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Ckrush, Inc. – ‘10-Q’ for 3/31/08

On:  Tuesday, 5/20/08, at 4:05pm ET   ·   For:  3/31/08   ·   Accession #:  950136-8-2703   ·   File #:  0-25563

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  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 5/20/08  Ckrush, Inc.                      10-Q        3/31/08    5:996K                                   Capital Systems 01/FA

Document/Exhibit                   Description                      Pages   Size 

 1: 10-Q        Quarterly Report                                    HTML    605K 
 2: EX-31.1     Certification by Chief Executive Officer            HTML     17K 
 3: EX-31.2     Certification by Chief Financial Officer            HTML     17K 
 4: EX-32.1     Certification by Chief Executive Officer            HTML     13K 
 5: EX-32.2     Certification by Chief Financial Officer            HTML     14K 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2008

		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                          to

Commission file number: 000-51127

CKRUSH, INC.

(Exact name of Registrant as specified in its charter)

Delaware			65-0648808
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

336 West 37th Street New York, NY			10018
(Address of Registrant’s principal executive offices)			(Zip Code)

(212) 564-1111

(Registrant’s telephone number, including area code)

None

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes     No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of ‘‘large accelerated filer,’’ ‘‘accelerated filer’’ and ‘‘smaller reporting company’’ in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer			Accelerated filer
Non-accelerated filer (Do not check if a smaller reporting company)   Smaller reporting company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes     No

As of May 19, 2008, there were outstanding 24,062,641 Common Shares, $.01 par value per share, of the Registrant.

						Page Number
PART I
Item 1.			Financial Statements
			Condensed Consolidated Balance Sheet at March 31, 2008 (unaudited) and December 31, 2007					3
			Condensed Consolidated Statement of Operations for the three months ended March 31, 2008 and 2007 (unaudited)					4
			Condensed Consolidated Statement of Stockholders’ Deficiency for the three months ended March 31, 2008 (unaudited)					5
			Condensed Consolidated Statement of Cash Flows for the three months ended March 31, 2008 and 2007 (unaudited)					6
			Notes to Condensed Consolidated Financial Statements (unaudited)					7
Item 2.			Management’ Discussion an Analysis of Financial Condition and Results of Operations					16
Item 3.			Quantitative and Qualitative Disclosures About Market Risk					21
Item 4.			Controls and Procedures					21
PART II
Item 1.			Legal Proceedings					24
Item 1A.			Risk Factors					25
Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds					25
Item 3.			Defaults Upon Senior Securities					25
Item 4.			Submission of Matters to a Vote of Security Holders					26
Item 5.			Other Information					26
Item 6.			Exhibits					26
			EX-11.1: STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
			EX-31.1: CERTIFICATION
			EX-31.2: CERTIFICATION
			EX-32.1: CERTIFICATION
			EX-32.2: CERTIFICATION

2

PART I — FINANCIAL INFORMATION

Item 1.    FINANCIAL STATEMENTS

CKRUSH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET

			March 31, 2008						December 31, 2007
			(Unaudited)
Assets
Cash				$	123,533					$	144,188
Accounts receivable					552,068						729,624
Prepaid expenses and other assets					36,315						36,315
Film costs					237,297						237,297
Property and equipment – net					76,007						82,770
Websites – net					375,833						427,083
Goodwill					813,049						813,049
Total Assets				$	2,214,102					$	2,470,326
Liabilities and Stockholders’ Deficiency
Accounts payable and accrued expenses				$	5,221,967					$	5,235,084
Accrued litigation and judgments payable					1,279,550						1,307,050
Notes and loans payable, including accrued interest					2,191,895						2,284,653
Due to related parties					82,395						83,878
Deferred revenues					118,995						111,435
Minority interest					4,101,123						4,273,123
Commitments, Contingencies and Other Matters
Stockholders’ Deficiency
Series D, $.01 par value, authorized 399,752 shares, 399,752 shares issued and outstanding					3,998						3998
Series E, $.01 par value, authorized 14,000 shares, 750.4 shares issued and outstanding (liquidation preference of $273,744)					8						8
Common stock, $.01 par value, authorized 300,000,000 shares 21,328,899 and 16,786,349 shares issued and outstanding					213,289						167,863
Additional paid-in capital					57,825,174						56,697,511
Accumulated deficit					(68,105,121	)					(66,764,093	)
Deferred compensation					(634,171	)					(845,184	)
Treasury stock, at cost – 104,784 shares of common stock					(85,000	)					(85,000	)
Total Stockholders’ Deficiency					(10,781,823	)					(10,824,897	)
Total Liabilities and Stockholders’ Deficiency				$	2,214,102					$	2,470,326

See notes to condensed consolidated financial statements

3

CKRUSH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)

