The financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”), pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The balance sheet at December 31, 2011 and the income statement for the year ended December 31, 2011 consolidate the accounts of PEI reflecting the close of the acquisition (see Note 20). All significant intercompany balances were eliminated in consolidation.

The preparation of our consolidated financial statements in accordance with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities in our consolidated financial statements and accompanying notes. Although these estimates are based on our knowledge of current events and actions we may undertake in the future, actual results may differ from such estimates and assumptions.

Event revenue consists of ticket sales, participant entry fees, corporate sponsorships, advertising, television broadcast fees, athlete management, concession and merchandise sales, charity receipts, commissions and hospitality functions. The Company recognizes admissions and other event-related revenues when the events are held in accordance with SEC Statement Accounting Bulletin (“SAB”) 104. Revenues received in advance and related direct expenses pertaining to specific events are deferred until the events are actually held.

When implemented, Stratus White, the Company’s affiliate redemption credit card rewards program, will generate revenues from transaction fees generated by member purchases using the card, foreign exchange fees, initiation fees and membership fees. Revenue will be recognized when transaction fees and initiation fees are received and membership fees are amortized and recognized ratably over the 12-month membership period from the time of receipt.

Accounts receivable are recorded at their face amount, less an allowance for doubtful accounts. We review the status of our uncollected receivables on a regular basis. In determining the need for an allowance for uncollectible receivables, we consider our customers financial stability, past payment history and other factors that bear on the ultimate collection of such amounts.

Intangible assets consist of goodwill for to the Stratus White Visa White Card we acquired. Goodwill is the excess of the cost of an acquired entity over the net amounts assigned to tangible and intangible assets acquired and liabilities assumed. We apply ASC 350 “Goodwill and Other Intangible Assets”, which requires allocating goodwill to each reporting unit and testing for impairment using a two-step approach. For the year ended December 31, 2011, we applied the provisions of ASU 2011-08, which requires a Company to first examine the facts and circumstances surrounding each asset to determine if impairment has occurred. If the Company then determines that it is more likely than not that an impairment has occurred, then it will test for impairment using the two-step approach called for in ASC 350.

Intangible assets consist of goodwill related to ProElite and the Stratus White Visa White Card that we have acquired. Goodwill represents the excess of the cost of an acquired entity over the net amounts assigned to tangible and intangible assets acquired and liabilities assumed. We apply the provisions of ASC 350 which requires allocating goodwill to each reporting unit and testing for impairment using a two-step approach.

The Company purchased several events that are valued on the Company’s balance sheet as intangible assets at the consideration paid for such assets, which generally include licensing rights, naming rights, merchandising rights and the right to hold such event in particular geographic locations. There was no goodwill assigned to any of these events and the value of the consideration paid for each event is considered to be the value for each related intangible asset. Each event has separate accounts for tracking revenues and expenses per event and a separate account to track the asset valuation.

To review the value of intangible assets and related goodwill as of December 31, 2011, the Company followed Accounting Standards Update (“ASU”) 2011-08 and first examined the facts and circumstances for each event or business to determine if it was more likely than not that an impairment had occurred. If this examination suggested that it was more likely that an impairment had occurred, the Company then compares discounted cash flow forecasts related to the asset with the stated value of the assets on the balance sheet. The objective is to determine the value of each asset to an industry participant who is a willing buyer not under compulsion to buy and the Company is a willing seller not under compulsion to sell.

The events are forecasted based on the assumption they are standalone entities and adjusted for historical performance and the facts and circumstances surrounding the event and the macroeconomic conditions that affect the event. For the Freedom Bowl, the cash flows for the event were forecast then a 5% royalty rate was used to determine the value of the naming rights for this event.

