-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UFupd9Is/9YINQ7ACr4EoLmorXCDgOu36R8hejRQ1vH1fggcZZAZbffssX2pFq6/ V6871azXbTIxrjseJbaPuA== 0001144204-07-062904.txt : 20071119 0001144204-07-062904.hdr.sgml : 20071119 20071119122617 ACCESSION NUMBER: 0001144204-07-062904 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20070930 FILED AS OF DATE: 20071119 DATE AS OF CHANGE: 20071119 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PROELITE, INC. CENTRAL INDEX KEY: 0001015789 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-AMUSEMENT & RECREATION SERVICES [7900] IRS NUMBER: 223161866 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-31573 FILM NUMBER: 071255417 BUSINESS ADDRESS: STREET 1: 12121 WILSHIRE BLVD., SUITE 1001 CITY: LOS ANGELES STATE: CA ZIP: 90025 BUSINESS PHONE: 310-526-8700 MAIL ADDRESS: STREET 1: 12121 WILSHIRE BLVD., SUITE 1001 CITY: LOS ANGELES STATE: CA ZIP: 90025 FORMER COMPANY: FORMER CONFORMED NAME: PRO ELITE INC DATE OF NAME CHANGE: 20000728 10QSB 1 v094840_10qsb.htm Unassociated Document

SECURITIES AND EXCHANGE COMMISSION 
Washington, D.C. 20549 
 
FORM 10-QSB
 
(Mark One)
 
x
 
Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934
 
For the quarterly period ended September 30, 2007
 
o
 
Transition report under Section 13 or 15(d) of the Exchange Act
 
For the transition period from                      To                      
 
Commission file number 333-139982
 
ProElite, Inc.
(Exact Name of Small Business Issuer 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
(Issuer’s Telephone Number, Including Area Code)
 
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
 
          Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. 
Yes x No o
 
          Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). 
Yes o No x
 
          As of November 6, 2007 there were 46,421,491 shares of Common Stock outstanding.
 
Transitional Small Business Disclosure Format (check one): Yes o No x
 

ProElite, Inc. 
INDEX 
 
 
 
   
 
Page
No.
 
 
PART I. FINANCIAL INFORMATION
 
 
Item 1
 
Condensed Consolidated Financial Statements
 
3
 
 
Condensed Consolidated Balance Sheets as of September 30, 2007 and December 31, 2006
 
3
 
 
Condensed Consolidated Statements of Operations for the three- and nine-month periods ended September 30, 2007 and the period from August 10, 2006 (inception) to September 30, 2006
 
4
 
 
Condensed Consolidated Statement of Changes in Shareholders’ Equity for the nine-month period ended September 30, 2007
 
5
 
 
  Condensed Consolidated Statements of Cash Flows for the nine-month period ended September 30, 2007 and the period from August 10, 2006 (inception) to September 30, 2006
 
6
 
 
Notes to Condensed Consolidated Financial Statements
 
8
Item 2
 
Management’s Discussion and Analysis of Operations
 
25
Item 3
 
Controls and Procedures
 
32
 
 
PART II. OTHER INFORMATION
 
 
Item 1
 
Legal Proceedings
 
33
Item 2
 
Unregistered Sales of Equity Securities and Use of Proceeds
 
34
Item 3
 
Defaults Upon Senior Securities
 
34
Item 4
 
Submission of Matters to a Vote of Security Holders
 
34
Item 5
 
Other Information
 
34
Item 6
 
Exhibits
 
34
 
 
Signatures
 
35
 
 
Exhibit Index
 
36
 
 302 Certification of Chief Executive Officer
 302 Certification of Chief Financial Officer
 906 Certification of Chief Executive Officer
 906 Certification of Chief Financial Officer
 

PART I. FINANCIAL INFORMATION 
 
ProElite, Inc.
 
 
  
September 30,
2007
 
December 31,
2006
 
 
  
(unaudited)
  
 
  
Assets
  
 
  
 
  
Current assets
  
 
  
 
  
Cash and cash equivalents
  
$
10,536,648
  
$
7,295,825
  
Restricted cash
    
277,500
    
-
  
Accounts receivable, net
    
1,222,573
    
-
  
Accounts receivable - Showtime
    
240,133
    
-
  
Prepaid expenses
    
238,889
    
165,745
 
Other current assets
    
175,630
    
82,564
 
Total current assets
    
12,691,373
    
7,544,134
 
Fixed assets, net
    
1,330,931
    
157,733
 
Other assets
            
Acquired intangible assets, net
    
912,777
    
-
  
Goodwill
    
12,197,363
    
-
  
Investment in Entlian/SpiritMC
    
1,955,049
    
-
  
Prepaid distribution costs, net
    
834,604
    
572,880
 
Prepaid license fees, net
    
121,148
    
176,677
 
Prepaid services, net
    
462,222
    
-
  
Rent deposit
    
122,796
    
33,294
 
Total other assets
    
16,605,959
    
782,851
 
Total assets
  
$
30,628,263
  
$
8,484,718
  
Liabilities and Shareholders’ Equity
            
Current liabilities
            
Accounts payable
 
$
1,165,212
  
$
121,980
  
Accrued expenses
    
212,364
    
86,303
  
Accounts payable and accrued expense - Showtime
    
1,830,195
    
-
  
Future payments due for acquired companies
    
1,500,000
    
-
  
Other accrued liabilities from predecessor company
    
346,572
    
346,572
 
Other accrued liabilities
    
151,226
    
-
  
Registration rights liability
    
-
    
300,000
 
West Coast settlement
    
150,000
    
-
  
Total current liabilities
    
5,355,569
    
854,855
 
Deferred rent and lease incentive
    
140,598
    
-
  
Total liabilities
    
5,496,167
    
854,855
  
Commitments and contingencies
            
Shareholders’ equity
            
Preferred stock, $0.0001 par value, 20,000,000 shares authorized, 0 shares issued
    
-
    
-
 
Common stock, $0.0001 par value, 250,000,000 shares authorized, 46,421,491 and 37,499,999 shares issued and outstanding at September 30, 2007 and December 31, 2006, respectively
    
4,642
    
3,750
 
Common stock to be issued
    
4,749,997
    
-
  
Additional paid-in-capital
    
43,727,095
    
11,875,968
 
Accumulated deficit
    
(23,349,638
)
  
(4,249,855
)
Total shareholders’ equity
    
25,132,096
    
7,629,863
 
Total liabilities and shareholders’ equity
  
$
30,628,263
  
$
8,484,718
  
 
See Notes to Condensed Consolidated Financial Statements
 
3

ProElite, Inc.
(Unaudited)
 
     
Three Months
Ended September 30, 
2007
    
Nine months
Ended September 30, 
2007
    
August 10, 2006 (Inception) to September 30,
2006
  
Revenue
  
$
1,270,825
  
$
3,101,807
  
$
-
  
Revenue - Showtime
    
(170,723
)
  
240,133
    
-
  
 
                    
Total revenue
    
1,100,102
    
3,341,940
    
-
  
 
                    
Cost of revenue
    
2,685,613
    
6,761,560
    
-
  
Cost of revenue - Showtime
    
705,195
    
2,594,705
    
-
  
 
                    
Total cost of revenue
    
3,390,808
    
9,356,265
    
-
  
 
                    
Gross loss
    
(2,290,706
)
  
(6,014,325
)
  
-
  
 
                    
Operating expenses
                    
Marketing
    
119,002
    
246,049
    
-
  
Website operations
    
1,031,185
    
2,351,429
    
-
  
General and administrative expenses
    
3,905,073
    
10,879,726
    
55,349
  
 
                    
Total operating expenses
    
5,055,260
    
13,477,204
    
55,349
  
 
                    
Operating loss
    
(7,345,966
)
  
(19,491,529
)
  
(55,349
)
 
                    
Other income
                    
Interest income (expense), net
    
192,705
    
391,746
    
(366,000
)
 
                    
Loss before income taxes
    
(7,153,261
)
  
(19,099,783
)
  
(421,349
)
 
                    
Income taxes
    
-
    
-
    
-
  
 
                    
Net loss
  
$
(7,153,261
)
$
(19,099,783
)
$
(421,349
)
 
                    
Net loss per share - basic and diluted
  
$
(0.16
)
$
(0.44
)
$
(0.02
)
 
                    
Weighted average shares outstanding - basic and diluted
    
45,911,668
    
43,689,176
    
21,000,000
  

See Notes to Condensed Consolidated Financial Statements
 
4

ProElite, Inc.
Condensed Consolidated Statement of Changes in Shareholders’ Equity
(Unaudited)

 
  
Common Stock Issuable
 
Common Stock
 
Additional
Paid-
 
Accumulated
 
Total Shareholders’
 
 
 
Shares
 
 Amount
 
Shares
 
Amount
 
In Capital
 
Deficit
 
Equity
  
Balance at December 31, 2006
    
-
  
$
-
    
37,499,999
  
$
3,750
  
$
11,875,968
  
$
(4,249,855
)
$
7,629,863
  
 
                                            
Common stock and warrant issued for cash - Showtime
    
-
    
-
    
5,000,001
    
500
    
4,999,500
    
-
    
5,000,000
  
Warrant issued to Showtime
    
-
    
-
    
-
    
-
    
608,000
    
-
    
608,000
  
Shares issued to MMA Live Entertainment, Inc.
    
-
    
-
    
320,000
    
32
    
639,968
    
-
    
640,000
  
Warrants exercised on a cashless basis
    
-
    
-
    
208,333
    
21
    
(21
)
  
-
    
-
  
Common stock and warrants issued for cash in private placement
    
-
    
-
    
3,214,286
    
321
    
20,137,145
    
-
    
20,137,466
  
Options and warrants exercised
    
-
    
-
    
78,872
    
8
    
158,540
    
-
    
158,548
  
Common stock issued for investment in Entlian Corp. (“SpiritMC”)
    
-
    
-
    
100,000
    
10
    
999,990
    
-
    
1,000,000
  
Common stock to be issued for purchase of King of the Cage, Inc.
    
178,571
    
1,249,997
    
-
    
-
    
-
    
-
    
1,249,997
  
Common stock to be issued for purchase of “Cage Rage”
    
500,000
    
3,500,000
    
-
    
-
    
-
    
-
    
3,500,000
  
Stock options and warrants
    
-
    
-
    
-
    
-
    
4,008,005
    
-
    
4,008,005
  
Reduction of registration rights liability
   
-
    
-
    
-
    
-
    
300,000
    
-
    
300,000
  
Net loss
    
-
    
-
    
-
    
-
    
-
    
(19,099,783
)
  
(19,099,783
)
 
                                            
Balance at September 30, 2007
    
678,571
  
$
4,749,997
    
46,421,491
  
$
4,642
  
$
43,727,095
  
$
(23,349,638
)
$
25,132,096
  

See Notes to Condensed Consolidated Financial Statements
 
5

ProElite, Inc.
(Unaudited)
 
   
Nine months
Ended
September 30, 
2007
  
August 10, 2006 (Inception) to September 30,
2006
  
Cash flows from operating activities
  
 
       
Net loss
  
$
(19,099,783
)
$
(421,349
)
 
              
Adjustments to reconcile net loss to net cash used in operating activities
              
Stock and warrant based compensation
    
4,008,005
    
366,000
  
Depreciation and amortization
    
815,076
    
-
  
Abandonment of fixed assets
    
242,809
    
-
  
Provision for doubtful accounts
    
183,000
    
-
  
Loss in equity interest
    
44,951
    
-
  
Change in operating assets and liabilities:
              
Increase in accounts receivable
    
(778,749
)
  
-
  
Increase in prepaid expense and other assets
    
(297,213
)
  
-
  
Increase in accounts payable, accrued expenses and other liabilities
    
2,670,947
    
-
  
Net cash used in operating activities
    
(12,210,957
)
  
(55,349
)
 
              
Cash flows from investing activities
              
Purchase of fixed assets
    
(1,378,348
)
  
-
  
Acquisition of King of the Cage, Inc.
    
(3,250,000
)
  
-
  
Acquisition of Cage Rage, net of cash acquired
    
(3,938,386
)
  
-
  
Investment in Entlian Corp.
    
(1,000,000
)
  
-
  
Net cash used in investing activities
    
(9,566,734
)
  
-
  
 
              
Cash flows from financing activities
              
Issuance of common stock and warrants for cash
    
25,137,466
    
-
  
Proceeds from exercise of options and warrants
    
158,548
    
-
  
Cash pledged as collateral for credit card facility
    
(277,500
)
  
-
  
Proceeds from bridge loans
    
-
    
600,000
  
Net cash provided by financing activities
    
25,018,514
    
600,000
  
 
               
Net increase in cash and cash equivalents
    
3,240,823
    
544,651
  
 
              
Cash and cash equivalents at beginning of period
    
7,295,825
    
-
  
Cash and cash equivalents at end of period
  
$
10,536,648
  
$
544,651
  
 
6
 
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.

Through September 30, 2007, the Company reduced its registration rights liability related to the shares issued in the October 2006 private placement by $300,000, with a corresponding increase to paid-in capital.
 
On April 3, 2007, the Company issued 320,000 shares to MMA Live Entertainment, Inc. for future services. The Company recorded the $640,000 value of these shares as prepaid services in the other assets section of the balance sheet.

In May 2007 in connection with a new office lease, the Company recorded leasehold improvements of $115,650 for design and modifications to the new office space. This amount was paid by the Company’s landlord directly to a third-party architect and has been recorded as deferred rent.

On June 20, 2007, an unrelated party in the Company’s October 2006 private placement exercised, on a cashless basis, 250,000 warrants and received 208,333 shares of restricted common stock.

In September 2007, the Company issued to Entlian Corp. 100,000 shares of restricted common stock valued at $1 million.

In September 2007, the Company recorded its obligation for the acquisition of King of the Cage of 178,571 shares of common stock valued at $1.25 million.
 
In September 2007, the Company recorded its obligation for the acquisition of Cage Rage of 500,000 shares of common stock valued at $3.5 million.

At September 30, 2007 in accordance with the stock purchase agreement, the Company recorded a distribution of approximately $240,000 of accounts receivable in an acquired subsidiary to the subsidiary’s selling shareholders.

See Note 4 for non-cash disclosure of assets and liabilities acquired in business combinations in September 2007.
 
See Notes to Condensed Consolidated Financial Statements
 
7

ProElite, Inc.
(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-QSB. 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 registration statement on Form SB-2 for the period from August 10, 2006 (inception) through December 31, 2006. Operating results for interim periods are not necessarily indicative of operating results for an entire fiscal year or any other future periods.

The Company began its current business in August 2006 and was considered a development stage company until the first quarter of 2007 when revenues were first recognized.

In May 2007, the Company, by consent of its shareholders, changed its name from “Pro Elite, Inc.” to “ProElite, Inc.”

Principles of Consolidation
 
The Company’s consolidated financial statements include the assets, liabilities and operating results of Pro Elite (formerly Real Sport) 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 in which ProElite has significant influence; this represents common stock ownership of at least 20% and not more than 50% (see Note 4).

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

The Company earns revenue primarily from ticket sales and events broadcast on pay-per-view television. The Company also earns incidental revenue from merchandise and video sales, sponsorship at live events and on Company websites, and distribution agreements. 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 distribution agreements is recognized in accordance with the contract terms, which are generally at the time events occur.
 
8

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: TV and Internet production, fighter purse, arena, officiating, and the set design. 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 with Showtime, event-specific production and marketing budgets and historical experience. In October 2007, Showtime provided the Company estimates of pay-per view revenue that were approximately $171,000 lower than the original estimates provided by Showtime which was recorded as a reduction of revenue in the three months ended September 30, 2007. Live events produced jointly with other parties require the Company to estimate expenses. At September 30, 2007, the Company accrued estimated expenses related to Showtime production costs of approximately $1.8 million. Should actual results differ from estimated amounts, a charge or benefit to the statement of operations would be recorded in a future period.

Cash and Cash Equivalents

Cash and cash equivalents include deposit accounts and debt instruments of the United States government and its agencies and high-quality corporate issuers. All highly liquid investments with an original maturity of three months or less are considered cash equivalents. The Company maintains cash and cash equivalents with a commercial bank. These accounts are generally guaranteed by the Federal Deposit Insurance Corporation (“FDIC”) up to $100,000 or by the Securities Investor Protection Corporation (“SIPC”) up to $500,000. At times, balances at any single bank may be in excess of the FDIC or SIPC insurance limit. The deposits are made with a reputable financial institution, 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 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.

An allowance for amounts estimated to be uncollectible 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. During the three and nine months ended September 30, 2007, we capitalized $0 and $349,976 of website development costs.
 
9

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 fighter contracts, venue contracts, video libraries, web sites, 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 average approximately three years.

SFAS No. 142 requires goodwill 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. The Company expects to evaluate the goodwill recorded in the acquisitions completed in September 2007 during 2008.

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. During 2007, live event set design costs and other equipment were determined to be impaired and the Company recorded a charge to operations of approximately $243,000 in the nine months ended September 30, 2007.

Prepaid Distribution Costs

Prepaid distribution costs represent the value of warrants issued to Showtime in November 2006 and January 2007 in connection with a television and pay-per-view distribution agreement. The value of the warrants is being amortized to expense over the three-year term of the distribution agreement.

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.

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, accrued expenses and acquisition prices payable approximate fair value due to the short-term maturities of these instruments.

Foreign Currency

The functional currency of the Company’s international subsidiary is 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.
 
10

Recent Accounting Pronouncements

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

In February 2007, FASB issued SFAS 159, “The Fair Value Option for Financial Assets and Financial Liabilities”. SFAS No. 159 amends SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities”. SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value. The objective of SFAS No. 159 is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. SFAS No. 159 is expected to expand the use of fair value measurement, which is consistent with the Board’s long-term measurement objectives for accounting for financial instruments. SFAS No. 159 applies to all entities, including not-for-profit organizations. Most of the provisions of SFAS No. 159 apply only to entities that elect the fair value option. However, the amendment to SFAS No. 115 applies to all entities with available-for-sale and trading securities. Some requirements apply differently to entities that do not report net income. This statement is effective as of the beginning of each reporting entity’s first fiscal year that begins after November 15, 2007. The Company does not expect SFAS No. 159 to have a material impact on our financial position, operations or cash flows.

