kl10003.htm

0000922423-11-000372.txt : 20130131 0000922423-11-000372.hdr.sgml : 20130131 20111007162446 ACCESSION NUMBER: 0000922423-11-000372 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 42 FILED AS OF DATE: 20111007 DATE AS OF CHANGE: 20120724 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FUNCTION (X) INC. CENTRAL INDEX KEY: 0000725876 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROGRAMMING, DATA PROCESSING, ETC. [7370] IRS NUMBER: 330637631 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: S-1/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-174481 FILM NUMBER: 111132652 BUSINESS ADDRESS: STREET 1: 150 FIFTH AVENUE STREET 2: SUITE 900 CITY: NEW YORK STATE: NY ZIP: 10001 BUSINESS PHONE: 212-231-0092 MAIL ADDRESS: STREET 1: 150 FIFTH AVENUE STREET 2: SUITE 900 CITY: NEW YORK STATE: NY ZIP: 10001 FORMER COMPANY: FORMER CONFORMED NAME: FUNCTION (X) INC. DATE OF NAME CHANGE: 20110216 FORMER COMPANY: FORMER CONFORMED NAME: GATEWAY INDUSTRIES INC /DE/ DATE OF NAME CHANGE: 19980629 FORMER COMPANY: FORMER CONFORMED NAME: GATEWAY COMMUNICATIONS INC DATE OF NAME CHANGE: 19920703 S-1/A 1 kl10003.htm FORM S-1/A kl10003.htm

As filed with the Securities and Exchange Commission on October 7, 2011

Registration No. 333- 174481

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

____________________________

FORM S-1/A

(Amendment No. 1)

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

FUNCTION(X) INC.

(Exact name of registrant as specified in its charter)

Delaware	7370	33-0637631
(State or other jurisdiction of	(Primary Standard Industrial	(I.R.S. Employer
incorporation or organization)	Classification Code Number)	Identification No.)

902 Broadway

11th Floor

New York, New York 10010

212-231-0092

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

Robert F.X. Sillerman

Executive Chairman

902 Broadway

11th Floor

New York, New York 10010

212-231-0092

(Name, address, including zip code, and telephone number, including area code, of agent for service)

Copies to:

Christopher S. Auguste, Esq.

Kramer Levin Naftalis & Frankel LLP

1177 Avenue of Americas

New York, New York 10036

(212) 715-9100

Approximate date of commencement of proposed sale to the public: From time to time after the effective date of this Registration Statement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.[ x ]

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.[ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.[ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.[ ]

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 [ x ]

CALCULATION OF REGISTRATION FEE

Title of each class of securities to be offered	Amount of shares to be registered(1)	Proposed maximum offering price per share	Proposed maximum aggregate offering price(3)	Amount of registration fee
Common stock, par value $0.001 per share	13,232,597	$11.00 (2)	$145,558,567.00	$16,899.35
Common stock, par value $0.001 per share	940,000	$11.00 (2)	$10,340,000.00	$1,200.47
Common stock, par value $0.001 per share	250,000	$11.00 (2)	$2,750,000.00	$319.28
Common stock, par value $0.001 per share	100,000	$11.00 (2)	$1,100,000.00	$127.71
Total	14,522,597	$11.00	$159,748,567.00	$18,546.81

(1) In accordance with Rule 416(a), the Registrant is also registering hereunder an indeterminate number of shares that may be issued and resold resulting from stock splits, stock dividends or similar transactions.

(2) Calculated in accordance with Rule 457(g) based upon the price at which the warrants were exercised.

(3) Estimated solely for the purpose of computing the amount of the registration fee in accordance with Rule 457(a) of the Securities Act of 1933, as amended.

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall hereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

PROSPECTUS

Subject to completion, dated [_______], 2011

14,522,597 Shares of Common Stock

This prospectus relates to an aggregate of 14,522,597 shares of common stock, par value $0.001 per share, of Function(x) Inc., a Delaware corporation, that may be sold from time to time by one of the selling stockholders named in this prospectus.

None of the selling stockholders named in this prospectus are members of management or employees of the Company. We will not receive any proceeds from the sales of any shares of common stock by the selling stockholders.

Our common stock currently trades in the over-the-counter market and is quoted on the Pink Sheets Electronic Quotation Service under the symbol “FNCX”. The closing price for our common stock on October 6, 2011 was $7.01 per share. The shares will be offered at a fixed price of $7.00 per share until such time as the shares are quoted on the OTC Bulletin Board or listed for trading or quoted on any other exchange or public market and thereafter at prevailing market price or privately negotiated prices.

As of October 7, 2011, Robert F.X. Sillerman, our Executive Chairman, together with the other directors, executive officers and affiliates own 114,728,000 of the outstanding shares of our common stock, representing approximately 77% of the voting power of the outstanding shares of our common stock.

Investing in our common stock involves a high degree of risk. See the section entitled “Risk Factors” beginning on page 5 to read about factors you should consider before buying shares of our common stock.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The information in this prospectus is not complete and may be changed. No person may sell the securities described in this document until the registration statement filed with the Securities and Exchange Commission is declared effective. This prospectus is not an offer to sell these securities and no person named in this prospectus is soliciting offers to buy these securities in any state where the offer or sale is not permitted.

The date of this prospectus is [_______], 2011

TABLE OF CONTENTS

Prospectus Summary	1
Risk Factors	5
Cautionary Note Regarding Forward-Looking Statements	10
Use of Proceeds	11
Dividend Policy	11
Market for Our Common Stock	11
Dilution	12
Management’s Discussion and Analysis of Financial Condition and Results of Operations	12
Our Business	19
Management	22
Executive Compensation	26
Corporate Governance	31
Certain Relationships and Related Transactions	34
Change of Fiscal Year	36
Selling Stockholders	36
Security Ownership of Certain Beneficial Owners and Management	39
Description of Capital Stock	40
Shares Eligible for Future Sale	41
Plan of Distribution	42
Legal Matters	44
Experts	44
Where You Can Find More Information	44
Index to Financial Statements	F-1

PROSPECTUS SUMMARY

The following summary highlights some of the information contained in this prospectus, and it may not contain all of the information that is important to you in making an investment decision. You should read the following summary together with the more detailed information regarding our company and the common stock being sold by the selling stockholders in this offering, including the “Risk Factors” and our financial statements and related notes, included elsewhere in this prospectus.

Conventions

In this prospectus, unless indicated otherwise,

·	“Function(x),” “Company,” “we,” “us” and “our” refer to Function(x) Inc.

·	“U.S. dollar,” “$” and “US$” refer to the legal currency of the United States.

·	All amounts in thousands except share and per share data and where otherwise noted.

The Company

Overview of Our Business

Overview of Transition in the Company’s Business

The fiscal year ended June 30, 2011 was a transition year for Function(x). On October 24, 2010 the Company disposed of its remaining interest in Oaktree Systems, Inc (“Oaktree”) and was not active and had no operating business. After the disposition of Oaktree, the Company began exploring the possibility of identifying and merging with or investing in one or more operating businesses. Then, on February 15, 2011, we completed a recapitalization (the “Recapitalization”) with Sillerman Investment Company, LLC, a Delaware limited liability company (“Sillerman”) and EMH Howard LLC, a New York limited liability company (“EMH Howard”) and changed our name to Function(x) Inc. With the Recapitalization, the Company changed course and, under new management, began moving in a new direction, which is to provide a platform for investments in media and entertainment, with a particular emphasis on digital and mobile technology.

The Company’s New Line of Business

The Company’s business is to create and manage digital products and services that encourage consumer participation and active engagement with media and entertainment content. These digital media products are designed to accommodate a variety of media and entertainment experiences, including but not limited to television, movies, games and music. The Company plans to generate revenues from advertising, sponsorship, e-commerce and other sources based on the aggregation of registered users.

The Company plans to host, maintain, develop and operate a suite of digital products that will leverage proprietary technology. The initial products will be delivered via mobile applications and websites, marketed to high value media consumers. In addition, the Company is developing and managing software and databases for the identification of multimedia content, commercials, and promotional information that will be used on multiple types of internet-connected devices. We will also use our software and databases to deliver highly targeted advertising and marketing solutions via digital services, initially on mobile phones and other handheld mobile devices.

process. The initial market for the product targets TV audiences across various channels and platforms: broadcast and cable networks, live, time-shifted and on-demand television, as well as online distribution of television programming. The Company’s consumer participation and engagement will be limited to participants who are 13 years of age or older.

The Beta product was delivered for usability testing in September and will undergo further testing in the fourth quarter of calendar 2011. The Company is targeting an initial release to be made in such quarter or early 2012. The national launch to a wider general audience is scheduled for 2012.

Since the Recapitalization and prior to the end of the fiscal year, the Company hired personnel with diverse backgrounds in General Management in Digital Media and Entertainment, along with specialists in Product Development, Engineering, Marketing, Analytics, Sales and Business Development, and Human Resources, Finance and Legal for the purpose of furthering the business plan and building the first product.

The Company’s Formation and Former Line of Business

Function(x) was incorporated in Delaware in July 1994, and was formerly known as Gateway Industries, Inc. We had no operating business or full-time employees from December 1996 to March 2000, when we acquired all of the outstanding common stock of Oaktree. Through Oaktree, we provided cost effective marketing solutions to organizations needing sophisticated information management tools.

We acquired Oaktree on March 21, 2000 pursuant to a stock purchase agreement. The purchase price of Oaktree was approximately $4,100 consisting of $2,000 in cash, the issuance of 600,000 restricted shares of common stock of the Company and the assumption of approximately $650 of debt, which was repaid at the closing date, plus certain fees and expenses. In December 2007, Oaktree sold 5,624 shares of its common stock to Marketing Data, Inc., an affiliate of an officer of Oaktree, for $1. As a result, our ownership interest in Oaktree was reduced to 20% of Oaktree’s outstanding common stock. In connection with this transaction, we agreed to make a capital contribution of $225 to Oaktree at closing. As a result of this transaction, we recorded a loss on sale of subsidiary in the amount of $4,238 during the year ended December 31, 2007.

In July 2005, we sold 500,000 shares of 10% series A preferred stock to Steel Partners II, L.P. (“Steel Partners II”), an affiliate of Jack L. Howard, who was at the time our Chairman of the Board and Chief Executive Officer and our largest stockholder, for a purchase price of $1,467. In addition, we sold to Steel Partners II warrants to purchase 1,500,000 shares of common stock, with an exercise price of $0.22 per share, for a purchase price of $33. On May 15, 2008, we repurchased all of the preferred stock and warrants originally issued to Steel Partners II for a purchase price of $1. None of the warrants were ever exercised by Steel Partners II and no dividend was paid on the preferred stock.

On October 24, 2010, Oaktree repurchased our remaining 20% interest in Oaktree for $0.10. As a result, Marketing Data, Inc. owned 100% of the outstanding common stock of Oaktree. From October 2010, after the Company completed the disposition of its interest in Oaktree through the date of the Recapitalization in February 2011, the Company was not active and had no operating business.

The Recapitalization

As previously disclosed, on February 7, 2011, Function(x) Inc. (formerly Gateway Industries, Inc.) entered into the Agreement and Plan of Recapitalization (the “Recapitalization Agreement”) by and among the Company, Sillerman and EMH Howard LLC. All of the following amounts, other than share information, set forth in this report appear in the thousands.

with Sillerman (together with Robert F.X. Sillerman personally) directly or indirectly beneficially owning more than a majority of the outstanding shares of common stock. Upon consummation, the proceeds of the private placement of $3,600 ($220 in cash and $3,380 in five-year promissory notes with interest accruing at the annual rate equal to the long-term Applicable Federal Rate in effect as of the date of the Recapitalization Agreement, which was 4.15% per annum) were received.

On February 16, 2011, immediately after the Recapitalization was consummated, the Company issued 13,232,597 shares of common stock to an institutional investor (for $10,000) at a price of approximately $0.76 per share, and 940,000 shares of common stock to an accredited investor ($500) at a price of approximately $0.53 per share. The shares of common stock issued in such placements were exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”), pursuant to an exemption from registration for transactions not involving a public offering under Section 4(2) of the Securities Act, and the safe harbors for sales under Section 4(2) provided by Regulation D promulgated pursuant to the Securities Act. Transfer of the shares was restricted by the Company in accordance with the requirements of the Securities Act.

On February 16, 2011, the Company issued a five year warrant for 100,000 shares with an exercise price of $0.80 per share to Berenson & Company, LLC, financial advisor to Sillerman in connection with the Recapitalization. On May 9, 2011, Berenson Investments LLC exercised the warrant and paid $80 for 100,000 shares of the Company’s common stock.

As part of the Recapitalization, the Company effectuated a 1 for 10 reverse split of its issued and outstanding common stock (the “Reverse Split”). The Reverse Split became effective on February 16, 2011. Under the terms of the Reverse Split, each share of common stock, issued and outstanding as of such effective date, was automatically reclassified and changed into one-tenth of one share of common stock, without any action by the stockholder. Fractional shares were rounded up to the nearest whole share. All share and per share amounts have been restated to reflect the Reverse Split.

The newly recapitalized company changed its name to Function (X) Inc. effective as of the date of the Recapitalization and changed its name to Function(x) Inc. on June 22, 2011. It now conducts its business under the name Function(x) Inc., with the ticker symbol FNCX. We have two wholly-owned subsidiaries, Project Oda, Inc. and Viggle Inc., each Delaware corporations.

Risk Factors

Our ability to successfully operate our business and achieve our goals and strategies is subject to numerous risks as discussed more fully below in the section entitled “Risk Factors,” including, but not limited to, the following:

·	Not currently generating revenue;

·	Fluctuation in the price of our common stock;

·	Thinly traded market for purchases and sales of our common stock;

·	Potential inability to achieve business objective;

·	Potential inability to obtain financing for Company operations or of any particular product;

·	Increased competition;

·	Highly competitive industry;

·	Potential loss of key members of our senior management; and

·	Ability to obtain and enforce proprietary rights.

Any of the above risks could materially and adversely affect our business, financial position and results of operations. An investment in our common stock involves risks. You should read and consider the information set forth below in the section entitled “Risk Factors” and all other information set forth in this prospectus before investing in our common stock.

Corporate Information

The address of our principal executive office is 902 Broadway, 11th Floor, New York, New York 10010, and our telephone number is 212-231-0092.

Summary of the Offering

Common stock offered by selling stockholders	An aggregate of 14,522,597 shares of our common stock, par value $0.001 per share, consisting of 14,522,597 shares of our common stock owned by the selling stockholders. This number represents in the aggregate approximately 9.7% of the outstanding shares of our common stock as of the date of this prospectus. (1) None of the selling stockholders named in this prospectus are members of management or employees of the Company.

Common stock to be outstanding immediately after this offering	149,142,024 shares

Proceeds to us	We will not receive any of the proceeds from the sale of shares of our common stock by the selling stockholders.

(1) Based on 149,142,024 shares of common stock outstanding as of October 7, 2011.

RISK FACTORS

The shares of our common stock being offered for resale by the selling stockholders are highly speculative in nature, involve a high degree of risk and should be purchased only by persons who can afford to lose their entire investment in our common stock. Before purchasing any of the shares of our common stock, you should carefully consider the following factors relating to our business and prospects. If any of the following risks actually occur, our business, financial condition or operating results may suffer, the trading price of our common stock could decline, and you may lose all or part of your investment. You should also refer to the other information about us contained in this prospectus, including our financial statements and related notes.

Since we have a limited operating history and no revenues to date, we may be unable to achieve or maintain profitability. The likelihood of our success must be considered in light of the problems, expenses, difficulties, complications and delays frequently encountered by a small developing company.

We have limited financial resources and no revenues to date. The likelihood of our success must be considered in light of the problems, expenses, difficulties, complications and delays frequently encountered by a small developing company starting a new business enterprise and the highly competitive environment in which we will operate. Since we have a limited operating history, we cannot assure you that our business will be profitable or that we will ever generate sufficient revenues to fully meet our expenses and totally support our anticipated activities.

Our ability to continue as a business and implement our business plan will depend on our ability to raise sufficient debt or equity. There is no assurance such debt and/or equity offerings will be successful or that we will remain in business or be able to implement our business plan if the offerings are not successful.

We need substantial additional financing to execute our business plan which may not be available. If we are unable to raise additional capital, we may not be able to continue operations.

We do not yet have revenues and our ability to continue in business depends upon our ability to obtain working capital. There can be no assurance that any such financing would be available upon terms and conditions acceptable to us, if at all. The inability to obtain additional financing in a sufficient amount when needed, and upon acceptable terms and conditions could have a material adverse effect upon us. If additional funds are raised by issuing equity securities, further dilution to existing or future stockholders is likely to result.

We may seek to raise additional funds, finance acquisitions or develop strategic relationships by issuing capital stock that would dilute your ownership.

We have financed our operations, and we expect to continue to finance our operations, acquisitions and develop strategic relationships, by issuing equity or convertible debt securities, which could significantly reduce the percentage ownership of our existing stockholders. Furthermore, any newly issued securities could have rights, preferences and privileges senior to those of our existing stock. Moreover, any issuances by us of equity securities may be at or below the prevailing market price of our common stock and in any event may have a dilutive impact on your ownership interest, which could cause the market price of stock to decline. We may also raise additional funds through the incurrence of debt or the issuance or sale of other securities or instruments senior to our shares of common stock. The holders of any debt securities or instruments we may issue would have rights superior to the rights of our common stockholders.

Our common stock price may fluctuate significantly and you may lose all or part of your investment.

Because we are a newly operating company, there are few objective metrics by which our progress may be measured. Consequently, we expect that the market price of our common stock will likely fluctuate significantly. There can be no assurance whether or when we will generate revenue from the license, sale or delivery of our unique products and services. In the absence of product revenue as a measure of our operating performance, we anticipate that investors and market analysts will assess our performance by considering factors such as:

·	announcements of developments related to our business;

·	developments in our strategic relationships with companies;

·	our ability to enter into or extend investigation phase, development phase, commercialization phase and other agreements with new and/or existing partners;

·	announcements regarding the status of any or all of our collaborations or products;

·	market perception and/or investor sentiment regarding our products and services;

·	announcements regarding developments in the digital and mobile technology and the broadcast and entertainment industries in general;

·	the issuance of competitive patents or disallowance or loss of our patent or trademark rights; and

·	quarterly variations in our operating results.

We will not have control over many of these factors but expect that our stock price may be influenced by them. As a result, our stock price may be volatile and you may lose all or part of your investment.

The market for purchases and sales of our common stock may be very limited, and the sale of a limited number of shares could cause the price to fall sharply.

Our securities are very thinly traded. Accordingly, it may be difficult to sell shares of the common stock without significantly depressing the value of the stock. Unless we are successful in developing continued investor interest in our stock, sales of our stock could continue to result in major fluctuations in the price of the stock.

Since we do not intend to declare dividends for the foreseeable future, and we may never pay dividends, you may not realize a return on your investment unless the price of our common stock appreciates and you sell your common stock.

We will not distribute cash to our stockholders until and unless we can develop sufficient funds from operations to meet our ongoing needs and implement our business plan. The time frame for that is inherently unpredictable, and you should not plan on it occurring in the near future, if at all. Our payment of any future dividends will be at the discretion of our board of directors after taking into account various factors, including but not limited to our financial condition, operating results, cash needs, growth plans and the terms of any credit agreements that we may be a party to at the time. Accordingly, investors must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize a return on their investment. Investors seeking cash dividends should not purchase our common stock.

Since we are controlled by current insiders and affiliates of the Company, you and our other non-management shareholders will be unable to affect the outcome in matters requiring shareholder approval.

As of October 7, 2011, approximately 114,728,000 shares of our common stock, not including currently exercisable warrants, are owned by Sillerman and current affiliates and insiders representing control of approximately 77% of the total voting power, with Sillerman, together with Robert F.X. Sillerman personally, directly or indirectly beneficially owning more than a majority of the outstanding shares of common stock. As a result, Sillerman essentially has the ability to elect all of our directors and to approve any action requiring stockholder action, without the vote of any other stockholders. It is possible that the interests of Sillerman could conflict in certain circumstances with those of other stockholders. Such concentrated ownership may also make it difficult for our shareholders to receive a premium for their shares of our common stock in the event we merge with a third party or enter into other transactions that require shareholder approval. These provisions could also limit the price that investors might be willing to pay in the future for shares of our common stock.

We rely on key members of management, the loss of whose services could adversely affect our success and development.

Our success depends to a certain degree upon certain key members of the management. These individuals are a significant factor in our growth and ability to meet our business objectives. In particular, our success is highly dependent upon the efforts of our executive officers and our directors, particularly Robert F.X. Sillerman, our Executive Chairman and Director. The loss of our executive officers and directors could slow the growth of our business, or it may cease to operate at all, which may result in the total loss of an investor’s investment.

Compensation may be paid to our officers, directors and employees regardless of our profitability, which may limit our ability to finance our business plan and adversely affect our business.

Robert F.X. Sillerman, our Executive Chairman and director and Janet Scardino, our Chief Executive Officer and director are receiving compensation and any other current or future employees of our company may be entitled to receive compensation, payments and reimbursements regardless of whether we operate at a profit or a loss. Any compensation received by Mr. Sillerman, Ms. Scardino or any other senior executive in the future will be determined from time to time by the board of directors or our Compensation Committee. Such obligations may negatively affect our cash flow and our ability to finance our business plan, which could cause our business to fail.

Some of our officers and directors may have conflicts of interest in business opportunities that may be disadvantageous to us.

Robert F.X. Sillerman, our Executive Chairman and director, and Mitchell Nelson, our Executive Vice President, General Counsel, Secretary and director, are each engaged in other business endeavors, including serving as executive officers of Circle Entertainment Inc. (“Circle”). Under Mr. Sillerman’s employment agreement, he is obligated to devote his working time to the Company’s affairs, but may continue to perform his responsibilities as an executive officer of Circle, as well as in other outside non-competitive businesses. Mr. Sillerman has agreed to present to the Company any business opportunities related to or appropriate for the Company’s business plan. Pursuant to Mr. Nelson’s employment agreement, he is obligated to devote such time and attention to the affairs of the Company as is necessary for him to perform his duties as Executive Vice President and General Counsel. He is also entitled to perform similar functions for Circle pursuant to the shared services agreement described in the section of entitled “Certain Relationships and Related Transactions” below. Although Circle and the Company have generally different business plans, interests and programs, it is conceivable there may be a conflict of interest in determining where a potential opportunity should be brought. Conflicts of interest are prohibited as a matter of Company policy, except under guidelines approved by the board of directors, as set forth in the Company’s Code of Business Conduct and Ethics. The Company’s Code of Business Conduct and Ethics also sets forth the procedures to follow in the event that a potential conflict of interest arises. For a description of the Company’s Code of Business Conduct and Ethics, please see the section entitled “Corporate Governance” below.

Our business and growth may suffer if we are unable to attract and retain key officers or employees.

Our success depends on the expertise and continued service of our Executive Chairman, Robert F.X Sillerman, and certain other key executives and technical personnel. It may be difficult to find a sufficiently qualified individual to replace Mr. Sillerman or other key executives in the event of death, disability or resignation, resulting in our being unable to implement our business plan and the Company having no operations or revenues.

Furthermore, our ability to expand operations to accommodate our anticipated growth will also depend on our ability to attract and retain qualified media, management, finance, marketing, sales and technical personnel. However, competition for these types of employees is intense due to the limited number of qualified professionals. Our ability to meet our business development objectives will depend in part on our ability to recruit, train and retain top quality people with advanced skills who understand our technology and business. The Company believes that it will be able to attract competent employees, but no assurance can be given that the Company will be successful in this regard. If the Company is unable to engage and retain the necessary personnel, its business may be materially and adversely affected.

We are uncertain of our ability to manage our growth.

Our ability to grow our business is dependent upon a number of factors including our ability to hire, train and assimilate management and other employees, the adequacy of our financial resources, our ability to identify and efficiently provide such new products and services as our customers may require in the future and our ability to adapt our own systems to accommodate expanded operations.

Because of pressures from competitors with more resources, we may fail to implement our business strategy profitably.

The digital and mobile technology business is highly fragmented and extremely competitive and subject to rapid change. The market for customers is intensely competitive and such competition is expected to continue to increase. We believe that our ability to compete depends upon many factors within and beyond our control, including the timing and market acceptance of new solutions and enhancements to existing businesses developed by us, our competitors, and their advisors. Function(x) is an entertainment company that utilizes digital media and Smartphone technology. If we are successful, larger and more established entertainment companies with significantly greater resources may try to enter the market with similar technologies, and may be in better competitive positions than we are. Many consumers maintain simultaneous relationships with multiple digital brands and products and can easily shift consumption from one provider to another. Our principal competitors are in segments such as the following:

·	Applications promoting social TV experiences and discussions; and

·	White label providers of social media and media-specific applications.

In addition, new competitors may be able to launch new businesses at relatively low cost. Therefore, we cannot be sure that we will be able to successfully implement our business strategy in the face of such competition.

We may be unable to compete with larger or more established companies in two industries.

We face a large and growing number of competitors in the digital and mobile technology and entertainment industries. If we successfully marry digital and mobile technology and entertainment, we will have competitors from both the digital and mobile and the entertainment industries. Many of these competitors have substantially greater financial, technical and marketing resources, larger customer bases, longer operating histories, greater name recognition, and more established relationships in the industry than does the Company. As a result, certain of these competitors may be in better positions to compete with us for customers and audiences. We cannot be sure that we will be able to compete successfully with existing or new competitors.

If our products do not achieve market acceptance, we may not have sufficient financial resources to fund further development.

While we believe that a viable market exists for the products we are developing, there can be no assurance that such technology will prove to be an attractive alternative to conventional or competitive products in the markets that we have identified for exploitation. In the event that a viable market for our products cannot be created as envisaged by our business strategy or our products do not achieve market acceptance, we may need to commit greater resources than are currently available to develop a commercially viable and competitive product. There can be no assurance that we would have sufficient financial resources to fund such development or that such development would be successful. Our ability to raise additional funds will depend on financial, economic and other factors, many of which are beyond our control. There can be no assurance that, when required, sufficient funds will be available to us on satisfactory terms.

If our products do not perform as expected, or that we are unable to successfully develop and market our products, our business and financial condition will be adversely affected.

With the release of any new product release, we are subject to the risks generally associated with new product introductions and applications, including lack of market acceptance, delays in development and implementation, and failure of products to perform as expected. In order to introduce and market new or enhanced products successfully with minimal disruption in customer purchasing patterns, we must manage the transition from existing products in the market. There can be no assurance that we will be successful in developing and marketing, on a timely basis, product enhancements or products that respond to technological advances by others, that our new products will adequately address the changing needs of the market or that we will successfully manage product transitions. Further, failure to generate sufficient cash from operations or financing activities to develop or obtain improved products and technologies could have a material adverse effect on our results of operations and financial condition.

Our business will suffer if our network systems fail or become unavailable.

A reduction in the performance, reliability and availability of our network infrastructure would harm our ability to distribute our products to our users, as well as our reputation and ability to attract and retain users and content providers. Our systems and operations could be damaged or interrupted by fire, flood, power loss, telecommunications failure, Internet breakdown, earthquake and similar events. Our systems could also be subject to viruses, break-ins, sabotage, acts of terrorism, acts of vandalism, hacking, cyber-terrorism and similar misconduct. We might not carry adequate business interruption insurance to compensate us for losses that may occur from a system outage. Any system error or failure that causes interruption in availability of products or an increase in response time could result in a loss of potential customers or content providers, which could have a material adverse effect on our business, financial condition and results of operations. If we suffer sustained or repeated interruptions, then our products and services could be less attractive to our users and our business would be materially harmed.

We may be unable to protect our intellectual property rights from third-party claims and litigation, which could be expensive, divert management’s attention, and harm our business.

Our success is dependent in part on obtaining, maintaining and enforcing our proprietary rights and our ability to avoid infringing on the proprietary rights of others. We seek patent protection for those inventions and technologies for which we believe such protection is suitable and is likely to provide a competitive advantage to us. Because patent applications in the United States are maintained in secrecy until either the patent application is published or a patent is issued, we may not be aware of third-party patents, patent applications and other intellectual property relevant to our products that may block our use of our intellectual property or may be used in third-party products that compete with our products and processes. In the event a competitor successfully challenges our products, processes, patents or licenses or claims that we have infringed upon their intellectual property, we could incur substantial litigation costs defending against such claims, be required to pay royalties, license fees or other damages or be barred from using the intellectual property at issue, any of which could have a material adverse effect on our business, operating results and financial condition.