These forecasts are discounted at a range of discount rates determined by taking the risk-free interest rate at the time of valuation, plus premiums for equity risk to small companies in general, for factors specific to the Company and the business. The total discount rates ranged from 25% for the naming rights for the Freedom Bowl to 60% for the Stratus White program. Terminal values are determined by taking cash flows in year five of the forecast, then applying an annual growth of 0% to 4.0% for the next seven years and discounting that stream of cash flows by the discount rate used for that section of the business.

If the Company determines the discount factor for cash flows should be increased, or the event will not be able to begin operations when planned, or that facts and circumstances for each asset have changed, it is possible that the values for the intangible assets currently on the balance sheet could be substantially reduced or eliminated, which could result in a maximum charge to operations equal to the current carrying value of the intangible assets of $3,359,466.

Rodeo Drive Concours: In examining the facts and circumstances of this event, we determined the Company had ownership of an LLC to run the event and did not have naming rights or current trademarks for this event. Further, a separate entity holds trademarks for a similar name and conducts the “Concours on Rodeo Drive” every year. Accordingly, the event was valued at the time a third party would save by using past agreements, vendor relationships, etc., through purchase of the event. It was determined that the resulting value would be 25 hours saved times $100 per hour, or $2,500.

Freedom Bowl: This event was last conducted in 1996, prior to the Company’s acquisition of this event in 1998. The Company plans to begin recertification in 2012 to allow for sufficient time for the National College Athletics Association to recertify this event for 2014 and strategic negotiations with target NCAA Conference alignment. There can be no guarantee that certification will be achieved for 2014 or at all. Assuming sufficient funding, revenues in 2014 are forecast to be $1,965,000, compared with peak revenues in 1996 of $3,603,000, and grow at 25% per year thereafter.

Maui Music Festival: This event was last conducted in 2002, prior to its acquisition by the Company in 2003. In examining the facts and circumstances of this event, we determined the Company had ownership of the books and records of the event and did not have naming rights or current trademarks for this event. Accordingly, the event was valued at the time a third party would save by using past agreements, vendor relationships, etc., through purchase of the event. It was determined that the resulting value would be 50 hours saved times $100 per hour, or $5,000.

Stratus White VISA Program: In May 2010, we signed a Co-branded Credit Card Agreement with Cornèr Bank of Switzerland to issue the Stratus White Visa Card throughout Europe. Since that time, we have engaged a concierge service, developed new software and internet platform and taken other steps to bring Stratus White to market. Assuming sufficient and timely capital, revenues in 2012 are forecast to be $5,788,414 but may be deferred in whole or in part to 2013, depending on the timing of capital, and grow at 184% per year for 2013 and 2014. Revenues for 2015 and 2016 are forecast to grow 20% per year.

We perform a goodwill impairment test annually or whenever a change has occurred that would more likely than not reduce the fair value of an intangible asset below its carrying amount. We engaged an outside service provider, which computed the estimated fair value of our intangible assets at December 31, 2011, using several valuation techniques, including discounted cash flow analysis. The service provider computed future projected cash flows using information we provided, including estimated future results of the events and card operations. We then compared the estimated fair value of the reporting unit to the carrying value of the reporting unit.

As of December 31, 2011, the Company determined the following to arrive at a total impairment charge of $1,859,778. The $86,019 of value assigned to Stratus White Visa card for technology, membership list and corporate partner list had been impaired in full given the development of the current program had replaced these existing items with new technology and corporate partner list. The $169,958 of intangible assets for the Rodeo Drive Concours had been impaired and the Company took $167,458 of impairment charges to reduce the carrying value of this asset to its estimated current market value of $2,500. The $243,000 of intangible assets for the Santa Barbara Concours had been impaired and the Company took $190,000 of impairment charges to reduce the carrying value of this asset to its estimated current market value of $53,000. The $1,067,069 of intangible assets for the Core Tour had been impaired and the Company took $967,069 of impairment charges to reduce the carrying value of this asset to its estimated current market value of $100,000. The $344,232 of intangible assets for the Freedom Bowl had been impaired and the Company took $154,232 of impairment charges to reduce the carrying value of this asset to its estimated current market value of $190,000. The $300,000 of intangible assets for the Maui Music Festival had been impaired and the Company took $295,000 of impairment charges to reduce the carrying value of this asset to its estimated current market value of $5,000.

