying** | ** ** |
| ** **                                                                               | ** ** | **Amount**   | ** ** | **Amortization** | ** ** | **Translation** | ** ** | **Amount**   | ** ** |
| Definite Lived  Intangible Assets:                                                       |       |         |       |             |       |            |       |         |       |   |   |   |   |
| Presley record,  music publishing, film and video rights                            |       | $            | 21,000     |             |       | $               | (549       | )            |       |   | — |   |   | $ | 20,451 |   |
| Presley  relationships with licensees                                                    |       | 12,000       |       |             | (942       | )               |       |         | —     |   |   | 11,058 |   |
| Priscilla Presley  rights to Presley name                                                |       | 5,500        |       |             | (216       | )               |       |         | —     |   |   | 5,284 |   |
| 19 Entertainment  television programming                                                 |       | 35,000       |       |             | (1,442     | )               |       |         | (1,974     | ) |   | 31,584 |   |
| 19 Entertainment  artist management, recording, merchandising, and sponsorship contracts |       | 30,000       |       |             | (1,730     | )               |       |         | (1,542     | ) |   | 26,728 |   |
|                                                                                     |       | $            | 103,500    |             |       | $               | (4,879     | )            |       |   | $ | (3,516 | ) |   | $ | 95,105 |   |
| Indefinite Lived  Intangible Assets:                                                     |       |         |       |             |       |            |       |         |       |   |   |   |   |
| Trademarks, publicity  rights and other intellectual property                       |       | $            | 38,000     |             |       |            |       |         |       |   |   |   | $ | 38,000 |   |
|                                                                                          |            |              |            |                  |            |                 |            |              |            |  |  |  |  |  |  |  |  |

** **

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**7. IntangibleAssets and Goodwill (Continued)**

 
| ** **              | ** ** | **Balance at** | ** ** | **Goodwill**         | ** ** | ** **      | ** ** | **Balance at** | ** ** |
|-------------------------|------------|---------------------|------------|----------------------|------------|-----------------|------------|---------------------|------------|
| ** **              | ** ** | **January 1,**      | ** ** | **Acquired**         | ** ** | ** **      | ** ** | **June 30,**   | ** ** |
| ** **              | ** ** | **2005**            | ** ** | **During 2005** | ** ** | **Translation** | ** ** | **2005**            | ** ** |
| Goodwill:               |       |                |       |                 |       |            |       |                |       |   |   |   |   |   |   |
| Presley business:       |       |                |       |                 |       |            |       |                |       |   |   |   |   |   |   |
| Royalties and Licensing |       |                | $          | —               |       |            |       | $                   | 11,999     |   |   |   | $ | — |   |   | $ | 11,999 |   |
| Graceland Operations    |       |                | —     |                 |       |            | 14,735     |                |       |   | — |   |   | 14,735 |   |
| 19 Entertainment        |       |                | —     |                 |       |            | 128,762    |                |       |   | (6,114 | ) |   | 122,648 |   |
| Total                   |       |                | $          | —               |       |            |       | $                   | 155,496    |   |   |   | $ | (6,114 | ) |   | $ | 149,382 |   |

 

**8. Debt**

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

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

The average interest rates on the Presley loan were6.99% and 6.91% for the three and six months ended June 30, 2005,respectively. The average interest rates on the 19 Entertainment loan were7.08% and 7.07% for the three and six months ended June 30, 2005,respectively.

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

**9. Stockholders’ Equity**

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

On February 8, 2005, the Company granted 42,000shares of restricted common stock to the Company’s independent directors. Thesegrants were subject to adoption of the Company’s 2005 Omnibus Long-TermIncentive Compensation Plan by the stockholders of the Company, which occurredon March 25, 2005. The restricted shares vest ratably on each of the firstthree anniversaries of the date of grant. The shares have been valued at$14.40, the closing stock price on the date of grant. The total value of theseshares is being expensed ratably over the three-year vesting period. Includedin non-cash 

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**9. Stockholders’Equity (Continued)**

compensation on theaccompanying statement of operations for the six months ended June 30,2005 is $0.1 million of expense related to these restricted shares.

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

At June 30, 2005, theCompany had outstanding warrants to purchase 4,551,597 shares of common stockat an exercise price of $2.00 per share which expire on February 7, 2007,and warrants to purchase 500,000 shares of common stock at an exercise price of$10.00 per share which expire on February 7, 2008.

**10. IncomeTaxes**

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

For the three months andsix months ended June 30, 2005, the Company recorded federal income taxbenefits of $1.1 million and $2.1 million, respectively, on the Company’s netoperating losses. The Company also recorded provisions for state income taxesof $0.5 million in the three and six months ended June 30, 2005. Managementbelieves realization of the income tax benefit is reasonably assured due to thedeferred tax liabilities which will reverse into taxable income in futureperiods.

**11. Segment Information**

The Companycurrently has three reportable segments: Presley Business—Royalties andLicensing, Presley Business—Graceland Operations and 19 Entertainment. Allinter-segment transactions have been eliminated in the consolidatedfinancial statements.

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**11.**SegmentInformation (Continued)

Theoperating income (loss) amounts for the Presley Business after acquisition bythe Company are not directly comparable to the amounts for the Presley Businessas Predecessor due to the impact of purchase accounting adjustments made uponthe acquisition of the Presley Business on February 7, 2005 which resulting ina substantial increase in the carrying value of fixed and intangible assets anda corresponding increase in depreciation and amortization expense in the post-acquisitionperiods.
| ** **                                                           | ** ** | **Presley Business**            | ** ** | ** **                        | ** ** | ** **                | ** ** | ** **            | ** ** |
|----------------------------------------------------------------------|------------|--------------------------------------|------------|-----------------------------------|------------|---------------------------|------------|-----------------------|------------|
| **Segment Information**                                         | ** ** | ** **                           | ** ** | **Royalties and  Licensing** | ** ** | **Graceland  Operations** | ** ** | **19  Entertainment** | ** ** | ** Corporate   and other** | ** ** | **Total** | ** ** |
| ** **                                                           | ** ** | **(amounts in thousands)** | ** ** |
| Three months ended June 30, 2005:                               |       |                                 |       |                              |       |                      |       |                  |       |   |   |   |   |   |   |   |   |   |   |
| Revenue                                                              |       |                                 | $          | 10,284                            |       |                      |       | $                     | 8,588      |   |   |   | $ | 15,045 |   |   |   | $ | — |   |   | $ | 33,917 |   |
| Operating income (loss)                                              |       |                                 | $          | 2,543                             |       |                      |       | $                     | 1,927      |   |   |   | $ | 988 |   |   |   | $ | (2,972 | ) |   | $ | 2,486 |   |
| Three months ended June 30, 2004:                               |       |                                 |       |                              |       |                      |       |                  |       |   |   |   |   |   |   |   |   |   |   |
| Revenue                                                              |       |                                 | $          | —                            |       |                      |       | $                     | —     |   |   |   | $ | — |   |   |   | $ | — |   |   | $ | — |   |
| Operating income (loss)                                              |       |                                 | $          | —                            |       |                      |       | $                     | —     |   |   |   | $ | — |   |   |   | $ | (19 | ) |   | $ | (19 | ) |
| Three months ended June 30, 2004 (Predecessor):                 |       |                                 |       |                              |       |                      |       |                  |       |   |   |   |   |   |   |   |   |   |   |
| Revenue                                                              |       |                                 | $          | 3,719                             |       |                      |       | $                     | 7,848      |   |   |   | $ | — |   |   |   | $ | — |   |   | $ | 11,567 |   |
| Operating income (loss)                                              |       |                                 | $          | 2,754                             |       |                      |       | $                     | 1,177      |   |   |   | $ | — |   |   |   | $ | — |   |   | $ | 3,931 |   |
| Six months ended June 30, 2005:                                 |       |                                 |       |                              |       |                      |       |                  |       |   |   |   |   |   |   |   |   |   |   |
| Revenue                                                              |       |                                 | $          | 12,730                            |       |                      |       | $                     | 11,940     |   |   |   | $ | 19,234 |   |   |   | $ | — |   |   | $ | 43,904 |   |
| Operating income (loss)                                              |       |                                 | $          | 3,828                             |       |                      |       | $                     | 1,604      |   |   |   | $ | 2,798 |   |   |   | $ | (7,206 | ) |   | $ | 1,024 |   |
| Six months ended June 30, 2004:                                 |       |                                 |       |                              |       |                      |       |                  |       |   |   |   |   |   |   |   |   |   |   |
| Revenue                                                              |       |                                 | $          | —                            |       |                      |       | $                     | —     |   |   |   | $ | — |   |   |   | $ | — |   |   | $ | — |   |
| Operating income (loss)                                              |       |                                 | $          | —                            |       |                      |       | $                     | —     |   |   |   | $ | — |   |   |   | $ | (43 | ) |   | $ | (43 | ) |
| Period January 1, 2005 to February 7, 2005  (Predecessor): |       |                                 |       |                              |       |                      |       |                  |       |   |   |   |   |   |   |   |   |   |   |
| Revenue                                                              |       |                                 | $          | 1,702                             |       |                      |       | $                     | 1,740      |   |   |   | $ | — |   |   |   | $ | — |   |   | $ | 3,442 |   |
| Operating income (loss)                                              |       |                                 | $          | 1,167                             |       |                      |       | $                     | (705       | ) |   |   | $ | — |   |   |   | $ | — |   |   | $ | 462 |   |
| Six months ended June 30, 2004 (Predecessor):                   |       |                                 |       |                              |       |                      |       |                  |       |   |   |   |   |   |   |   |   |   |   |
| Revenue                                                              |       |                                 | $          | 5,904                             |       |                      |       | $                     | 13,131     |   |   |   | $ | — |   |   |   | $ | — |   |   | $ | 19,035 |   |
| Operating income (loss)                                              |       |                                 | $          | 3,703                             |       |                      |       | $                     | 82         |   |   |   | $ | — |   |   |   | $ | — |   |   | $ | 3,785 |   |
| Segment assets at June 30, 2005                                 |       |                                 | $          | 80,332                            |       |                      |       | $                     | 66,159     |   |   |   | $ | 216,680 |   |   |   | $ | 91,614 |   |   | $ | 454,785 |   |
|                                                                      |            |                                      |            |                                   |            |                           |            |                       |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