We also rely substantially on trade secrets, proprietary technology, nondisclosure and other contractual agreements, and technical measures to protect our technology, application, design, and manufacturing know-how, and work actively to foster continuing technological innovation to maintain and protect our competitive position. We cannot assure you that steps taken by us to protect our intellectual property will be adequate, that our competitors will not independently develop or patent substantially equivalent or superior technologies or be able to design around patents that we may receive, or that our intellectual property will not be misappropriated.

You may have limited access to information regarding our business because we are a limited reporting company exempt from many regulatory requirements and our obligations to file periodic reports with the SEC could be automatically suspended under certain circumstances.

The Company will not become a fully reporting company, but rather will be subject to the reporting requirements of Section 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”). As of effectiveness of our registration statement of which this prospectus is a part, we will be required to file periodic reports with the SEC which will be immediately available to the public for inspection and copying (see "Where You Can Find More

Information" elsewhere in this prospectus). Except during the year that our registration statement becomes effective, these reporting obligations may be automatically suspended under Section 15(d) if we have less than 300 shareholders (as we now have). If this occurs after the year in which our registration statement becomes effective, we will no longer be obligated to file periodic reports with the SEC and your access to our business information would then be even more restricted. After this registration statement on Form S-1 becomes effective, we will be required to deliver periodic reports to security holders. However, we will not be required to furnish proxy statements to security holders and our directors, officers and principal beneficial owners will not be required to report their beneficial ownership of securities to the SEC pursuant to Section 16 of Exchange Act until we have both 500 or more security holders and greater than $10 million in assets. This means that your access to information regarding our business may be limited.

Changes to federal, state or international laws or regulations applicable to our business could adversely affect our business.

Our business is subject to a variety of federal, state and international laws and regulations, including those with respect to privacy, advertising generally, consumer protection, content regulation, intellectual property, defamation, child protection, advertising to and collecting information from children, taxation, employment classification and billing. These laws and regulations and the interpretation or application of these laws and regulations could change. In addition, new laws or regulations affecting our business could be enacted. These laws and regulations are frequently costly to comply with and may divert a significant portion of management’s attention. If we fail to comply with these applicable laws or regulations, we could be subject to significant liabilities which could adversely affect our business.

There are many federal, state and international laws that may affect our business including measures to regulate consumer privacy, the use of copyrighted material, the collection of certain data, network neutrality, patent litigation, cyber security, child protection, subpoena and warrant processes, employee classification and others.

In addition, most states have enacted legislation governing the breach of data security in which sensitive consumer information is released or accessed. If we fail to comply with these applicable laws or regulations we could be subject to significant liabilities which could adversely affect our business.

Many of our potential partners are subject to industry specific laws and regulations or licensing requirements, including in the following industries: pharmaceuticals, online gaming, alcohol, adult content, tobacco, firearms, insurance, securities brokerage, real estate, sweepstakes, free trial offers, automatic renewal services and legal services. If any of our advertising partners fail to comply with any of these licensing requirements or other applicable laws or regulations, or if such laws and regulations or licensing requirements become more stringent or are otherwise expanded, our business could be adversely affected. Furthermore, these laws may also limit the way we advertise our products and services or cause us to incur compliance costs, which could affect our revenues and could further adversely impact our business.

There are a number of significant matters under review and discussion with respect to government regulations which may affect the business we intend to enter and/or harm our customers, and thereby adversely affect our business, financial condition and results of operations.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements. The forward-looking statements are contained principally in the sections entitled “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Our Business.” These statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements. These risks and uncertainties include, but are not limited to, the factors described in the section captioned “Risk Factors” above.

In some cases, you can identify forward-looking statements by terms such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “would”

and similar expressions intended to identify forward-looking statements. Forward-looking statements reflect our current views with respect to future events and are based on assumptions and are subject to risks and uncertainties. Given these uncertainties, you should not place undue reliance on these forward-looking statements.

Also, forward-looking statements represent our estimates and assumptions only as of the date of this prospectus. You should read this prospectus and the documents that we reference in this prospectus, or that we filed as exhibits to the registration statement of which this prospectus is a part, completely and with the understanding that our actual future results may be materially different from what we expect.

Except as required by law, we assume no obligation to update any forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in any forward-looking statements, even if new information becomes available in the future.

USE OF PROCEEDS

We will not receive any proceeds from the sales of any shares of common stock by the selling stockholders.

DIVIDEND POLICY

We have never declared or paid cash dividends. Any future decisions regarding dividends will be made by our board of directors. We currently intend to retain and use any future earnings for the development and expansion of our business and do not anticipate paying any cash dividends in the foreseeable future.

MARKET FOR OUR COMMON STOCK

Our common stock currently trades in the over the counter market and is quoted on the Pink Sheets Electronic Quotation Service under the symbol “FNCX.”

The following table sets forth the high and low bid prices of our common stock during the calendar years ended December 31, 2010 and 2009 and through the third calendar quarter ended September 30, 2011. The high and low bid quotations reflect inter-dealer prices, without retail mark-up, mark-down, or commission, and may not represent actual transactions.

2009
First quarter	$	No trades	$	No trades
Second quarter	$	0.100	$	0.060
Third quarter	$	0.060	$	0.050
Fourth quarter	$	0.050	$	0.020
2010
First quarter	$	0.035	$	0.020
Second quarter	$	0.035	$	0.005
Third quarter	$	0.010	$	0.008
Fourth quarter	$	0.030	$	0.009
2011
First quarter(1)	$	26.00	$	0.01
Second quarter	$	12.50	$	8.30
Third quarter	$	10.70	$	4.75

(1)	On February 16, 2011, the Company effectuated a 1 for 10 reverse split of its issued and outstanding common stock.

As of October 6, 2011, there were 133 beneficial holders of our common stock.

DILUTION

Our net tangible book value as of June 30, 2011 was $0.03 per share of common stock. Net tangible book value is determined by dividing our tangible book value (total assets less intangible assets including know-how, trademarks and patents and less total liabilities) by the number of outstanding shares of our common stock. Since this offering is being made solely by the selling stockholders and none of the proceeds will be paid to us, our net tangible book value will be unaffected by this offering.

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following management’s discussion and analysis of financial condition and results of operations of the Company should be read in conjunction with the historical audited consolidated financial statements and footnotes of the Company’s historical audited consolidated financial statements and notes thereto included elsewhere in this Registration Statement. Our historical results of operations reflected in our historical audited consolidated financial statements are not indicative of our future results of operations as we have entered a new line of business from which we do not currently generate revenue.

Overview

Function(x) was incorporated in Delaware in July 1994, and was formerly known as Gateway Industries, Inc.

In February 2011, Function (X) Inc. completed a Recapitalization with Sillerman and EMH Howard. The newly recapitalized company changed its name to Function (X) Inc. effective as of the date of the Recapitalization and changed its name to Function(x) Inc. on June 22, 2011 and now conducts its business under the name Function(x) Inc., with the ticker symbol FNCX. We have two wholly owned subsidiaries, Project Oda, Inc. and Viggle, Inc. Upon completion of the Recapitalization, the Company changed course after being inactive from October 2010. The Recapitalization and the resulting change in management were the initial steps in the Company developing a new operating business. Its new direction is intended to provide a platform for investments in media and entertainment, with a particular emphasis on digital and mobile technology.

The Company’s New Line of Business

The Company’s initial product design will be distributed on a variety of mainstream mobile operating systems. The products will verify user engagement of various forms of entertainment content through a real-time check-in process. The initial market for the product targets TV audiences across various channels and platforms: broadcast and cable networks, live, time-shifted and on-demand television, as well as online distribution of television programming. The Company’s consumer participation and engagement will be limited to participants who are 13 years of age or older.

Development, Engineering, Marketing, Analytics, Sales and Business Development, and Human Resources, Finance and Legal for the purpose of furthering the business plan and building the first product.

Operations

We are creating a social media experience around traditional media consumption that encourages consumer participation and active engagement through incentives, brand-sponsored content, and network-sponsored content. We intend to market our service through various channels, including online advertising, broad-based media (such as television and radio), as well as various strategic partnerships. We intend to utilize co-location facilities and the services of third-party cloud computing providers, more specifically, Amazon Web Services, to help us efficiently manage and create our platform.

Revenue

Our plan is to derive revenues from advertising programs and marketing solutions generated from two revenue streams, entertainment providers and brand advertisers. We will begin operations by offering a new social media experience to consumers to drive engagement with providers and brands through our digital mobile services, with focus on smartphone applications. Initially, we anticipate revenues to be generated substantially in the United States.

Seasonality

Our revenue is expected to exhibit a seasonal pattern that reflects variation in accordance with entertainment offerings and the desire of advertisers to try to influence consumers’ purchasing habits. As a consequence, revenue is expected to vary modestly throughout the year, although we anticipate revenues to be slowest in the third calendar quarter. Additionally, the growth in variable expenses associated with marketing, new product releases, consumer incentives, and advertising services will fluctuate with revenue, but not necessarily by the same percentage.

Competition

The market for digital and social media applications is intensely competitive and subject to rapid change. New competitors may be able to launch new businesses at relatively low cost. Many consumers maintain simultaneous relationships with multiple digital brands and products and can easily shift consumption from one provider to another. Our principal competitors are in segments such as the following:

·	Applications promoting social TV experience and discussions; and

·	White-label providers of social media and media-specific applications.

The Recapitalization

Pursuant to the Recapitalization Agreement, Sillerman, together with other investors approved by Sillerman, invested in the Company by acquiring 120,000,000 newly issued shares of common stock of the Company in a private placement transaction at a price of $0.03 per share (on a post-split basis as described below), as a result of which Sillerman and the other investors acquired approximately 99% of the outstanding shares of common stock, with Sillerman (together with Robert F.X. Sillerman personally) directly or indirectly beneficially owning more than a majority of the outstanding shares of common stock. Upon consummation, the proceeds of the private placement of $3,600 ($220 in cash and $3,380 in five-year promissory notes with interest accruing at the annual rate equal to the long-term Applicable Federal Rate in effect as of the date of the recapitalization agreement, which was 4.15% per annum) were received.

harbors for sales under Section 4(2) provided by Regulation D promulgated pursuant to the Securities Act. No advertising or general solicitation was employed in offering the securities. Transfer of the shares was restricted by the Company in accordance with the requirements of the Securities Act.

On February 16, 2011, the Company issued a five-year warrant for 100,000 shares with an exercise price of $0.80 per share to Berenson Investments LLC. Berenson & Company, LLC, an affiliate of Berenson Investments LLC, was the financial advisor to Sillerman in connection with the Recapitalization. On May 9, 2011, Berenson Investments LLC exercised the warrant and paid $80 for 100,000 shares of our common stock.

As part of the Recapitalization, the Company effectuated a 1 for 10 Reverse Split. Under the terms of the Reverse Split, each share of common stock, issued and outstanding as of such effective date, was automatically reclassified and changed into one-tenth of one share of common stock, without any action by the stockholder. Fractional shares were rounded up to the nearest whole share. All share and per share amounts have been restated to reflect the Reverse Split.

Former Business

After our incorporation and during the period from December 1996 to March 2000, we had no operating business or full time employees. On March 21, 2000, we acquired Oaktree pursuant to a stock purchase agreement. Through Oaktree, we provided cost effective marketing solutions to organizations needing sophisticated information management tools. The purchase price of Oaktree was approximately $4,100, consisting of $2,000 in cash, the issuance of 600,000 restricted shares of common stock of the Company and the assumption of approximately $650 of debt, which was repaid at the closing date, plus certain fees and expenses. In December 2007, Oaktree sold 5,624 shares of its common stock to Marketing Data, Inc., an affiliate of an officer of Oaktree, for $1. As a result, our ownership interest in Oaktree was reduced to 20% of Oaktree’s outstanding common stock. In connection with this transaction, we agreed to make a capital contribution of $225 to Oaktree at closing. As a result of this transaction, we recorded a loss on sale of subsidiary in the amount of $4,238 during the year ended December 31, 2007.

In July 2005, we sold 500,000 shares of 10% Series A Preferred Stock to Steel Partners II, L.P., an affiliate of Jack L. Howard, a director and officer of the Company prior to the Recapitalization, and, at the time, our largest stockholder, for a purchase price of $1,467. In addition, we sold to Steel Partners II warrants to purchase 1,500,000 shares of common stock, with an exercise price of $0.22 per share, for a purchase price of $33. On May 15, 2008, we repurchased all of the Preferred Stock and Warrants originally issued to Steel Partners II for a purchase price of $1. None of the Warrants were ever exercised by Steel Partners II and no dividend was paid on the Preferred Stock.

On October 24, 2010, Oaktree repurchased our remaining 20% interest in Oaktree for $0.1. As a result, Marketing Data, Inc. owned 100% of the outstanding common stock of Oaktree. The disposition of our interest in Oaktree enabled us to begin to explore the redeployment of our existing assets by identifying and merging with, or acquiring, or investing in, one or more operating businesses, which resulted in the Recapitalization.

Critical Accounting Policies and Estimates

General

Our discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, income and expenses, and related disclosures of contingent assets and liabilities. On

an ongoing basis, we evaluate our estimates, including those related to fair values, income taxes and equity issuances. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. These estimates form the basis for certain judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

Our significant accounting policies are summarized in Note 2 of our financial statements. While all these significant accounting policies impact our financial condition and results of operations, we view certain of these policies as critical. Policies determined to be critical are those policies that have the most significant impact on our financial statements and require management to use a greater degree of judgment and estimates. Actual results may differ from those estimates. Our management believes that given current facts and circumstances, it is unlikely that applying any other reasonable judgments or estimate methodologies would have a material effect on our results of operations, financial position or liquidity for the periods presented in this report. All of the following amounts set forth in this Management’s Discussion and Analysis of Financial Condition and Results of Operations appear in the thousands, with the exception of share data.

Results for the Year Ended June 30, 2011 and 2010

	Year Ended June 30, 2011			Year Ended June 30, 2010			Variance
Revenues	$	---		$	---		$	---
General and Administrative Expenses		19,970			9			19,961

Operating Loss		(19,970	)		(9	)		(19,961	)

Other Income
Interest income, net		62			---			62
Total Other Income		62			---			62

Net Loss Before Income Taxes		(19,908	)		(9	)		(19,899	)

Income Taxes		---			---			---

Net Loss	$	(19,908	)	$	(9	)	$	(19,899	)

Revenues

There were no revenues in the prior year. The Company has yet to generate revenue since changing its line of business in 2011.

General and Administrative Expenses

Operating expenses increased $19,961 in 2011 as compared to 2010 primarily due to personnel costs ($12,325, including $10,772 in non-cash stock based compensation), developing a new product ($2,150), and the other costs associated with a startup company ($5,482). Operating expenses in 2010 were nominal.

Interest Income, Net

Net interest income increased $62 in 2011 as compared to 2010 primarily due to notes receivable issued for common stock as part of the Recapitalization. There was no interest income in 2010.

Liquidity and Capital Resources

Cash

At June 30, 2011 and 2010, we had cash balances of $3,794 and $0, respectively. From 2007 until the Recapitalization, J. Howard, Inc., an affiliate of Jack L. Howard, a director and officer of the Company prior to the Recapitalization, advanced funds to the Company to support our daily operations.

Pursuant to the Recapitalization, Sillerman, together with other investors approved by Sillerman, invested in the Company by acquiring 120,000,000 newly issued shares of common stock of the Company in a private placement transaction, in which we raised $3,600 ($220 in cash and $3,380 in five-year promissory notes with interest accruing at 4.15% per annum).

As a result of the private placements to Adage Capital Management LP (“Adage”) and KPLB LLC (“KPLB”), both selling stockholders in the Form S-1 filed with the Securities and Exchange Commission on May 25, 2011, we have raised $10,500.

(3) year warrant to purchase one (1) share of common stock of the Company with an exercise price of $4.00 per warrant share, at a purchase price of $2.50 per Unit, for an aggregate purchase price of $35,000 to accredited and institutional investors. The proceeds of the offering, less expenses, are to be used for general corporate purposes, including marketing and product development. The Company believes that the net cash raised in the private placement should be sufficient to meet its liquidity needs for the next fiscal year.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future material impact on the Company.

Market Risk

Not applicable.

Cash Flow for the Year Ended June 30, 2011

Operating Activities

Cash used in operating activities of $5,645 for the year ended June 30, 2011 consisted primarily of salaries and other expenses for operating the Company.

Investing Activities

Cash used in investing activities of $1,330 for the year ended June 30, 2011 primarily reflects $695 for the letter of credit lease deposit, $317 for capitalized software costs, and $235 for purchase of an interest in a G-IV jet (see Note 11 to the Consolidated Financial Statements), and investment in Company product.

Financing Activities

Cash provided by financing activities of $10,769 for the year ended June 30, 2011 reflects proceeds from the issuance of common stock as part of the Recapitalization.

Dividends

We currently intend to retain any future earnings to support operations and to finance expansion and therefore do not anticipate paying any cash dividends on our Common Stock in the foreseeable future. The terms of any future debt agreements we may enter into may prohibit or restrict, the payment of cash dividends on our common stock.

Commitments and Contingencies

There are no lawsuits and claims pending against us or which we have initiated against others.

Application of Critical Accounting Policies

During the year ended June 30, 2011, there have been no significant changes related to the Company’s critical accounting policies and estimates as disclosed in “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” set forth in the Company’s Annual Report on Form 10-K for the year ended June 30, 2011.

The following accounting policies require significant management judgments and estimates:

Impairment of Long-Lived Assets.

The Company applies the provisions of Accounting Standards Codification (“ASC”) Topic 360, “Property, Plant, and Equipment”, which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. ASC 360 requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amounts. In that event, a loss is recognized based on the amount by which the carrying amount exceeds the fair value of the long-lived assets. Loss on long-lived assets to be disposed of is determined in a similar manner, except that fair values are reduced for the cost of disposal. Based on its review, the Company believes that as of June 30, 2010 and June 30, 2011, there was no significant impairment of its long-lived assets.

Internal Use Software

The Company capitalizes costs related to the development of internal use software in accordance with ASC 350-40. When capitalized, the Company will amortize the costs of computer software developed for internal use on a straight-line basis or appropriate usage basis over the estimated useful life of the software. Currently, the Company is in the application development stage of its computer software development and, appropriately, certain costs have been capitalized in the amounts of $317 and $0 as of June 30, 2011 and June 30, 2010, respectively.

Income Taxes

The Company uses the liability method of accounting for income taxes as set forth in ASC 740, Income Taxes. Under the liability method, deferred taxes are determined based on the temporary differences between the financial statement and tax basis of assets and liabilities using tax rates expected to be in effect during the years in which the basis differences reverse. A valuation allowance is recorded when it is more likely than not that some of the deferred tax assets will not be realized. We assess our income tax positions and record tax benefits for all years subject to examination based upon our evaluation of the facts, circumstances and information available at the reporting date. For those tax positions where there is a greater than 50% likelihood that a tax benefit will be sustained, our policy will be to record the largest amount of tax benefit that is more likely than not to be realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. For those income tax positions where there is less than 50% likelihood that a tax benefit will be sustained, no tax benefit will be recognized in the financial statements.

Stock-Based Compensation

The Company accounts for stock-based compensation in accordance with ASC 718, Compensation – Stock Compensation. Under the fair value recognition provisions of ASC 718, stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense ratably over the requisite service period. The Company uses the Black-Scholes option pricing model to determine the fair value of stock options and warrants issued. Stock-based awards issued to date are comprised principally of restricted stock awards (RSUs).

OUR BUSINESS

The Company’s New Line of Business

Operations

Revenue

Seasonality

quarter. Additionally, the growth in variable expenses associated with marketing, new product releases, consumer incentives, and advertising services will fluctuate with revenue, but not necessarily by the same percentage.

Competition

● Applications promoting social TV experience and discussions; and

● White-label providers of social media and media-specific applications.

The Recapitalization

Immediately after the Recapitalization was consummated, the Company issued 13,232,597 shares of common stock to an institutional investor (for $10,000) at a price of approximately $0.76 per share, and 940,000 shares of common stock to an accredited investor ($500) at a price of approximately $0.53 per share. The shares of common stock issued in such placements were exempt from registration under the Securities Act, pursuant to an exemption from registration for transactions not involving a public offering under Section 4(2) of the Securities Act, and the safe harbors for sales under Section 4(2) provided by Regulation D promulgated pursuant to the Securities Act. No advertising or general solicitation was employed in offering the securities. Transfer of the shares was restricted by the Company in accordance with the requirements of the Securities Act.

Asset Purchase

On September 29, 2011 in furtherance of its business plan, the Company, through its wholly-owned subsidiary, Project Oda, Inc., purchased certain assets of Mobile Messaging Solutions, Inc.’s Watchpoints business. The consideration for such transaction was $3,000, consisting of $2,500 in cash and 200,000 shares of the Company’s common stock at a value of $2.50 per share. The Watchpoints business is involved in developing, selling, maintaining and improving an interactive broadcast television application utilizing audio recognition technology. The assets purchased include intellectual property and certain computer-related equipment, software and agreements for the implementation of the Watchpoints business. The intellectual property included patent filings for audio verification technology and the provision of value-added programming/services based on such verification and trademarks for the “Watchpoints” name. The Company also paid Kai Buehler, the CEO of Watchpoints, a $300 finder’s fee, appointed him as a Senior Vice President of the Company and he became a full-time employee of the Company.

The foregoing description of the asset purchase agreement is not complete and is qualified in its entirety by reference to the full text of the agreement, a copy of which is filed as Exhibits 10.1 to the Company’s Form 8-K filed with the SEC on October 3, 2011 and incorporated herein by reference.

Asset Purchase

Former Business

Function(x) was incorporated in Delaware in July 1994, and was formerly known as Gateway Industries, Inc. After our incorporation and during the period from December 1996 to March 2000, we had no operating business or full time employees. On March 21, 2000, we acquired Oaktree pursuant to a stock purchase agreement. Through Oaktree, we provided cost effective marketing solutions to organizations needing sophisticated information management tools. The purchase price of Oaktree was approximately $4,100, consisting of $2,000 in cash, the issuance of 600,000 restricted shares of common stock of the Company and the assumption of approximately $650 of debt, which was repaid at the closing date, plus certain fees and expenses. In December 2007, Oaktree sold 5,624 shares of its common stock to Marketing Data, Inc., an affiliate of an officer of Oaktree, for $1. As a result, our ownership interest in Oaktree was reduced to 20% of Oaktree’s outstanding common stock. In connection with this transaction, we agreed to make a capital contribution of $225 to Oaktree at closing. As a result of this transaction, we recorded a loss on sale of subsidiary in the amount of $4,238 during the year ended December 31, 2007.

On October 24, 2010, Oaktree repurchased our remaining 20% interest in Oaktree for $0.10. As a result, Marketing Data, Inc. owned 100% of the outstanding common stock of Oaktree. The disposition of our interest in Oaktree enabled us to begin to explore the redeployment of our existing assets by identifying and merging with, or acquiring, or investing in, one or more operating businesses, which resulted in the Recapitalization.

MANAGEMENT

Directors and Executive Officers

The following table sets forth the name, age and position of each of our current directors .

Name	Age	Position
Robert F.X. Sillerman	63	Director*
Janet Scardino	52	Director*
Mitchell J. Nelson	63	Director*
Benjamin Chen	45	Director
Peter Horan	56	Director

John D. Miller	67	Director
Joseph F. Rascoff	66	Director
Harriet Seitler	54	Director

* Also an executive officer (see below)

The following table sets forth the name, age and position of each of our current executive officers:

Robert F.X. Sillerman	63	Executive Chairman**
Janet Scardino	52	Chief Executive Officer**
Mitchell J. Nelson	63	Executive Vice President, General Counsel, Secretary**
Chris Stephenson	46	Chief Marketing Officer

** Also a director (see above)

Robert F.X. Sillerman

Robert F.X. Sillerman was elected a Director of the Company and Executive Chairman of the Board of Directors effective as of the closing of the Recapitalization. He has, since January 2008, served as Chairman and Chief Executive Officer of Circle Entertainment Inc. Mr. Sillerman also served as the Chief Executive Officer and Chairman of CKX from February 2005 until May 2010. From August 2000 to February 2005, Mr. Sillerman was Chairman of FXM, Inc., a private investment firm. Mr. Sillerman is the founder and has served as managing member of FXM Asset Management LLC, the managing member of MJX Asset Management, a company principally engaged in the management of collateralized loan obligation funds, from November 2003 through April 2010. Prior to that, Mr. Sillerman served as the Executive Chairman, a Member of the Office of the Chairman and a director of SFX Entertainment, Inc., from its formation in December 1997 through its sale to Clear Channel Communications in August 2000. The Board of Directors selected Mr. Sillerman as a director because it believes he possesses significant entertainment and financial expertise, which will benefit the Company.

Janet Scardino

Janet Scardino was appointed as Chief Executive Officer and Director of the Company effective as of the closing of the Recapitalization. Ms. Scardino was President Commercial for 19 Entertainment, creator of American Idol, from September 2008 through February 2011. Prior to that, she was President and Chief Marketing Officer of The Knot, Inc., a leading life-stage digital media business and NASDAQ listed company, from October 2007 through September 2008. She was the Executive Vice President of Reuters Group PLC from March 2005 through August 2007, serving as EVP, Global Head of Marketing, and later promoted to Managing Director, for Reuters Media Division. Between February 2003 and March 2005, Scardino was a digital media entrepreneur. Ms. Scardino was Senior Vice President, International Marketing for AOL from March 2001 to February 2003. Scardino was Managing Director for the Disney Channel Italy, a wholly owned subsidiary of The Walt Disney Company from 1998 through 2001. For a decade, Scardino served in various positions for MTV Networks from 1987 to 1997, most recently as Vice President, International Marketing for MTV: Music Television. The Board of Directors selected Ms. Scardino as a director because it believes she possesses significant media and entertainment experience, which will benefit the Company.

Mitchell J. Nelson

Mitchell J. Nelson was appointed Director, Executive Vice President, General Counsel, and Secretary effective as of the closing of the Recapitalization. Mr. Nelson also serves as Executive Vice President, General Counsel and Secretary of Circle Entertainment, Inc., having served in such capacity since January 2008, and served as President of its wholly-owned subsidiary, FX Luxury Las Vegas I, LLC (which was reorganized in bankruptcy in 2010) during 2010. He also served as President of Atlas Real Estate Funds, Inc., a private investment fund which invested in United States-based real estate securities, from 1994 to 2008, as Senior Vice President, Corporate Affairs for Flag Luxury Properties, LLC from 2003. Prior to 2008, Mr. Nelson served as counsel to various law firms, having started his career in 1973 at the firm of Wien, Malkin & Bettex. At Wien, Malkin & Bettex, which he left in 1992, he became a senior partner with supervisory responsibility for various commercial real estate properties. Mr. Nelson is an Adjunct Assistant Professor of Real Estate Development at Columbia University. He was a director of The Merchants Bank of New York and its holding company until its merger with, and remains on the Advisory Board of Valley National Bank. Additionally, he has served on the boards of various not-for-profit organizations, including as a director of the 92nd Street YMHA and a trustee of Collegiate School, both in New York City. The Board has selected Mr. Nelson as a director because it believes his legal and business experience will benefit the Company.

Benjamin Chen

Benjamin Chen was appointed as a Non-Executive Board Member of the Company on February 15, 2011. Chen is a leader in business and technology and was appointed as a Non-Executive Board Member of the Company. Mr. Chen is the Founder, Chairman and CEO of Mochila, Inc., a leading digital content and syndication platform, serving since November 2001. Mr. Chen previously founded multiple internet and marketing related businesses, including AppGenesys, Inc., serving as its CEO/CTO from January 2000 until August 2001. He served as CTO/CIO from 1996 until 2000 at iXL Enterprises, Inc. a strategic interactive agency (now part of Publicis), where he served on the management team that took the company public in 1999. Previously he was at Ironlight Digital Corporation, serving as its CTO from 1995 until 1996. Mr. Chen has worked as an external entrepreneur in residence for JP Morgan and Mission Ventures, as well as an advisor for GE Capital. The Board of Directors has selected Mr. Chen as a director because it believes his experience in technology and startup businesses will benefit the Company.

Peter Horan

Peter C. Horan was appointed as a Non-Executive Board Member of the Company on February 15, 2011. Mr. Horan is currently the Executive Chairman of Halogen Network, a next generation digital media company, a position he has held since February 2010. Mr. Horan has served as CEO of many internet companies, including Goodmail Systems, Inc. from 2008 to 2010. Previously, Mr. Horan was CEO of IAC’s Media and Advertising group from 2007 to 2008. He was CEO of AllBusiness.com from 2005 to 2007. As CEO of About.com from 2003 to 2005, Mr. Horan led the sale of the company to the New York Times Company. Mr. Horan was CEO of DevX.com from 2000 to 2003. Previously at International Data Group, he served as Senior Vice President from 1991 until 2000, where he was also the publisher of their flagship publication Computerworld. He held senior account management roles at leading advertising agencies including BBD&O and Ogilvy & Mather. Mr. Horan was selected as a director because the Board of Directors believes that his technology, internet and advertising experience will benefit the Company.