As of December 31, 2010, the Company determined the $450,000 of value assigned to Stratus White as Corporate Membership was no longer available to the Company and that $100,000 of value assigned to Stratus White proprietary software had been impaired given the availability of commercial software with similar or better functionality. Accordingly, the Company took impairment charges of $550,000 as of December 31, 2010, and wrote off the $450,000 carrying value of the Stratus White Corporate Membership and reduced the carrying value of the Stratus White software by $100,000.

We account for long-lived assets in accordance with ASC 360 “Accounting for the Impairment or Disposal of Long-Lived Assets”, which requires long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets is measured by comparing the carrying amount of an asset to future undiscounted net cash flows expected to be generated by it. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds their fair value. Assets to be disposed of by sale are reflected at the lower of their carrying amount or fair value less cost to sell.

We compute net loss per share in accordance with ASC 260 “Earnings Per Share”. Basic per share data is computed by dividing loss available to common stockholders by the weighted average number of shares outstanding during the period. Diluted per share data is computed by dividing loss available to common stockholders by the weighted average shares outstanding during the period increased to include, if dilutive, the number of additional common share equivalents that would have been outstanding if potential common shares had been issued using the treasury stock method. Diluted per share data would also include the potential common share equivalents relating to convertible securities by application of the if-converted method.

Effective January 1 2006, we adopted FASB ASC Topic 718 “Share Based Payment”, using the modified prospective transition method. New awards and awards modified, repurchased or cancelled after January 1, 2006 trigger compensation expense based on the fair value of the stock option as determined by the Black-Scholes option pricing model. We amortize stock-based compensation for such awards on a straight-line method over the related service period of the awards taking into account the effects of the employees’ expected exercise and post-vesting employment termination behavior.

The risk-free interest rate is based on U.S. Treasury interest rates, the terms of which are consistent with the expected life of the stock options. For the fiscal year ended December 31, 2011, we granted options to purchase 2,800,000 shares of common stock. For the fiscal year ended December 31, 2010, we granted options to purchase 3,210,000 shares of common stock. Future option grants will be calculated using expected volatility based upon the average volatility of our common stock.

The Company utilizes ASC 740(formerly known as SFAS No. 109 "Accounting for Income Taxes"), which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each year-end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. The provision for income taxes represents the tax payable for the period and the change during the period in deferred tax assets and liabilities.

As of December 31, 2011, the Company had a deferred tax asset of $16,759,912, that was fully reserved and a net operating loss carryforward of approximately $35,361,835 for Federal purposes. The Company will continue to monitor all available evidence and reassess the potential realization of its deferred tax assets. If the Company continues to meet its financial projections and improve its results of operations, or if circumstances otherwise change, it is possible that the Company may release all or a portion of its valuation allowance in the future. Any such release would result in recording a tax benefit that would increase net income in the period the valuation is released.

In January 2010, FASB issued ASU No. 2010-06, Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements. This update provides amendments to ASC Topic 820 that provide more robust disclosures about (1) the different classes of assets and liabilities measured at fair value, (2) the valuation techniques and inputs used, (3) the activity in Level 3 fair value measurements and (4) the transfers between Levels 1, 2, and 3. This standard is effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. The adoption of this ASU did not have a material impact on the Company’s financial statements.

On March 5, 2010, FASB issued ASU No. 2010-11, Derivatives and Hedging Topic 815: Scope Exception Related to Embedded Credit Derivatives. This ASU clarifies the guidance within the derivative literature that exempts certain credit related features from analysis as potential embedded derivatives requiring separate accounting. The ASU specifies that an embedded credit derivative feature related to the transfer of credit risk that is only in the form of subordination of one financial instrument to another is not subject to bifurcation from a host contract under ASC 815-15-25, Derivatives and Hedging – Embedded Derivatives – Recognition. All other embedded credit derivative features should be analyzed to determine whether their economic characteristics and risks are “clearly and closely related” to the economic characteristics and risks of the host contract and whether bifurcation is required. The ASU was effective for the Company on July 1, 2010. Early adoption was permitted. The adoption of this ASU did not have a material impact on the Company’s financial statements.