**12. Related PartyTransactions**

Included in the CondensedConsolidated Statement of Operations for the six months ended June 30,2005 are $2.2 million of costs related to the transition of the Companyfrom an entity with no operations. These costs include $1.2 million ofoperating costs of an affiliate of RFX Acquisition LLC, primarily salaries,employee benefits, rent and other overhead costs incurred from November 2004through February 7, 2005, which pursuant to certain agreements werereimbursed by CKX upon closing of the RFX Acquisition LLC investment and thePresley Acquisition. The remaining costs consist of legal expenses, listingfees, and due diligence expenses.

Immediately prior to the consummation of the varioustransactions resulting in our acquisition of the Presley Business, the Companyentered into a sublease for 16,810 square feet for its principal corporateoffices in New York, New York. The prior subtenants from whom the Companyassumed the terms of the sublease were FXM, Inc. (“FXM”) and MJX AssetManagement LLC (“MJX”). Mr. Sillerman is the managing member of MJX and isthe principal stockholder of FXM. Certain other executive officers of theCompany are also investors in MJX and FXM. The terms of the Company’s subleaseare identical to those which governed FXM’s and MJX’s occupation of such space.In accordance with certain requirements set 

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**12. Related Party Transactions(Continued)**

forth inthe existing sublease for the space, FXM was required to remain as a guarantorto the Company’s obligations under the sublease. While the Company was not yetsubject to the rules and regulations of The NASDAQ National Market®, thetransaction was ratified by the independent members of the board of directorsof the Company in accordance with The NASDAQ National Market’s® rules foraffiliated transactions.

**13. SupplementalCash Flow Information**

TheCompany had the following non-cash investing and financing activities in thesix months ended June 30, 2005 (amounts in thousands):
| Common stock  issued for the acquisition of the Presley business                                         |   | $      | 3,835  |   |
|----------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|
| Series B  Convertible Preferred stock issued for acquisition of the Presley business                |   | 22,825 |   |
| Issuance of  Priscilla Presley Note for the acquisition of the Presley Business                          |   | 3,500  |   |
| Common stock and  redeemable restricted common stock issued for the acquisition of 19 Entertainment |   | 26,341 |   |
| Conversion of Series A  Convertible Redeemable Preferred Stock to common stock                      |   | 17,762 |   |
| Issuance of common  shares in satisfaction of obligation to former affiliate                             |   | 270    |   |
| Dividend on Series B  Convertible Preferred Stock                                                   |   | 264    |   |

 

**14. SubsequentEvents**

On July 22, 2005 theCompany entered into a definitive agreement to acquire Morra, Brezner,Steinberg & Tenenbaum Entertainment, Inc. (MBST), a manager ofcomedic talent and producer of motion pictures and television programming. TheCompany will acquire MBST for total consideration of $1.0 million in cash and700,000 restricted shares of common stock, each to be paid at closing which isexpected to be within several weeks of the signing of the agreement. The purchaseprice is subject to a working capital adjustment to be finalized post-closing. Inaddition, the sellers may receive up to an additional 150,000 restricted sharesof common stock upon satisfaction of certain performance thresholds over thefive year period following the closing. Upon consummation of the acquisition, theCompany will enter into long-term employment agreements with the principals ofMBST, Larry Brezner, David Steinberg and Steve Tenenbaum, who will continue tooversee the day-to-day operations of MBST.

**FORWARD LOOKING STATEMENTS**

Inaddition to historical information, this Form 10-QSB (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 revenues,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’sdiscussion and analysis of financial condition and results of operations shouldbe read in conjunction with the historical financial statements and footnotesof the registrant, included in its Annual Report on Form 10-KSB forthe year ended December 31, 2004, and of the Presley Business, included inthe Company’s Current Report on Form 8-K/A filed on February 11,2005, and of 19 Entertainment Limited, included in the Company’s Current Reporton Form 8-K/A filed on May 27, 2005. Our future results ofoperations may change materially from the historical results of operationsreflected in our historical financial statements.*

We are engaged in the ownership, development andcommercial utilization of entertainment content, including the rights to thename, image and likeness of Elvis Presley, the operations of Graceland andproprietary rights to the *IDOLS*television brand, including the American Idol series in the United States, thePop Idol series in the United Kingdom and local adaptations of the *IDOLS* television show format which,collectively, air in over 30 countries around the world.

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

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

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

**Presley Business**

The Presley Business consists of generating revenuefrom the name and likeness of Elvis Presley, including physical andintellectual property owned or created by Elvis Presley during his life. Ourprimary revenue sources include ticket sales and related income from publictours of Graceland, income from licensing Elvis’ name and likeness for consumerproducts, commercials and other uses and royalties and other income derivedfrom intellectual property created by Elvis including records, movies, videosand music publishing. We also derive revenue from the operation of ElvisPresley’s Heartbreak Hotel and the Meadow Oaks apartment complex. Most of ourrevenue sources are dependant upon the public’s continued interest in Elvis andthe intellectual property he created.

Revenue from tours of Graceland has historically beenseasonal with sharply higher numbers of visitors during the late spring andsummer months as compared to the fall and winter seasons.

Licensing revenue is primarily derived from long-termcontracts with terms of two to ten years. Although we seek to obtainsignificant minimum guarantees, our licensing revenue varies based on theactual product sales generated by licensees.

