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 Forthe quarterly period ended September 30, 2008

o Transition report under Section 13 or 15(d) of the Exchange Act For the ~~quarterly~~transition period ~~ended~~from ~~March 31, 2008~~To

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 No x

Indicate by ~~checkmark~~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 filer o		Accelerated filer o
Non-accelerated filer o	(Do not check if a smaller reporting company)	Smaller reporting company x

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 ~~May~~September 1930, 2008 there were 55,854,~~724~~726 shares of Common Stock outstanding.

Explanatory Note

Prior to the date of this filing, ProElite, Inc. (the "Company") has not filed any periodic reports since August 19, 2008 for the Quarterly Report on Form 10-Q for the period ended June 30, 2008. This Report is one of several reports being concurrently filed by the Company in order to bring its filings current as of the date hereof. The information in this Report relates solely to the period covered thereby, and is not updated for events subsequent to such period.

ProElite, Inc.

INDEX

		Page No.
	PART I. FINANCIAL INFORMATION
Item 1	Condensed Consolidated Financial Statements	3
	Condensed Consolidated Balance Sheets as of March 31, 2008 and December 31, 2007	3
	Condensed Consolidated Balance Sheets as of September 30, 2008 and December 31, 2007	3
	Condensed Consolidated Statements of Operations for the three month periods ended March 31, 2008 and 2007	4
	Condensed Consolidated Statements of Operations for the three and nine month periods ended September 30, 2008 and 2007	4
	Condensed Consolidated Statement of Changes in Shareholders’ Equity for the three month period ended March 31, 2008	5
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2008 and 2007	5
	Condensed Consolidated Statements of Cash Flows for the three month periods ended March 31, 2008 and 2007	6
	Notes to Condensed Consolidated Financial Statements	7
	Notes to Condensed Consolidated Financial Statements	8
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 2	Management’s Discussion and Analysis of Operations	24
Item 3	Quantitative and Qualitative Disclosures about Market Risk	23
Item 3	Quantitative and Qualitative Disclosures about Market Risk	27
Item 4	Controls and Procedures	23
Item 4	Controls and Procedures	27
	PART II. OTHER INFORMATION
Item 1	Legal Proceedings	2925
Item 1A	Risk Factors	2925
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	2925
Item 3	Defaults Upon Senior Securities	2925
Item 4	Submission of Matters to a Vote of Security Holders	2925
Item 5	Other Information	2925
Item 6	Exhibits	2925
	Signatures	3026
	Exhibit Index	3127

Exhibit 31.1 302 Certification of Chief Executive Officer Exhibit 31.2 302 Certification of Chief Financial Officer Exhibit 32.1 906 Certification of Chief Executive Officer ~~906~~and ~~Certification of~~ Chief Financial Officer

PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements.

ProElite, Inc.

Condensed Consolidated Balance Sheets

	March 31, 2008			December 31, 2007
	September 30, 2008				December 31, 2007
	(unaudited)
Assets	(unaudited)
Assets
Current assets
Current assets
Cash and cash equivalents	$	634,001			$	4,427,303
Cash and cash equivalents	$	3,686,654		$	4,427,303
Restricted cash		410,907				277,500
Restricted cash		400,803			277,500
Accounts receivable, net of allowance of $264,571 and $255,901, respectively		642,458				338,596
Accounts receivable, net of allowance of $207,500 and $255,901, respectively		1,055,495			338,596
Prepaid expenses		456,181				133,673
Accounts receivable - Showtime		45,820			-
Other current assets		65,905				1,077,896
Prepaid expenses		156,663			133,673
Total current assets		2,209,452				6,254,968
Other current assets		1,014,681			1,077,896
Fixed assets, net		1,211,592				1,428,548
Total current assets		6,360,116			6,254,968
Other assets
Fixed assets, net		1,369,028			1,428,548
Acquired intangible assets, net		1,254,000				9,022,181
Other assets
Goodwill		-				6,238,652
Acquired intangible assets, net		8,681,446			9,022,181
Investment in Entlian/SpiritMC		1,000,000				1,848,003
Goodwill		6,445,795			6,238,652
Prepaid distribution costs, net		451,530				764,109
Investment in Entlian/SpiritMC		1,732,306			1,848,003
Prepaid license fees, net		65,620				111,052
Prepaid distribution costs, net		2,897,479			764,109
Prepaid services, net		248,887				408,889
Prepaid license fees, net		95,908			111,052
Deposits and other assets		174,414				143,915
Prepaid services, net		337,778			408,889
Total other assets		3,194,451				18,536,801
Deposits and other assets		148,915			143,915
Total assets	$	6,615,495			$	26,220,317
Total other assets		20,339,627			18,536,801
Liabilities and Shareholders’ Equity (Deficit)
Total assets	$	28,068,771		$	26,220,317
Current liabilities
Liabilities and Shareholders’ Equity
Notes payable and accrued interest – Showtime	$	6,048,225			$	1,822,086
Current liabilities
Accounts payable		2,389,787				1,531,342
Note payable and accrued interest - Showtime	$	1,855,757		$	1,822,086
Accrued expenses		447,355				733,638
Accounts payable		1,259,974			1,531,342
Accounts payable and accrued expense – Showtime, CBS		-				125,000
Accrued expenses		632,984			733,638
Future payments due for acquired companies		1,480,530				1,162,500
Accounts payable and accrued expense - Showtime		-			125,000
Accrued liabilities from predecessor company		346,572				346,572
Future payments due for acquired companies		1,325,000			1,162,500
Deferred revenue		19,250				-
Other accrued liabilities from predecessor company		346,572			346,572
West Coast settlement		150,000				150,000
Other accrued liabilities		31,918			-
Total current liabilities		10,881,719				5,871,138
Deferred revenue		162,300			-
Deferred rent and lease incentive		150,453				153,309
West Coast settlement		150,000			150,000
Total liabilities		11,032,172				6,024,447
Total current liabilities		5,764,505			5,871,138
Commitments and contingencies
Deferred rent and lease incentive		154,019			153,309
Shareholders’ equity
Total liabilities		5,918,524			6,024,447
Preferred stock, $0.0001 par value, 20,000,000 shares authorized, 0 shares issued		-				-
Commitments and contingencies
Common stock, $0.0001 par value, 250,000,000 shares authorized, 55,854,726 and 51,659,488 shares issued and outstanding at September 30, 2008 and December 31, 2007, respectively		5,586				5,166
Shareholders’ equity
Common stock to be issued		1,062,473				2,249,997
Preferred stock, $0.0001 par value, 20,000,000 shares authorized, 0 shares issued		-			-
Additional paid-in-capital		61,350,307				49,404,897
Common stock, $0.0001 par value, 250,000,000 shares authorized, 55,676,155 and 51,659,488 shares issued and outstanding at March 31, 2008 and December 31, 2007, respectively		5,568			5,166
Accumulated other comprehensive income (expense)		(139,197	)			(86,793	)
Common stock to be issued		2,312,470			2,249,997
Accumulated deficit		(66,695,846	)			(31,377,397	)
Additional paid-in-capital		56,864,624			49,404,897
Total shareholders’ equity (deficit)		(4,416,677	)			20,195,870
Accumulated other comprehensive income (expense)		15,854			(86,793	)
Total liabilities and shareholders’ equity (deficit)	$	6,615,495			$	26,220,317
Accumulated deficit		(37,048,269	)		(31,377,397	)
Total shareholders’ equity		22,150,247			20,195,870
Total liabilities and shareholders’ equity	$	28,068,771		$	26,220,317

See Notes to Condensed Consolidated Financial Statements

ProElite, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

	Three Months Ended March 31, 2008			Three Months Ended March 31, 2007
	Three Months Ended September 30, 2008				Three Months Ended September 30, 2007			Nine Months Ended September 30, 2008			Nine Months Ended September 30, 2007
Revenue
Revenue, non-related party	$	2,399,834			$	1,270,825		$	8,500,131		$	3,101,807
Live events	$	2,974,564		$	311,104
Showtime, CBS		505,000				(170,723	)		2,630,000			240,133
Pay per view and television licensing		135,275			-
Total revenue		2,904,834				1,100,102			11,130,131			3,341,940
Showtime		1,200,000			-
Cost of Revenue, non-related party		2,954,789				2,685,613			13,470,193			6,761,560
Internet		26,464			3,500
Showtime, CBS		591,571				705,195			1,091,571			2,594,705
Other		119,471			-
Total cost of revenue		3,546,360				3,390,808			14,561,764			9,356,265
Total revenue		4,455,774			314,604
Gross loss		(641,526	)			(2,290,706	)		(3,431,633	)		(6,014,325	)
Cost of revenue
Operating expenses
Live events		4,027,894			1,509,939
Marketing		-				119,002			206,878			246,049
Pay per view and television licensing		24,354			-
Website operations		213,396				1,031,185			1,603,860			2,351,429
Showtime (including non-cash warrant amortization expense of $122,075 and $104,193)		122,075			935,933
General and administrative		4,808,981				3,905,073			14,354,214			10,879,726
Internet		28,902			58,555
Impairment and other charges		4,971,445				-			15,386,979			-
Other		39,394			-
Total operating expenses		9,993,822				5,055,260			31,551,931			13,477,204
Total cost of revenue		4,242,619			2,504,427
Operating loss		(10,635,348	)			(7,345,966	)		(34,983,564	)		(19,491,529	)
Gross profit (loss)		213,155			(2,189,823	)
Interest income (expense), net		(292,865	)			192,705			(334,885	)		391,746
Operating expenses
Loss before income taxes		(10,928,213	)			(7,153,261	)		(35,318,449	)		(19,099,783	)
Marketing		121,025			103,529
Income taxes		-				-			-			-
Website operations		724,264			415,170
Net loss	$	(10,928,213	)		$	(7,153,261	)	$	(35,318,449	)	$	(19,099,783	)
Live events		1,326,123			339,390
Net loss per share - basic and diluted	$	(0.20	)		$	(0.16	)	$	(0.65	)	$	(0.44	)
General and administrative expenses		3,698,629			1,621,259
Weighted average shares outstanding - basic and diluted		55,855,726				45,911,668			54,865,225			43,689,176
Total operating expenses		5,870,041			2,479,348
Operating loss		(5,656,886	)		(4,669,171	)
Other income
Interest income (expense), net		(13,986	)		116,224
Loss before income taxes		(5,670,872	)		(4,552,947	)
Income taxes		-			-
Net loss	$	(5,670,872	)	$	(4,552,947	)
Net loss per share - basic and diluted	$	(0.11	)	$	(0.11	)
Weighted average shares outstanding - basic and diluted		52,915,349			42,277,778

See Notes to Condensed Consolidated Financial Statements

ProElite, Inc.

