**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**




**FORM
      10-Q**




(Mark
      One)




x
            **Quarterly
                report under Section 13 or 15(d) of the Securities Exchange Act of
                1934**




**For
      the quarterly period ended June 30, 2008**




o
            **Transition
                report under Section 13 or 15(d) of the Exchange
                Act**




**For
      the transition period from** **** **To** **** ****




**Commission
      file number 000-31573**




**ProElite,
      Inc.**


(Exact
      name of registrant as specified in its charter)




New
                Jersey
            
            22-3161866(State
                or Other Jurisdiction of
              Incorporation
                or Organization)
            
            (I.R.S.
                Employer
              Identification
                No.)




12121
      Wilshire Blvd., Suite 1001


Los
      Angeles, CA 90025


(Address
      of Principal Executive Offices)


(310)
      526-8700


(Registrant’s
      telephone number, including area code)




Indicate
      by check mark whether the registrant: (1) has filed all reports required to
      be filed by Section 13 or 15(d) of the Securities Exchange Act during the
      preceding 12 months (or for such shorter period that the registrant was
      required to file such reports), and (2) has been subject to such filing
      requirements for the past 90 days.


Yes x No o




Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, a non-accelerated filer, or a smaller reporting company.
      See
      the definitions of “large accelerated filer,” an “accelerated filer,” a
“non-accelerated filer,” or a “smaller reporting company” in Rule 12b-2 of the
      Exchange Act.





Large
                accelerated filero
            
            
            
            Accelerated
                fileroNon-accelerated
                filero
              (Do
                  not check if a smaller reporting company)
            
            Smaller
                reporting companyx





Indicate
      by check mark whether the registrant is a shell company (as defined in
      Rule 12b-2 of the Exchange Act).


Yes o No x




As
      of August 9, 2008 there were 55,854,726 shares of Common Stock outstanding.







**ProElite,
      Inc.**


**INDEX**




**Page**
              **No.****PART
                I. FINANCIAL INFORMATION**Item 1
            
            Condensed
                Consolidated Financial StatementsCondensed
                Consolidated Balance Sheets as of June 30, 2008 and December 31,
                2007
            
            3Condensed
                Consolidated Statements of Operations for the three and six month
                periods
                ended June 30, 2008 and 2007
            
            4Condensed
                Consolidated Statement of Changes in Shareholders’ Equity for the six
                months ended June 30, 2008
            
            5Condensed
                Consolidated Statements of Cash Flows for the six months ended
                June 30, 2008 and 2007
            
            6Notes
                to Condensed Consolidated Financial Statements
            
            8Item 2
            
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations
            
            26Item 3
            
            Quantitative
                and Qualitative Disclosures about Market Risk
            
            32Item 4
            
            Controls
                and Procedures
            
            33**PART
                II. OTHER INFORMATION**Item 1
            
            Legal
                Proceedings
            
            34Item 1A
            
            Risk
                Factors
            
            34Item 2
            
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            
            34Item 3
            
            Defaults
                Upon Senior Securities
            
            34Item 4
            
            Submission
                of Matters to a Vote of Security Holders
            
            34Item 5
            
            Other
                Information
            
            34Item 6
            
            Exhibits
            
            34Signatures
            
            35Exhibit Index
            
            36




302
                Certification of Chief Executive Officer302
                Certification of Chief Financial Officer906
                Certification of Chief Executive Officer906
                Certification of Chief Financial
                Officer





2


**PART
      I. FINANCIAL INFORMATION**


**Item 1.
      Condensed Consolidated Financial Statements.**




ProElite,
      Inc.


Condensed
      Consolidated Balance Sheets




June 30,
              2008
            
            December 31,
              2007(unaudited)AssetsCurrent
                assetsCash
                and cash equivalents
            
            $
            3,460,239
            
            $
            4,427,303Restricted
                cash
            
            
            405,817
            
            
            277,500Accounts
                receivable, net of allowance of $150,000 and $255,900,
                respectively
            
            
            340,589
            
            
            338,596Accounts
                receivable - Showtime, CBS
            
            
            430,000
            
            
            -Prepaid
                expenses
            
            
            633,598
            
            
            133,673Other
                current assets
            
            
            72,182
            
            
            1,077,896Total
                current assets
            
            
            5,342,425
            
            
            6,254,968Fixed
                assets, net
            
            
            1,312,356
            
            
            1,428,548Other
                assetsAcquired
                intangible assets, net
            
            
            5,284,618
            
            
            9,022,181Goodwill
            
            
            285,933
            
            
            6,238,652Investment
                in Entlian/SpiritMC
            
            
            1,654,894
            
            
            1,848,003Prepaid
                distribution costs, net
            
            
            555,723
            
            
            764,109Prepaid
                license fees, net
            
            
            80,764
            
            
            111,052Prepaid
                services, net
            
            
            302,221
            
            
            408,889Deposits
                and other assets
            
            
            206,415
            
            
            143,915Total
                other assets
            
            
            8,370,568
            
            
            18,536,801Total
                assets
            
            $
            15,025,349
            
            $
            26,220,317Liabilities
                and Shareholders’ EquityCurrent
                liabilitiesNotes
                payable and accrued interest - Showtime
            
            $
            4,769,303
            
            $
            1,822,086Accounts
                payable
            
            
            1,583,516
            
            
            1,531,342Accrued
                expenses
            
            
            581,493
            
            
            733,638Accounts
                payable and accrued expense - Showtime, CBS
            
            
            585,935
            
            
            125,000Future
                payments due for acquired companies
            
            
            1,487,500
            
            
            1,162,500Accrued
                liabilities from predecessor company
            
            
            346,572
            
            
            346,572Other
                accrued liabilities
            
            
            12,924
            
            
            -Deferred
                revenue
            
            
            45,046
            
            
            -West
                Coast settlement
            
            
            150,000
            
            
            150,000Total
                current liabilities
            
            
            9,562,289
            
            
            5,871,138Deferred
                rent and lease incentive
            
            
            153,483
            
            
            153,309Total
                liabilities
            
            
            9,715,772
            
            
            6,024,447Commitments
                and contingenciesShareholders’
                equityPreferred
                stock, $0.0001 par value, 20,000,000 shares authorized, 0 shares
                issued
            
            
            -
            
            
            -Common
                stock, $0.0001 par value, 250,000,000 shares authorized, 55,854,726
                and
                51,659,488 shares issued and outstanding at June 30, 2008 and
                December 31, 2007, respectively
            
            
            5,586
            
            
            5,166Common
                stock to be issued
            
            
            1,062,473
            
            
            2,249,997Additional
                paid-in-capital
            
            
            59,977,936
            
            
            49,404,897Accumulated
                other comprehensive income (expense)
            
            
            31,215
            
            
            (86,793
            )Accumulated
                deficit
            
            
            (55,767,633
            )
            
            (31,377,397
            )Total
                shareholders’ equity
            
            
            5,309,577
            
            
            20,195,870Total
                liabilities and shareholders’ equity
            
            $
            15,025,349
            
            $
            26,220,317





See
      Notes
      to Condensed Consolidated Financial Statements




3





ProElite,
      Inc.


Condensed
      Consolidated Statements of Operations


(Unaudited)




ThreeMonths
              EndedJune 30,
              2008
            
            ThreeMonths
              EndedJune 30,
              2007
            
            SixMonths
              EndedJune 30,
              2008
            
            SixMonths
              EndedJune 30,
              2007RevenueLive
                events
            
            $
            2,027,351
            
            $
            1,488,558
            
            $
            5,084,790
            
            $
            1,799,661Pay
                per view and television licensing
            
            
            178,866
            
            
            10,858
            
            
            314,141
            
            
            10,858Showtime,
                CBS
            
            
            925,000
            
            
            410,856
            
            
            2,125,000
            
            
            410,856Internet
            
            
            208,991
            
            
            16,963
            
            
            235,454
            
            
            20,463Other
            
            
            346,442
            
            
            -
            
            
            465,912
            
            
            -Total
                revenue
            
            
            3,686,650
            
            
            1,927,235
            
            
            8,225,297
            
            
            2,241,838Cost
                of revenueLive
                events
            
            
            2,865,002
            
            
            2,495,618
            
            
            7,013,024
            
            
            3,402,308Pay
                per view and television licensing
            
            
            17,425
            
            
            -
            
            
            41,779
            
            
            -Showtime,
                CBS
            
            
            500,000
            
            
            1,127,060
            
            
            500,000
            
            
            2,460,835Non-cash
                amortization of prepaid distribution costs and expense for vesting
                warrants - Showtime, CBS
            
            
            3,183,562
            
            
            -
            
            
            3,305,637
            
            
            -Internet
            
            
            34,237
            
            
            53,259
            
            
            63,138
            
            
            111,814Other
            
            
            83,471
            
            
            -
            
            
            91,826
            
            
            -Total
                cost of revenue
            
            
            6,683,697
            
            
            3,675,937
            
            
            11,015,404
            
            
            5,974,957Gross
                loss
            
            
            (2,997,047
            )
            
            (1,748,702
            )
            
            (2,790,107
            )
            
            (3,733,119
            )Operating
                expensesMarketing
            
            
            107,713
            
            
            165,544
            
            
            206,878
            
            
            269,438Website
                operations
            
            
            666,201
            
            
            772,008
            
            
            1,390,464
            
            
            1,187,167Live
                events
            
            
            1,381,590
            
            
            395,609
            
            
            2,722,882
            
            
            731,558General
                and administrative expenses
            
            
            3,247,118
            
            
            4,394,153
            
            
            6,945,746
            
            
            6,223,907Impairment
                and other charges
            
            
            10,292,139
            
            
            -
            
            
            10,292,139
            
            
            -Total
                operating expenses
            
            
            15,694,761
            
            
            5,727,314
            
            
            21,558,109
            
            
            8,412,070Operating
                loss
            
            
            (18,691,808
            )
            
            (7,476,016
            )
            
            (24,348,216
            )
            
            (12,145,189
            )Other
                income (expense)Interest
                income (expense), net
            
            
            (27,556
            )
            
            82,816
            
            
            (42,020
            )
            
            199,041Loss
                before income taxes
            
            
            (18,719,364
            )
            
            (7,393,200
            )
            
            (24,390,236
            )
            
            (11,946,148
            )Income
                taxes
            
            
            -
            
            
            -
            
            
            -
            
            
            -Net
                loss
            
            $
            (18,719,364
            )
            $
            (7,393,200
            )
            $
            (24,390,236
            )
            $
            (11,946,148
            )Net
                loss per share - basic and diluted
            
            $
            (0.34
            )
            $
            (0.17
            )
            $
            (0.43
            )
            $
            (0.28
            )Weighted
                average shares outstanding - basic and diluted
            
            
            55,814,726
            
            
            42,838,150
            
            
            54,365,037
            
            
            42,559,512





See
      Notes
      to Condensed Consolidated Financial Statements




4


ProElite,
      Inc.


Condensed
      Consolidated Statement of Changes in Shareholders’ Equity


(Unaudited)





AccumulatedCommon
                Stock
            
            
            
            Additional
            
            Other
                Comprehensive
            
            
            
            TotalIssuable
            
            Common
                Stock
            
            Paid-
            
            Income
            
            Accumulated
            
            Shareholders’Shares
            
            Amount
            
            Shares
            
            Amount
            
            In
                Capital
            
            (Expense)
            
            Deficit
            
            EquityBalance
                at December 31, 2007
            
            
            278,571
            
            $
            2,249,997
            
            
            51,659,488
            
            $
            5,166
            
            $
            49,404,897
            
            $
            (86,793
            )
            $
            (31,377,397
            )
            $
            20,195,870Common
                stock issuable in connection with website acquisition and for
                services
            
            
            39,280
            
            
            62,473
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            62,473Issuance
                of common stock related to King of the Cage acquisition
            
            
            (178,571
            )
            
            (1,249,997
            )
            
            178,571
            
            
            18
            
            
            1,249,979
            
            
            -
            
            
            -
            
            
            -Common
                stock issued in connection with warrant exercise by
                Showtime
            
            
            -
            
            
            -
            
            
            2,000,000
            
            
            200
            
            
            3,999,800
            
            
            -
            
            
            -
            
            
            4,000,000Warrant
                issued to CBS for distribution agreement
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            2,255,446
            
            
            -
            
            
            -
            
            
            2,255,446Warrant
                issued to Showtime in connection with note payable
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            149,040
            
            
            -
            
            
            -
            
            
            149,040Warrants
                exercised on a cashless basis by private placement investors and
                placement
                agent
            
            
            -
            
            
            -
            
            
            2,016,667
            
            
            202
            
            
            (202
            )
            
            -
            
            
            -
            
            
            -Compensation
                expense for stock options and warrants
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            2,336,201
            
            
            -
            
            
            -
            
            
            2,
                336,201Expense
                for vesting of CBS broadcast warrant tranche 1
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            582,775
            
            
            -
            
            
            -
            
            
            582,775Cumulative
                translation adjustment
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            118,008
            
            
            -
            
            
            118,008Net
                loss
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (24,390,236
            )
            
            (24,390,236
            )Balance
                at June 30, 2008
            
            
            139,280
            
            $
            1,062,473
            
            
            55,854,726
            
            $
            5,586
            
            $
            59,977,936
            
            $
            31,215
            
            $
            (55,767,633
            )
            $
            5,309,577




See
      Notes
      to Condensed Consolidated Financial Statements




5


ProElite,
      Inc.