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The intellectual property created by Elvis during hislifetime which we own has generally been assigned to third parties forcommercial exploitation under long-term agreements. Although we maintaincertain controls over the use of this content and, in certain cases, haverights to terminate these agreements if the third party fails to perform, ourrevenue from this intellectual property is highly dependant upon the ability ofthird parties to successfully market the content.

Our significant costs tooperate the Presley Business include salaries, rent and other general overheadcosts. Most of our costs do not vary significantly with our revenue. Ourdiscretionary costs are generally in our marketing and promotions departmentwhich we primarily incur to maintain and/or increase the number of visitors toGraceland.

**19 Entertainment**

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

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

Most of our *IDOLS*related revenue is generated through agreements with our global televisionproduction and distribution partner, FremantleMedia Limited, and our globalrecord label partner, Ronagold Limited, a subsidiary of SonyBMG MusicEntertainment. Therefore, we are highly dependent upon the continued ability ofthese entities to successfully maintain the *IDOLS*brand and promote our recording artists.

The *IDOLS*television shows, which have aired in over 30 countries, are generally producedor licensed under one year contracts under which each local television networkhas the right, but not the obligation, to renew the agreement for additionalyears. Our recording artists are generally signed to long-term recordingcontracts under which we and SonyBMG Music Entertainment have the right, butnot the obligation, to require the artist to release a specified number ofalbums.

Our revenue from the *IDOLS*brand is also highly dependent upon the continued success of the American Idolseries which currently airs on the Fox television network. Our revenue is alsodependent upon the continued success and productivity of our other recordingartists and management clients. A portion of our revenues from the AmericanIdol series is dependent upon the number of hours of programming we deliver. Inour recently completed fourth broadcast season, which aired during our firstand second fiscal quarters of 2005, we delivered 38.5 hours of programmingcompared to 42.5 hours of programming during the same period of 2004. This netdecline of 4 hours which occurred in the second quarter reduced revenues andOIBDA derived from this program in the second fiscal quarter of 2005 comparedto 2004.

19 Entertainment’s revenue is seasonal in nature,reflecting the timing of our *IDOLS*television shows in various markets. Historically, we have generated higherrevenue during the first half of the calendar year, which corresponds to thedates our American Idol series airs on the Fox television network in the UnitedStates. A significant portion of our revenue from American Idol is paid to usin the second half of the calendar year.

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

**Use of OIBDA**

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

**Consolidated Operating Results—Three Months Ended June 30,2005 Compared to Predecessor Three Months Ended June 30, 2004**

Prior to the acquisitionof the Presley Business on February 7, 2005, the Company had no operations.As a result, the Presley Business is considered the predecessor company. Toassist in the understanding of the results of operations of the Company, wehave presented supplemental historical results of the Predecessor. Managementbelieves this provides the most meaningful analysis of the Company’s resultsfor the three months ended June 30, 2005.
| ** **                                    | ** ** | ** **                           | ** ** | **Predecessor**              | ** ** | ** **   | ** ** |
|-----------------------------------------------|------------|--------------------------------------|------------|------------------------------|------------|--------------|------------|
| ** **                                    | ** ** | **CKX**                              | ** ** | **Presley**                  | ** ** | ** **   | ** ** |
| ** **                                    | ** ** | **Three Months  Ended**         | ** ** | **Three Months  Ended** | ** ** | ** **   | ** ** |
| ** **                                    | ** ** | **June 30, 2005**          | ** ** | **June 30, 2004**  | ** ** | **Variance** | ** ** |
| ** **                                    | ** ** | **(amounts in thousands)** | ** ** |
| Revenue                                       |       |                                 | $          | 33,917                       |       |         |       | $ | 11,567 |   |   | $ | 22,350 |   |
| Operating  expenses                           |       |                                 | 31,431     |                         |       |         | 7,636      |   |   | 23,795 |   |
| Operating income                              |       |                                 | 2,486      |                         |       |         | 3,931      |   |   | (1,445 | ) |
| Interest expense                              |       |                                 | 3,191      |                         |       |         | 235        |   |   | 2,956 |   |
| Write-off of  unamortized deferred loan costs |       |                                 | 1,894      |                         |       |         |       |   |   | 1,894 |   |
| Income (loss)  before other income            |       |                                 | (2,599     | )                            |       |         | 3,696      |   |   | (6,295 | ) |
| Other income                                  |       |                                 | 1,107      |                         |       |         | 8          |   |   | 1,099 |   |
| Income (loss)  before income taxes            |       |                                 | (1,492     | )                            |       |         | 3,704      |   |   | (5,196 | ) |
| Income tax  expense (benefit)                 |       |                                 | (566       | )                            |       |         | 82         |   |   | (648 | ) |
| Income (loss)  before minority interest       |       |                                 | (926       | )                            |       |         | 3,622      |   |   | (4,548 | ) |
| Minority interest                             |       |                                 | 518        |                         |       |         |       |   |   | 518 |   |
| Net income (loss)                             |       |                                 | $          | (1,444                       | )          |         |       | $ | 3,622 |   |   | $ | (5,066 | ) |
| Operating income (loss)                       |       |                                 | $          | 2,486                        |       |         |       | $ | 3,931 |   |   | $ | (1,445 | ) |
| Depreciation and  amortization                |       |                                 | 4,417      |                         |       |         | 297        |   |   | 4,120 |   |
| OIBDA                                         |       |                                 | $          | 6,903                        |       |         |       | $ | 4,228 |   |   | $ | 2,675 |   |

 

The CKX financialstatements for the three months ended June 30, 2005 are prepared on adifferent basis of accounting than the Predecessor financial statements for thethree months ended June 30, 2004. The CKX results include the impact ofadditional depreciation and amortization expense resulting from the fair valueaccounting of acquired assets for both the Presley Business and 19Entertainment. This 

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addedapproximately $3.8 million to operating expenses. In addition, the CKX resultsinclude $3.1 million of interest expense related to the Presley and 19Entertainment short-term senior credit facilities and the Priscilla PresleyNote.

***Revenues***

Revenues for the threemonths ended June 30, 2005 were $33.9 million as compared to $11.6 millionfor the Predecessor for the three months ended June 30, 2004. The increaseof $22.3 million is attributable to $15.0 million of revenue for19 Entertainment and $7.3 million of increased revenues for the PresleyBusiness primarily due to revenues from the release of the documentary, “Elvisby the Presleys,” and higher licensing and royalty fees.

***Operating Expenses***

Operating expenses were$31.4 million for the three months ended June 30, 2005 as compared to $7.6 millionfor the Predecessor for the three months ended June 30, 2004, an increaseof $23.8 million. Of this increase, $11.3 million represents the operatingexpenses of 19 Entertainment, $5.7 million represents increased operatingexpenses for the Presley Business and $3.0 million of the increaserepresents corporate overhead costs. Acquisition-related amortization anddepreciation expense accounts for $3.8 million of the increased operatingexpenses. Operating expenses include $0.3 million of non-cash compensationexpense.

***OIBDA***

Combined OIBDA increased$2.7 million to $6.9 million for the three months ended June 30, 2005 ashigher OIBDA at the Presley business and OIBDA of $3.9 million attributable to19 Entertainment for the period since the date of its acquisition werepartially offset by corporate overhead costs.

***Interest Expense***

Interest expense increased$3.0 million for the three months ended June 30, 2005 due to theinterest costs associated with borrowings incurred to acquire the PresleyBusiness and 19 Entertainment.

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

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

***Other Income***

Other income of $1.1 millionrelates to foreign exchange gains.

***Income Taxes***

For the three months endedJune 30, 2005, the Company recorded an income tax benefit of $0.6 million,reflecting a federal income tax benefit of $1.1 million on the Company’s netoperating loss and a provision for state income taxes of $0.5 million. Managementbelieves realization of the income tax benefit is reasonably assured due to thedeferred tax liabilities which will reverse into taxable income in futureperiods. The Predecessor business was partly held in a trust structure andtherefore a portion of the net income was not taxed in the business, resultingin a low effective tax rate.