In April 2010, FASB issued Accounting Standards Update (ASU) No. 2010-13, Compensation – Stock Compensation (Topic 718): Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades. This update provides amendments to Accounting Standards Codification (ASC) Topic 718 to clarify that an employee share-based payment award with an exercise price denominated in the currency of a market in which a substantial portion of the entity’s equity securities trades should not be considered to contain a condition that is not a market, performance or service condition. Therefore, an entity would not classify such an award as a liability if it otherwise qualifies as equity. The amendments in this update are effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010. The amendments in this update should be applied by recording a cumulative-effect adjustment to the opening balance of retained earnings. The cumulative-effect adjustment should be calculated for all awards outstanding as of the beginning of the fiscal year in which the amendments are initially applied, as if the amendments had been applied consistently since the inception of the award. The cumulative-effect adjustment should be presented separately. Earlier application was permitted. The adoption of this ASU did not have a material impact on the Company’s financial statements.

In December 2010, FASB issued ASU No. 2010-28, Intangibles – Goodwill and Other (Topic 350): When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts. The amendments in this update affect all entities that have recognized goodwill and have one or more reporting units whose carrying amount for purposes of performing Step 1 of the goodwill impairment test is zero or negative. The amendments in this update modify Step 1 so that for those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that a goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating that an impairment may exist. The qualitative factors are consistent with existing guidance, which requires that goodwill of a reporting unit be tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. The amendments in this update are effective for fiscal years, and interim periods within those years, beginning after December 15, 2010. Early adoption was not permitted. Upon adoption of the amendments, any resulting goodwill impairment should be recorded as a cumulative-effect adjustment to beginning retained earnings in the period of an adoption. Any goodwill impairments occurring after the initial adoption of the amendments should be included in earnings. The Company adopted this ASU on January 1, 2011. The adoption of this ASU did not have a material impact on the Company’s financial statements.

In December 2010, FASB issued ASU No. 2010-29, Business Combinations (Topic 805): Disclosure of Supplementary Pro Forma Information for Business Combinations. The amendments in this update specify that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. The amendments also expand the supplemental pro forma disclosures to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. The amendments in this update are effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. The Company adopted this ASU on January 1, 2011.

In June 2011, FASB issued ASU 2011-05, Comprehensive Income (ASC Topic 220): Presentation of Comprehensive Income. Under the amendments in this update, an entity has the option to present the total of comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. Under both options, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income and a total amount for comprehensive income. In a single continuous statement, the entity is required to present the components of net income and total net income, the components of other comprehensive income and a total for other comprehensive income, along with the total of comprehensive income in that statement. In the two-statement approach, an entity is required to present components of net income and total net income in the statement of net income. The statement of other comprehensive income should immediately follow the statement of net income and include the components of other comprehensive income and a total for other comprehensive income, along with a total for comprehensive income. In addition, the entity is required to present on the face of the financial statements reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statement(s) where the components of net income and the components of other comprehensive income are presented. The amendments in this update should be applied retrospectively and are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The Company is currently evaluating the application of this accounting standard.

In September 2011, FASB issued ASU 2011-08 on Intangibles—Goodwill and Other (Topic 350), which requires that a company should first examined the facts and circumstances for each event or business to determine if it was more likely than not that an impairment had occurred. If this examination suggested that it was more likely that an impairment had occurred, the company then compares discounted cash flow forecasts related to the asset with the stated value of the assets on the balance sheet. The Company adopted this accounting standard for the year ended December 31, 2011.