Condensed Consolidated Statement of Changes in Shareholders’ Equity

(Unaudited)

												Accumulated
	Common Stock								Additional			Other						Total
	Issuable				Common Stock				Paid-			Comprehensive			Accumulated			Shareholders’
	Shares		Amount		Shares		Amount		In Capital			Income (Expense)			Deficit			Equity
Balance at December 31, 2007		278,571	$	2,249,997		51,659,488	$	5,166	$	49,404,897		$	(86,793	)	$	(31,377,397	)	$	20,195,870
Common stock issuable in connection with acquisitions and for services		39,280		62,473		-		-		-			-			-			62,473
Common stock issued in connection with warrant exercise by Showtime		-		-		2,000,000		200		3,999,800			-			-			4,000,000
Warrant issued to Showtime		-		-		-		-		2,255,446			-			-			2,255,446
Warrants exercised on a cashless basis by private placement investors and placement agent		-		-		2,016,667		202		(202	)		-			-			-
Compensation expense for stock options and warrants		-		-		-		-		1,204,683			-			-			1,204,683
Cumulative translation adjustment		-		-		-		-		-			102,647			-			102,647
Net loss		-		-		-		-		-			-			(5,670,872	)		(5,670,872	)
Balance at March 31, 2008		317,851	$	2,312,470		55,676,155	$	5,568	$	56,864,624		$	15,854		$	(37,048,269	)	$	22,150,247

See Notes to Condensed Consolidated Financial Statements

ProElite, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

	Three Months Ended March 31, 2008			Three Months Ended March 31, 2007
	Nine Months Ended September 30, 2008				Nine Months Ended September 30, 2007
Cash flows from operating activities
Net loss	$	(535,~~670~~318,~~872~~449	)	$	~~(4,552,947~~$	)(19,099,783	)
Adjustments to reconcile net loss to net cash used in operating activities
Stock and warrant based compensation		14,~~204~~291,~~683~~348			~~462,715~~	4,008,005
Stock issued for services		17,830			-	-
Depreciation and amortization		654,084			144,484
Impairment and other charges		15,386,979				-
Loss in equity interest in Entlian Co.		115,697			-
Depreciation and amortization		3,134,624				815,076
Change in operating assets and liabilities:
Loss in equity interest in Entlian Corp.						44,951
Increase in accounts receivable		(762,719	)		(12,250	)
Provision for uncollectible accounts		186,329				183,000
(Increase) decrease in prepaid expense and other assets		35,224			(86,595	)
Abandonment of equipment		-				242,809
Increase (decrease) in accounts payable, accrued expenses and other liabilities		(139,756	)		1,230,890
Amortization of deferred financing costs and original issue discount		199,804				-
Increase in deferred revenue		95,500			250,000
Change in operating assets and liabilities:
Net cash used in operating activities		(4,450,329	)		(2,563,703	)
Increase in accounts receivable		(490,191	)			(778,749	)
Cash flows from investing activities
(Increase) decrease in prepaid expense and other assets		648,483				(297,213	)
Purchase of fixed assets		(45,500	)		(584,832	)
Increase in accounts payable, accrued expenses and other liabilities		479,962				2,670,947
Net cash used in investing activities		(45,500	)		(584,832	)
Net cash used in operating activities		(11,463,281	)			(12,210,957	)
Cash flows from financing activities
Cash flows from investing activities
Issuance of common stock and warrants for cash		-			5,000,000
Acquisition of King of the Cage, Inc.		-				(3,250,000	)
Proceeds from exercise of options and warrants		4,000,000
Acquisition of Cage Rage, net of cash acquired		-				(3,938,386	)
Additional cash pledged as collateral for credit card facility		(123,303	)		(75,000	)
Investment in Entlian Corp.		-				(1,000,000	)
Payments related to acquisitions		(224,164	)		-
Purchase of fixed assets		(144,210	)			(1,378,348	)
Net cash provided by financing activities		3,652,533			4,925,000
Net cash used in investing activities		(144,210	)			(9,566,734	)
Effect of exchange rates		102,647			-
Cash flows from financing activities
Net increase (decrease) in cash and cash equivalents		(740,649	)		1,776,465
Showtime Loan		4,000,000				-
Cash and cash equivalents at beginning of period		4,427,303			7,295,825
Issuance of common stock and warrants for cash – Showtime		4,000,000				25,137,466
Cash and cash equivalents at end of period	$	3,686,654		$	9,072,290
Proceeds from exercise of options and warrants – Showtime						158,548
Cash pledged as collateral for credit card facility		(133,407	)			(277,500	)
Net cash provided by financing activities		7,866,593				25,018,514
Cumulative translation adjustment		(52,404	)			-
Net increase (decrease) in cash and cash equivalents		(3,793,302	)			3,240,823
Cash and cash equivalents at beginning of period		4,427,303				7,295,825
Cash and cash equivalents at end of period	$	634,001			$	10,536,648

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.

At March 31, 2007, the Company reduced its registration rights liability related to the shares issued in aan 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 ~~in 2007~~ 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 ~~Networks~~ 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 nine months ended September 30, 2008, the Company issued 178,571 shares of common stock, previously recorded as common stock issuable, related to the KOTC acquisition.

During the nine months ended September 30, 2008, the Company accrued a liability of $487,500 for contingent consideration related to the KOTC acquisition.

See Notes to Condensed Consolidated Financial Statements

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.

~~The Company~~See ~~began~~Note ~~its~~9 ~~current~~for ~~business in August 2006 and was considered~~ a ~~development~~ ~~stage~~description ~~company~~of ~~until~~events ~~the~~subsequent ~~first~~to ~~quarter~~September of30, ~~2007~~2008 ~~when~~that ~~revenues~~relate ~~were first~~to ~~recognized~~operations.

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 43).

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~~has earned 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 ~~purse~~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.

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 ~~agreement~~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 approximately $~~315~~1,~~309~~205,000 and $~~162~~697,~~381~~ 000 during the ~~quarters~~nine months ended ~~March~~September 3130, 2008 and 2007, respectively.

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. The Company maintains cash and cash equivalents with various commercial banks. These bank accounts are generally guaranteed by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. At times, cash balances at any single bank may be in excess of the FDIC insurance limit. The deposits are made with reputable financial institutions and the Company does not anticipate realizing any losses from these deposits.

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.

9SFAS 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. During the nine months ended September 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 $7.2 million to reduce the carrying value of goodwill and acquired intangible assets to their estimated fair values. Additionally, as of September 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 $2.3 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 $4.3 million to reduce goodwill and purchased intangibles related to the King of the Cage to estimated fair value.

~~SFAS No. 142~~See ~~requires~~Note ~~goodwill~~9 ~~and other indefinite-lived intangible assets to be tested~~ for ~~impairment~~a atdescription ~~least~~of onevents ansubsequent ~~annual~~to ~~basis~~September ~~and more often under certain circumstances~~30, ~~and~~2008 ~~written~~that ~~down~~relate ~~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. The Company does not believe the goodwill and indefinite-lived intangible assets were impaired at March 31, 2008.

However, maintaining the goodwill and indefinite-lived intangible assets is predicated upon the Company substantially improving the operations of CageRage and maintaining profitable operations of the other acquisitions. The Company has developed plans to increase the revenue and profitability of CageRage. Similarly, maintaining the goodwill related to the ICON purchase requires the Company to improve the profitability and/or increase the number of ICON events. If the Company does not execute successfully against these plans, it will be required to record a non-cash charge to operations to reduce the amount of goodwill and indefinite-lived intangible assets.8

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.

Prepaid Distribution Costs

Prepaid distribution costs represent the value of warrants issued to Showtime Networks , Inc. (“Showtime”) in November 2006, ~~and~~ January 2007 and ~~to CBS Entertainment in~~ 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 ~~expense~~cost of revenue over the three-year term of the distribution agreement with Showtime ~~and at the time of broadcast of the first four events under the CBS agreement~~.

During the nine months ended September 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. See Note 9.

Income Taxes

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 settlements, only if the position is more likely than not of being sustained on audit, based on the technical merits of the position. The adoption of FIN 48 did not have an effect on the Company’s consolidated financial statements.

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.

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.

There were 4,956,797 and 1,016,165 shares under options at September 30, 2008 and 2007, respectively, that were not included in the calculation of loss per share as their inclusion would be antidilutive. There were 30,172,970 and 19,692,384 shares under warrants at September 30, 2008 and 2007, respectively, that were not included in the calculation of loss per share as their inclusion would be antidilutive.

Recent Accounting Pronouncements

~~In September~~Management ~~2006,~~does ~~the~~not ~~Financial~~believe ~~Accounting~~that ~~Standards~~any ~~Board~~recently ~~(“FASB”)~~ issued ~~SFAS No. 157~~, ~~“Fair~~but 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~~yet ~~any new fair value measurements. This statement is~~ effective ~~for~~accounting ~~all financial instruments issued for fiscal years beginning after November 15~~standards, ~~2007,~~if ~~and interim periods within those fiscal years. The Company~~ adopted ~~SFAS No. 157 as of January 1~~, ~~2008~~will ~~and~~have ita ~~had no~~ material effect on the Company’s financial ~~position, operations or cash flows~~statements.