John D. Miller

John D. Miller was appointed as a Non-Executive Board Member of the Company on February 15, 2011. Mr. Miller was elected a director of Circle Entertainment Inc. in January 2009. Mr. Miller is the Chief Investment Officer of W.P. Carey & Co. LLC, a net lease real estate company. Mr. Miller is also a founder and Non-Managing Member of StarVest Partners, L.P., a $150 million venture capital investment fund formed in 1998. From 1995 to 1998 Mr. Miller was President of Rothschild Ventures Inc., the private investment unit of Rothschild North America, a subsidiary of the worldwide Rothschild Group. He was also President and CEO of Equitable Capital Management Corporation, an investment advisory subsidiary of The Equitable, where he worked for 24 years beginning in 1969. From February 2005 through January 2009, when he resigned, Mr. Miller served as a director of CKX, Inc. The Board of Directors believes that Mr. Miller’s venture capital and financial experience will benefit the Company, and have selected him as a director for that reason.

Joseph F. Rascoff

Joseph F. Rascoff was appointed as a Non-Executive Board Member of the Company on February 15, 2011. Mr. Rascoff is the co-founder of The RZO Companies, and since 1978 has been representing artists in recording contract negotiations, music publishing administration, licensing, royalty compliance, and worldwide touring. From 1974 to 1978, Mr. Rascoff was a partner in Hurdman and Cranstoun, a predecessor accounting firm of KPMG. Mr. Rascoff has been an Advisory Director of Van Wagner Communications LLC since 2005. In 2009, he became a consultant to Live Nation Entertainment, Inc. He has served as a Trustee of The University of Pennsylvania (1992-1996), is on the Board of Overseers of the University of Pennsylvania Libraries, and is a Trustee and former President of the Board of Trustees of The Bishop’s School, La Jolla, California. The Board of Directors believes that Mr. Rascoff’s business and entertainment experience and financial expertise will benefit the Company and, therefore, has selected him as a director.

Harriet Seitler

Harriet Seitler was appointed as a Non-Executive Board Member of the Company on February 15, 2011. Ms. Seitler is currently Executive Vice President for Oprah Winfrey’s Harpo Studios. Joining Harpo over 15 years ago in 1995, Ms. Seitler is responsible for marketing, development of strategic brand partnerships, and digital extensions for the Oprah Winfrey Show. Ms. Seitler was also instrumental in the development and launch of “The Dr. Oz Show”. Prior to working at Harpo, Ms. Seitler served as Vice President, Marketing at ESPN from 1993 to 1994. She was responsible for the branding of ESPN, SportsCenter, as well as the branding and launch of ESPN2. Ms. Seitler began her career at MTV Networks serving from 1981 to 1993 in marketing and promotions, rising to the rank of Senior Vice President. At MTV, Ms. Seitler pioneered branded entertainment initiatives and built major new franchises such as the MTV Movie Awards and MTV Sports. Ms. Seitler has served on the Board of Directors of The Oprah Winfrey Foundation, and is currently a board member of Sharecare.com. The Board of Directors selected Ms. Seitler as a director because it believes that her experience in TV and digital media, sponsorships and marketing will benefit the Company.

Chris Stephenson

Chris Stephenson, the Company’s Chief Marketing Officer, was most recently Chief Marketing Officer at Interscope Records, part of Universal Music Group and home to Lady Gaga, Eminem, U2 and many other multi-platinum artists, from January 2010 to May 2011. Previously, Stephenson was General Manager, Global Marketing for Microsoft Entertainment, where he led product marketing in the development of the software and hardware businesses.

Stephenson was also Senior Vice President of Marketing at House of Blues Entertainment, focused on brand development and online content. Before this, based in London, Stephenson was Senior Vice President of Marketing for MTV and VH1 and ran multiple award-winning advertising campaigns internationally. He also developed multiple sponsor-driven programs including the European Music Awards and was an early digital pioneer at MTV Networks.

EXECUTIVE COMPENSATION

On February 15, 2011 we entered into an employment agreement with Janet Scardino for her services as Chief Executive Officer. The term of the agreement is for three years, with automatic renewal for one additional three-year term, unless either party provides written notice of intention not to renew or unless sooner terminated. Ms. Scardino’s base salary is $500 (payable in cash or shares of common stock) to be increased by at least five percent annually. She is to receive additional compensation at the sole discretion of the board of directors in the form of additional cash bonus and/or grant of restricted stock, stock options or other equity award. Ms. Scardino will receive the following minimum grants of restricted stock: (i) 750,000 shares (subject to adjustment for stock dividends, subdivisions, reclassifications, recapitalizations and other similar events) of the Company’s common stock at the beginning of the first year of employment and (ii) 250,000 shares (subject to adjustment for stock dividends, subdivisions, reclassifications, recapitalizations and other similar events) of common stock at the beginning of each employment year of the initial term.

On February 16, 2011 we entered into an employment agreement with Robert F.X. Sillerman for his services as Executive Chairman of the board of directors and Director. The term of the agreement is for five years. Mr. Sillerman’s base salary is $1,000 (payable in cash or shares of common stock) to be increased annually by the greater of: (i) five percent or (ii) the current base salary multiplied by the percentage increase in the Consumer Price Index published by the Federal Bureau of Labor Statistics for the New York, New York metropolitan area during the previous twelve calendar months. He is to receive additional compensation at the sole discretion of the board of directors in the form of additional cash bonus and/or grant of restricted stock, stock options or other equity award. Mr. Sillerman will receive a minimum grant of restricted stock in the amount of 5,000,000 shares (subject to adjustment for stock dividends, subdivisions, reclassifications, recapitalizations and other similar events) of the Company’s common stock at the beginning of the first year of employment.

The Company entered into an employment agreement with Chris Stephenson, pursuant to which Mr. Stephenson shall serve as Chief Marketing Officer of the Company. The initial term of Mr. Stephenson’s employment is three years. The agreement requires that Mr. Stephenson devote his full working time to the Company. During the term of the agreement, the Company shall pay Mr. Stephenson an initial annualized base salary equal to $400. Mr. Stephenson shall be entitled to a restricted share grant of 250,000 shares of the Company’s common stock at the beginning the first employment year, 1/3 of which will vest at the end of each employment year (assuming Mr. Stephenson is still employed by the Company) and 100,000 shares of the Company’s common stock at the beginning of each year of Mr. Stephenson’s employment term, 1/3 of which vest at the end of each employment year (assuming Mr. Stephenson is still employed by the Company).

The foregoing descriptions of the employment agreements with Ms. Scardino and Messrs. Sillerman and Stephenson are not complete and are qualified in their entireties by reference to the complete text of the Agreements. Copies of the employment agreements with Ms. Scardino and Mr. Sillerman are filed as Exhibits 10.3 and 10.4 to the Company’s Form 8-K filed with the Securities and Exchange Commission (the “SEC”) on February 16, 2011, and a copy of the employment agreement with Mr. Stephenson is filed as Exhibit 13.1 to the Company’s quarterly report on Form 10-Q filed with the SEC on May 12, 2011, each of which is incorporated herein by reference.

2011 Summary Compensation Table

The table below summarizes the compensation earned for services rendered to the Company for the fiscal years ended June 30, 2011 and June 30, 2010 by our Chief Executive Officer and the two other most highly compensated executive officers of the Company (the “named executive officers”) who served in such capacities at the end of the fiscal year ended June 30, 2011. Except as provided below, none of our named executive officers received any other compensation required to be disclosed by law or in excess of $10 annually.

Name and Principal Position	Fiscal Year	Salary ($)	Bonus ($)	Stock Awards ($)(1)	Option Awards ($)	All Other Compensation ($)	Total ($)
Robert F.X. Sillerman	2011	379		85,000		0.65	85,380
Executive Chairman	2010	--	--	--	--	--	--

Janet Scardino	2011	189		25,500		2	25,691
Chief Executive Officer	2010	--	--	--	--	--	--
Christopher Stephenson	2011	67		3,588		0.3	3,655

(1) Amounts equal to the fair value of the stock at the grant date.

Outstanding Equity Awards at June 30, 2011

Option Awards					Stock Awards
Name	Number of Securities Underlying Unexercised Options (#)	Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#)	Option Exercise Price ($)	Option Expiration Date	Number of Shares or Units of Stock that Have Not Vested (#)	Market Value of Shares or Units of Stock that Have Not Vested ($)	Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights that Have Not Vested (#)	Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights that Have Not Vested ($)
Robert F.X. Sillerman (1)	--	--	--	--	5,000,000	85,000	--	--
	--	--	--	--	--	--	--	--
Janet Scardino (1) (2)	--	--	--	--	1,500,000	25,500	--	--
	--	--	--	--	--	--	--	--
Christopher Stephenson (1) (3)	--	--	--	--	550,000	3,588	--	--

(1)		No options have been granted. For information regarding restricted stock units, see also Note 9 to our audited Consolidated Financial Statements, Share-Based Payments.
(2)		Includes 1,000,000 shares granted at the commencement of the first employment year, 250,000 shares at the commencement of the second employment year, and 250,000 shares at the commencement of the third employment year.
(3)		Includes 350,000 shares granted at the commencement of the first employment year, 100,000 shares at the commencement of the second employment year, and 100,000 shares at the commencement of the third employment year.

Potential Payments upon Termination without Cause or Change-in-Control

The following disclosure is for our Executive Chairman, Mr. Sillerman.

Upon a (i) termination by our Company without “cause” or (ii) a “constructive termination without cause” the employment agreement for Mr. Sillerman provides for the following benefits: (a) payments equal to (x) the cash equivalent of three years’ base salary at the rate in effect on the date of termination (or immediately prior to a constructive termination due to salary reduction) and (y) three times the average of all cash and equity bonuses paid during the three years prior to the termination, or if no annual bonuses were paid, a payment in the amount of $100 per year for each year a cash bonus was not paid and $100 per year for each year an equity grant was not made, (b) continued eligibility to participate in any benefit plans of our Company for one year, plus (c) accelerated vesting of any stock options, restricted stock or other equity based instruments previously issued to the executive officer. Additionally, upon termination by our company for a “change of control”, Mr. Sillerman will receive the benefits set forth in (a), (b), and (c) above, plus all options to purchase the Company’s capital stock shall remain exercisable for the full maximum term of the original option grant or ten years from the closing of the change of control transaction, whichever is greater. As a result, Mr. Sillerman would receive benefits valued at $48,875 if a change of control

were to occur as of June 30, 2011. In addition, in the event that the aggregate of such payments would constitute a “parachute payment” under the rules set forth in Section 280G of the Internal Revenue Code of 1986, then the Company shall also pay Mr. Sillerman a gross-up payment such that after the imposition of Federal, State and local income taxes, Mr. Sillerman would be entitled to retain the foregoing amount. Such additional amount is $15,498.

The following disclosure is for our Chief Executive Officer, Ms. Scardino.

Upon a (i) termination by our Company without “cause” or (ii) a “constructive termination without cause” or (iii) a “change of control”, the employment agreement for Ms. Scardino provides for the following benefits: (a) payments equal to (x) the cash equivalent of six months’ base salary at the rate in effect on the date of termination (or immediately prior to a constructive termination due to salary reduction) and (y) a pro-rated annual cash bonus based on the annual cash bonus paid to Ms. Scardino for the immediately preceding employment year or $125, whichever is greater, (b) continued eligibility to participate in any benefit plans of our Company for one year, plus (c) accelerated vesting of any stock options, restricted stock or other equity based instruments previously issued to the executive officer. However, in the event that any amount payable to Ms. Scardino upon a “change of control” would be nondeductible by the Company under the rules set forth in Section 280G of the Internal Revenue Code of 1986, then the amount payable to Ms. Scardino shall be reduced to the maximum amount that would be payable but which would remain deductible under Section 280G of the IRC. If a change of control were to occur as of June 30, 2011, Ms. Scardino would receive $13,975.

The following disclosure is for our Chief Marketing Officer, Mr. Stephenson.

Upon a (i) termination by our Company without “cause” or (ii) a “constructive termination without cause” or (iii) a “change of control”, the employment agreement for Mr. Stephenson provides for the following benefits: (a) payments equal to (x) the cash equivalent of six months’ base salary at the rate in effect on the date of termination (or immediately prior to a constructive termination due to salary reduction) and (y) a pro-rated annual cash bonus based on the annual cash bonus paid to Mr. Stephenson for the immediately preceding employment year or $100, whichever is greater, (b) continued eligibility to participate in any benefit plans of our Company for one year, (c) accelerated vesting of any stock options, restricted stock or other equity based instruments previously issued to the executive officer, plus (d) a $75 relocation allowance. However, in the event that any amount payable to Mr. Stephenson upon a “change of control” would be nondeductible by the Company under the rules set forth in Section 280G of the Internal Revenue Code of 1986, then the amount payable to Mr. Stephenson shall be reduced to the maximum amount that would be payable but which would remain deductible under Section 280G of the IRC. If a change of control were to occur as of June 30, 2011, Mr. Stephenson would receive $5,303.

Potential Payments upon Death or Disability

The following disclosure is for our continuing named executive officers, Mr. Sillerman, Ms. Scardino, and Mr. Stephenson.

The employment agreement of Mr. Sillerman provides for the following benefits in the event of his death: (a) payments equal to (x) the cash equivalent of three years’ base salary at the rate in effect on the date of termination (or immediately prior to a constructive termination due to salary reduction) and (y) three times the average of all cash and equity bonuses paid during the three years prior to the termination, or if no annual bonuses were paid, a payment in the amount of $100 per year for each year a cash bonus was not paid and $100 per year for each year an equity grant was not made, (b) continued eligibility to participate in any benefit plans of our Company for one year, plus (c) accelerated vesting of any stock options, restricted stock or other equity based instruments previously issued to him. The approximate amount that would be due to the estate of Mr. Sillerman in the event of his death as of June 30, 2011 would be $48,875.

The employment agreement of Ms. Scardino provides for : (a) payments equal to (x) the cash equivalent of one year’s base salary at the rate in effect on the date of termination (for death; for disability, the executive officer would receive payments equal to 75% of one year’s base salary from the date of disability to the end of the term, reduced by the disability insurance policy benefits) and (y) a pro-rated annual cash bonus based on the annual cash bonus paid to the executive officer for the immediately preceding employment year or $125, whichever is greater, (b) continued eligibility to participate in any benefit plans of our Company for one year, plus (c) accelerated vesting

of any stock options, restricted stock or other equity based instruments previously issued to the executive officer (if disability occurs after the end of the first Employment Year, all stock options vest). The approximate amount that would be due to the estate of Ms. Scardino in the event of her death as of June 30, 2011 would be $14,225.

The employment agreements of Mr. Stephenson provides for : (a) payments equal to (x) the cash equivalent of one year’s base salary at the rate in effect on the date of termination (for death; for disability, the executive officer would receive payments equal to 75% of one year’s base salary from the date of disability to the end of the term, reduced by the disability insurance policy benefits) and (y) a pro-rated annual cash bonus based on the annual cash bonus paid to the executive officer for the immediately preceding employment year or $100, whichever is greater, (b) continued eligibility to participate in any benefit plans of our Company for one year, plus (c) accelerated vesting of any stock options, restricted stock or other equity based instruments previously issued to the executive officer (if disability occurs after the end of the first Employment Year, all stock options vest). The approximate amount that would be due to the estate of Mr. Stephenson in the event of his death as of June 30, 2011 would be $5,503.

Compensation of Non-Employee Directors

Employee directors do not receive any separate compensation for their board service. Non-employee directors receive the compensation described below.

Each of our non-employee directors receives an annual fee of $80, which includes attendance fees for four meetings a year. Each non-employee director will also receive an additional $0.75 for attendance at additional Board Meetings (over four). The chairperson of the Audit Committee will receive an additional fee of $15 per annum and the chairpersons of each other committee will receive an additional fee of $5 per annum. Each of the other members of the Audit Committee will receive $3 per annum and the other members of each of the other committees will receive a fee of $1 per annum. All fees described above will be payable in cash for calendar year 2011. After 2011, directors can elect to receive up to 100% of their compensation in cash or equity or any combination, and can elect to take their payments in any form of any equity instrument available and permissible under the Company’s stock incentive plan. All equity will be priced based on the closing price on the last day of each fiscal quarter. Election with respect to any quarterly payment in equity must be made before the end of the quarter.

The Company pays non-employee directors for all compensation in lieu of cash on a quarterly basis and prices all grants of Common Stock at the closing price on the last day of the quarter for which such fees relate or options therefor on the date granted. During 2011, fees earned were paid.

The total compensation received by our non-employee directors during the fiscal year ended June 30, 2011 is shown in the following table (1):

Name	Fees Earned or Paid in Cash ($)	Stock Awards ($)	Option Awards ($)	All Other Compensation ($)	Total ($)

Benjamin Chen (1)	30	---	---	---	30
Peter Horan	32	---	---	---	32
John D. Miller	35	---	---	---	35
Joseph Rascoff	36	---	---	---	36
Harriet Seitler	30	---	---	---	30

(1) Does not include $72 earned by Mr. Chen as a consultant to the Company.

Compensation Committee Interlocks and Insider Participation

No member of our Compensation Committee was at any time during the past fiscal year an officer or employee of us, was formerly an officer of us or any of our subsidiaries or has an immediate family member that was an officer

or employee of us or had any relationship requiring disclosure under Item 13. Certain Relationships, Related Transactions, and Director Independence. ”

During the last fiscal year, none of our executive officers served as:

• a member of the compensation committee (or other committee of the board of directors performing equivalent functions or, in the absence of any such committee, the entire board of directors) or another entity, one of whose executive officers served on our compensation committee;

• a director of another entity, one of whose executive officers served on our compensation committee; and

• a member of the compensation committee (or other committee of the board of directors performing equivalent functions or, in the absence of any such committee, the entire board of directors) of another entity, one of whose executive officers served as a director of us.

CORPORATE GOVERNANCE

Board Composition

Our directors are elected to serve until the next annual meeting of stockholders and until their respective successors have been duly elected and qualified.

On February 11, 2011, our board of directors increased the number of members of our board from two to three and elected Robert F.X. Sillerman as Executive Chairman and Director, Mitchell J. Nelson as Executive Vice President, General Counsel and Director and Michael Burrows as Director and accepted the resignation of Jack L. Howard as Chairman of the Board and Chief Executive Officer and Ronald W. Hayes as director of the Company.

On February 22, 2011, our board increased the number of members of our board from three to eight and elected Janet Scardino as Chief Executive Officer and Director, and Benjamin Chen, Peter Horan, John D. Miller, Joseph F. Rascoff and Harriet Seitler to serve as members of our board and accepted the resignation of Michael Burrows.

On February 24, 2011, the Board of Directors approved the formation of the Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee. Our board appointed Mr. Rascoff, Mr. Horan and Mr. Miller to serve as members of the Audit Committee; Mr. Miller and Mr. Horan to serve as members of the Compensation Committee; and Mr. Miller and Ms. Seitler to serve as members of the Nominating and Corporate Governance Committee.

Election of Directors

Our bylaws provide that all elections for the board of directors will be decided by a plurality of the votes cast by the stockholders of the holders of shares entitled to vote.

Director Independence

Our board has determined that Benjamin Chen, Peter Horan, John D. Miller, Joseph F. Rascoff and Harriet Seitler satisfy the criteria for independence under the SEC rules for independence of directors and of committee members.

Audit Committee

On February 24, 2011, our board established an Audit Committee. The Audit Committee has adopted a written charter, a printed copy of which is available to any shareholder requesting a copy by writing to: Function(x) Inc. Attn: Corporate Governance, 902 Broadway, 11th Floor, New York, New York 10010. The Audit Committee did not hold any meetings during 2010. Messrs. Joseph F. Rascoff, Peter Horan and John D. Miller are currently serving as members of the Audit Committee.

The purpose of the Audit Committee is as follows:

To oversee the accounting and financial reporting processes of the Company and audits of the financial statements of the Company, in consultation with the Chief Accounting Officer and senior accounting staff of the Company.

To provide assistance to the Board of Directors with respect to its oversight of:

(a)

The integrity of the Company’s financial statements;

(b)

The Company’s compliance with legal and regulatory requirements, including an evaluation of the performance and competence of the Company’s legal personnel as they relate to the audit function and general maintenance of corporate financial standards;

(c)

The independent auditor’s qualifications and independence;

(d)

The performance of the Company’s internal audit function and independent auditors; and

(e)

An evaluation of the performance and competence of the Company’s senior financial employees, including the Chief Accounting Officer.

Compensation Committee

On February 24, 2011, our board established a Compensation Committee. The Compensation Committee has adopted a written charter, a printed copy of which is available to any shareholder requesting a copy by writing to: Function(x) Inc. Attn: Corporate Governance, 902 Broadway, 11th Floor, New York, New York 10010. The Compensation Committee did not hold any meetings during 2010. The current members of the Compensation Committee are Messrs. John D. Miller and Peter Horan.

The purpose of the Compensation Committee is as follows:

To discharge the responsibilities of the Board of Directors relating to the Company’s compensation programs and compensation of the Company’s executives; and

To produce an annual report on executive compensation for inclusion in the Company’s annual proxy statement, if and when required, in accordance with applicable rules and regulations of the NASDAQ Stock Market, Securities and Exchange Commission, and other regulatory bodies.

Nominating and Corporate Governance Committee

On February 24, 2011, our board established a Nominating and Corporate Governance Committee. The Nominating and Corporate Governance Committee has adopted a written charter, a printed copy of which is available to any shareholder requesting a copy by writing to: Function(x) Inc. Attn: Corporate Governance, 902 Broadway, 11th Floor, New York, New York 10010. The Nominating and Corporate Governance Committee did not hold any meetings during 2010. Mr. John D. Miller and Ms. Harriet Seitler are the current members of the Nominating and Corporate Governance Committee.

The purpose of the Nominating and Corporate Governance Committee is as follows:

To identify individuals qualified to become Board members and to select, or to recommend that the Board of Directors select, the director nominees for the next annual meeting of stockholders;

To develop and recommend to the Board of Directors a set of corporate governance principles applicable to the Company; and

To oversee the selection and composition of committees of the Board of Directors and, as applicable, oversee management continuity planning processes.

Code of Business Conduct and Ethics

Our board of directors adopted a Code of Business Conduct and Ethics that applies to all directors and employees of the Company. The Code of Business Conduct and Ethics addresses, among, other things, honesty and ethical conduct, compliance with laws, rules and regulations, conflicts of interest, insider trading, corporate opportunities, competition and fair dealing, discrimination and harassment, health and safety, record keeping, confidentiality, protection and proper use of company assets, payments to government personnel, waivers of the Code of Business Conduct and Ethics, reporting of illegal or unethical behavior and compliance procedures. In addition to the Code of Business Conduct and Ethics, the Chief Executive Officer and senior financial officers are

subject to the additional specific policies set forth in the Code of Ethics for the Chief Executive Officer and senior financial officers.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Asset Contribution Agreement

At the closing of the Recapitalization, as discussed more fully above in the section entitled “Our Business,” the Company entered into an asset contribution agreement with SIC, an affiliate of Robert F.X. Sillerman our Executive Chairman, whereby SIC assigned certain intellectual property assets used in its business to the Company in exchange for an agreement by the Company to reimburse SIC for expenses incurred in connection with the development of such intellectual property assets and its related business, whenever incurred, at or after the closing, in an aggregate amount not to exceed $2,000. Pursuant the asset contribution agreement, $1,300 was reimbursed. Because such transaction was subject to certain rules regarding “affiliated” transactions, the Audit Committee and a majority of the independent members of the board of directors approved such reimbursement.

Debt Owed to J. Howard Inc.

J. Howard Inc. has been supporting the daily operations of the Company since 2007. As of December 31, 2010, the Company owed J. Howard, Inc. $82 as a result thereof, which amount was increased as of the completion of the Recapitalization on February 15, 2011 to $171. As part of the Recapitalization, the Company issued 250,000 shares (at a fair market value of $0.03 per share) to J. Howard, Inc., a director and officer of the Company prior to the Recapitalization, and its designees (which included former directors of the Company) in connection with partially extinguishing outstanding debt owed to J. Howard, Inc. The remaining debt of $163 was satisfied on February 15, 2011 by payment to J. Howard, Inc. in such amount. In addition, J. Howard, Inc. was paid $37 to be used for payment of expenses incurred in connection with the Recapitalization on behalf of the Company.

Recapitalization Notes and Expenses

In connection with the Recapitalization, Robert F.X. Sillerman (and his spouse and entities controlled by him), and Mitchell Nelson, each executive officers of the Company, executed promissory notes in accordance with their subscription agreements for the payment of the purchase price of the shares, in the amounts of $3,242 and $10, respectively. Each note is an unsecured five-year note with interest accruing at the annual rate equal to the long-term Applicable Federal Rate in effect as of the date of the Recapitalization Agreement (which was 4.15% per annum). Mr. Nelson satisfied his note on April 1, 2011. The notes are due five years after issuance, with interest accrued at the rate of 4.15% per annum, and have been presented as a reduction of the related paid in capital in the accompanying financial statements.

In addition, Sillerman Investment Company, LLC was relieved of the obligation to pay $200 in connection with the initial structure of the Recapitalization to J. Howard, Inc. as reimbursement of advances made by J. Howard, Inc. to the Company to support its daily obligations since 2007. The obligation arose from the initial proposal that investors would invest directly in Sillerman Investment Company, LLC prior to the Recapitalization. When the structure of the Recapitalization changed, resulting in investments directly in the Company in connection with the Recapitalization, the obligation to pay J. Howard, Inc. became the obligation of the Company. Because such transaction involved a related party, the Audit Committee of the Company’s Board of Directors approved and the independent members of the Board ratified the payment of the obligation by the Company.

Shared Services Agreement

The shared services agreement provides, in general, for sharing on a 50/50 basis of the applicable support provided by either company to Mr. Nelson in connection with his capacity as General Counsel, and an allocation generally based on the services provided by Mr. Nelson, which are initially estimated to be divided evenly between the companies. The Company will initially be responsible for advancing the salary to Mr. Nelson for both

companies and will be reimbursed by Circle for such salary and benefits (but not for any bonus, option or restricted share grant made by either company, which will be the responsibility of the company making such bonus, option or restricted share grant). The agreement provides for the President of each Company to meet periodically to assess whether the services have been satisfactorily performed and to discuss whether the allocation has been fair. The Audit Committee of each company’s Board of Directors will then review and, if appropriate, approve the allocations made and whether payments need to be adjusted or reimbursed, depending on the circumstances.

Because this transaction is subject to certain rules regarding “affiliate” transactions, the Audit Committee and a majority of the independent members of the Company’s Board of Directors have approved the shared services agreement. This is deemed to be an affiliate transaction because Mr. Sillerman is Chairman and Mr. Nelson is Executive Vice President and General Counsel of Circle.

For the year ended June 30, 2011, the Company incurred and billed Circle $107 for support, consisting primarily of legal and administrative services. These services provided were approved by Circle’s Audit Committee and the Company’s Audit Committee and the related fees were paid.

In addition, certain of the Company’s accounting personnel may provide personal accounting services to our Executive Chairman, Robert F.X. Sillerman. To the extent such services are rendered, Mr. Sillerman shall reimburse the Company therefor. The reimbursement for any such services shall be reviewed by the Company’s Audit Committee. For the year ended June 30, 2011, $18 was incurred and paid by Mr. Sillerman for such services.

Director Compensation

Each of our non-employee directors will receive an annual fee of $80, which includes attendance fees for four meetings a year. Each non-employee director will also receive an additional $.75 for attendance at additional Board Meetings (over four). The chairperson of the Audit Committee will receive an additional fee of $15 per annum and the chairpersons of each other committee will receive an additional fee of $5 per annum. Each of the other members of the Audit Committee will receive $3 per annum and the other members of each of the other committees will receive a fee of $1 per annum. All fees described above will be payable in cash for calendar year 2011. After 2011, directors can elect to receive up to 100% of their compensation in cash equity and can elect to take their payments in any form of any equity instrument available and permissible under the Company’s stock incentive plan. All equity will be priced based on the closing price on the last day of each fiscal quarter. Election with respect to any quarterly payment in equity must be made before the end of the quarter.

Consultant

Benjamin Chen, an independent director, is acting as a consultant to the Company in the area of technology, systems architecture and technical operations. He has been paid $72 for his services through June 30, 2011.