			Three Months Ended March 31,
			2008						2007
Net revenues				$	96,638					$	871,625
Operating costs and expenses
Cost of revenues					93,818						752,069
General and administrative					1,316,360						1,900,413
Depreciation and amortization					58,013						39,584
Gain on sale of exclusive promotion agreements					(57,000	)
Impairment charges					—						46,667
					1,411,191						2,738,733
Loss from operations					(1,314,553	)					(1,867,108	)
Other income (expenses)
Interest and financing expense – net					(25,188	)					(71,699	)
Interest expense – related parties					(1,287	)					(1,250	)
Change in fair value of derivative liability					—						667,677
Loss on issuance of common stock for debt obligations					—						(46,549	)
					(26,475	)					548,179
Net loss				$	(1,341,028	)				$	(1,318,929	)
Net loss per common share (basic and diluted)				$	(0.07	)				$	(0.13	)
Weighted average number of common shares outstanding (basic and diluted)					20,187,744						10,209,957

See notes to condensed consolidated financial statements

4

CKRUSH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIENCY
(Unaudited)

			Preferred Stock																								Common Stock												Additional Paid in Capital						Accumulated Deficit						Deferred Compensation						Treasury Stock												Total Stockholders’ Deficiency
			Series D												Convertible Series E
			Shares						Amount						Shares						Amount						Shares						Amount																								Shares						Amount
Balance – December 31, 2007					399,752					$	3,998						750					$	8						16,786,349					$	167,863					$	56,697,511					$	(66,764,093	)				$	(845,184	)					(10,478	)				$	(85,000	)				$	(10,824,897	)
Issuance of common stock
inconnection with:
Private placements – net of expenses																													4,312,550						43,126						575,382																														618,508
Consulting arrangements																													230,000						2,300						66,700																														69,000
Compensation expense – employee stock options																																									417,081																														417,081
Repricing of consultants’ options																																									68,500												(68,500	)																	—
Amortization of deferred compensation																																																					279,513																		279,513
Net loss																																															(1,341,028	)																							(1,341,028	)
Balance – March 31, 2008					399,752					$	3,998						750					$	8						21,328,899					$	213,289					$	57,825,174					$	(68,105,121	)				$	(634,171	)					(10,478	)				$	(85,000	)				$	(10,781,823	)

See notes to condensed consolidated financial statements

5

CKRUSH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)

			Three Months Ended March 31,
			2008						2007
Cash Flows From Operating Activities
Net loss				$	(1,341,028	)				$	(1,318,929	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization					58,013						39,584
Non-cash compensation expense					765,594						1,220,119
Gain on sale of exclusive promotion agreements					(57,000	)					—
Impairment charges					—						11,667
Loss on issuance of common stock for debt obligations					—						46,549
Change in fair value of derivative liability					—						(667,677	)
(Increase) decrease in operating assets:					—
Accounts receivable					177,556						(137,783	)
Film costs – net					—						668,805
Prepaid expenses and other assets					—						(2,116	)
Restricted cash					—						48,397
Increase (decrease) in operating liabilities:
Accounts payable and accrued expenses					(13,117	)					(1,015	)
Accrued litigation and judgments payable					(27,500	)					(40,000	)
Accrued interest					27,529						75,586
Deferred revenues					7,560						(369,603	)
Net Cash Used In Operating Activities					(402,393	)					(426,416	)
Cash Flows From Investing Activities
Acquisition of Trisoft and Audiostreet					—						(600,000	)
Purchases of property and equipment					—						(15,656	)
Proceeds from sales of exclusive promotional agreements					57,000						—
Net Cash Provided By (Used In) Investing Activities					57,000						(615,656	)
Cash Flows From Financing Activities
Proceeds from issuance of:
common stock					618,508						225,000
notes and loans payable					130,000
notes payable – related party					—						67,000
Repayment of production interests					(172,000	)					(570,000	)
Repayment of notes and loans payable – other					(249,000	)					—
Repayment of notes and loans payable – related parties					(2,770	)					—
Net Cash Provided From (Used In) Financing Activities					324,738						(278,000	)
Net Increase(Decrease) In Cash					(20,655	)					(1,320,072	)
Cash – Beginning of Period					144,188						1,504,572
Cash – End of Period				$	123,533					$	184,500
Supplemental Disclosures:
Non-cash investing and financing activities:
Issuance of common stock in connection with:
consuting arrangements				$	69,000
commons shares to be issued										$	1,312,500
acquisition of Trisoft and AudioStreet											800,000
conversion of notes and loans payable											415,174
settlement of other obligations											158,666
compensation											130,000
cashless exercise of warrants											6,876

See notes to condensed consolidated financial statements

6

CKRUSH, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 1.    Description of Business

Ckrush, Inc. and subsidiaries (the ‘‘Company’’) is an entertainment and interactive media group that seeks to be at the forefront of the convergence of entertainment content with social media, online communities and digital technology. The Company produces feature films and other content and develops and maintains web sites, including online communities, primarily geared towards young adults 18-34. . The Company’s fully interactive online communities include ‘‘LiveMansion.com’’ (http://www.livemansion.com/), ‘‘AudioStreet.net’’ (http://www.audiostreet.net/) and ‘‘MixStreet.net’’ (http://www.mixstreet.net/). The Company also is helping brands to communicate effectively with consumers through social media applications. The Company’s feature film productions include ‘‘Beer League,’’ starring Artie Lange, and ‘‘National Lampoon’s TV the Movie,’’ starring Steve O and Wee Man of ‘‘Jackass’’ fame; and ‘‘National Lampoon’s Pledge This,’’ starring Paris Hilton. The Company’s services also include website design, development, hosting, advertising and media placement.