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 15, 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.

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. Although ~~The~~the Company’s ~~business~~had ~~plan calls~~approximately ~~for~~$634,000 ~~expanding the scale~~ of ~~live~~cash ~~events~~at ~~and~~September ~~Internet~~30, ~~operations. As a result~~2008, the ~~need~~Company ~~for~~continues ~~cash~~to ~~has~~expend ~~correspondingly~~more ~~increased.~~cash ~~Although~~than ~~the~~it ~~Company had~~brings ~~approximately~~in $3through operations.7 On ~~million~~October of20, ~~cash~~2008, atmanagement, ~~March~~with ~~31,~~Board ~~2008~~ratification, ~~additional~~decided ~~financing is~~to ~~needed~~close toor ~~maintain~~sell all operations and tobegan ~~grow~~an ~~the~~extended ~~operations~~period toof ~~their~~restructuring ~~desired levels~~its ~~over~~balance ~~the~~sheet, ~~next~~divesting 12itself ~~months~~of certain assets, settlement of contingent liabilities, and attempting to raise additional capital. See Note 9.

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 the Company's isability ~~currently~~to ~~seeking~~continue ~~additional~~as ~~financing~~a going concern. ~~However,~~The ~~there~~financial ~~can~~statements ~~be no assurances~~in this Quarterly Report on Form 10-Q do not contain any adjustments that itmay ~~will~~be required should we be ~~able~~unable to ~~raise~~continue ~~sufficient~~as ~~financing~~an on-going ~~favorable terms and conditions~~concern.

~~If the Company~~Note is3 Acquisitions ~~unable to raise sufficient financing, it will be required to reduce its expansion programs~~ and dramatically reduce costs by reducing administrative expenses and some lines of business. Such actions would limit its potential for growth. If sufficient additional financing cannot be obtained, the Company may have to curtail or reduce operations. The auditor’s report for the year ended December 31, 2007 states that substantial doubt exists about the Company’s ability to continue as a going concern. These financial statements do not contain any adjustments that may be required should the Company be unable to continue as an on-going concern.Investments

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 March 31, 2008			Three Months Ended March 31, 2007
Weighted-average common shares outstanding - basic		52,915,349			42,277,778
Dilutive effect of stock options and warrants		-			-
Weighted-average common shares outstanding - diluted		52,915,349			42,277,778
Net loss per share - basic and diluted	$	(0.11	)	$	(0.11	)

The effect of options and warrants (together 35,935,184 and 19,070,000, respectively) on the computation of diluted net loss per share is excluded for the three months ended March 31, 2008 and 2007 because their effect is anti-dilutive.

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 ~~to be~~ issued in ~~January~~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. ~~In April 2008, the Company issued 178,571 shares at $7.00 per share.~~ Additionally, the Company entered into a five year employment contract with one of the selling shareholders. The ~~(See~~stock ~~Note 9~~purchase agreement also calls for contingent consideration to be paid annually if certain operating results are achieved by KOTC over five years.)

~~The stock purchase~~In ~~agreement~~the ~~also~~nine ~~calls~~months ~~for~~ended ~~contingent~~September ~~consideration~~30, 2008, the Company recorded an impairment charge of approximately $4.3 million to bereduce ~~paid~~the ~~annually if~~carrying ~~certain~~value ~~operating~~of ~~results~~goodwill ~~are~~and ~~achieved~~acquired byintangible assets from the KOTC ~~over~~acquisition ~~five~~to ~~years~~their estimated fair value. See ~~Contingent consideration~~Note ~~performance~~9 ~~thresholds~~for ~~and~~events ~~payment~~subsequent ~~amounts~~to ~~are~~September as30, ~~follows:~~ 2008 related to discontinued operations.

	Performance Thresholds				Annual Contingent Consideration Payable
Years Ending September 11,	Number of Live Events Produced per Year		Annual EBITDA (as defined in Stock Purchase Agreement)		Cash		Common Stock
2008 to 2012		15		n/a	$	500,000		-
2008 to 2012		22		n/a		75,000	$	75,000
2008 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 March 31, 2008, the Company has accrued a liability of $325,000 for estimated contingent consideration payable.

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.

For the quarter ended March 31, 2008, KOTC recognized revenue of approximately $500,000 and after expenses, including amortization of approximately $105,000 related to acquired intangible assets, a net loss of approximately $105,000.

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~~ gave the Company an event promotion business in the ~~UK.~~United ~~The transaction was treated as a business combination~~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 Company acquired a balance due of approximately $940,000 from a business owned by a selling shareholder of CageRage. This amount was due primarily for event sponsorship prior to the Company’s acquisition of CageRage. If the Company is unable to collect this amount or offset it against the liability for future acquisition purchase price payable, it will be reserved with the offset increasing the goodwill from the purchase of CageRage.

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.

For the quarter ended March 31, 2008, Cage Rage recognized revenue of approximately $465,000 and after expenses, including amortization of approximately $216,000 related to acquired intangible assets, a net loss of approximately $787,000.10

In the nine months ended September 30, 2008, the Company recorded an impairment charge of approximately $7.2 million to reduce the carrying value of goodwill and acquired intangible assets from the Cage Rage acquisition to their estimated fair value.

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~~gave 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.

~~The~~ In the nine months ended September 30, 2008, the Company’s ~~first~~recorded ~~event~~an ~~using~~impairment charge of approximately $2.3 million to reduce the carrying value of goodwill and acquired intangible assets from the ICON ~~brand~~acquisition ~~occurred~~to intheir ~~March~~estimated ~~2008~~fair value.

Detail of Acquisitions

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

	KOTC			Cage Rage			ICON		Total
Current assets, exclusive of cash	$	-		$	904,000		$	-	$	904,000
Fixed assets		30,000			61,000			-		91,000
Intangible assets with indefinite lives		1,700,000			3,800,000			628,000		6,128,000
Other intangible assets		1,110,000			1,723,000			410,000		3,243,000
Goodwill		2,356,000			2,571,000			1,312,000		6,239,000
Current 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 related to these intangible assets during the quarter ended March 31, 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 a 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~~ gave 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. The Company has not issued the additional common shares.

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 $~~116~~78,000 and $271,000, representing the Company’s share of SpiritMC’s loss for the ~~quarter~~three and nine months ended ~~March~~September 3130, 2008. See Note 9 for a further discussion related to events subsequent to September 30, 2008.

Note 5 4 ~~Other~~Fixed ~~Current~~ Assets, Net

Other current assets includes a balance due of approximately $940,000 from a business owned by a former shareholder of CageRage. This amount was due primarily for event sponsorship prior to the Company’s acquisition of CageRage. If the Company is unable to collect this amount or offset it against the liability for future acquisition purchase price payable, it will be reserved with the offset increasing the goodwill from the purchase of CageRage.

Note 6 Fixed Assets, Net

Fixed assets, net consisted of the following:

	March 31, 2008			December 31, 2007
	September 30, 2008				December 31, 2007
Computer, office and video production equipment	$	~~563~~573,~~823~~535		$	~~514,114~~$	535,581
Transportation equipment		1726,~~500~~702			-	-
Furniture and fixtures		340,717			~~337,629~~	325,481
Live event set costs		~~172~~234,~~737~~865			~~56,000~~	236,780
Leasehold improvements		232,835			~~231,335~~	231,335
Computer software		7398,~~247~~787			~~63,482~~	66,193
Internet domain names		29,320			24,933
Internet domain names and other		60,419				28,280
Website development costs		349,976			~~349,976~~	349,976
		1,780,155			1,577,469
		1,917,836				1,773,626
Accumulated depreciation and amortization		(~~411~~706,~~127~~244	)		~~(246,538~~	)(345,078	)
	$	1,~~369~~211,~~028~~592		$	~~1,330,931~~$	1,428,548

1511

Note 7 5 Liabilities

~~Note~~ Notes Payable - Showtime

The ~~Company~~ ~~earned revenue from and incurred expenses to Showtime in connection with the television distribution agreement. During the year ended December 31, 2007, the~~ Company ~~recorded~~owed ~~revenue of approximately $240,000 from~~ the ~~pay-per-view broadcast~~following ofprincipal the Company’s June 22, 2007 event. During the year ended December 31, 2007, the Company incurred approximately $2.9 million of television production expenses charged by Showtime to the Company. In February 2008, the Company and Showtime offset approximately $2 million of the amount due to Showtime and $240,133 of accounts receivable due from Showtime into a note payable of $1,822,086 due on ~~December~~notes ~~15, 2008. The note bears interest at the daily prime rate as published by JPMorganChase bank.~~ payable:

Other Accrued Liabilities

	September 30, 2008			December 31, 2007
Note payable – Showtime due March 31, 2009	$	1,822,086		$	1,822,086
Note payable – Showtime due June 17, 2009		3,500,000			-
Note payable – Showtime due June 18, 2009		1,000,000
Original issue discount and warrant value, unaccreted portion		(459.735	)		-
Accrued interest		185,874			-

Total	$	6,048,225		$	1,822,086

~~In connection~~The ~~with~~$1.8 ~~the~~million ~~reverse~~note ~~merger~~payable dated December 17, 2007 to Showtime was issued to extend payment of the ~~Company~~net ~~and~~amount ~~the~~due ~~predecessor registrant~~to Showtime for television production costs incurred in 2007. In June 2008, Showtime and the Company ~~assumed~~extended ~~accounts~~the ~~payable~~note ofdue ~~approximately~~date ~~$210~~from December 17,~~000 and notes~~ ~~payable~~2008 ofto ~~approximately~~March ~~$137~~31,~~000~~ 2009, ~~which~~and ~~existed~~the atnote ~~the~~was ~~time~~given a first priority security interest in the ~~predecessor~~ ~~registrant~~unpledged ~~ceased~~assets ~~operations~~of the Company. ~~These~~The ~~liability~~note ~~balances~~bears ~~remained unchanged~~interest ~~from~~at the ~~date~~daily ofprime ~~the~~rate ~~reverse~~as ~~merger~~published by JPMorganChase bank with interest payable at maturity.