NetJets

The Company executed an agreement with NetJets to bundle a 3.125% fractional share of a G-IV jet owned by Mr. Sillerman with a value of $336 with a new 6.25% fractional share of a G-IV jet which was purchased from NetJets by the Company. The purchase price for the 6.25% interest was $1,175, payable $235 upon signing and the balance of $940 financed with interest at 6% per annum, monthly payments of $9 and, a five-year balloon of $661. Monthly management fees (aggregate for both shares) are approximately $26. Based on the anticipated travel schedule for Mr. Sillerman and the anticipated residual value of the plane at the end of the five-year period of usage, the Company is expected to realize cost savings. The Company’s Audit Committee approved entering into this related party transaction and on June 17, 2011, the independent members of the Company’s Board of Directors approved the transaction. The Company accounted for the transaction by recording the interests as investment assets and the related debt amounts to Mr. Sillerman and NetJets.

Private Placement

On August 25, 2011, the Company completed the placement of 14,000,000 units (the “Units”), each Unit consisting of (i) one (1) share of common stock, $0.001 par value per share of the Company and (ii) one (1) detachable three (3) year warrant to purchase one (1) share of common stock of the Company with an exercise price of $4.00 per warrant share, at a purchase price of $2.50 per Unit, for an aggregate purchase price of $35,000 to accredited and institutional investors. The Units issued in such placement were exempt from registration under the Securities Act, pursuant to an exemption from registration for transactions not involving a public offering under Section 4(2) of the Securities Act, and the safe harbors for sales under Section 4(2) provided by Regulation D promulgated pursuant to the Securities Act. Transfer of the shares was restricted by the Company in accordance with the requirements of the Securities Act. Sillerman Investment Company, LLC purchased, in the aggregate, $11,376 worth of Units in the placement. The Company will take a compensation charge in the first quarter of approximately $17,162 as a result of the foregoing, resulting from selling shares to executives below fair value.

The foregoing description of the Units is not complete and is qualified in its entirety by reference to the full text of the agreement, a copy of which is filed as Exhibits 10.1 to the Company’s Form 8-K filed with the SEC on August 26, 2011 and incorporated herein by reference.

CHANGE IN ACCOUNTANTS

On February 24, 2011, the Company approved the engagement of BDO USA, LLP ("BDO") as the Company's independent registered public accounting firm hired to re-audit the Company’s financial statements for the years ended December 2009 and 2010, and to audit the Company’s financial statements for the period ending June 30, 2011. During the years ended December 31, 2009 and December 31, 2010, and through February 25, 2011, neither the Company nor anyone on its behalf has consulted with BDO with respect to either (i) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company's financial statements, and neither a written report nor oral advice was provided to the Company that BDO concluded was an important factor considered by the Company in reaching a decision as to any accounting, auditing or financial reporting issue; or (ii) any matter that was either the subject of a disagreement (as defined in Item 304(a)(1)(iv) of Regulation S-K and the related instructions to Item 304 of Regulation S-K) or a reportable event (as defined in Item 304(a)(1)(v) of Regulation S-K).

On February 25, 2011, the board of directors dismissed Radin, Glass & Co., LLP ("RGC") as the Company's independent registered public accounting firm. The reports of RGC on the Company's financial statements for the years ended December 31, 2009 and December 31, 2010 did not contain an adverse opinion or disclaimer of opinion, and were not qualified or modified as to uncertainty, audit scope or accounting principles. During the years ended December 31, 2009 and December 31, 2010 and through February 24, 2011, there were no disagreements (as defined in Item 304(a)(1)(iv) of Regulation S-K and the related instructions to Item 304 of Regulation S-K) with RGC on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of RGC, would have caused RGC to make reference to the subject matter of the disagreements in its reports on the Company's financial statements for such years. During the years ended December 31, 2009 and December 31, 2010 and through February 25, 2011, there were no reportable events (as defined in Item 304(a)(1)(v) of Regulation S-K).

CHANGE OF FISCAL YEAR

On February 24, 2011, the board of directors of the Company approved a change to the Company's fiscal year end from December 31 to June 30.

SELLING STOCKHOLDERS

The following table sets forth certain information regarding the selling stockholders and the shares offered by them in this prospectus. Beneficial ownership is determined in accordance with the rules of the SEC. In computing the number of shares beneficially owned by a selling stockholder and the percentage of ownership of such stockholder, shares of common stock underlying shares of warrants held by such stockholder that are

exercisable within 60 days of October 7, 2011 are included. Such shares, however, are not deemed outstanding for the purpose of computing the percentage ownership of any other selling stockholder. Each selling stockholder’s percentage of ownership in the following table is based upon 149,142,024 shares of common stock outstanding as of October 7, 2011.

On February 16, 2011, the Company issued 13,232,597 shares of common stock to Adage at a price of approximately $0.76 per share, and 940,000 shares of common stock to KPLB at a price of approximately $0.53 per share. The shares of common stock issued in such placements were exempt from registration under the Securities Act, pursuant to an exemption from registration for transactions not involving a public offering under Section 4(2) of the Securities Act, and the safe harbors for sales under Section 4(2) provided by Regulation D promulgated pursuant to the Securities Act. No advertising or general solicitation was employed in offering the securities. Transfer of the shares was restricted by the Company in accordance with the requirements of the Securities Act.

The selling stockholders acquired the securities being registered for resale in this prospectus in a subscription agreement, dated February 7, 2011, by and between us and the selling stockholders, pursuant to which we agreed to issue to the selling stockholders an aggregate of 14,422,597 shares of common stock. The aggregate purchase price was approximately $10,500.

In connection with the Recapitalization, as discussed more fully above in the section entitled “Our Business,” we issued warrants to purchase an aggregate of 100,000 shares to Berenson Investments LLC. Berenson & Company, LLC, an affiliate of Berenson Investments LLC, was the financial advisor to Sillerman in connection with the Recapitalization. The initial exercise price of the warrants is $0.80 per share, subject to certain adjustments set forth therein, including adjustments in the event of certain future financing transactions conducted by us or in the event of a stock dividend or stock split. The warrants are exercisable when issued and have a term of five years thereafter. On May 9, 2011, Berenson Investments LLC exercised the warrant and paid $80 for 100,000 shares of our common stock.

In connection with the transaction, we granted Adage Capital Partners L.P. registration rights, pursuant to which we agreed to prepare and file a registration statement covering the resale of the common stock with the Securities and Exchange Commission within 90 days of the transaction. Additionally, we granted piggyback rights to KPLB LLC, Berenson Investments LLC, Walter P. Carucci, Ronald W. Hayes, J. Howard, Inc. and EMH Howard.

None of the selling stockholders are members of management, employees or suppliers of ours or our affiliates. Jack L. Howard served as the Company’s Chairman of the board of directors and as Chief Executive Officer, and Ronald W. Hayes served as a director of the Company, during the fiscal year ended December 31, 2010. All information with respect to share ownership has been furnished by the selling stockholders. The shares being offered are being registered to permit public secondary trading of such shares and each selling stockholder may offer all or part of the shares it owns for resale from time to time pursuant to this prospectus. In addition, none of the selling stockholders has any family relationships with our officers, directors or controlling stockholders. Furthermore, based on representations made to us by the selling stockholders, no selling stockholder is a registered broker-dealer. Berenson Investments LLC is an affiliate of Berenson & Company, LLC, a registered broker-dealer.

The term “selling stockholders” also includes any transferees, pledgees, donees, or other successors in interest to the selling stockholders named in the table below. Unless otherwise indicated, to our knowledge, each person named in the table below has sole voting and investment power (subject to applicable community property laws) with respect to the shares of common stock set forth opposite such person’s name. We will file a supplement to this prospectus (or a post-effective amendment hereto, if necessary) to name successors to any named selling stockholders who are able to use this prospectus to resell the securities registered hereby.

Any selling stockholders who are affiliates of broker-dealers and any participating broker-dealers may be deemed to be “underwriters” within the meaning of the Securities Act, and any commissions or discounts given to any such selling stockholder or broker-dealer may be regarded as underwriting commissions or discounts under the

Securities Act. The selling stockholders have informed us that they do not have any agreement or understanding, directly or indirectly, with any person to distribute their common stock.

Name of Beneficial Owner	Shares Beneficially Owned Before the Offering	Maximum Number of Shares to be Sold	Beneficial Shares After the Offering (1)	Percentage of Common Stock Owned After Offering (1)

Adage Capital Partners L.P. (2)	13,232,597	13,232,597	0	*
KPLB LLC (3)	940,000	940,000	0	*
Berenson Investments LLC(4)	100,000	100,000	0	*
Walter P. Carucci	95,060	50,000	45,060	*
Ronald W. Hayes	54,834	50,000	4,834	*
J. Howard, Inc. (5)	75,000	75,000	0	*
EMH Howard LLC (6)	270,501	75,000	195,501	*

* Less than 1%

(1) Assumes that all securities offered are sold.

(2) Each of Robert Atchinson and Phillip Gross, the Managing Directors of Adage Capital Partners L.P., have voting power and investment power over securities held by Adage Capital Partners L.P.

(3) Lisbeth R. Barron has voting power and investment power over securities held by KPLB LLC. Lisbeth R. Barron is an employee of Berenson & Company, LLC. Berenson & Company, LLC, an affiliate of Berenson Investments LLC, was the financial advisor to Sillerman in connection with the Recapitalization.

(4) Includes an aggregate of 100,000 shares underlying warrants to purchase shares of our common stock. Jeffrey L. Berenson has voting power and investment power over securities held by Berenson Investments LLC.

(5) Jack L. Howard has voting power and investment power over securities held by J. Howard, Inc.

(6) Jack L. Howard has voting power and investment power over securities held by EMH Howard LLC.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Securities Authorized for Issuance under Equity Compensation Plans

The table below shows information with respect to our Executive Equity Incentive Plan as of October 7, 2011. For a description of our Executive Equity Incentive Plan, see Note 9 to our audited Consolidated Financial Statements.

Plan Category		(a) Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights				(b) Weighted Average Exercise Price of Outstanding Options, Warrants and Rights (1)(2)				(c) Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a))
		(#)				($)				(#)

Equity compensation plans approved by security holders	12,670,000	$	3.28	17,330,000

Equity compensation plans not approved by security holders	-		-	-

(1) 7,875,000 restricted stock units were granted on various dates of grant and vest 1/3 on the first, second and third anniversary of the date of grant. There is no exercise price.

(2) 4,795,000 stock options were granted to directors, officers, and employees at exercise prices between $2.50 and $5.00 per share. The options vest over three or four year periods and not are exercisable until August 2012, except that 312,500 stock options granted to directors are exercisable now at $2.50 per share.

Security Ownership of Certain Beneficial Owners and Management

The following table sets forth certain information regarding the beneficial ownership of shares of our common stock as of October 6, 2011 by:

•	each person or entity known by us to beneficially own more than 5% of the outstanding shares of our common stock,
•	each of our named executive officers;
•	each of our directors; and
•	all of our directors and executive officers, named as a group.

Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to the securities. Unless otherwise noted, each beneficial owner has sole voting and investing power over the shares shown as beneficially owned except to the extent authority is shared by spouses under applicable law. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, any shares of common stock subject to common stock purchase warrants or stock options held by that person that are exercisable as of October 7, 2011 or will become exercisable within 60 days thereafter are deemed to be outstanding, while such shares are not deemed outstanding for purposes of computing percentage ownership of any other person.

As of October 7, 2011, there were 149,142,024 shares of the registrant’s common stock outstanding.

Name and Address of Beneficial Owner(1)	Shares Beneficially Owned		Percentage of Common Stock

Beneficial Owners of 5% or More
Robert F.X. Sillerman (2)		112,494,000		73.4	%

Adage Capital Management, L.P. (3)		13,232,597		8.9	%

Directors and Named Executive Officers (not otherwise included above):

Janet Scardino (4)		2,400,000		1.6	%
Benjamin Chen (5)		62,500		*
Peter C. Horan (6)		62,500		*
John D. Miller (7)		1,262,500		*
Mitchell J. Nelson (8)		324,000		*
Joseph Rascoff (9)		62,500		*

Chris Stephenson (10)	0	*
Harriet Seitler (11)	62,500	*
All directors and named executive officers as a group (9 people)	116,730,500	76.4	%

* Represents less than 1%.

(1) Except as otherwise set forth below, the business address and telephone number of each of the persons listed above is c/o Function(x) Inc., 902 Broadway, New York, New York 10010, telephone (212) 231-0092.

(2) Sillerman beneficially owns (i) directly 4,970,000 shares of Common Stock owned by Sillerman and indirectly 99,144,000 shares of Common Stock (consisting of (A) 92,534,000 shares of Common Stock owned by Sillerman Investment Company, LLC; (B) 4,190,000 shares of Common Stock issuable upon the exercise of warrants held by Sillerman Investment Company which are exercisable at $4.00 per share; (C) 5,400,000 shares of Common Stock owned of record by Laura Baudo Sillerman, Sillerman’s spouse and (D) 5,400,000 shares of Common Stock owned by a trust for the benefit of Sillerman’s descendants.

(3) Adage beneficially owns 13,232,597 shares of Common Stock. Its business address is 200 Clarendon Street, 52nd Floor, Boston, MA 02116, telephone (617) 867-2830.

(4) Scardino beneficially owns 2,400,000 shares of Common Stock.

(5) Chen beneficially owns 62,500 shares of Common Stock exercisable upon the exercise of stock options that are exercisable or will be exercisable within 60 days of October 7, 2011 at $2.50 per share.

(6) Horan beneficially owns 62,500 shares of Common Stock exercisable upon the exercise of stock options that are exercisable or will be exercisable within 60 days of October 7, 2011 at $2.50 per share.

(7) Miller beneficially owns (i) 62,500 shares of Common Stock exercisable upon the exercise of stock options that are exercisable or will be exercisable within 60 days of October 7, 2011 at $2.50 per share and (ii) 1,200,000 shares of Common Stock subject to a restrictive agreement with Robert F.X. Sillerman, 400,000 of which will be released on each of February 15, 2012, February 15, 2013 and February 15, 2014, under certain conditions.

(8) Nelson beneficially owns 324,000 shares of Common Stock.

(9) Rascoff beneficially owns 62,500 shares of Common Stock exercisable upon the exercise of stock options that are exercisable or will be exercisable within 60 days of October 7, 2011 at $2.50 per share.

(10) Stephenson beneficially owns 0 shares of Common Stock.

(11) Seitler beneficially owns 62,500 shares of Common Stock exercisable upon the exercise of stock options that are exercisable or will be exercisable within 60 days of October 7, 2011 at $2.50 per share.

DESCRIPTION OF CAPITAL STOCK

Common Stock

We are authorized to issue up to 300,000,000 shares of common stock, par value $0.001 per share.

Each outstanding share of common stock entitles the holder thereof to one vote per share on all matters. Corporate action to be taken by a stockholder vote may be authorized by the affirmative vote of a majority of the votes cast at a meeting of stockholders, or by written consent in lieu of a meeting, unless otherwise required by law. In general, stockholders do not have preemptive rights to purchase shares in any future issuance of our common stock.

All of the issued and outstanding shares of our common stock are duly authorized, validly issued, fully paid and non-assessable. To the extent that additional shares of our common stock are issued, the relative interests of existing stockholders will be diluted.

Preferred Stock

We are authorized to issue 1,000,000 shares of preferred stock, par value $0.001 per share. We may issue shares of preferred stock in one or more series as may be determined by our board of directors, who may establish the designation and number of shares of any series, and may determine, alter or revoke the rights, preferences, privileges and restrictions pertaining to any wholly unissued series (but not below the number of shares of that series then outstanding).

Warrants

On February 16, 2011, we issued a five year warrant for 100,000 shares with an exercise price of $0.80 per share to Berenson Investments LLC. Berenson & Company, LLC, an affiliate of Berenson Investments LLC, was the financial advisor to Sillerman in connection with the Recapitalization, as discussed more fully above in the section entitled “Our Business.” On May 9, 2011, Berenson Investments LLC exercised the warrant and paid $80 for 100,000 shares of our common stock.

On August 25, 2011, the Company completed the placement of 14,000,000 units (the “Units”) to accredited and institutional investors. Each Unit consisted of (i) one (1) share of common stock, $0.001 par value per share of the Company and (ii) one (1) detachable three (3) year warrant to purchase one (1) share of common stock of the Company with an exercise price of $4.00 per warrant share, at a purchase price of $2.50 per Unit. Tejas Securities Group, Inc. (“Tejas”) acted as one of the placement agents in connection with the offering. Tejas purchased units in the offering for $713 and received as compensation (in addition to cash commission paid) a five-year warrant for 540,000 common shares at $2.50 per share and 100,000 warrants on the same basis as the investors.

Indemnification of Directors and Officers

Our bylaws and articles of incorporation provide that we will indemnify and hold harmless any of our officers, directors, employees or agents and reimburse such persons for any and all judgments, fines, liabilities, amounts paid in settlement and expenses, including attorney’s fees, incurred directly or indirectly in connection with any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, for which such persons served in any capacity at the request of the Company, to which such person is, was or is threatened to be made a party by reason of the fact that such person is, was or becomes a director, officer, employee or agent of the Company; provided that, (i) such person acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interest of the Company, and with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful and (ii) no indemnification is payable if a court having jurisdiction determined such indemnification to be unlawful. Additionally, no indemnification will be made in respect of any claim, issue or matter as to which such person was determined to be liable to the Company, unless and only to the extent that the court in which the action was brought determines that such person is fairly and reasonably entitled to indemnity for such expenses which the court deems proper.

The Company does not believe that such indemnification affects the capacity of such person acting as officer, director or control person of the Company.

Transfer Agent and Registrar

Our independent stock transfer agent is American Stock Transfer & Trust Company, LLC. Their mailing address is 6201 15th Avenue, Brooklyn, New York 11219. Their phone number is (718) 921-8206.

SHARES ELIGIBLE FOR FUTURE SALE

As of October 6, 2011, we had 149,142,024 shares of common stock issued and outstanding.

Shares Covered by this Prospectus

All of the 14,522,597 shares of common stock being registered in this offering may be sold without restriction under the Securities Act, so long as the registration statement of which this prospectus is a part is, and remains, effective.

Rule 144

In general, pursuant to Rule 144 under the Securities Act, a person (or persons whose shares are aggregated) who is not deemed to have been an affiliate of ours at any time during the three months preceding a sale of shares of our common stock, and who has beneficially owned restricted securities within the meaning of Rule 144 for at least six months (including any period of consecutive ownership of preceding non-affiliated holders) would be entitled to sell those shares, subject only to the availability of current public information about us. A non-affiliated person who has beneficially owned restricted securities within the meaning of Rule 144 for at least one year would be entitled to sell those shares without regard to the current public information requirement.

A person (or persons whose shares are aggregated) who is deemed to be an affiliate of ours and who has beneficially owned restricted securities within the meaning of Rule 144 for at least six months would be entitled to sell within any three-month period a number of shares of our common stock that does not exceed the greater of (i) one percent of the then outstanding shares of our common stock or (ii) the average weekly trading volume of our common stock during the four calendar weeks preceding such sale. Such sales are also subject to certain manner of sale provisions, notice requirements and the availability of current public information about us.

Sales under Rule 144 by our affiliates or persons selling shares on behalf of our affiliates are also subject to certain manner of sale provisions and notice requirements and to the availability of current public information about us.

Because we were a shell company prior to the Recapitalization, under SEC rules Rule 144 will be unavailable to our stockholders until October 2012, twelve months following the filing with the SEC of “Form 10 information” which constitutes a part of this prospectus.

PLAN OF DISTRIBUTION

Each selling stockholder and any pledgees, assignees and successors-in-interest of any selling stockholder may, from time to time, sell any or all of their shares of common stock covered hereby on any stock exchange, market or trading facility on which the shares are traded or in private transactions. These sales may be at fixed or negotiated prices. A selling stockholder may use any one or more of the following methods when selling shares:

·	ordinary brokerage transactions and transactions in which the broker dealer solicits purchasers;

·	block trades in which the broker dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;

·	purchases by a broker dealer as principal and resale by the broker dealer for its account;

·	an exchange distribution in accordance with the rules of the applicable exchange;

·	privately negotiated transactions;

·	settlement of short sales entered into after the effective date of the registration statement of which this prospectus is a part;

·	in transactions through broker dealers that agree with the selling stockholders to sell a specified number of such shares at a stipulated price per share;

·	through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise;

·	a combination of any such methods of sale; or

·	any other method permitted pursuant to applicable law.

The selling stockholders may also sell shares under Rule 144 under the Securities Act, if available, rather than under this prospectus.

Broker dealers engaged by the selling stockholders may arrange for other brokers dealers to participate in sales. Broker dealers may receive commissions or discounts from the selling stockholders (or, if any broker dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated, but, except as set forth in a supplement to this prospectus, in the case of an agency transaction, not in excess of a customary brokerage commission in compliance with FINRA Rule 2440; and in the case of a principal transaction a markup or markdown in compliance with FINRA IM-2440.

In connection with the sale of the common stock or interests therein, the selling stockholders may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the common stock in the course of hedging the positions they assume. The selling stockholders may also sell shares of the common stock short and deliver these securities to close out their short positions, or loan or pledge the common stock to broker-dealers that in turn may sell these securities. The selling stockholders may also enter into option or other transactions with broker-dealers or other financial institutions or create one or more derivative securities which require the delivery to such broker-dealer or other financial institution of shares offered by this prospectus, which shares such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).

The selling stockholders and any broker-dealers or agents that are involved in selling the shares may be deemed to be “underwriters” within the meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. Each Selling Stockholder has informed us that it does not have any written or oral agreement or understanding, directly or indirectly, with any person to distribute the common stock. In no event shall any broker-dealer receive fees, commissions and markups which, in the aggregate, would exceed eight percent (8%).

We are required to pay certain fees and expenses incurred by us incident to the registration of the shares of common stock.

The selling stockholders will be subject to the prospectus delivery requirements of the Securities Act or any exemption therefrom, including Rule 172 thereunder. The selling stockholders have advised us that there is no underwriter or coordinating broker acting in connection with the proposed sale of the resale shares by the selling stockholders.

We agreed to keep this prospectus effective until the earlier of (i) the date on which the shares may be resold by the selling stockholders without registration and without regard to any volume or manner-of-sale limitations by reason of Rule 144, without the requirement for us to be in compliance with the current public information under Rule 144 under the Securities Act or any other rule of similar effect or (ii) all of the shares have been sold pursuant to this prospectus or Rule 144 under the Securities Act or any other rule of similar effect. The resale shares will be sold only through registered or licensed brokers or dealers if required under applicable state securities laws. In addition, in certain states, the resale shares of common stock covered hereby may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and is complied with.

Under applicable rules and regulations under the Exchange Act, any person engaged in the distribution of the resale shares may not simultaneously engage in market making activities with respect to the common stock for the applicable restricted period, as defined in Regulation M, prior to the commencement of the distribution. In addition, the selling stockholders will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of shares of the common stock by the selling stockholders or any other person. We will make copies of this prospectus available to the selling stockholders and have informed them of the need to deliver a copy of this prospectus to each purchaser at or prior to the time of the sale (including by compliance with Rule 172 under the Securities Act).

LEGAL MATTERS

The validity of the common stock offered by this prospectus has been passed upon for us by Kramer Levin Naftalis & Frankel LLP, New York.

EXPERTS

The financial statements as of June 30, 2011 and 2010 and for each of the two years in the period ended June 30, 2011 included in this Prospectus and in the Registration Statement have been so included in reliance on the report of BDO USA, LLP, an independent registered public accounting firm, appearing elsewhere herein and in the Registration Statement, given on the authority of said firm as experts in auditing and accounting.

WHERE YOU CAN FIND MORE INFORMATION

We have filed with the SEC, a registration statement on Form S-1 under the Securities Act with respect to the common stock offered in this offering. This prospectus does not contain all of the information set forth in the registration statement. For further information with respect to us and the common stock offered in this offering, we refer you to the registration statement and to the attached exhibits. With respect to each such document filed as an exhibit to the registration statement, we refer you to the exhibit for a more complete description of the matters involved.

You may inspect our registration statement and the attached exhibits and schedules without charge at the public reference facilities maintained by the SEC at 100 F Street, N.E., Washington, D.C. 20549. You may obtain copies of all or any part of our registration statement from the SEC upon payment of prescribed fees. You may obtain information on the operation of the public reference room by calling the SEC at 1-800-SEC-0330.

Our SEC filings, including the registration statement and the exhibits filed with the registration statement, are also available from the SEC’s website at www.sec.gov.

INDEX TO FINANCIAL STATEMENTS

FUNCTION(X) INC.

FINANCIAL STATEMENTS

	Page

Function(x) Inc.

Report of Independent Registered Public Accounting Firm		F-2

Consolidated Balance Sheets as of June 30, 2011 and 2010		F-3

Consolidated Statements of Operations for the years ended June 30, 2011 and 2010		F-4

Consolidated Statements of Stockholders’ Equity /(Deficit) for the years ended June 30, 2011 and 2010		F-5

Consolidated Statements of Cash Flows for the years ended June 30, 2011 and 2010		F-6

Notes to Consolidated Financial Statements		F-7

F-1

Function(x) Inc.

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of Function(x) Inc.:

New York, New York

We have audited the accompanying consolidated balance sheets of Function(x) Inc. (the “Company”) as of June 30, 2011 and 2010, and the related consolidated statements of operations, stockholders’ equity (deficit) and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to, nor were we engaged to perform an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Function(x) Inc. at June 30, 2011 and 2010, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

/s/ BDO USA, LLP

New York, NY

September 28, 2011

F-2

Function(x) Inc.

CONSOLIDATED BALANCE SHEETS

(amounts in thousands, except share data)

	June 30,			June 30,
	2011			2010
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents	$	3,794			---
Prepaid Expenses		46			---
Other Receivables		29			---
TOTAL CURRENT ASSETS		3,869			---
Restricted Cash		695			---
Investment in Interests in Corporate Jet		1,511			---
Capitalized Software Costs, Net		317			---
Equipment, Net		79			---
TOTAL ASSETS	$	6,471			---

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts Payable and Accrued Expenses	$	1,105			78
Current Portion of Loan Payable		49			---
TOTAL CURRENT LIABILITIES		1,154			---
Loans Payable, less current portion		891			---
Other Long-Term Liabilities		342			---
TOTAL LIABILITIES	$	2,387			78

COMMITMENTS AND CONTINGENCIES


STOCKHOLDERS’ EQUITY (DEFICIT):
Preferred stock, $0.001 par value, authorized 1,000,000 shares, no shares issued and outstanding	$	---			---
Common stock, $0.01 par value: authorized 300,000,000 shares, issued and outstanding 134,941,797 shares as of June 30, 2011 and authorized 1,000,000 shares, issued and outstanding 419,200 shares (as adjusted for the Reverse Split) as of June 30, 2010		139			4
Additional paid-in-capital		36,416			12,481
Accumulated deficit		(32,471	)		(12,563	)

TOTAL STOCKHOLDERS’ EQUITY (DEFICIT)		4,084			(78	)

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)	$	6,471			---

See accompanying notes to consolidated financial statements

F-3

Function(x) Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS

(amounts in thousands, except share and per share data)

	Year Ended			Year Ended
	June 30, 2011			June 30, 2010
REVENUES	$	0		$	0

GENERAL AND ADMINISTRATIVE EXPENSES		19,970			9

OPERATING LOSS	$	(19,970	)	$	(9	)

OTHER INCOME:
Interest income, net		62			---

Total Other Income		62			---

NET LOSS BEFORE INCOME TAXES	$	(19,908	)	$	(9	)

INCOME TAXES		---			---

NET LOSS	$	(19,908	)	$	(9	)

Net loss per common share - basic and diluted	$	(.20	)	$	(.02	)

Weighted average common shares outstanding - basic and diluted		100,708,047			419,200	*

* as adjusted for the Reverse Split

See accompanying notes to consolidated financial statements

F-4

Function(x) Inc.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

(amounts in thousands)

		Preferred Stock		Common Stock		Additional Paid-In Capital			Accumulated Deficit			Total
Balance July 1, 2009	$	---	$	4	$	12,481		$	(12,554	)	$	(69	)
Net Loss		---		---		---			(9	)		(9	)
Balance June 30, 2010	$	---	$	4	$	12,481		$	(12,563	)	$	(78	)

Balance July 1, 2010	$	---	$	4	$	12,481		$	(12,563	)	$	(78	)
Net Loss		---		---		---			(19,908	)		(19,908	)
Issuance of Common Stock		---		135		13,973			---			14,108
Notes Receivable from Shareholders		---		---		(3,419	)		---			(3,419	)
Warrants Issued for Services		---		---		2,529			---			2,529
Exercise of Warrants		---				80			---			80
Restricted Stock Issued for Services		---		---		10,772			---			10,772
Balance June 30, 2011	$	---	$	139	$	36,416		$	(32,471	)	$	4,084

See accompanying notes to consolidated financial statements

F-5

Function(x) Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(amounts in thousands)

	Year Ended June 30, 2011			Year Ended June 30, 2010

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(19,908	)	$	(9	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Restricted Stock issued for services		10,772			---
Warrants issued for services		2,529			---
Depreciation		4			---
Changes in operating assets and liabilities:
Other Receivables		(29	)		---
Prepaid Expenses		(46	)		---
Accounts payable and accrued expenses		1,027			9
Other liabilities		6			---
Net Cash Used in Operating Activities	$	(5,645	)	$	---

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Equipment		(83	)		---
Increase in Restricted Cash		(695	)		---
Investment in Interests in Corporate Jet		(235	)		---
Capitalized Software Costs		(317	)		---
Net Cash Used in Investing Activities		(1,330	)		---

CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of Common Stock for Cash		10,769			---
Net Cash from Financing Activities		10,769			---

NET INCREASE IN CASH		3,794			---

Cash at Beginning of Period		---			---

Cash at End of Period	$	3,794		$	---

Supplemental Cash Flow Information:
Non-Cash Financing Activities:

Issuance of shares relating to payment of a portion of the debt due to J. Howard, Inc.	$	8		$	---

Purchase of interests in G-IV jets	$	1,276		$	---

Stock issued for promissory notes	$	3,380		$	---

See accompanying notes to consolidated financial statements

F-6

Function(x) Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(amounts in thousands, except share and per share data)

1. Basis of Presentation

On February 24, 2011, the Company changed its year-end from December 31 to June 30. The consolidated financial statements as of June 30, 2011 and June 30, 2010 have been presented to reflect twelve months of activities and reflect the results of the Company and its consolidated subsidiaries. The consolidated financial statements of the Company include the accounts of all subsidiaries. All intercompany accounts and transactions have been eliminated.