Note 2.    Basis of Presentation

The Company has incurred net losses of $1.3 million during the three months ended March 31, 2008, and $6.6 million and $11.8 million during the years ended December 31, 2007 and 2006, respectively. The Company’s obligations under notes and loans are past due their original terms or principally due on demand, and, in addition, the Company may not be in compliance with certain of trade debt as well as its past settlements including legal judgments. Further, the Company had a stockholders’ deficiency of $10.8 million at March 31, 2008.

Historically, the Company has successfully obtained external financing through borrowings and private placements of equity and thus, the Company hopes to remedy these possible defaults through additional borrowings, conversion of existing debt to equity, ownership contributions, and/or renegotiation of existing terms and conditions of certain of its obligations. However, if the Company’s creditors are unwilling to continue to refrain from demanding compliance by the Company to payment terms for its indebtedness, it may significantly impede our ability to raise additional funds and/or to conduct normal business operations. While officers of the Company have provided loans to the Company in the past we have no commitments from them to do so in the future.

The Company is also taking actions to address liquidity in the following ways:

	•	continuing to negotiate with existing creditors to convert their indebtedness into equity and/or accept reductions in the amount due in return for cash payments;

	•	developing additional sources of debt and equity financing to satisfy our current operating requirements;

	•	entering into new initiatives to develop and acquire additional internet websites in order to deliver unique viewers for commercial purposes as well as sell our knowledge of social media as a service;

	•	produce and distribute film properties as well as other entertainment projects; and

	•	pursuing production partnerships and joint ventures to fund projects.

There can be no assurance that sufficient funds required during the next year or thereafter will be generated from operations or that funds will be available from external sources such as debt or equity financings or other potential sources. The lack of additional capital resulting from the Company’s inability to generate cash flow from operations or to raise capital from external sources would force the Company to substantially curtail or cease operations and would, therefore, have a material adverse effect on the Company’s business. Furthermore, there can be no assurance that any such required funds, if available, will be available on attractive terms or that they will not have a significant dilutive effect on the Company’s existing stockholders.

7

CKRUSH, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (continued)
(Unaudited)

These factors raise substantial doubt about the Company’s ability to continue as a going concern and the accompanying consolidated financial statements do not include any adjustments related to the recoverability or classification of asset carrying amounts or the amounts and classification of liabilities that may result should the Company be unable to continue as a going concern.

Effective at 5:00 PM EDT on October 9, 2007, the Company affected the reverse stock split approved by the shareholders in January 2007 of its outstanding common stock on a one-for-ten basis.

All common share amounts have been retroactively restated for the reverse split.

The accompanying interim consolidated financial statements of the Company are unaudited, but in the opinion of management, reflect all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the results for the interim period. Accordingly, they do not include all information and notes required by generally accepted accounting principles for complete financial statements. The results of operations for interim periods are not necessarily indicative of results to be expected for the entire of fiscal year any other period. These interim consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and notes for the year ended December 31, 2007 filed on Form 10-KSB on April 15, 2008.

Note 3.    Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of Ckrush, Inc. and all of its majority-owned and controlled subsidiaries, with a provision for minority interests. The Company reviews its relationships with other entities to identify whether it is the primary beneficiary of a variable interest entity (‘‘VIE’’). If the determination is made that the Company is the primary beneficiary, then the entity is consolidated in accordance with Financial Accounting Standards Board (‘‘FASB’’) Interpretation No. (‘‘FIN’’) 46, ‘‘Consolidation of Variable Interest Entities’’. The Company accounted for its investment in a joint venture prior to June 30, 2007, under the consolidation method of accounting since the Company provided all funding and exercised significant control. All inter-company accounts and transactions have been eliminated in consolidation.

Revenue Recognition

Revenues from the sale or licensing of films are recognized upon meeting all recognition requirements of Statement of Position (SOP) 00-2 ‘‘Accounting by Producers or Distributors of Films’’. Revenue from sales to distributors is recognized when access to the feature has been granted or delivery has occurred, as required under the sales contract, and the right to exploit the feature film has commenced.

Revenue related to website development activities is recognized as services are provided. Therefore the consolidated financial statements take into account the revenue earned to date on contracts not yet completed as estimated by management. Advertising and hosting revenues are recognized ratably over the period benefited.