On June 18, 2008, the Company entered into a Senior Secured Note ~~8 Income~~ ~~Taxes~~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.

~~As a result~~ In ofconnection with the financing, the Company’s ~~losses~~issued a warrant to purchase 100,000 noshares ~~income~~of ~~taxes~~common ~~were~~stock. ~~due~~The ~~for~~warrant ~~the~~has ~~three~~an ~~months ended~~exercise ~~March~~price 31of $0.01 per share, ~~2008~~a term of 36 months and ~~2007~~an estimated fair value of $149,040. The ~~provision~~warrant ~~for~~value ~~income~~is ~~taxes~~being ~~was~~amortized ~~offset by~~to ~~an increase~~interest inexpense ~~the~~over ~~deferred~~12 ~~tax~~months, ~~asset~~the ~~valuation~~term ~~allowance.~~of the note.

~~As of January~~On 1September 10, ~~2007~~2008, the Company ~~implemented~~entered ~~FASB~~into ~~Interpretation~~a ~~No.~~Senior ~~48, Accounting for~~Secured ~~Uncertainty~~Note inPurchase ~~Income~~Agreement ~~Taxes—an~~with ~~Interpretation of FASB Statement 109 (“FIN 48”), which clarifies the accounting for uncertainty in tax positions~~Showtime. The ~~This~~note ~~Interpretation provides~~has ~~that~~a ~~the~~face ~~tax~~value ~~effects~~of ~~from~~$1,000,000 anand ~~uncertain~~a ~~tax~~first ~~position~~priority ~~can~~security beinterest ~~recognized~~ in the ~~financial~~unpledged ~~statements,~~assets ~~only if the position is more likely than not~~ of ~~being~~ ~~sustained on audit, based on~~ the ~~technical merits of the position~~Company. The ~~adoption~~ onnote ~~FIN~~accrues 48interest ~~did~~at ~~not~~10% ~~have~~per anannum ~~effect~~payable onat ~~the Company’s consolidated financial statements~~maturity. The ~~total~~note ~~amount~~matured ~~of unrecognized tax benefits that if recognized would affect the Company’s effective tax rate is zero based~~ on ~~the fact~~June ~~that~~18, ~~the Company currently has a full reserve against its unrecognized tax benefits~~2009.

~~Current income~~See ~~taxes~~Note ~~(benefits)~~9 ~~are based upon the year’s income taxable~~ for ~~federal, state~~a ~~and~~further ~~foreign~~discussion ~~tax~~related 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~~events insubsequent ~~which the differences are expected~~ to ~~affect~~September ~~taxable income. The Company had a full valuation allowance against deferred tax assets at March 31~~30, 2008.

16Note 6 Litigation and Potential Claims

~~At March 31~~On December 14, ~~2008~~2006, the Company ~~had~~received ~~net~~a ~~operating~~demand ~~loss~~letter ~~carryforwards~~(the of“Demand ~~approximately $25.1~~Letter”) ~~million~~from counsel for ~~federal~~Wallid ~~tax~~Ismail ~~purposes,~~Promocoes ~~expiring~~E ~~through~~Eventos ~~2028~~LTDA EPP and Wallid Ismail (collectively “Wallid”). InThe ~~addition,~~ Demand Letter alleged that the Company ~~had~~entered ~~net~~into ~~operating~~a ~~loss~~“fully ~~carryforwards~~enforceable ofagreement” ~~approximately~~to ~~$25.1~~compensate ~~million~~ Wallid for ~~state~~ ~~tax~~allegedly ~~purposes~~assisting the Company in raising financing, ~~which~~and ~~expire~~that ~~through~~the ~~2018.~~Company ~~However~~or its directors committed unspecified fraudulent acts, amisappropriated ~~change~~Wallid’s in“confidential ~~ownership could~~and ~~result~~proprietary information,” and engaged in an “~~ownership~~intentional ~~change”~~and ~~under~~well-orchestrated ~~Internal~~scheme ~~Revenue~~to ~~Code~~wrongfully ~~Section~~remove ~~382 which~~Wallid” ~~restricts~~as ~~the~~a ~~ability~~principal of athe ~~corporation~~Company. The Company denies Wallid’s allegations, and denies that it has breached any obligations to ~~utilize~~Wallid. Wallid ~~existing~~and ~~net~~the ~~operating losses~~Company filed suits and countersuits in federal and state courts. In ~~The~~December 2008, the Company ~~also~~settled ~~had~~the ~~net~~lawsuits ~~operating~~by ~~loss~~agreeing ~~carryforwards~~to issue 4,000,000 shares of ~~approximately~~ the Company's common stock valued at $210,200,000 and cash payments totalling $1,150,000.3 The ~~million~~Company ~~for~~recognized UKthis ~~tax~~amount ~~purposes~~as ~~that~~legal ~~had~~expense ~~been~~in ~~accumulated~~general ~~since~~and ~~acquisition of CageRage~~administrative expenses.

The Company iswas ~~subject~~a defendant to ~~Federal~~other ~~and~~lawsuits ~~state~~that ~~tax~~have inbeen ~~the~~settled ~~United States~~ and ~~tax in~~which ~~the United~~did ~~Kingdom.~~not ~~The~~have ~~tax~~a ~~years~~material ~~2006~~impact ~~and 2007 of the parent company remain open~~ to ~~examination~~ by the ~~major taxing jurisdictions to which the~~ Company’s isoperations ~~subject. The~~or ~~acquired~~financial ~~subsidiaries may have earlier years subject to examination~~condition. ~~The Company~~ See isNote ~~not currently under examination by any tax authorities~~9.

Note 9 7 ~~Commitments~~Shareholders’ Equity

~~The Company’s~~CBS ~~lease agreement for 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 due under these leases are as follows:Showtime

Year ending December 31,	Amount
2008	$	414,000
2009		429,000
2010		445,000
2011		462,000
2012		286,000
Thereafter		142,000
	$	2,178,000

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 and is expected to be charged as an expense to operations on the dates of the first four broadcasts under the television distribution agreement. 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. During the nine months ended September 30, 2008, the Company expensed approximately $2.8 million relating to these warrants.

~~The Company incurred rent expense of $104,755 and $48,581, respectively for the quarter ended March 31, 2008 and 2007, respectively.~~12

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,	Amount
2008	$	2,357,000
2009		2,135,000
2010		740,000
2011		438,000
2012		229,000
	$	5,899,000

Additionally, some employment contracts include performance bonuses related to the operations of recently acquired businesses. In regards to the King of the Cage 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.

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 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.

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 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 at March 31, 2007.

On March 22, 2007, Zuffa, LLC filed a complaint against Showtime Networks, 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. The Company and Showtime have filed a motion to dismiss the case, and the parties to the lawsuit are currently waiting for a decision from the court.

Note 11 Shareholders’ Equity

CBS Entertainment

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 Warrant vests immediately and is for a term of five years from February 22, 2008. The second 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 warrant computed using a Black-Scholes model was approximately $2.3 million and is expected to be charged as an expense to operations on the dates of the first four broadcasts under the television distribution agreement. The value of the second warrant computed using a Black-Scholes model was approximately $2.5 million and will be charged to operations, if an event is broadcast pursuant to the Broadcast Agreement, 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. See Note 9 for a further discussion related to events subsequent to September 30, 2008.

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 ~~March~~ 31September 30, 2008, options to purchase 54,~~943~~956,~~464~~757 shares of common stock had been granted under the plan.

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 ~~March~~September 3130, 2008 and 2007, the Company incurred approximately $0.5 million and $0.3 million, respectively, of expense related to stock based compensation under this plan and approximately $0.5 million and $.5 million, respectively, of expense related to warrants. For the nine months ended September 30, 2008 and 2007, the Company incurred approximately $1.6 million and $0.7 million, respectively, of expense related to stock based compensation under this plan and approximately $1.4 million and $3.4 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.

	Three Months Ended March 31, 2008			Three Months Ended March 31, 2007
	Nine Months Ended September 30, 2008			Nine Months Ended September 30, 2007
Black-Scholes Model:
Risk-free interest rate		1.84% - 3.41	%	4.07 -4.70	%
Risk-free interest rate		1.84% - 3.41	%		4.50 - 4.84	%
Expected life, in years		5.8 - 6.0		6.0
Expected life, in years		3.0 - 6.0			6.5
Expected volatility		96.0	%	60.0	%
Expected volatility		96.0	%		60.0	%
Dividend yield		0.0	%	0.0	%
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 three months ended March 31, 2008:~~ 13

	Plan Options			Weighted Average Exercise Price
Outstanding at December 31, 2007		4,875,859		$	2.77
Granted		1,260,000		$	2.29
Forfeited		(192,396	)	$	2.91
Exercised		-		$	-
Outstanding at March 31, 2008		5,943,463		$	2.66
Exercisable at March 31, 2008		1,999,193		$	2.30

The following table represents stock option activity for the nine months ended September 30, 2008:

At March 31, 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 quarter ended March 31, 2008 and 2007 was $1.50 and $0.60, respectively. The weighted-average remaining life of outstanding and exercisable options at March 31, 2008 was 8.12 years and 8.45 years, respectively.