2. Organization and Background

Formation and Former Business

The Company was incorporated in Delaware in July 1994 and had no operating business or full-time employees from December 1996 to 2000, when it acquired all of the outstanding Common Stock of Oaktree Systems, Inc. (“Oaktree”). Through Oaktree, the Company provided cost effective marketing solutions to organizations needing sophisticated information management tools. In December 2007, Marketing Data, Inc. acquired an 80% interest in Oaktree for $1 and the Company’s ownership interest in Oaktree was reduced to 20% of Oaktree’s outstanding Common Stock. On October 24, 2010, Oaktree repurchased the Company’s remaining 20% interest in Oaktree for $0.10. As a result, Marketing Data, Inc. owned 100% of the outstanding Common Stock of Oaktree. After the disposition of the Company’s interest in Oaktree and prior to the Recapitalization, the Company was not active and had no operating business. After the disposition of the Oaktree interest, the Company began to explore the redeployment of its existing assets by identifying and merging with or investing in one or more operating businesses. The Board of Directors approved the Recapitalization effecting such change.

The Recapitalization

As previously disclosed, on February 7, 2011, Function(x) Inc. (formerly Gateway Industries, Inc., the “Company”) entered into the Agreement and Plan of Recapitalization (the “Recapitalization Agreement”) by and among the Company, Sillerman Investment Company LLC, a Delaware limited liability company (“Sillerman”), and EMH Howard LLC, a New York limited liability company (“EMH Howard”).

Pursuant to the Recapitalization Agreement, Sillerman, together with other investors approved by Sillerman, invested in the Company by acquiring 120,000,000 newly issued shares of common stock of the Company in a private placement transaction at a price of $0.03 per share (on a post-split basis as described below), as a result of which Sillerman and the other investors acquired approximately 99% of the outstanding shares of common stock, with Sillerman (together with Robert F.X. Sillerman personally) directly or indirectly beneficially owning more than a majority of the outstanding shares of common stock. Upon consummation, the proceeds of the private placement of $3,600 ($220 in cash and $3,380 in five-year promissory notes with interest accruing at the annual rate equal to the long-term Applicable Federal Rate in effect as of the date of the Recapitalization Agreement, which was 4.15% per annum) were received.

F-7

The Company’s New Line of Business

Operations

F-8

services of third-party cloud computing providers, more specifically, Amazon Web Services, to help us efficiently manage and create our platform.

Revenue

Seasonality

3. Summary of Significant Accounting Policies

Change of Fiscal Year: On February 24, 2011, the Board of Directors of the Company approved a change to the Company's fiscal year end from December 31 to June 30.

Cash, Cash Equivalents and Restricted Cash

The Company considers all highly liquid securities purchased with remaining maturities of 90 days or less to be cash equivalents. Cash equivalents are stated at cost which approximates market value and primarily consists of money market funds that are readily convertible into cash. Restricted cash comprises amounts held in deposits that were required as collateral under the lease of office space.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the 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 expenses during the reporting period. These estimates include, among others, fair value of financial assets and liabilities, net realizable values on long-lived assets, certain accrued expense accounts, and estimates related to stock-based compensation. Actual results could differ from those estimates.

Fair Value of Financial Instruments

The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents and accounts payable approximate fair value because of the immediate or short-term maturity of these financial instruments. The Company’s debt approximates fair value as current borrowing rates for the same or similar issues are the same as those that were given to the Company at the issuance of its debt.

Equipment

Equipment (consisting of computers, software, furniture and fixtures) is recorded at historical cost and is depreciated using the straight-line method over their estimated useful lives. The useful life and depreciation method are reviewed periodically to ensure that the depreciation method and period are consistent with the anticipated pattern of future economic benefits. Expenditures for maintenance and repairs are charged to operations as incurred while

F-9

renewals and betterments are capitalized. Gains and losses on disposals are included in the results of operations. The useful life of the equipment is being depreciated over three years.

Impairment of Long-Lived Assets.

Internal Use Software

Marketing

Marketing costs are expensed as incurred. Marketing expense for the Company in 2011 and 2010 was $1,005 and $0, respectively.

Income Taxes

Stock-Based Compensation

Recently Issued Accounting Pronouncements

In October 2009, the FASB issued Accounting Standards Update (“ASU”) No. 2009-13, Multiple-Deliverable Revenue Arrangements. The new standard changes the requirements for establishing separate units of accounting in a multiple element arrangement and requires the allocation of arrangement consideration to each deliverable based on the relative selling price. The selling price for each deliverable is based on vendor-specific objective evidence (“VSOE”) if available, third-party evidence if VSOE is not available, or estimated selling price if neither VSOE or

F-10

third-party evidence is available. ASU 2009-13 is effective for revenue arrangements entered into in fiscal years beginning on or after June 15, 2010. The Company does not expect that the provisions of the new guidance will have a material effect on its consolidated financial statements.

In January 2010, the FASB issued ASU No. 2010-06, Improving Disclosures about Fair Value Measurements, which requires additional disclosures about the amounts of and reasons for significant transfers in and out of Level 1 and Level 2 fair value measurements. This standard also clarifies existing disclosure requirements related to the level of disaggregation of fair value measurements for each class of assets and liabilities and disclosures about inputs and valuation techniques used to measure fair value for both recurring and non-recurring Level 2 and Level 3 measurements. Since this new accounting standard only required additional disclosure, the adoption of the standard in the first quarter of 2010 did not impact the Company’s consolidated financial statements. Additionally, effective for interim and annual periods beginning after December 15, 2010, this standard will require additional disclosure and require an entity to present disaggregated information about activity in Level 3 fair value measurements on a gross basis, rather than one net amount.

In May 2011, the Financial Accounting Standards Board (FASB) released ASU 2011-04 “Fair Value Measurement”, which amends ASC 820 “Fair Value Measurements and Disclosures”. This standard will be effective beginning in the first calendar quarter of 2012 and the Company is in the process of assessing the impact of this standard on the Company’s Consolidated Financial Statements.

In May 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2011-05, Comprehensive Income: Presentation of Comprehensive Income. The ASU amends FASB Codification Topic 220, Comprehensive Income, to require an entity 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. ASU 2011-05 is effective for fiscal years, and interim periods within those fiscal years beginning after December 15, 2011, and early adoption is permitted. The adoption of this standard will not have an impact on the Company’s financial statements as they currently conform.

4. Interest in Corporate Jet

The Company executed an agreement with NJI Sales, Inc. (“NetJets”) to bundle a 3.125% fractional share of a G-IV jet owned by Mr. Sillerman with a value of $336 with a new 6.25% fractional share of a G-IV jet which was purchased from NetJets by the Company. The purchase price for the 6.25% interest was $1,175, payable $235 upon signing and the balance of $940 in debt with interest at 6% per annum, monthly payments of $9 and, a five-year balloon of $661. Monthly management fees (aggregate for both shares) are approximately $26. Based on the anticipated travel schedule for Mr. Sillerman and the anticipated residual value of the plane at the end of the five-year period of usage, the Company is expected to realize cost savings. The Company’s Audit Committee approved entering into this related party transaction and on June 17, 2011, the independent members of the Company’s Board of Directors approved the transaction. The Company accounted for the transaction by recording the interests as investment assets and the related debt amounts to Mr. Sillerman and NetJets.

5. Equipment

Equipment, consisting of computers, software, furniture and furnishings, were purchased in connection with setting up the Company’s office space. The amount of such purchase was $83.

6. Loans Payable

J. Howard, Inc. had been supporting the daily operations of the Company from 2007 until the Recapitalization. As of December 31, 2010, the Company owed J. Howard, Inc. $82 as a result thereof, which amount was increased as of the completion of the Recapitalization on February 15, 2011 to $171. As part of the Recapitalization, the Company issued 250,000 shares (at a fair market value of $0.03 per share) to J. Howard, Inc., a director and officer of the Company prior to the Recapitalization, and its designees (which included former directors of the Company) in connection with partially extinguishing outstanding debt owed to J. Howard, Inc. The remaining debt of $163 was

F-11

satisfied on February 15, 2011 by payment to J. Howard, Inc. in such amount. In addition, J. Howard, Inc. was paid $37 to be used for payment of expenses incurred in connection with the Recapitalization on behalf of the Company.

As described in footnote 4 above, the Company financed the purchase of a 6.25% fractional interest in a G-IV jet. The financing of $940 provides for interest at the rate of 6% per annum, monthly payments of $9 and a balloon payment at maturity in 5 years of $661. Total payments on this debt in the next five years are as follows:

Years Ending June 30,		(in thousands)
2012	$	49
2013		52
2014		56
2015		59
2016		724

Total	$	940

7. Commitments and Contingencies

Total rent expense for the Company under operating leases for the years ended June 30, 2011 and 2010 was less than $65 and $0, respectively. The Company’s future minimum rental commitments under noncancelable operating leases are as follows:

		(in thousands)
Years Ending June 30,
2012	$		338
2013			595
2014			611
2015			628
2016			647
Thereafter			3,912
Total	$			6,731

As of June 30, 2011, the Company has entered into employment contracts with certain key executives and employees, which include provisions for severance payments in the event of specified terminations of employment. Expected payments under existing employment contracts are as follows:

	(in thousands)
Year Ending June 30,
2012	$	2,229
2013		2,326
2014		2,427
2015		2,534
Thereafter		—

Total	$	9,516

As of June 30, 2011, the Company has entered into an agreement for network services with Carpathia Hosting Inc. (“Carpathia”) for a two-year term. The anticipated payments under this agreement are $71 per month. The exact amount may vary from month to month depending on usage and additional services which may be supplied by Carpathia.

F-12

There are no lawsuits or claims pending against the Company.

8. Stockholders’ Equity (Deficit)

As of June 30, 2011 and 2010, there were 300,000,000 and 1,000,000 shares of authorized common stock, respectively, and 134,941,797 and 419,280 (adjusted to reflect post reverse split shares) shares of common stock issued and outstanding, respectively. Except as otherwise provided by Delaware law, the holders of our common stock are entitled to one vote per share on all matters to be voted upon by the stockholders.

The Company’s Board of Directors is authorized to issue 1,000,000 shares of preferred stock, par value $0.001 per share. We may issue shares of preferred stock in one or more series as may be determined by our board of directors, who may establish the designation and number of shares of any series, and may determine, alter or revoke the rights, preferences, privileges and restrictions pertaining to any wholly unissued series (but not below the number of shares of that series then outstanding).

9. Share-Based Payments

Equity Incentive Plan

Stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense over the requisite service period, which is the vesting period, on a straight-line basis. The Company uses the Black-Scholes option pricing model to determine the fair value of stock options and warrants issued. Stock-based awards issued to date are comprised principally of restricted stock awards (RSUs).

The 2011 Executive Incentive Plan (the "Plan") of the Company was approved on February 21, 2011 by the written consent of the holder of a majority of the Company's outstanding common stock. The Plan provides the Company the ability to grant to any officer, director, employee, consultant or other person who provides services to the Company or any related entity, options, stock appreciation rights, restricted stock awards, dividend equivalents and other stock-based awards and performance awards, provided that only employees are entitled to receive incentive stock options in accordance with IRS guidelines. The Company reserved 30,000,000 shares of common stock for delivery under the Plan. Pursuant to the Executive Incentive Plan and the employment agreements, between February 15, 2011 and June 30, 2011 the Compensation Committee of the Company’s Board of Directors authorized the grants of restricted stock described below. The per share fair value of RSUs granted with service conditions was determined on the date of grant using the fair market value of the shares on the date of grant.

	Date of Grant		Common Shares		Aggregate Fair Value on Date of Grant		Weighted Average Grant Date Fair Value
Seven (7) Executives	Various		7,875,000		$137,906		$17.51

The Company is accounting for these values at fair market value of the shares on the date of grant, with the value being recognized over the requisite service period. No shares were vested and no shares are forfeited as of June 30, 2011.

The total compensation expense of $10,772 was included in the accompanying Statement of Operations in general and administrative expenses for the year ended June 30, 2011. There were no such expenses for the year ended June 30, 2010. No shares actually vested during the periods and the grants provide for vesting annually in arrears over the next five years. As of June 30, 2011 there was approximately $127,134 of total unrecognized stock-based compensation cost.

F-13

On February 16, 2011, the Company issued a five year warrant for 100,000 shares with an exercise price of $0.80 per share to Berenson & Company, LLC, financial advisor to Sillerman in connection with the Recapitalization, which vested on issuance. The fair value of the Berenson Warrant was determined to be $2,529 using the Black-Scholes option pricing model considering the contractual life of 5 years; expected volatility of 60%; and risk-free interest rate of 2.37%. This amount was charged to general and administrative expense at the date of issuance. On May 9, 2011, Berenson Investments LLC exercised the warrant and paid $80 for 100,000 shares of our common stock.

10. Income Taxes

For the year ended June 30, 2011 and 2010, the Company did not record an income tax benefit because it has incurred taxable losses, it has no history of generating taxable income, and the Company cannot presently anticipate the realization of a tax benefit on its Net Operating Loss carryforward of $12,017 and $5,490 as of June 30, 2011 and 2010, respectively. Accordingly, a full valuation allowance has been established on the related deferred tax assets. Because of the change of control pursuant to the Recapitalization, utilization of prior fiscal year net operating loss carryforwards of $5,490 will be substantially limited.

The Company will recognize interest and penalties related to any uncertain tax positions through income tax expense.

The Company may in the future become subject to federal, state and city income taxation for years 2008 through 2010 under the normal statute of limitations. Generally, for state tax purposes, the Company’s 2008 through 2010 tax years remain open for examination by the tax authorities under a four year statute of limitations. However, certain states may keep their statute open for six to ten years. There are no income tax audits currently in process with any taxing jurisdictions.

11. Related Party Transactions

Asset Contribution Agreement

At the closing of the Recapitalization, the Company entered into an Asset Contribution Agreement with Sillerman Investment Corporation, a Delaware corporation (“SIC”), an affiliate of Robert F.X. Sillerman our Executive Chairman, whereby SIC assigned certain intellectual property assets used in its business to the Company in exchange for an agreement by the Company to reimburse SIC for expenses incurred in connection with the development of such intellectual property assets and its related business, whenever incurred, at or after the closing, in an aggregate amount not to exceed $2,000. Pursuant thereto, $1,312 was reimbursed and charged to general and administrative expense in the fiscal year. This total amount was expensed since the reimbursement related to business operating expenses and expenses related to the development of the Company’s product which were incurred during the preliminary stages of product development and are to be expensed under the guidance of ASC 350-40. Because such transaction was subject to certain rules regarding “affiliated” transactions, the Audit Committee and a majority of the independent members of the Board of Directors approved such reimbursement.

Debt Owed to J. Howard Inc.

As of the Recapitalization, the Company owed J. Howard Inc. the amount of $171 in connection with supporting the daily operations of the Company since 2007. As part of the Recapitalization, the Company issued 250,000 shares at fair market value of $0.03 per share to J. Howard, Inc., a director and officer of the Company prior to the Recapitalization, and its designees (which included former directors of the Company) in connection with partially extinguishing outstanding debt owed to J. Howard, Inc and the remaining portion of the debt was satisfied by the Company as part of the Recapitalization on February 15, 2011. The remaining debt of $163 was satisfied on February 15, 2011 by payment to J. Howard, Inc. in such amount. In addition, J. Howard, Inc. was paid $37 to be used for payment of expenses incurred in connection with the Recapitalization on behalf of the Company.

F-14

Recapitalization Notes and Expenses

In addition, Sillerman Investment Company, LLC was relieved of the obligation to pay $200 in connection with the initial structure of the Recapitalization to J. Howard, Inc. as reimbursement of advances made by J. Howard, Inc. to the Company to support its daily obligations since 2007. The obligation arose from the initial proposal that investors would invest directly in Sillerman Investment Company, LLC prior to the Recapitalization. When the structure of the Recapitalization changed, resulting in investments directly in the Company in connection with the Recapitalization, the obligation to pay J. Howard, Inc. became the obligation of the Company. Because such transaction involved a related party, the Audit Committee of the Company's Board of Directors approved and the independent members of the Board ratified the payment of the obligation by the Company.

Shared Services Agreement

In an effort to economize on costs and be efficient in its use of resources, the Company entered into a shared services agreement with Circle Entertainment Inc. (“Circle”) as of February 15, 2011, pursuant to which it shares costs for legal and administrative services in support of Mitchell J. Nelson, its General Counsel and General Counsel to Circle. The shared services agreement provides, in general, for sharing on a 50/50 basis of the applicable support provided by either company to Mr. Nelson in connection with his capacity as General Counsel, and an allocation generally based on the services provided by Mr. Nelson, which are initially estimated to be divided evenly between the companies. The Company is responsible for advancing the salary to Mr. Nelson for both companies and will be reimbursed by Circle for such salary and benefits (but not for any bonus, option or restricted share grant made by either company, which will be the responsibility of the company making such bonus, option or restricted share grant). The agreement provides for the Chief Executive Officer or President of each Company to meet periodically to assess whether the services have been satisfactorily performed and to discuss whether the allocation has been fair. The Audit Committee of each company’s Board of Directors will then review and, if appropriate, approve the allocations made and whether payments need to be adjusted or reimbursed, depending on the circumstances. Because this transaction is subject to certain rules regarding “affiliate” transactions, the Audit Committee and a majority of the independent members of the Company’s Board of Directors have approved the shared services agreement. This is deemed to be an affiliate transaction because Mr. Sillerman is Chairman and Mr. Nelson is Executive Vice President and General Counsel of Circle. For the fiscal year ended June 30, 2011, the Company incurred and billed Circle $107 for support, consisting primarily of legal and administrative services. These services provided were approved by Circle’s Audit Committee and the Company’s Audit Committee and the related fees were paid ($25 was paid after June 30, 2011).

In addition, certain of the Company’s accounting personnel may provide personal accounting services to our Executive Chairman, Robert F.X. Sillerman. To the extent such services are rendered, Mr. Sillerman shall reimburse the Company therefor. The reimbursement for any such services shall be reviewed by the Company’s Audit Committee. For the fiscal year ended June 30, 2011, $18 was incurred and paid by Mr. Sillerman for such services ($4 was paid after June 30, 2011).

Consultant

F-15

NetJets

12. Fair Value Measurement

The Company values its assets and liabilities using the methods of fair value as described in ASC 820, Fair Value Measurements and Disclosures. ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. The three levels of fair value hierarchy are described below:

Level 1 – Quoted prices in active markets for identical assets or liabilities.

Level 2 – Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 – Inputs that are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability.

In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible, and considers counter-party credit risk in its assessment of fair value. Observable or market inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s assumptions based on the best information available.

The Company has certain assets and liabilities that are required to be recorded at fair value on a recurring basis in accordance with accounting principles generally accepted in the United States. The Company’s investment in overnight money market institutional funds, which amounted to $3,797 as of June 30, 2011,is included in Cash and Cash Equivalents on the accompanying consolidated balance sheets is classified as a Level 1 input. The carrying value for Cash and Cash Equivalents and Accounts Payable approximate fair value because of the immediate or short-term maturity of these financial instruments. The Company’s debt of $940 to finance the purchase of an interest in a G-IV jet approximates fair value due to market interest rates. It is not practical to fair value the $336 for the related party debt.

13. Subsequent Events

Private Placement

On August 25, 2011, the Company completed the placement of 14,000,000 units (the “Units”), each Unit consisting of (i) one (1) share of common stock, $0.001 par value per share of the Company and (ii) one (1) detachable three (3) year warrant to purchase one (1) share of common stock of the Company with an exercise price of $4.00 per warrant share, at a purchase price of $2.50 per Unit, for an aggregate purchase price of $35,000 to accredited and institutional investors. The Units issued in such placement were exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”), pursuant to an exemption from registration for transactions not involving a public offering under Section 4(2) of the Securities Act, and the safe harbors for sales under Section 4(2) provided by Regulation D promulgated pursuant to the Securities Act. Transfer of the shares was restricted by the Company in accordance with the requirements of the Securities Act. The proceeds of the offering,

F-16

$35,000, are to be used for general corporate purposes, including marketing and product development. Tejas Securities Group, Inc. (“Tejas”) and Craig-Hallum Capital Group, LLC acted as placement agents in connection with the offering and received compensation of $1,350 and $165, respectively. Tejas purchased units in the offering for $713 and received as additional compensation a five-year warrant for 540,000 common shares at $2.50 per share and 100,000 warrants on the same basis as the investors. Sillerman Investment Company, LLC purchased $5,000 worth of Units in the placement, and Sillerman Investment Company, LLC, as nominee purchased $6,376 of Units in the placement. The Company will take a compensation charge in the first quarter of approximately $17,162 as a result of the foregoing, resulting from selling shares to executives below fair value.

Stock Option Grants

On August 26, 2011, the Compensation Committee adopted a Company-wide stock option program and granted to 32 employees an aggregate of 3,545,000 non-qualified stock options at $2.50 per share or $5.00 per share, depending on recipient, vesting over three to four years, depending on when the employee started at the Company. The Company will take a compensation charge in the first quarter of approximately $1,037 as a result of the foregoing.

On August 12, 2011, the Compensation Committee of the Board of Directors approved a stock option plan for non-management directors. Each director is to receive 250,000 non-qualified stock options for common shares of the Company under the Executive Equity Incentive Plan. The initial grant was made on August 26, 2011 at $2.50 per share. One-fourth of the grant vested on the grant date and the balance will vest pro-rata annually in arrears over the next three years, so long as the director remains in office on the vesting date. The Company will take a compensation charge in the first quarter of approximately $1,566 as a result of the foregoing.

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14,522,597 shares of common stock

PROSPECTUS

[_________], 2011

PART II

INFORMATION NOT REQUIRED IN THE PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution

The following table sets forth the costs and expenses, other than underwriting discounts and commissions, payable by us in connection with the sale of common stock being registered. All amounts, other than the SEC registration fee, are estimates. We will pay all these expenses.

		Amount to be
		Paid(1)
SEC Registration Fee	$	18,546.81
Legal Fees and Expenses		75,000.00
Accounting Fees and Expenses		15,000.00
Total	$	108,546.81

(1) Amounts in whole dollars.

Item 14. Indemnification of Directors and Officers

The Company does not believe that such indemnification affects the capacity of such person acting as officer, director or control person of the Company.

Item 15. Recent Sales of Unregistered Securities

On February 7, 2011, we entered into Recapitalization Agreement with Sillerman and EMH Howard. Pursuant to the Recapitalization Agreement, Sillerman, together with other investors approved by Sillerman, committed to invest in the Company by acquiring 120,000,000 of our newly issued shares of common stock in a private placement transaction at a price of $0.03 per share (on a post-split basis as described below) as a result of which Sillerman and the other investors will own approximately 99% of the outstanding shares of common stock, with Sillerman (together with Robert F.X. Sillerman personally) directly or indirectly beneficially owning more than a majority of the outstanding shares of common stock. Upon consummation, the proceeds of the private placement of $3,600 ($219 in cash and $3,380 in five-year promissory notes with interest accruing at the annual rate equal to the long-term Applicable Federal Rate in effect as of the date of the recapitalization agreement, which was 4.15% per annum) were received. The shares of common stock issued in such placement were exempt from registration under the Securities Act, pursuant to an exemption from registration for transactions not involving a public offering under Section 4(2) of the Securities Act, and the safe harbors for sales under Section 4(2) provided by Regulation D promulgated pursuant to the Securities Act. No advertising or general solicitation was employed in offering the securities. Transfer of the shares was restricted by the Company in accordance with the requirements of the Securities Act.

On February 16, 2011, the Company issued 13,232,597 shares of common stock to an institutional investor at a price of approximately $0.76 per share, and 940,000 shares of common stock to an accredited investor at a price of approximately $0.53 per share. The shares of common stock issued in such placements were exempt from registration under the Securities Act, pursuant to an exemption from registration for transactions not involving a public offering under Section 4(2) of the

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Securities Act, and the safe harbors for sales under Section 4(2) provided by Regulation D promulgated pursuant to the Securities Act. No advertising or general solicitation was employed in offering the securities. Transfer of the shares was restricted by the Company in accordance with the requirements of the Securities Act.

On February 16, 2011, the Company issued a five year warrant for 100,000 shares with an exercise price of $0.80 per share to Berenson Investments LLC. Berenson & Company, LLC, an affiliate of Berenson Investments LLC, was the financial advisor to Sillerman in connection with the Recapitalization. On May 9, 2011, Berenson Investments LLC exercised the warrant and paid $80 for 100,000 shares of our common stock. The shares of common stock underlying the warrants issued in such offering were exempt from registration under the Securities Act, pursuant to an exemption from registration for transactions not involving a public offering under Section 4(2) of the Securities Act, and the safe harbors for sales under Section 4(2) provided by Regulation D promulgated pursuant to the Securities Act. No advertising or general solicitation was employed in offering the securities. Transfer of the shares was restricted by the Company in accordance with the requirements of the Securities Act.

As part of the Recapitalization, the Company also issued 250,000 shares to J. Howard, Inc., an entity affiliated with Jack L. Howard, a director and officer of the Company prior to the Recapitalization, and its designees (which included former directors of the Company) in connection with partially extinguishing outstanding debt of $171 owed to J. Howard, Inc. The fair market value of the shares at issuance was $0.03 per share. The remaining debt of $163 was satisfied on February 15, 2011 by payment to J. Howard, Inc. in such amount. In addition, J. Howard, Inc. was paid $37 to be used for payment of expenses incurred in connection with the Recapitalization on behalf of the Company. The shares of common stock issued in such transaction were exempt from registration under the Securities Act, pursuant to an exemption from registration for transactions not involving a public offering under Section 4(2) of the Securities Act, and the safe harbors for sales under Section 4(2) provided by Regulation D promulgated pursuant to the Securities Act. No advertising or general solicitation was employed in offering the securities. Transfer of the shares was restricted by the Company in accordance with the requirements of the Securities Act.

As part of the Recapitalization, the Company effectuated a 1 for 10 reverse split of its issued and outstanding common stock. Under the terms of the Reverse Split, each share of common stock, issued and outstanding as of such effective date, was automatically reclassified and changed into one-tenth of one share of common stock, without any action by the stockholder. Fractional shares were rounded up to the nearest whole share. All share and per share amounts have been restated to reflect the Reverse Split.