Website Development Expenses

The Company’s websites are comprised of various features, which contribute to the site’s overall functionality. The Company will capitalized costs incurred for the production of computer software that generates the functionality once technological feasibility is established and it is determined that such costs should be recoverable against future revenues. Website development costs incurred prior to the determination that the product is technologically feasible, as well as maintenance costs for

8

CKRUSH, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (continued)
(Unaudited)

established products, are expensed as incurred. As of March 31, 2008, the Company has not capitalized any costs incurred for website development, except for amounts allocated to websites in connection with the acquisition describe in Note 4.

Stock Based Compensation

The Company follows the provisions of Statement of Financial Accounting Standards No.123R, Share-Based Payment (SFAS 123R), which requires that new, modified and unvested share-based payment transactions with employees, such as stock options and restricted stock, be recognized in the financial statements based on their fair value and recognized as compensation expense over the requisite service period. Non cash compensation expense accounted for under FAS No. 123 (R) was $766,000 and $1,220,000, including amortization of deferred compensation, for the three months ended March 31, 2008 and 2007, respectively. The increase in the 2008 period reflects the charge associated with the Board of Directors approval of the resetting the exercise price for existing employee stock options in March 2008.

Income Taxes

The Company accounts for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

In 2007, the Company adopted the provisions of FASB Interpretation No. 48, ‘‘Accounting for Uncertainty in Income Taxes — An Interpretation of FASB Statement No. 109 (‘‘FIN 48’’)’’. FIN 48 clarifies the accounting for income taxes by prescribing a minimum probability threshold that a tax position must meet before a financial statement benefit is recognized. The minimum threshold is defined in FIN 48 as a tax position that is more likely than not to be sustained upon examination by the applicable taxing authority, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The tax benefit to be recognized is measured as the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. FIN 48 must be applied to all existing tax positions upon initial adoption. The cumulative effect of applying the provisions of FIN 48 had no impact on the opening balance of the Company’s accumulated deficit as of January 1, 2007.

The tax effects of temporary differences that gave rise to the deferred tax assets and deferred tax liabilities are primarily attributable to net operating loss carry-forwards. Since the Company has a history of losses, a full valuation allowance has been established. In addition, utilization of net operating loss carry-forwards are subject to a substantial annual limitation due to the ‘‘change in ownership’’ provisions of the Internal Revenue Code. The annual limitation may result in the expiration of net operating loss carry-forwards before utilization.

Loss per share

Loss per common share is based upon the weighted average number of common shares outstanding during the period. Diluted loss per common share is the same as basic loss per share, as the effect of potentially dilutive securities (options — 3,167,500 (2008) and 3,170,0000 (2007) and warrants — 4,774,246 and 4,560,299 (2007)) are anti-dilutive.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the

9

CKRUSH, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (continued)
(Unaudited)

reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates relate to ultimate revenue and costs for investment in films, provision for doubtful accounts, income taxes and accruals for contingent liabilities; and impairment assessments for investment in films and other projects, property and equipment, and intangible assets. Actual results could differ from such estimates.

Recently Issued Accounting Pronouncements

SFAS 159

In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, The Fair Value Option for Financial Assets and Financial Liabilities — including an amendment of FASB Statement No. 115 (SFAS 159). SFAS 159 gives the Company the irrevocable option to carry most financial assets and liabilities at fair value, with changes in fair value recognized in earnings. SFAS 159 is effective for our next fiscal year, although early adoption is permitted. The Company is currently assessing the potential effect of SFAS 159 on its financial statements.

SFAS 157

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements (SFAS 157). SFAS 157 provides a common definition of fair value and establishes a framework to make the measurement of fair value in generally accepted accounting principles more consistent and comparable. SFAS 157 also requires expanded disclosures to provide information about the extent to which fair value is used to measure assets and liabilities, the methods and assumptions used to measure fair value, and the effect of fair value measures on earnings. SFAS 157 is effective for our next year, although early adoption is permitted. The Company is currently assessing the potential effect of SFAS 157 on its financial statements.

Note 4.    Acquisition of Trisoft Media, Inc. and AudioStreet, Inc.

On February 5, 2007, the Company entered into and completed an agreement to acquire the business and certain assets of Trisoft Media, Inc. and AudioStreet, Inc. including two online community websites that focus primarily on music and music-based content.

The acquired businesses consist of website design, development, hosting, advertising and media placement. The principal assets acquired consist of the websites AudioStreet.net and MixStreet.net. The Company had no material relationship with the selling companies Trisoft Media, Inc. and AudioStreet, Inc. or their shareholders. However, the Company had previously retained Trisoft to provide website design and development services and hosting for our LiveMansion.net website.