Condensed
      Consolidated Statements of Cash Flows


(Unaudited)




Six
                Months
              Ended
                June 30,
              2008
            
            Six
                Months
              Ended
                June 30,
              2007Cash
                flows from operating activitiesNet
                loss
            
            $
            (24,390,236
            )
            $
            (11,946,148
            )Adjustments
                to reconcile net loss to net cash used in operating
                activitiesStock
                and warrant based compensation
            
            
            2,918,977
            
            
            3,379,801Stock
                issued for services
            
            
            17,831
            
            
            -Impairment
                and other charges
            
            
            10,292,139
            
            
            -Depreciation
                and amortization
            
            
            3,526,660
            
            
            419,580Loss
                in equity interest in Entlian Corp.
            
            
            193,109
            
            
            -Provision
                for uncollectible accounts
            
            
            71,758
            
            
            13,000Abandonment
                of equipment
            
            
            -
            
            
            212,300Amortization
                of deferred financing costs
            
            
            29,544
            
            
            -Change
                in operating assets and liabilities:(Increase)
                in accounts receivable
            
            
            (503,751
            )
            
            (1,386,875
            )(Increase)
                decrease in prepaid expense and other assets
            
            
            (412,897
            )
            
            (33,358
            )Increase
                (decrease) in accounts payable, accrued expenses and other
                liabilities
            
            
            689,240
            
            
            2,322,816Increase
                in deferred revenue
            
            
            (21,754
            )
            
            -Net
                cash used in operating activities
            
            
            (7,589,380
            )
            
            (7,018,884
            )Cash
                flows from investing activitiesPurchase
                of fixed assets
            
            
            (128,211
            )
            
            (1,083,163
            )Net
                cash used in investing activities
            
            
            (128,211
            )
            
            (1,083,163
            )Cash
                flows from financing activitiesProceeds
                from issuance of note payable - Showtime, net of issuance
                costs
            
            
            2,985,000
            
            
            -Issuance
                of common stock and warrants for cash - Showtime
            
            
            -
            
            
            5,000,000Proceeds
                from exercise of options and warrants - Showtime
            
            
            4,000,000Cash
                pledged as collateral for credit card facility
            
            
            (128,317
            )
            
            (240,000
            )Payments
                related to acquisitions
            
            
            (224,164
            )
            
            -Net
                cash provided by financing activities
            
            
            6,632,519
            
            
            4,760,000Effect
                of exchange rates
            
            
            118,008
            
            
            -Net
                decrease in cash and cash equivalents
            
            
            (967,064
            )
            
            (3,342,047
            )Cash
                and cash equivalents at beginning of period
            
            
            4,427,303
            
            
            7,295,825Cash
                and cash equivalents at end of period
            
            $
            3,460,239
            
            $
            3,953,778




Supplemental
      disclosures of non-cash investing and financing activities:





In
      connection with the warrant issued to Showtime on January 5, 2007, the Company
      recorded the $608,000 value of the warrant as prepaid distribution
      costs.




6





At
      March
      31, 2007, the Company reduced its registration rights liability related to
      the
      shares issued in a October 2006 private placement by $100,000, with a
      corresponding increase to paid-in capital.





In
      January 2008, the Company recorded 35,714 issuable shares of restricted common
      stock for an acquisition of website-related assets. These shares were valued
      at
      $44,643, and this amount was recorded in goodwill.





On
      February 21, 2008, the Company issued 4,000,000 warrants to purchase common
      stock at $2.00 per share to Showtime in connection with a television
      distribution agreement with CBS Entertainment. At the grant date, 2,000,000
      of
      these warrants were vested, and the $2.3 million value of the vested warrants
      was recorded as prepaid distribution costs.





On
      March
      15, 2008, the Company’s placement agent exercised 2,750,000 warrants with a
      strike price of $2.00 per share on a cashless basis and received 2,016,667
      shares of common stock.





On
      June
      18, 2008, the Company issued to Showtime for proceeds of $3.0 million a note
      payable with a face value of $3.5 million and a warrant to purchase 100,000
      shares of common stock at $0.01 per share. The $0.5 million discount from the
      face value of the note payable and the $149,040 value of the warrants issued
      will be accreted into the note liability balance over the term of the
      note.




During
        the six months ended June 30, 2008, the Company accrued a liability of $325,000
        for contingent consideration related to the KOTC acquisition.
 
 During
        the six months ended June 30, 2008, the Company issued 178,571 shares of
        common
        stock, previously recorded as common stock issuable, related to the KOTC
        acquisition.
 
 In
        June
        2008, the Company recorded in deferred financing costs $45,000 of accrued
        legal
        fees.




See
      Notes
      to Condensed Consolidated Financial Statements




7


ProElite,
      Inc.


Notes
      to
      Condensed Consolidated Financial Statements


(Unaudited)





Note
      1    Basis of Presentation and Summary of Significant
      Accounting Policies





Financial
      Statement Presentation




The
      accompanying unaudited condensed consolidated financial statements of ProElite,
      Inc., a New Jersey company and its subsidiaries (“ProElite” or the “Company”),
      have been prepared in accordance with the rules and regulations of the
      Securities and Exchange Commission for Form 10-Q. Accordingly, certain
      information and footnote disclosures, normally included in financial statements
      prepared in accordance with generally accepted accounting principles, have
      been
      condensed or omitted pursuant to such rules and regulations.





In
      the
      opinion of management, these financial statements reflect all adjustments,
      consisting of normal recurring accruals, which are considered necessary for
      a
      fair presentation. These financial statements should be read in conjunction
      with
      the audited consolidated financial statements included in our annual report
      on
      Form 10-KSB for the year ended December 31, 2007. Operating results for interim
      periods are not necessarily indicative of operating results for an entire fiscal
      year or any other future periods.





Principles
      of Consolidation




The
      Company’s consolidated financial statements include the assets, liabilities and
      operating results of ProElite and its wholly-owned subsidiaries since formation
      or acquisition of these entities. All significant intercompany accounts and
      transactions have been eliminated in consolidation. The equity method of
      accounting is used for its investment in Entlian Corp. in which ProElite has
      significant influence; this represents common stock ownership of at least 20%
      and not more than 50% (see Note 4).





Revenue
      Recognition




In
      general, the Company recognizes revenue in accordance with Securities and
      Exchange Commission Staff Accounting Bulletin ("SAB") No. 101, Revenue
      Recognition in Financial Statements modified by Emerging Issues Task Force
      ("EITF") No. 00-21 and SAB No. 104 which requires that four basic criteria
      must
      be met before revenue can be recognized: (1) persuasive evidence of an
      arrangement exists; (2) delivery has occurred or services rendered; (3) the
      fee
      is fixed and determinable; and (4) collectibility is reasonably assured.





The
      Company earns revenue primarily from live event ticket sales, site fees,
      sponsorship, television license fees and pay per view fees. The Company also
      earns incidental revenue from merchandise and video sales and from online
      advertising, subscriptions and online store sales. Ticket sales are managed
      by
      third parties, ticket agencies and live event venues. Revenue from ticket sales
      is recognized at the time of the event when the venue provides estimated or
      final attendance reporting to the Company. Revenue from merchandise and video
      sales is recognized at the point of sale at live event concession stands.
      Revenue from sponsorship and television distribution agreements is recognized
      in
      accordance with the contract terms, which are generally at the time events
      occur. Website revenue is recognized as advertisements are shown, as
      subscription terms are fulfilled, and as products are shipped.





Cost
      of Revenue





Costs
      related to live events are recognized when the event occurs. Event costs
      incurred prior to an event are capitalized to prepaid costs and then charged
      to
      expense at the time of the event. Costs primarily include: fighter purses,
      travel, arena costs, television production and amortization of capitalized
      value
      of warrants issued to Showtime. Cost of other revenue streams are recognized
      at
      the time the related revenues are realized.




8





Significant
      Estimates for Events





The
      Company is required to estimate significant components of live event revenues
      and costs because actual amounts may not become available until one or more
      months after an event date. Pay-per-view revenue is estimated based upon
      projected sales of pay-per-view presentations. These projections are based
      upon
      information provided from distribution partners. The amount of final
      pay-per-view sales is determined after intermediary pay-per-view distributors
      have completed their billing cycles. The television production costs of live
      events are based upon the television distribution agreements with Showtime
      and
      CBS, event-specific production and marketing budgets and historical experience.
      Should actual results differ from estimated amounts, a charge or benefit to
      the
      statement of operations would be recorded in a future period.





Advertising
      Expenses





Advertising
      is expensed as incurred. Total advertising expense was $764,827 and $464,825
      during the six months ended June 30, 2008 and 2007, respectively.





Accounts
      Receivable





Accounts
      receivable relate principally to amounts due from television networks for
      license fees and pay-per-view presentations and from live event venues for
      ticket sales. Amounts due for pay-per-view programming are based primarily
      upon
      estimated sales of pay-per-view presentations and are adjusted to actual after
      intermediary pay-per-view distributors have completed their billing cycles.
      If
      actual sales differ significantly from the estimated sales, the Company records
      an adjustment to sales. Accounts receivable from foreign television distribution
      is generally based upon contracted fees per event or showing. Accounts
      receivable from venues for ticket sales to live events are generally received
      within 30 days of an event date.





An
      allowance for uncollectible receivables is estimated each period. This estimate
      is based upon historical collection experience, the length of time receivables
      are outstanding and the financial condition of individual
      customers.





Fixed
      Assets





Fixed
      assets primarily consist of computer, office, and video production equipment;
      furniture and fixtures; leasehold improvements; computer software; Internet
      domain names purchased from others; and website development costs. Fixed assets
      are stated at historical cost less accumulated depreciation and amortization.
      Depreciation and amortization are computed on a straight-line basis over the
      estimated useful lives of the assets or, when applicable, the life of the lease,
      whichever is shorter. Equipment is depreciated over estimated useful lives
      ranging from three to five years. Furniture, fixtures and leasehold improvements
      are depreciated over estimated useful lives ranging from five to seven years.
      Computer software is amortized over estimated useful lives ranging from one
      to
      five years. Internet domain names are amortized over ten years. Website
      development costs are amortized over three years.





Goodwill
      and Intangible Assets





Statement
      of Financial Accounting Standards No. 142, “Goodwill and Other Intangible
      Assets” (“SFAS No. 142”), requires purchased intangible assets other than
      goodwill to be amortized over their useful lives unless these lives are
      determined to be indefinite. During 2007, the Company acquired amortizable
      intangible assets consisting of non-compete agreements, fighter contracts,
      merchandising rights and distribution agreements and indefinite-lived intangible
      assets consisting of brands and trademarks. The Company amortizes the cost
      of
      acquired intangible assets over their estimated useful lives, which range from
      one to five years.





SFAS
      No.
      142 requires goodwill and other indefinite-lived intangible assets to be tested
      for impairment at least on an annual basis and more often under certain
      circumstances, and written down by a charge to operations when impaired. An
      interim impairment test is required if an event occurs or conditions change
      that
      would more likely than not reduce the fair value of the reporting unit below
      the
      carrying value. At June 30, 2008, the Company modified its operating plan for
      its Cage Rage subsidiary, due to its recent operating performance, and as a
      result recorded a charge of approximately $5.2 million to reduce the carrying
      value of goodwill and acquired intangible assets to their estimated fair values.
      Additionally, as of June 30, 2008, management assessed the financial performance
      of and market conditions affecting its ICON and King of the Cage acquisitions.
      Management evaluated recent adverse economic trends in the Hawaii market and
      as
      a result recorded an impairment of approximately $1.8 million to reduce goodwill
      and acquired intangible assets from the ICON acquisition to estimated realizable
      value. Management also evaluated industry trends, including increasing fighter
      purses and higher than anticipated promotion expenses in the Company’s King of
      the Cage subsidiary. Based upon this analysis, the Company recorded an
      impairment charge of approximately $2.4 million to reduce goodwill related
      to
      the King of the Cage to estimated fair value.




9





Maintaining
      the goodwill and indefinite-lived intangible assets is predicated upon the
      Company executing the revised operating plan for Cage Rage and improving
      profitability of the other acquisitions. If the Company does not execute
      successfully against these plans, it may record non-cash charges to operations
      in future periods to reduce the amount of goodwill and indefinite-lived
      intangible assets.





Prepaid
      Distribution Costs





Prepaid
      distribution costs represent the value of warrants issued to Showtime Networks,
      Inc. (“Showtime”) in November 2006, January 2007 and February 2008 in connection
      with television and pay-per-view distribution agreements with Showtime and
      CBS
      Corp. (“CBS”). Showtime and CBS are related parties. The value of the warrants
      issued in 2006 and 2007 is being amortized to cost of revenue over the
      three-year term of the distribution agreement with Showtime.





As
      of
      June 30, 2008, management determined the warrants issued in 2008 in connection
      with the CBS distribution agreement had no future value as the likelihood of
      realizing gross profit on the CBS events was remote. Therefore, the entire
      $2.3
      million value of these warrants was charged to cost of revenue during the three
      months ended June 30, 2008.





Prepaid
      Services





Prepaid
      services included in other assets represent the value of shares issued to MMA
      Live Entertainment, Inc. for fighter services. The value of the shares is being
      amortized to expense over the three-year term of the related
      agreement.