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***Minority Interest***

The minority interestexpense of $0.5 million reflects a 15% share in the net income of thePresley Business related to the equity interest retained by the former owner.

***Net Loss***

The Company had a net lossof $1.4 million in 2005 compared to net income for the Predecessor of $3.6 millionfor the same period in 2004.

**Presley Business**

Revenues for the Presley Business for the three monthsended June 30, 2005 were $18.9 million, an increase of $7.3 million, or63% over the three months ended June 30, 2004. Royalty and licensingrevenues were $10.3 million, an increase of $6.6 million, or 178%. $5.5 millionof this increase was due to the production of “Elvis by the Presleys,” atwo-hour documentary produced for television that was broadcast in the UnitedStates on the CBS television network in May 2005. A four-hour DVD and abook version of the documentary were also released in May 2005. Theremaining increase represents royalties from the release of digitally enhancedvideos and DVDs of *Aloha* and *68 Special* along with new licensing activities, including alicense agreement with Sirius satellite radio for an exclusively Elvis radiochannel. Tour and exhibit revenues were $3.6 million, an increase of $0.4million, or 12%. This increase resulted from a 2% increase in mansionattendance from 168,000 to 171,000 and higher per-visitor spending. Revenuefrom Graceland’s retail operations were $3.3 million, an increase of $0.2million, or 6%, due to higher attendance and a 4% increase in per capitaspending from other revenue enhancement programs. Hotel room revenues were $1.0million, an increase of $0.1 million, or 7%, due to the average occupancy rateincreasing to 92% from 89% and higher room rates.

Operating expenses, excludingacquisition-related depreciation and amortization expenses, were $13.3 millioncompared to $7.6 million in the prior period, an increase of $5.7 million, or 75%.$5.3 million of the increase was attributable to production costs and otherexpenses for “Elvis by the Presleys.”

**19 Entertainment**

Revenues for 19 Entertainment were $15.0 million forthe three months ended June 30, 2005. Film and television revenues arelargely derived from the *IDOLS* franchiseand represent contractual payments for each broadcast, ratings-based bonusesand a share of American Idol program sponsorship fees. Film and televisionrevenues were $5.4 million, of which $2.8 million relates to the broadcast ofAmerican Idol 4 with the remaining revenues related primarily to *IDOLS*overseas fees. Sponsorship and Merchandising revenueswere $6.6 million, most of which relates to the *IDOLS*format. Music revenues were $2.5 million and revenues from artist managementwere $0.5 million.

Operating expenses, excludingacquisition-related depreciation and amortization expenses, were $11.3 million.Cost of sales, which represents costs directly associated with *IDOL* and other ventures including royalties to artists, was$5.2 million. Selling, general and administrative expenses were $6.1 million.

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**CombinedOperating Results Six Months Ended June 30, 2005 Compared to PredecessorSix Months Ended June 30, 2004**

Prior to the acquisitionof the Presley Business on February 7, 2005, the Company had nooperations. As a result the Presley Business is considered to be the predecessorcompany. To assist in the understanding of the results of operations of theCompany, we have presented supplemental historical results of the Predecessor.For the purpose of management’s discussion and analysis of financial conditionand results of operations, we have combined the Company’s results for the sixmonths ended June 30, 2005with that of the Predecessor for the period January 1, 2005 to February 7,2005 and compared that to the results of the Predecessor for the six monthsended June 30, 2004.Management believes that this provides the most meaningful analysis of theCompany’s results for the six months ended June 30, 2005.
| ** **                                     | ** ** | ** **                           | ** ** | **Predecessor**                | ** ** | ** **               | ** ** | ** ** | **Predecessor**             | ** ** | ** **   | ** ** |
|------------------------------------------------|------------|--------------------------------------|------------|--------------------------------|------------|--------------------------|------------|------------|-----------------------------|------------|--------------|------------|
| ** **                                     | ** ** | **CKX**                              | ** ** | **Presley**                    | ** ** | ** **               | ** ** | ** ** | **Presley**                 | ** ** | ** **   | ** ** |
| ** **                                     | ** ** | **Six Months**                  | ** ** | **January 1, 2005**  | ** ** | ** **               | ** ** | ** ** | **Six Months**         | ** ** | ** **   | ** ** |
| ** **                                     | ** ** | **Ended**                            | ** ** | **To**                         | ** ** | ** Combined ** | ** ** | ** ** | **Ended**                   | ** ** | ** **   | ** ** |
| ** **                                     | ** ** | **June 30, 2005**          | ** ** | **February 7, 2005** | ** ** | **Total**                | ** ** | ** ** | **June 30, 2004** | ** ** | **Variance** | ** ** |
| ** **                                     | ** ** | **(amounts in thousands)** | ** ** |
| Revenue                                        |       |                                 | $          | 43,904                         |       |                     |       | $          | 3,442                       |       |         |       | $ | 47,346 |   |   |   |   | $ | 19,035 |   |   | $ | 28,311 |   |
| Operating  expenses                            |       |                                 | 42,880     |                           |       |                     | 2,980      |       |                        |       | 45,860       |       |   |   |   | 15,250 |   |   | 30,610 |   |
| Operating income                               |       |                                 | 1,024      |                           |       |                     | 462        |       |                        |       | 1,486        |       |   |   |   | 3,785 |   |   | (2,299 | ) |
| Interest expense                               |       |                                 | 4,149      |                           |       |                     | 115        |       |                        |       | 4,264        |       |   |   |   | 678 |   |   | 3,586 |   |
| Write-off of  unamortized deferred  loan costs |       |                                 | 1,894      |                           |       |                     | —     |       |                        |       | 1,894        |       |   |   |   | — |   |   | 1,894 |   |
| Income (loss)  before other income             |       |                                 | (5,019     | )                              |       |                     | 347        |       |                        |       | (4,672       | )          |   |   |   | 3,107 |   |   | (7,779 | ) |
| Other income                                   |       |                                 | 1,807      |                           |       |                     | —     |       |                        |       | 1,807        |       |   |   |   | 8 |   |   | 1,799 |   |
| Income (loss)  before income taxes             |       |                                 | (3,212     | )                              |       |                     | 347        |       |                        |       | $            | (2,865     | ) |   |   |   | 3,115 |   |   | (5,980 | ) |
| Income tax  expense (benefit)                  |       |                                 | (1,556     | )                              |       |                     | 152        |       |                        |       | (1,404       | )          |   |   |   | 98 |   |   | (1,502 | ) |
| Income (loss)  before minority interest        |       |                                 | (1,656     | )                              |       |                     | 195        |       |                        |       | (1,461       | )          |   |   |   | 3,017 |   |   | (4,478 | ) |
| Minority interest                              |       |                                 | 712        |                           |       |                     | —     |       |                        |       | 712          |       |   |   |   | — |   |   | 712 |   |
| Net income (loss)                              |       |                                 | $          | (2,368                         | )          |                     |       | $          | 195                         |       |         |       | $ | (2,173 | ) |   |   |   | $ | 3,017 |   |   | $ | (5,190 | ) |
| Operating income                               |       |                                 | $          | 1,024                          |       |                     |       | $          | 462                         |       |         |       | $ | 1,486 |   |   |   |   | $ | 3,785 |   |   | $ | (2,299 | ) |
| Depreciation and  amortization                 |       |                                 | 5,678      |                           |       |                     | 126        |       |                        |       | 5,804        |       |   |   |   | 594 |   |   | 5,210 |   |
| OIBDA                                          |       |                                 | $          | 6,702                          |       |                     |       | $          | 588                         |       |         |       | $ | 7,290 |   |   |   |   | $ | 4,379 |   |   | $ | 2,911 |   |

 

The combined total columnhas been prepared on a different basis of accounting than for the Predecessorfor the period ended June 30, 2004. The combined total includes the impactof additional depreciation and amortization expense resulting from the fairvalue accounting of acquired assets for both the Presley Business and19 Entertainment. This added approximately $4.9 million to operatingexpenses. In addition, the combined total includes interest expense related tothe Presley and 19 Entertainment short term senior credit facilities andthe Priscilla Presley Note of $4.1 million.