Reclassifications

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

Note 2    Liquidity

In September 2007, the Company acquired two companies and made a significant investment in a third. Additionally, the Company’s business plan calls for expanding the scale of live events and Internet operations. As a result, the need for cash has correspondingly increased. Although the Company has approximately $10.5 million of cash at September 30, 2007, additional financing is needed to continue to grow the operations to their desired levels over the next 12 months. We are currently seeking additional financing.

If we are unable to raise sufficient financing, we will be required to reduce our expansion programs and our growth may be limited. To that end, management has prepared and is launching a program of cost reductions and other initiatives to improve operations. If this program is not successful and sufficient additional financing cannot be obtained, the Company may have to curtail or reduce operations.

There can be no assurances that we will be able to raise sufficient financings on favorable terms and conditions.

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 and nine months ended September 30, 2007 in accordance with FASB Statement 128 (“SFAS 128”), Earnings per Share:

 
  
Three Months
Ended 
September 30,
2007
  
Nine Months
Ended 
September 30,
2007
  
Weighted-average common shares outstanding - basic
    
45,911,668
    
43,689,176
  
Dilutive effect of stock options and warrants
    
-
    
-
  
 
              
Weighted-average common shares outstanding - diluted
    
45,911,668
    
43,689,176
  
 
              
Net loss per share - basic and diluted
  
$
(0.16
)
$
(0.44
)
 
11
 
The effect of options and warrants (20,708,549) on the computation of diluted net loss per share is excluded for the three and nine month periods ended September 30, 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 mixed martial arts fighting (“MMA”) events primarily in the United States. The acquisition increased the Company’s event activity and video library content. The total purchase price, not including contingent consideration, was $5.0 million consisting of: $3,250,000 cash paid at closing, $500,000 cash to be paid in November 2007, $1,249,997 in restricted common shares to be issued in January 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. The Company has recorded the maximum numbers shares issuable based on the $7.00 per share price, or 178,571 shares. Additionally, the Company entered into a five year employment contract with one of the selling shareholders. (See Note 8.)

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

   
Performance Thresholds
  
Annual Contingent Consideration 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.
 
12
 
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 $41,000 to tangible assets, $635,000 to amortizable intangible assets, $100,000 to non-amortizable intangible assets, $40,000 to acquired liabilities and $4.3 million to goodwill.

The Company’s results of operations include those of KOTC since the date of acquisition. For the period from the date of acquisition to September 30, 2007, KOTC recognized revenue of approximately $100,000 and a net loss of approximately $68,000.

Cage Rage

On September 12, 2007, the Company acquired the outstanding capital stock of two related entities: Mixed Martial Arts Promotions Limited, an English company (“MMAP”), and Mixed Martial Arts Productions Limited, an English company (“MMAD”) (collectively “Cage Rage”), United Kingdom companies promoting MMA events. The acquisition gives the Company an event promotion business in the UK and increased the Company’s video library content. The transaction was treated as a business combination. The total purchase price was $8.6 million consisting of: $4,000,000 cash paid at closing, 500,000 shares of restricted common stock issuable 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 $4 million cash paid at closing included repayment of $2.8 million of debt on Cage Rage’s books at the date of closing. Additionally, the Company expects to establish an incentive arrangement whereby shares of common stock would be issued to employees based upon achieving certain performance goals.

The purchase price was allocated approximately $0.9 million to cash and accounts receivable, $61,000 to tangible assets, $150,000 to amortizable intangible assets, $50,000 to non-amortizable intangible assets, $0.5 million in accounts payable and $7.9 million to goodwill.

The Company’s results of operations include those of Cage Rage since the date of acquisition. For the period from the date of acquisition to September 30, 2007, Cage Rage recognized revenue of $241,259 and a net loss of $339,717.

Detail of Acquisitions

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

   
KOTC
  
Cage Rage
  
Current assets, exclusive of cash
  
$
-
  
$
904,000
  
Fixed assets
    
41,000
    
61,000
  
Intangible assets
    
735,000
    
200,000
  
Goodwill
    
4,308,000
    
7,889,000
  
Current liabilities
    
(84,000
)
  
(454,000
)
Consideration
  
$
5,000,000
  
$
8,600,000
  

Purchase Price Allocations are Estimates

The purchase price allocations for the acquisitions are preliminary and subject to revision as more detailed analyses are completed and additional information on the fair value of the acquired assets and liabilities becomes available. Any change in the fair value of the net assets of the acquired companies will change the amount of the purchase price allocable to goodwill and/or other tangible and intangible assets.
 
13

The allocations above were based on the discounted expected cash flow or replacement cost, whichever is more readily evident, of assets and the carrying value of liabilities. The Company intends to engage a valuation specialist to ascertain the value of the assets acquired in accordance with the applicable provisions of Statement of Financial Accounting Standards No. 141, “Business Combinations.”

Additionally, the maintenance of goodwill 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 goodwill.

Proforma Disclosures

Proforma disclosures for the results of operations of the acquired companies will be provided in a current report on Form 8-K, which is expected to be filed before November 30, 2007.

SpiritMC

On September 18, 2007, the Company funded an investment in Entlian Corporation (“SpiritMC”), a Korean company promoting MMA events in Korea. The investment gives the Company access to event promotion in 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 guaranteed 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 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 converts to common stock at any time but no later than January 2010. The Company will have a third of the seats on SpiritMC’s Board of Directors, and therefore will not exercise control over SpiritMC. As such, the Company accounts for the investment in SpiritMC using the equity method. In the three and nine months ended September 30, 2007, the Company recorded a charge of approximately $45,000, representing the Company’s share of SpiritMC’s loss for the period since the date of investment.

The following is condensed financial information of SpiritMC:

   
September 30,
2007
  
Cash and cash equivalents
  
$
937,914
  
Other current assets
  
$
60,989
  
Other assets
  
$
148,261
  
Current liabilities
  
$
152,545
  
Non-current liabilities
  
$
1,144,114
  
Stockholders’ deficit
  
$
(149,495
)
 
   
Nine Months
Ended
September 30,
2007
  
Revenue
  
$
486,210
  
Gross loss
  
$
(158,330
)
Operating loss
  
$
(631,008
)
Net loss
  
$
(681,436
)
         

14
 
Note 5    Income Taxes

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

As of January 1, 2007, the Company implemented FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes—an Interpretation of FASB Statement 109 (“FIN 48”), which clarifies the accounting for uncertainty in tax positions. This Interpretation provides that the tax effects from an uncertain tax position can be recognized in the financial statements, only if the position is more likely than not of being sustained on audit, based on the technical merits of the position. The provisions of FIN 48 are effective as of the beginning of fiscal 2007, with the cumulative effect of the change in accounting principle recorded as an adjustment to opening retained earnings. The adoption on FIN 48 did not have an effect on the net loss for the three and nine months ended September 30, 2007 and no adjustment was made to opening retained earnings. The total amount of unrecognized tax benefits that if recognized would affect the Company’s effective tax rate is zero based on the fact that the Company currently has a full reserve against its unrecognized tax benefits.

Note 6    Fixed Assets, Net

Fixed assets, net consisted of the following:

 
  
September 30,
2007
  
December 31,
2006
  
 
  
  
  
  
  
Computer, office and video production equipment
  
$
514,114
  
$
94,380
  
Furniture and fixtures
    
337,629
    
-
  
Live event set costs
    
56,000
    
70,962
  
Leasehold improvements
    
231,335
    
-
  
Computer software
    
63,482
    
-
  
Internet domain names
    
24,933
    
-
  
Website development costs
    
349,976
    
-
  
 
    
1,577,469
    
165,342
  
Accumulated depreciation and amortization
    
(246,538
)
  
(7,609
)
   
$
1,330,931
  
$
157,733
  

Note 7    Liabilities

Other Accrued Liabilities

In connection with the reverse merger of the Company and the predecessor registrant (see Note 1 of the Company’s financial statements in the registration statement on Form SB-2 declared effective May 14, 2007), the Company assumed accounts payable of approximately $210,000 and notes payable of approximately $137,000, which existed at the time the predecessor registrant ceased operations. At September 30, 2007, these liability balances remained unchanged from the date of the reverse merger.

Registration Rights Liability

In connection with the October 2006 private placement, the Company entered into a Registration Rights Agreement with its investment banker. The agreement called for the Company to pay monthly “liquidated damages” to the investment banker if the Company’s registration statement was not declared effective by the Securities and Exchange Commission by March 15, 2007. The liquidated damages commenced on March 16, 2007 and were calculated at 1% per month of the gross private placement proceeds ($10 million) for up to 24 months for each month that the registration statement was not declared effective. The registration statement was ultimately declared effective on May 14, 2007, two months after the liquidated damages commenced. At March 31, 2007, the liability was reduced by $100,000 to $200,000 (two months of liquidated damages) with a corresponding increase to additional paid-in capital.
 
15

On June 27, 2007, an agreement was entered into whereby the investment banker agreed to waive the liquidated damages if the Company files a registration statement covering the resale of the shares underlying the warrants issued in the October 2006 private placement within 45 days of closing another private placement that was in-process at June 30, 2007. The registration statement was declared effective within the specified timeframe on September 5, 2007. Therefore, the Company reclassified the remaining $200,000 liability to paid-in capital.

Bridge Loans

In August 2006, the Company entered into a bridge loan transaction with an affiliate of the placement agent for $350,000 and shareholders of a subsidiary of Real Sport for $250,000. As payment for interest, the loan holders received $75,000, which was paid from the proceeds of the October private placement. The loan principal was also repaid in October 2006 from the proceeds of the private placement. The Company also issued to the lenders warrants with a three-year term to purchase 600,000 common shares at $0.60 per share. The value of these warrants of approximately $0.60 per warrant, or approximately $360,000, was charged to interest expense during the period ended September 30, 2006.

Note 8    Commitments

In March 2007, the Company entered into a non-cancelable lease for office space and paid a deposit of $109,415 to the landlord. The Company took possession of the office space and began paying rent in June 2007. The lease agreement expires on July 31, 2012 and calls for the following annual minimum lease payments: 
 
Year ending December 31,
    
Amount
  
2007
  
$
182,000
  
2008
    
383,000
  
2009
    
398,000
  
2010
    
414,000
  
2011
    
431,000
  
2012
    
255,000
  
   
$
2,063,000
  

In September 2007, the Company assumed a contract with a live events venue in connection with the Company’s recent acquisitions. As of September 30, 2007, the contract calls for the subsidiary to promote one future event and pay a venue rental fee of approximately $104,000. The rental fee is payable at the time an event occurs. Currently, the Company expects to promote this event and incur the venue rental fee during 2007.

In September 2007, the Company entered into an employment contract in connection with a recent acquisition. Under the contract, the Company pays the employee a salary of $150,000 per year through September 2012 and a bonus equal to 20% of the subsidiary’s earnings before interest, taxes, depreciation and, amortization (“EBITA”) 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.

16

Note 9    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 complain 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 September 30, 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.

17

Note 10    Shareholders’ Equity

Common Stock Issued to MMA Live Entertainment, Inc.

On April 3, 2007, the Company issued 320,000 shares of restricted common stock to MMA Live Entertainment, Inc., an affiliate of Frank Juarez “Shamrock” in connection with an agreement to provide MMA-related services. Under this agreement, Shamrock granted the Company the right to promote Shamrock as a fighter and provide other promotional services. The shares were valued at $640,000, based on a fair value of $2.00 per share, and recorded in other assets. The value of the shares is being amortized over the three year term of the agreement.

SHOWTIME Securities Purchase

On January 5, 2007, pursuant to a Securities Purchase Agreement the Company entered into with Showtime, the Company issued an aggregate of 1,666,667 units for $5 million in cash, each unit consisting of 3 shares of common stock and a three-year warrant to purchase 1 share of common stock at a per share exercise price of $2.00 to Showtime, at a per unit price of $3.00. The warrants were valued at $345,000. Additionally, the Company issued a seven-year warrant to purchase 2.5 million shares of common stock to Showtime at a per share exercise price of $2.00, as additional consideration of the exclusive distribution agreement entered into in November 2006. These warrants have been valued at $608,000 and are being amortized into operations over a three-year period commencing January 5, 2007. The Showtime warrants were exercisable as of the date of grant, January 5, 2007.

The values of the Showtime warrants were estimated using the Black-Scholes option pricing model with the following assumptions: dividend yield of 0%, expected volatility of 60%, risk free interest rate of 4.7%, and expected lives of 3 years.

Private Placement of Common Stock and Warrants

In the third quarter of 2007, the Company finalized a private placement of common stock and warrants. Investors in the private placement purchased 3,571,429 units for $25,000,000. Each unit was priced at $7.00 and consisted of one share of common stock and one-half warrant to purchase one share of common stock at $7.00 per share. The warrants have a term of five years and a cashless exercise feature. The warrants were determined to have a value of $4.9 million, or $2.74 per warrant, using a Black-Scholes pricing model. The Company and selling security holders paid the placement agent a fee of 10% of gross proceeds, or $2,500,000. Additionally, the Company issued to the underwriter five-year, cashless-exercise warrants to purchase 3,571,428 shares of common stock at $7.00 per share. The value of the warrants given to the placement agent were $2.74 per warrant, or $9.8 million. The value of all warrants issued was charged to equity.

As part of the private placement, the Company provided investors and the underwriter with anti-dilution coverage through September 5, 2009. The anti-dilution coverage provides for the issuance of additional shares of common stock and adjustments to the exercise price of the warrants if the Company issues additional securities that exceed an aggregate of 200,000 shares of common stock at a price or exercise price per share less than $7.00 (subject to a floor of $2.00 per share and subject to adjustments for splits, recapitalizations and reorganizations).

Under the agreement with the placement agent, the Company granted the placement agent the right to nominate two members to the Board of Directors (including the placement agent’s existing nominee) and signage rights at three of the Company’s events per year for two years. The Company indemnified the placement agent for certain claims that may arise in connection with the private placement, agreed to pay up to $50,000 in costs for tombstone ads, and agreed to pay the placement agents legal costs, subject to a minimum of $25,000.
 
18

Holders of the Company’s common stock, options and warrants were allowed to sell 10% of the shares in the placement for $2,500,000. The placement was comprised of 3,214,286 shares of common stock from the Company, 357,143 shares of common stock from selling security holders and 1,785,715 investor warrants from the Company. The Company received net proceeds from the investors of $20.2 million which was allocated $4.4 million to warrants and the residual of $15.8 million to common shares, or $5.48 per share. The Company also received $100,214 from the selling security holders who exercised warrants and stock options in order to participate in the offering.

The Company registered the resale of the shares of common stock sold in the above offering along with warrants issued to investors and underwriters of the Company’s private placement in October 2006 with the Securities and Exchange Commission in a registration statement declared effective on September 5, 2007.

Stock-Based Compensation

The Company currently offers a stock-based compensation plan to its employees, directors and consultants. This plan is administered by the Compensation Committee of the Board of Directors, which recommends to the Board persons eligible to receive awards and the number of shares and/or options subject to each award, the terms, conditions, performance measures, and other provisions of the award. Refer to Note 12 of the Company’s financial statements in Form SB-2 for the period ended December 31, 2006 for additional information related to the Company’s stock based compensation plans.

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 three and nine months ended September 30, 2007, the Company incurred approximately $266,000 and $656,000, respectively, of expense related to stock based compensation under this plan and approximately $505,000 and $3,352,000 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
September 30,
2007
  
Nine months
Ended
September 30,
2007
  
Black-Scholes Model:
            
Risk-free interest rate
    
4.07% - 4.70
%
  
4.07 - 4.70
%
Expected life, in years
    
6.0
    
5.8 - 6.5
 
Expected volatility
    
60.0
%
  
60.0
%
Dividend yield
    
0.0
%
  
0.0
%

Expected volatility is based on the historical volatility of the share price of companies operating in similar industries. The 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.

 
19

The following table represents stock option activity for the nine months ended September 30, 2007:

 
  
Plan
Options
  
Weighted
Average
Exercise
Price
 
Outstanding at December 31, 2006
    
1,570,000
  
$
2.00
  
Granted
    
3,645,000
  
$
2.92
  
Forfeited
    
(344,271
)
$
2.00
  
Exercised
    
(75,127
)
$
2.01
  
Outstanding at September 30, 2007
    
4,795,602
  
$
2.70
  
Exercisable at September 30, 2007
    
1,016,165
  
$
2.06
  

At September 30, 2007 the aggregate intrinsic value of options outstanding and the aggregate intrinsic value of options exercisable was approximately $20.6 million and $5.0 million, respectively.

At September 30, 2007 there was approximately $3.7 million of unrecognized compensation cost related to non-vested options, which is being expensed through 2011.

On January 8, 2007, the Company granted stock options to a new director to purchase 100,000 shares of common stock with an exercise price of $2.00 per share. The options have a fair value of approximately $55,000, which was charged to expense in January 2007 as the options vested immediately and the director subsequently resigned from the board of directors in the month of issuance. The options have a term of 10 years.

On January 8, 2007, the Company issued to an officer, an option to purchase 1,700,000 shares of common stock at $2.00 per share. The options vested 340,000 shares immediately with the remainder vesting over four years. The term of the option is 10 years. The option has a fair value of approximately $1,100,000, and approximately $235,000 was amortized in January 2007 with the balance being amortized on a straight-line basis over the vesting period.

During the quarter ended March 31, 2007, the Company granted 810,000 options to employees in individual grants ranging from 10,000 to 300,000 options. All options have exercise prices at $2.00, vest over four years and have terms of 10 years. The aggregate fair value of these options at the dates of grant was approximately $456,000 and is being amortized on a straight-line basis over the vesting period.