Valuation
      of Long-Lived Assets





The
      carrying amounts of long-lived assets are periodically evaluated for impairment
      when events and circumstances warrant such a review.





Fair
      Value of Financial Instruments





The
      Company measures its financial assets and liabilities in accordance with the
      requirements of Statement of Financial Accounting Standards (“SFAS”) No. 107,
“Disclosures about Fair Value of Financial Instruments.” The carrying values of
      cash equivalents, accounts receivable, accounts payable, and payments due for
      acquired companies approximate fair value due to the short-term maturities
      of
      these instruments.





Foreign
      Currency





The
      functional currencies of the Company’s international subsidiary and investee are
      the local currency. The financial statements of the foreign subsidiary are
      translated into United States dollars using period-end rates of exchange for
      assets and liabilities and average rates of exchange for the period for revenues
      and expenses. Foreign currency transaction gains and losses were insignificant
      during the period. Foreign currency translation adjustments are shown as other
      comprehensive income (expense) in the accompanying consolidated balance
      sheet.




10





Loss
      per Share





The
      Company utilizes Statement of Financial Accounting Standards No. 128, “Earnings
      per Share.” Basic earnings (loss) per share are computed by dividing earnings
      (loss) available to common shareholders by the weighted-average number of common
      shares outstanding. Diluted earnings (loss) per share is computed similar to
      basic earnings (loss) per share except that the denominator is increased to
      include the number of additional common shares that would have been outstanding
      if the potential common shares had been issued and if the additional common
      shares were dilutive. Potential common shares include stock that would be issued
      on exercise of outstanding options and warrants reduced by the number of shares
      which could be purchased from the related exercise proceeds.





Recent
      Accounting Pronouncements





In
      September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS
      No. 157, “Fair Value Measurements”. SFAS No. 157 defines fair value, establishes
      a framework for measuring fair value in generally accepted accounting
      principles, and expands disclosures about fair value measurements. It applies
      under other accounting pronouncements that require or permit fair value
      measurements, the FASB having previously concluded in those accounting
      pronouncements that fair value is the relevant measurement attribute.
      Accordingly, this statement does not require any new fair value measurements.
      This statement is effective for all financial instruments issued for fiscal
      years beginning after November 15, 2007, and interim periods within those fiscal
      years. The Company adopted SFAS No. 157 as of January 1, 2008 and it had no
      effect on the Company’s financial position, operations or cash
      flows.




In
      December 2007, the FASB issued SFAS 141(R), “Business Combinations”, replacing
      SFAS 141, “Business Combinations”. This statement retains the fundamental
      requirements in SFAS 141 that the acquisition method of accounting (which SFAS
      141 termed the purchase method) be used for all business combinations and for
      an
      acquirer to be identified for each business combination. This Statement also
      establishes principles and requirements for how the acquirer: a) recognizes
      and
      measures in its financial statements the identifiable assets acquired, the
      liabilities assumed, and any noncontrolling interest in the acquiree; b)
      recognizes and measures the goodwill acquired in the business combination or
      a
      gain from a bargain purchase; and c) determines what information to disclose
      to
      enable users of the financial statements to evaluate the nature and financial
      effects of the business combination. This Statement clarifies that acquirers
      are
      required to expense costs related to any acquisitions. SFAS 141R will apply
      prospectively to business combinations for which the acquisition date is on
      or
      after fiscal years beginning December 15, 2008. Early adoption is prohibited.
      Determination of the ultimate effect of this statement will depend on the
      Company’s acquisitions, if any, subsequent to December 31, 2008.





In
      December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
      Consolidated Financial Statements - An Amendment of ARB No. 51”. SFAS 160
      establishes new accounting and reporting standards for the noncontrolling
      interest in a subsidiary and for the deconsolidation of a subsidiary.
      Specifically, this statement requires the recognition of a noncontrolling
      interest (minority interest) as equity in the consolidated financial statements
      and separate from the parent’s equity. The amount of net income attributable to
      the noncontrolling interest will be included in consolidated net income on
      the
      face of the income statement. SFAS 160 clarifies that changes in a parent’s
      ownership interest in a subsidiary that do not result in deconsolidation are
      equity transactions if the parent retains its controlling financial interest.
      In
      addition, this statement requires that a parent recognize a gain or loss in
      net
      income when a subsidiary is deconsolidated. Such gain or loss will be measured
      using the fair value of the noncontrolling equity investment on the
      deconsolidation date. SFAS 160 also includes expanded disclosure requirements
      regarding the interests of the parent and its noncontrolling interest. SFAS
      160
      is effective for fiscal years beginning on or after December 15, 2008, with
      retrospective presentation and disclosure for all periods presented. Early
      adoption is prohibited. The Company does not expect it will be affected
      by the adoption of SFAS 160.





Reclassifications





Certain
      prior year amounts have been reclassified to conform to the current year
      presentation.




11





Note
      2    Going Concern





The
      Company has incurred losses from operations and negative cash flows from
      operations since its inception. These factors raise substantial doubt about
      the
      Company’s ability to continue as a going concern. The Company’s business plan
      calls for expanding the scale of live events, including pay per view, and
      Internet operations. As a result, the need for cash has correspondingly
      increased. Although the Company had approximately $3.5 million of cash at June
      30, 2008, the Company continues to expend more cash than it brings in through
      operations.





The
      Company is actively negotiating to consummate a financing of approximately
      $3.5
      million in secured debt (with a funded amount of $3.0 million after an original
      issue discount of $0.5 million) and believes a successful closing is reasonably
      likely, but there is no assurance that it will be successful in doing so at
      all
      or on a timely basis. Any such failure to obtain financing in the immediate
      future would have a material adverse effect on the Company’s liquidity and
      capital resources and ability to continue as a going concern.





Even
      if
      the Company successfully closes on the debt financing referred to above, it
      expects that its capital resources would be sufficient only until the end of
      the
      year, and only if the Company makes significant reductions in or cessation
      of
      operations and expenditures before the end of the year, including dramatically
      reducing costs by reducing administrative expenses and some lines of business.
      Such actions would limit our potential for growth and could materially adversely
      affect the Company’s business and prospects.





To
      address its liquidity needs beyond the immediate period, the Company is actively
      seeking additional financing beyond the $3.0 million referred to above to enable
      the Company to execute its operating plans without significant reductions in
      operations, but there is no assurance as to whether any such financing will
      be
      available on reasonable terms or at all.





The
      auditor's opinion contained in our Annual Report on Form 10-KSB for the year
      ended December 31, 2007 states substantial doubt exists about our ability to
      continue as a going concern. The financial statements in this Quarterly Report
      on Form 10-Q do not contain any adjustments that may be required should we
      be
      unable to continue as a going concern.





Note
      3    Net Loss Per Share





Net
      loss
      per share was calculated by dividing the net loss by the weighted average number
      of shares outstanding during the period. The following table summarizes the
      shares of stock included in calculating earnings per share for the three months
      ended March 31, 2008 and 2007:





Three
                Months
              Ended
              June 30,
              2008
            
            Three
                Months
              Ended
              June 30,
              2007
            
            Six
                Months
              Ended
              June 30,
              2008
            
            Six
                Months
              Ended
              June 30,
              2007Weighted-average
                common shares outstanding - basic
            
            
            55,814,726
            
            
            42,838,150
            
            
            54,365,037
            
            
            42,559,512Dilutive
                effect of stock options and warrants
            
            
            -
            
            
            -
            
            
            -
            
            
            -Weighted-average
                common shares outstanding - diluted
            
            
            55,814,726
            
            
            42,838,150
            
            
            54,365,037
            
            
            42,559,512Net
                loss per share - basic and diluted
            
            $
            (0.34
            )
            $
            (0.17
            )
            $
            (0.45
            )
            $
            (0.28
            )





The
      effect of the following options and warrants on the computation of diluted
      net
      loss per share is excluded because their effect is anti-dilutive:




For
                the Three and Six Month
              Periods
                endedJune
                30, 2008
            
            June
                30, 2007Options
            
            
            5,281,797
            
            
            4,330,729Warrants
            
            
            30,391,720
            
            
            31,935,000




12




Note
      4    Acquisitions and Investments





*King
      of the Cage*





On
      September 11, 2007, the Company acquired the outstanding capital stock of King
      of the Cage, Inc. (“KOTC”), a promoter of MMA events primarily in the United
      States. The acquisition was made in order to increase the Company’s event
      activity. The total purchase price, not including contingent consideration,
      was
      $5.0 million consisting of: $3,250,000 cash paid at closing, $500,000 cash
      paid
      in November 2007, 178,571 restricted shares of common stock valued at
      $1,249,997, or $7 per share that were issued in April 2008, plus nominal direct,
      capitalizable transaction costs. Under the stock purchase agreement, the
      calculation of the number of common shares to be issued is based upon the quoted
      market price of the Company’s common stock subject to a maximum per share price
      of $7.00 and a minimum price of $2.00. Additionally, the Company entered into
      a
      five year employment contract with one of the selling shareholders. (See Note
      9.)





The
      stock
      purchase agreement also calls for contingent consideration to be paid annually
      if certain operating results are achieved by KOTC over five years. Contingent
      consideration performance thresholds and payment amounts are as follows:





Performance
                Thresholds
            
            Annual
                Contingent
              Consideration
                PayableYears
                Ending September 11,
            
            Number
                of
              Live
                Events
              Produced
                per
              Year
            
            Annual
              EBITDA
              (as
                defined in
              Stock
              Purchase
              Agreement)
            
            Cash
            
            Common
              Stock2008
                to 2012
            
            
            15
            
            
            n/a
            
            $
            500,000
            
            $
            -2008
                to 2012
            
            
            22
            
            
            n/a
            
            $
            75,000
            
            $
            75,0002008
                to 2012
            
            
            22
            
            
            Increasing
                from
              $700,000
                to
              $1,500,000
            
            $
            175,000
            
            $
            175,000




The
      maximum additional contingent consideration is $3.75 million in cash and $1.25
      million in common stock. At June 30, 2008, the Company had accrued a liability
      of $325,000 for estimated contingent consideration payable, which is due in
      September 2008.




As
      security for the contingent consideration, the Company granted the former KOTC
      shareholders a first priority security interest in the shares of
      KOTC.





The
      purchase price was allocated approximately $0.1 million to tangible assets,
      $1.1
      million to amortizable intangible assets, $1.7 million to non-amortizable
      intangible assets, $0.1 million to liabilities and $2.4 million to
      goodwill.





In
      the
      quarter ended June 30, 2008, the Company recorded a goodwill impairment charge
      of approximately $2.4 million to reduce the carrying value of goodwill from
      the
      KOTC acquisition to their estimated fair value. Management determined the
      impairment charge was needed as a result of industry trends, particularly
      increasing fighter purses, that caused KOTC’s financial performance to be less
      than projected when KOTC was acquired in September 2007. The maintenance of
      the
      remaining goodwill and acquired intangible assets is predicated upon improving
      the profitability of KOTC. If future financial results are less than
      anticipated, the Company may record additional impairment charges.




13





For
      the
      three and six months ended June 30, 2008, respectively, KOTC recognized
      revenue of approximately $527,000 and $1,027,000 and after expenses, including
      amortization of approximately $105,000 and $209,000 related to acquired
      intangible assets and a goodwill impairment charge of approximately $2.4 million
      in the quarter ended June 30, 2008 as discussed above, a net loss of
      approximately $2.5 million and $2.6 million.





*Cage
      Rage*





On
      September 12, 2007, the Company acquired the outstanding capital stock of two
      entities that promote MMA events: Mixed Martial Arts Promotions Limited, a
      British domiciled company (“MMAP”), and Mixed Martial Arts Productions Limited,
      a British domiciled company (“MMAD”) (collectively “Cage Rage”). The acquisition
      gives the Company an event promotion business in the United Kingdom. The total
      purchase price was $8.6 million consisting of: $4,000,000 cash paid at closing,
      500,000 shares of restricted common stock issued in October 2007, $1,000,000
      cash to be paid in September 2008 plus $100,398 of direct transaction costs.
      The
      Company valued the common stock to be issued at $3.5 million, or $7.00 per
      share.





The
      purchase price was allocated approximately $0.9 million to accounts receivable,
      $0.1 million to tangible assets, $1.7 million to amortizable intangible assets,
      $3.8 million to non-amortizable intangible assets, $0.5 million to accounts
      payable and $2.6 million to goodwill.





In
      the
      quarter ended June 30, 2008, the Company recorded an impairment charge of
      approximately $5.2 million to reduce the carrying value of goodwill and acquired
      intangible assets from the Cage Rage acquisition to their estimated fair value.
      During July 2008, the Company’s management revised the operating plan for Cage
      Rage in an attempt to achieve profitable live events and reduce operating losses
      sooner than originally planned in September 2007, when Cage Rage was acquired.
      Key aspects of the revised operating plan are to use smaller venues for live
      event production and secure a long-term television licensing agreement. If
      management is unable to successfully execute the revised operating plan, the
      Company may record further impairment charges. Also with respect to assets
      acquired, the Company recorded a charge of approximately $0.9 million during
      the
      quarter ended June 30, 2008 because the likelihood of future recoverability
      of
      these assets was uncertain.





