15. ProElite, Inc.

6 Months Ended

Jun. 30, 2012

Notes to Financial Statements

NOTE 15 - ProElite, Inc.

Effective October 21, 2009, the Company entered into a Strategic Investment Agreement with PEI pursuant to which PEI sold to the Company shares of PEI’s Series A Preferred Stock (the “Preferred Shares”). The transaction closed on June 14, 2011. The Preferred Shares are convertible into the Common Stock of PEI. The amount of shares of Common Stock issuable upon conversion on a cumulative basis is equal to 95% of the sum of (a) the issued and outstanding shares of PEI as of the closing plus (b) any shares of PEI Common Stock issued after the closing upon exercise or conversion of any derivative securities of PEI outstanding as of the closing, subject to any adjustment for stock splits, stock dividends, recapitalizations etc. and, in all cases, after giving effect to the shares issuable upon conversion of the Preferred Shares. The purchase price of the Preferred Shares was $2,000,000. At the close, all of the previous directors of PEI resigned and the board of directors of PEI consists of two designees of the Company and one designee of PEI. Paul Feller, the Company’s Chief Executive Officer at that time, became PEI’s Chief Executive Officer. Certain present and former key PEI executives continued with PEI. Upon the close of the transaction, the Company recorded goodwill of $1,935,621. The Company also recorded non-controlling interest of $105,263 due to negative equity of PEI at June 30, 2011. The Company has consolidated the balance sheet of PEI as of June 30, 2012 and December 31, 2011. The results of operations of PEI for the three months and six months ended June 30, 2012 were consolidated into the Company’s results of operations.

The pro forma financial information presented below show the consolidated operations for the three and six months ended June 30, 2011 of the Company as if the PEI acquisition had occurred as of January 1, 2011:

	Three Months Ended June 30, 2011			Six Months Ended June 30, 2011
Revenues	$	112,000		$	259,000
Gross profit		112,000			259,000
Loss from operations		(2,498,313	)		(4,443,263	)
Interest and other expense		120,530			160,533
Net loss	$	(2,618,843	)	$	(4,603,796	)
Basic and diluted loss per share	$	(0.04	)	$	(0.07	)