During the quarter ended June 30, 2007, the Company granted 495,000 options to employees in individual grants ranging from 10,000 to 100,000 options, with exercise prices ranging from $2.00 to $6.00, vesting over three to four years and terms of 10 years. The aggregate fair value of these options at the dates of grant was approximately $364,000 and is being amortized on a straight-line basis over the vesting period.

During the quarter ended September 30, 2007, the Company granted 540,000 options to employees in individual grants ranging from 10,000 to 200,000 options, with exercise prices ranging from $6.00 to $7.00, vesting over four years and terms of 10 years. The aggregate fair value of these options at the dates of grant was approximately $2.1 million and is being amortized on a straight-line basis over the vesting period.

During the quarter ended September 30, 2007, option holders, including those who participated in the private placement described above, exercised 75,127 options and paid the Company exercise proceeds of approximately $151,000.

20
 
Warrants

The following table represents warrant activity for the nine months ended September 30, 2007:

 
  
Warrants
  
Weighted
Average
Exercise Price
  
Outstanding at December 31, 2006
    
10,453,333
  
$
1.92
  
Granted
    
27,122,810
    
3.64
  
Expired
    
(5,000
)
  
3.00
  
Exercised
    
(253,745
)
  
2.00
  
Outstanding at September 30, 2007
    
37,317,398
  
$
3.17
  
Exercisable at September 30, 2007
    
19,692,384
  
$
3.43
  

At September 30, 2007 the aggregate intrinsic value of warrants outstanding and the aggregate intrinsic value of warrants exercisable was approximately $142.9 million and $70.3 million, respectively.

At September 30, 2007 there was approximately $26.0 million of unrecognized cost related to non-vested warrants (including approximately $23.5 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, 2007, the Company issued 390,000 warrants with exercise prices ranging from $2.00 to $3.25 to consultants for services and 4,166,667 warrants to Showtime, as discussed elsewhere in this footnote. The value of the warrants issued to consultants was calculated as approximately $200,000 using a Black-Scholes option pricing model with the following assumptions: expected term from 4 to 5 years, expected volatility of 60%, risk-free interest rates ranging from 4.48% to 4.78% and dividend yield of 0%.

During the quarter ended June 30, 2007, the Company issued 157,000 warrants with exercise prices ranging from $2.00 to $6.00 to consultants for services. The value of the warrants issued to consultants was calculated as approximately $50,000 using a Black-Scholes option pricing model with the following assumptions: expected term from 3 to 3.5 years, expected volatility of 60%, risk-free interest rate of 4.7% and dividend yield of 0%. The value of these warrants is being expensed over the expected service periods, which range from 3 to 3.5 years.

On June 20, 2007, an unrelated party in the Company’s October 2006 private placement exercised, on a cashless basis, 250,000 warrants and received 208,333 shares of restricted common stock. These shares were registered for resale in September 2007.
 
During the quarter ended September 30, 2007, other warrant holders, who participated in the private placement described above, exercised 3,745 warrants and paid the Company exercise proceeds of approximately $7,000.

During the quarter ended September 30, 2007, the Company issued 52,000 warrants with exercise prices ranging from $6.00 to $7.00 to consultants for services. The value of the warrants issued to consultants was calculated as approximately $125,000 using a Black-Scholes option pricing model with the following assumptions: expected term from 2.5 years, expected volatility of 60%, risk-free interest rate of 4.3% and dividend yield of 0%. The value of these warrants was fully expensed during the quarter ended September 30, 2007 based on the expected service period.
 
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During the quarter ended September 2007, the Company issued a total of 5,357,143 warrants to investors and its placement agent in connection with a private placement. See Private Placement of Common Stock and Warrants aforementioned in this footnote.

Burnett Warrants

Effective June 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 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 15, 2008.

Pursuant to the Series Agreement, the Company and Burnett entered into a Subscription Agreement (the “Subscription Agreement”) relating to the issuance to Burnett of warrants to purchase up to 17,000,000 shares of the Company's common stock. 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
 
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 one year of the effective date.

The warrants have an exercise price of $3.00 per share. The exercise price is reduced if the Company issues or sells shares of its common stock, excluding shares issued as compensation for services or in connection with acquisitions, for less than $3.00 per share. The expiration date for a particular tranche of Warrants is the latest to occur of (i) June 15, 2013; (ii) the date which is one year after the vesting date of any such tranche, and (iii) one year after the expiration of the term of the License Agreement.
 
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The value of the warrants was calculated as approximately $2,637,000 for tranche one and $2,880,000 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 4.7% 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: $3.7 million (tranche three), $1.8 million (tranche four), $1.8 million (tranche five), $3.6 million (tranche six), $7.2 million (tranche seven), $3.6 million (tranche eight), and $1.8 million (tranche nine) or approximately $23.5 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 4.7% 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 30, 2007, the Company has recognized no expense related to tranches three through nine.

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

Note 11    Related Party Transactions

The Company entered into a television production and distribution agreement with Showtime, which is also an investor in the Company. The Company earns revenue from and incurs expenses to Showtime in connection with this agreement. During the three and nine months ended September 30, 2007, the Company recorded revenue of approximately $411,000 from the pay-per-view broadcast of the Company’s June 22, 2007 event. The Company estimated the amount of this revenue from projected sales of the pay-per-view program, which were based upon initial reporting of actual sales by distribution partners during the first approximately two weeks after the event. If the final, actual sales reported by distribution partners are different than the estimated amount, the Company will record a charge or benefit to the statement of operations in a future period. During the three months ended September 30, 2007, the Company recorded a reduction to revenue of approximately $171,000 to adjust the estimated pay per view revenue recorded in the quarter ended June 30, 2007. During the three and nine months ended September 30, 2007, the Company incurred approximately $0.7 million and $2.6 million, respectively, of production expenses directly related to the Company’s live events, which were produced by Showtime on behalf of the Company. The Company estimated expenses for the three months ended September 30, 2007 based upon the television distribution agreement with Showtime, event-specific production and marketing budgets and historical experience. The production costs were recorded in cost of revenue. At September 30, 2007, the Company owed approximately $1.8 million to Showtime and had a receivable of approximately $240,000 from Showtime.

The Company entered into a three-year term consulting agreement and pays a monthly fee of $30,000 to Santa Monica Capital Partners II (“SMCP”) for services relating to strategic planning, investor relations, acquisitions, corporate governance and financing. The Company paid $270,000 to SMCP for this monthly fee through the nine months ended September 30, 2007. Additionally, the Company incurred costs of $158,000 for free services to SMCP.
 
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Note 12          Subsequent Events

In September 2007, the Company initiated an asset purchase transaction with Future Fight Productions, Inc. (“FFP”), an MMA event promoter. Under the proposed transaction, the Company will purchase FFP’s tangible and intangible MMA event related assets in exchange for consideration of $350,000 cash and 200,000 shares of restricted common stock. The proposed transaction calls for half of the restricted shares to be issued upon closing and half to be issued over the three years following the closing. The proposed transaction contains conditions precedent to closing including completion of financial and legal due diligence procedures satisfactory to the Company and provision of audited financial statements of FFP. The conditions precedent to closing have not yet been satisfied. As of September 30, 2007, the Company had advanced FFP approximately $70,000, which is included in other assets.
 
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Item 2. Management’s Discussion and Analysis of Operations. 

Forward Looking and Cautionary Statements 

This Form 10QSB 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 condensed consolidated financial statements and notes thereto included in this prospectus.
 
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 prospectus 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 prospectus, 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 prospectus or to conform these statements to actual results.

Overview 

You should read the information in this Item 2 together with our condensed financial statements and notes thereto that appear elsewhere in this Report.

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 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.

ProElite, Inc., a New Jersey corporation (the “Company”) is a holding company for entities that (a) organize and promote mixed martial arts matches, and (b) create an internet community for martial arts enthusiasts and practitioners. On October 3, 2006, pursuant to a Share Exchange Agreement dated concurrently between us and the shareholders of Real Sport, Inc., a California corporation, we issued 25,000,000 shares of our common stock in exchange for all of the issued and outstanding shares of Real Sport. As a result of this reverse merger transaction, Real Sport is now our wholly owned subsidiary, though from an historical perspective it was deemed to have been the acquirer in the reverse merger and the survivor of the reorganization. Concurrently with the closing of the reverse merger, we completed a private placement of our securities with gross proceeds of $10,000,000. Real Sport is the holding company of ProElite.com (formerly EliteXC.com and I-Fight, Inc.) and EliteXC Live (formerly MMA Live, Inc. and Jungle Fight, Inc.), which were formed on August 10, 2006 and September 13, 2006, respectively.
 
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Our business plan is to capitalize on the popularity and growth of mixed martial arts in building an “Elite” fight brand, EliteXC, while also taking advantage of the Internet to capture fans, fighters and organizations in combat sports with its ProElite.com social networking web site. We plan on reaching MMA fans and participants through normal marketing channels (print, television, radio) and harnessing the efficient networking available over the Internet. We are in the process of acquiring multiple on- and off-line brands to increase our entertainment properties, content libraries and tool set offerings for fighters, fans and organizations in and around MMA. EliteXC, our fight brand, produces and promotes live events featuring the top fighters in MMA while ProElite.com has created an MMA grassroots online social network. We cross-promote our Internet and live properties so that each can strengthen the other.

Our business model includes partnering with (and creating) distribution channels for the video content created by our live events and on-line products. The distribution channels include Showtime, CBS Sportsline, other major portals as well as additional television network and cable channels. Each live event may generate up to fifty hours of MMA video footage, and we have finalized licensing deals for the right to thousands of hours of MMA and other combat footage. This footage can be edited into videos or other formats that can be sold or used to market our fighters and future events.

Through September 30, 2007, the Company has promoted seven events, including two events featured on pay-per-view. EliteXC and our affiliates plan to run at least one event per month for the rest of 2007 and 2008.

ProElite.com has grown to over 50,000 registered members since its launch on February 1, 2007. ProElite.com streams the Company’s live events and has featured other fight brands in addition to EliteXC such as Cage Rage (London), ICON Sports (Hawaii), No Limits Gym (California) and Abu Dhabi (grappling tournament).

Private Placement of Securities in July 2007

Effective July 12, 2007, the Company entered into a Securities Purchase Agreement, dated June 29, 2007, with four institutional investors, whereby the Company issued and sold in a private placement 3,214,285 units for an aggregate purchase price of approximately $22,500,000. Each unit consisted of one share of the Company’s common stock and one-half of a five-year warrant to purchase one share of the Company’s common stock for $7.00 per share. An additional 357,143 units were also purchased by the investors under the securities purchase agreement, consisting of 357,143 shares to be sold by certain shareholders of the Company and warrants to purchase an additional 178,571 shares of common stock to be issued by the Company. The Company's agreement to issue the additional warrants was in consideration of the selling shareholders' entering into a lock-up agreement, which terms are described below. The selling shareholders included directors, executive officers, shareholders holding at least 5% of the outstanding shares of common stock of the Company, and their affiliates. The Company also entered into a Registration Rights Agreement with the investors.
 
Securities Purchase Agreement
 
The Securities Purchase Agreement contains a number of covenants by the Company that are outlined below in this paragraph. The Company will not file any registration statements on Form S-8, or other registration statements covering securities issued or that may be issued to its employees, directors, consultants or others for services, for a two-year period following July 31, 2007, subject to certain exceptions. The Company also provided the investors with anti-dilution coverage for a period ending on the second anniversary of the effective date of the Registration Statement, which was declared effective on September 5, 2007. Subject to certain exclusions, the anti-dilution coverage provides for the issuance of additional shares of common stock and adjustments to the exercise price of the warrants issued to the investors of the July 2007 private placement if the Company issues additional securities, including convertible securities, options or other rights to acquire securities, that exceed an aggregate of 200,000 shares of common stock at a price or exercise price per share of common stock less than $7.00 (subject to a floor of $2.00 per share and adjustment for splits, recapitalizations, reorganizations).
 
26

Investor Warrants
 
The warrants issued to the investors in the private placement are exercisable at any time and expire June 29, 2012. The exercise price of these investor warrants is $7.00 per share, subject to adjustments for stock splits, combinations, stock dividends or distributions, reclassification, conversion, capital reorganization, merger or consolidation. The investor warrants contain a provision providing for full anti-dilution coverage on the same terms as provided in the Securities Purchase Agreement for a period ending on September 5, 2009. A holder may also exercise its warrants at any time by means of a cashless exercise in which the holder shall be entitled to receive shares of common stock for the number of shares underlying the warrants equal to the appreciation in the warrants above the exercise price at the time of the exercise. The amount of the appreciation will be determined against a referenced per share price that in no event may exceed $15. The warrants do not confer upon holders any voting or other rights as stockholders of the Company. 

Registration Rights Agreement
 
Pursuant to the Registration Rights Agreement, the Company has agreed to file with the Registration Statement with the Securities and Exchange Commission, on or before August 27, 2007. The Registration Statement, which was declared effective on September 5, 2007, covered the resale of: (i) all of the securities underlying the units sold in or in connection with the July 2007 private placement, and (ii) any securities not already registered that were issued in connection with the Company’s private placement on October 3, 2006. The Company may also be required, under certain circumstances, to pay the investors and Hunter World Markets, Inc., the placement agent in the private placement offering, specified liquidated damages if it is unable to maintain the effectiveness of the Registration Statement.
 
Placement Agent Agreement
 
Pursuant to a placement agent agreement dated June 25, 2007, Hunter World Markets, Inc., an NASD member firm, acted as the exclusive placement agent in the private placement on July 12, 2007, and received: (i) a fee of $2,500,000 (ii) warrants to purchase 3,571,428 shares of common stock, which expires on July 31, 2012, and (iii) subject to certain terms and conditions, the right to prominent signage at three of the Company’s scheduled events per year for a two year period commencing with the first full month following July 31, 2007, subject to certain exceptions. The placement agent warrants have the same exercise price, cashless exercise feature and full anti-dilution coverage as the warrants issued to investors. The placement agent warrants do not confer upon its holder or holders any voting or other rights as stockholder of the Company. The Company conferred upon Hunter the right to nominate up to two members of the Company’s Board of Directors, including Hunter’s existing designee, and for a period ending on September 5, 2009, the right of first refusal for any equity, convertible debt or debt financing entered into by the Company, other than certain financings with strategic investors.  The Company has undertaken to indemnify Hunter for certain claims and liabilities that may arise in connection with the offer and sale of the units. The Company has also agreed to pay for one or more tombstone ads not to exceed $50,000 and to reimburse Hunter for fees of its counsel subject to a minimum of $25,000. The Company has further covenanted with Hunter to use best efforts as soon as practicable following July 31, 2007, subject to certain exceptions to apply for listing of the Company’s shares for trading on, and diligently attempt to be listed on, the Nasdaq Stock Market or the American Stock Exchange.  

Lock-Up Agreements

As a condition to closing under the placement agent agreement, the Company’s officers, directors and principal shareholders, including without limitation, Santa Monica Capital Partners II, LLC and its principals, Showtime Networks, Inc., Lifelogger, LLC, and other persons who may be identified by Hunter, entered into agreements whereby each agreed not to sell any shares owned directly or indirectly by any of them for a period of 18 months from September 5, 2007.
 
27

Amendment to Warrant and Related Agreements with JMBP, Inc. and Mark Burnett

Effective July 16, 2007, the Company entered into an Amendment to Warrant and Related Agreements, dated June 28, 2007, with JMBP, Inc. and Mark Burnett, pursuant to which:

 
(i)
The agreement between the parties related to a reality TV show and the warrant issued pursuant to such agreement, both dated June 15, 2007, now provides that 1,000,000 shares of Common Stock included in the warrant will not be subject to forfeiture under any circumstances (irrespective of whether or not a license agreement with a broadcaster is entered into);
 
 
(ii)
Mr. Burnett will not sell any shares of Common Stock or shares of Common Stock underlying the warrants for a period of 18 months from the effective date of the Registration Statement, under the Investor Rights Agreement, dated June 15, 2007; and

 
(iii)
The provision regarding the termination of the Investor Rights Agreement if a license agreement with a broadcaster is not entered into within one year after the effective date of the Investor Rights Agreement was removed.
 
Waiver of Liquidation Fees and Amendment to the Registration Rights Agreement from the October 2006 private placement offering

Effective July 10, 2007, the Company entered into a Waiver and Amendment to Registration Rights Agreement, dated as of June 27, 2007 with Hunter and the subscribers to the Company’s private placement offering on October 3, 2006, pursuant to which the subscribers and Hunter agreed to waive all and any liquidated damage payments owed by the Company, in accordance with the Registration Rights Agreement, dated October 3, 2006, by and among the Company, Hunter and the subscribers. The Company agreed to file a registration statement covering the resale of the remaining shares of its common stock underlying the warrants previously issued to Hunter and the subscribers in connection with its private placement in October 2006 on Form S-1 or such other form as may be appropriate within 45 days of the sale of its securities on July 12, 2007. Such registration statement was declared effective on September 5, 2007.

Entlian Corporation

Effective August 24, 2007, the Company entered into an investment agreement with Entlian Corporation, a Korean corporation, and CJ Media Inc., a Korean corporation. Under the Investment Agreement, on September 18, 2007 the Company purchased a 32% interest in Entlian (assuming the conversion of certain debt owed by Entlian to CJ Media into shares of capital stock of Entlian), for an aggregate purchase price of US$1,000,000 and 100,000 restricted shares of the Company’s common stock. These shares are subject to a lock-up for a period ending 18 months after September 5, 2007.  