	Plan Options			Weighted Average Exercise Price
Outstanding at December 31, 2007		4,875,859		$	2.77
Granted		1,450,000		$	2.04
Forfeited		(1,617,500	)	$	2.68
Expired		(1,562	)	$	2.00
Exercised		-		$	-
Outstanding at September 30, 2008		4,706,797		$	2.58
Exercisable at September 30, 2008		3,021,173		$	2.35

At ~~March 31~~ September 30, 2008 ~~there~~the aggregate intrinsic value of options outstanding and the aggregate intrinsic value of options exercisable was approximately $54.09 million and $3.4 million, respectively. The weighted-average grant-date fair value of ~~unrecognized~~options ~~compensation cost related~~granted toduring ~~non~~the nine months ended September 30, 2008 and 2007 was $1.25 and $1.25, respectively. The weighted-~~vested~~average remaining life of outstanding and exercisable options at September 30, ~~which~~2008 iswas ~~being~~7.6 ~~expensed~~years ~~through~~and ~~2011~~2. 1 years, respectively.

~~During the~~At ~~quarter~~September ~~ended March 31~~30, 2008, ~~the~~there ~~Company~~was ~~granted~~approximately ~~1,260,000 options to employees in an individual grants ranging from 10,000 to 1,000,000 options. The options have exercise prices ranging from~~ $25.008 tomillion ~~$7.01, vest over two or four years and have terms~~ of 10unrecognized ~~years.~~compensation ~~The~~cost ~~aggregate~~related ~~fair~~to ~~value~~non-vested ~~of these~~ options ~~at the~~, ~~dates~~which ~~of grant was approximately $1.8 million and~~ is being ~~amortized on~~expensed ~~a straight-line~~through ~~basis over the vesting period~~2012.

During the nine months ended September 30, 2008, the Company granted 1,700,000 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 $0.1 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.

	Three Months Ended March 31, 2008			Three Months Ended March 31, 2007
	Nine Months Ended September 30, 2008			Nine Months Ended September 30, 2007
Risk-free interest rate		21.1187% - 2.2371	%	4.07 - 4.7	~~4.48 - 4.78~~%	%
Expected life, in years		21.5 –- 3.1		5.8 - 6.5	~~5.0~~
Expected volatility		96.0	%	60.0	~~60.0~~%	%
Dividend yield		0.0	%	0.0	~~0.0~~%	%

The following table represents warrant activity for the ~~three~~nine months ended ~~March 31~~September 30, 2008:

	Warrants			~~Weighted Average Exercise Price~~	Weighted Average Exercise Price
Outstanding at December 31, 2007		30,500,137		$	~~2.85~~$	2.85
Granted		4,~~289~~817,~~500~~000			~~2.32~~$	2.60
Expired		(47,917	)		~~4.96~~$	4.96
Exercised		(4,750,000	)		2.00
Forfeited		(346,250	)		$	7.20
Outstanding at March 31, 2008		29,991,720		$	2.90
Exercised		(4,750,000	)		$	2.00
Exercisable at March 31, 2008		10,000,554		$	3.16
Outstanding at September 30, 2008		30,172,970			$	2.89
Exercisable at September 30, 2008		11,777,304			$	3.05

At March 31, 2008 the aggregate intrinsic value of warrants outstanding and the aggregate intrinsic value of warrants exercisable was approximately $0.8 million and $0.8 million, respectively. The weighted-average remaining life of outstanding and exercisable warrants at March 31, 2008 was 4.9 years and 4.6 years, respectively. 14

At ~~March 31~~ September 30, 2008 ~~there~~the ~~was~~aggregate ~~approximately~~intrinsic ~~$30.3~~value ~~million~~ of ~~unrecognized~~warrants ~~cost~~outstanding ~~related to non-vested~~and the aggregate intrinsic value of warrants ~~(including~~exercisable was approximately $2319.51 million ofand ~~unrecognized cost related~~$10.7 tomillion, ~~Burnett~~respectively. ~~warrant~~The ~~tranches~~weighted-average ~~three~~remaining ~~through~~life ~~nine,~~of ~~which~~outstanding isand ~~discussed below)~~exercisable warrants at September 30, ~~which~~2008 iswas ~~being~~4.3 ~~expensed~~years ~~through~~and ~~2012~~4.1 years, respectively.

At September 30, 2008 there was approximately $24.7 million of unrecognized cost related to non-vested warrants (including approximately $23.7 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~~The ~~15, 2007 (and as amended on June 28, 2007), 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 ~~Mark~~ 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 ~~June~~ 15November 17, 2008.

21Pursuant 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:

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. The warrants are divided into nine tranches as follows:

Tranche	Number of Shares under Warrants	Vesting Date
One	2,000,000	June 15, 2007
Two	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.

Tranche	Number of Shares under Warrants	Vesting Date
One	2,000,000	June 15, 2007
Two	2,000,000	500,000 shares to be vested on each of June 15, 2008, 2009, 2010 and 2011.
Three	2,000,000	Date of execution of a License Agreement
Four	1,000,000	The date that the first episode of the Series is broadcast on a network or cable broadcaster.
Five	1,000,000	The last day of the first season.
Six	2,000,000	The last day of the second season.
Seven	4,000,000	1,333,333 shares to be vested on the last day of each of third, fourth and fifth seasons, respectively.
Eight	2,000,000	1,000,000 shares to be vested on the date of broadcast of each of the first two derivative pay-per-view events.
Nine	1,000,000	500,000 shares to be vested on the date of broadcast of each of the next two derivative pay-per-view events.

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 ~~within~~by ~~one~~November ~~year~~17, ~~of the effective date~~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~~ 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~~,637,000~~.6 million for tranche one and $2~~,880,000~~.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 45.707% 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: $31.78 million (tranche three), $1.8 million (tranche four), $13.8 6 million (tranche five), $31.68 million (tranche six), $73.26 million (tranche seven), $37.63 million (tranche eight), and $13.86 million (tranche nine) or approximately $23.57 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 45.71% 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. ~~At September~~During the quarter ended June 30, ~~2007~~2008, the Company ~~has~~ recognized noapproximately $0.3 million expense related to ~~tranches~~ tranche three based upon the status of production of a series pilot. No expense has been recognized related to tranches four through nine.

22See Note 9 for a further discussion related to events subsequent to September 30, 2008.

~~The Company,~~Note ~~Burnett~~8 Related ~~and~~Party 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.Transactions

~~Note 12 Related~~The ~~Party~~Company ~~Transactions~~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 September 30, 2008 and 2007, respectively and $2.1 million and $0.4 million during the nine months ended September 30, 2008 and 2007, respectively. The Company incurred television production expenses charged by Showtime of approximately $0.6 million during the three months ended September 30, 2008 and approximately $1.1 million during the nine months ended September 30, 2008. The Company also incurred non-cash expenses of $0.1 million and $0.1 million for warrant vesting and amortization of prepaid distribution costs for the three months ended September 30, 2008 and 2007, respectively, and $3.0 million and $0.2 million during the nine months ended September 30, 2008 and 2007, respectively.

~~The~~ In October 2006, the Company ~~earns~~entered ~~revenue~~into ~~from~~a ~~and~~three-year ~~incurs~~term ~~expenses~~consulting toagreement ~~Showtime~~and inis ~~connection with~~charged a ~~television~~ ~~production~~monthly ~~and~~fee ~~distribution~~of ~~agreement.~~$30,000, ~~During~~which ~~the~~is ~~quarters~~subject ~~ended March~~to 315% annual increases, ~~2008~~by ~~and~~Santa ~~2007~~Monica Capital Partners II (“SMCP”) for services relating to strategic planning, ~~the~~investor ~~Company~~relations, ~~recorded~~acquisitions, ~~revenue~~corporate ofgovernance $1and financing.2 ~~million~~The Company paid $94,500 and $090, ~~respectively,~~000 to SMCP for ~~television~~this ~~license~~monthly ~~fees.~~fee ~~During~~during the ~~quarters~~three months ended ~~March 31~~September 30, 2008 and 2007, ~~the~~respectively, ~~Company~~and ~~incurred~~$274,500 ~~approximately~~and $~~0.1~~270,000 ~~million~~during ~~and~~the ~~$0.9~~nine ~~million of~~months ~~television~~ended ~~production~~September ~~expenses~~30, ~~charged~~2008 byand ~~Showtime~~2007, torespectively. Additionally, the Company. ~~These television~~incurred ~~production~~costs ~~expenses~~for ~~included~~other ~~$0.1~~services provided ~~million~~to SMCP of approximately $39,000 and $~~0.1~~106,000 ~~million~~during ~~of non-cash~~the ~~amortization~~three ofmonths ~~prepaid~~ended ~~distribution~~September ~~costs~~30, ~~for~~2008 and 2007, respectively, and $103,000 and $158,000 during the ~~quarters~~nine months ended ~~March 31~~ September 30, 2008 and 2007, respectively.

~~The Company~~On ~~entered~~June ~~into~~18, a2008, ~~three-year~~the ~~term~~Company ~~consulting~~issued ~~agreement~~to ~~and~~Showtime ~~pays~~ a ~~monthly fee~~note ofpayable with $~~30,000~~3.5 tomillion ~~Santa~~principal ~~Monica~~and ~~Capital~~warrants ~~Partners II (“SMCP”) for services relating~~ to ~~strategic~~purchase ~~planning~~100, ~~investor relations, acquisitions, corporate governance and financing. The Company paid $90,~~000 toshares ~~SMCP~~of ~~for~~common ~~this monthly fee during the three months ended March 31, 2008~~stock. ~~Additionally,~~This ~~the~~transaction ~~Company~~is ~~incurred costs~~more offully ~~approximately~~described ~~$28,000~~in ~~for~~Note ~~free services to SMCP~~7.