For
      the
      three and six months ended June 30, 2008, respectively, Cage Rage
      recognized revenue of approximately $505,000 and $971,000 and after expenses
      -
      including amortization of approximately $216,000 and $432,000 related to
      acquired intangible assets and the asset impairment and other charges of
      approximately $6.1 million in the quarter ended June 30, 2008 discussed above
      -
      a net loss of approximately $7.0 million and $7.8 million.





*Future
      Fight Productions, Inc.*





On
      December 7, 2007, the Company acquired substantially all the assets of Future
      Fight Productions, Inc., (“ICON”) a promoter of MMA events primarily in Hawaii.
      The acquisition gives the Company additional promotion talent and access to
      fighters and venues. The assets acquired consisted primarily of a brand name.
      Additionally the owner of ICON signed a consulting contract with the Company
      to
      continue promoting ICON and other Company-run events. The total purchase price
      was $2.35 million consisting of: $350,000 cash paid at closing and 200,000
      shares of restricted common stock, 100,000 of which were issued at closing
      and
      the remaining 100,000 are issuable over 3 years. Additionally, the Company
      will
      issue, in three equal installments, 50,000 shares of restricted common stock
      in
      connection with the consulting agreement with the seller. The shares were valued
      at $10 per share. The purchase price was allocated approximately $0.4 million
      to
      amortizable intangible assets, $0.6 million to non-amortizable assets and $1.3
      million to goodwill. The value of the shares to be issued for the consulting
      agreement, $500,000, will be recorded into expense ratably over the service
      period.





In
      the
      quarter ended June 30, 2008, the Company recorded an impairment charge of
      approximately $1.8 million to reduce the carrying value of goodwill and acquired
      intangible assets from the ICON acquisition to their estimated fair value.
      A
      recessionary economic environment in Hawaii has adversely impacted the Company’s
      ability to sell tickets in that market during the first six months of 2008.
      Therefore, the Company revised its operating plan for ICON and recorded an
      impairment charge to reduce goodwill and acquired intangible assets to their
      estimated fair value.




14





For
      the
      three and six months ended June 30, 2008, under the ICON brand name the
      Company recognized revenue of approximately $205,000 for both periods and after
      expenses, including amortization of approximately $20,500 and $41,000 related
      to
      acquired intangible assets and an impairment charge of $1.8 million in the
      quarter ended June 30, 2008 as discussed above, a net loss of approximately
      $1.8
      million and $1.9 million.





*Detail
      of Acquisitions*





The
      following table details the fair value of assets and liabilities acquired at
      the
      date of acquisition:





KOTC
            
            Cage Rage
            
            ICON
            
            TotalCurrent
                assets, exclusive of cash
            
            $
            -
            
            $
            904,000
            
            $
            -
            
            $
            904,000Fixed
                assets
            
            
            30,000
            
            
            61,000
            
            
            -
            
            
            91,000Intangible
                assets with indefinite lives
            
            
            1,700,000
            
            
            3,800,000
            
            
            628,000
            
            
            6,128,000Other
                intangible assets
            
            
            1,110,000
            
            
            1,723,000
            
            
            410,000
            
            
            3,243,000Goodwill
            
            
            2,356,000
            
            
            2,571,000
            
            
            1,312,000
            
            
            6,239,000Current
                liabilities
            
            
            (34,000
            )
            
            (459,000
            )
            
            -
            
            
            (493,000
            )Consideration
            
            $
            5,162,000
            
            $
            8,600,000
            
            $
            2,350,000
            
            $
            16,112,000





The
      Company allocated purchase prices to amortizable intangible assets of $1.9
      million to noncompete agreements (with a weighted average amortization period
      of
      3.9 years), fighter contracts of $1.2 million (with a weighted average
      amortization period of 2 years), and $0.1 million to distribution contracts
      (with a weighted average amortization period of 2.4 years). The Company recorded
      amortization expense of approximately $341,000 and $681,000 related to these
      intangible assets during the three and six months ended June 30, 2008.





Additionally,
      as discussed above, the Company recorded asset impairment and other charges
      totaling approximately $10.3 million during the quarter and six months ended
      June 30, 2008.





*Purchase
      Price Allocations*





The
      purchase price allocations for the acquisitions were based upon discounted
      expected cash flow models. Valuation methods including relief from royalty,
      excess earnings/contributory asset charges, lost profits, and with and without
      competition, were applied to the discounted expected cash flow models to
      determine the value of the intangible assets acquired. The purchase prices
      of
      the acquisitions were then allocated based upon the values of intangible assets
      calculated and the carrying values of assets and liabilities acquired.





Additionally,
      the maintenance of goodwill and indefinite-lived intangible assets on the
      Company’s balance sheet requires management to achieve improvements in and
      expansion of the acquired entities’ operations. Should operations not improve to
      desired levels, the Company may be required to record an additional charge
      to operations for impairment of these assets.





*SpiritMC*





On
      September 18, 2007, the Company made an investment in Entlian Corporation
      (“SpiritMC”), a South Korean company promoting MMA events in South Korea. The
      investment gives the Company access to event promotion in South Korea and to
      fighters and venues under contract with SpiritMC. The cost of the investment
      was
      $2 million consisting of $1 million cash and $1 million in restricted common
      shares (100,000 common shares valued at $10.00 per share). The $10.00 per share
      valuation resulted from the Company’s guarantee of a minimum per share value of
      $10.00 to Entlian. If the Company’s quoted market price is below $10 per share
      on the date the lock up period expires in March 2009, the Company is required
      to
      issue up to 100,000 additional common shares.




15





The
      Company acquired approximately 54% of SpiritMC’s common stock. This ownership
      percentage will dilute down to approximately 32% when SpiritMC’s existing debt
      facility with a third party mandatorily converts to common stock at any time
      but
      no later than January 2010. The Company has one third of the seats on SpiritMC’s
      Board of Directors, and therefore will not exercise control over SpiritMC.
      The
      Company has also determined that it is not the primary beneficiary. As such,
      the
      Company accounts for the investment in SpiritMC using the equity method. The
      Company recorded a charge of approximately $78,000 and $193,000, representing
      the Company’s share of SpiritMC’s loss for the three and six months ended June
      30, 2008.





Note
      5    Other Current Assets





Other
      current assets included a balance due of approximately $940,000 from a business
      owned by a former shareholder of Cage Rage. This amount was due primarily for
      event sponsorship prior to the Company’s acquisition of Cage Rage. During
      the quarter ended June 30, 2008, the Company wrote off this asset into
      impairment and other charges due to the uncertainty of future
      recoverability.





Note
      6    Fixed Assets, Net





Fixed
      assets, net consisted of the following:





June 30,
              2008
            
            December 31,
              2007Computer,
                office and video production equipment
            
            $
            573,535
            
            $
            535,581Transportation
                equipment
            
            
            26,702
            
            
            -Furniture
                and fixtures
            
            
            340,717
            
            
            325,481Live
                event set costs
            
            
            234,865
            
            
            236,780Leasehold
                improvements
            
            
            232,835
            
            
            231,335Computer
                software
            
            
            98,787
            
            
            66,193Internet
                domain names and other
            
            
            44,420
            
            
            28,280Website
                development costs
            
            
            349,976
            
            
            349,9761,901,837
            
            
            1,773,626Accumulated
                depreciation and amortization
            
            
            (589,481
            )
            
            (345,078
            )$
            1,312,356
            
            $
            1,428,548





Note
      7    Liabilities





*Notes
      Payable - Showtime*





The
      Company owed the following related to notes payable:





**June
                30,**
              **2008**
            
            **December
                31,**
              **2007**Note
                payable - Showtime due March 31, 2009
            
            $
            1,822,086
            
            $
            1,822,086Note
                payable - Showtime due June 17, 2009
            
            
            3,500,000
            
            
            -Original
                issue discount and warrant value, unaccreted portion
            
            
            (621,996
            )
            
            -Accrued
                interest
            
            
            69,213
            
            
            -Total
            
            $
            4,769,303
            
            $
            1,822,086




16




The
      $1.8
      million note payable dated December 17, 2007 to Showtime was issued to extend
      payment of the net amount due to Showtime for television production costs
      incurred in 2007. In June 2008, Showtime and the Company extended the note
      due
      date from December 17, 2008 to March 31, 2009, and the note was given a first
      priority security interest in the unpledged assets of the Company. The note
      bears interest at the daily prime rate as published by JPMorganChase bank with
      interest payable at maturity.





On
      June
      18, 2008, the Company entered into a Senior Secured Note Purchase Agreement
      and
      related documents with Showtime. Under the agreements, Showtime funded a note
      payable by the Company and the Company issued warrants to Showtime. The note
      has
      a face value of $3,500,000, of which the Company received $3,000,000 after
      an
      original issue discount of $500,000, and a first priority security interest
      in
      the unpledged assets of the Company. The note accrues interest at 10% per annum
      payable at maturity. The note matures on June 17, 2009. The note agreement
      includes a covenant that the Company maintain a minimum unrestricted cash
      balance of $550,000. The face value of the note together with accrued, unpaid
      interest may be prepaid without penalty prior to maturity. The $0.5 million
      discount from the face value of the note payable will be accreted into the
      note
      liability balance over 12 months, the term of the note.





In
      connection with the financing, the Company issued a warrant to purchase 100,000
      shares of common stock. The warrant has an exercise price of $0.01 per share,
      a
      term of 36 months and an estimated fair value of $149,040. The warrant value
      is
      being amortized to interest expense over 12 months, the term of the note.





The
      Senior Secured Note Purchase Agreement allows the Company to raise additional
      indebtedness up to $3,500,000 (“Additional Indebtedness”) with collateral pari
      pasu with the Showtime notes, provided that Showtime has approval rights over
      any new holder of Additional Indebtedness, the right to purchase any Additional
      Indebtedness from new holders of debt, and sole power to exercise remedies
      upon
      a default of any Additional Indebtedness.





*Other
      Accrued Liabilities*





In
      connection with the reverse merger of the Company and the predecessor
      registrant, the Company assumed accounts payable of approximately $210,000
      and
      notes payable of approximately $137,000, which existed at the time the
      predecessor registrant ceased operations. These liability balances remained
      unchanged from the date of the reverse merger.





Note
      8    Income Taxes





As
      a
      result of the Company’s losses, no income taxes were due for the six and three
      months ended June 30, 2008 and 2007. The provision for income taxes was offset
      by an increase in the deferred tax asset valuation allowance.





As
      of
      January 1, 2007, the Company implemented FASB Interpretation No. 48, *Accounting
      for Uncertainty in Income Taxes—an Interpretation of FASB Statement 109 (“FIN
      48”)* ,
      which
      clarifies the accounting for uncertainty in tax positions. This Interpretation
      provides that the tax effects from an uncertain tax position can be recognized
      in the financial statements, only if the position is more likely than not of
      being sustained on audit, based on the technical merits of the position. The
      adoption on FIN 48 did not have an effect on the Company’s consolidated
      financial statements. The total amount of unrecognized tax benefits that if
      recognized would affect the Company’s effective tax rate is zero based on the
      fact that the Company currently has a full reserve against its unrecognized
      tax
      benefits.





Current
      income taxes (benefits) are based upon the year’s income taxable for federal,
      state and foreign tax reporting purposes. Deferred income taxes (benefits)
      are
      provided for certain income and expenses, which are recognized in different
      periods for tax and financial reporting purposes. Deferred tax assets and
      liabilities are computed for differences between the financial statements and
      tax bases of assets and liabilities that will result in taxable or deductible
      amounts in the future based on enacted tax laws and rates applicable to the
      period in which the differences are expected to affect taxable income. The
      Company had a full valuation allowance against deferred tax assets at June
      30,
      2008.




17





At
      June
      30, 2008, the Company had net operating loss carryforwards of approximately
      $24.4 million for federal tax purposes, expiring through 2028. In addition,
      the
      Company had net operating loss carryforwards of approximately $24.4 million
      for
      state tax purposes, which expire through 2018. However, a change in ownership
      could result in an “ownership change” under Internal Revenue Code Section 382
      which restricts the ability of a corporation to utilize existing net operating
      losses. The Company also had net operating loss carryforwards of approximately
      $4.1 million for UK tax purposes that had been accumulated since acquisition
      of
      Cage Rage.





The
      Company is subject to Federal and state tax in the United States and tax in
      the
      United Kingdom. The tax years 2006 and 2007 of the parent company remain open
      to
      examination by the major taxing jurisdictions to which the Company is subject.
      The acquired subsidiaries may have earlier years subject to examination. The
      Company is not currently under examination by any tax authorities.





Note
      9    Commitments





The
      Company’s lease agreement for its corporate office space specifies monthly
      payments starting at $25,176 and increasing to $36,472, and the lease expires
      on
      July 31, 2012. The Company also leases additional office space requiring monthly
      payments of approximately $2,600 through 2017. Future minimum annual payments
      remaining under these leases are as follows:





Year
                ending December 31,
            
            Amount2008
            
            $
            226,0002009
            
            
            429,0002010
            
            
            445,0002011
            
            
            462,0002012
            
            
            286,000Thereafter
            
            
            142,000$
            1,990,000




The
      Company incurred rent expense of approximately $222,000 and $92,000,
      respectively, for the six months ended June 30, 2008 and 2007,
      respectively.




The
      Company has contracts with vendors, including a live events venue. The minimum
      annual payments under these contracts are approximately $716,000 and $54,000
      in
      the years ending December 31, 2008 and 2009, respectively.