***Revenues***

On a combined basis,revenues were $47.3 million for the combined total period as compared to$19.0 million for the Predecessor for the six months ended June 30,2004. The increase of $28.3 million is primarily attributable to$19.2 million of revenue at 19 Entertainment for the period since itsacquisition. Of the remaining $9.1 million increase in revenue, $5.5 millionwas attributable to “Elvis by the Presleys,*”* $3.0 millionwas due to higher licensing and royalty fees and $0.6 million was attributableto Graceland operations.

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***Operating Expenses***

Combined operatingexpenses for the six months ended June 30, 2005 increased by$30.6 million over the prior period. Of this increase, $13.2 millionreflects the operating expenses of 19 Entertainment since its acquisition. Presleyoperating costs increased $5.3 million, primarily due to the production costsfor “Elvis by the Presleys.” Corporate overhead costs account for $5.0 millionof the increase and $2.2 million represents costs related to thetransition of the Company including the RFX Investment and the PresleyAcquisition. Included in the $2.2 million of other costs are$1.2 million of operating costs of an affiliate of RFX Acquisition LLC,primarily salaries, employee benefits, rent and other overhead costs incurredfrom November 2004 through February 7, 2005, which were reimbursed bythe Company upon closing of the RFX Acquisition LLC investment and the PresleyAcquisition. The remaining costs consist of legal expenses, listing fees, anddue diligence expenses. Acquisition-related amortization and depreciationexpense accounts for $4.9 million of the increased operating expenses. Operatingexpenses include $0.3 million of non-cash compensation expense.

***OIBDA***

Combined OIBDA increased$2.9 million to $7.3 million for the six months ended June 30, 2005 ashigher OIBDA at the Presley business and OIBDA attributable to 19 Entertainmentof $6.1 million for the period since the date of its acquisition were partiallyoffset by corporate overhead costs and costs related to the change in controland change in operating business of the Company described above.

***Interest Expense***

Interest expense increasedby $3.6 million due to the interest costs associated with borrowingsincurred to acquire the Presley Business and 19 Entertainment.

***Deferred Loan CostWrite-Off***

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

***Other Income***

Other income of$1.8 million relates to foreign exchange gains.

***Income Tax***

For the six months ended June 30,2005, the Company recorded an income tax benefit of $1.6 million, reflecting afederal income tax benefit $2.1 million on the Company’s net operating loss anda provision for state income taxes of $0.5 million. Management believes realizationof the income tax benefit is reasonably assured due to the deferred taxliabilities which will reverse into taxable income in future periods. ThePredecessor business was partly held in a trust structure and therefore the netincome was not taxed in the business, resulting in a low effective tax rate.

***Minority Interest***

The minority interestexpense of $0.7 million reflects a 15% share in the net income of thePresley Business related to the equity interest retained by the former owner.

***Net Loss***

The combined net loss was $2.2million in 2005 compared to net income for the Predecessor of $3.0 millionfor the same period in 2004.

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**Presley Business**

Revenues for the Presley Business were $28.1 millionfor the six months ended June 30, 2005, an increase of $9.1 million, or48%. Licensing and royalty revenues were $14.4 million, an increase of $8.5 million,or 136%. $5.5 million of this increase was due to the production of “Elvis bythe Presleys.” The remaining increase represents royalties from the release ofdigitally enhanced videos and DVDs of *Aloha* and *68 Special,*license fees for the CBS miniseries on ElvisPresley that also aired on the CBS television network in May 2005, and newlicensing activities, including a license agreement with Sirius satellite radiofor an exclusively Elvis radio channel. Tour and exhibit revenues were $5.5million, an increase of $0.4 million, or 8%. This increase resulted from a 2.0%increase in mansion attendance from 262,000 to 268,000 and higher per-visitorspending. Revenue from Graceland’s retail operations was $5.2 million, adecline of $0.1 million, or 2%, due to a $0.3 million decline resultingfrom a change in the mail order retail business. On April 1, 2004, theoperation of that portion of the business was outsourced and the Company beganto receive a commission based on net sales versus recording sales and cost ofsales. In July 2005, this operation will be moved to a new vendor and theCompany will again bear the business risk for sales and related expenses. Excludingthis impact, revenues increased $0.2 million due to increased attendance and anincrease in per capita spending from revenue enhancement programs initiatedearly in the second quarter. Hotel room revenues were $1.6 million, flat withthe prior year, as the average occupancy rate declined from 78% from 76% due tohotel renovations in 2005 offset by higher yield per room due to rate increasesimplemented in the second quarter.

Operating expenses,excluding acquisition-related depreciation and amortization expenses, were $20.6 millioncompared to $15.3 million in the prior period, an increase of $5.3 million, or 35%,due to production costs and other expenses for “Elvis by the Presleys.”

**19 Entertainment**

Revenues for 19 Entertainment were $19.2 million forthe period from the date of acquisition, March 17, 2005, through June 30,2005. Film and television revenues are largely derived from the *IDOLS* franchise and represent contractual payments for eachbroadcast, ratings-based bonuses and a share of American Idol programsponsorship fees. Film and television revenues were $7.1 million, $4.5 millionof which related to the broadcast of American Idol 4 with the remainingrevenues related primarily to *IDOLS*overseasfees. Sponsorship and Merchandising revenues were $7.5 million. Music revenueswere $3.9 million and management revenues were $0.7 million.

Operating expenses,excluding acquisition-related depreciation and amortization expenses, were$13.2 million. Cost of sales, which represents costs directly associatedwith *IDOL* and other ventures includingroyalties to artists, was $5.9 million. Selling, general and administrativeexpenses were $7.3 million.

**Liquidity and Capital Resources**

On June 27, 2005, the Company completed a publicoffering of 23,000,000 shares of its common stock at $11.00 per share, whichyielded $233.0 million in net proceeds, after underwriting discounts andcommissions and offering expenses. The Company has repaid $148.4 million of itsprevious loans payable with a portion of the proceeds from the offering. TheCompany intends to use $7.9 million of the proceeds to pay the deferredpurchase consideration for the acquisition of 19 Entertainment and $27.1million is available to pay the portion of the deferred purchase considerationthat is payable in either cash or common stock at the discretion of the sellerslater this year. The remaining proceeds will be used to provide additionallong-term capital to support the growth of the Company’s business, which mayinclude select acquisitions of or investments in entertainment properties andbusinesses.

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

*Acquisitionby RFX Acquisition LLC**—*OnFebruary 7, 2005, RFX Acquisition LLC contributed $3,046,407 in cash tothe company in exchange for 30,464,072 newly issued shares of common stock andwarrants to purchase (i) 6,828,938 shares of common stock at $1.00 pershare, (ii) 6,828,938 shares of common stock at $1.50 per share, and (iii) 6,828,939shares of common stock at $2.00 per share. Simultaneously with this exchange,RFX Acquisition LLC also acquired an aggregate of 2,240,397 shares of commonstock directly from certain former principal stockholders at a price of $0.10per share. Immediately following the consummation of its investment in ourcompany, RFX Acquisition LLC distributed all of its shares of common stock andits warrants to its members, including our Chief Executive Officer, Mr. Sillerman,and certain members of our company’s senior management. In order to provideadditional capital to our company, on February 7, 2005, certain recipientsof the warrants, including Mr. Sillerman, and other members of seniormanagement, exercised an aggregate of five million of the $1.00 warrants foraggregate consideration to our company of $5,000,000.