10

CKRUSH, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (continued)
(Unaudited)

The purchase price for the assets of $1.4 million consisted of a cash payment of $600,000 plus the issuance of 400,000 shares of common stock to the shareholders of the selling corporations and their agent and $49,000 in direct acquisition costs. The purchase consideration has been allocated to the estimated fair values of the assets acquired and liabilities assumed as follows:

			Total						Life
Accounts receivable				$	12,500
Equipment					12,000
Security deposit					2,000
Amortizable intangible assets –
Websites and related registered users					615,000				3 years
Goodwill					813,000
Total assets acquired					1,454,500
Liabilities assumed					(5,000	)
Net assets acquired				$	1,449,500

The results of operations of the acquired businesses are included in the results of the Company since the date of acquisition. Pro forma results of operations for 2007 are not presented as the impact of the acquisition on the Company’s results of operation prior to the acquisition was not material.

Note 5.    Film Costs and Minority Interests

Film costs principally consist of production costs for TV: the Movie, which was released for the home marketplace during 2007. The reduction in film costs during the three months ended March 31, 2007 of $669,000 related to the amortization of the TV: the Movie production costs to cost of sales. Management anticipates that the remaining costs as of March 31, 2008 will be fully amortized within the fiscal year through either amortization of costs as a result of sales of additional foreign rights or through impairment reserves, if such sales are not realized .

In July 2006, the Company announced that it would produce ‘LiveMansion: The Movie which is being cast online by members of the LiveMansion.com social networking community. To assist in the financing of the movie, the Company sold minority ownership interests for which the investors are entitled to a return of 100% of the purchase price plus a 20% preferred return to the extent of available cash flow from the film. The Company received approximately $1.1 million, net of expenses for the interests sold prior to 2008. The Company is permitted to use the proceeds from the sale of minority interests for working capital purposes prior to use for production of the film. As of December 31, 2007, the Company utilized approximately $823,000 for working capital needs and used $320,000 in the promotion of the film project. No additional amounts have been expended on the production or for working capital during the three months ended March 31, 2008.

During 2005 and 2006, the Company through a private placement offering pursuant to which two of the Company’s subsidiaries sold and issued an aggregate of approximately 86 units of revenue participation rights (‘‘RPRs’’) in film projects for an purchase price of approximately $5.5 million representing minority ownership interests in the subsidiaries. To the extent of available cash flow from the Company’s subsidiaries, the RPRs entitle the investors to a return of 100% of their respective purchase price plus a 20% preferred return and an aggregate 15% interest in the residual cash flow. The holders of the RPR units related to the Beer League and TV: the Movie projects have been repaid $1.6 million (including $172,000 repaid in March 2008) from advances received from the domestic and foreign distributors of the film projects. In May 2008, the holders were also repaid an additional $90,000. The payments to the holders are recorded as a reduction of the ‘‘Minority Interest’’ included in the accompanying consolidated balance sheet. In accordance with agreements from the distributors

11

CKRUSH, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (continued)
(Unaudited)

of these films, the Company is scheduled to receive approximately $265,000, during the remainder of 2008, which will be principally available for distribution to the RPR holders, net of certain film project expenses.

The Company has guaranteed the repayment of one investor’s investment of $2.7 million in the RPR’s plus its preferred return of $540,000. The Company also granted the investor a security interest in the Company’s rights and interests in the related film projects and to escrow a maximum of 900,000 shares of its common stock as further security for repayment of the obligation. In the opinion of management, the future revenue streams from the films produced through the financing from this private placement indicate that it is unlikely that the investor will be fully repaid from the films’ cash flow and the Company is in discussions with the investor as to the means to liquidate the obligation which is approximately $2.5 million as of March 31, 2008.

Note 6.    Accrued Litigation and Judgments Payable

Designscape

In April 2005 Designscape, Inc. filed an action in New York State Supreme Court against the Company and a former officer/director, alleging breach of contract and misrepresentations with respect to an alleged oral agreement to provide goods and services in connection with the production and staging of a television series and seeking approximately $550,000 and unspecified damages. In September 2006, the Company agreed to pay Designscape $300,000 in installments through March 31, 2009 with interest at 9% accumulating on the unpaid balance from September 25, 2005 payable on September 30, 2009. As March 31, 2008, the Company’s obligation amounted to $169,000, including accrued interest. The Company is not in compliance with the agreement but is engaged in discussions for revisions to the payment terms.

Ahanchian

In 2007 Amir Cyrus Ahanchian brought an action in Federal Court in California against the Company and the Company’s distributor of National Lampoon’s TV: the Movie alleging copyright infringement pertaining to apparent similarities that exist between screenplays and plot ideas used for TV: the Movie. The plaintiff claims to have been one of the pivotal writers for the film. The complaint contains four causes of action: (i) copyright infringement: (ii) unfair competition pursuant to the Lanham Act: (iii) breach of implied contract: and (iv) declaratory relief.

The Copyright Act provides for monetary remedies based upon actual damages; statutory damages and defendants’ profits. These remedies are alternatives and not cumulative. The Act allows the copyright holder to recover for lost revenues and diminution in the work’s market value caused by infringement so long as the copyright owner can establish with reasonable probability the existence of a causal connection between the infringement of the defendant and some loss anticipated revenue. Plaintiff may recover direct as well as indirect profits. If the plaintiff elects to recover statutory damages, the Court must award damages in an amount not less than $750 and not more than $30,000 for any work subject to the discretion of the trial court which could in this matter aggregate $330,000.