In instances described above where we issued securities in reliance upon Regulation D, we relied upon Rule 506 of Regulation D of the Securities Act. These stockholders who received the securities in such instances made representations that (a) the stockholder is acquiring the securities for his, her or its own account for investment and not for the account of any other person and not with a view to or for distribution, assignment or resale in connection with any distribution within the meaning of the Securities Act, (b) the stockholder agrees not to sell or otherwise transfer the purchased shares unless they are registered under the Securities Act and any applicable state securities laws, or an exemption or exemptions from such registration are available, (c) the stockholder has knowledge and experience in financial and business matters such that he, she or it is capable of evaluating the merits and risks of an investment in us, (d) the stockholder had access to all of our documents, records, and books pertaining to the investment and was provided the opportunity to ask questions and receive answers regarding the terms and conditions of the offering and to obtain any additional information which we possessed or were able to acquire without unreasonable effort and expense, and (e) the stockholder has no need for the liquidity in its investment in us and could afford the complete loss of such investment. Management made the determination that the investors in instances where we relied on Regulation D are accredited investors (as defined in Regulation D) based upon management’s inquiry into their sophistication and net worth.

In instances described above where we indicate that we relied upon Section 4(2) of the Securities Act in issuing securities, our reliance was based upon the following factors: (a) the issuance of the securities was an isolated private transaction by us which did not involve a public offering; (b) there were only a limited number of offerees; (c) there were no subsequent or contemporaneous public offerings of the securities by us; (d) the securities were not broken down into smaller denominations; and (e) the negotiations for the sale of the stock took place directly between the offeree and us.

Item 16. Exhibits and Financial Statement Schedules

The following exhibits are included as part of this Form S-1.

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Exhibit No.	Description

3.1	Certificate of Amendment of Certificate of Incorporation of the registrant as filed with the Secretary of State of Delaware on February 11, 2011. Incorporated by reference to the registrant’s current report on Form 8-K filed on February 16, 2011.
3.2	Amended and Restated Bylaws of the registrant, adopted on June 26, 1996. Incorporated by reference to the registrant’s registration statement on Form S-2/A filed on July 2, 1996.
3.3	Certificate of Incorporation of the registrant as filed with the Secretary of State of Delaware on July 18, 1994.*
4.3	Form of Warrant. Incorporated by reference to the registrant’s registration statement on Form S-1 filed on May 25, 2011.
4.4	KPLB LLC Subscription Agreement. Incorporated by reference to the registrant’s registration statement on Form S-1 filed on May 25, 2011.
4.5	Adage Subscription Agreement.*
5.1	Opinion of Kramer Levin Naftalis & Frankel LLP.*
10.1	Agreement and Plan of Recapitalization, dated February 7, 2011, incorporated by reference to the registrant’s Form 8-K filed on February 10, 2011.
10.2	Asset Contribution Agreement, dated February 11, 2011, between Sillerman Investment Corporation and Function(x) Inc. Incorporated by reference to the registrant’s current report on Form 8-K filed on February 16, 2011.
10.3	Function(x) Inc. 2011 Executive Incentive Plan. Incorporated by reference to the registrant’s current report on Form 8-K filed on February 22, 2011.
10.4	Employment Agreement, dated February 16, 2011, between Function(x) Inc. and Robert F.X. Sillerman. Incorporated by reference to the registrant’s current report on Form 8-K filed on February 16, 2011.
10.5	Employment Agreement, dated February 15, 2011, between Function(x) Inc. and Janet Scardino. Incorporated by reference to the registrant’s current report on Form 8-K filed on February 16, 2011.
10.6	Employment Agreement, dated May 11, 2011, between Function(x) Inc. and Chris Stephenson. Incorporated by reference to the registrant’s quarterly report on Form 10-Q filed on May 12, 2011.
10.7	Shared Services and Reimbursement Agreement, dated February 15, 2011, between Circle Entertainment Inc. and Function(x) Inc.*
10.8	Promissory Note, dated February 8, 2011, between Robert F.X. Sillerman and Function(x) Inc.*
10.9	Promissory Note, dated February 8, 2011, among Mitchell J. Nelson, Leslie Nelson and Function(x) Inc.*
10.10	Asset Purchase Agreement, dated September 29, 2011, among Mobile Messaging Solutions (MMS), Inc., Watchpoints, Inc. and Function(x) Inc. Incorporated by reference to the registrant’s current report on Form 8-K filed on October 3, 2011.
10.11	Form of Unit Subscription Agreement. Incorporated by reference to the registrant’s current report on Form 8-K filed on August 26, 2011.
14.1	Code of Business Conduct and Ethics.*
23.1	Consent of Kramer Levin Naftalis & Frankel LLP, included in Exhibit 5.1.*
23.2	Consent of BDO USA, LLP, an independent registered public accounting firm.*

24	Power of Attorney (set forth on the signature page of the registrants registration statement on Form S-1 filed on May 25, 2011).*

* Filed herewith.

Item 17. Undertakings

The undersigned registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:

(a) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;

(b) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation

II-3

from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the SEC pursuant to Rule 424(b) under the Securities Act if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement; and

(c) To include material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement.

(2) That, for the purpose of determining liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.

(4) Each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.

(5) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.

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SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, on the 7th day of October, 2011.

	FUNCTION(X) INC.

	By:	/s/ Janet Scardino
		Janet Scardino
		Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the date indicated.

Signature	Title	Date

*	Executive Chairman, Director	October 7, 2011
Robert F.X. Sillerman


/s/ Janet Scardino	Chief Executive Officer, Director	October 7, 2011
Janet Scardino


/s/ Bethany Gilmore	Principal Accounting Officer	October 7, 2011
Bethany Gilmore


/s/ Mitchell J. Nelson	Executive Vice President, General Counsel, Secretary, Director	October 7, 2011
Mitchell J. Nelson


*	Director	October 7, 2011
Benjamin Chen


*	Director	October 7, 2011
Peter Horan


*	Director	October 7, 2011
John D. Miller


*	Director	October 7, 2011
Joseph F. Rascoff


*	Director	October 7, 2011
Harriet Seitler


* /s/ Mitchell J. Nelson
Mitchell J. Nelson, Attorney-in-Fact

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EXHIBIT INDEX

Exhibit No.	Description

3.1	Certificate of Amendment of Certificate of Incorporation of the registrant as filed with the Secretary of State of Delaware on February 11, 2011. Incorporated by reference to the registrant’s current report on Form 8-K filed on February 16, 2011.
3.2	Amended and Restated Bylaws of the registrant, adopted on June 26, 1996. Incorporated by reference to the registrant’s registration statement on Form S-2/A filed on July 2, 1996.
3.3	Certificate of Incorporation of the registrant as filed with the Secretary of State of Delaware on July 18, 1994.*
4.3	Form of Warrant. Incorporated by reference to the registrant’s registration statement on Form S-1 filed on May 25, 2011.
4.4	KPLB LLC Subscription Agreement. Incorporated by reference to the registrant’s registration statement on Form S-1 filed on May 25, 2011.
4.5	Adage Subscription Agreement.*
5.1	Opinion of Kramer Levin Naftalis & Frankel LLP.*
10.1	Agreement and Plan of Recapitalization, dated February 7, 2011, incorporated by reference to the registrant’s Form 8-K filed on February 10, 2011.
10.2	Asset Contribution Agreement, dated February 11, 2011, between Sillerman Investment Corporation and Function(x) Inc. Incorporated by reference to the registrant’s current report on Form 8-K filed on February 16, 2011.
10.3	Function(x) Inc. 2011 Executive Incentive Plan. Incorporated by reference to the registrant’s current report on Form 8-K filed on February 22, 2011.
10.4	Employment Agreement, dated February 16, 2011, between Function(x) Inc. and Robert F.X. Sillerman. Incorporated by reference to the registrant’s current report on Form 8-K filed on February 16, 2011.
10.5	Employment Agreement, dated February 15, 2011, between Function(x) Inc. and Janet Scardino. Incorporated by reference to the registrant’s current report on Form 8-K filed on February 16, 2011.
10.6	Employment Agreement, dated May 11, 2011, between Function(x) Inc. and Chris Stephenson. Incorporated by reference to the registrant’s quarterly report on Form 10-Q filed on May 12, 2011.
10.7	Shared Services and Reimbursement Agreement, dated February 15, 2011, between Circle Entertainment Inc. and Function(x) Inc.*
10.8	Promissory Note, dated February 8, 2011, between Robert F.X. Sillerman and Function(x) Inc.*
10.9	Promissory Note, dated February 8, 2011, among Mitchell J. Nelson, Leslie Nelson and Function(x) Inc.*
10.10	Asset Purchase Agreement, dated September 29, 2011, among Mobile Messaging Solutions (MMS), Inc., Watchpoints, Inc. and Function(x) Inc. Incorporated by reference to the registrant’s current report on Form 8-K filed on October 3, 2011.
10.11	Form of Unit Subscription Agreement. Incorporated by reference to the registrant’s current report on Form 8-K filed on August 26, 2011.
14.1	Code of Business Conduct and Ethics.*
23.1	Consent of Kramer Levin Naftalis & Frankel LLP, included in Exhibit 5.1.*
23.2	Consent of BDO USA, LLP, an independent registered public accounting firm.*

24	Power of Attorney (set forth on the signature page of the registrants registration statement on Form S-1 filed on May 25, 2011).*

* Filed herewith.

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EX-3.3 3 exhibit_3-3.htm CERTIFICATE OF INCORPORATION exhibit_3-3.htm

Exhibit 3.3

CERTIFICATE OF INCORPORATION

GATEWAY INDUSTRIES, INC.

The undersigned, in order to form a corporation pursuant to Sections 101 and 102 of the General Corporation Law of the State of Delaware, does hereby certify as follows:

FIRST: The name of the corporation is Gateway Industries, Inc. (the “Corporation”).

SECOND: The address of the Corporation’s registered office in the State of Delaware is 32 Loockerman Square, Suite L-100, Dover, Kent County, Delaware 19901. The name of the Corporation’s registered agent at such address is The Prentice-Hall Corporation System, Inc.

THIRD: The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware.

FOURTH: A. The Corporation shall be authorized to issue ten million (10,000,000) shares of common stock, $0.001 par value per share.

B. The Corporation shall be authorized to issue one million (1,000,000) shares of preferred stock, par value $0.01 per share. The shares of Preferred Stock may be issued in any number of series, as determined by the Board of Directors. The Board may by resolution fix the designation and number of shares of any such series, and may determine, alter, or revoke the rights, preferences, privileges, and restrictions pertaining to any wholly unissued series. The Board may thereafter in the same manner increase or decrease the number of shares of any such series (but not below the number of shares of that series then outstanding).

FIFTH: The Board of Directors of the Corporation shall have the right to adopt, amend and repeal the By-Laws of the Corporation.

SIXTH: The name and mailing address of the sole incorporator are as follows:

NAME	ADDRESS
Matthew S. Cohen, Esq.	c/o Greenberger & Forman 1370 Avenue of the Americas Suite 2701 New York, NY 10019-4602

SEVENTH: No director of the Corporation shall be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director; provided, however, that nothing in this Article SEVENTH shall eliminate or limit the liability of any director (i) for breach of the director’s duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the General corporation Law of the state of Delaware, or (iv) for any transaction from which the director derived an improper personal benefit.

EIGHTH: (a) To the extent not prohibited by law, the Corporation shall indemnify any person who is or was made, or threatened to be made, a party to any threatened, pending or completed action, suit or proceeding (a “Proceeding”), whether civil, criminal, administrative or investigative, including, without limitation, an action by or in the right of the Corporation to procure a judgment in its favor, by reason of the fact that such person, or a person of whom such person is the legal representative, is or was a Director or officer of the Corporation, or is or was serving in any capacity at the request of the Corporation for any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise (an “Other Entity”), against judgments, fines, penalties, excise taxes, amounts paid in settlement and costs, charges and expenses (including attorneys’ fees and disbursements). Persons who are not Directors or officers of the Corporation may be similarly indemnified in respect of service to the Corporation or to an Other Entity at the request of the Corporation to the extent the Board at any time specifies that such persons are entitled to the benefits of this Article EIGHTH.

(b) The Corporation shall, from time to time, reimburse or advance to any Director or officer or other person entitled to indemnification hereunder the funds necessary for payment of expenses, including attorneys’ fees and disbursements, incurred in connection with any Proceeding, in advance of the final disposition of such Proceeding; provided, however, that if required by the Delaware General Corporation Law, such expenses incurred by or on behalf of any Director of officer or other person may be paid in advance of the final disposition of a Proceeding only upon receipt by the corporation of an undertaking, by or on behalf of such Director or officer (or other person indemnified hereunder), to repay any such amount so advanced if it shall ultimately be determined by final judicial decision from which there is no further right of appeal that such Director, officer or other person is not entitled to be indemnified for such expenses.

(c) The rights to indemnification and reimbursement or advancement of expenses provided by, or granted pursuant to, this Article EIGHTH shall not be deemed exclusive of any other right to which a person seeking indemnification or reimbursement or advancement of expenses may have or hereafter be entitled under any statute, this Certificate of Incorporation, the By-laws of the Corporation (the “By-laws”), any agreement, any vote of stockholders or disinterested Directors or otherwise, both as to action in his or her official capacity and as to action in another capacity while holding such office.

(d) The rights to indemnification and reimbursement or advancement of expenses provided by, or granted pursuant to, this Article EIGHTH shall continue as to a person who has ceased to be a Director or officer (or other person indemnified hereunder) and shall inure to the benefit of the executors, administrators, legatees and distributees of such person.

NINTH: The election of directors need not be by written ballot.

IN WITNESS WHEREOF, I have hereunto signed my name and affirm, under the penalties of perjury, that this Certificate is my act and deed and that the facts stated herein are true this 18th day of July, 1994.

/s/Matthew S. Cohen

Matthew S. Cohen - Incorporator

AGREEMENT AND PLAN OF MERGER

OF GATEWAY INDUSTRIES, INC.,

A DELAWARE CORPORATION,

AND

GATEWAY COMMUNICATIONS,INC.,

A CALIFORNIA CORPORATION

THIS AGREEMENT AND PLAN OF MERGER dated as of September 12, 1994 (the “Agreement”) is between Gateway Industries, Inc., a Delaware corporation (“Gateway Delaware”) and Gateway Communications, Inc., a California corporation (“Gateway California”). Gateway Delaware and Gateway California are sometimes referred to herein as the “constituent Corporations”.

R E C I T AL S:

A. Gateway Delaware is a corporation duly organized and existing under the laws of the State of Delaware and has an authorized capital of 11,000,000 shares, 10,000,000 of which are designated “Common Stock”, $.001 par value per share, and 1,000,000 of which are designated “Preferred Stock”, $.01 par value per share. As of the date hereof, 100 shares of Common Stock were issued and outstanding, all of which were held by Gateway California. As of the date hereof, no shares of Preferred Stock were outstanding.

B. Gateway California is a corporation duly organized and existing under the laws of the State of California and has an authorized capital of 25,000,000 shares, 20,000,000 of which are designated “Common Stock”, no par value, and 5,000,000 of which are designated “Preferred Stock”, no par value. As of September 12, 1994, 5,175,064 shares of Common Stock and no shares of Preferred were issued and outstanding. Prior to the Effective Date, each such share shall have been subject to a one-for-five reverse split.

C. The Board of Directors of Gateway California has determined that, for the purpose of effecting the reincorporation of Gateway California in the State of Delaware, it is advisable and in the best interests of Gateway California that Gateway California merge with and into Gateway Delaware upon the terms and conditions herein provided.

D. The respective Boards of Directors of Gateway Delaware and Gateway California have approved this Agreement and have directed that this Agreement be submitted to a vote of their respective sole stockholder and shareholders, and executed by the undersigned officers.

NOW, THEREFORE, in consideration of the mutual agreements and covenants set forth herein, Gateway Delaware and Gateway California hereby agree, subject to the terms and conditions hereinafter set forth, as follows:

I. MERGER

1.1 Merger. In accordance with the provisions of this Agreement, the Delaware General Corporation Law and the California General Corporation Law, Gateway California shall be merged with and into Gateway Delaware (the “Merger”), the separate existence of Gateway California shall cease and Gateway Delaware shall be, and is herein sometimes referred as, the “Surviving Corporation”, and the name of the Surviving Corporation shall be Gateway Industries, Inc.

1.2 Filing and Effectiveness. The Merger shall become effective when the following actions shall have been completed:

(a) This Agreement and Merger shall have been adopted and approved by the stockholders of each Constituent Corporation in accordance with the requirements of the Delaware General Corporation Law and the California General Corporation Law;

(b) All of the conditions precedent to the consummation of the Merger specified in this Agreement shall have been satisfied or duly waived by the party entitled to satisfaction thereof; and

(c) An executed Certificate of Merger or an executed counterpart of this Agreement meeting the requirements of the Delaware General Corporation Law shall have been filed with the Secretary of State of the State of Delaware.

The date and time when the Merger shall become effective, as aforesaid, is herein called the “Effective Date of the Merger”.

1.3 Effect of the Merger. Upon the Effective Date of the Merger, the separate existence of Gateway California shall cease and Gateway Delaware, as the Surviving Corporation (i) shall continue to possess all of its assets, rights, powers and property as constituted immediately prior to the Effective Date of the Merger, (ii) shall be subject to all actions previously taken by its and Gateway California’s Board of Directors, (iii) shall succeed, without other transfer, to all of the assets, rights, powers and property of Gateway California in the manner more fully set forth in Section 259 of the Delaware General Corporation Law, (iv) shall continue to be subject to all of the debts, liabilities and obligations of Gateway Delaware as constituted immediately prior to the Effective Date of the Merger, and (v) shall succeed, without other transfer, to all of the debts, liabilities and obligations of Gateway California in the same manner as if Gateway Delaware had itself incurred them, all as more fully provided under the applicable provisions of the Delaware General Corporation Law and the California Corporations Code.

II. CHARTER DOCUMENTS, DIRECTORS AND OFFICERS

2.1 Certificate of Incorporation. The Certificate of Incorporation of Gateway Delaware as in effect immediately prior to the Effective Date of the Merger shall continue in full force and effect as the Certificate of Incorporation of the Surviving Corporation until duly amended in accordance with the provisions thereof and applicable law.

2.2 Bylaws. The Bylaws of Gateway Delaware as in effect immediately prior to the Effective Date of the Merger shall continue in full force and effect as the Bylaws of the Surviving Corporation until duly amended in accordance with the provisions thereof and applicable law.

2.3 Directors and Officers. The directors and officers of Gateway California immediately prior to the Effective Date of the Merger shall be the directors and officers of the Surviving Corporation until their successors shall have been duly elected and qualified or until as otherwise provided by law, the Certificate of Incorporation of the Surviving Corporation or the Bylaws of the Surviving Corporation.

III. MANNER OF CONVERSION OF STOCK

3.1 Gateway California Common Shares. Upon the Effective Date of the Merger, each share of Gateway California Common Stock issued and outstanding immediately prior thereto shall by virtue of the Merger and without any action by the Constituent Corporations, the holder of such shares or any other person, be converted into and exchanged for one fully paid and nonassessable share of Common Stock of the Surviving Corporation.

3.2 Gateway California Preferred Shares. Upon the Effective Date of the Merger, each share of Gateway California Preferred Stock issued and outstanding immediately prior thereto shall by virtue of the Merger and without any action by the Constituent Corporations, the holder of such shares or any other person, be converted into and exchanged for one fully paid and nonassessable share of Preferred Stock of the Surviving Corporation.

3.3 Gateway California Options, Stock Purchase Rights and Convertible Securities.

(a) Upon the Effective Date of the Merger, the Surviving Corporation shall assume the obligations of Gateway California under the options plans and all other employee benefit plans of Gateway California. Each outstanding and unexercised option, warrant, other right to purchase, or security convertible into, Gateway California Common Stock or Gateway California Preferred Stock (a “Right”) shall become an option, warrant, right to purchase or a security convertible into the Surviving Corporation’s Common Stock or Preferred Stock, respectively, on the basis of one share of the Surviving Corporation’s Preferred Stock for each share of Gateway California’s Preferred Stock, as the case may be, issuable pursuant to any such Right, on the same terms and conditions and at an exercise price equal to the exercise price applicable to any such Gateway California Right at the Effective Date of the Merger. This paragraph 3.3(a) shall not apply to Gateway California Common Stock or Preferred Stock. Such Common Stock and Preferred Stock are subject to paragraph 3.1 and 3.2, respectively, hereof.

(b) One share of the Surviving Corporation’s Common Stock shall be reserved for issuance upon the exercise of options, warrants, stock purchase rights and convertible securities equal to each share of Gateway California Common Stock, and a number of shares of Preferred Stock of the Surviving Corporation’s Preferred Stock shall be reserved for issuance upon exercise of options, warrants, stock purchase rights and convertible securities equal to the number of shares of Gateway California Preferred Stock so reserved immediately prior to the Effective Date of the Merger.

3.4 Gateway Delaware Common Stock. Upon the Effective Date of the Merger, each share of Common Stock of Gateway Delaware issued and outstanding immediately prior thereto shall, by virtue of the Merger and without any action by Gateway Delaware, the holder of such shares or any other person, be canceled and returned to the status of authorized but unissued shares.

3.5 Exchange of Certificates. After the Effective Date of the Merger, each holder of an outstanding certificate representing shares of Gateway California Common Stock or Preferred Stock may be asked to surrender the same for cancellation to an exchange agent, whose name will be delivered to holders prior to any requested exchange (the “Exchange Agent”), and each such holder shall be entitled to receive in exchange therefor a certificate or certificates representing the number of shares of the Surviving Corporation’s Common Stock or Preferred Stock, as the case may be, into which the surrendered shares were converted as herein provided. Until so surrendered, each outstanding certificate theretofore representing shares of Gateway California Common Stock or Preferred Stock shall be deemed for all purposes to represent the number of shares of the Gateway California Common Stock or Preferred Stock, as the case may be, were converted in the Merger.

The registered owner on the books and records of the Surviving Corporation or the Exchange Agent of any such outstanding certificate shall, until such certificate shall have been surrendered for transfer or conversion or otherwise accounted for to the Surviving Corporation or the Exchange Agent, have and be entitled to exercise any voting and other rights with respect to and to receive dividends and other distributions upon the shares of Common Stock or Preferred Stock of the Surviving Corporation represented by such outstanding certificate as provided above.

Each certificate representing Common Stock or Preferred Stock of the Surviving Corporation so issued in the Merger shall bear the same legends, if any, with respect to the restrictions on transferability as the certificates of Gateway California so converted and given in exchange therefore, unless otherwise determined by the Board of Directors of the Surviving Corporation in compliance with applicable laws, or other such additional legends as agreed upon by the holder and the Surviving Corporation.

If any certificate for shares of Gateway Delaware stock is to be issued in a name other than that in which the certificate surrendered in exchange therefor is registered, it shall be a condition of issuance thereof that the certificate so surrendered shall be properly endorsed and otherwise in proper form for transfer, that such transfer otherwise be proper and comply with applicable securities laws and that the person requesting such transfer pay to the Exchange Agent any transfer or other taxes payable by reason of issuance of such new certificate in a name other than that of the registered holder of the certificate surrendered or establish to the satisfaction of Gateway Delaware that such tax has been paid or is not payable.

IV. GENERAL

4.1 Further Assurances. From time to time, as and when required by Gateway Delaware or by its successors or assigns, there shall be executed and delivered on behalf of Gateway California such deeds and other instruments, and there shall be taken or caused to be taken by it such further and other actions as shall be appropriate or necessary in order to vest or perfect in or conform of record or otherwise by Gateway Delaware the title to and possession of all the property, interests, assets, rights, privileges, immunities, powers, franchises and authority of Gateway California and otherwise to carry out the purposes of this Agreement, and the officers and directors of Gateway Delaware are fully authorized in the name and on behalf of Gateway California or otherwise to take any and all such action and to execute and deliver any and all such deeds and other instruments.

4.2 Abandonment. At any time before the Effective Date of the Merger, this Agreement may be terminated and the Merger may be abandoned for any reason whatsoever by the Board of Directors of either Gateway California or of Gateway Delaware, or of both, notwithstanding the approval of this Agreement by the shareholders of Gateway California or by the sole stockholder of Gateway Delaware, or by both.

4.3 Amendment. The Boards of Directors of the Constituent Corporations may amend this Agreement at any time prior to the filing of this Agreement (or certificate in lieu thereof) with the Secretary of State of the State of Delaware, provided that an amendment made subsequent to the adoption of this Agreement by the stockholders of either Constituent Corporation shall not: (a) alter or change the amount or kind of shares, securities, cash, property and/or rights to be received in exchange for or on conversion of all or any of the shares of any class or series thereof of such Constituent Corporation; (b) alter or change any term of the Certificate of Incorporation of the Surviving Corporation to be effected by the Merger; or (c) alter or change any of the terms and conditions of this Agreement if such alteration or change would adversely affect the holders of any class or series of capital stock of any Constituent Corporation.

4.4 Registered Office. The registered office of the Surviving Corporation in the State of Delaware is 32 Loockerman Square, Suite L-100, Dover, Delaware 19901, County of Kent and The Prentice-Hall Corporation System, Inc. is the registered agent of the Surviving Corporation at such address.

4.5 Agreement. Executed copies of this Agreement will be on file at the principal place of business of the Surviving Corporation and copies thereof will be furnished to any stockholder of either Constituent Corporation, upon request and without cost.

4.6 Governing Law. This Agreement shall in all respects be construed, interpreted and enforced in accordance with and governed by the laws of the State of Delaware and, so far as applicable, the merger provisions of the California General Corporation Law.

4.7 Counterparts. In order to facilitate the filing and recording of this Agreement, the same may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which together shall constitute one and the same instrument.

WITNESS WHEREOF, this Agreement having first been approved by the resolutions of the Board of Directors of Gateway Industries, Inc., a Delaware corporation, and Gateway Communications, 16c., a California corporation, is hereby executed on behalf of each of such two corporations and attested by their respective officers thereunto duly authorized.

	GATEWAY INDUSTRIES, INC. a Delaware corporation
	By: /s/ P. Cadigan
	, President
ATTEST:
/s/ Joseph Greenberger
, Secretary

	GATEWAY COMMUNICATIONS, INC. a California corporation
	By: /s/ P. Cadigan
	, President
ATTEST:
/s/ Joseph Greenberger
, Secretary

GATEWAY INDUSTRIES, INC.

CERTIFICATE OP ASSISTANT SECRETARY

I, Robert Forman, hereby certify that I am the assistant secretary of Gateway Industries, Inc. (the ‘Corporation”), a Delaware corporation, and that as such I am authorized to execute this certificate on behalf of the Corporation, and do hereby certify that:

1. The corporation has authorized two classes of stock, designated “Common Stock” and “Preferred Stock” respectively.

2. There were 100 shares of Common Stock and 0 shares of Preferred Stock outstanding and entitled to vote at the shareholders’ meeting at which the Agreement and the Plan of Merger attached hereto (the “Merger Agreement”) was approved.

3. The principal terms of the Merger Agreement were approved by the Board of Directors and by the vote of a number of shares of each class and series of stock which equaled or exceeded the vote required.

4. The percentage vote required was more than 50% of the votes entitled to be cast by holders of outstanding shares of Common Stock and Preferred Stock outstanding as of the date of the Meeting, voting as a single class.

IN WITNESS WHEREOF, the undersigned further declares under penalty of perjury under the laws of the State of Delaware that he has read the foregoing certificate an knows the contents thereof and that the name is true of his own knowledge.

/s/ Robert Forman

Robert Forman, Assistant Secretary

CERTIFICATE OF DESIGNATIONS, PREFERENCES

AND OTHER RIGHTS AND QUALIFICATIONS OF

SERIES A PREFERRED STOCK

GATEWAY INDUSTRIES, INC., a corporation organized and existing under the General Corporation Law of the State of Delaware (the “Corporation”),

DOES HEREBY CERTIFY:

That pursuant to authority conferred upon the Board of Directors of the Corporation (the “Board”) by the Certificate of Incorporation of said Corporation, and pursuant to the provisions of Section 151(g) of the Delaware General Corporation Law, the Board has duly determined that 500,000 shares of preferred stock, $.01 par value per share, shall be designated “Series A Preferred Stock,” and to that end the Board has adopted a resolution providing for the designation, preferences and relative, participating, optional or other rights, and the qualifications, limitations and restrictions, of the Series A Preferred Stock, which resolution is as follows:

RESOLVED, that the Certificate of Designations, Preferences and Other Rights and Qualifications of Series A Preferred Stock dated August 19, 2005 (the “Certificate of Designations”) be, and hereby is, authorized and approved, which Certificate of Designations shall be filed with the Secretary of State of the State of Delaware in the form as follows:

1. Designation and Amount. Five Hundred Thousand (500,000) shares of the preferred stock of the Corporation, $.01 par value per share, shall constitute a class of preferred stock designated as “Series A Preferred Stock” (the “Series A Preferred Stock”). Without the written consent of the holders of at least two-thirds of the Series A Preferred Stock then outstanding, the Corporation shall not issue any shares of capital stock or preferred stock that arc senior or pari passu in any respect to the Series A Preferred Stock, including, without limitation, as to payment of dividends or distribution of assets or redemption; or authorize, create or issue any shares of any class or series of any bonds, debentures, notes or other obligations convertible into or exchangeable for, or having optional rights to purchase, or any options, warrants or other rights to acquire, any shares having any such preference or priority.