2316

Note 9 Subsequent Events

On October 20, 2008, management, with Board ratification, decided to close or sell all operations and began an extended period of restructuring its balance sheet, divesting itself of certain assets, settlement of contingent liabilities, and attempting to raise additional capital. All entities and transactions discussed above are operations that are the subject of this Board action and, in the future, will be reported as discontinued operations in the financial statements.

On February 5, 2009, CBS and Showtime entered into a General Mutual Release and Termination Agreement (the “Release and Termination Agreement”) with the Company and certain of its subsidiaries pursuant to which the parties agreed to a mutual release and termination of any and all claims, agreements, debts, liens, damages or liabilities of any nature, now existing or hereafter arising, including, without limitation, termination of the Distribution Agreement, the Note Purchase Agreement and the Security Agreement and cancellation of all indebtedness of the Issuer to Showtime under the promissory notes dated December 17, 2007 (as amended June 17, 2008), June 18, 2008 and September 10, 2008. Notwithstanding the foregoing, the Release and Termination Agreement excluded certain matters which shall continue in full force and effect. Under this agreement, the Company will record a gain resulting from debt forgiveness in the first quarter of 2009.

On February 5, 2009, ProElite, Inc. (the “Company”) and its wholly-owned subsidiary, EliteXC Live (together with the Company, the “Sellers”), entered into an Asset Purchase Agreement (the “Purchase Agreement”) and other related agreements with Explosion Entertainment, LLC (“Strikeforce”). Under the terms of the Purchase Agreement, Strikeforce acquired from the Sellers certain EliteXC fighter contracts, a library of televised EliteXC events and specified related assets.Consideration paid for the assets consisted of (i) $3 million in cash paid at closing, (ii) the assumption of certain liabilities relating to the assets sold and (iii) contingent consideration in the form of rights to receive a portion of the license fee earned by Strikeforce under a distribution agreement between Strikeforce and Showtime Networks Inc. (“Showtime”). The license fee is payable to the Sellers until February 28, 2012, subject to limited extensions. The Purchase Agreement contains typical representations and warranties by the Sellers regarding the Sellers’ business, operations and financial condition. Each party agreed to indemnify the other party for breaches of representations, warranties, and covenants, subject to certain limitations. In connection with the closing of the transactions under the Purchase Agreement, the Sellers also entered into certain non-exclusive license agreements with Strikeforce, pursuant to which Strikeforce will license from the Sellers certain trademarks and other specified intellectual property. . As a result of the Purchase Agreement, the Company is entitled to receive license fee income on certain Strikeforce productions through the second quarter of 2012. Due to the sale, the Company will recognize a gain on sale of assets in the first quarter of 2009.

On May 13, 2009, ProElite, Inc. and EliteXC, Inc. (together as “Company”) entered into an agreement with Kevin Ferguson (“Fighter”) pursuant to which the Company obligation to provide future bouts and payments to Fighter was retired and the unarmed combatant promotional agreement as amended (the “UCPA Agreement”) between the Company and Fighter was terminated (the “Termination Agreement”). Under the terms of the Termination Agreement, Company and Fighter agreed that except for certain ancillary rights previously granted and defined under the UCPA Agreement (the “Ancillary Rights”), the UCPA Agreement and all rights and obligations arising thereunder were terminated and Company and Fighter mutually released each other with respect to, among other things, any and all claims, agreements, debts, liens, damages or liabilities of any nature, including, without limitation, any liabilities arising under the UCPA Agreement. It was further agreed under the Termination Agreement that none of the parties shall be required to make any further payment to another Party in connection with the UCPA Agreement.

On July 9, 2009, the Company, Mark Burnett and his affiliate JMPB, Inc. entered into a Settlement Agreement and Mutual Release. Under the release, the parties terminated the following agreements between them, except as to certain limited provisions: (1) an agreement related to a reality television series then-entitled “Mixed Martial Arts Reality Show” (a/k/a “Bully Beatdown”), (2) a Subscription Agreement and together with certain other parties, an Investor Rights Agreement; (3) a warrant issued to Burnett dated as of May 17, 2007 (as amended, the “Warrant”); (4) an Amendment to Warrant and Related Agreements (“First Underlying Amendment”) as of June 28, 2007, and (5) a Second Amendment to Warrant and Related Agreements (“Second Underlying Amendment”) as of June 1, 2008 (the Underlying Agreement, Subscription Agreement, Investor Rights Agreement, Warrant, First Underlying Amendment and Second Underlying Amendment are collectively referred to herein as the “Underlying Documents”). The terminated agreements principally related to the Company’s prior rights with respect to the exploitation and development of the Series, and equity rights arising from the Warrant and related investor rights. In addition, the parties settled and resolved fully and finally any and all grievances, disputes, controversies, differences, and claims between the parties arising out of or relating to the Underlying Documents that exist or may exist between them, as of the date of the release.

On July 10, 2009 the Company in an effort to settle contingent liabilities consummated a strict foreclosure under the California Commercial Code in which an entity affiliated with Terry Trebilcock and Juliemae Trebilcock (the “Secured Parties”) acquired all of the outstanding stock of the Company’s wholly-owned subsidiary, King of the Cage, Inc. (“KOTC”) and certain other related assets. The strict foreclosure was effected pursuant to an Acceptance Of Collateral In Full Satisfaction Of Obligations At Less Than Face Value And Purchase Agreement, dated July 9, 2009 (the “Agreement”) between the Company, on the one hand, and the Secured Parties and their affiliated entity, KOTC Acquisition, LLC (“Acquisition”), on the other hand. Mr. Trebilcock was the President of KOTC at the time the strict foreclosure was consummated. In addition to settling all outstanding claims, allegations and prior contracts between them, the Company received at closing certain earn-out rights, as described below and the Acquiror and the Secured Parties accepted the KOTC stock, in a “strict foreclosure”, in full satisfaction of all prior obligations between the parties.

Effective October 12, 2009, the Company entered into a Strategic Investment Agreement with Stratus Media Group, Inc. (“SMGI”) pursuant to which the Company agreed to sell to SMGI, and SMGI agreed to purchase from the Company, shares of the Company’s Series A Preferred Stock (the “Preferred Shares”). The Preferred Shares are convertible into the Common Stock of the Company. The amount of shares of Common Stock issuable upon conversion on a cumulative basis is equal to 95% of the sum of (a) the issued and outstanding shares of the Company as of the closing plus (b) any shares of the Company’s Common Stock issued after the closing upon exercise or conversion of any derivative securities of the Company outstanding as of the closing, subject to any adjustment for stock splits, stock dividends, recapitalizations etc. and, in all cases, after giving effect to the shares issuable upon conversion of the Preferred Shares. The purchase price of the Preferred Shares is $2,000,000 which will be used by the Company for payment of outstanding liabilities, general working capital and other corporate purposes and repayment of all amounts due under a note of the Company with respect to advances made to the Company by SMGI of $100,000. Upon closing, all of the current directors of the Company resigned and the board of directors of the Company will consist of two designees of SMGI and one designee of the Company. Paul Feller, SMGI’s Chief Executive Officer, became the Company’s Chief Executive Officer. Certain present and former key Company executives continued with the Company. The acquisition was completed on June 14, 2011.

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-~~KSB~~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, ~~muy~~ 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.

During 2008, the Company increased the number of live events that it promoted. In ~~2007~~ February 2008, we ~~accomplished~~the Company signed a television distribution agreement with CBS, which led to the ~~following~~first ~~strategic~~MMA ~~objectives:~~event broadcast on network television on May 31, 2008.

·In ~~Acquired~~2008, ~~well-regarded~~the ~~MMA~~Company ~~live~~encountered ~~event~~liquidity ~~brands~~issues. ~~throughout~~The Company’s auditors have issued a going concern opinion in their report for the ~~world:~~year ended December 31, 2007 that states substantial doubt exists about the Company’s ability to continue as a going concern.

·On ~~King~~October of20, ~~the~~2008, management, ~~Cage~~with Board ratification, ~~Inc.~~decided to close or sell all operations and began an extended period of restructuring its balance sheet, adivesting ~~promoter~~itself of ~~live~~certain ~~MMA~~assets, ~~events~~settlement of contingent liabilities, and attempting to raise additional capital. All entities and transactions discussed above are operations that ~~has~~are ~~historically~~the ~~produced~~subject of this Board action and, in ~~excess~~the offuture, 20will ~~events~~be ~~per~~reported ~~year~~as discontinued operations in the financial statements. For this financial statement presentation only, the operations are reported as continuing operations.

2419

· Mixed Martial Arts Promotions, Ltd. and Mixed Martial Arts Productions, Ltd. (together “CageRage”), a UK-based promoter of live MMA events.

· The assets of Future Fight Promotions, Inc., a Hawaii-based promoter of live MMA events.

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

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

Results of Operations

For the three months ended ~~March~~September 3130, 2008.

Revenue

Revenue from live events, consisting primarily of ticket sales, site fees and sponsorship, was $21,~~974~~538,~~564~~858 for the three months ended ~~March~~September 3130, 2008 compared to $~~311~~1,~~104~~100,102 for the three months ended ~~March~~September 3130, 2007. The increase was due to higher operating activity in the ~~first~~second quarter of 2008 compared to the ~~first~~second quarter of 2007 when the Company commenced operations and to newly acquired subsidiaries. The Company’s EliteXC subsidiary earned revenue of approximately $~~2,575,978~~1.5 million from promoting ~~five~~ six events in the ~~first~~third quarter of 2008 ~~compared to one event in the first quarter of 2007~~. Also, the Company’s ~~King~~KOTC ~~of the Cage~~ and Cage Rage subsidiaries, which were acquired in September 2007, earned live event revenues of $~~402,764~~0.4 million and $~~247~~0.6 million,~~895,~~ respectively, during the third quarter of 2008.