The
      Company entered into contracts with executives, key employees and consultants.
      These contracts call for following minimum annual payments:





Year
                ending December 31,
            
            Amount2008
            
            $
            2,357,0002009
            
            
            2,135,0002010
            
            
            740,0002011
            
            
            438,0002012
            
            
            229,000$
            5,899,000




18




Additionally,
      some employment contracts include performance bonuses related to the operations
      of recently acquired businesses. In regards to the KOTC subsidiary, the Company
      pays a bonus equal to 20% of the subsidiary’s earnings before interest, taxes,
      depreciation and, amortization (“EBITDA”) in excess of specified amounts,
      escalating from $850,000 to $1.6 million for each of the twelve-month periods
      ending September 30, 2008 through 2012. In regards to the ICON asset purchase,
      the Company pays a bonus of $100,000 if the subsidiary’s EBITDA exceeds $196,000
      for the twelve-month period ending November 30, 2008. No bonuses have been
      accrued for the three and six months ended June 30, 2008.





Note
      10    Litigation and Potential Claims





On
      December 14, 2006, the Company received a demand letter (the “Demand Letter”)
      from counsel for Wallid Ismail Promocoes E Eventos LTDA EPP and Wallid Ismail
      (collectively “Wallid”). The Demand Letter alleges that the Company entered into
      a “fully enforceable agreement” to compensate Wallid for allegedly assisting the
      Company in raising financing, and that the Company or its directors committed
      unspecified fraudulent acts, misappropriated Wallid’s “confidential and
      proprietary information,” and engaged in an “intentional and well-orchestrated
      scheme to wrongfully remove Wallid” as a principal of the Company. Wallid did
      not specify the amount of damages he claims to have sustained as a result of
      these acts.





The
      Company denies Wallid’s allegations, and denies that it has, or has breached,
      any obligations to Wallid. On January 2, 2007, the Company filed a lawsuit
      against Wallid in the Superior Court for the State of California, County of
      Los
      Angeles, LASC Case No. BC 364204 (the “California Lawsuit”). In the California
      Lawsuit, the Company seeks a judicial declaration that the allegations in the
      Demand Letter are false. In addition, the California Lawsuit alleges that Wallid
      has misappropriated the Company’s business plan and other confidential and
      proprietary information, that Wallid has been unjustly enriched at the Company’s
      expense, that Wallid is engaging in unfair competition with the Company , and
      that Wallid’s actions violate California Business and Professions Code sections
      17200, *et
      seq* .
      Wallid
      answered the complaint on March 22, 2007, and then transferred the case to
      federal court. The case will be litigated in federal court, discovery is
      underway and the case is set for trial on September 16, 2008. However, it is
      anticipated that the court will vacate this trial date to accommodate pending
      defense motions for summary adjudication of issues.




On
      January 10, 2007, Wallid filed suit against the Company, among others, in
      federal court in New Jersey (the “New Jersey Lawsuit”). He amended his complaint
      on February 1, 2007. On April 18, 2007, the Company filed a motion to dismiss
      or
      stay the New Jersey Lawsuit because the California Lawsuit was filed first,
      or
      in the alternative to transfer the case to the federal court in California
      where
      the California Lawsuit is pending. On June 26, 2007, the court granted the
      Company’s motion and ordered the New Jersey Lawsuit transferred to the federal
      court in California.





On
      November 5, 2007, the federal court in the California lawsuit approved a
      stipulation by Wallid and the Company granting Wallid leave to file a
      Counterclaim and Third Party Complaint in the California Lawsuit, and providing
      for dismissal of the New Jersey Lawsuit without prejudice upon completion of
      the
      transfer of that action to California. The Counterclaim and Third Party
      Complaint asserts substantially the same claims Wallid asserted in the New
      Jersey Lawsuit. Wallid seeks: a 23.25% to 26.67% equity interest in the Company;
      damages for his losses in an amount to be determined at trial, but no less
      than
      $75,000; punitive damages of no less than $10,000,000; an imposition of a
      receiver to oversee the assets of the Company; an accounting on all income
      earned by the Company; and attorneys’ fees and costs of suit. The Company denies
      Wallid’s allegations and intends to assert a vigorous defense.





West
      Coast Productions, Inc. (“West Coast”) filed a civil action against Frank
“Shamrock” Juarez (“Shamrock”) on January 23, 2007, and sought and obtained a
      temporary restraining order which prohibited Shamrock from fighting in the
      Company’s February 10, 2007 event. The Company subsequently entered into a
      settlement agreement on February 5, 2007, pursuant to which West Coast dismissed
      its civil action and agreed to permit Shamrock to fight in the February 10,
      2007
      event. The Company agreed to pay an aggregate of $250,000 to West Coast, out
      of
      future compensation due to Shamrock from the Company under the personal services
      agreement. The Company also entered into a co-promotion agreement with West
      Coast, pursuant to which it agreed to co-promote up to three live MMA events
      that feature Shamrock. To date the Company has paid West Coast $100,000 of
      the
      $250,000 owed. The remaining portion totaling $150,000 will be paid to West
      Coast from future co-produced events. A liability of $150,000 has been
      accrued.




19





On
      March
      22, 2007, Zuffa, LLC filed a complaint against Showtime, the Company and Cage
      Rage in which it alleges that the defendants infringed Zuffa’s copyrights by
      airing footage from certain Ultimate Fighting Championship events and alleges
      that the defendants utilized portions of Zuffa’s copyrights in the televised
      broadcast of the February 10, 2007 MMA event that was held at the Desoto Civic
      Center in Southaven, Mississippi. Zuffa has alleged causes of action for
      copyright infringement and unfair competition, and seeks injunctive relief,
      compensatory damages or statutory damages, and litigation expenses. Zuffa has
      not specified the amount of monetary damages it seeks. ProElite filed a motion
      to dismiss the case. The court dismissed ProElite for lack of personal
      jurisdiction, and deferred judgment concerning Showtime until further discovery
      is conducted. The parties met for mediation on February 11, 2008 and agreed
      to
      the terms of a settlement agreement, which did not have an adverse financial
      impact on the Company. The settlement was entered into the US District Court,
      District of Nevada on February 11, 2008. The parties agreed to dismiss the
      actions with prejudice upon closing a long-form settlement agreement, which
      is
      pending.





Note
      11    Shareholders’ Equity





*CBS
      and Showtime*





In
      connection with a television distribution agreement, the Company and Showtime,
      an affiliate of CBS, entered into a Subscription Agreement dated as of February
      22, 2008 pursuant to which the Company agreed to issue two warrants to Showtime
      (the "New Warrants") each for the purchase of 2,000,000 shares of the Company's
      Common Stock at an exercise price of $2.00 per share. The first New Warrant
      vests immediately and is for a term of five years from February 22, 2008. The
      second New Warrant vests in four equal tranches of 500,000 shares with each
      respective tranche to vest if an Event is broadcast pursuant to the Broadcast
      Agreement. The term of each tranche is five years from the date that such
      tranche vests. Pursuant to an Investor Rights Agreement between the Company
      and
      Showtime dated as of February 22, 2008, the Company granted to Showtime certain
      registration rights with respect to the shares issuable upon exercise of the
      New
      Warrants, and Showtime agreed that such shares and the New Warrants are subject
      to certain transfers restrictions until March 5, 2009. The value of the first
      New Warrant computed using a Black-Scholes model was approximately $2.3
      million. As
      of
      June 30, 2008, management determined the warrants issued in 2008 in connection
      with the CBS distribution agreement had no future value as the likelihood of
      realizing gross profit on the CBS events was remote. Therefore, the entire
      $2.3
      million value of these warrants was charged to cost of revenue during the three
      months ended June 30, 2008. The
      value of the second New Warrant computed using a Black-Scholes model was
      approximately $2.5 million and will be charged to operations on the dates of
      the
      first four broadcasts under the television distribution agreement.





Additionally,
      Showtime exercised part of the warrants previously issued to Showtime in January
      2007. The exercise was for an aggregate of 2,000,000 shares of the Company's
      Common Stock (the "Warrant Shares") resulting in proceeds to the Company of
      $4,000,000.





On
      June
      18, 2008 in connection with the $3.5 million face value note payable, the
      Company issued to Showtime a three-year warrant to purchase 100,000 shares
      of
      common stock at $0.01 per share. The value of this warrant calculated using
      a
      Black-Scholes model was $149,040 and will be charged to interest expense over
      the term of the note using the effective interest method.





*Stock-Based
      Compensation*





The
      Company adopted its 2006 Stock Option Plan and amended the plan in 2007,
      reserving a total of 8,000,000 shares. The plan provides for the issuance of
      statutory and non-statutory stock options to employees, directors and
      consultants, with an exercise price equal to the fair market value of the
      Company’s common stock on the date of grant. Options granted under the plan
      generally vest quarterly over four years and have a life of 10 years. As of
      June
      30, 2008, options to purchase 5,281,797 shares of common stock had been granted
      under the plan.




20





The
      Company accounts for stock-based compensation arrangements with its employees,
      consultants and directors in accordance with SFAS No. 123 (revised),
“Share-Based Payment” (SFAS No. 123R). Under the fair value recognition
      provisions of SFAS No. 123R, the Company measures stock-based compensation
      cost
      at the grant date based on the fair value of the award and recognizes
      compensation expense over the requisite service period, which is generally
      the
      vesting period. For the quarters ended June 30, 2008 and 2007, the Company
      incurred approximately $0.7 million and $0.2 million, respectively, of expense
      related to stock based compensation under this plan and approximately $1.1
      million and $2.8 million, respectively, of expense related to warrants. For
      the
      six months ended June 30, 2008 and 2007, the Company incurred approximately
      $1.2
      million and $0.6 million, respectively, of expense related to stock based
      compensation under this plan and approximately $1.7 million and $2.9 million
      respectively, of expense related to warrants.





*Stock
      Options*





The
      Company uses a Black-Scholes option pricing model to estimate the fair value
      of
      stock-based awards with the weighted average assumptions noted in the following
      table.





Six
                Months
              Ended
              June 31,
              2008
            
            Six
                Months
              Ended
              June 31,
              2007Black-Scholes
                Model:Risk-free
                interest rate
            
            
            1.84%
                - 3.41
            %
            
            4.50
                - 4.84
            %Expected
                life, in years
            
            
            5.8
                - 6.0
            
            
            5.8
                - 6.5Expected
                volatility
            
            
            96.0
            %
            
            60.0
            %Dividend
                yield
            
            
            0.0
            %
            
            0.0
            %





Expected
      volatility is based on the historical volatility of the share price of companies
      operating in similar industries. The volatility of industry peers is considered
      more representative of expected volatility because there is currently minimal
      daily trading volume in the Company’s stock. The expected term is based on
      management’s estimate of when the option will be exercised which is generally
      consistent with the vesting period. The risk-free interest rate for periods
      within the contractual life of the option is based on the U.S. Treasury yield
      curve in effect at the time of grant.





The
      following table represents stock option activity for the six months ended June
      30, 2008:





Plan
              Options
            
            Weighted
              Average
              Exercise
              PriceOutstanding
                at December 31, 2007
            
            
            4,875,859
            
            $
            2.77Granted
            
            
            1,555,000
            
            $
            2.23Forfeited
            
            
            (192,395
            )
            $
            2.91Expired
            
            
            (956,667
            )
            $
            2.00Exercised
            
            
            -
            
            $
            -Outstanding
                at June 30, 2008
            
            
            5,281,797
            
            $
            2.74Exercisable
                at June 30, 2008
            
            
            2,655,235
            
            $
            2.31




21




At
      June
      30, 2008 the aggregate intrinsic value of options outstanding and the aggregate
      intrinsic value of options exercisable was approximately zero and zero,
      respectively. The weighted-average grant-date fair value of options granted
      during the six months ended June 30, 2008 and 2007 was $1.53 and $0.64,
      respectively. The weighted-average remaining life of outstanding and exercisable
      options at June 30, 2008 and 2007 was 6.0 years and 4.4 years,
      respectively.





At
      June
      30, 2008 there was approximately $4.8 million of unrecognized compensation
      cost
      related to non-vested options, which is being expensed through 2012.





During
      the quarter ended March 31, 2008, the Company granted 1,260,000 options to
      employees in individual grants ranging from 10,000 to 1,000,000 options. The
      options have exercise prices ranging from $2.00 to $7.01, vest over two or
      four
      years and have terms of 10 years. The aggregate fair value of these options
      at
      the dates of grant was approximately $1.8 million and is being amortized on
      a
      straight-line basis over the respective vesting periods.





During
      the quarter ended June 30, 2008, the Company granted 295,000 options to
      employees and a director in individual grants ranging from 20,000 to 100,000
      options. The options have exercise prices of $2.00, vest over three to four
      years and have terms of 10 years. The aggregate fair value of these options
      at
      the dates of grant was approximately $0.6 million and is being amortized on
      a
      straight-line basis over the respective vesting periods.





*Warrants*





The
      Company uses a Black-Scholes option pricing model to estimate the fair value
      of
      warrants with the assumptions noted in the following table.