King of the Cage

Pursuant to a purchase agreement dated September 11, 2007 among King of the Cage, Inc. (“KOTC”), Terry Trebilcock and Juliemae Trebilcock, the shareholders of KOTC, and the Company, on September 11, 2007 the Sellers sold to the Company all of the shares of capital of KOTC. The consideration for such shares is the payment to the shareholders of KOTC of $3,250,000 cash at closing; 178,571 restricted shares of the Company’s common stock to be delivered on January 2, 2008 to the KOTC shareholders and/or their designees; and $500,000 in cash to be paid sixty days from closing subject to any offset for any indemnity claims by the Company. Additionally, the Company has agreed to make contingent payments over a five-year period of up to an additional $5,000,000 (payable in part in cash and in part in shares of the Company’s common stock, as provided in the purchase agreement) in accordance with a schedule based on the number of events produced under the supervision of Terry Trebilcock under the KOTC name and earnings before interest, taxes, depreciation and amortization for KOTC’s operations during such period. As security for these contingent payments, the Company agreed to grant to the shareholders of KOTC a first priority security interest in the KOTC shares. The Company also agreed to enter into a five-year employment agreement with Trebilcock pursuant to which Mr. Trebilcock will serve as President of the KOTC brand of EliteXC and to supervise the production of live mixed martial events under the KOTC brand and such other duties as may be assigned to him by the Company. In addition to a salary of $150,000, Trebilcock is to receive a share of KOTC’s EBITDA over specified levels.
 
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Belgravia Entertainment International Limited

Pursuant to a purchase agreement dated September 12, 2007 among Belgravia Entertainment International Limited, John Faraday and the Company, on September 12, 2007 Belgravia sold to the Company all of the share capital of Mixed Martial Arts Promotions Limited, an English company, and the Mixed Martial Arts Productions Limited, an English company. The consideration for the shares of capital stock of the two companies is the payment to Belgravia of $1,219,000, the issuance of 500,000 restricted shares of the Company’s common stock and the payment of an additional $1,000,000 within three business days of the first anniversary of the closing of the transactions, as contemplated in the purchase agreement (subject to any offset for breach of warranty). Additionally, the Company repaid at closing (a) a loan by Integrated Technologies and Systems Limited in the amount of $2,600,000 and (b) a loan by Andrew Gear of $181,000, each made to Mixed Martial Arts Promotions Limited.

Future Fight Productions

Pursuant to an Asset Purchase Agreement effective September 21, 2007 among Future Fight Productions, Inc. (“FFP”), the shareholders of FFP, and the Company, FFP agreed to sell to the Company all of the assets of FFP relating to the mixed martial arts business. The consideration for these assets will be the payment to FFP of $350,000 cash at the closing; and 200,000 restricted shares of the Company’s common stock.100,000 shares of the Company’s common stock are to be delivered on the closing, and the remaining 100,000 of such shares are to be delivered in equal installments on each of the first three anniversaries of the closing. A portion of the Company’s common stock is subject to forfeiture in the event of the occurrence of certain events. Additionally, the Company will pay an additional $100,000 in cash if FFP’s EBITDA for a certain 12 month period exceeds a given threshold. Closing of the transaction is subject to certain conditions precedent which have not yet been met. The purchase agreement also contemplates a five-year Consultation Agreement between the Company and FFP, including the payment to FFP of a portion of FFP’s EBITDA.

Results of Operations 

The Company was formed in 1992 and began operations after a reverse merger in August 2006. Therefore, the Company has no insignificant financial results, consisting of nominal general and administrative expenses and a non-cash interest charge, for the period ended September 30, 2006.

For the three months ended September 30, 2007. 

Revenue. Revenue was $1,100,102 for the three months ended September 30, 2007 and was earned principally from ticket sales to our Hawaii (September), London (July) and Chumash (July) events and our newly-acquired subsidiaries' events subsequent to the acquisition dates. During the quarter we recorded a reduction of sales of approximately $171,000 to adjust estimated pay per view revenue recorded in the quarter ended June 30, 2007 and in accounts receivable at September 30, 2007. This reduction was a result of updated estimates received from our distribution partners of pay per view sales of our June 22, 2007 Shamrock-Baroni event.

Cost of revenue. Cost of revenue was $3,390,808 for the three months ended September 30, 2007. The largest portion of cost of revenue was $705,195 of expenses related to Showtime for television production expenses at live events. Other significant components of cost of revenue in the three months ended September 30, 2007 were fighters purses of $605,242, production of “Barker shows” (i.e., event-specific promotional videos) of $219,824, arena rental and related expenses of $112,633, event-specific marketing expense of $120,096, set design expenses of $79,688, travel of $110,718, and Internet production and streaming expenses of $100,492. Also, our newly acquired subsidiaries incurred event-related costs of approximately $625,000 since the date of acquisition.

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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 $119,002 in the quarter ended 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 consist primarily of wages, consultants’ fees and technical infrastructure expenses related to running the Company’s Internet websites. Website operations expenses were $1,031,185 for the quarter ended September 30, 2007.

General and administrative expenses. For the three months ended September 30, 2007, general and administrative expenses amounted to $3,905,073 and consisted primarily of non-cash, stock-based compensation expense and amortization of capitalized warrant costs of $910,731; salaries, wages and payroll taxes of $702,981; consulting expenses of $495,150; professional services of $323,340; and travel expenses of $353,768.

Loss from operations. Loss from operations was $7,345,966 for the three months ended September 30, 2007 as the Company was in the beginning phases of executing its business plan and incurring expenses in advance of establishing its brand and operations.

Net loss. Net loss for the three months ended September 30, 2007 was $7,153,261 or $0.16 per share. The net loss during the first quarter was due to the same factor noted above in “Loss from operations”.

For the nine months ended September 30, 2007. 

Revenue. Revenue was $3,341,940 for the nine months ended September 30, 2007 and was earned principally from ticket sales to our Mississippi (February), San Jose (June), Chumash (July), London (July) and Hawaii (September) live events, fees from FEG USA, Inc. for co-production of a June 2006 event and from the pay-per-view showing of our June 22, 2006 event on Showtime. During the quarter we recorded a reduction of sales of approximately $171,000 to adjust estimated pay per view revenue recorded in the quarter ended June 30, 2007 and accounts receivable at September 30, 2007. This reduction was a result of updated estimates received from our distribution partners of pay per view sales of our June 22, 2007 Shamrock-Baroni event.

Cost of revenue. Cost of revenue was $9,356,265 for the nine months ended September 30, 2007. The largest portion of cost of revenue was $2,594,705 of expenses related to Showtime for marketing and television production expenses for live events. Other significant components of cost of revenue in the nine months ended September 30, 2007 were fighters purses of $1,831,482, production of “Barker shows” (i.e., event-specific promotional videos) of $899,230, arena rental and related expenses of $472,864, event-specific marketing expense of $457,504, set design expenses of $404,058, travel of $293,288, tickets purchased for Company guests of $190,594, Internet production and streaming expenses of $212,307, and write off of the net book value of set design costs of approximately $243,000, which in June 2007 were determined to not be useful for future events. Additionally, our newly acquired subsidiaries incurred approximately $625,000 of event-related costs since the acquisition dates.

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 $246,049 in the nine months ended 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.
 
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Website operations. Website operations expenses consist primarily of wages, consultants’ fees and technical infrastructure expenses related to running the Company’s Internet websites. website operations expenses were $2,351,429 for the nine months ended September 30, 2007. The Company capitalized $349,976 of costs associated with the ProElite.com and EliteXC.com websites during the first quarter of 2007.

General and administrative expenses. For the nine months ended September 30, 2007 general and administrative expenses were $10,879,726 and consisted primarily of non-cash, stock-based compensation expense and amortization of capitalized warrant costs of $4,452,522; salaries, wages and payroll taxes of $1,626,893; consulting expenses of $1,061,135; professional services of $871,242; and travel expenses of $611,240.

Loss from operations. Loss from operations was $19,491,529 for the nine months ended September 30, 2007 as the Company was in the beginning phases of executing its business plan and incurring expenses in advance of establishing its brand and operations.

Net loss. Net loss for the nine months ended September 30, 2007 was $19,099,783 or $0.44 per share. The net loss during the first quarter was due to the same factor noted above in “Loss from operations”.

Liquidity and Capital Resources

Net cash used by operating activities was $12,210,957 during the nine months ended September 30, 2007. The use of cash was primarily the result of the Company being in the early phases of executing its business plan and incurring expenses in advance of establishing its brand and operations.

Net cash used by investing activities was $9,566,734 during the nine months ended September 30, 2007 due primarily to the cash consideration of $3.25 million paid for acquisition of King of the Cage, Inc. and $3.9 million paid for Mixed Martial Arts Productions, Ltd., $1 million paid to purchase a partial ownership interest in Entlian Corp. (SpiritMC) and to the purchase of equipment, furniture and leasehold improvements.

Net cash provided by financing activities was $25,018,514 during the nine months ended September 30, 2007 due to the issuance of common stock and warrants for $20.2 million in a private placement and to the issuance of common stock a warrants to Showtime for $5 million.

 In September 2007, the Company acquired two companies and made a significant investment in a third. Additionally, the Company’s business plan calls for expanding the scale of live events and Internet operations. As a result, the need for cash has correspondingly increased. Although the Company has approximately $10.5 million of cash at September 30, 2007, additional financing is needed to continue to grow the operations to their desired levels over the next 12 months. We are currently seeking additional financing.

If we are unable to raise sufficient financing, we will be required to reduce our expansion programs and our growth may be limited. To that end, management has prepared and is launching a program of cost reductions and other initiatives to improve operations. If this program is not successful and sufficient additional financing cannot be obtained, the Company may have to curtail or reduce operations.

There can be no assurances that we will be able to raise sufficient financings on favorable terms and conditions.
 
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Item 3. 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 September 30, 2007. Based on such evaluation, such officers have concluded that, as of September 30, 2007, 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, 2006, our auditors noted several material weaknesses and a significant deficiency which we are working to address. The material weaknesses noted were: (1) the Company inadequately maintained accounting records, (2) accounting policies and procedures were not formally documented and (3) the accounting department did not have sufficient technical accounting knowledge. The significant deficiency noted was that a contractor did not provide adequate accounting for funds advanced by the Company.

(b) Changes in internal controls. The Company has begun taking remediation steps to enhance its internal control over financial reporting and reduce control deficiencies. We are actively working to eliminate the internal control weaknesses and deficiency noted by: bringing all accounting and record maintenance in-house, implementing Microsoft Dynamics/Great Plains accounting software; implementing a purchase order and approval system and system of managerial approval prior to disbursement of funds; implementing reviews of budget and actual results by department managers; formally documenting accounting policies and procedures; creating centralized, on-site document repositories and maintenance, and we hired personnel in the accounting, finance and legal departments.

There were no 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. However, 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.
 
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PART II. OTHER INFORMATION 


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 complain 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.

On January 23, 2007, West Coast filed a civil action against Frank “Shamrock” Juarez (“Shamrock”), 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 has been accrued for the $150,000 at September 30, 2007.
 
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On March 22, 2007, Zuffa, LLC filed a complaint against Showtime Networks, the Company and a subsidiary 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.


None
 

None


None


None. 


See the attached exhibit index.
 
34
 
SIGNATURES 
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
     
Date: November 19, 2007
PROELITE, INC.
 
 		  
 		  
 
By:  
/s/ Douglas DeLuca
 
Douglas DeLuca, Chief Executive Officer
(Principal Executive Officer)
 
     
And: 
/s/ Edward G. Hanson
 
Edward G. Hanson, Chief Financial Officer
and Chief Accounting Officer
(Principal Financial and Accounting Officer)
 
35
 
EXHIBIT INDEX 
 
Exhibit No.
  
Exhibit Description
     
 
Share Exchange Agreement dated as of October 3, 2006 among the Company, Santa Monica Capital Partners II, LLC, Douglas DeLuca, Gary Shaw, Lifelogger, LLC, Pro Camp Enterprises LLC, Jarred Shaw, Hunter World Markets, Inc., and David Ficksman. (1)
     
4.1
  
Amendment to Warrant and Related Agreements by and between JMBP, Inc., Mark Burnett and ProElite, Inc. dated June 28, 2007. (3)
     
4.2
  
Form of Warrant issued to Mark Burnett on June 15, 2007. (2)
     
4.3
  
Form of Investor Warrant dated as of June 29, 2007. (3)
     
4.4
  
Form of Registration Rights Agreement dated as of June 29, 2007 between ProElite, Inc. and the Purchasers named therein and Hunter World Markets, Inc. (3)
     
4.5
  
Placement Agent Warrant issued to Hunter World Markets, Inc. dated as of June 29, 2007. (3)
     
4.6
  
Form of Lock-Up Agreement. (5)
     
10.1
  
Form of Securities Purchase Agreement dated as of June 29, 2007, by and among ProElite, Inc. and the Purchasers named therein. (3)
     
10.2
  
Placement Agent Agreement dated as of June 25, 2007, between ProElite, Inc. and Hunter World Markets, Inc. (3)
     
10.3
  
Form of Agreement between Company and Selling Shareholder. (5)
     
10.4
  
Waiver and Amendment to Registration Rights Agreement, dated as of June 27, 2007. (4)
     
10.5
  
Investment Agreement dated August 24, 2007, by and among ProElite, Inc., Entlian Corporation and CJ Media Inc. (7)
     
10.6
  
Purchase Agreement dated September 11, 2007, by and among ProElite,Inc., Belgravia Entertainment International Limited and John Faraday. (6)
     
10.7
  
Stock Purchase Agreement dated as of September 11, 2007, by and among ProElite, Inc., King of the Cage, Inc., and the shareholders of King of the Cage. (6)
     
10.8
  
Employment Agreement dated as of September 11, 2007, by and between ProElite, Inc and Terry Trebilcock. (6)
     
10.9
  
Stock Pledge Agreement dated as of September 11, 2007, between ProElite, Inc., as pledgor and Terry Trebilcock and Juliemae Trebilcock, as pledges. (6)
     
10.10
  
Asset Purchase Agreement dated as of September 21, 2007, by and among ProElite, Inc., Future Fight Productions, Inc., and the shareholders of Future Fight Productions, Inc.
     
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.
     
32.1
  
Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     
32.2
  
Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
(1) Previously filed in connection with the Company’s registration statement on Form SB-2, originally filed on January 7, 2007 and declared effective on May 14, 2007.
   
(2)
Previously filed on June 18, 2007 with the current report on Form 8-K.
 
(3)
Previously filed on July 18, 2007 with the current report on Form 8-K.
 
(4)
Previously filed on July 16, 2007 with the current report on Form 8-K.
 
(5)
Previously filed in connection with the Company’s registration statement on Form SB-2, originally filed on August 24, 2007 and declared effective on September 5, 2007.
 
(6)
Previously filed on September 17, 2007 with the current report on Form 8-K.
 
(7)
Previously filed on September 21, 2007 with the current report on Form 8-K.
 
37
 EX-10.10 2 v094840_ex10-10.htm
ASSET PURCHASE AGREEMENT
 
This Asset Purchase Agreement is made as of September 13, 2007 (this “Agreement”) by and between ProElite, Inc., a New Jersey corporation having its principal place of business at 12121 Wilshire Boulevard, Suite 1001, Los Angeles, California 90025 (“Company”), on the one hand, and Future Fight Productions, Inc., a Hawaii corporation, having its principal place of business at 1311 Lunalilo Home Road, Honolulu, Hawaii 96825 (“Seller”) and the holders of one hundred percent (100%) of the outstanding shares of capital stock, listed in Schedule 2.1 attached hereto (the “Shareholders”), on the other hand.
 
RECITALS
 
A. The Seller is engaged in, among other things, the mixed martial arts business and freestyle fighting, which includes: (1) recruiting and promoting fighters, (2) promoting mixed martial arts fights and (3) branding and licensing mixed martial arts brands and logos (the “Business”).
 
B. The parties previously entered into that certain letter of intent dated May 2, 2007, as amended which contains certain binding and nonbinding provisions describing a potential sale by Seller of all of its assets to Company.
 
C. The Buyer desires to purchase from the Seller, and the Seller desires to sell to the Buyer, all of the assets, properties, rights and claims of, or related to, the Business, on the terms and conditions set forth herein.
 
D. This Agreement contemplates a transaction in which Buyer will purchase substantially all of the assets of the Seller in return for cash and shares of common stock of Company.
 
NOW, THEREFORE, in consideration of the mutual promises contained in this Agreement, the parties intending to be legally bound agree as follows:
 
ARTICLE I.
PURCHASE AND SALE OF ASSETS
 
1.1 Purchase and Sale of Assets. Subject to the terms and conditions set forth in this Agreement, at the Closing (as defined below), Seller agrees to sell, assign and transfer, free and clear of all Encumbrances (as defined below), to Company and Company hereby agrees to purchase, all right, title and interest in and to, all of the assets related to the Business (the “Assets”), including, without limitation:
 
(a)  All goodwill;
 
(b) All of the Seller’s rights (the “Contract Rights”) under the agreements, commitments, contracts, understandings, arrangements or instruments, whether oral or written (“Contracts”) expressly set forth on Schedule 1.1 (the “Acquired Contracts”);
 

(c) All machinery, cameras, broadcasting equipment, tape, recording equipment, audio and sound equipment, stage equipment, rigging equipment, lights, equipment, computers, servers, ring mat(s)/cage(s), fixed assets and other tangible personal property related to the Business, wherever located, including within the Seller’s or any customer’s offices or facilities or used by any employees, consultants or customers of the Seller outside of the Seller’s offices and facilities;
 
(d) Books and records related to the Business or the Assets, including books, ledgers, files, reports, plans, drawings and operating records of every kind maintained by the Seller;
 
(e) The supplies, sales literature, catalogues, brochures, promotional literature, customer, supplier and distributor lists, art work, other marketing materials, telephone and fax numbers and purchasing records related to the Business;
 
(f)  All intellectual property rights related to the Business, including all (i) U.S. and foreign patents and patent applications and disclosures relating thereto (and any patents that issue as a result of those patent applications), and any renewals, reissues, reexaminations, extensions, continuations, continuations-in-part, divisions and substitutions relating to any of the patents and patent applications, (ii) U.S. and foreign trademarks, service marks, trade dress, logos, trade names and corporate names, whether or not registered, and the goodwill associated therewith and registrations and applications for registration thereof, (iii) U.S. and foreign copyrights and rights under copyrights, including moral rights, whether or not registered, and registrations and applications for registration thereof, (iv) U.S. and foreign mask work rights and registrations and applications for registration thereof, (v) all trade secrets and confidential business information (including ideas, formulas, compositions, know-how, research and development information, software, drawings, specifications, designs, plans, proposals, technical data, copyrightable works, financial, marketing and business data, pricing and cost information, business and marketing plans marketing mailing and e-mail lists, and customer and supplier mailing and e-mail lists and information), (vi) all domain name registrations, (vii) any other inventions (whether or not patentable) or know-how and all improvements thereto and (viii) all other works of authorship (whether or not copyrightable) (the “Business Intellectual Property Rights”);
 
(g) The Seller’s insurance policies, to the extent assignable;
 
(h) All licenses, permits, franchises, approvals, authorizations, consents or orders of, or filings with, any federal, state, local or foreign government, authority, instrumentality, department, commission, board, bureau, agency, official, court or other tribunal, or any other individual, corporation, association, limited liability company, partnership, joint venture or other entity or organization of any kin, necessary or desirable for the past, present or anticipated conduct of, or relating to the operation of, the Business, to the extent transferable;
 
(i)  All rights under or pursuant to warranties, representations and guarantees made by suppliers or vendors in connection with the Assets, or services furnished to the Seller pertaining to the Business or affecting the Assets;
 
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(j)  All claims, causes of action, choses in action, rights of recovery and rights of set-off of any kind, against any Person, including any liens, security interests, pledges or other rights to payment or to enforce payment in connection with products delivered by the Seller on or prior to the Closing Date;
 
(k) All Internet domain names and websites registered to the Seller;
 
(l) All rights of Seller to the names and the marks “Icon Sport,” “Super Brawl,” and “Future Fight Productions;”
 
(m) All of Seller’s library of content (the “Content”); and
 
(n) All receivables, cash and cash equivalents.
 