Revenue from pay-per-view programming (PPV) and television licensing ~~(excluding Showtime)~~ was $~~135~~544,~~275~~085 for the three months ended ~~March 31,~~September ~~2008 compared to $0 for the three months ended March 31~~30, ~~2007. Additionally, the Company began earning television license fees in~~ 2008 ~~under the distribution agreement with Showtime~~. ~~In 2007, the Company earned no television license fees from Showtime. In the first quarter of 2008, the Company received television license fees of $1,200,000 from Showtime.~~

~~Revenue from~~The ~~our~~Company ~~website~~began ~~was~~earning ~~$26,464~~television ~~for~~license fees in 2008 under the ~~three~~distribution ~~months~~agreement ~~ended~~with ~~March 31,~~Showtime and under the distribution agreement with CBS signed in 2008 ~~compared~~. toIn $32007,~~500~~ ~~for~~ the ~~three~~Company ~~months~~earned ~~ended~~no ~~March 31,~~television ~~2007~~license fees from Showtime or CBS. ~~This~~In ~~revenue consisted~~the ~~primarily~~third quarter of ~~online advertising~~2008, ~~online~~the ~~store~~Company ~~sales~~received television license fees of $505,000 from Showtime and ~~video subscriptions~~CBS.

~~Other revenues,~~Revenue ~~which~~from ~~includes~~our ~~DVD~~website ~~sales and fees for licensing fighters under contract,~~ was $~~119~~89,~~471~~638 for the three months ended ~~March 31,~~September ~~2008 compared to $0 for the three months ended March 31~~30, ~~2007. The increase was due to the Company releasing its first DVD titles for sale during the quarter ended March 31,~~ 2008 ~~and to the acquisition of King of the Cage, which had DVD distribution agreements in place at acquisition~~.

Other revenues, which includes DVD sales and fees for licensing fighters under contract, was $184,031 for the three months ended September 30, 2008.

Cost of revenue

Cost of revenue for live event production (excluding expenses payable to Showtime and CBS) was $42,~~027~~954,~~894~~789 for the three months ended ~~March 31~~ September 30, 2008 compared to $13,~~509~~390,~~939~~808 for the three months ended ~~March 31,~~ ~~2007.~~September ~~Live~~30, ~~event production costs increased primarily due to our EliteXC subsidiary promoting five events in the first quarter of 2008 compared to one in the first quarter of~~ 2007. Live event production costs consist principally of fighters purses, ~~production~~arena ofrental ~~“Barker~~and ~~shows”~~related expenses (i.e.g., ~~event-specific~~ ~~promotional~~staffing, ~~videos)~~staging, ~~arena rental~~ and ~~related~~video ~~expenses~~equipment rental), event-specific marketing expenses (e.g., Internet, radio and television advertising, posters and street teams), and travel. ~~Additionally,~~Live weevent ~~incurred related-party~~ production costs ~~from~~increased ~~Showtime~~primarily ofdue ~~$122,075~~to ininclusion ~~2008, which consisted entirely~~ of ~~non-cash~~the ~~amortization~~KOTC ~~of prepaid distribution costs,~~ and ~~$935,933,~~ ~~which~~Cage ~~included~~Rage ~~$104,193~~subsidiaries of(acquired ~~non-cash amortization of prepaid distribution costs,~~ in ~~2007~~September ~~for television production~~2007). ~~The~~Cost ~~decrease~~of ~~in television~~revenue ~~production~~for ~~costs~~KOTC ~~payable~~and toCage ~~Showtime~~Rage ~~was~~were aapproximately ~~result~~$0.3 ofmillion ~~the~~and ~~terms of the distribution agreement with Showtime~~$0.6 ~~This~~million, ~~agreement~~respectively, ~~called~~ for the ~~Company to pay~~quarter ~~production~~ended ~~expenses~~September in30, ~~2007 but not in~~ 2008. WeOur ~~expect~~EliteXC ~~cost~~subsidiary ofincurred ~~revenue for live~~costs ~~events~~of ~~will~~approximately ~~increase~~$1.9 inmillion ~~2008~~to ~~as we~~ promote ~~more~~six events. ~~However, we expect television production costs payable Showtime to decrease~~ in ~~2008 in accordance with~~ the ~~terms~~third quarter of ~~the distribution agreement~~2008.

25Additionally, we incurred related-party production costs for television production by Showtime of $591,571 for the three months ended September 30, 2008 compared to $705,195 for the three months ended September 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.

Cost of revenue for our website was $2841,~~902~~824 for three months ended ~~March 31,~~September ~~2008 compared to $58~~30,~~555~~ ~~for the three months ended March 31, 2007 and consisted primarily of merchandise sold through our online store and Internet streaming expenses~~2008.

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 $~~121,025~~0 for the quarter ended ~~March 31~~September 30, 2008 compared to $~~103~~119,~~529~~022 for the quarter ended ~~March 31~~September 30, 2007 and primarily consisted of Internet and print advertising, public relations and marketing consultants. ~~We anticipate sales and marketing expenses to increase as we promote our Company and brands.~~

Website operations

Website operations expenses were $~~724~~213,~~264~~396 for the three months ended ~~March~~September 3130, 2008 compared to $~~415~~1,~~170~~031,185 for the three months ended ~~March~~September 3130, 2007. The ~~increase~~ decrease was due primarily to ~~hiring~~staffing ~~employees~~reductions ~~and~~initiated ~~consultants~~in toJanuary ~~develop and maintain our website and conduct business development activities~~2008.

~~Fight operations~~ 20

~~Fight operations~~Live ~~expenses for promotion of our live~~ events ~~were $1,326,123 for the three months ended March 31, 2008 compared to $339,390 for the three months ended March 31, 2007. Fight~~ operations expenses consist primarily of wages and consultants’ fees related to day-to-day administration of the Company’s live events, travel and fighter recruiting and signing bonuses. The increase was primarily the result of higher staffing levels in 2008 due to operations starting and to acquisitions in late 2007.

~~In 2008~~Live events operations expenses were $2, we142,381 ~~expect~~for the three months ended September 30, 2008. Live events operations expenses consist primarily of wages and consultants’ fees related to ~~our~~day-to-day ~~fight~~administration ~~operations~~of tothe ~~increase~~Company’s ~~due~~live toevents. ~~higher average~~The ~~staffing~~increase ~~levels than~~was ~~2007,~~primarily ~~increased~~the ~~fighter~~result ~~signing~~of ~~bonuses~~acquiring KOTC and ~~recruiting,~~ Cage Rage in September 2007. KOTC and ~~inclusion~~Cage ofRage aincurred ~~full~~operating ~~year~~expenses of ~~operations~~approximately of$0.3 ~~companies~~million ~~acquired in late~~and ~~2007~~$1.4 million, respectively, during the quarter ended September 30, 2008.

General and administrative expenses

General and administrative expenses were $34,~~698~~808,~~629~~981 for the three months ended ~~March 31~~September 30, 2008 compared to $13,~~621~~905,~~259~~073 for the three months ended ~~March~~September 3130, 2007. ~~The increase~~A ~~was~~significant ~~primarily~~component ~~related~~of togeneral ~~increased option~~ and ~~warrant~~administrative ~~grants~~expenses ~~resulting in~~was non-cash, ~~stock-based~~expense ~~compensation~~related ~~expense~~to ofoption ~~approximately~~and ~~$1.2~~warrant ~~million in 2008~~grants ~~versus~~of approximately $0.59 million in ~~2007.~~the Wethird ~~also~~quarter ~~incurred~~of ~~higher~~2008 ~~non-cash depreciation~~versus ~~and amortization expenses of~~ approximately $03.71 million in ~~2008 versus~~the ~~$0.1~~third ~~million~~quarter inof 2007. ~~due~~The todecrease ~~capital~~in ~~expenditures~~option and towarrant ~~amortization of capitalized~~expense ~~values~~was ofprimarily ~~warrants~~due ~~and~~to ~~common~~exercisable ~~stock~~warrants issued ~~for~~to ~~prepaid~~JMBP, ~~services~~Inc. in June 2007. The increase in general and administrative expenses was also due to higher employee head count resulting in wages of approximately $0.89 million in the third quarter of 2008 versus $0.4 million in the third quarter of 2007 and consulting fees of $0.4 million in the third quarter of 2008 versus $0.3 million in the third quarter of 2007. Also, legal expenses increased to $0.3 million in the third quarter of 2008 from $0.1 million in the third quarter of 2007.

In ~~January~~ ~~2008,~~the ~~management~~first ~~began~~and ~~cost~~second ~~reductions~~quarters ~~through a reduction~~ of ~~staff. We expect~~2008, ~~annualized~~the ~~savings~~Company ~~from~~reduced ~~this~~staffing ~~reduction~~and ofdid ~~approximately~~not $1rehire ~~million. However,~~for weopen ~~expect~~positions ~~2008~~resulting ~~general~~from ~~and~~employee ~~administrative~~turnover ~~expenses~~in ~~will~~an ~~increase over 2007~~effort ~~primarily due~~ to ~~higher~~cut ~~average staffing levels~~costs.

During the three months ended September 30, 2008, the Company recognized impairment charges totaling approximately $4,971,445 related to goodwill and non-amortizable intangible assets and other assets resulting from the acquisitions of CageRage, KOTC and ICON.

For the nine months ended September 30, 2008.

Revenue

Revenue from live events, consisting primarily of ticket sales, site fees and sponsorship, was $6,723,648 for the nine months ended September 30, 2008 compared to $3,341,940 for the nine months ended September 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 $4.0 million from promoting thirteen events in 2008. The Company’s KOTC and Cage Rage subsidiaries, which were acquired in September 2007, earned live event revenues of $1.2 million and $1.5 million, respectively, during 2008.

Revenue from pay-per-view programming (PPV) and television licensing was $858,226 for 2008.

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 $2,530,000 from Showtime and CBS.