*Distributionsto Minority Shareholders of Subsidiaries**—*Under the terms of our agreement toacquire an 85% interest in the Presley business, we are required to make futureminimum annual distributions, in monthly installments, to The Promenade Trustwhich are intended to represent its 15% share of the operating income of thePresley business before depreciation and amortization and after income taxesand capital expenditures. We have agreed that during the first year we operatethe Presley business we will make a minimum monthly distribution of $125,000 toThe Promenade Trust. At the end of each calendar year, we will make acalculation of the actual amount due to The Promenade Trust based on its 15%ownership interest and make an additional distribution to The Promenade Trustif its actual 15% share is higher than the total distributions paid to The PromenadeTrust over the prior twelve months. If the calculation indicates that we havepaid more than The Promenade Trust was entitled to, we will reduce futuremonthly distributions to The Promenade Trust by such amount. However, we willalways be required to pay The Promenade Trust a minimum annual distribution of$1.2 million for each full calendar year, irrespective of the actualfinancial results for the business in such year.

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

*Series B ConvertiblePreferred Stock**—*Eachshare of Series B Convertible Preferred Stock has a stated value of $15.30and entitles the holder to receive an annual dividend calculated at a rate of8.0% of the stated value. The shares of Series B Convertible PreferredStock are convertible by the holder into common stock at any time at aconversion price equal to the stated value, subject to adjustments inconnection with standard anti-dilution protections for stock splits, stockdividends and reorganizations. The shares of Series B ConvertiblePreferred Stock become convertible at our option from and after the 

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third anniversaryof the date of issuance if, at any time, the average closing price of thecommon stock over a thirty day trading period equals or exceeds 150% of theconversion price.

During the period from August 7,2012 through August 7, 2013, we can redeem the outstanding shares of Series BConvertible Preferred Stock, in whole or in part, for an aggregate price equalto the stated value plus accrued but unpaid dividends through the date ofredemption. If we do not exercise this redemption right, the conversion pricefor all remaining shares of Series B Convertible Preferred Stock isthereafter reduced to the lower of (i) the conversion price then in effectand (ii) the average closing price of the common stock over a thirty daytrading period measured as of the last day of the redemption period.

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

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

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

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

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

·       Nodividends on the common shares.

The fair value of the Series BConvertible Preferred Stock exceeds the fair value of the common stock issuedon the same date as a result of the mandatory 8% annual dividend on the parvalue of $15.30 and the redemption and conversion features.

The Promenade Trust hasthe right to require us to purchase for cash all or a portion of its 15%ownership interest in the Presley business from time to time beginning on January 1,2008. The price we will be required to pay to The Promenade Trust will be basedon the then current fair market value of the Presley business as determinedthrough an appraisal process.

*Priscilla PresleyTransaction**—*Inconnection with the acquisition of our 85% interest in the Presley business, weacquired from Priscilla Presley all commercial rights held by Ms. Presleyto use the name “Presley” in connection with the use and exploitation of theassets acquired from The Promenade Trust as well as all of Ms. Presley’srights, if any, to the name “Graceland.” The purchase price for the rightsacquired from Priscilla Presley was $6.5 million, with $3.0 millionpaid in cash at the closing and $3.5 million paid in the form of an eightyear subordinated promissory note. The promissory note bears interest at a rateof 5.385% per year and, therefore, requires annual payments of $550,000.

*The HuffAlternative Fund, L.P. Investment*—Simultaneous with the closingof the investment by RFX Acquisition LLC and our acquisition of thePresley business, The Huff Alternative Fund, L.P. and its affiliate contributedan aggregate of $43.8 million in cash in exchange for: (i) 2,172,400shares of Series A Convertible Redeemable Preferred Stock, (ii) 3,706,052newly issued shares of common stock, (iii) warrants to purchase 1,860,660shares of common stock at $1.00 per share, (iv) warrants to purchase1,860,660 shares of common stock at $1.50 per share, and (v) warrants topurchase 1,860,661 shares of common stock at $2.00 per share. The transactionwas consummated in accordance with a Stock Purchase Agreement dated February 7,2005.

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

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

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

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

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

During the first three years following issuance, thecompany had the option to redeem part or all of the Series A ConvertibleRedeemable Preferred Stock using up to 25% of the proceeds from each registeredpublic offering or private investment in public equity (“PIPE”) transaction asfollows: (i) during the first twelve months following issuance, at a priceof $23.10 per share, and (ii) at all times thereafter, at a price thatwould have provided the holders of the Series A Convertible RedeemablePreferred Stock with an internal rate of return of 15.5% on the shares of Series AConvertible Redeemable Preferred Stock being sold. Upon a liquidation, theholders of the Series A Convertible Redeemable Preferred Stock were 

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entitled to receive, inpreference to the holders of any other class or series of the company’s equitysecurities (other than the Series B Convertible Preferred Stock), a cashamount per share equal to the greater of the stated value plus any accrued butunpaid dividends or the amount to which they would have been entitled had theyconverted to common stock.

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

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

As a result of the redemption right described above,the Series A Convertible Redeemable Preferred Stock was initially recordedas temporary equity. Following the March 21, 2005 conversion into common stock,the Series A Convertible Redeemable Preferred Stock was reclassified aspermanent equity.

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

*19Entertainment Share Purchase Agreement*—We acquired 19Entertainment pursuant to a Share Purchase Agreement dated March 17, 2005,by and among our company, our wholly owned subsidiary, CKX UK Holdings Limited,19 Entertainment, Mr. Fuller and the other shareholders of 19 Entertainment,for total consideration consisting of £64.5 million(U.S. $124.4 million) in cash and 1,870,558 unregistered shares ofour common stock valued at $16.83 per share (which represents the average ofour company’s closing stock prices for the two days prior to and the day of theacquisition), each paid at closing, and an additional £19.2 million (U.S. $36.9 million,based on the exchange rate at closing of the acquisition; U.S.$35.0 millionbased on the exchange rate at June 30, 2005) in either cash or additionalshares of common stock to be paid on the earlier of (i) thirty daysfollowing delivery of the audited financial statements of 19 Entertainment forits fiscal year ending June 30, 2005, and (ii) December 30,2005. We will pay at least $7.9 million of the deferred consideration incash. The remaining deferred consideration will be paid in cash, or ifrequested by certain of the sellers, in shares of common stock. Mr. Fullerand his nominee company have the right, during a short period following the six-yearanniversary of our acquisition of 19 Entertainment, to cause us to purchase up to1.7 million shares of common stock from them at a price of $13.18 pershare.

Pursuant to Mr. Fuller’s new employmentagreement, he will continue to serve as Chief Executive Officer of 19Entertainment. The employment agreement is for a term of six years, andprovides for the base salary, bonus, incentive compensation, and other benefitsfor Mr. Fuller. Mr. Fuller is expected to play a key role in planningand implementing our overall creative direction. We financed the 19 Entertainmentacquisition by borrowing $109.0 million through a short term senior loanfrom an affiliate of Bear, Stearns & Co. Inc., and through the receiptof cash from the exercise of $25.0 million of 

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outstanding warrants topurchase common stock held by Robert F. X. Sillerman and othermembers of our management, The Huff Alternative Fund, L.P., our largestinstitutional equity investor, and an affiliate of The Huff AlternativeFund, L.P.

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

*The19 Entertainment Short Term Senior Loan**—*Aportion of the cash consideration forour acquisition of 19 Entertainment was obtained through a$109.0 million short term senior loan from an affiliate of Bear, Stearns &Co. Inc. The borrower under the 19 Entertainment short term seniorloan is CKX UK Holdings Limited, our wholly owned subsidiary, whichdirectly owns 100% of 19 Entertainment. We were required to pay a 1%commitment fee upon the funding of the loan. The entire balance of the Presleyshort term senior loan was re-paid on June 27, 2005 with the proceeds ofthe Company’s public offering of common stock.