1.2 No Assumed Liabilities. Seller agrees that Company is not assuming and at the Closing will not assume, any obligations or liabilities of Seller, Shareholders or any other person, whether or not they are related to the Assets. Prior to the Closing, Seller agrees to provide a full and complete description of any and all third party contracts related to the Business, such as agreements with advertisers, fighters, venues and other service providers. If requested by Company, Seller will use reasonable efforts to make available to Company the benefit of any such contracts with third parties on the same terms as were made available to Seller. Seller agrees that Company is not assuming any past obligations or liabilities under such agreements that were incurred by Seller or any other party prior to the date of execution of this Agreement or that are incurred after the date hereof but prior to the Closing Date.
 
1.3 Accounting. Seller agrees and acknowledges that upon Closing: (i) the Chief Financial Officer of the Company will record the Assets on the Company’s books and records, (ii) the accounting of the Assets will be done exclusively by the Company or any Person designated by the Company, (iii) the Company will account for the Assets in accordance with the generally accepted accounting principles as used in the United States, as in effect from time to time, (iv) the Seller will present reports as required from time to time by the CFO, and (v) the Company will install the accounting systems as needed to provide accurate and timely financial reporting.
 
1.4 Purchase Price. The purchase price for the Assets is Three Hundred Fifty Thousand Dollars ($350,000.00) cash and the Acquisition Shares (collectively, the “Purchase Price”). The cash portion of the Purchase Price shall be payable at Closing; the Acquisition Shares shall be payable as specified below. In addition, upon satisfaction of certain contingencies, Additional Consideration, as defined below, shall be payable to Seller. Seller and Shareholders acknowledge and agree that the Purchase Price is fair and adequate for the Assets being purchased, subject to payment of the Additional Consideration upon satisfaction of the relevant contingencies.
 
(a) Acquisition Shares
 
(i) General. “Acquisition Shares” means Two Million Dollars ($2,000,000.00) of shares of Company’s common stock, based upon $10 per share.
 
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(ii) Payment. The Acquisition Shares shall be payable as follows:
 
(A) Fifty percent (50%) of the Acquisition Shares (100,000 Shares) shall be delivered to Seller on the Closing Date.
 
(B) The remaining 50 percent (50%) of the Acquisition Shares (100,000 Shares) shall be delivered to Seller in equal payments on each of the first three (3) anniversaries of the Closing Date.
 
(iii) Forfeiture provisions. The Acquisition Shares shall be subject to forfeiture as follows:
 
(A) Upon the termination of the Consulting Agreement (as hereinafter defined) sooner than the third (3rd) anniversary of the Closing Date, all shares not yet paid shall be forfeited, except as otherwise provided in (I) and (II) immediately below.
 
(I) Except as set forth in II below, a pro rata portion of the shares that would have been payable on the anniversary of the Closing Date next following the date on which the Consulting Agreement is terminated shall be paid to Seller, such pro rata portion being equal to the product of sixteen and two-thirds percent (16 and 2/3%) of the Acquisition Shares and a fraction, the numerator of which is the number of days that have elapsed since the immediately preceding anniversary of the Closing Date through the date of the termination of the Consulting Agreement and the denominator of which is 365 (or 366 in the case of leap years).
 
(II) If the Consulting Agreement is terminated by Company, “Without Cause” (as defined in the Consulting Agreement), then fifty percent (50%) of all shares that would have been payable after the date on which the Consulting Agreement is terminated shall be paid to Seller.
 
The shares identified in (I) and (II), above, shall be paid on the dates on which such shares would have been paid in accordance with Section 1.4(a)(ii)(B), above, had no forfeitures occurred.
 
(B) Any payment of Acquisition Shares made by Company to Seller shall be forfeited by Seller, and Seller shall be obligated to return to Company, without the necessity of any demand therefor, the certificate evidencing such shares, if, within one year of such payment Seller shall engage or attempt to engage in any of the following (each, a “Prohibited Transaction”); (X) sell, exchange, assign, or otherwise transfer ownership of such Acquisition Shares to any person; (Y) hypothecate, mortgage, or otherwise transfer, offer, or pledge such Acquisition Shares as security for indebtedness or for any other purpose; or (Z) file a petition for protection from creditors under any of the United States or any State. A Prohibited Transaction shall be null and void ab initio, and the Company shall not, and shall not be required to, recognize or otherwise give effect to any such transfer.
 
(iv) Restricted Stock. The Acquisition Shares shall be “restricted stock” for purposes of the Securities Act of 1933, as amended (“Securities Act”), and the Acquisition Stock shall be subject to a stop transfer order, which Company shall deliver to its transfer agent. The certificates evidencing the Acquisition Shares shall bear a legend representing (A) that the shares may not be sold, offered for sale or otherwise transferred or disposed of unless a registration statement is in effect under the Securities Act or Company has received an opinion of counsel satisfactory to it that an exemption from such registration is applicable to such shares and (B) that the Company’s transfer agent, prior to acting upon a request to transfer the stock to the name of a new owner, must notify Company and must decline to effect such transfer absent the approval of Company.
 

4

(b) Additional Consideration. Company shall pay an additional One Hundred Thousand Dollars ($100,000.00) cash to the Seller within three (3) business days of the first anniversary of the Closing, subject to the following conditions:
 
(i) Seller’s twelve (12) months’ earnings before interest, taxes, depreciation and amortization (“EBITDA”) ended on June 30, 2008, exceeds eighty percent (80%) of the previous twelve (12) months’ EBITDA ending on June 30, 2007. EBITDA shall not include any non-Business related expenses incurred by the Company. The EBITDA calculations for June 30, 2007 and June 30, 2008 shall be prepared by Company or its representative from the records of the Company.
 
1.5 The Closing.
 
(a) The closing of the purchase and sale of the Assets (the “Closing”) will take place on the second business day after satisfaction of the last to be satisfied of the conditions set forth in Article V (other than those conditions that, by their terms, are to be satisfied at the Closing) (the “Closing Date”), at the offices of Troy & Gould Professional Corporation, 1801 Century Park East, Los Angeles, California 90067, unless another time, date or place is agreed to by the parties hereto.
 
(b) At or prior to the Closing, Seller shall execute and deliver to Company:
 
(i) Bills of sale and other such assignment instruments, in form and substance reasonably satisfactory to Company, covering the Assets and effecting the full sale and conveyance of the Assets to Company, free and clear of any and all mortgage, charge (whether fixed or floating), security interest, pledge, right of first refusal, lien (including any unpaid vendor’s lien), option, hypothecation, title retention or conditional sale agreement, lease, option, restriction as to transfer or possession, or subordination to any right of any other person (“Encumbrances”);
 
(ii) All books, records, correspondence and other documents in Seller’s possession or control that evidence or relate to the Assets;
 
(iii) The Closing certificate described in Section 5.2(a) and (b);
 
(iv) A copy of resolutions of shareholders and of the governing body of Seller authorizing the execution, delivery and performance of this Agreement and the other agreements and transactions contemplated hereby, which resolutions shall be certified by the Secretary (or comparable officer) of Seller and which certificate shall state that such resolutions have not subsequently been amended or rescinded;
 

5

(v) A Consulting Agreement, substantially in the form attached hereto as Exhibit A;
 
(vi) Non-Compete Agreement (the “Non-Compete Agreement”) in the forms attached hereto as Exhibit B, executed by Thomas Jay Thompson;
 
(vii) A Lock-up Agreement pertaining to the Acquisition Shares and any shares of Company common stock issued under the Consulting Agreement; and
 
(viii) Such other closing documents as Company may reasonably request in order to consummate the transactions contemplated by this Agreement.
 
(c) At or prior to the Closing, Company shall execute and deliver to Seller:
 
(i) A copy of the Consulting Agreement, executed by Company;
 
(ii) Copies of the Non-Compete Agreements, executed by Company;
 
(iii) Stock certificates in the name of Seller representing the Acquisition Shares to be delivered at Closing; and
 
(iv) A wire transfer to Seller in the amount of Three Hundred Fifty Thousand Dollars ($350,000.00).
 
1.6 Integration Matters. Following the Closing, Seller agrees to assist Company with the orderly transfer of the Assets to Company.
 
ARTICLE II.
REPRESENTATIONS AND WARRANTIES OF SELLER AND SHAREHOLDERS
 
Seller and each of the Shareholders, jointly and severally, represent and warrant to Company as of the date hereof and as of the Closing Date as follows:
 
2.1 Organization and Good Standing. Seller is a corporation duly organized, validly existing and in good standing under the laws of Hawaii, has the requisite corporate power and authority to own, operate and lease its properties and to carry on its business as now conducted, and is qualified to do business, and is in good standing, as a foreign corporation in each jurisdiction in which the property owned, leased or operated by it or the nature of the business conducted by it makes such qualification or licensing necessary. The officers, directors and shareholders of Seller as of the date hereof are set forth on Schedule 2.1.
 
2.2 Power and Capacity. Each of Seller and the Shareholders has the right, power, legal capacity and authority to enter into and perform its or his obligations under this Agreement and all agreements to which either of them is or will be a party that are required to be executed pursuant to this Agreement (the “Ancillary Agreements”). The execution, delivery and performance of this Agreement and the Ancillary Agreements have been duly and validly approved and authorized by Seller’s Board of Directors as required by law and Seller’s organizational and charter documents. Correct and complete copies of Seller’s organizational and charter documents, as amended to date, have been delivered to Company.
 

6

2.3 No Filings. No filing, authorization or approval, governmental or otherwise, is necessary to enable any of Seller or Shareholders to enter into and to perform its or his obligations under this Agreement or any of the Ancillary Agreements.
 
2.4 Binding Obligation. This Agreement and the Ancillary Agreements are, or when executed by Seller and the Shareholders, as the case may be, will be, valid and binding obligations of Seller and the Shareholders enforceable against Seller and the Shareholders in accordance with their respective terms, except as to the effect, if any, of (a) applicable bankruptcy and other similar laws affecting the rights of creditors generally, and (b) rules of law governing specific performance, injunctive relief and other equitable remedies.
 
2.5 Capitalization. The authorized capital stock of Seller consists of One Thousand (1,000) shares of common stock, par value One Dollar ($1.00) per share. Each Shareholder of Seller owns his shares free and clear of all Encumbrances. There are no agreements among any of Seller’s shareholders and/or Seller regarding the ownership of Seller’s capital stock.
 
2.6 Litigation. There is no action, suit, proceeding, claim, arbitration or investigation pending or, to the best knowledge of Seller or Shareholder, threatened against Seller or Shareholder regarding Seller’s business or any of the Assets. There is no judgment, decree or order against Seller or Shareholder that could prevent, enjoin, alter or delay any of the transactions contemplated by this Agreement, or that could reasonably be expected to have a material adverse effect on Seller’s business or the Assets.
 
2.7 Compliance with Laws. Seller has complied in all material respects with all statutes, laws and regulations with respect to the conduct of Seller’s business and ownership thereof, and neither Seller nor any of the Shareholders has received any notice concerning any alleged noncompliance with any such statutes, laws or regulations.
 
2.8 Title to Property; Intellectual Property. Seller has good and marketable title to the Assets, free and clear of all Encumbrances. Seller owns, or is licensed or otherwise possesses legally enforceable rights to use, all Business Intellectual Property Rights in the State of Hawaii. Seller has not in the conduct of its business engaged in any unauthorized use, disclosure, infringement or misappropriation of any intellectual property rights of any third parties, and Seller is not aware of any unauthorized use, disclosure, infringement or misappropriation by any third parties of any Business Intellectual Property Rights. Seller is not, and will not be as a result of the execution and delivery of this Agreement or the performance of its obligations under this Agreement, in breach of any license, sublicense or other agreement relating to the Assets, the Business or any Business Intellectual Property Rights of third parties. Neither Seller nor Shareholder (i) has been sued in any suit, action or proceeding which involves a claim of infringement of any patents, trademarks, service marks, copyrights or violation of any trade secret or other proprietary right of any third party concerning the Business or the Assets; (ii) has any knowledge or has received any notice that the Assets or Seller’s business as currently conducted or as proposed to be conducted by Company infringes any patent, trademark, service mark, copyright, trade secret or other proprietary right of any third party; or (iii) has brought any action, suit or proceeding for infringement of Business Intellectual Property Rights or breach of any license or agreement involving Business Intellectual Property Rights against any third party. Seller’s Business Intellectual Property Rights, except in the case of off-the-shelf commercially available or Open-Source software, are exclusive, and Seller has full and complete power to transfer such exclusive rights to Company.
 
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2.9 Acquired Contracts. Schedule 1.1 identifies all Contracts to which Seller, Icon Sport or Super Brawl is a party or is bound. Schedule 1.1 also sets forth all material terms of all oral Contracts. All Acquired Contracts are: (i) in full force and effect and enforceable by Seller in accordance with their respective terms, except to the extent that such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to creditors rights generally and to general principles of equity; (ii) Seller is not, and to the knowledge of any of the Seller, no other party to an Acquired Contract is, in breach or default under any Acquired Contract; (iii) no event has occurred that with notice or the passage of time or both could reasonably be expected to (A) constitute a breach or default under, (B) give any individual, corporation, association, limited liability company, partnership, joint venture or other entity or organization of any kind (“Person”) the right to receive or require a rebate, chargeback, penalty or change in delivery schedule under any Acquired Contract, (C) give any Person the right to accelerate the maturity or performance of any Acquired Contract or (D) give any Person the right to cancel, terminate or modify any Acquired Contract (exclusive of any right to do so at any time upon prior notice independent of the occurrence of such event); and (iv) the Seller has not given, and has not received from any other Person, any notice or other communication regarding the existence of any breach of, or default under, any Acquired Contract.
 
2.10 Brokers’ and Finders’ Fees. Seller has not incurred, and will not incur, directly or indirectly, any liability for brokerage or finders’ fees or agents’ commissions or investment bankers’ fees or any similar charges in connection with this Agreement or any transaction contemplated hereby.
 
2.11 Financial Statements. Seller has and/or will make available to Company all of its financial records and represents that the financial records fairly and accurately present the financial condition of the Company and the results of operations as of the respective dates and for the periods referred to, and, that based on such financial records, Company will be able to cause an audit to be completed for at least the last two fiscal years.
 
2.12 Investment Representations
 
(a) Seller is aware of Company’s business affairs and financial condition and has acquired sufficient information about Company to reach an informed and knowledgeable decision to acquire the Acquisition Shares. Seller agrees that by reason of its business and financial experience it can be reasonably assumed to have the capacity to protect its own interests in connection with this transaction. Seller is acquiring the Acquisition Shares for investment for Seller’s own account only and not with a view to, or for resale in connection with, any “distribution” thereof within the meaning of the Securities Act.
 
(b) Seller acknowledges and understands that (i) the Acquisition Shares constitute “restricted securities” under the Securities Act and have not been registered under the Securities Act in reliance upon a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of Seller’s investment intent as expressed herein; (ii) the Acquisition Shares must be held indefinitely unless they are subsequently registered under the Securities Act or an exemption from such registration is available; (iii) Company is under no obligation to register the Acquisition Shares; (iv) the certificate evidencing the Acquisition Shares will be imprinted with a legend which prohibits the transfer of such securities unless they are registered or such registration is not required in the opinion of counsel satisfactory to Company and any other legend required under applicable state securities laws; and (v) the Acquisition Shares are subject to a lock-up as set forth in the Lock-up Agreement.

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    2.13 Accuracy and Completeness. No representation or warranty of Seller in this Agreement or in any schedule, exhibit, agreement or document delivered pursuant hereto contains, or will contain, any untrue statement of a material fact or omits, or will omit, to state a material fact necessary to make the statements contained therein, in light of the circumstances under which they are made, not misleading.
 
2.14 Change of Name. No later than the Closing Date, Seller shall change its corporate name to FFP, Inc.
 
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF COMPANY
 
Company represents and warrants to Seller and the Shareholders as of the date hereof and as of the Closing Date as follows:
 
3.1 Organization and Good Standing. Company is a corporation duly organized, validly existing and in good standing under the laws of New Jersey, has the requisite corporate power and authority to own, operate and lease its properties and to carry on its business as now conducted, and is qualified to do business, and is in good standing, as a foreign corporation in each jurisdiction in which the property owned, leased or operated by it or the nature of the business conducted by it makes such qualification or licensing necessary.
 