Revenue from our website was $325,092 for the nine months ended September 30, 2008. The revenues for 2008 are primarily due to licensing the Company’s social networking technology.

Other revenues, which includes DVD sales and fees for licensing fighters under contract, was $584,867 for the nine months ended September 30, 2008. The revenues for 2008 are due to the Company releasing DVD titles of its live events for sale during the 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 $9,148,703 for the nine months ended September 30, 2008 compared to $9,356,265 for the nine months ended September 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 $1.0 million and $2.0 million, respectively, for the nine months ended September 30, 2008. Our EliteXC subsidiary incurred costs of approximately $7.2 million to promote thirteen events in 2008. 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.

Additionally, we incurred related-party production costs for television production by Showtime of $1,091,571 for the nine months ended September 30, 2008. The terms of the distribution 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 $1.1 million.

Cost of revenue for our website was $104,962 for nine months ended September 30, 2008 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 nine months ended September 30, 2008 compared to $246,049 for the nine months ended September 30, 2007 and primarily consisted of Internet and print advertising, public relations and marketing consultants.

Website operations

Website operations expenses were $1,603,860 for the nine months ended September 30, 2008 compared to $2,351,429 for the nine months ended September 30, 2007. The decrease was due primarily to staffing reductions initiated in January 2008.

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.

Live events operations

Live events operations expenses were $4,865,263 for the nine months ended September 30, 2008. 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 $0.9 million and $2.6 million, respectively, during 2008.

General and administrative expenses

General and administrative expenses were $14,354,214 for the nine months ended September 30, 2008 compared to $10,879,726 for the nine months ended September 30, 2007. A significant component of general and administrative expenses was non-cash expense related to option and warrant grants of approximately $2.8 million in 2008 versus approximately $4.0 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 $2.9 million in 2008 and consulting fees of $1.1 million in 2008. Legal expenses were $1.0 million in 2008, related primarily to ongoing litigation. Insurance expense was $0.5 million in and rent expense increased to $0.3 million in 2008 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.

During the quarter ended September 30, 2008, the Company recognized impairment charges totaling approximately $14.0 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.

Liquidity and Capital Resources

Net cash used in operating activities was $~~4,450,329~~11.5 million during the ~~three~~nine months ended ~~March~~ September 3130, 2008 compared to $12.2~~,563,703~~ million during the ~~three~~nine months ended ~~March~~ September 3130, 2007. The use of cash was primarily the result of a net ~~loss~~losses ~~in the~~for ~~quarter ended March 31, 2008. The Company is currently working to improve event profitability and decrease overhead. The loss incurred in~~ the ~~quarter ended March 31, 2007 resulted from the Company devoting resources to building its brands and pursuing longer-term strategic goals in advance of related revenues~~periods.

26Net cash used in investing activities was $0.1 million during the nine months ended September 30, 2008 compared to $9.6 million during the nine months ended September 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 acquiring other entities.

Net cash ~~used~~ inprovided ~~investing~~by financing activities was $~~45,500~~7.9 million during the ~~three~~nine months ended ~~March~~ September 3130, 2008 compared to $~~584,832~~25.0 million during the ~~three~~nine months ended ~~March~~ September 3130, 2007. ~~The~~In ~~decrease~~the ~~was~~nine ~~due~~months toended ~~less~~September ~~need~~30, ~~for~~2008, ~~capital~~the ~~expenditures~~ 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 ~~current~~proceeds ~~quarter~~of ~~compared~~the tonote payable issued June 2008. In the ~~prior~~nine ~~when~~months ended September 30, 2007, the Company ~~was~~received ~~developing its social~~$20.2 ~~networking~~million ~~website~~from a private placement of common stock and warrants and 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.

~~Net cash provided~~In bySeptember ~~financing~~and ~~activities~~December ~~was $3~~2007,~~652,533~~ ~~during~~ the ~~three~~Company ~~months~~acquired ~~ended March 31,~~the ~~2008~~stock ~~compared~~of totwo $4fight promotion companies,~~925,000~~ ~~during~~purchased the ~~three~~assets ~~months~~of ~~ended March 31~~a fight-promotion company, ~~2007.~~and Inmade ~~the~~a ~~quarter~~significant ~~ended~~investment ~~March~~in ~~31,~~a ~~2008~~fourth. Additionally, the Company’s ~~received $4.0~~business ~~million~~plan ~~from~~calls ~~Showtime~~for ~~from~~expanding the ~~exercise~~scale of ~~2.0~~live ~~million~~events, ~~warrants~~including ~~at $2.00~~ pay-per-view, ~~share.~~and InInternet ~~the~~operations. ~~quarter~~As ~~ended~~a ~~March 31~~result, ~~2007,~~ the ~~Company~~need ~~received $5.0 million from Showtime~~ for ~~the~~cash ~~issuance~~has ofcorrespondingly ~~5 million shares of common stock and 6~~increased.~~7 million warrants exercisable at $2.00 per share.~~

~~In September~~The ~~and~~auditor's ~~December~~opinion ~~2007,~~contained ~~the~~in ~~Company~~our ~~acquired~~Annual ~~the~~Report ~~stock~~on ofForm ~~two fight promotion companies, purchased the assets of a fight~~10-~~promotion~~KSB ~~company, and made a significant investment in a fourth. Additionally, the Company’s business plan calls~~ for ~~expanding~~ the ~~scale~~year ofended ~~live events and Internet operations. As a result, the need for cash has correspondingly increased. Although the Company had approximately $4 million of cash at~~ December 31, 2007 ~~and~~states ~~received~~substantial ~~$4 million~~doubt ~~from~~exists ~~warrant~~about ~~exercises~~our inability ~~February 2008, additional financing is needed~~ to continue toas ~~grow~~a ~~the~~going ~~operations~~concern. toThe ~~their~~financial ~~desired~~statements ~~levels~~in ~~over~~this ~~the~~Quarterly ~~next 12 months.~~Report Weon ~~are~~Form ~~currently~~10-Q ~~seeking~~do ~~additional~~not ~~financing.~~contain ~~However,~~any ~~there~~adjustments ~~can~~ that may be ~~no assurances~~required ~~that~~should we ~~will~~ be ~~able~~unable to ~~raise~~continue ~~sufficient~~as ~~financings~~an on-going ~~favorable terms and conditions~~concern.

If we are unable to raise sufficient financing, we will be required to reduce our expansion programs, dramatically reduce costs and growth may be limited. If sufficient additional financing cannot be obtained, the Company may have to curtail or reduce operations. There is no guarantee that we will succeed in accomplishing our objectives. The auditor's opinion states there is substantial doubt exists about our ability to continue as a going concern. These financial statements do not contain any adjustments that may be required should we be unable to continue as an on-going concern.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

Not applicable.

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 ~~March 31~~ September 30, 2008. Based on such evaluation, such officers have concluded that, as of ~~March 31~~September 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.

2723

(b) Changes in internal controls. The Company ~~has~~is ~~continued~~in the early stages of taking remediation steps to enhance its internal control over financial reporting and reduce control deficiencies. WeAs ~~have~~of ~~been~~September ~~and are actively~~30, ~~working~~2008, towe ~~eliminate~~did not have the ~~internal~~necessary ~~control~~resources ~~weaknesses~~to ~~noted~~complete bysuch ~~taking the~~steps. If ~~following~~we ~~measures:~~obtain Wesuch ~~are~~resources, ~~working~~we towill bring all accounting and record maintenance in-house and creating centralized, on-site document repositories; . We ~~hired~~ will hire additional personnel in the accounting department with technical accounting and financial reporting experience suitable for a public company. ~~Additionally, we~~ We will also ~~hired~~hire additional personnel in our legal department; We ~~have~~will ~~implemented~~implement a new Microsoft Dynamics/~~Great Plains~~ accounting software system. We will formally document Company policies and procedures; We will also implementing a purchase order and approval system and system of managerial approval prior to disbursement of funds; We will implement 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 will implement twice weekly meetings of department heads to communicate financial results and operational activities. We will add three new independent Directors to our Board and key committees. All of the foregoing depends on the availability of sufficient funds.

~~We are formally~~As ~~documenting~~noted ~~Company~~above, ~~policies~~there ~~and~~were ~~procedures;~~changes Wein ~~are~~our ~~implementing a purchase~~internal ~~order~~controls ~~and~~over ~~approval~~financial ~~system~~reporting ~~and~~that ~~system~~occurred ofduring ~~managerial~~the ~~approval~~period ~~prior to disbursement~~covered ~~of funds; We have implemented reviews of budget and actual results~~ by ~~department~~this ~~managers;~~report ~~In order to improve communication throughout the Company and to identify transactions~~ that ~~may~~have ~~require~~materially ~~disclosure,~~affected weour ~~implemented twice weekly~~internal ~~meetings~~controls ofover ~~department heads to communicate~~ financial ~~results and operational activities; We have added new Directors to our Board and Audit Committee~~reporting.

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 2008.24

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

None. There have been no material developments since the date of our previously filed annual report.

Item 1A. Risk Factors.

Not applicable.

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

~~None~~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.

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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.

Date: May 20, 2008	PROELITE, INC.
Date: November 18, 2011	PROELITE, INC.
	By:	/s/ ~~Charles~~Paul ~~Champion~~Feller
		Charles Champion, Chief Executive Officer (Principal Executive Officer)
		Paul Feller, Chief Executive Officer (Principal Executive Officer)
	And:	/s/ ~~Dale~~Charles ~~Bolen~~R. Bearchell
		Dale Bolen, Interim Chief Financial Officer and Chief Accounting Officer (Principal Financial and Accounting Officer)
		Charles R. Bearchell, Chief Financial Officer (Principal Financial and Accounting Officer)

3026

EXHIBIT INDEX

Exhibit No.		Exhibit Description

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.

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