Six
                Months
              Ended
              June 30,
              2008
            
            Six
              Months
              Ended
              June 30,
              2007Risk-free
                interest rate
            
            
            1.87%
                - 2.71
            %
            
            4.52
                - 5.11
            %Expected
                life, in years
            
            
            1.5
                - 3.1
            
            
            1.5
                - 6.0Expected
                volatility
            
            
            96.0
            %
            
            60.0
            %Dividend
                yield
            
            
            0.0
            %
            
            0.0
            %





The
      following table represents warrant activity for the six months ended June 30,
      2008:





Warrants
            
            Weighted
              Average
              Exercise
              PriceOutstanding
                at December 31, 2007
            
            
            30,500,137
            
            $
            2.85Granted
            
            
            4,689,500
            
            $
            2.59Expired
            
            
            (47,917
            )
            $
            4.96Exercised
            
            
            (4,750,000
            )
            $
            2.00Outstanding
                at June 30, 2008
            
            
            30,391,720
            
            $
            2.94Exercisable
                at June 30, 2008
            
            
            11,194,554
            
            $
            3.10




22




At
      June
      30, 2008 the aggregate intrinsic value of warrants outstanding and the aggregate
      intrinsic value of warrants exercisable was approximately $0.7 million and
      $0.8
      million, respectively. The weighted-average remaining life of outstanding and
      exercisable warrants at June 30, 2008 and 2007 was 4.6 years and 4.4 years,
      respectively.





At
      June
      30, 2008 there was approximately $25.6 million of unrecognized cost related
      to
      non-vested warrants (including approximately $23.4 million of unrecognized
      cost
      related to Burnett warrant tranches three through nine, which is discussed
      below), which is being expensed through 2012.





During
      the quarter ended March 31, 2008, the Company issued 4,000,000 warrants with
      exercise prices of $2.00 to Showtime, as discussed above. Also during the
      quarter ended March 31, 2008, the Company’s placement agent for prior financings
      exercised on a cashless basis 2.75 million warrants at $2.00 per share for
      2,016,667 shares of common stock.





During
      the quarter ended June 30, 2008, the Company issued 100,000 warrants with
      exercise prices of $0.01 per share to Showtime, as discussed above and also
      issued 100,000 warrants with an exercise price of $8.00 per share.





*Burnett
      Warrants*





Effective
      June 15, 2007 (and as amended on June 28, 2007 and June 1, 2008), the Company
      entered into an agreement (the "Series Agreement") with JMBP, Inc. ("MBP"),
      wholly-owned by Mark Burnett ("Burnett") in connection with a possible
      television series involving mixed martial arts ("Series") for initial exhibition
      during prime time on one of specified networks or cable broadcasters. MBP (or
      a
      separate production services entity owned or controlled by MBP) will render
      production services in connection with the Series and will be solely responsible
      for and have final approval regarding all production matters, including budget,
      schedule and production location. It is anticipated that, as a condition to
      involvement in the Series, each of the Series contestants will sign a separate
      agreement with the Company or an affiliate of the Company for services rendered
      outside of the Series. MBP will own all rights to the Series. The Company and
      MBP will jointly exploit the Internet rights in connection with the Series
      on
      ProElite.com and other websites controlled by ProElite.com. The Company will
      be
      entitled to a share of MBP's Modified Adjusted Gross Proceeds, as defined.
      Subject to specified exceptions, MBP and Burnett have agreed to exclusivity
      with
      respect to mixed martial arts programming. The term of the Agreement, as amended
      effective June 1, 2008, extends until the earlier of the end of the term of
      the
      license agreement with the broadcaster of the Series (the “License Agreement”)
      or the failure of MBP to enter into a License Agreement by November 17, 2008.





Pursuant
      to the Series Agreement, the Company and Burnett entered into a Subscription
      Agreement (the “Subscription Agreement”) relating to the issuance to Burnett of
      warrants to purchase up to 17,000,000 shares of the Company's common stock.
      As
      amended effective June 1, 2008, the warrants are divided into nine tranches
      as
      follows:





Tranche
            
            Number
                of Shares
              under
                Warrants
            
            Vesting
                DateOne
            
            2,000,000
            
            June
                15, 2007Two
            
            2,000,000
            
            500,000
                shares to be vested on each of June 15, 2008, 2009, 2010 and
                2011.Three
            
            1,000,000
            
            The
                date that the pilot or first episode of a Series is broadcast on
                a Network
                or Cable Broadcaster.Four
            
            1,000,000
            
            The
                date that the second episode of a Series is broadcast on a network
                or
                cable broadcaster.Five
            
            2,000,000
            
            The
                date that the pilot or first episode of an additional Series is broadcast
                on a specified network or cable broadcaster.Six
            
            1,000,000
            
            The
                last day of the first completed season of any Series.Seven
            
            2,000,000
            
            The
                last day of any additional completed season of any series (or the
                last day
                of the first completed season of any additional
                series).Eight
            
            4,000,000
            
            1,333,333
                shares to be vested on the last day of each additional completed
                season of
                any series.Nine
            
            2,000,000
            
            1,000,000
                shraes to be vested on the date of broadcast of each of the first
                two
                derivative pay-per-view events.




23




The
      vesting date of each tranche is subject to acceleration under certain
      circumstances. However, the warrants are not exercisable if a License Agreement
      is not entered into by June 15, 2008, except for 1,000,000 warrants from tranche
      one. Additionally, the warrants and any shares purchased through exercise of
      the
      warrants are subject to forfeiture, except for 1,000,000 warrants from tranche
      one, if a License Agreement is not entered into by November 17,
      2008.





The
      warrants have an exercise price of $3.00 per share. The exercise price is
      reduced if the Company issues or sells shares of its common stock, excluding
      shares issued as compensation for services or in connection with acquisitions,
      for less than $3.00 per share. The expiration date for a particular tranche
      of
      warrants is the latest to occur of (i) June 15, 2013; (ii) the date which is
      one
      year after the vesting date of any such tranche, and (iii) one year after the
      expiration of the term of the License Agreement.




The
      value
      of the warrants under the June 1, 2008 amendment was less than the previously
      calculated value. Therefore, the previous warrant values will be used for any
      expense to be recognized. The value of the warrants was calculated as
      approximately $2.6 million for tranche one and $2.9 million for tranche two
      using a Black-Scholes option pricing model with the following assumptions:
      expected term of 3 years (for tranche one) and from 3 to 4 years (for separate
      500,000 vesting blocks of tranche two), expected volatility of 60%, risk-free
      interest rate of 5.07% to 5.09% and dividend yield of 0%. The value of the
      tranche one warrants was charged to expense in June 2007. The value of the
      tranche two warrants is being amortized to expense over the vesting period
      of
      each 500,000 warrant vesting block (i.e., from 1 to 4 years).





The
      current value of warrants in tranches three through nine was calculated as
      approximately: $1.8 million (tranche three), $1.8 million (tranche four), $3.6
      million (tranche five), $1.8 million (tranche six), $3.6 million (tranche
      seven), $7.3 million (tranche eight), and $3.6 million (tranche nine) or
      approximately $23.7 million in aggregate. The values were calculated using
      a
      Black-Scholes option pricing model with an expected term of 6 years, expected
      volatility of 60%, risk-free interest rate of 5.1% and dividend yield of 0%.
      The
      Company will begin expensing the value of these tranches once there is a
      reasonable likelihood of achieving the performance criteria of each tranche
      (as
      described above) and would be based on the current values at that time. During
      the quarter ended June 30, 2008, the Company recognized approximately $0.3
      million expense related to tranche three based upon the status of production
      of
      a series pilot. No expense has been recognized related to tranches four through
      nine.





The
      Company, Burnett and Santa Monica Capital Partners II LLC, ("SMCP"), one of
      the
      Company's shareholders, entered into an Investor Rights Agreement providing
      certain registration rights with respect to the shares purchasable under the
      warrants, co-sale rights with SMCP, restrictions on resale and board observation
      rights.





Note
      12    Related Party Transactions





The
      Company earns revenue from and incurs expenses to Showtime and CBS in connection
      with a television production and distribution agreement. The Company recorded
      revenue for television license fees of $0.9 million and $0.4 million during
      the
      three months ended June 30, 2008 and 2007, respectively and $2.1 million and
      $0.4 million during the six months ended June 30, 2008 and 2007, respectively.
      The Company incurred television production expenses charged by Showtime of
      approximately $0.5 million and $1.1 million during the three months ended June
      30, 2008 and 2007, respectively, and approximately $0.5 million and $2.5 million
      during the six months ended June 30, 2008 and 2007, respectively. The Company
      also incurred non-cash expenses of $2.9 million and $0.1 million for warrant
      vesting and amortization of prepaid distribution costs for the three months
      ended June 30, 2008 and 2007, respectively, and $3.0 million and $0.2 million
      during the six months ended June 30, 2008 and 2007, respectively.




24





In
      October 2006, the Company entered into a three-year term consulting agreement
      and pays a monthly fee of $30,000 to Santa Monica Capital Partners II (“SMCP”)
      for services relating to strategic planning, investor relations, acquisitions,
      corporate governance and financing. The Company paid $90,000 to SMCP for this
      monthly fee during the three months ended June 30, 2008 and 2007, respectively,
      and $180,000 during the six months ended June 30, 2008 and 2007, respectively.
      Additionally, the Company incurred costs for services to provided to SMCP of
      approximately $28,000 and $43,000 during the three months ended June 30, 2008
      and 2007, respectively, and $55,000 and $52,000 during the six months ended
      June
      30, 2008 and 2007, respectively





On
      June
      18, 2008, the Company issued to Showtime a note payable with $3.5 million
      principal and warrants to purchase 100,000 shares of common stock. This
      transaction is more fully described in Note 7 above.




25


**Item 2.
      Management’s Discussion and Analysis of Operations.**





***Forward
      Looking and Cautionary Statements***





*This
      Form 10-Q contains certain forward-looking statements. For example, statements
      regarding our financial position, business strategy and other plans and
      objectives for future operations, and assumptions and predictions about future
      product demand, supply, manufacturing, costs, marketing and pricing factors
      are
      all forward-looking statements. These statements are generally accompanied
      by
      words such as “intend,” “anticipate,” “believe,” “estimate,” “potential(ly),”
“continue,” “forecast,” “predict,” “plan,” “may,” “will,” “could,” “would,”
“should,” “expect” or the negative of such terms or other comparable
      terminology. We believe that the assumptions and expectations reflected in
      such
      forward-looking statements are reasonable, based on information available to
      us
      on the date hereof, but we cannot assure you that these assumptions and
      expectations will prove to have been correct or that we will take any action
      that we may presently be planning. However, these forward-looking statements
      are
      inherently subject to known and unknown risks and uncertainties. Actual results
      or experience may differ materially from those expected or anticipated in the
      forward-looking statements. Factors that could cause or contribute to such
      differences include, but are not limited to, regulatory policies, competition
      from other similar businesses, and market and general policies, competition
      from
      other similar businesses, and market and general economic factors. This
      discussion should be read in conjunction with the financial statements and
      notes
      thereto included in our annual report on Form 10-K.*




*If
      one or more of these or other risks or uncertainties materialize, or if our
      underlying assumptions prove to be incorrect, actual results may vary materially
      from what we project. Any forward-looking statement you read in this report
      reflects our current views with respect to future events and is subject to
      these
      and other risks, uncertainties and assumptions relating to our operations,
      results of operations, growth strategy, and liquidity. All subsequent
      forward-looking statements attributable to us or individuals acting on our
      behalf are expressly qualified in their entirety by this paragraph. You should
      specifically consider the factors identified in this report, which would cause
      actual results to differ before making an investment decision. We are under
      no
      duty to update any of these forward-looking statements after the date of this
      report or to conform these statements to actual results.*





*Overview*





Mixed
      Martial Arts, commonly referred to as MMA, is a sport growing in popularity
      around the world. In MMA matches, athletes use a combination of a variety of
      fighting styles, including boxing, judo, jiu jitsu, karate, kickboxing, muay
      thai, tae kwon do, and wrestling. Typically, MMA sporting events are promoted
      either as championship matches or as vehicles for well-known individual
      athletes. Professional MMA competition conduct is regulated primarily by rules
      implemented by state athletic commissions and is currently permitted in
      twenty-one states. Athletes win individual matches by knockout, technical
      knockout (referee or doctor stoppage), submission, or judges’ decision.





Since
      the
      Company’s formation in August 2006, we have established ourselves as a leading,
      global promoter of live MMA events and provider of a social-networking website
      focused exclusively on MMA. We have agreements to distribute content by
      television and DVD throughout the world. To date, we have focused our efforts
      primarily on events in the United States and United Kingdom and on our website.





In
      2007,
      we accomplished the following strategic objectives:





·
            Acquired
                well-regarded MMA live event brands throughout the
                world:




·
            King
                of the Cage, Inc. (“KOTC”), a promoter of live MMA events, that has
                historically produced in excess of 20 events per
                year.





·
            Mixed
                Martial Arts Promotions, Ltd. and Mixed Martial Arts Productions,
                Ltd.
                (together “Cage Rage”), a United Kingdom-based promoter of live MMA
                events.




26




·
            The
                assets of Future Fight Promotions, Inc. (“ICON”), a Hawaii-based promoter
                of live MMA events.





·
            Invested
                in Entlian Corp., a South Korea-based promoter of live MMA
                events.





·
            Launched
                our social-networking MMA community website,
                www.proelite.com.