2. Dividends.

(a) The holders of shares of Series A Preferred Stock shall be entitled to receive out of assets of the Corporation legally available for payment a dividend with respect thereto (a “Preferred Dividend”) at the rate of 10% per annum, payable under the following circumstances: (i) if, as and when declared by the Board of Directors of the Corporation (the “Board”) out of assets of the Corporation legally available for payment thereof and (ii) upon Liquidation (as defined herein). Preferred Dividends shall be paid either in cash or, other than upon liquidation, in additional shares of Series A Preferred Stock, at the Company’s election.

(b) The Corporation may not declare or pay any dividend or make any distribution of assets on, or redeem, purchase or otherwise acquire, shares of capital stock of the Corporation ranking pari passu or junior to the Series A Preferred Stock as to the payment of dividends or the distribution of assets upon liquidation, dissolution or winding up outstanding now (initially consisting of the Series A Preferred Stock and the Common Stock) or hereafter created, unless all declared and unpaid Preferred Dividends have been or are contemporaneously paid.

3. Rights on Liquidation, Merger, Sale, Etc.

(a) In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation (each, a “Liquidation”), the assets of the Corporation available for distribution to its stockholders, whether from capital, surplus or earnings, shall be distributed in the following order of priority:

(i) The holders of Series A Preferred Stock shall be entitled to receive, prior and in preference to any distribution to the holders of the Corporation’s common stock, par value $.001 per share (the “Common Stock”), any other series or class of preferred stock or any other class of the Corporation’s capital stock, whether now existing or hereafter created, an amount on a per share basis equal to (1) the aggregate purchase price of such shares of Series A Preferred Stock and (2) any accrued but unpaid dividends on such shares of Series A Preferred Stock. If upon any Liquidation, the assets of the Corporation available for distribution to its stockholders is insufficient to pay the holders of Series A Preferred Stock the full preference amount to which they shall be entitled, the holders of Series A Preferred Stock shall share pro rata in any distribution of assets in accordance with their applicable full preference amounts.

(ii) After distribution of the amounts set forth in Section 3(a)(i) hereof, the remaining assets of the Corporation available for distribution, if any, to the stockholders of the Corporation shall be distributed to the holders of issued and outstanding shares of Common Stock or any other class of capital stock ranking junior to the Series A Preferred Stock as to the distribution of assets upon Liquidation as provided in the Certificate of Incorporation.

(b) For purposes of this Section 3, either of the following (each, a “Disposition Transaction”) shall be treated as a Liquidation: (i) a merger or consolidation of the Corporation with or into any other entity or entities (but excluding any merger effected solely for the purpose of reincorporating into another state) or the merger of any other entity or entities into the Corporation, in either case in which the stockholders of the Corporation receive distributions in cash or securities of another entity or entities as a result of such consolidation or merger, and in which the stockholders of the Corporation, immediately prior to such merger or consolidation, hold, immediately after such merger or consolidation, less than a majority of the outstanding shares of capital stock or a majority of the outstanding voting power of the then outstanding securities ordinarily (apart from rights occurring under special circumstances) having the right to vote in the election of directors of the surviving or successor entity or its parent, or (ii) a sale of all or substantially all of the assets of the Corporation.

(c) Upon consummation of a Disposition Transaction, the Corporation shall pay or cause to be paid to the holders of Series A Preferred Stock an amount equal to the amount they would be entitled to receive pursuant to Section 3(a) hereof as if the Corporation, on the date of consummation of such Disposition Transaction, had assets available for distribution equal to all of the assets of the Corporation (net of liabilities) including the aggregate amount payable to the Corporation and all stockholders thereof in connection with such Disposition Transaction (the “Disposition Proceeds”). The amount payable pursuant to this Section 3(c) shall be payable in full to the holders of the Series A Preferred Stock immediately following the closing of the Disposition Transaction notwithstanding any delay in the receipt of the Disposition Proceeds or any part thereof by virtue of any escrow arrangement, promissory note, deferred payment of proceeds or otherwise.

4. Voting Rights.

(a) So long as any shares of Series A Preferred Stock remain outstanding, the holders of shares of Series A Preferred Stock shall be entitled voting separately as a class (with no other stockholders voting), to approve all matters that affect the rights or ranking of the Series A Preferred Stock.

(b) In addition to any other rights provided by law, the Corporation shall not, without first obtaining the affirmative vote or written consent of the holders of at least two-thirds of the outstanding shares of Class A Preferred Stock:

(i) increase the authorized capitalization of the Company, or amend or repeal any provision of the Corporation’s Certificate of Incorporation or By-Laws in a manner adverse to the rights, preferences or privileges of the Class A Preferred Stock;

(ii) authorize or effect the payment of dividends or the redemption or repurchase of any capital stock of the Corporation that ranks junior to or pari passu with the Series A Preferred Stock or rights to acquire capital stock of the Corporation that rank junior to or pari passu with the Series A Preferred Stock (other than stock dividends and stock splits);

(iii) in any manner authorize, create or issue any class or series of capital stock (A) ranking, in any respect including, without limitation, as to payment of dividends, distribution of assets or redemptions, senior to or pari passu with the Series A Preferred Stock or (B) which in any manner adversely affects the rights or preferences of the Series A Preferred Stock; or authorize, create or issue any shares of any class or series of any bonds, debentures, notes or other obligations convertible into or exchangeable for, or having optional rights to purchase, or any options, warrants or other rights to acquire, any shares having any such preference or priority or so adversely affecting the rights or preferences of Series A Preferred Stock;

(iv) in any manner alter or change the designations, powers, preferences or rights, or the qualifications, limitations or restrictions of the Series A Preferred Stock;

(v) reclassify the shares of Common Stock or any other shares or any class or series of capital stock hereafter created junior to the Series A Preferred Stock into shares of any class or series of capital stock (A) ranking, either as to payment of dividends, distribution of assets, redemptions or otherwise, senior to or pari passu with the Series A Preferred Stock, or (B) which in any manner adversely affects the rights and preferences of the Series A Preferred Stock;

(vi) set aside assets for a sinking or other similar fund for the purchase, redemption, or retirement of, or redeem, purchase, retire, or otherwise acquire any shares of the Common Stock or of any other capital stock of the Corporation, whether now or hereafter outstanding; except for the repurchase from employees of the Corporation, upon such employees’ termination of employment with the Corporation, of shares of Common Stock issued pursuant to stock option exercises by or underlying stock option grants to such employees pursuant to the terms of stock option agreements between the Corporation and such employees;

(vii) effect or permit, or offer or agree to effect or permit, a Liquidation or Disposition Transaction with respect to the Corporation or any subsidiary;

(viii) sell, lease, or dispose of assets with a fair market value in excess of $500,000 (excepting acquisitions) outside of the ordinary course of business;

(ix) discontinue the businesses in which it or any subsidiary is engaged as of the date of initial issuance of the Series A Preferred Stock (the “Series A Issuance Date”) (which does not include the discontinuation of an individual product line that is not significant to the Corporation), or engage, or permit any subsidiary to engage, in any business other than the businesses in which it is engaged as of the date hereof or in any businesses or activities which are extensions thereof or are similar or related thereto or ancillary to the operation thereof (including, without limitation, (A) the addition of product lines which expand business opportunities with existing customers or are related or ancillary to the businesses in which the Corporation is engaged as of the Series A Issuance Date and (B) engaging in any such businesses with new customers);

5. Redemption. The Corporation, at its sole option, may redeem all, but not less than all, of the Series A Preferred Stock at any time outstanding, at any time or from time to time, by paying, solely in cash, the redemption price of $2.934 per share of Series A Preferred Stock so to be redeemed plus dividends accrued thereon at the date fixed for redemption (such total amount, the “Redemption Price”); provided, however, that (a) the Corporation provides no less than ten (10) days’ prior written notice to the holders of the Series A Preferred Stock, and (b) any such redemption of the Series A Preferred Stock is only made concurrently with the redemption of all the then-outstanding Series A Preferred Stock. The Board shall have full power and authority, subject to the limitations and provisions contained herein, to prescribe the manner in which and the terms and conditions upon which the Series A Preferred Stock shall be redeemed from time to time. If the Board has elected to redeem such Series A Preferred Stock by paying cash and on or before the date fixed by the Board for redemption the funds necessary for such redemption shall have been set apart so as to be and continue to be available therefor, then, notwithstanding that any certificates for the shares of Series A Preferred Stock so called for redemption shall not have been surrendered for cancellation, the shares represented thereby shall no longer be deemed outstanding, the right to receive dividends thereon shall cease to accrue from and after the date of redemption so fixed, and all rights with respect to such shares of Series A Preferred Stock so called for redemption shall immediately on such redemption date cease and terminate, except only the right of the holders thereof to receive the Redemption Price therefor, but without interest. None of the Series A Preferred Stock acquired by the Corporation by redemption or otherwise shall be reissued or disposed of but shall from time to time be retired in the manner provided in Section 6 hereof.

6. Information Rights. Not later than forty-five days after the close of each month and not more than ninety days after the close of each fiscal year, the Corporation shall submit to the holders of the Series A Preferred Stock a balance sheet and income statement reflecting the Corporation’s financial condition as of the end of such period.

7. Miscellaneous.

(a) Any shares of the Preferred Stock redeemed, purchased or other wise acquired by the Corporation in any manner whatsoever shall be retired and canceled promptly after the acquisition thereof. All such shares shall, upon their cancellation, become authorized but unissued shares of Preferred Stock, unless otherwise provided for in the Certificate of Incorporation of the Corporation, and may be reissued as part of a new series of Preferred Stock to be created by resolution or resolutions of the Board of Directors, subject to the conditions or restrictions on issuance set forth herein.

(b) In the event of any taking by the Corporation of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend or other distribution, any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right, the Corporation shall mail to each holder of Series A Preferred Stock, at least 20 days prior to the date specified therein, a notice specifying the date on which any such record is to be taken for the purpose of such dividend, distribution or right, and the amount and character of such dividend, distribution or right;

(c) Any notice required by the provisions of this Certificate of Designations to be given to the holders of shares of Series A Preferred Stock shall be deemed given if sent by overnight courier or deposited in the United States mail, postage prepaid, and addressed to each holder of record at his address appearing on the stock books of the Corporation.

8. Waiver. Any right or privilege of the Series A Preferred Stock may be waived (either generally or in a particular instance and either retroactively or prospectively) by and only by the written consent of the holders of a majority of the Series A Preferred Stock then outstanding and any such waiver shall be binding upon each holder of Series A Preferred Stock.

Signature Page Follows’

[SIGNATURE PAGE TO THE CERTIFICATE OF DESIGNATIONS, PREFERENCES AND OTHER RIGHTS AND QUALIFICATIONS OF SERIES A PREFERRED STOCK]

IN WITNESS WHEREOF, the undersigned has executed this Certificate of Designations as of this 19th day of August, 2005.

GATEWAY INDUSTRIES, INC.

By: /s/ Jim Henderson

Name: Jim Henderson

Title: President

EX-4.5 4 exhibit_4-5.htm SUBSCRIPTION AGREEMENT exhibit_4-5.htm

Exhibit 4.5

Gateway Industries, Inc.

590 Madison Avenue, 32nd Floor

New York, NY

SUBSCRIPTION AGREEMENT

Adage Capital Management LP

200 Clarendon Street

52nd Floor

Boston, MA 02116

Ladies and Gentlemen:

Gateway Industries, Inc., a Delaware corporation (the “Company”), is hereby privately offering (the “Offering”) 13,232,597 shares of common stock, $0.01 par value per share, of the Company (the “Shares”) at a purchase price of $10,000,000 (the “Purchase Price”) to the undersigned, in reliance on the exemption from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), provided by Rule 506 of Regulation D under the Securities Act. Upon completion of this Offering, the undersigned will own approximately 9.8% of the Company. This subscription agreement and the Purchase Price will be deposited in an escrow account at Kramer Levin Naftalis & Frankel LLP, to be released upon the satisfaction of the conditions of the Offering.

The Company intends to use the proceeds from the Offering to fund its working capital requirements in order to develop its new entertainment and consumer enterprise which will capitalize on the convergence of digital media and entertainment and which effort will be led by Robert F.X. Sillerman. Upon completion of the Offering, the Company will change its name to Function (X) Inc. and its shares will continue to be quoted on the OTC Bulletin Board or the Pink Sheets. The Shares to be issued in the Offering will be restricted securities under the Securities Act and cannot be resold unless pursuant to registration or an exemption from registration under the Securities Act. The Company has agreed to file with the Securities and Exchange Commission (“SEC”) a Registration Statement on Form S-1 promptly (but not later than 90 days) after closing of the Offering to register the shares for resale (and to use commercially reasonable efforts thereafter to promptly have such Registration Statement declared effective by the SEC).

1. Subscription. Subject to the terms and conditions of this subscription agreement (“Subscription Agreement”), the undersigned (“Purchaser”) hereby agrees to be legally bound to purchase the number of Shares set forth above. Purchaser hereby irrevocably tenders this Subscription Agreement for the purchase of such Shares. Purchaser further sets forth statements herein upon which the Company may rely to determine the suitability of the Purchaser as a purchaser of such Shares.

2. Conditions to Subscription. The Purchaser understands and agrees that this subscription is made subject to the following terms and conditions:

(a) This subscription shall be deemed to be accepted by the Company only when it is signed by the Company;

(b) You may not revoke, cancel or terminate this subscription unless the Company cancels or terminates the Offering;

(d) You have executed and delivered this Subscription Agreement and hereby agree to tender the Purchase Price (as defined below) within two (2) business days of receipt of written notice from the Company advising you to do so.

If this subscription is rejected by the Company in its sole and absolute discretion or because the Company terminates or cancels the Offering, the Company shall promptly return the Purchase Price received from the Purchaser shall be promptly returned without interest thereon or deduction therefrom, and this Subscription Agreement shall thereafter be of no further force or effect.

3. Representations and Warranties. Purchaser hereby represents and warrants to, and agrees with, the Company as follows:

(a)

(i)

Purchaser has received and has read and fully understands this Subscription Agreement.

(ii) Purchaser or its advisor(s) have had a reasonable opportunity to ask questions of and receive answers from a person or persons acting on behalf of the Company concerning the Company and the Offering and all such questions have been answered to the full satisfaction of the Purchaser.

(iii) No oral or written representations have been made other than as stated in this Subscription Agreement, and no oral or written information furnished to the Purchaser or its advisor(s) in connection with the Offering was in any way inconsistent with the information stated in this Subscription Agreement.

(iv) If Purchaser is an entity, (i) it is authorized and qualified to become a member of, and authorized to make the purchase of the Shares offered by, the Company; (ii) it has not been formed for the purpose of acquiring the Shares; (iii) the person signing this Subscription Agreement on behalf of such entity has been duly authorized by such entity to do so and (iv) its principal executive offices are located in the state in which its address is specified below.

(v) Purchaser has such knowledge and experience in financial, tax and business matters so as to enable it to utilize the information made available to it in connection with the Offering, to evaluate the merits and risks of an investment in the Shares and to make an informed decision with respect thereto; Purchaser acknowledges that there is a significant risk of loss of all or a portion of the Purchaser’s investment in the Shares.

(b) Purchaser is an “accredited investor” within the meaning of Rule 501(d), as promulgated under the Securities Act because Purchaser is a corporation, Massachusetts or similar business trust, or partnership not formed for the specific purpose of acquiring the Shares, with total assets in excess of $5,000,000.

(c) Purchaser’s overall commitment to investments which are not readily marketable is reasonable in relation to its net worth.

(d) (i) Purchaser has full power and authority to execute and deliver this Subscription Agreement, (ii) the execution and delivery by Purchaser of this Subscription Agreement and the performance by it of its obligations hereunder and thereunder have been authorized by all necessary action of the Purchaser, (iii) this Subscription Agreement has been duly and validly executed and delivered by Purchaser and constitute legal, valid and binding obligations of Purchaser, and (iv) this Subscription Agreement is enforceable against Purchaser in accordance with its terms.

(e) Purchaser acknowledges and understands that an investment in the Company will involve substantial risks. Purchaser further acknowledges and understands that the following list of risk factors does not purport to be a complete enumeration or explanation of the risks involved in an investment in the Company and additional risks or uncertainties may adversely affect the Company or the value of an investment in the Company:

(i) Mr. Robert F.X. Sillerman, as the beneficial owner of a majority of the Company’s outstanding common stock, will be the controlling stockholder of the Company and have the ability to exert significant control over the Company’s management and affairs requiring stockholder approval, including the approval of significant corporate transactions and the ability to elect and remove directors.

(ii) Upon completion of the Offering, the Company will be a development stage company and its prior operating history will not be germane to future operations. The Company has been inactive since 2006. The Company’s prospects must be evaluated in light of the risks and uncertainties frequently encountered by a company in the early stage of development. The entertainment and consumer segments in which the Company intends to operate are highly competitive and makes these risks and certainties particularly pronounced.

(iii) The Company has significant capital requirements to develop its business and will need to raise additional capital for the foreseeable future, which may through equity and/or debt financings. There can be no assurance that the Company will be able to raise such capital when needed or on terms and conditions acceptable to the Company, or at all. To the extent the Company raises additional capital by issuing equity securities; the Company’s stockholders will experience dilution in their ownership of the common stock of the Company.

(iv) The Company has made certain representations with respect to potential liabilities and has completed audited financial statements for 2008, 2009 and 2010. Nevertheless, the Company may have other unanticipated or unknown liabilities which may have a material adverse effect on the Company and its stockholders.

(v) The loss of the services of Mr. Sillerman or one or more key members of management or other key employees of the Company could have a material adverse effect upon the Company’s business, operating results or financial condition. In addition, the future success of the Company will depend in large part upon its ability to attract and retain additional management and personnel. There can be no assurance that the Company will be successful in attracting and retaining such personnel, and the failure to do so would have a material adverse effect on the Company’s business, operating results and financial condition.

(vi) The Shares have not been registered under the Securities Act or any state securities laws. The Shares are highly illiquid. Until the Registration Statement is declared effective, the Shares to be issued in the Offering will not be registered under the Securities Act or any state securities laws and, thus, will not be freely tradable or eligible for resale under Rule 144 promulgated under the Securities Act until one year after the Company files its “Form 10 information” with the SEC and unless the public has filed all required periodic reports and materials under the Securities Exchange Act of 1934, as amended, during the preceding 12 months (or such shorter period the Company was required to file such reports and materials). An active public market for the Company’s common stock may not develop or be sustained. In addition, the number of unrestricted shares of the Company in the public float will represent only a small percentage of the shares of Company common stock outstanding upon completion of the Offering.

(vii) The Company, upon completion of the Offering, does not anticipate paying dividends on its common stock in foreseeable future. In addition, the terms of future debt financings may prohibit the payment of cash dividends on the common stock.

(f) Purchaser acknowledges:

(i) The Purchaser, if executing this Subscription Agreement in a representative or fiduciary capacity, has full power and authority to execute and deliver this Subscription Agreement and in such capacity and on behalf of the subscribing individual, ward, partnership, trust, estate, corporation, or other entity for whom the Purchaser is executing this Subscription Agreement, and such individual, ward, partnership, trust, estate, corporation, or other entity has full right and power to perform pursuant to this Subscription Agreement and, if applicable, the Promissory Note and make an investment in the Company;

(ii) Purchaser consents to the placement of the following legend on any certificate or other document evidencing the Shares:

THESE SHARES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR THE SECURITIES LAWS OF ANY STATE AND HAVE BEEN SOLD IN RELIANCE UPON EXEMPTIONS THEREFROM. THESE SECURITIES MAY NOT BE PLEDGED, HYPOTHECATED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT COVERING THESE SECURITIES UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION IS NOT REQUIRED THEREUNDER; and

(iii) The representations, warranties, and agreements of Purchaser contained herein shall survive the execution and delivery of this Subscription Agreement and the purchase of the Shares.

4. Prohibitions on Cancellation, Termination, Revocation, Transferability, and Assignment. Purchaser hereby acknowledges and agrees that, except as may be specifically provided herein, or by applicable law, Purchaser is not entitled to cancel, terminate, or revoke this Subscription Agreement. Purchaser further agrees that it may not transfer or assign its rights under this Subscription Agreement.

5. Notices. All notices hereunder shall be sufficient upon receipt for all purposes hereunder if in writing and delivered personally, sent by documented overnight delivery service or, to the extent receipt is confirmed, telecopy, telefax, or other electronic transmission service to the appropriate address or number (a) if to the Company, at the address set forth above, or (b) if to Purchaser, at the address set forth on the signature page hereof (or, in either case, to such other address as the party shall have furnished in writing in accordance with the provisions of this Section 5).

6. Counterparts. This Subscription Agreement may be executed through the use of separate signature pages or in any number of counterparts, and each of such counterparts shall, for all purposes, constitute one agreement binding on all of the parties, notwithstanding that all parties are not signatories to the same counterpart. Execution and/or delivery by facsimile or electronic means shall constitute an original signature for all purposes.

7. Applicable Law. The internal laws of the State of New York (without giving effect to any choice or conflict of law provision or rule (whether of the State of York or any other jurisdiction) that would cause the application of laws of any other jurisdiction) shall govern all matters arising out of or relating to this Subscription Agreement, including its validity, interpretation, construction, performance and enforcement. Any action or proceeding arising out of or relating to this Subscription Agreement must be brought in the courts of the State of New York, New York County, or, if it has or can acquire jurisdiction, in the United States District Court for the Southern District of New York. Each of the parties knowingly, voluntarily and irrevocably submits to the exclusive jurisdiction of each such court in any such action or proceeding and waives any objection it may now or hereafter have to venue or to convenience of forum. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS SUBSCRIPTION AGREEMENT, OR ANY TRANSACTIONS CONTEMPLATED HEREBY. EACH OF THE PARTIES HERETO HEREBY WAIVES ANY RIGHT IT MAY HAVE TO TRANSFER OR CHANGE THE VENUE OF ANY LITIGATION BROUGHT AGAINST IT IN ACCORDANCE WITH THIS SECTION AND FURTHER WAIVES ANY CLAIM BASED ON FORUM NON CONVENIENS.

8. Disclosure Notices.

THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES LAWS OF ANY STATE AND ARE BEING OFFERED AND SOLD IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF SAID ACT AND SUCH LAWS. THE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER SAID ACT AND SUCH LAWS PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. PURCHASERS SHOULD BE AWARE THAT THEY WILL BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.

THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION OR ANY OTHER REGULATORY AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE MERITS OF THIS OFFERING OR THE ACCURACY OR ADEQUACY OF THIS SUBSCRIPTION AGREEMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.

[SUBSCRIPTION PAGE FOLLOWS]

SUBSCRIPTION PAGE

IN WITNESS WHEREOF, the undersigned has executed this Subscription Agreement this _____ day of February, 2011.

Shares being purchased:

Purchase Price:

Wire Transfer Purchase Price to :

Bank:

ABA :

Account #:

Account Name:

Reference: Gateway Subscription

_________________________________________

Please print exact name (registration) that Purchaser

desires on records of the Company

_________________________________________
_________________________________________
_________________________________________
_________________________________________

Telephone_________________________________________

Fax Number________________________________________

_________________________________________

Social Security or Taxpayer I.D. Number

_________________________________________

State of Organization, if applicable

The undersigned hereby represents and warrants that the undersigned is a general partner of the partnership named below (“Partnership”), and has been duly authorized by the Partnership to acquire the Shares and that he has all requisite authority to acquire such Shares.

The undersigned represents and warrants that each of the above representations or agreements or understandings set forth herein applies to that Partnership and he is authorized by such Partnership to execute this Subscription Agreement.

_______________, 2011

____________________________________

Date	Name of Partnership

(Please type or print)

By:_________________________________

Name:_______________________________

Title:________________________________

COMPANY’S ACCEPTANCE

This Subscription Agreement is only accepted as so acknowledged in writing by the Company.

ACCEPTED as to 13,232,597 Shares:

Gateway Industries, Inc.

By:______________________________

Name:___________________________

Title: ___________________________

Date:____________________, 2011

EX-5.1 5 exhibit_5-1.htm OPINION exhibit_5-1.htm

Exhibit 5.1

KRAMER LEVIN NAFTALIS & FRANKEL LLP

October 7, 2011

FUNCTION(X) INC.

159 East 70th Street

New York, New York 10021

Ladies and Gentlemen:

We have acted as counsel to Function(x) Inc., a Delaware corporation (the “Registrant”), in connection with the preparation and filing of a Registration Statement on Form S-1 (the “Registration Statement”) with the Securities and Exchange Commission (the “Commission”), with respect to the proposed resale by the selling stockholders named in the Registration Statement (the “Selling Stockholders”) of (i) up to 14,422,597 shares (the “Shares”) of the Registrant's common stock, par value $0.001 per share (“Common Stock”) previously issued to the Selling Stockholders by the Registrant; and (ii) up to 100,000 shares of Common Stock (the “Warrant Shares”) which are issuable upon the exercise of warrants (the “Warrants”) issued to a certain Selling Stockholder by the Registrant.

We have reviewed copies of the Registration Statement, the Certificate of Incorporation of the Registrant, the By-laws of the Registrant and resolutions of the Board of Directors of the Registrant authorizing the issuance of the Shares, the Warrants and the Warrant Shares. We have also reviewed such other documents and made such other investigations as we have deemed appropriate.

Based upon the foregoing, and subject to the qualifications, limitations and assumptions set forth herein, we are of the opinion that the Shares have been legally issued, fully paid and non-assessable, and the Warrant Shares, when issued upon exercise and payment in full of the exercise price, will be legally issued, fully paid and non-assessable.

We do not express any opinion with respect to any law other than the General Corporation Law of the State of Delaware. This opinion is rendered only with respect to the laws and legal interpretations and the facts and circumstances in effect on the date hereof.

We hereby consent to the use of this opinion as an exhibit to the Registration Statement and to the use of our name under the caption “Legal Matters” in the prospectus included in the Registration Statement. In giving this consent, we do not thereby admit that we are within the category of persons whose consent is required under Section 7 of the Act or the rules and regulations promulgated thereunder.

Very truly yours,

/s/ Kramer Levin Naftalis & Frankel LLP

KRAMER LEVIN NAFTALIS & FRANKEL LLP

1177 Avenue of the Americas New York NY 10036-2714 Phone 212.715.9100 Fax 212.715.8000 www.kramerlevin.com

also at 47 Avenue Hoche 75008 Paris France

EX-10.7 6 exhibit_10-7.htm SHARED SERVICES AND REIMBURSEMENT AGREEMENT exhibit_10-7.htm

Exhibit 10.7

SHARED SERVICES AND REIMBURSEMENT AGREEMENT

Dated as of February 15, 2011

The parties to this Shared Services and Reimbursement Agreement are Circle Entertainment Inc., a Delaware corporation (“Circle”) and Function (X) Inc., a Delaware corporation (“Function (X)”). Circle and Function (X) are sometimes referred to collectively hereinafter as the “parties” or individually as a “party.”

Circle, through various subsidiaries, is engaged in various activities, including the development of location-based entertainment concepts utilizing the SkyView™ technology. Function (X) is engaged in activities relating to new concepts in the media and technology space. Shares of Circle common stock and shares of Function (X) common stock are registered for public trading under the Securities Exchange Act of 1934.

Each of Circle and Function (X) has determined it is in its best interest to share certain capabilities by virtue of its executive management, principally the services of Mitchell J Nelson, as general counsel, and other resources consisting of support personnel and administrative assistants relating to the administrative and overhead costs and services to be performed in support thereof (“Support”), and the parties have determined that it is efficient and economical to do so as long as the functions they perform are satisfactory and meet the expectations of both parties and the costs and expenses therefore are allocated and reimbursed appropriately. Accordingly, each of Circle, on the one hand, and Function (X), on the other hand, wishes to permit such personnel and Support to be performed for the other, on the terms and conditions set forth in this Agreement.

In consideration of the mutual agreements, provisions and covenants contained in this Agreement and for other good and valuable consideration, the receipt and legal sufficiency of which are hereby acknowledged, the parties hereby agree as follows:

1. Shared Services.

1.1 Services.

(a) Services. Subject to the terms of this Agreement, during the Term (as hereinafter defined), Mitchell J. Nelson (“Nelson”) and Support shall perform services described on Schedule 1.1(a) to this Agreement (the “Provided Services”) for Circle and Function (X). As general counsel to both Circle and Function (X), Nelson has signed employment agreements permitting him to undertake work and services for other parties so long as he devotes the time necessary to satisfy his responsibilities and obligations as general counsel to each company with the degree of care, diligence and effort commensurate with the position. In connection with such performance, he will be utilizing Support.