In the opinion of management based upon the advice of counsel, given the availability of insurance, the liability to the Company, if any, will not be material.

First Equity

In June 2005, First Equity Capital Corporation (‘‘First Equity’’) filed an action against the Company in state court in Florida, alleging that the Company breached an unsigned agreement pursuant to which the Company allegedly hired First Equity to provide certain services. First Equity alleges that the

12

CKRUSH, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (continued)
(Unaudited)

Company is obligated to pay First Equity $1.5 million and to issue First Equity up to 4 million registered shares of common stock. In December 2005, William Nichols & Associates, Inc. (‘‘Nichols’’) and Norman Brodeur filed a motion to intervene alleging that First Equity, acting as an agent for the Company, engaged Nichols to raise capital on behalf of the Company and was entitled to $250,000 of First Equity’s fee and 3 million of the shares of stock claimed by First Equity. This motion was granted in March 2006.

The Company has filed answers denying any liability to First Equity and Nichols and raised numerous affirmative defenses. The Company believes it has valid defenses and is defending the claims.

National Sports Partners

In May 2003, National Sports Partners (‘‘NSP’’), the owner of Fox Sports Net Broadcast Service, commenced an action in California against us to collect approximately $239,000 for advertising time and production fees and costs for airing boxing events on Fox, plus interest, costs and attorney fees. In August 2004, the Company reached an agreement with NSP in which NSP agreed to forbear from further action against us in exchange for full payment over time of $239,000, plus deferred interest. The Company paid only $65,000 of such amount. In November 2006, NSP was awarded a judgment in the amount of $256,000 plus interest. As of March 31, 2008, the Company’s recorded liability for this matter is $191,000, including accrued interest.

Golden Gloves (PTY) Limited

On November 13, 2001, Golden Gloves (PTY) Limited, a boxing promoter based in Johannesburg, South Africa, commenced an action against the Company and our former President, alleging that the Company breached an agreement to share certain profits related to certain boxers. In February 2003, the Company agreed to pay $580,000 which is included in accrued litigation and judgments payable as of March 31, 2008 since the Company has not made any payments pursuant to the settlement agreement.

J.P. Morgan Chase & Company

On January 13, 2004, J.P. Morgan Chase & Company (‘‘Chase’’) obtained a judgment in the amount of $95,000 against the Company’s former President and the Company in connection with the Company’s default on an outstanding note. In May 2004, Chase agreed to allow the Company to pay the outstanding principal amount, plus interest at 4% per annum, in 60 monthly payments of $2,000 each, in exchange for forbearance on any additional efforts to collect upon the unsatisfied portion of the balance. The balance on this obligation at March 31, 2008 amounted to $88,000, including accrued interest. The Company is not in compliance with the terms set forth in the forbearance agreement.

Other

There are other matters in which the Company has entered into settlements in prior years for which the Company has not made the required payments.

In the opinion of management, on the advice of counsel, the Company has made adequate provision for potential liabilities, if any, arising from litigation settlements and other claims arising from all of the above matters. As of March 31, 2008, the Company had accrued $1.3 million, with respect to such matters. However, the costs and other effects of pending or future litigation, governmental investigations, legal and administrative cases and proceedings (whether civil or criminal), settlements, judgments and investigations, claims and changes in those matters (including those matters described above), and developments or assertions by or against the Company relating to contractual rights related to boxers and the promotion of boxing events (the Company’s former business), intellectual property rights and intellectual property licenses, could have a material adverse effect on the Company’s business, financial condition and operating results.

13

CKRUSH, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (continued)
(Unaudited)

Note 7.    Notes and Loans Payable

Notes and loan payable includes accrued interest (at rates ranging from none to 23%) of $458,000. During the quarter ended March 31, 2008, the Company borrowed $130,000 through short-term loans and repaid $249,000 to the holders.

The Company’s obligations under the notes and loans are past due their original terms or principally due on demand.

Note 8.    Related Party Transactions

Due to related parties at March 31, 2008 includes the Company obligations to the Company’s President, principally arising from a loan provided in a prior year, including accrued interest. The loan is unsecured, has no specific terms, conditions or maturities.

Note 9.    Stockholders’ Deficiency

Common Stock

In December 2007, the Company initiated a private offering of units consisting of 156,250 shares of common stock at an offering price of $25,000 per unit for up to 120 units. The terms of the offering provided that the net proceeds raised were immediately available to the Company for working capital purposes. During December 2007, the Company closed on 3,906,250 shares and received $625,000. During the three months ended March 31, 2008, the Company received an additional $619,000, for 4,312,550 shares in connection with this offering. The offering terminates May 31, 2008.

During the quarter ended March 31, 2008, the Company also issued 230,000 shares of common stock to a consultant primarily for the development and implementation of a marketing program for the Company to increase investor awareness. The Company recorded a charge during this period of $69,000 based upon the market value of the share issued.