During
      2008, the Company increased the number of live events that it promoted. In
      February 2008, the Company signed a television distribution agreement with
      CBS,
      which led to the first MMA event broadcast on network television on May 31,
      2008. In
      June
      2008, the Company amended its Series Agreement with JMBP, Inc. and Mark Burnett,
      extending the time to secure an agreement to run a MMA reality television pilot
      episode, which has been filmed. The
      Company also began a series of reductions costs designed to reduce monthly
      expenditures and improve the profitability of live events. There is no guarantee
      that the Company will be successful in its efforts to reduce
      expenses.





In
      2008,
      the Company encountered liquidity issues. The Company’s auditors have issued a
      going concern opinion in their report for the year ended December 31, 2007
      that
      states substantial doubt exists about the Company’s ability to continue as a
      going concern. In June 2008, the Company secured $3.0 million proceeds from
      a
      note payable from Showtime. Additionally, the Company is actively negotiating
      to
      consummate a financing of approximately $3.5 million in secured debt (with
      a
      funded amount of $3.0 million after an original issue discount of $0.5 million)
      and believes a successful closing is reasonably likely, but there is no
      assurance that it will be successful in doing so at all or on a timely basis.
      Any such failure to obtain financing in the immediate future would have a
      material adverse effect on the Company’s liquidity and capital resources and
      ability to continue as a going concern.





Even
      if
      the Company successfully closes on such financing, it expects that its capital
      resources are sufficient only until the end of the year, and only if the Company
      makes significant reductions in or cessation of operations and
      expenditures. The Company is also actively seeking additional financing beyond
      the $3.0 million to enable the Company to execute its operating plans without
      significant reductions in operations, but there is no assurance as to whether
      any such financing will be available on reasonable terms or at all. Liquidity
      matters are discussed in more detail below.





**Results
      of Operations**





***For
      the three months ended June 30, 2008.***





***Revenue***





Revenue
      from live events, consisting primarily of ticket sales, site fees and
      sponsorship, was $2,027,351 for the three months ended June 30, 2008
      compared to $1,488,558 for the three months ended June 30, 2007. The
      increase was due to higher operating activity in the second quarter of 2008
      compared to the second quarter of 2007 when the Company commenced operations
      and
      to newly acquired subsidiaries. The Company’s EliteXC subsidiary earned revenue
      of approximately $1.3 million from promoting three events in the second quarter
      of 2008 compared to $1.5 million from promoting two events in the second quarter
      of 2007. Also, the Company’s KOTC and Cage Rage subsidiaries, which were
      acquired in September 2007, earned live event revenues of $0.5 million and
      $0.5
      million, respectively, during the second quarter of 2008.





Revenue
      from pay-per-view programming (PPV) and television licensing was $178,866 for
      the three months ended June 30, 2008 compared to $10,858 for the three months
      ended June 30, 2007. The increase was primarily due to acquisitions in late
      2007.





The
      Company began earning television license fees in 2008 under the distribution
      agreement with Showtime and under the distribution agreement with CBS signed
      in
      2008. In 2007, the Company earned no television license fees from Showtime
      or
      CBS. In the second quarter of 2008, the Company received television license
      fees
      of $925,000 from Showtime and CBS.




27





Revenue
      from our website was $208,990 for the three months ended June 30, 2008 compared
      to $16,963 for the three months ended June 30, 2007. This increase was primarily
      due to licensing the Company’s social networking technology.





Other
      revenues, which includes DVD sales and fees for licensing fighters under
      contract, was $346,442 for the three months ended June 30, 2008 compared to
      $0
      for the three months ended June 30, 2007. The increase was due to the Company
      releasing DVD titles of its live events for sale during the quarter ended June
      30, 2008 and to the acquisition of KOTC, which had DVD distribution agreements
      in place at acquisition.





***Cost
      of revenue***





Cost
      of
      revenue for live event production (excluding expenses payable to Showtime and
      CBS) was $2,865,002 for the three months ended June 30, 2008 compared to
      $2,495,618 for the three months ended June 30, 2007. Live event production
      costs
      consist principally of fighters purses, arena rental and related expenses (e.g.,
      staffing, staging, and video equipment rental), event-specific marketing
      expenses (e.g., Internet, radio and television advertising, posters and street
      teams), and travel. Live event production costs increased primarily due to
      inclusion of the KOTC and Cage Rage subsidiaries (acquired in September 2007).
      Cost of revenue for KOTC and Cage Rage were approximately $0.3 million and
      $0.8
      million, respectively, for the quarter ended June 30, 2008. Our EliteXC
      subsidiary incurred costs of approximately $1.7 million to promote three events
      in the second quarter of 2008 compared to approximately $2.2 million to promote
      two events in the second quarter of 2007. The decrease in these expenses for
      the
      EliteXC subsidiary was primarily the result of “Barker shows” (i.e.,
      event-specific promotional videos) produced in 2007 (for approximately $0.6
      million) but not in 2008 and to a charge of $0.3 million for set equipment
      abandoned in 2007. These decreases were partially offset by higher purses,
      marketing and travel.





Also
      included in non-cash cost of revenue was a non-cash expense of $2.3 million
      related to expensing prepaid distribution costs. As of June 30, 2008, management
      determined the likelihood of realizing gross profit on the CBS events was
      remote. Therefore, the entire $2.3 million prepaid distribution costs were
      charged to cost of revenue during the three months ended June 30,
      2008.





Additionally,
      we incurred related-party production costs for television production by Showtime
      of $500,000 for the three months ended June 30, 2008 compared to $1,127,060
      for
      the three months ended June 30, 2007. The decrease was as a result of the terms
      of the distribution agreement with Showtime. This agreement called for the
      Company to pay production expenses in 2007 but not in 2008 for events
      distributed on Showtime. In 2008, the Company used Showtime’s production staff
      to produce the event broadcast on CBS in May 2008 and incurred expenses of
      approximately $0.5 million. We expect cost of revenue for live events will
      increase in 2008 as we promote more events. However, we expect television
      production costs payable to Showtime to decrease in 2008 in accordance with
      the
      terms of the distribution agreement.





Cost
      of
      revenue for our website was $34,237 for three months ended June 30, 2008
      compared to $53,259 for the three months ended June 30, 2007 and consisted
      primarily of merchandise sold through our online store and Internet streaming
      expenses.





***Marketing
      expenses***





Marketing
      expenses primarily consist of marketing, advertising and promotion expenses
      not
      directly related to MMA events. Marketing, advertising and promotion expenses
      related directly to MMA events are charged to cost of revenue. Marketing
      expenses were $107,713 for the quarter ended June 30, 2008 compared to $165,544
      for the quarter ended June 30, 2007 and primarily consisted of Internet and
      print advertising, public relations and marketing consultants. We anticipate
      marketing expenses will decrease as we shift marketing efforts towards specific
      events (which are recorded in cost of revenue) and away from brand awareness
      campaigns.




28





***Website
      operations***





Website
      operations expenses were $666,201 for the three months ended June 30, 2008
      compared to $772,008 for the three months ended June 30, 2007. The decrease
      was
      due primarily to staffing reductions initiated in January 2008.





***Live
      events operations***





Live
      events operations expenses were $1,381,590 for the three months ended June
      30,
      2008 compared to $395,609 for the three months ended June 30, 2007. Live events
      operations expenses consist primarily of wages and consultants’ fees related to
      day-to-day administration of the Company’s live events. The increase was
      primarily the result of acquiring KOTC and Cage Rage in September 2007. KOTC
      and
      Cage Rage incurred operating expenses of approximately $0.3 million and $0.6
      million, respectively, during the quarter ended June 30, 2008.





In
      2008,
      we expect expenses related to our fight operations to increase due to higher
      average staffing levels than 2007 and inclusion of a full year of
      operations of companies acquired in late 2007.





***General
      and administrative expenses***





General
      and administrative expenses were $3,247,118 for the three months ended June
      30,
      2008 compared to $4,394,153 for the three months ended June 30, 2007. A
      significant component of general and administrative expenses was non-cash
      expense related to option and warrant grants of approximately $0.9 million
      in
      the second quarter of 2008 versus approximately $3.1 million in the second
      quarter of 2007. The decrease in option and warrant expense was primarily due
      to
      exercisable warrants issued to JMBP, Inc. in June 2007. The increase in general
      and administrative expenses was also due to higher employee head count resulting
      in wages of approximately $0.9 million in the second quarter of 2008 versus
      $0.4
      million in the second quarter of 2007 and consulting fees of $0.4 million in
      the
      second quarter of 2008 versus $0.3 million in the second quarter of 2007. Also,
      legal expenses increased to $0.3 million in the second quarter of 2008 from
      $0.1
      million in the second quarter of 2007.





In
      the
      first and second quarters of 2008, the Company reduced staffing and did not
      rehire for open positions resulting from employee turnover in an effort to
      cut
      costs. However, we expect 2008 general and administrative expenses will increase
      over 2007 primarily due to higher average staffing levels.





During
      the three months ended June 30, 2008, the Company recognized impairment charges
      totaling approximately $10.3 million related to goodwill and non-amortizable
      intangible assets and other assets resulting from the acquisitions of Cage
      Rage,
      KOTC and ICON. The impairment charges were recorded to reduce the carrying
      value
      of goodwill and acquired intangible assets to estimated fair value. The Company
      recorded an impairment charge of approximately $5.2 million related to a change
      in the operating plan of Cage Rage and a charge of approximately $0.9 million
      related to future realization of assets acquired. The Company recorded an
      impairment charge of approximately $2.4 million related to unfavorable industry
      trends (i.e., increasing fighter purses) affecting KOTC. The Company recorded
      an
      impairment charge of approximately $1.8 million due to a recessionary economy
      affecting ICON’s market.





***For
      the six months ended June 30, 2008.***





***Revenue***





Revenue
      from live events, consisting primarily of ticket sales, site fees and
      sponsorship, was $5,084,790 for the six months ended June 30, 2008 compared
      to $1,799,661 for the six months ended June 30, 2007. The increase was due
      to higher operating activity in 2008 compared to 2007 when the Company commenced
      operations and to newly acquired subsidiaries. The Company’s EliteXC subsidiary
      earned revenue of approximately $3.7 million from promoting eight events in
      2008
      compared to $1.9 million from three events in 2007. Also, the Company’s KOTC and
      Cage Rage subsidiaries, which were acquired in September 2007, earned live
      event
      revenues of $0.9 million and $1.0 million, respectively, during
      2008.





Revenue
      from pay-per-view programming (PPV) and television licensing was $314,141 for
      2008 compared to $10,858 for 2007. The increase was primarily due to
      acquisitions in late 2007.




29





The
      Company began earning television license fees in 2008 under the distribution
      agreement with Showtime and under the distribution agreement with CBS signed
      in
      2008. In 2007, the Company earned no television license fees from Showtime
      or
      CBS. In 2008, the Company received television license fees of $2,125,000 from
      Showtime and CBS.





Revenue
      from our website was $235,454 for the six months ended June 30, 2008 compared
      to
      $20,463 for the six months ended June 30, 2007. This increase was primarily
      due
      to licensing the Company’s social networking technology.





Other
      revenues, which includes DVD sales and fees for licensing fighters under
      contract, was $465,912 for the six months ended June 30, 2008 compared to $0
      for
      the six months ended June 30, 2007. The increase was due to the Company
      releasing DVD titles of its live events for sale during the quarter ended June
      30, 2008 and to the acquisition of KOTC, which had DVD distribution agreements
      in place at acquisition.





***Cost
      of revenue***





Cost
      of
      revenue for live event production (excluding expenses payable to Showtime and
      CBS) was $7,013,024 for the six months ended June 30, 2008 compared to
      $3,402,308 for the six months ended June 30, 2007. Live event production costs
      consist principally of fighters purses, arena rental and related expenses (e.g.,
      staffing, staging, and video equipment rental), event-specific marketing
      expenses (e.g., Internet, radio and television advertising, posters and street
      teams), and travel. Live event production costs increased primarily due to
      inclusion of the KOTC and Cage Rage subsidiaries (acquired in September 2007).
      Cost of revenue for KOTC and Cage Rage were approximately $0.7 million and
      $1.5
      million, respectively, for the six months ended June 30, 2008. Our EliteXC
      subsidiary incurred costs of approximately $5.0 million to promote eight events
      in 2008 compared to approximately $3.4 million to promote three events in 2007.
      The increase in EliteXC’s expenses was primarily due to producing more events
      resulting in increases in fight purses to $2.4 million in 2008 from $1.2 million
      in 2007, arena and related expenses to $1.2 million in 2008 from $0.4 million
      in
      2007, and event-specific marketing to $0.5 million from $0.3 million in 2007.
      These increases were partially offset by reduced production spending of $0.2
      million in 2008 versus $1.0 million in 2007 primarily due to no Barker shows
      produced in 2008 (i.e., event-specific promotional videos produced in 2007
      for
      approximately $0.6 million) and a charge of $0.3 million for set equipment
      abandoned in 2007.





Also
      included in non-cash cost of revenue was a non-cash expense of $2.3 million
      related to expensing prepaid distribution costs. As of June 30, 2008, management
      determined the likelihood of realizing gross profit on the CBS events was
      remote. Therefore, the entire $2.3 million prepaid distribution costs were
      charged to cost of revenue during the six months ended June 30,
      2008.