3.2 Power and Capacity. Company has the right, power, legal capacity and authority to enter into and perform its obligations under this Agreement and all agreements to which it is or will be a party that are required to be executed pursuant to this Agreement (the “Company Ancillary Agreements”). The execution, delivery and performance of this Agreement and the Company Ancillary Agreements have been duly and validly approved and authorized by Company’s Board of Directors as required by law and Company’s organizational and charter documents.
 
3.3 No Filings. No filing, authorization or approval, governmental or otherwise, is necessary to enable Company to enter into and to perform its obligations under this Agreement and the Company Ancillary Agreements.
 
3.4 Binding Obligation. This Agreement and the Company Ancillary Agreements are, or when executed by Company will be, valid and binding obligations of Company enforceable against Company in accordance with their respective terms, except as to the effect, if any, of (a) applicable bankruptcy and other similar laws affecting the rights of creditors generally, and (b) rules of law governing specific performance, injunctive relief and other equitable remedies.
 
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ARTICLE IV.
COVENANTS
 
4.1 Conduct of Business of Seller. Except as contemplated by this Agreement, during the period from the date hereof to the Closing Date, Seller will conduct its operations in the ordinary course of business consistent with past practices, and consistent with such operation, Seller shall use respective commercially reasonable efforts to preserve intact the goodwill of such business, the present organization of such entity and the relationships of such entity with persons having relationships with it.
 
4.2 Access; Further Assurance. Prior to the Closing Date, Seller and the Shareholders agree to provide reasonable cooperation with respect to all due diligence investigations conducted by or on behalf of Company, and shall provide Company, its potential investors and their respective authorized representatives with reasonable access (a) to all books, records, agreements, documents and other materials and information reasonably related to the transactions contemplated by this Agreement, including those records necessary for the completion of the financial statements referred to in Section 5.2 (i), and (b) to all agents, attorneys, employees, and accountants of Seller. In addition, Seller shall furnish to Company information concerning its business as Company may reasonably request from time to time. Further, after the Closing, Seller and the Shareholders shall cooperate with Seller and provide such information and documents as may be necessary for Company to prepare financial statements relating to the Business as required under SEC regulations.
 
4.3 Notification of Certain Matters. Seller shall give prompt notice to Company of (i) the occurrence or nonoccurrence of any event, other than any event contemplated or permitted by this Agreement, the occurrence or nonoccurrence of which has caused any representation or warranty contained in this Agreement to be untrue or inaccurate in any material respect at or prior to the Closing Date, and (ii) any failure of Seller or any of the Shareholders to comply with or satisfy in any material respect any covenant, condition or agreement to be complied with or satisfied by it hereunder; provided, however, that the delivery of any notice pursuant to this Section 4.3 shall not cure such breach or non-compliance or limit or otherwise affect the remedies available hereunder to Company.
 
4.4 Acquisition Proposals. Unless and until this Agreement shall have been terminated by either party pursuant to Article VI hereof, none of the Shareholders or Seller nor any of Seller’s officers, directors, employees or representatives shall, directly or indirectly, solicit, initiate or encourage the submissions of proposals or offers from any other person relating to any merger, share exchange or similar transaction or sale of any assets, cooperate with any person in connection with any such transaction, or participate in any discussions or negotiations regarding any such transaction.
 
4.5 Confidentiality. Seller and the Shareholders agree that neither Seller nor any of the Shareholders shall, either before or after the Closing, use or disclose to any person, directly or indirectly, any confidential information concerning the business of Company, including, without limitation, any business secret, trade secret, financial information, software, internal procedure, business plan, marketing plan, pricing strategy or policy or client list, except to the extent that such use or disclosure is (i) required by an order of a court of competent jurisdiction, or (ii) authorized in writing by a duly authorized executive officer of Company. The prohibition that is contained in the preceding sentence shall not apply to any information that is or becomes generally available to the public other than through a disclosure by Seller or any of the Shareholders.
 
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ARTICLE V.
CONDITIONS TO CONSUMMATION OF THE PURCHASE
 
5.1 Conditions to the Obligations of Seller. The obligations of Seller to effect the Purchase and the other transactions contemplated hereby are subject to the satisfaction at or prior to the Closing Date of each of the following conditions (any one or more of which may be waived by Seller in writing):
 
(a) the representations and warranties of Company contained in this Agreement shall be true and correct on and as of the Closing Date with the same effect as if made on and as of the Closing Date, and, at the Closing, Company shall have delivered to Seller a certificate to that effect, executed on behalf of Company by one or more executive officers of Company;
 
(b) each of the covenants and obligations of Company to be performed on or before the Closing Date pursuant to this Agreement shall have been duly performed in all material respects on or before the Closing Date and, at the Closing, Company shall have delivered to Seller a certificate to that effect, executed on behalf of Company by one or more executive officers of Company; and
 
(c) Company shall have executed and delivered the agreement and documents that are described in Section 1.5(c).
 
5.2 Conditions to the Obligations of Company. The obligations of Company to effect the Purchase and the other transactions contemplated hereby are subject to the satisfaction or waiver at or prior to the Closing Date of each of the following conditions (any one or more of which may be waived by Company in writing);
 
(a) the representations and warranties of Seller and the Shareholders contained in this Agreement shall be true and correct on and as of the Closing Date with the same effect as if made on and as of the Closing Date, and, at the Closing, Seller shall have delivered to Company a certificate to that effect, executed on behalf of Seller by one or more executive officers of Company;
 
(b) each of the covenants and obligations of Seller and the Shareholders to be performed on or before the Closing Date pursuant to this Agreement shall have been duly performed in all material respects on or before the Closing Date and, at the Closing, Seller shall have delivered to Company a certificate to that effect, executed on behalf of Company by one or more executive officers of Company;
 
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(c) there shall not have occurred a material adverse change with respect to Seller or the Assets;
 
(d) Seller shall have executed and delivered the agreements and documents that are described in Section 1.5(b);
 
(e) No claim, action, investigation or other proceeding shall be pending or threatened before any court or governmental agency that presents a substantial risk of the restraint or rescission of the transactions contemplated by this Agreement or that imposes a substantial risk to Company’s ability to obtain title to and possession of the Assets on the terms and conditions contemplated by this Agreement;
 
(f) There shall have been obtained all permits, approvals and consents from governmental agencies and third parties that Company determines are required in order to transfer the Assets to it;
 
(g) All actions required to be taken by Seller to authorize the execution, delivery and performance of this Agreement shall have been duly and validly taken;
 
(h) The Company shall have conducted, at its expense, a due diligence examination of the Assets and, in its sole discretion, shall not have disapproved of the results of its review;
 
(i) Company, at its expense, shall have completed an audit of the financial statements of Seller for the fiscal years ended December 31, 2006 and 2005 and shall have prepared unaudited financial statements for the period ended June 30, 2007; and
 
(j) Company shall be reasonably satisfied that Company will be able to generate financial statements to satisfy the reporting requirements of Company under applicable SEC rules.
 
ARTICLE VI.
TERMINATION
 
6.1 Termination. This Agreement may be terminated and the Purchase may be abandoned at any time prior to the Closing:
 
(a) by mutual written consent of Company and Seller and the Shareholders;
 
(b) by Seller or Company if any court of competent jurisdiction in the United States or other United States federal or state governmental entity shall have issued a final order, decree or ruling, or taken any other final action, restraining, enjoining or otherwise prohibiting the Purchase and such order, decree, ruling or other action is or shall have become non-appealable;
 
(c) by Seller if there shall have been a material breach by Company of any of its covenants or agreements hereunder and Company has not cured such breach within fifteen (15) business days after notice by Seller thereof, provided that Seller has not breached any of its representations and warranties or obligations hereunder in any material respect; or
 
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(d) by Company if there shall have been a material breach by Seller and Shareholder of any of its or his covenants or agreements hereunder, and Seller and Shareholder, as the case may be, has not cured such breach within fifteen (15) business days after notice by Company thereof, provided that Company has not breached any of its representations and warranties or obligations hereunder in any material respect.
 
6.2 Effect of Termination. In the event of the termination and abandonment of this Agreement pursuant to Section 6.1, this Agreement shall forthwith become void and have no effect without any liability on the part of any party hereto or any of its affiliates, directors, officers and shareholders; provided, however, that (i) Section 6.3 shall survive any such termination, and (ii) nothing contained in this Section 6.2 shall relieve any party from liability for any breach of this Agreement prior to such termination.
 
6.3 Fees and Expenses. Except as specifically provided herein, each party shall bear its own expenses in connection with this Agreement and the transactions contemplated hereby.
 
ARTICLE VII.
SURVIVAL OF REPRESENTATIONS AND
WARRANTIES; INDEMNIFICATION
 
7.1 Survival of Representations, Warranties and Covenants. The representations, warranties and covenants of the parties contained in this Agreement shall survive the Closing.
 
7.2 Indemnification.
 
(a) Seller and the Shareholders, jointly and severally, will indemnify and hold harmless Company and its officers, directors, shareholders, agents and employees from and against any and all losses, costs, damages, liabilities and expenses arising from claims, demands, actions, causes of action, including reasonable legal fees (collectively “Company Damages”) arising out of any misrepresentation or breach or default in connection with any of the representations, warranties, and covenants given or made by Seller or Shareholders in this Agreement. Company shall act in good faith and in a commercially reasonable manner to mitigate any Company Damages it may suffer.
 
(b) Company will indemnify and hold harmless Seller, the Shareholders and Seller’s officers, directors, agents and employees from and against any and all losses, costs, damages, liabilities and expenses arising from claims, demands, actions, causes of action, including reasonable legal fees (collectively “Seller Damages”) arising out of any misrepresentation or breach or default in connection with any of the representations, warranties, and covenants given or made by Company in this Agreement. Seller and the Shareholders shall act in good faith and in a commercially reasonable manner to mitigate any Seller Damages they may suffer.
 
7.3 Claims. Upon the happening of any of the events specified in Section 7.2, the party claiming such indemnification shall give written notice of the Claim to the indemnifying party within forty-five (45) days after recording the Claim in its business records. Within thirty (30) days after receipt of a Claim, the indemnifying party may make reasonable objections to any Claim in writing, including the amount of the Claim and/or the reason for the Claim.
 

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7.4 Resolution of Conflicts; Mediation.
 
(a) In the event the indemnifying party objects in writing to any Claim, the party claiming indemnification shall have forty-five (45) days to respond in a written statement to the objection of the indemnifying party. If after such forty-five (45) day period there remains a dispute as to any Claim, the indemnifying party and the party claiming indemnification shall attempt in good faith for sixty (60) days to agree upon the rights of the respective parties with respect to each Claim.
 
(b) If no such agreement can be reached after good faith negotiation, either the party claiming indemnification or the indemnifying party, by written notice to the other, shall submit the matter(s) to confidential mediation in accordance with the Rules, Procedures and Protocols for Mediation of Dispute Prevention & Resolution, Inc., then in effect as a mandatory prerequisite to further adversarial proceedings of any kind, including commencement of litigation unless the amount of the Damages is at issue in pending litigation with a third party, in which event mediation shall not be commenced until such amount is ascertained or both parties agree to mediation.
 
(c) The Parties agree that a good faith attempt to resolve all issues in mediation is a mandatory prerequisite to further adversarial proceedings of any kind, including commencement of litigation.
 
7.5 Third-Party Claims. In the event the party claiming indemnification becomes aware of a third-party claim which the party claiming indemnification reasonably believes is reasonably likely to result in demand for indemnification, the party claiming indemnification shall notify the indemnifying party of such claim, and the indemnifying party shall be entitled, at their expense, to participate in any defense of such claim. The party claiming indemnification shall have the right in its sole discretion to settle any such claim; provided, however, that the party claiming indemnification may not affect the settlement of any such claim without the consent of the indemnifying party, which consent shall not be unreasonably withheld.
 
ARTICLE VIII.
GENERAL
 
8.1 Further Assurances. The parties hereto agree to execute and deliver any and all papers and documents which may be reasonably necessary to carry out the terms of this Agreement.
 
8.2 Entire Agreement. This Agreement contains the entire agreement between the parties and there are no agreements, representations or warranties by any of the parties hereto which are not set forth herein. This Agreement may not be amended or revised except by a writing signed by all parties hereto. Notwithstanding the foregoing sentence, no change shall be made with respect to the time or form of any payments due hereunder.
 
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8.3 Binding Effects: Assignment. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns; provided, however, that this Agreement and all rights hereunder may not be assigned by Seller or Shareholder except by prior written consent of Company.
 
8.4 Separate Counterparts. This Agreement may be executed in several identical counterparts, all of which when taken together shall constitute but one instrument, and it shall not be necessary in any court of law to introduce more than one executed counterpart in proving this Agreement.
 
8.5 Notices. All notices hereunder, to be effective, shall be in writing and shall be personally delivered or faxed or mailed by registered or certified mail, postage and fees prepaid, to the party to be notified as follows:
 
(i)
If to Seller:
   
 
Future Fight Productions, Inc.
 
1311 Lunalilo Home Road
 
Honolulu, Hawaii 96825
 
Attention: Mr. Thomas Jay Thompson
   
(ii)
If to Company:
   
 
ProElite, Inc.
 
12121 Wilshire Boulevard, Suite 1001
 
Los Angeles, California 90025
 
Attention: Chief Executive Officer
 
Unless and until notice of another or different address shall be given as provided herein.
 
8.6 Severability. The provisions of this Agreement are severable, and the invalidity of any provision shall not affect the validity of any other provision.
 
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first set forth above.
 
     
  PROELITE, INC.
   
 		  
 
  By:   /s/ Douglas DeLuca 
 
Douglas DeLuca, Chief Executive Officer
   
 
     
  FUTURE FIGHT PRODUCTIONS, INC.
 
 		  
 		  
 
  By:   /s/ Thomas Jay Thompson 
 
Thomas Jay Thompson, President
   
 
 
SHAREHOLDERS:
 
 
  
/s/ Thomas Jay Thompson
Thomas Jay Thompson
 
 
/s/ Odd Haugen
Odd Haugen
 
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SCHEDULE 1.1
ACQUIRED CONTRACTS
 
I. VENUE CONTRACT
 
 
·
Neil S. Blaisdell Arena: September 15, 2007
 
 
II. FIGHTER CONTRACTS
 
 
·
Robbie Lawler: three (3) remaining fights
 
 
·
Renato “Charuto” Verrisimo: two (2) remaining fights
 
 
·
Po’ai Suganuma: two (2) remaining fights
 
 
·
Kala Hose: one (1) remaining fight
 
 
·
Frank Trigg: one (1) remaining optional fight
 
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SCHEDULE 2.1
 
 
Shareholders  
   
Shareholder Name
Number of Shares
   
Thomas Jay Thompson
500
   
Odd Haugen
500
   
   
Officers  
   
Name
Position
   
Thomas Jay Thompson
President, Secretary
   
Odd Haugen
Vice President, Treasurer
 

Board of Directors

Thomas Jay Thompson

Odd Haugen

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EXHIBIT A
CONSULTING AGREEMENT
 
This CONSULTING AGREEMENT (this “Agreement”) is entered into as of ___________________, 2007 (“Effective Date”) by and between PROELITE, INC., a New Jersey corporation, with its principal office at 12121 Wilshire Boulevard, Suite 1001, Los Angeles, California 90025 (the “Company”), and FFP, INC., a Hawaii corporation (“Consultant,” together with the Company, the “Parties”), with reference to the following facts:
 
WHEREAS, concurrently herewith, the Company is acquiring all or substantially all of the business and assets of Future Fight Productions, Inc., as Consultant was formerly known, pursuant to an Asset Purchase Agreement, dated as of September 13, 2007, between Consultant and the Company (the “Purchase Agreement”), and including the tradename, “Future Fight Productions” (hereafter, “Future Fight Productions” shall refer to such business operations and assets); and
 
WHEREAS, in connection with the Company’s acquisition of such business and assets of Consultant, and as a condition thereto, the Company desires that Consultant be retained by the Company; and
 
WHEREAS, Consultant has certain knowledge, expertise, experience and reputation of which the Company desires to avail itself; and
 
WHEREAS, Consultant and Company desire to set forth their future independent contractor relationship;
 
NOW, THEREFORE, the Company and Consultant desire to set forth in this Agreement the terms and conditions of Consultant's engagement by the Company.
 
ARTICLE I
ENGAGEMENT; TERM; DUTIES
 
1.1 Engagement. The Company hereby agrees that, commencing on July 30, 2007 (the “Commencement Date ”) and, subject to Section 4.1, ending five years thereafter (the “Term”), the Company shall engage Consultant to provide certain consulting services, and Consultant hereby accepts such engagement by the Company, upon the terms and subject to the conditions hereinafter set forth.
 
1.2 Consulting Services. Consultant’s duties and services for the Company shall include and not be limited to the following:
 
1.2.1 Organizing, managing, promoting live events for Future Fight Productions and EliteXC Live, a subsidiary of the Company (“EliteXC”).
 
1.2.2 Providing Consulting Services for all events that are promoted, organized or managed by EliteXC;
 
1.2.3 Signing fighters to EliteXC and Future Fight Productions;

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1.2.4 Seeking and exploring business opportunities that are relevant to the Company’s business, including but not limited to sponsorships, strategic deals and distribution deals;
 
1.2.5 Reporting to the President of EliteXC, Gary Shaw, on a routine basis, to be determined by Mr. Shaw; and
 
1.2.6 Traveling to PE's headquarters periodically at the request the Company, as requested by the President of EliteXC.
 
1.3 Covenants of Consultant.
 
1.3.1 Reports. Consultant shall use its best efforts and skills to truthfully, accurately, and promptly make, maintain, and preserve all records and reports that the Company may, from time to time, request or require, fully account for all money, records, equipment, materials, programming including master tapes, or other property belonging to the Company of which it may have custody, and promptly pay and deliver the same whenever it may be directed to do so by the management of PE.
 