Prior to 2008, the Company had outstanding stock options, warrants, convertible securities and other contingent obligations, all of which could have required the Company to issue common stock in a number which exceeded the authorized amount prior to an increase approved by the shareholders. In accordance with Emerging Issues Task Force Issue 00-19 (‘‘EITF 00-19’’), ‘‘Accounting for Derivative Financial Instruments Indexed To, and Potentially Settled in, a Company’s Own Stock’’, the lack of a sufficient number of authorized shares to meet the Company’s obligations to issue common shares resulted in a requirement to account for certain of the Company’s outstanding securities as liabilities. Accordingly, during 2006 and through January 25, 2007, the Company reclassified certain outstanding warrants and options as derivative liabilities for financial statement reporting, which were marked to fair value periodically pursuant EITF 00-19. The Company valued these options and warrants utilizing the Black-Scholes method of valuation resulting in a reclassification from stockholders’ equity of $3.2 million as of December 31, 2006, and, during 2007, the Company recorded a non-cash gain of $668,000 to reflect the associated change in fair value of the warrants during the period. In January 2007, as a result of the stockholder approval of the increase in authorized number of common shares, the liability was reclassified to equity.

Note 10.    Income Taxes

At December 31, 2007, the Company had net operating loss carryforwards for Federal tax purposes of approximately $47 million, which are available to offset future taxable income, if any, through 2027. Under Federal Tax Law IRC Section 382, certain significant changes in ownership of the Company, including the reverse merger transaction of 2002, may restrict the future utilization of these tax loss carryforwards.

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CKRUSH, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (continued)
(Unaudited)

Note 11.    Segment Data

SFAS No. 131 ‘‘Disclosures about Segments of an Enterprise and Related Information’’ requires the Company to make certain disclosures about each reportable segment. The Company’s reportable segments are determined based on the distinct nature of their operations and each segment is a strategic business unit that offers different products and services and is managed separately. SFAS No. 131 defines operating segments as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance.

The Company has two reportable segments related to entertainment: content and distribution. The content segment activities consist of development and production of digital and filmed content for global distribution to all media platforms including the internet. The distribution segment includes our activities related to the development and maintenance of websites, online communities and technology platforms that allow users to electronically create and publish content, including video, share that content with others and/or connect with others based upon common interests. The Company in 2008 introduced Ckrush Social, a marketing agency, to assist brands to communicate effectively with consumers through social media applications. In prior years the Company was also a promoter of professional boxers and boxing events which was a separate segment for financial reporting purposes.

			Three Months ended March 31,
			2008																		2007
			Total						Distribution						Total						Distribution						Content
Net revenues				$	96,638					$	96,638					$	871,625					$	136,625					$	735,000
Operating costs and expenses
Cost of revenues				$	93,818						93,818					$	752,069						74,164						677,905
Depreciation and amortization				$	52,827						52,827					$	35,218						35,218						—
Impairment charges					—						—					$	46,667						—						46,667
					146,645						146,645						833,954					$	109,382					$	724,572
Segment profit/(loss)					(50,007	)					($50,007	)					37,670					$	27,242					$	10,428
Less: Corporate selling, general and administrative					1,316,360												1,900,413
Depreciation and amortization					5,186												4,366
Interest expense including to related parties					26,475												72,949
Other – net					(57,000	)											621,128
Net loss					($1,341,028	)											($1,318,929	)

In 2008, the Company had no financial activity in the content segment.

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Item 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

INTRODUCTION AND CERTAIN CAUTIONARY STATEMENTS    

You should read the following discussion and analysis of our financial condition and results of operations together with our condensed consolidated financial statements and related notes appearing elsewhere in this quarterly report on Form 10-Q. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. The actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including, but not limited to, those set forth under ‘‘Risk Factors’’ and elsewhere in our annual report on Form 10-KSB, filed on April 15, 2008 with the SEC.

OVERVIEW

We are an entertainment and interactive media group. We seek to be at the forefront of the convergence of entertainment content with social media, online communities and digital technology. We produce feature films and other content and develop and maintain websites, including online communities, primarily geared towards young adults, 18-34. Our fully interactive online communities include ‘‘LiveMansion.com’’ (http://www.livemansion.com/), ‘‘AudioStreet.net’’ (http://www.audiostreet.net/) and ‘‘MixStreet.net’’ (http://www.mixstreet.net/). Our feature film productions include ‘‘Beer League,’’ starring Artie Lange; ‘‘National Lampoon’s TV the Movie,’’ starring Steve O and Wee Man of ‘‘Jackass’’ fame; and ‘‘National Lampoon’s Pledge This,’’ starring Paris Hilton. Our services also include website design, development, hosting, advertising and media placement.