Additionally,
      we incurred related-party production costs for television production by Showtime
      of $500,000 for the six months ended June 30, 2008 compared to $2,460,835 for
      the six months ended June 30, 2007. The decrease was as a result of the terms
      of
      the distribution agreement with Showtime. This agreement called for the Company
      to pay production expenses in 2007 but not in 2008 for events distributed on
      Showtime. In 2008, the Company used Showtime’s production staff to produce the
      event broadcast on CBS in May 2008 and incurred expenses of approximately $0.5
      million. We expect cost of revenue for live events will increase in 2008 as
      we
      promote more events. However, we expect television production costs payable
      to
      Showtime to decrease in 2008 in accordance with the terms of the distribution
      agreement.





Cost
      of
      revenue for our website was $63,138 for six months ended June 30, 2008 compared
      to $111,814 for the six months ended June 30, 2007 and consisted primarily
      of
      merchandise sold through our online store and Internet streaming
      expenses.





***Marketing
      expenses***





Marketing
      expenses primarily consist of marketing, advertising and promotion expenses
      not
      directly related to MMA events. Marketing, advertising and promotion expenses
      related directly to MMA events are charged to cost of revenue. Marketing
      expenses were $206,878 for the six months ended June 30, 2008 compared to
      $269,438 for the six months ended June 30, 2007 and primarily consisted of
      Internet and print advertising, public relations and marketing consultants.
      We
      anticipate marketing expenses will decrease as we shift marketing efforts
      towards specific events (which are recorded in cost of revenue) and away from
      brand awareness campaigns.




30





***Website
      operations***





Website
      operations expenses were $1,390,464 for the six months ended June 30, 2008
      compared to $1,187,167 for the six months ended June 30, 2007. The increase
      was
      due primarily to higher average staffing levels in 2008 than in 2007.





In
      the
      first and third quarters of 2008, the Company reduced staffing and did not
      rehire for open positions resulting from employee turnover in an effort to
      cut
      costs. Therefore, we expect website operations expenses will decrease in
      2008.





***Live
      events operations***





Live
      events operations expenses were $2,722,882 for the six months ended June 30,
      2008 compared to $731,558 for the six months ended June 30, 2007. Live events
      operations expenses consist primarily of wages and consultants’ fees related to
      day-to-day administration of the Company’s live events. The increase was
      primarily the result of acquiring KOTC and Cage Rage in September 2007. KOTC
      and
      Cage Rage incurred operating expenses of approximately $0.7 million and $1.5
      million, respectively, during 2008.





In
      2008,
      we expect expenses related to our fight operations to increase due to higher
      average staffing levels than 2007 and inclusion of a full year of
      operations of companies acquired in late 2007.





***General
      and administrative expenses***





General
      and administrative expenses were $6,945,746 for the six months ended June 30,
      2008 compared to $6,223,907 for the six months ended June 30, 2007. A
      significant component of general and administrative expenses was non-cash
      expense related to option and warrant grants of approximately $2.3 million
      in
      2008 versus approximately $3.2 million in 2007. The decrease in option and
      warrant expense was primarily due to exercisable warrants issued to Burnett
      in
      June 2007 offset by additional option and warrant grants in 2008. Contributing
      to the increase in general and administrative expenses were higher employee
      head
      count resulting in wages and consulting fees of approximately $1.8 million
      in
      2008 versus $0.6 million in 2007 and consulting fees of $0.7 million in 2008
      versus $0.6 million in 2007. Legal expenses increased to $0.6 million in 2008
      from $0.3 million in 2007 related primarily to ongoing litigation. Insurance
      expense increased to $0.4 million in 2008 from $0.1 million in 2007 as the
      Company expanded its policy coverage, and rent expense increased to $0.2 million
      in 2008 from $0.1 million in 2007 due to moving to new office
      space.





In
      the
      first and second quarters of 2008, the Company reduced staffing and did not
      rehire for open positions resulting from employee turnover in an effort to
      cut
      costs. However, we expect 2008 general and administrative expenses will increase
      over 2007 primarily due to higher average staffing levels.





During
      the quarter ended June 30, 2008, the Company recognized impairment charges
      totaling approximately $10.3 million related to goodwill and non-amortizable
      intangible assets resulting from the acquisitions of Cage Rage, KOTC and ICON.
      The impairment charges were recorded to reduce the carrying value of goodwill
      and acquired intangible assets to estimated fair value. The Company recorded
      an
      impairment charge of approximately $5.2 million related to a change in the
      operating plan of Cage Rage and a charge of approximately $0.9 million related
      to future realization of assets acquired. The Company recorded an impairment
      charge of approximately $2.4 million related to unfavorable industry trends
      (i.e., increasing fighter purses) affecting KOTC. The Company recorded an
      impairment charge of approximately $1.8 million due to a recessionary economy
      affecting ICON’s market.




31





**Liquidity
      and Capital Resources**





Net
      cash
      used in operating activities was $7.6 million during the six months ended
      June 30, 2008 compared to $7.0 million during the six months ended
      June 30, 2007. The use of cash was primarily the result of net losses for
      the periods. The Company is currently working to achieve event profitability
      and
      decrease overhead, although there is no assurance it will be successfully able
      to do so.





Net
      cash
      used in investing activities was $0.1 million during the six months ended
      June 30, 2008 compared to $1.1 million during the six months ended
      June 30, 2007. The decrease was due to less need for capital expenditures
      in the current year compared to the prior year when the Company was developing
      its social networking website.





Net
      cash
      provided by financing activities was $6.6 million during the six months ended
      June 30, 2008 compared to $4.8 million during the six months ended
      June 30, 2007. In the six months ended June 30, 2008, the Company received
      $4.0 million from Showtime from the exercise of 2.0 million warrants at $2.00
      per share in February 2008 and $3.0 million from the proceeds of the note
      payable issued June 2008. In the six months ended June 30, 2007, the Company
      received $5.0 million from Showtime for the issuance of 5 million shares of
      common stock and 6.7 million warrants exercisable at $2.00 per share.





In
      September and December 2007, the Company acquired the stock of two fight
      promotion companies, purchased the assets of a fight-promotion company, and
      made
      a significant investment in a fourth. Additionally, the Company’s business plan
      calls for expanding the scale of live events, including pay-per-view, and
      Internet operations. As a result, the need for cash has correspondingly
      increased. Although the Company had approximately $3.5 million of cash at June
      30, 2008, the Company continues to expend more cash than it brings in through
      operations.





The
      Company is actively negotiating to consummate a financing of approximately
      $3.5
      million in secured debt (with a funded amount of $3.0 million after an original
      issue discount of $0.5 million) and believes a successful closing is reasonably
      likely, but there is no assurance that it will be successful in doing so at
      all
      or on a timely basis. Any such failure to obtain financing in the immediate
      future would have a material adverse effect on the Company’s liquidity and
      capital resources and ability to continue as a going concern.





Even
      if
      the Company successfully closes on the debt financing referred to above, it
      expects that its capital resources would be sufficient only until the end of
      the
      year, and only if the Company makes significant reductions in or cessation
      of
      operations and expenditures before year end, including dramatically reducing
      costs by reducing administrative expenses and some lines of business. Such
      actions would limit our potential for growth and could materially adversely
      affect the Company’s business and prospects.





To
      address its liquidity needs beyond the immediate period, the Company is also
      actively seeking additional financing beyond the $3.0 million referred to above
      to enable the Company to execute its operating plans without significant
      reductions in operations, but there is no assurance as to whether any such
      financing will be available on reasonable terms or at all.





The
      auditor's opinion contained in our Annual Report on Form 10-KSB for the year
      ended December 31, 2007 states substantial doubt exists about our ability to
      continue as a going concern. The financial statements in this Quarterly Report
      on Form 10-Q do not contain any adjustments that may be required should we
      be
      unable to continue as a going concern.





**Item 3.
      Quantitative and Qualitative Disclosures about Market Risk** .





Not
      applicable.




32





**Item 4.
      Controls and Procedures.**





(a) *Evaluation
      of disclosure controls and procedures.* The
      Company’s Chief Executive Officer and Chief Financial Officer have evaluated the
      effectiveness of the Company’s disclosure controls and procedures as of
      June 30, 2008. Based on such evaluation, such officers have concluded that,
      as of June 30, 2008, the Company’s disclosure controls and procedures were
      not effective in ensuring that (i) information required to be disclosed by
      the
      Company in the reports that it files or submits under the Exchange Act is
      recorded, processed, summarized and reported, within the time periods specified
      in the SEC’s rules and forms and (ii) information required to be disclosed by
      the Company in the reports that it files and submits under the Exchange Act
      is
      accumulated and communicated to the Company’s management, including its
      principal executive and principal financial officers, or persons performing
      similar functions, as appropriate to allow timely decisions regarding required
      disclosure. The deficiencies in disclosure controls and procedures were related
      to the deficiencies in our internal control over financial reporting. In
      evaluating our internal controls as of December 31, 2007, our auditors noted
      several material weaknesses and a significant deficiency which we are working
      to
      address. The material weaknesses noted were: (1) The Company’s accounting
      records, policies and procedures were not adequately maintained or documented,
      and the accounting department did not have sufficient technical accounting
      knowledge. (2) Due to a lack of resources, the Company did not analyze financial
      and operating results in a timely manner, including spending by management
      and
      other officers. Additionally, the Company did not proactively review the legal
      contracts entered into for financial implications. (3) Departments did not
      always work in a cohesive manner, particularly in regards to required
      disclosures, due diligence and acquisitions, and grants of options and warrants.
      (4) A portion of the Company’s expenditures for live events are paid by and
      reimbursed to an executive/director in advance of review and approval of the
      charges. (5) The Company’s executives, directors and shareholders have business
      relationships requiring them to advise, manage and/or provide services to other
      businesses. The Company has engaged in transactions with some of these
      businesses. Due to the wide-ranging network of contacts and business
      relationships of our executives, directors and shareholders, the Company was
      not
      always able to devote sufficient resources to identify, monitor and report
      all
      transactions with such businesses in a timely manner. (6) The Company did not
      have an active audit committee.





(b) *Changes
      in internal controls* .
      The
      Company is in the early stages of taking remediation steps to enhance its
      internal control over financial reporting and reduce control deficiencies.
      We
      have been and are actively working to eliminate the internal control weaknesses
      noted by taking the following measures: We are working to bring all accounting
      and record maintenance in-house and creating centralized, on-site document
      repositories; We hired personnel in the accounting department with technical
      accounting and financial reporting experience suitable for a public company.
      Additionally, We also hired personnel in our legal department; We have
      implemented Microsoft Dynamics/Great Plains accounting software; We are formally
      documenting Company policies and procedures; We are implementing a purchase
      order and approval system and system of managerial approval prior to
      disbursement of funds; We have implemented periodic reviews of budget and actual
      results by department managers; In order to improve communication throughout
      the
      Company and to identify transactions that may require disclosure, we implemented
      twice weekly meetings of department heads to communicate financial results
      and
      operational activities; We have added three new independent Directors to our
      Board and key committees.





As
      noted
      above, there were changes in our internal controls over financial reporting
      that
      occurred during the period covered by this report that have materially affected
      our internal controls over financial reporting. It is expected that
      implementation of the above described remediation steps will have a significant
      impact on enhancing our internal control over financial reporting during
      2008.




33


**PART
      II. OTHER INFORMATION**





**Item 1.
      Legal Proceedings.**





See
      Note
      10 to the Condensed Consolidated Financial Statements contained in this
      Quarterly Report on Form 10-Q.





**Item
      1A. Risk Factors.**





Not
      applicable.





**Item 2.
      Unregistered Sales of Equity Securities and Use of Proceeds**





On
      June
      18, 2008, in connection with the issuance of a Senior Secured Note Purchase
      Agreement and related documents with Showtime Networks, Inc. (“Showtime”), the
      Company issued to Showtime a warrant (“Warrant”) to purchase 100,000 shares of
      common stock. The warrant has an exercise price of $0.01 per share and a term
      of
      36 months.




**Item 3.
      Defaults Upon Senior Securities**





None





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





None





**Item 5.
      Other Information**





None.





**Item 6.
      Exhibits.**





See
      the
      attached exhibit index.




34


**SIGNATURES**




Pursuant
      to the requirements of the Securities Exchange Act of 1934, the registrant
      has
      duly caused this report to be signed on its behalf by the undersigned thereunto
      duly authorized.


PROELITE,
                INC.Date:
                August 19, 2008
            By:
            /s/ Charles
                ChampionCharles
                Champion, Chief Executive Officer
              (Principal
                Executive Officer)




And:
            /s/ Dale
                BolenDale
                Bolen, Interim Chief Financial Officer
              and
                Chief Accounting Officer
              (Principal
                Financial and Accounting Officer)




35




**EXHIBIT
      INDEX**




Exhibit
                No.
            
            Exhibit
                Description2.1
            
            Senior
                Secured Note Purchase Agreement among ProElite, Inc. and Showtime
                Networks, Inc. (1)2.2
            
            Senior
                Secured Note (1)2.3
            
            Security
                Agreement (1)2.4
            
            Warrant
                to Purchase Common Stock (1)2.5
            
            Letter
                from Showtime Networks, Inc. to ProElite, Inc. extending maturity
                date of
                note payable dated December 17, 2007 (1)31.1
            
            Certification
                of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
                Act of 2002.31.2
            
            Certification
                of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
                Act of 2002.32
            
            Certification
                of Chief Executive Officer and Chief Financial Officer Pursuant to
                Section
                906 of the Sarbanes-Oxley Act of
                2002.




(1)
      Previously filed on June 24, 2008 with the current report on Form
      8-K.




36