(a) In accordance with Sections 1.2.5 and 1.3.1, Consultant shall submit to the Chief Financial Officer of the Company all documents, invoices, agreements, understandings, and contracts and all other records received from third parties in connection with any Company events, which shall include events promoted under “Future Fight Productions”, “ICON”, “EliteXC” or any events promoted by the Company or an affiliate thereof.
 
1.3.2 Rules and Regulations. Consultant shall obey and be bound by all rules, regulations and special instructions of the Company and all other rules, regulations, guides, handbooks, procedures, policies and special instructions applicable to the Company’s business in connection with its duties hereunder and shall endeavor to improve its ability and knowledge of the Company’s business in an effort to increase the value of its services for the mutual benefit of the Company and the Consultant.
 
1.3.3 Opportunities. Consultant shall make all business opportunities of which it becomes aware that are relevant to the Company’s business available to the Company, and to no other person or entity or to itself individually.
 
1.3.4 Time. The Consultant agrees to devote such time and attention to Consulting Services hereunder as is required to fulfill its obligations under this Agreement in a timely and professional manner, recognizing that the time demands may vary month-to-month.
 
1.4 Representatives of Consultant. Consultant shall perform its duties through two representatives (“Representatives”) who shall be THOMAS JAY THOMPSON (“Thompson”) and either PATRICK FREITAS (“Freitas”) or such other person as may be designated by Consultant (“Second Representative”). In this Agreement, “Consultant” means and includes “Consultant’s Representatives”, and each of them.
 
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ARTICLE II
COMPENSATION
 
2.1 Consulting Fee. In consideration of the Consulting Services to be rendered hereunder, the Company shall pay to Consultant a consulting fee of Sixteen Thousand Six Hundred Sixty-Six and 66/100 Dollars ($16,666.66) per month for the term of this Agreement, payable in arrears on the last day of each month, with the first payment to be made on June 30, 2007 (“Consulting Fee”). The parties acknowledge that the Consulting Fee is based upon services being provided by no less than two Representatives. If the Second Representative ceases to provide services hereunder and is not immediately replaced by Consultant, then the Consulting Fee shall be reduced in accordance with the following schedule:
 
 
(i)
for termination on or before the first anniversary of this Agreement: reduction of Consulting Fee by Five Thousand Dollars ($5,000.00) per month;
 
 
(ii)
for termination after the first but on or before the second anniversary of this Agreement: reduction of Consulting Fee by Five Thousand Four Hundred Sixteen and 66/100 Dollars ($5,416.66) per month;
 
 
(iii)
for termination after the second anniversary of this Agreement: reduction of Consulting Fee by Five Thousand Eight Hundred Thirty-Three and 33/100 Dollars ($5,833.33) per month.
 
If Thompson ceases to be a Representative, then, at Company’s election, this Agreement shall terminate. In the event of such termination, Company is not precluded from retaining the services of Second Representative, if any.
 
2.1.1 For a period of five (5) years, Consultant shall receive twenty percent (20%) of the earnings before interest, taxes, depreciation and amortization related to the events that the Consultant promotes under “Future Fight Productions” or “ICON” (“EBITDA”), after deducting: (i) the Consulting Fee paid under this Agreement and (ii) any additional sales, general and administrative expenses incurred by the Company. The EBITDA payable to Consultant in accordance with this Section 2.1.1, shall be payable to Consultant within ninety (90) days after the end of each fiscal year (December 31).
 
2.2 Consulting Shares. In addition to the Consulting Fee and the EBITDA payable under Section 2.1.1, if any, Company shall pay Consultant Consulting Shares, which shall mean Fifty Thousand shares of Company’s common stock, based on a per share price of $10.
 
2.2.1 Payment. The Consulting Shares shall be made in equal payments on each of the first three (3) anniversaries of the Effective Date of this Agreement.
 
2.2.2 Forfeiture. The Consulting Shares shall be subject to forfeiture as follows:
 
(a) Upon the termination of this Agreement sooner than the third (3rd) anniversary of its Effective Date, all shares not yet paid shall be forfeited, except as otherwise provided in (i) and (ii), immediately below.
 
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(i) A pro rata portion of the shares that would have been payable on the anniversary of the Closing Date next following the date on which the Consulting Agreement is terminated shall be paid to Consultant, such pro rata portion being equal to the product of one-third of the Consulting Shares and a fraction, the numerator of which is the number of days that have elapsed since the immediately preceding anniversary of the Closing Date through the date of the termination of the Consulting Agreement and the denominator of which is 365 (or 366 in the case of leap years).
 
(ii) If the Consulting Agreement is terminated by Company “Without Cause” (as defined in Section 4.5 of this Agreement), then fifty percent (50%) of all shares that would have been payable after the date on which the Consulting Agreement is terminated shall be paid to Consultant.
 
The shares identified in (i) and (ii), above, shall be paid on the dates on which such shares would have been paid in accordance with Section 2.2.1, above, had no forfeitures occurred.
 
(b) Any payment of Consulting Shares made by Company to Consultant shall be forfeited by Consultant, and Consultant shall be obligated to return to Company, without the necessity of any demand therefor, the certificate evidencing such shares, if, within one year of such payment Consultant shall engage or attempt to engage in any of the following (each, a “Prohibited Transaction”): (x) sell, exchange, assign, or otherwise transfer ownership of such Consulting Shares to any person; (y) hypothecate, mortgage, or otherwise transfer, offer, or pledge such Consulting Shares as security for indebtedness or for any other purpose; or (z) file a petition for protection from creditors under any of the United States or any State. A Prohibited Transaction shall be null and void ab initio, and the Company shall not, and shall not be required to, recognize or otherwise give effect to any such transfer.
 
2.2.3 Restricted Stock; Lock-up. The Consulting Shares shall be “restricted stock” for purposes of the Securities Act of 1933, as amended (“Securities Act”), and the Consulting Stock shall be subject to a stop transfer order, which Company shall deliver to its transfer agent. The certificates evidencing the Consulting Shares shall bear a legend representing (A) that the shares may not be sold, offered for sale or otherwise transferred or disposed of unless a registration statement is in effect under the Securities Act or Company has received an opinion of counsel satisfactory to it that an exemption from such registration is applicable to such shares and (B) that the Company’s transfer agent, prior to acting upon a request to transfer the stock to the name of a new owner, must notify Company and must decline to effect such transfer absent the approval of Company. The Consulting Shares shall be subject to certain lock-up provisions pursuant to a separate Lock-up Agreement.
 
ARTICLE III
BUSINESS EXPENSES
 
3.1 Business Expenses. Consultant will be reimbursed for all reasonable, out-of-pocket business expenses incurred in the performance by Representatives of their duties on behalf of the Company, subject to the following: (a) all expenses are to be submitted to the Company every two (2) weeks on formal expense sheets; and (b) all expenses over Two Hundred and Fifty Dollars ($250.00) require prior approval and submission of appropriate supporting documentation to the Chief Financial Officer of the Company.
 
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ARTICLE IV
TERMINATION OF ENGAGEMENT
 
4.1 Termination by the Consultant. The Consultant may terminate this Agreement “For Good Reason” upon fifteen (15) days’ written notice to the Company subject to the other Sections in this Article IV.
 
4.2 Definition of “For Good Reason”. In this Agreement, “For Good Reason” shall mean any of the following reasons: (i) the Company materially decreases the Consultant’s authority or responsibilities and/or assigns to the Consultant duties inconsistent with Consultant’s position or (ii) the Company’s breach of this Agreement which continues uncured for fifteen (15) days after receipt by the Company of written notice from Consultant identifying such breach with reasonable specificity and demanding an immediate cure thereof.
 
4.3 Termination by Company. The Company may terminate this Agreement “With Cause” upon fifteen (15) days’ written notice to Consultant subject to the other Sections in this Article IV.
 
4.4 Definition of “With Cause”. In this Agreement, “With Cause” shall mean any of the following causes: (i) Thompson ceases to be a Representative of Consultant or (ii) Consultant’s breach of this Agreement which continues uncured for fifteen (15) days after receipt by Consultant of written notice from the Company identifying such breach with reasonable specificity and demanding an immediate cure thereof.
 
4.5 Definition of “Without Cause”. In this Agreement, “Without Cause” shall mean any and/or all causes that are not specified in the definition of the term “With Cause” in Section 4.4 above.
 
4.6 Termination Prior to the First Anniversary. Notwithstanding the foregoing Sections in this Article IV, should Company terminate this Agreement prior to the first anniversary of the Effective Date of this Agreement whether “With Cause” or “Without Cause”, Company shall pay Consultant the entire Consulting Fee that would have been payable through the end of the first anniversary date upon such anniversary date. This payment of the entire Consulting Fee that would have been payable through the end of the first anniversary is in addition to other termination payments that may be applicable as specified in Sections 4.7 and 4.8 below.
 
4.7 Termination by Company “Without Cause”. Should Company terminate this Agreement “Without Cause”, Company shall pay Consultant fifty percent (50%) of the remaining Consulting Fee that would have been payable through the end of the term of this Agreement, such payment to be made in equal amounts on the remaining anniversary dates within the original Term of this Agreement.
 
4.8 Termination by Consultant “For Good Reason”. Should Consultant terminate this Agreement “For Good Reason”, Company shall pay Consultant fifty percent (50%) of the remaining Consulting Fee that would have been payable through the end of the term of this Agreement, such payment to be made in equal amounts on the remaining anniversary dates within the original Term of this Agreement.
 
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ARTICLE V
INVENTIONS AND TRADEMARK; CONFIDENTIAL INFORMATION;
NON-DISCLOSURE; UNFAIR COMPETITION; CONFLICT OF INTEREST
 
5.1 Inventions and Trademark. All ideas, inventions, trademarks, proprietary information, know-how, processes and other developments or improvements developed by Consultant, alone or with others, during the Term, that are within the scope of Company’s business operations or that relate to Company’s work or projects, are the exclusive property of Company. In that regard, Consultant agrees to disclose promptly to Company any and all inventions, discoveries, trademarks, proprietary information, know-how, processes or improvements, patentable or otherwise, that it may make from the beginning of Consultant’s engagement until the termination thereof, that relate to the business of Company, whether such is made solely or jointly with others. Consultant further agrees that, during the Term, it will provide Company with a reasonable level of assistance, at Company’s sole option and expense, to obtain patents in the United States of America, or elsewhere on any such ideas, inventions, trademarks and other developments, and agrees to execute all documents necessary to obtain such patents in the name of Company.
 
5.2 Confidential Information. Consultant shall hold and keep confidential for the benefit of Company all secret or confidential information, files, documents other media in which confidential information is contained, knowledge or data (collectively the “Confidential Information”) relating to the Company or any of its affiliated companies, and their respective businesses, which shall have been obtained by Consultant during its engagement by Company or any of its affiliated companies. Confidential Information does not include information that is already public knowledge at the time of disclosure (other than by acts by Consultant or its Representatives in violation of this Agreement) or that is provided to Consultant by a third party without an obligation with Company to maintain the confidentiality of such information. After termination of Consultant’s engagement with Company, Consultant shall not, without the prior written consent of Company, or as may otherwise be required by law or legal process, communicate or divulge any Confidential Information to anyone other than Company and those designated by it. Consultant shall acknowledge that all confidential documents are and shall remain the sole and exclusive property of Company regardless of who originally acquired the confidential documents. Consultant agrees to return to Company promptly upon the expiration or termination of its engagement or at any other time when requested by Company, any and all property of Company, including, but not limited to, all confidential documents and copies thereof in its possession or control. Any loss resulting from a breach of the foregoing obligations by Consultant to protect the Confidential Information could not be reasonably or adequately compensated in damages in an action at law. Therefore, in addition to other remedies provided by law or this Agreement, Company shall have the right to obtain injunctive relief, in the appropriate court, at any time, against the dissemination by Consultant of the Confidential Information, or the use of such information by Consultant in violation hereof.
 
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5.2.1 Restriction on Use of Confidential/Trade Secret Information. Consultant agrees that its use of confidential/trade secret information is subject to the following restrictions for an indefinite period of time so long as the confidential/trade secret information has not become generally known to the public:
 
(a) Non-Disclosure. Consultant agrees that it will not publish or disclose, or allow to be published or disclosed, confidential/trade secret information to any person without the prior written authorization of the Company unless pursuant to the Services and Consultant’s duties to the Company under this Agreement.
 
(b) Non-Removal/Surrender. Consultant agrees that it will not remove any confidential/trade secret information from the offices of the Company or the premises of any facility in which the Company is performing services, except pursuant to its duties under this Agreement. Consultant further agrees that it shall surrender to the Company all documents and materials in its possession or control which contain confidential/trade secret information and which are the property of the Company upon the termination of this Agreement, and that it shall not thereafter retain any copies of any such materials.
 
5.2.2 Non-Solicitation of Customers/Prohibition Against Unfair Competition. Consultant agrees that at no time after its engagement with the Company will it engage in competition with the Company while making any use of the Company’s confidential/trade secret information. Consultant agrees that it will not directly or indirectly accept or solicit, whether as an employee, independent contractor or in any other capacity, the business of any customer of the Company with whom Consultant worked or otherwise had access to the Company’s confidential/trade secret information pertaining to its business with that customer during the last year of Consultant’s engagement with the Company.
 
5.3 Non-Solicitation During Engagement. Consultant shall not during its engagement inappropriately interfere with the Company’s business relationship with its customers or suppliers or solicit any of the employees of the Company to leave the employ of the Company.
 
5.4 Non-Solicitation of Employees. Consultant agrees that, for one year following the termination of this engagement, it shall not, directly or indirectly, ask or encourage any of the Company’s employees to leave their employment with the Company or solicit any of the Company’s employees for employment.
 
5.5 Breach of Provisions. If the Consultant breaches any of the provisions of this Section 5, or in the event that any such breach is threatened by the Consultant, in addition to and without limiting or waiving any other remedies available to the Company at law or in equity, the Company shall be entitled to immediate injunctive relief in any court, domestic or foreign, having the capacity to grant such relief, to restrain any such breach or threatened breach and to enforce the provisions of this Section 5.
 
5.6 Reasonable Restrictions. The parties acknowledge that the foregoing restrictions, as well as the duration and the territorial scope thereof as set forth in this Section 5, are under all of the circumstances reasonable and necessary for the protection of the Company and its business.
 
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ARTICLE VI
INDEPENDENT CONTRACTOR
 
6.1 Independent Contractor. The Consultant’s relationship with the Company will be that of an independent contractor, and neither Consultant nor Consultant’s Representatives shall be partners or joint venturers with Company. Consultant’s Representatives shall not be employees of the Company.
 
6.2 No Authority. Neither the Consultant, any Representative of Consultant, nor any partner, agent or employee of the Consultant, has authority to enter into contracts that bind the Company or EliteXC or create obligations on the part of the Company or EliteXC without the prior written authorization of the Company or EliteXC.
 
6.3 No Benefits. The Consultant and the Consultant’s Representatives acknowledge and agree that Consultant’s Representatives will not be eligible for any Company employee benefits, regardless of whether the status of any such Representative is redetermined by the Internal Revenue Service or other regulatory authority to be that of employee.
 
6.4 Withholding. The Consultant shall have full responsibility for applicable taxes on all amounts paid to Consultant under this Agreement, and by Consultant to Consultant’s Representatives, and for compliance with all applicable labor and employment requirements with respect to Consultant’s Representatives, including, without limitation, all requirements respecting the withholding and payment of taxes.
 
ARTICLE VII
MISCELLANEOUS
 
7.1 Binding Effect; Assignment. This Agreement shall be binding upon and inure to the benefit of the Parties and their respective legal representatives, heirs, distributees, successors and assigns. Consultant may not assign any of its rights and obligations under this Agreement. The Company may assign its rights and obligations under this Agreement to any successor entity.
 
7.2 Notices. Any notice provided for herein shall be in writing and shall be deemed to have been given or made (a) when personally delivered or (b) when sent by telecopier and confirmed within 48 hours by letter mailed or delivered to the party to be notified at its or his/hers address set forth herein; or three days after being sent by registered or certified mail, return receipt requested, (or by equivalent courier with delivery documentation such as FEDEX or UPS) to the address of the other party set forth or to such other address as may be specified by notice given in accordance with this Section 7.2:
 
If to the Company:
ProElite, Inc.
12121 Wilshire Boulevard, Suite 1001
Los Angeles, California 90025
Telephone: (310) 526-8700
Facsimile: (310) 526-8740
Attention: Douglas DeLuca
   
If to Consultant:
FFP, Inc.
c/o Thomas Jay Thompson
1311 Lunalilo Home Road
Honolulu, Hawaii 96825
Telephone:  (      )            
Facsimile:   (      )            
 
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7.3 Severability. If any provision of this Agreement, or portion thereof, shall be held invalid or unenforceable by a court of competent jurisdiction, such invalidity or unenforceability shall attach only to such provision or portion thereof, and shall not in any manner affect or render invalid or unenforceable any other provision of this Agreement or portion thereof, and this Agreement shall be carried out as if any such invalid or unenforceable provision or portion thereof were not contained herein. In addition, any such invalid or unenforceable provision or portion thereof shall be deemed, without further action on the part of the parties hereto, modified, amended or limited to the extent necessary to render the same valid and enforceable.
 
7.4 Waiver. No waiver by a party hereto of a breach or default hereunder by the other party shall be considered valid, unless expressed in a writing signed by such first party, and no such waiver shall be deemed a waiver of any subsequent breach or default of the same or any other nature.
 
7.5 Entire Agreement. This Agreement, the Asset Purchase Agreement and the Noncompetition, Nonsolicitation And Nondisclosure Agreement by and between the Company and the Consultant, set forth the entire agreement between the Parties with respect to the subject matter hereof, and supersedes any and all prior agreements between the Company and Consultant, whether written or oral, relating to any or all matters covered by and contained or otherwise dealt with in this Agreement. This Agreement does not constitute a commitment of the Company with regard to Consultant’s engagement, express or implied, other than to the extent expressly provided for herein.
 