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

*Revolving Credit Facility Commitment*—OnJune 2, 2005, we obtained commitments from Bear Stearns CorporateLending Inc., an affiliate of Bear, Stearns & Co. Inc., asadministrative agent and as a lender, Lehman Commercial Paper Inc., anaffiliate of Lehman Brothers Inc., Credit Suisse and The Bank of New York,as lenders, relating to a 364-day, $50.0 million revolving creditfacility, which commitments were subject to consummation of a stock offering bythe Company and repayment of all amounts outstanding under our short termsenior loans, which occurred on June 27, 2005, as well as the conditionssummarized below. Bear, Stearns & Co. Inc. will act as sole andexclusive advisor, lead arranger and bookrunner in respect of this revolvingcredit facility. The commitments of the lenders to provide the revolving creditfacility will expire on the earlier of (i) June 27, 2006, and (ii) thedate on which we consummate, or (if earlier) obtain a definitive commitmentfrom a financial institution (whether or not such financial institution is oneof the lenders committed under the revolving credit facility) for, a bankfinancing (A) in an aggregate principal amount equal to or greater than$50.0 million, and (B) with a term no shorter than that of therevolving credit facility.

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

The revolving credit facility will mature on the 364thday after the closing of the revolving credit facility. The proceeds of loansunder the revolving credit facility will be permitted to be used for generalcorporate purposes (including working capital) in the ordinary course ofbusiness and to fund future acquisitions. Amounts borrowed under the revolvingcredit facility will bear interest at a rate equal to 

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LIBOR plus 200 basispoints, increasing to LIBOR plus 250 basis points at any time when$25.0 million in aggregate principal amount of loans, letters of creditand swing line loans are outstanding.

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

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

In the event that, on orprior to September 25, 2005, the revolving credit facility has not yetbeen consummated, and we have not yet entered into a definitive commitment fora bank financing which has the effect of terminating the lender’s commitmentsfor the revolving credit facility, we have agreed to pay to the lenders anamount equal to 0.35% of the aggregate commitments thereunder. Additionally,from and after the closing of the revolving credit facility, we have agreed topay a commitment fee calculated at the rate per annum of 0.35% on the averagedaily unused portion of the revolving credit facility payable quarterly in arrears.

**CashFlow for the Six Months Ended June 30, 2005**

**Operating Activities**

Net cash provided byoperating activities was $0.1 million for the six months ended June 30,2005. The net loss of $2.4 million, which includes depreciation and amortizationexpenses of $5.7 million, was offset by the working capital fluctuations inthe business.

**Investing Activities**

Net cash used in investingactivities was $277.1 million for the six months ended June 30, 2005.Cash paid for acquisitions and related costs was $208.3 million. $68.3million of proceeds from the public offering of common stock were invested inmarketable securities. Capital expenditures were $0.5 million.

**Financing Activities**

Cash provided by financingactivities was $306.0 million. The net proceeds from the public offering ofcommon stock after underwriting discounts and commissions and other offeringcosts were $233.0 million. The Company reserved $43.3 million of netproceeds from the Huff investment and $30.0 million proceeds from warrantexercises. Acquisition-related borrowings of $148.0 million under theshort-term credit facilities in 2005 were repaid on June 27, 2005.

**Uses of Capital**

At June 30, 2005, the Company had$3.5 million of debt outstanding under the Priscilla Presley note and$28.9 million in cash and cash equivalents and $68.3 million in marketablesecurities, reflecting the net proceeds of the Company’s public offering ofcommon stock, after repayment of the short-term senior loans. The Companyintends to use $7.9 million of the proceeds to pay the deferred purchaseconsideration 

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for the acquisition of19 Entertainment and $27.1 million is available to pay the portion of thedeferred purchase consideration that is payable in either cash or common stockat the discretion of the sellers later this year. The remaining proceeds willbe used to provide additional long-term capital to support the growth of theCompany’s business, which may include select acquisitions of or investments inentertainment properties and businesses.

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

**Capital Expenditures**

We presently anticipatethat our capital expenditures for the remainder of 2005 will include ongoingimprovements at the Presley Business and 19 Entertainment and we alsoexpect to incur additional capital expenditures at the corporate level toimplement new information technology and financial systems. We expect spendingfor the remainder of the year to be less than $1.0 million.

**Future Acquisitions**

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

**Dividends**

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

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

**Commitments and Contingencies**

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

In addition to our scheduled maturities of debt,obligations to redeem preferred stock and obligations to the seller of thePresley Business and to the seller of 19 Entertainment, we have futurecash obligations under various types of contracts. We lease office space andequipment under long-term operating leases. We have also entered into long-termemployment agreements with certain of our executives and other key employees.These contracts typically contain provisions that allow us to terminate thecontract with good cause.

Thescheduled maturities as of March 31, 2005 for our credit facilities,future minimum rental commitments under non-cancelable operating leases,minimum payments under employment agreements, 

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guaranteed minimum distributions to The PromenadeTrust and future obligations to the former owners of 19 Entertainment are asfollows (in thousands):
| ** **                               | ** ** | **Six Months**             | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** **     | ** ** | ** ** | ** ** |
|------------------------------------------|------------|---------------------------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|----------------|------------|------------|------------|
| ** **                               | ** ** | **Ended**                       | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** **     | ** ** | ** ** | ** ** |
| ** **                               | ** ** | **December 31, 2005** | ** ** | **2006**   | ** ** | **2007**   | ** ** | **2008**   | ** ** | **2009**   | ** ** | **Thereafter** | ** ** | **Total**  | ** ** |
| Debt facilities                          |       |                            | —     |       |       | 362        |       | 381        |       | 401        |       | 423            |       |       | 1,933      |   |   | 3,500 |   |
| Non cancelable operating  leases         |       |                            | 1,174      |       |       | 2,256      |       | 2,136      |       | 2,127      |       | 2,153          |       |       | 6,336      |   |   | 16,182 |   |
| Employment  contracts                    |       |                            | 3,137      |       |       | 6,192      |       | 5,959      |       | 5,068      |       | 5,244          |       |       | 4,601      |   |   | 30,201 |   |
| Guaranteed  minimum distributions        |       |                            | 600        |       |       | 1,200      |       | 1,200      |       | 1,200      |       | 1,200          |       |       |       | (a) |   | 5,400 |   |
| 19 Entertainment  deferred consideration |       |                            | 34,991     | (b)        |       | —     |       | —     |       | —     |       | —         |       |       | —     |   |   | 34,991 |   |
| 19 Entertainment  put right              |       |                            | —     |       |       | —     |       | —     |       | —     |       | —         |       |       | 22,079     | (c) |   | 22,079 |   |
| Total                                    |       |                            | 39,902     |       |       | 10,010     |       | 9,676      |       | 8,796      |       | 9,020          |       |       | 34,949     |   |   | 112,353 |   |

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

(b)          We owe an additional$35.0 million of consideration for the acquisition of 19 Entertainment,to be paid in the fourth quarter of 2005. We will pay $7.9 million of thedeferred consideration in cash. The remaining deferred consideration will bepaid in shares of common stock if requested by certain of the sellers.

(c)           Wehave granted to the former holders of capital stock of 19 Entertainment theright, during a short period following the six-year anniversary of ouracquisition of 19 Entertainment, to cause us to purchase up to1.7 million shares of common stock from them at a price of $13.18 pershare, which is reflected in the table above. We have also granted them thesame right with respect to additional shares, if any, issued to Mr. Fullerand his nominee company as additional consideration, as described under “CKX, Inc.—Notesto Condensed Consolidated FinancialStatements—Note 6—Acquisitions—19 Entertainment.”