Reportable Segments

We have two reportable segments related to entertainment: content and distribution. The entertainment content segment activities consist of development and production of digital and filmed content for global distribution to all media platforms including the internet. The entertainment distribution segment includes our activities related to the development and maintenance of websites, online communities and technology platforms that allow users to electronically create and publish content, including video, share that content with others and/or connect with others based upon common interests. In 2008, the Company introduced Ckrush Social, a marketing agency, to assist brands to communicate effectively with consumers through social media applications. In prior years the Company was also a promoter of professional boxers and boxing events which was a separate segment for financial reporting purposes.

Critical Accounting Policies

The accompanying discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (‘‘US GAAP’’). The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. These estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We base our estimates and judgments on historical experience and all available information. However, future events are subject to change, and the best estimates and judgments routinely require adjustment. US GAAP requires us to make estimates and judgments in several areas, including those related to recording various accruals, income taxes, the useful lives of long-lived assets, such as property and equipment and intangible assets, and potential losses from contingencies and litigation. We believe the policies discussed below are the most critical to our consolidated financial statements because they are affected significantly by management’s judgments, assumptions and estimates.

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Revenue Recognition

	•	Revenues from the sale or licensing of films are recognized upon meeting all recognition requirements of Statement of Position (SOP) 00-2 ‘‘Accounting by Producers or Distributors of Films’’. Revenue from sales to distributors is recognized when access to the feature has been granted or delivery has occurred, as required under the sales contract, and the right to exploit the feature film has commenced.

	•	Revenue related to website development activities is recognized as services are provided. Therefore the consolidated financial statements take into account the revenue earned to date on contracts not yet completed as estimated by management. Advertising and hosting revenues are recognized ratably over the period benefited.

Website Development Expenses

Our websites are comprised of various features, which contribute to the site’s overall functionality. We will capitalize costs incurred for the production of computer software that generates the functionality once technological feasibility is established and it is determined that such costs should be recoverable against future revenues. Website development costs incurred prior to the determination that the product is technologically feasible, as well as maintenance costs for established products, are expensed as incurred. As of March 31, 2008, we have not capitalized any costs incurred for website development, except for amounts allocated to websites in connection with the acquisition in 2007.

Impairment of Long-Lived Assets

In accordance with Statement of Financial Accounting Standards (‘‘SFAS’’) No. 144, ‘‘Accounting for the Impairment or Disposal of Long-Lived Assets’’, we continually monitor events and changes in circumstances that could indicate carrying amounts of long-lived assets may not be recoverable. An impairment loss is recognized when expected cash flows are less than the assets’ carrying value. Accordingly, when indicators of impairment are present, we evaluate the carrying value of such assets in relation to the operating performance and future discounted cash flows of the underlying business. Our policy is to record an impairment loss when it is determined that the carrying amount of the asset may not be recoverable.

Intangible Assets

As a creator and distributor of entertainment copyrights, we have a significant and growing number of intangible assets, including video and television libraries, trademarks and contractual relationships. In accordance with accounting principles generally accepted in the United States of America, the Company does not recognize the fair value of internally generated intangible assets. Costs incurred to create and produce a copyrighted product, are either expensed as incurred, or capitalized as tangible assets, as in the case of inventoriable product costs. However, accounting recognition is not given to any increasing asset value that may be associated with the collection of the underlying copyrighted material. In connection with the 2007 acquisition, we allocated the purchase price to the tangible and identifiable intangible assets acquired and liabilities assumed based on their fair values and the balance was allocated to goodwill.

Amortizable intangibles are being amortized over their estimated useful lives ranging from 3 to 10 years, utilizing the straight-line method.

Income Taxes

We utilize the asset and liability method to account for income taxes whereby deferred tax assets and liabilities are recognized to reflect the future tax consequences attributable to temporary differences between the financial reporting basis of existing assets and liabilities and their respective tax losses. Deferred tax assets and liabilities are measured using enacted tax rates expected to be recovered and settled.

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We have provided a 100% valuation allowance for the deferred tax assets, because the ultimate realizations of those assets are uncertain. Utilization of net operating loss carry-forwards are subject to a substantial annual limitation due to the ‘‘change in ownership’’ provisions of the Internal Revenue Code. The annual limitation may result in the expiration of net operating loss carry-forwards before utilization.

COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 2008 AND MARCH 31, 2007

The following represents a comparison of segment operating results for the quarter ended March 31, 2008 and 2007:

			2008						%						2007						%
Net revenues
Distribution				$	96,638						100.0	%				$	136,625						15.7	%
Content					—						0.0	%					735,000						84.3	%
					96,638						100.0	%					871,625						100.0	%
Cost of revenues and other costs
Distribution					146,645						151.7	%					109,382						12.5	%
Content					—					$	0.00						724,572						83.1	%
					146,645						151.7	%					833,954						95.7	%
Segment profit/(loss)
Distribution					(50,007	)					−51.7	%					27,242						3.1	%
Content					—					$	0.00						10,428						1.2	%
					($50,007	)					−51.7	%				$	37,670						4.3	%