7.6 Amendment. No modification, change or amendment of this Agreement or any of its provisions shall be valid, unless in writing and signed by the party against whom such claimed modification, change or amendment is sought to be enforced. Notwithstanding the foregoing sentence, no change shall be made with respect to the time or form of any payments due hereunder.
 
7.7 Authority. The Parties each represent and warrant that it or he has the power, authority and right to enter into this Agreement and to carry out and perform the terms, covenants and conditions hereof.
 
7.8 Attorneys’ Fees. If either party hereto commences a mediation or other action against the other party to enforce any of the terms hereof or because of the breach by such other party of any of the terms hereof, the prevailing party shall be entitled, in addition to any other relief granted, to all actual out-of-pocket costs and expenses incurred by such prevailing party in connection with such action, including, without limitation, all reasonable attorneys’ fees, and a right to such costs and expenses shall be deemed to have accrued upon the commencement of such action and shall be enforceable whether or not such action is prosecuted to judgment.
 
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7.9 Titles. The titles of the sections of this Agreement are inserted merely for convenience and ease of reference and shall not affect or modify the meaning of any of the terms, covenants or conditions of this Agreement.
 
7.10 Gender and Number. As used in this Agreement, the masculine, feminine, or neuter gender, and the singular or plural number, shall each include the other.
 
7.11 Mediation. To the fullest extent permitted by law, Consultant and the Company agree to confidential mediation in accordance with the Rules, Procedures and Protocols for Mediation of Dispute Prevention & Resolution, Inc., then in effect of any and all controversies, claims or disputes between them arising out of or in any way related to this Agreement, the engagement relationship between the Company and Consultant and any disputes upon termination of engagement, including but not limited to breach of contract, tort, discrimination, harassment, wrongful termination, demotion, discipline, failure to accommodate, family and medical leave, compensation or benefits claims, constitutional claims; and any claims for violation of any local, state or federal law, statute, regulation or ordinance or common law. For the purpose of this agreement to mediate, references to “Company” include all parent, subsidiary or related entities and their employees, supervisors, officers, directors, agents, pension or benefit plans, pension or benefit plan sponsors, fiduciaries, administrators, affiliates and all successors and assigns of any of them, and this agreement to mediate shall apply to them to the extent Consultant’s claims arise out of or relate to their actions on behalf of the Company. The Parties agree to hold the mediation in Honolulu, Hawaii. The Parties also agree that a good faith attempt to resolve all issues in mediation is a mandatory prerequisite to further adversarial proceedings of any kind, including commencement of litigation.
 
7.12 This Agreement shall not be terminated by any voluntary or involuntary dissolution of the Company resulting from either a merger or consolidation in which the Company is not the consolidated or surviving corporation, or a transfer of all or substantially all of the assets of the Company. In the event of any such merger or consolidation or transfer of assets, Consultant’s rights, benefits and obligations hereunder shall be assigned to the surviving or resulting corporation or the transferee of the Company’s assets.
 
IN WITNESS WHEREOF, the parties hereto have executed this Consulting Agreement as of the day and year first above written.
 
FFP, Inc.
 ProElite, Inc.,
    a New Jersey corporation
       
By:    By:  
 
Name: Thomas Jay Thompson
  
Name:                              
 
Title: President
  
Title:                                
 
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EXHIBIT B
NON-COMPETE AGREEMENT WITH THOMAS JAY THOMPSON
 
NONCOMPETITION, NONSOLICITATION
 
AND NONDISCLOSURE AGREEMENT
 
This NONCOMPETITION, NONSOLICITATION AND NONDISCLOSURE AGREEMENT (this “Agreement”) is being executed and delivered as of __________, 2007 (the “Effective Date”) by THOMAS JAY THOMPSON (“Shareholder”) in favor of and for the benefit of FUTURE FIGHT PRODUCTIONS, INC., a Hawaii company (the “Company”), and PROELITE, INC., a New Jersey corporation (“Purchaser”).
 
W I T N E S S E T H:
 
WHEREAS, pursuant to that certain Asset Purchase Agreement (the “Purchase Agreement”) dated as of September 13, 2007 by and between Purchaser and the Company, concurrently with the Effective Date of this Agreement, Purchaser is acquiring from the Company substantially all of the assets of the Company (the “Assets”); and
 
WHEREAS, it is a condition to the consummation of the transactions contemplated by the Purchase Agreement that a non-competition agreement be executed and delivered by Shareholder; and
 
WHEREAS, the Company conducts business throughout Hawaii; and
 
WHEREAS, the parties hereto recognize that Shareholder, as the founder, executive officer and director of the Company, has unique knowledge and experience regarding the Company’s business, and Purchaser and the Company desire to be assured that confidential information pertaining to the Company’s business and the goodwill of the Company will be preserved and protected and will inure to the benefit of Purchaser:
 
NOW, THEREFORE, in consideration of the premises and mutual agreements herein, and for other good and valuable consideration the receipt of which is hereby acknowledged, and intending to be legally bound, the parties agree as follows:
 
A G R E E M E N T
 
1. Acknowledgments by Shareholder. Shareholder acknowledges that, in connection with the acquisition of the Assets, Shareholder has agreed to enter into this Agreement as an inducement for Purchaser to enter into the Purchase Agreement. Shareholder furthermore acknowledges that the promises and restrictive covenants that the Shareholder is providing in this Agreement are reasonable and necessary to the protection of Purchaser’s and the Company’s business and Purchaser’s legitimate interests in acquiring the Assets pursuant to the Purchase Agreement.
 
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2. Noncompetition.
 
(a) As an inducement for Purchaser to enter into the Purchase Agreement and as additional consideration for the consideration to be paid to Shareholder under the Purchase Agreement, Shareholder agrees that until the fifth anniversary of the Effective Date (the “Restrictive Period”), Shareholder shall not, without the prior written consent of the Purchaser, in the states of Hawaii and California:
 
(i) directly or indirectly, alone or with others, engage in a business which is Directly Competitive;
 
(ii) be or become an officer, director, stockholder, owner, corporate affiliate, co-owner, partner, member, trustee, promoter, founder, investor or lender, consultant, advisor or executive of or to, or otherwise acquire or hold any controlling interest in or otherwise engage in the providing of service (whether or not for compensation) to, any person or entity that engages in a business that is Directly Competitive; or
 
(iii) permit Shareholder’s name to be used in connection with a business that is Directly Competitive;
 
provided, however, that nothing in this Section 2 shall prevent Shareholder from owning as a passive investment less than one percent (1%) of the outstanding shares of the capital stock of a publicly held corporation if Shareholder is not otherwise associated directly or indirectly with such corporation or any affiliate of such corporation.
 
(b) For purposes of this Agreement, “Directly Competitive” means a business that is engaged in, or as of the Effective Date intends to engage in the mixed martial arts business and freestyle fighting, which includes: (1) recruiting and promoting fighters, (2) promoting mixed martial arts fights and (3) branding and licensing mixed martial arts brands and logos.
 
(c) For the purposes of this Agreement, “Directly Competitive” does not include the training and/or instruction of mixed martial arts fighting techniques and/or branding and/or licensing of mixed martial arts brands and logos in furtherance of such training and/or instruction.
 
(d) The parties acknowledge that the covenants contained in this Section 2 hereof are reasonable in geographical and temporal scope and in all other respects. The parties hereto intend that the covenants set forth in this Section 2 hereof shall be construed as a series of separate covenants. It is the desire and intent of the parties hereto that the provisions of this section shall be enforced to the fullest extent permissible under the laws and public policies applied in each jurisdiction in which enforcement is sought. If any particular provision or portion of the covenants of this Section 2 shall be adjudicated to be invalid or unenforceable, such adjudication shall apply only with respect to the operation of the covenant in the particular jurisdiction in which such adjudication is made.
 
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3. Nonsolicitation. Shareholder further agrees that during the Restrictive Period:
 
(a) Shareholder will not directly or indirectly solicit away employees or consultants of Purchaser or the Company or any of its subsidiaries for Shareholder’s own benefit or for the benefit of any other person or entity; and
 
(b) Shareholder will not directly or indirectly solicit away or attempt to solicit away actual or prospective customers of Purchaser or the Company or any of its subsidiaries; provided, however, that Shareholder may contact any such actual or prospective customers for any business which is not Directly Competitive.
 
4. Termination of Sections 2 and 3. Shareholder, Company and Purchaser agree to immediately terminate Sections 2 (Noncompetition) and 3 (Nonsolicitation) of this Agreement if the Company and/or Purchaser terminates Shareholder and/or the Consulting Agreement “Without Cause” as defined below. Shareholder, Company and Purchaser also agree to immediately terminate Sections 2 (Noncompetition) and 3 (Nonsolicitation) of this Agreement if Shareholder terminates the Shareholder’s Consulting Agreement “For Good Reason” as defined below.
 
(i) “Without Cause” shall mean any and/or all causes that are not specified in the definition of the term “With Cause.” In turn, “With Cause” shall mean any of the following causes: (i) Shareholder ceases to be a “Representative” of FFP, INC., as defined in the Consulting Agreement or (ii) FFP, INC.’s breach of the Consulting Agreement which continues uncured for fifteen (15) days after receipt by FFP, INC. of written notice from the Purchaser and/or Company identifying such breach with reasonable specificity and demanding an immediate cure thereof.
 
(ii) “For Good Reason” shall mean any of the following reasons: (i) the Purchaser and/or Company materially decreases the Shareholder’s authority or responsibilities and/or assigns to the Shareholder duties inconsistent with Shareholder’s position or (ii) the Purchaser and/or Company’s breach of the Consulting Agreement which continues uncured for fifteen (15) days after receipt by the Purchaser and/or Company of written notice from FFP, INC. identifying such breach with reasonable specificity and demanding an immediate cure thereof.
 
5. Noninterference. Shareholder further agrees that during the Restrictive Period Shareholder will not directly or indirectly:
 
(a) Induce or attempt to induce any customer, supplier, financier, government agency, independent contractor, developer, promoter or other person having any business or regulatory relationship with the Company to cease, reduce or alter the nature, amount or terms or business conducted or regulatory oversight or practices followed with respect to the Company or to engage in any business, regulatory or other activity which might materially harm the Company or which is opposed by the Company; and
 
(b) Interfere with the relationship between the Company and any employee of the Company.
 
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6. Confidentiality.
 
(a) Shareholder acknowledges that he has held a sensitive management position with the Company and that, by virtue of having held such position, he has had access to and has learned the Company’s confidential and proprietary information and trade secrets pertaining to its past, present, planned or projected operations, results of operations, prospects, processes, know-how, services, projects, strategies, techniques, procedures, financial capabilities, assets, transactions, partners, financing sources and personnel, disclosure of any of which to present or future competitors, investors, partners or the general public would be highly detrimental to the best interests of the Company. All such confidential and proprietary information to which Shareholder has had prior access as a result of his position with the Company are herein referred to as “Confidential Information.” For purposes of this Section 5, “Confidential Information” does not include (i) information which is or becomes generally available to the public or in the industry of the Company other than as a result of an unauthorized disclosure by Shareholder; (ii) is received by Shareholder in good faith and without restriction from a third party not under a confidentiality obligation to the Company and having the right to make such disclosure; or (iii) Shareholder can demonstrate is independently developed by or for the Shareholder without use or reference to the Confidential.
 
(b) Without limiting any obligations of the Shareholder arising at law or pursuant to any existing agreement to which the Shareholder is bound or lawful order of any court or governmental agency, Shareholder covenants and agrees to and in favor of the Company and Purchaser that, subject to the further provisions of this Agreement, Shareholder shall not disclose any Confidential Information to any person other than in connection with employment services provided by Shareholder to the Purchaser or its affiliates, and Shareholder shall not use for his own purposes or for any other purpose other than those of the Company any Confidential Information at any time. Without limiting the generality of the foregoing, Shareholder agrees that, except as permitted in writing by the Company, he will not respond to or in any way participate in or contribute to any public discussion, notice or other publicity concerning or in any way related to Confidential Information. Shareholder agrees that any disclosure by him of any of the Confidential Information shall constitute a material breach of this Agreement.
 
7. Specific Performance. Shareholder agrees that in the event of any breach or threatened breach by Shareholder of any covenant, obligation or other provision contained in this Agreement, Purchaser and the Company shall be entitled (in addition to any other remedy that may be available to them), to the extent permitted by applicable law, to obtain (a) a decree or order of specific performance to enforce the observance and performance of such covenant, obligation or other provision and (b) an injunction restraining such breach or threatened breach without the need to post a bond or to show actual damages.
 
8. Non-Exclusivity. The rights and remedies of Purchaser and the Company hereunder are not exclusive of or limited by any other rights or remedies which Purchaser and the Company may have, whether at law, in equity, by contract or otherwise, all of which shall be cumulative (and not alternative). Without limiting the generality of the foregoing, the rights and remedies of Purchaser and the Company hereunder, and the obligations and liabilities of the Shareholder is in addition to his respective rights, remedies, obligations and liabilities under the law of unfair competition, misappropriation of trade secrets and the like.
 
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9. Notices. Any notice or other communication required or permitted to be delivered to Shareholder, Purchaser or the Company, under this Agreement shall be in writing and shall be deemed properly delivered, given and received when delivered in accordance with the terms of the Purchase Agreement.
 
10. Severability. If any provision of this Agreement or any part of any such provision is held under any circumstances to be invalid or unenforceable in any jurisdiction, then (a) such provision or part thereof shall, with respect to such circumstances and in such jurisdiction, be deemed amended to conform to applicable laws so as to be valid and enforceable to the fullest possible extent, (b) the invalidity or unenforceability of such provision or part thereof under such circumstances and in such jurisdiction shall not affect the validity or enforceability of such provision or part thereof under any other circumstances or in any other jurisdiction, and (c) such invalidity or enforceability of such provision or part thereof shall not affect the validity or enforceability of the remainder of such provision or the validity or enforceability of any other provision of this Agreement and is separable from every other part of such provision.
 
11. Governing Law. This Agreement shall be construed in accordance with, and governed in all respects by, the laws of the State of California without giving effect to principles of conflicts of laws.
 
12. Waiver. No failure on the part of Purchaser or the Company to exercise any power, right, privilege or remedy under this Agreement, and no delay on the part of Purchaser or the Company in exercising any power, right, privilege or remedy under this Agreement, shall operate as a waiver of such power, right, privilege or remedy; and no single or partial exercise of any such power, right, privilege or remedy shall preclude any other or further exercise thereof or of any other power, right, privilege or remedy. Neither Purchaser nor the Company shall be deemed to have waived any claim arising out of this Agreement, or any power, right, privilege or remedy under this Agreement, unless the waiver of such claim, power, right, privilege or remedy is expressly set forth in a written instrument duly executed and delivered on behalf of such party; and any such waiver shall not be applicable or have any effect except in the specific instance in which it is given.
 
13. Captions. The captions contained in this Agreement are for convenience of reference only, shall not be deemed to be a part of this Agreement and shall not be referred to in connection with the construction or interpretation of this Agreement.
 
14. Entire Agreement. This Agreement, the Purchase Agreement and the Employment Agreement between the Company and Shareholder dated as of the date hereof, set forth the entire understanding of Shareholder, Purchaser and the Company relating to the subject matter hereof and thereof and supersede all prior agreements and understandings between any of such parties relating to the subject matter hereof and thereof.
 
15. Amendments. This Agreement may not be amended, modified, altered, or supplemented other than by means of a written instrument duly executed and delivered on behalf of Purchaser, the Company and Shareholder.
 
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16. Assignment. This Agreement and all obligations hereunder are personal to the Shareholder and may not be transferred or assigned by Shareholder at any time. Purchaser or the Company may assign their respective rights under this Agreement in whole or in part, without the consent or approval of the Shareholder or any other person or entity.
 
17. Effective Date. This Agreement shall become effective on the Effective Date.
 
18. Construction. The parties have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties, and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Agreement.
 
19. Counterparts. This Agreement may be signed in counterparts, each of which shall be deemed and original, and all of which, when taken together, shall constitute but one and the same agreement.
 

IN WITNESS WHEREOF, the parties here executed this Agreement as of the date first above written.

 
SHAREHOLDER
 
 
 
THOMAS JAY THOMPSON
 
 
FUTURE FIGHT PRODUCTIONS, INC.
 
 
By
 
 
Name  
   
Title
 
 
 
PROELITE, INC.
 
 
By
 
 
Name  
   
Title  

B - 6
 EX-31.1 3 v094840_ex31-1.htm
Exhibit 31.1

Certification Under Section 302 of the Sarbanes-Oxley Act of 2002

I, Douglas DeLuca, Chief Executive Officer of ProElite, Inc. (the “Registrant”), certify that:

1. I have reviewed this quarterly report on Form 10-QSB of ProElite, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c) Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.
 
Date: November 19, 2007      
      /s/ Douglas Deluca
   
Douglas DeLuca
Chief Executive Officer
(Principal Executive Officer)
 
 
 EX-31.2 4 v094840_ex31-2.htm
Exhibit 31.2

Certification Under Section 302 of the Sarbanes-Oxley Act of 2002

I, Edward Hanson, Chief Financial Officer and Principal Accounting Officer of ProElite, Inc. (the “Registrant”), certify that:

1. I have reviewed this quarterly report on Form 10-QSB of ProElite, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

4. The Registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c) Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.
 
Date: November 19, 2007      
      /s/ Edward Hanson
   
Edward Hanson
Chief Financial Officer
(Principal Accounting Officer)
 
 
 
 
 EX-32.1 5 v094840_ex32-1.htm
Exhibit 32.1

Certification Under Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the filing of the Quarterly Report on Form 10-QSB for the period ended September 30, 2007 (the “Report”) by ProElite, Inc., (“Registrant”), each of the undersigned hereby certifies that, to his knowledge:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Registrant as of and for the periods presented in the Report.
 
Date: November 19, 2007      
      /s/ Douglas DeLuca
   
Douglas DeLuca
Chief Executive Officer
(Principal Executive Officer)

      /s/ Edward Hanson
   
Edward Hanson
Chief Financial Officer
(Principal Accounting Officer)
 
 
 
 
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