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**Inflation**

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

**Critical Accounting Policies**

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

**Revenue Recognition**

Merchandising/Name and Likeness Licensing Revenues:

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

Royalty Income:

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

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

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Television and FilmRevenue:

We recognize revenues fortelevision and film productions pursuant to American Institute of Certified PublicAccountants Statement of Position 00-2, *Accountingby Producers or Distributors of Films* (“SOP 00-2”). Thefollowing conditions must be met in order to recognize revenue under SOP 00-2:(i) persuasive evidence of a sale or licensing arrangement exists; (ii) theprogram is complete and has been delivered or is available for immediate andunconditional delivery; (iii) the license period of the arrangement hasbegun and the customer can begin its exploitation, exhibition or sale; (iv) thearrangement fee is fixed or determinable; and (v) collection of thearrangement fee is reasonably assured. Advance payments received from buyers orlicensees are included in our financial statements as a component of deferredrevenue.

Sponsorship Revenue:

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

Other Revenue:

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

**Televisionand Film Production Costs**

The Company accounts forfilm and television projects in development pursuant to SOP 00-2.Third party costs incurred in producing television programs and films for whichwe have secured distribution agreements are capitalized and remain unamortizeduntil the project is distributed or are written off at the time they aredetermined not to be recoverable. Third party costs incurred in developingconcepts for new television programs and films are expensed as incurred untilsuch time as we have secured distribution agreements.

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

**ArtistAdvances and Recoupable Recording Costs**

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

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madeprovide a sound basis for estimating that the amount capitalized will berecoverable from future royalties to be earned by the artist. Any portion ofrecoupable recording costs or artists advances that subsequently appear not tobe fully recoverable from future royalties to be earned by the artist arecharged to expense during the period in which the loss becomes evident.

**Uses of Estimates**

The preparation offinancial statements in conformity with US GAAP requires management to makeestimates and assumptions that affect the reported amounts of assets andliabilities and disclosure of contingent assets and liabilities at the date ofthe financial statements and the reported amounts of revenues and expensesduring the reporting period. Actual results could differ materially from thoseestimates.

**Impactof Recently Issued Accounting Standards**

In December 2004, theFASB issued a revision to SFAS No. 123, *Accountingfor Stock-Based Compensation*. This revision will require us tomeasure the cost of employee services received in exchange for an award ofequity instruments based on the grant-date fair value of the award. The costwill be recognized over the period during which an employee is required toprovide service in exchange for the award. This revised Statement is effectiveas of the beginning of the first annual reporting period that begins after June 15,2005. This revised Statement will apply to all awards granted after therequired effective date and to awards modified, repurchased or canceled afterthat date. As of the required effective date, we will apply this revisedStatement using a modified version of prospective application. Under thattransition method, compensation cost is recognized on or after the requiredeffective date for the portion of outstanding awards for which the requisiteservice has not yet been rendered, based on the grant-date fair value of thoseawards calculated under SFAS No. 123 for either recognition or pro formadisclosures. The Company adopted SFAS No. 123R effective January 1,2005.

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

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

**OffBalance Sheet Arrangements**

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

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

We are exposed to marketrisk arising from changes in market rates and prices, including movements inforeign currency exchange rates and interest rates. To mitigate these risks, wemay utilize derivative 

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financialinstruments, among other strategies. We do not use derivative financialinstruments for speculative purposes.

**Interest Rate Risk**

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

**Foreign ExchangeRisk**

As a result of our acquisition of 19 Entertainment, wehave significant operations outside the United States, principally in theUnited Kingdom. Our foreign operations are measured in local currencies. As aresult, our financial results could be affected by factors such as changes inforeign currency exchange rates or weak economic conditions in foreign marketsin which we operate. For example, assuming a hypothetical fluctuation of theexchange rate between the U.S. dollar and the U.K. pound sterling of 10%, thenet impact to our net loss for the six months ended June 30, 2005,reflecting 19 Entertainment from the date of acquisition of March 17,2005, would have been approximately $0.2 million.

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

**Item 4.        Controlsand Procedures**

In connection with the audit of the financialstatements of the Presley Business for the year ended December 31, 2004,Deloitte & Touche LLP, our independent registered public accountingfirm, identified certain material weaknesses in internal controls which existedprior to our acquiring control of the Presley Business. A material weakness isa reportable condition under standards established by the American Institute ofCertified Public Accountants in which the design or operation of one or more ofthe internal control components does not reduce to a relatively low level therisk that misstatements caused by error or fraud in amounts that would bematerial in relation to the financial statements being audited may occur andnot be detected within a timely period by employees in the normal course ofperforming their assigned functions. The material weaknesses identified at thePresley business include deficiencies in the number of accounting staff, thefinancial closing and reporting process, accounting for licensing arrangementsand inventory management.

Prior to our acquisition on February 7, 2005, thePresley Business was a privately owned company and, therefore, was not requiredto maintain the same level of internal controls as a public company in theUnited States. Since acquiring the Presley Business, we have been working toaddress the material weaknesses identified. Actions taken to date includehiring a new Vice President of Finance and other accounting staff, engaging anoutside consultant to review the control environment and upgrading systems andcontrols at the Presley Business. We expect to have corrected all materialweaknesses no later than December 31, 2005.

In addition, we have identified deficiencies ininternal controls at 19 Entertainment, which we are addressing in a mannersimilar to those of the Presley Business.

We intend to make future acquisitions of privatelyowned businesses. We believe that it is likely that certain of theseacquisitions may have material weaknesses or other deficiencies in internalcontrols. In the event that we make future acquisitions of companies withmaterial weaknesses in internal controls, we intend to take corrective actionssimilar to those being implemented at the Presley business and 19 Entertainment.

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**Part II—Other Information**

**Item 5.**                        OtherInformation.

On June 27, 2005, theCompany completed a public offering of 23,000,000 shares of its common stock at$11.00 per share, which yielded $233.0 million in net proceeds, afterunderwriting discounts and commissions and offering expenses.

**Item 6.**                        Exhibits
| Exhibit  No. | ** **                                                                                                                                                                                                                                                           | ** ** | **Description** |
|--------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------|
| 3.1          | Certificate of Incorporation (Previously filed as  Exhibit 3.1 to the Form10-KSB filed March 31, 2005, and  incorporated herein by reference).                                                                                                        |
| 3.2          | Form of Amended and Restated By-Laws  (Previously filed as Exhibit 3.2 to the Form 10-KSB filed  March 31, 2005, and incorporated herein by reference).                                                                                          |
| 4.2          | Registration Rights Agreement, dated March 17,  2005, by and among the Company, Simon Robert Fuller and Fuller Nominees  Limited (Previously filed as Exhibit 4.2 to the Form 10-QSB filed  May 16, 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 Form8-K/A filed February11,  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 Form8-K/A filed February11, 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 Form8-K/A filed February11,  2005, and incorporated herein by reference).            |
| 4.7          | Form of Promissory Term Note made on  February 7, 2005, payable to Priscilla Presley (Previously filed as  Exhibit 4.8 to the Form 8-K/A filed February 11, 2005, and  incorporated herein by reference).                                   |
| 31.1         | Certification of Principal Executive Officer (Filed  herewith).                                                                                                                                                                                                      |
| 31.2         | Certification of Principal Financial Officer (Filed  herewith).                                                                                                                                                                                                      |
| 32.1         | Section 1350 Certification of Principal  Executive Officer (Filed herewith).                                                                                                                                                                                    |
| 32.2         | Section 1350 Certification of Principal  Financial Officer (Filed herewith).                                                                                                                                                                                    |
| 99.2         | Unaudited Pro Forma Condensed Combined Financial  Statements (Previously filed as Exhibit 99.2 to the Form 8-K/A  filed February 11, 2005, and incorporated herein by reference).                                                                     |

 

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| Exhibit  No. | ** **                                                                                                                                                                                       | ** ** | **Description** |
|--------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------|
| 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).                                                                                                                |
| 99.2         | Unaudited Pro Forma Condensed Combined Financial  Statements (Previously filed as Exhibit 99.2 to the Form 8-K/A  filed February 11, 2005, and incorporated herein by reference). |

 

 

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