1.2 Determination of Services to be Performed. Quarterly, or with such other frequency as the parties may mutually determine, one Service Representative (as hereinafter defined) from Function (X) and one Services Representative from Circle shall meet either in person, at a time and place mutually determined, or by telephone, at a time mutually determined, to review whether the needs of the parties hereto with respect to Provided Services have been satisfied and to review the allocation to the parties hereto of their respective responsibilities to pay for Support and make appropriate reimbursements. The allocation of the Support shall take into account the reasonable commercial needs fulfilled and be based upon the Provided Services. The parties acknowledge that from time to time, the Provided Services may be required more by one party than the other, but generally it is anticipated to be relatively equal over the term of this Agreement.

1.3 Service Representatives. Each party shall maintain a representative, who may be relied upon exclusively in dealing with the other party under this Agreement for purposes of determining whether the Provided Services to be performed hereunder have been fairly allocated to satisfy its own needs and, if appropriate, reimbursed (each, a “Service Representative”). Concurrently with the execution and delivery of this Agreement, each party is identifying its initial Services Representative as its President or Chief Executive Officer. Either Party may change Services Representative at any time by giving written notice to the other party. In performing its obligations with respect to Provided Services under this Agreement, a party shall be entitled to rely upon any instructions, authorizations, approvals or other information provided by the Services Representative of the other party.

1.4 Personal Nature of Services.

(a) The Provided Services to be provided to each party hereunder are personal in nature. Neither party may assign or encumber this Agreement or any of its rights or obligations hereunder or delegate or subcontract any performance or other obligation hereunder without the prior written consent of the other party.

(b) The parties agree that matters which Mitchell J. Nelson will work on are confidential to the respective party and that he shall be entitled to preserve the confidentiality of the attorney client relationship with each. The parties further acknowledge that their respective lines of business are not competitive and there is no conflict of interest or corporate opportunity created with respect to or owed to the other party as a result of his performance of the duties as chief legal officer and general counsel to each.

1.5 Employment Contracts of Key Personnel. From time to time after the date hereof the parties may enter into modifications of employment agreements with employees who may be expected to perform Provided Services hereunder. Each of the parties shall use its reasonable commercial efforts to cause any such employment agreement to contain an appropriate provision whereby the employee acknowledges and agrees that performing such Provided Services under this Agreement may be part of the employee’s duties from time to time as directed by the employer and that such employee shall be bound and obligated to comply with any reasonable non-disclosure and assignment of invention agreements that the recipient of services pursuant to this Agreement generally requires to be signed by its own employees; provided, however, that the employer of an employee who is providing services to the other party pursuant to this Agreement shall not be liable or responsible for any breach committed by its own employee(s) of such non-disclosure and assignment of invention agreements, without the party’s knowledge or complicity.

1.6 Compliance with Laws. Each party shall comply with all applicable laws, codes, regulations, ordinances and rules with respect to the Provided Services to be performed hereunder, and shall procure and maintain all permits or licenses that may be required at any time in connection with the performance of the Provided Services.

1.7 No Additional Resources. In providing Provided Services hereunder, no party shall be obligated to hire any additional employees, maintain the employment of any specific employee or purchase, lease or license any additional equipment or materials.

1.8 Cooperation. To the extent required in the reasonable determination of a party performing Provided Services hereunder, the party receiving such services shall cooperate with the performing party in all reasonable respects in the provision of such Provided Services.

1.9 Force Majeure. Each party shall be excused from its obligations pursuant to this Agreement to the extent performance thereof is prevented by any act of God, war, riot, fire, explosion, accident, flood, sabotage or acts of terrorism, lack of (despite reasonable efforts to obtain) adequate labor or material, compliance with governmental requests, laws, regulations, orders or actions, breakage or failure of machinery or apparatus, failure of a third party to perform, or any other cause or circumstances beyond the reasonable control of the performing party.

2. Term.

2.1 Term and Termination. This Agreement is effective on the date hereof and shall remain in force and effect until December 31, 2011 (the “Term”); provided, however, that the Term may be extended or earlier terminated by the mutual written agreement of the parties, or may be earlier terminated upon 30 days’ prior written notice from either party to the other party.

2.2 Independent Representative. For purposes of this Agreement, the “Independent Representative” of a party shall mean the Audit Committee of such party’s Board of Directors.

3. Payments.

3.1 Compensation and Reimbursement Factors.

(a) The employment agreements for Nelson with Function (X) and Circle (the “Function X Employment Agreement” and “Circle Employment Agreement”, respectively) as currently in effect have been delivered to the parties. Function (X) has agreed to initially advance the base salary under each Employment Agreement and to advance the company-paid portion of benefits for health, dental and vision insurance (the “Benefit Programs”) (programs Circle now also provides) under its programs to which Nelson shall be entitled, and Circle shall be responsible for reimbursing Function (X) from time to time for the advance of base salary and an allocable share of the costs and expenses for the Benefit Programs, based on a 50/50 sharing. To the extent that Nelson is entitled to any bonus, stock options, or other compensation in addition to his base salary, such compensation shall be paid directly by each party to Nelson in accordance with the applicable employment agreement. If at any time, Function (X) no longer undertakes to advance for the full base salary and/or the Benefit Programs, then each party shall be responsible for the direct payment to Nelson of its share of base salary and/or the Benefit Programs pursuant to each employment agreement in accordance with its ordinary payroll practices.

(b) With respect to the Support portion of the Provided Services, each party shall be responsible for its allocable share of the costs and expenses relating to such portion of the Provided Services applicable to it. In general, such services shall be based on an allocation of time and overhead prepared by Nelson and subject to review by the Independent Representatives. Such allocation shall be based upon factors in good faith discretion considered to be relevant and appropriate under the particular circumstances, including primarily the costs and burden of providing the support portion of the Provided Services, the time required and the compensation received by the person supplying the support portion of the Provided Services, with an amount attributable to overhead (such as rent, utilities, and similar costs).

(c) It is understood and agreed that it shall not be necessary to keep detailed time records of the allocation made, and in general, it is presumed that the Support shall be equally divided between the parties, with the presumption over the term of the Agreement that the allocation of the Support will, in general, follow the allocation of the Provided Services.

(d) Prior to the date of this Agreement, the parties hereto may have performed certain of the services contemplated hereunder. Promptly after the execution and delivery of this Agreement, each party shall deliver to the other parties a description of all such services previously performed, and the parties shall in good faith determine and pay the net compensation due using the factors described in this Section 3.1.

3.2 Quarterly Determination of Net Payment.

On one or more mutually convenient days during the last 15 days of each January, April, July, October, commencing April 2011, each of the parties hereto shall cause a duly authorized representative (who need not be a Services Representative) to meet with the other party’s duly authorized representative to (i) determine the net payment due from one party to the other hereunder during the calendar quarter ended on the last day of the preceding month, and (ii) prepare a report in reasonable detail with respect to the services so performed, including the net payment due. At or prior to such meetings, Nelson shall (if requested) furnish the other party with advice as to the matter generally handled during the preceding calendar quarter. The parties hereto shall, through such meetings of their Service Representatives, use their reasonable, good-faith efforts to determine the net payments due in accordance with the factors described in Section 3.1(a) hereof. In general it is assumed that Nelson shall devote approximately equal efforts for each company in performance of the responsibilities, although quarter to quarter time may vary depending on each party’s requirements. While it is anticipated that the Provided Services for each party will generally be similar in time commitment, each party shall have an Independent Representative review the amount relating to the Provided Services for each party on a quarterly basis. The Service Representative shall recommend to the Independent Representative of each party the net payment to be made for review and approval. If the Independent Representatives deem the adjustment to be appropriate, then they shall approve the reimbursement or payment (as the case may be). If the Independent Representative of either party raises questions or issues with respect to the report, the parties shall cause their duly authorized representatives to meet promptly to address such questions or issues in good faith and, if appropriate, prepare a revised report. If the report is approved by the Independent Representative of each party, then the net payment due as shown in the report shall be promptly paid, but in any event not more than 30 days after approval by the Independent Representatives.

4. Confidentiality.

(a) In the course of performance of the Provided Services hereunder, the parties may disclose or deliver to each other Confidential Information (as hereinafter defined), and nothing in this Agreement shall prohibit the possession by a party hereto of any such Confidential Information, subject in all events to all of the provisions set forth below in this Section 4. The parties wish to assure that all Confidential Information is protected from unwanted disclosures. Therefore, during and after the Term, the Receiving Party (as hereinafter defined) shall, and shall cause all of its Representatives (as hereinafter defined) to, keep the Confidential Information strictly confidential, not disclose any of the Confidential Information to any Person outside its organization, not exploit such Confidential Information for its own benefit or the benefit of another, unless in each case the Protected Party (as hereinafter defined) gives its express, prior written consent to the contrary.

(b) Without limiting the foregoing, the Receiving Party shall disclose Confidential Information only to individuals within its organization (including legal, accounting, financial and other professional advisers) only if such individuals have a need to know such Confidential Information in the course of the performance of their duties and who are bound by a written agreement or applicable codes of professional conduct to protect the confidentiality of such Confidential Information. The Receiving Party shall promptly report to the Protected Party any actual or suspected violation of the terms of this Section 4 and will take all reasonable further steps requested by the Protected Party to prevent, control or remedy any such violation. In addition, the parties acknowledge that each other party is or may be a public company. Therefore, each party shall advise each of its employees, representatives and advisors that may be involved in performing Provided Services hereunder that the federal and state securities laws prohibit any person who has material, non-public information about a company from purchasing or selling securities of such a company or from communicating such information to any other person under circumstances in which it is reasonably foreseeable that such person is likely to purchase or sell such securities.

(c) The obligations of the Receiving Party under this Section 4 shall not apply to the extent that such Confidential Information:

(i) is generally known to the public at the time of disclosure or becomes generally known without the Receiving Party violating this Section 4;

(ii) is in the Receiving Party’s possession at the time of disclosure otherwise than as a result of Receiving Party’s breach of any legal obligation;

(iii) becomes known to the Receiving Party through disclosure by sources other than the Protected Party having the legal right to disclose such Confidential Information;

(iv) is, and can be conclusively shown to have been, independently developed by the Receiving Party without reference to or reliance upon the Confidential Information;

(v) is required to be disclosed by the Receiving Party in order for the Receiving Party to comply with applicable laws and regulations, provided that the Receiving Party provides prior written notice of such required disclosure to the Protected Party;

(vi) is utilized by the Receiving Party in connection with the business dealings and transactions between the Receiving Party and the Protected Party; or

(vii) as utilized by the Receiving Party to enforce its rights under this Agreement.

(d) The Receiving Party shall not by virtue of this Agreement receive any right, title or interest in, or any license or right to use, the Confidential Information of the Protected Party or any patent, copyright, trade secret, trademark or other intellectual property rights therein, by implication or otherwise.

(e) The Receiving Party shall, upon the termination of this Agreement or the request of the Protected Party, deliver to the Protected Party all Confidential Information of the Protected Party (and all copies and reproductions thereof). In addition, the Receiving Party shall destroy: (i) any notes, reports or other documents prepared by the Receiving Party which contain Confidential Information of the Protected Party; and (ii) any Confidential Information of the Protected Party (and all copies and reproductions thereof) which is in electronic form or cannot otherwise be returned to the Protected Party.

(f) Each of the parties acknowledges and agrees that money damages would not be a sufficient remedy to any Protected Party hereunder for any breach of this Section 4 by the Receiving Party, and that the Protected Party shall be entitled to equitable relief, including injunction and specific performance, in the event of any breach of any of the provisions of this Section 4, without being required to post any bond or other security, or prove damages or an inadequate remedy at law, in connection with such relief. Such remedies shall not be deemed to be the exclusive remedies for a breach of this Section 4, but shall be in addition to all other remedies available at law or equity.

(g) As used herein:

(i) “Confidential Information” means all trade secrets or confidential or proprietary information relating to a party (as used in this Section 4, the “Protected Party”) in any format or medium that may be disclosed or delivered to, received by or discovered by another party hereto (as used in this Section 4, the “Receiving Party”). Without limitation, the term “Confidential Information” shall include any notes, analyses, compilations, studies, interpretations, memoranda or other documents prepared by or on behalf of the Receiving Party that contain, reflect or are based upon, in whole or in part, any Confidential Information obtained by the Receiving Party.

(ii) “Representative” means, with respect to any party, the directors, officers, partners, trustees, employees, Affiliates, subsidiaries, agents, representatives, consultants, accountants, financial advisors, experts, legal counsel, and other advisors to such party.

(iii) A “Person” means an individual, corporation, limited partnership, general partnership, limited liability company, societe anonyme, association, organization, sole proprietorship, or any other entity whatsoever, wherever formed or wherever located, or a government (or political subdivision thereof), or governmental agency.

(iv) An “Affiliate” means, when used with reference to a specified party, (i) any party who directly or indirectly through one or more intermediaries controls, is controlled by, or is under common control with the specified party, or (ii) any party who is a member of the immediate family of such party.

5. Indemnification.

5.1 Indemnification.

(a) Each party to this Agreement (the “Indemnifying Party”) shall protect, indemnify and hold harmless the other party performing, and such party’s employees (including without limitation each and every employee who actually performs such services), shareholders, officers, directors, affiliates, and subsidiaries, and their respective successors and assigns (each, an “Indemnified Party”), from and against any and all losses, damages, liabilities, claims, demands, causes of action and expenses of any kind (collectively, “Losses”) arising from the performance of this Agreement by such party pursuant to this Agreement, except to the extent any such Losses result from the gross negligence or willful misconduct of an Indemnified Party; provided, however, that any indemnification hereunder shall be limited as provided in Section 5.2 hereof. The indemnification obligations of each Indemnifying Party under this Section 5.1 shall survive any termination of this Agreement.

(b) If any claim shall be made or proceeding instituted (collectively, a “Claim”) against any Indemnified Party for which indemnity will be sought pursuant to this Agreement, such Indemnified Party shall promptly notify the Indemnifying Party in writing (an “Indemnification Notice”). The Indemnifying Party, within ten (10) days following receipt of the Indemnification Notice, shall retain counsel reasonably satisfactory to the Indemnified Party to represent the Indemnified Party. The approval of counsel by the Indemnified Party shall not be unreasonably withheld or delayed. The Indemnifying Party shall be responsible for and shall pay the fees and disbursements of such counsel directly related to the Claim. Notwithstanding the foregoing, any Indemnified Party shall have the right to retain its own counsel, but the fees and disbursements of such counsel shall be at the expense of the Indemnified Party unless: (i) the Indemnifying Party shall have failed to retain counsel as required herein, or (ii) counsel retained by the Indemnifying Party is inappropriate due to actual or potential conflicting interests between the Indemnified Party and any other party represented by such counsel in the Claim. The Indemnifying Party shall not be liable for the fees and disbursements of more than one law firm qualified to act as counsel for the Indemnified Parties in connection with a Claim.

(c) The Indemnifying Party shall not be liable for payment of any settlement of a Claim without the Indemnifying Party’s prior written consent. The Indemnified Party also shall have the right to consent in writing prior to settlement of a Claim involving the Indemnified Party, but such consent shall not be unreasonably withheld or delayed by the Indemnified Party.

5.2 Certain Limitations.

(a) In no event shall a party, or its employees, shareholders, officers, directors, affiliates, and subsidiaries, and successors and assigns, be liable or responsible for any inability, failure or delay to provide Provided Services hereunder resulting from the delay, incompleteness or inaccuracy of records, data or information furnished by the requesting party or any deficiency of assets transferred by the requesting party to the performing party.

(b) In no event shall a party, or its employees, shareholders, officers, directors, affiliates, and subsidiaries, and successors and assigns, be liable or responsible, whether in contract, tort (including negligence), warranty, strict liability or any other legal theory for any special, indirect, incidental or consequential damages of any nature (including without limitation any lost profits) in connection with the Provided Services provided pursuant to this Agreement.

(c) Except as expressly set forth in this Agreement, no warranties, representations, indemnities or guarantees with respect to the Provided Services to be performed hereunder are made by either party, whether express or implied, or arising by law, custom or otherwise.

6. Miscellaneous.

6.1 Notices. Any notice or communication of any kind to any party hereto (or to such party’s Services Representatives) in connection with this Agreement shall be at the address of such party set forth below, or to such other mailing address of which such party shall advise the other party in writing:

If to Circle, to:

Circle Entertainment Inc.

650 Madison Avenue, 15th Floor

New York, New York 10022

Facsimile No.: (212) 702-0126

Attention: Paul C. Kanavos, President

If to Function (X), to:

Function (X), Inc.

159 East 70th Street

New York, New York 10021

Facsimile No.: (212) 319-6517

Attention: Janet Scardino, Chief Executive Officer

Any notice or other communication hereunder shall be in writing and shall be deemed to have been duly given if personally delivered, sent by overnight courier or sent by United States mail, or by facsimile transmission, and will be deemed received, unless earlier received, (i) if sent by certified or registered mail, return receipt requested, when noted as received by the Postal Service, (ii) if sent by overnight courier, when actually received, (iii) if sent by facsimile transmission (which transmission is confirmed), on the date confirmed by the sending machine, and (iv) if delivered by hand, on the date of receipt.

6.2 Amendments. This Agreement may not be modified, amended, altered or supplemented, except by a written agreement executed by each of the parties hereto.

6.3 Waiver. Any waiver by a party hereto of any breach of or failure to comply with any provision or condition of this Agreement by another party hereto shall not be construed as, or constitute, a continuing waiver of such provision or condition, or a waiver of any other breach of, or failure to comply with, any other provision or condition of this Agreement, any such waiver to be limited to the specific matter and instance for which it is given. No waiver of any such breach or failure or of any provision or condition of this Agreement shall be effective unless in a written instrument signed by the party granting the waiver and delivered to the other party hereto in the manner provided for in Section 6.1 hereof. No failure or delay by any party to enforce or exercise its rights hereunder shall be deemed a waiver hereof, nor shall any single or partial exercise of any such right or any abandonment or discontinuance of steps to enforce such rights, preclude any other or further exercise thereof or the exercise of any other right

6.4 Agreement Binding Upon Successors and Assigns. This Agreement shall be binding and inure to the benefit of the parties hereto and to their respective successors, but the rights and obligations of the parties hereunder shall not be assignable, transferable or delegable except as may be permitted by the express provisions hereof without the consent of the other party, which may be unreasonably withheld, delayed or conditioned, and any attempted assignment, transfer or delegation thereof which is not made in accordance with such express provisions shall be void.

6.5 Severability. If any provision of this Agreement or the application of any such provision to any person or entity or to any circumstance shall be held invalid, the remainder of this Agreement or the application of such provision to persons or entities or to such circumstances other than those to which it is held invalid shall not be affected thereby.

6.6 Costs and Expenses. Except as otherwise provided herein, each party shall bear the costs and expenses incurred by it in connection with the performance of its duties pursuant to this Agreement.

6.7 Arbitration. Except as may be otherwise expressly provided in this Agreement (including without limitation Section 6.9 hereof), any dispute or controversy between the parties arising out of this Agreement shall be submitted to a sole, mutually-agreed upon JAMS arbitrator pursuant to the American Arbitration Association’s Expedited Procedures for arbitration in New York, New York. The costs of the arbitration, including any administration fee, the arbitrator’s fee, and costs for the use of facilities during the hearings, shall be borne equally by the parties to the arbitration. Attorneys’ fees may be awarded to the prevailing or most prevailing party at the discretion of the arbitrator. The arbitrator shall not have any power to alter, amend, modify or change any of the terms of this Agreement nor to grant any remedy that is either prohibited by the terms of this Agreement, or not available in a court of law. The arbitrator shall issue a written reasoned award and decision that shall be consistent with and supported by the facts and the law within 90 days from the date the arbitration proceedings are initiated. Judgment on the award of the arbitrator may be entered in any court referred to in Section 6.9 hereof. In the event the parties are not able to mutually agree on an arbitrator, the AAA shall be authorized to appoint a sole arbitrator.

6.8 Counterparts. This Agreement may be executed in any number of counterparts by different parties to this Agreement in separate counterparts, and may be delivered by facsimile, e-mail or other electronic medium, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute one and the same Agreement.

6.9 Governing Law; Forum for Certain Purposes. This Agreement is to be governed by and construed in accordance with the laws of the State of New York (without regard to any conflicts of laws principles thereof). Any part (and only that part) of any dispute or controversy between the parties arising out of this Agreement that involves a party seeking an injunction, restraining order or other equitable relief, or the enforcement of an arbitration award, shall be brought in and resolved exclusively in the state or federal courts sitting in the State of New York and the parties hereto hereby waive and covenant not to raise any claim or defense that such forum is not convenient or proper. Each party hereby agrees that any such court shall have in personam jurisdiction over it with respect to the matters described in the preceding sentence, consents to service of process pursuant to the notice provisions of Section 6.1 hereof or in any other manner that may be authorized by New York law, and agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner specified by law.

6.10 Entire Agreement. This Agreement contains the entire understanding and agreement of the parties relating to the subject matter hereof and supersedes all prior and/or contemporaneous understandings and agreements of any kind and nature (whether written or oral) among the parties with respect to such subject matter, all of which are merged herein.

6.11 Headings. The section headings contained in this Agreement are inserted for reference purposes only and shall not affect in any way the meaning, construction or interpretation of this Agreement. Any reference to the masculine, feminine, or neuter gender shall be a reference to such other gender as is appropriate. References to the singular shall include the plural and vice versa.

6.12 Drafting History. This Agreement shall be construed and interpreted without regard to any presumption against the party causing this Agreement to be drafted. The parties acknowledge that this Agreement was negotiated and drafted with each party being represented by competent counsel of its choice and with each party having an equal opportunity to participate in the drafting of the provisions hereof and shall therefore be construed as if drafted jointly by the parties.

6.13 Relationship of the Parties. Each of the parties shall be performing Provided Services hereunder only as an independent contractor, and under no circumstances shall either party, or any of its employees, agents or subcontractors, be deemed employees, partners, agents or joint venturers of the other party. Nothing in this Agreement and no action taken by the parties under this Agreement shall be construed to create a joint venture, trust, partnership or agency relationship, or any other association of any kind, between the parties. Neither party shall act or represent or hold itself out as having authority to act as an agent or partner of the other party, or in any way bind or commit the other party to any obligations.

6.14 No Third Party Beneficiary. The terms and provisions of this Agreement are intended solely for the benefit of each party hereto and their respective successors or permitted assigns, and it is not the intention of the parties to confer third-party beneficiary rights upon any other Person other than a Person entitled to indemnity under Section 5 hereof.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed effective as of the date and year first above written.

CIRCLE ENTERTAINMENT INC.

By: __________________________

Name:

Title:

FUNCTION (X) INC.

By: __________________________

Name:

Title:

SCHEDULE 1.1(a)

LIST OF ADMINISTRATIVE SERVICES

1. Legal counsel services and related support; and

2. General administrative services.

EX-10.8 7 exhibit_10-8.htm PROMISSORY NOTE exhibit_10-8.htm

Exhibit 10.8

PROMISSORY NOTE

$108,000.00 February 8, 2011

FOR VALUE RECEIVED, Robert F.X. Sillerman, an individual (the “Payor”), hereby unconditionally promises to pay to the order of Gateway Industries, Inc., a Delaware corporation (the “Payee”), in lawful money of the United States of America in immediately available funds, the principal sum of One Hundred Eight Thousand Dollars and No Cents ($108,000.00), together with interest thereon, compounded annually, from the date hereof through maturity at the annual rate equal to the long-term Applicable Federal Rate in effect as of the date hereof, as published by the Internal Revenue Service (calculated on the actual number of days elapsed and an assumed year of 360 days) (the “Stated Rate”). This principal amount, together with interest accrued thereon at the Stated Rate commencing on the date hereof, shall be due and payable in full on February 8, 2016 (the “Scheduled Maturity Date”).

This Promissory Note (“Note”) is issued by Payor to Payee to evidence Payor’s obligation under that certain Subscription Agreement dated February 8, 2011 by and between Payor and Payee to pay Payee the purchase price for the shares of common stock of Payee purchased by Payor from Payee on the date hereof pursuant to the terms and subject to the conditions of such Subscription Agreement.

The principal and accrued interest balance of this Note may be prepaid in whole or in part at any time without a premium or penalty of any kind.

If any Acceleration Event (as defined below) shall occur for any reason then and in any such event, in addition to all rights and remedies of the Payee under this Note, applicable law or otherwise, all such rights and remedies being cumulative, not exclusive and enforceable alternatively, successively and concurrently, the Payee may, at its option, declare due any or all of the Payor’s obligations, liabilities and indebtedness owing to the Payee under this Note whereupon the then unpaid balance hereof shall immediately be due and payable, together with all expenses of collection hereof, including, but not limited to, attorneys’ fees and legal expenses (for this purpose, the Payor shall pay all trial and appellate attorneys’ fees, costs and expenses, paid or incurred by the Payee in connection with collection of this Note). If the foregoing unpaid balances, expenses and collection costs are not paid upon demand upon the occurrence of an Acceleration Event (collectively, the “Unpaid Amounts”), such Unpaid Amounts shall bear interest until paid in full at the Stated Rate plus 5.00% per annum or the maximum interest rate then permitted under applicable law (whichever is less) (the “Default Rate”). From and after maturity of this Note (whether upon the Scheduled Maturity, or by acceleration or otherwise, the Unpaid Amounts shall bear interest until paid in full at the Default Rate. For purposes hereof, “Acceleration Event” means the first to occur of the following: (i) if any principal or accrued interest or other amount owning under this Note is not paid when due and such default continues unremedied for fifteen (15) days after written notice provided by Payee to Payor, (ii) Payor having made an assignment for the benefit of creditors, filed a petition in bankruptcy, applied to or petitioned any tribunal for the appointment of a custodian, receiver, intervener or trustee for Payor, or commenced any proceeding for any arrangement or readjustment of its debts, (iii) any such petition or application having been filed or proceeding having commenced against Payor and Payor not having interposed a defense thereto within the time permitted under applicable law, (iv) the sale or other disposition of all or substantially all of Payor’s assets, (v) the dissolution of Payor, (vi) the death of Payor or (vii) the failure by Payor to perform any other covenant, agreement or condition contained in this Note and such default continues unremedied for thirty (30) days after written notice thereof is given to Payor by Payee; provided, however, in the event such default is curable but is not reasonably capable of cure within said 30-day period, Payor shall have such additional time as required to cure any such default so long as Payor is diligently undertaking the cure of such default.

The Payor (i) waives diligence, demand, presentment, protest and notice of any kind, except for any notice expressly required by the provisions of this Note, and (ii) agrees that it will not be necessary for the Payee to first institute suit in order to enforce payment of this Note.

The validity, interpretation and enforcement of this Note and any dispute arising in connection herewith or therewith shall be governed by the internal laws of the State of New York (without giving effect to principles of conflicts of law).

The Payor irrevocably consents and submits to the exclusive jurisdiction of the state courts of the State of New York located in the County of New York and the United States District Court whose district covers such county, and waives any objection based on venue or forum non conveniens with respect to any action instituted therein arising under this Note.

EACH OF PAYOR AND PAYEE HEREBY WAIVE ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION ARISING UNDER THIS NOTE, AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY.

The Payor may not assign this Note and/or delegate any of its obligations hereunder without the written consent of the Payee. This Note is not secured by any collateral of any nature. Neither this Note nor all or any portion of the Payee’s rights and interests herein may be negotiated, assigned, pledged, hypothecated or otherwise transferred by Payee.

The Payor shall be solely responsible for any necessary tax or assessment relating to this Note; provided, however, that the Payor shall not be responsible for Payee’s tax obligations arising from receipt of funds set forth herein.

If any term or provision of this Note shall be held invalid, illegal or unenforceable, the validity of all other terms and provisions hereof shall in no way be affected thereby.

The waiver by the Payee of the Payor’s prompt and complete performance of, or default under, any provision of this Note shall not operate nor be construed as a waiver of any subsequent breach or default, and the failure by the Payee to exercise any right or remedy which it may possess hereunder or under applicable law shall not operate nor be construed as a bar to the exercise of any such right or remedy upon the occurrence of any subsequent breach or default.

[Signature Page Follows]

IN WITNESS WHEREOF, the Payor has executed this Promissory Note the day and year first written above.

__________________________

Robert F.X. Sillerman

EX-10.9 8 exhibit_10-9.htm PROMISSORY NOTE exhibit_10-9.htm

Exhibit 10.9

PROMISSORY NOTE

$9,720.00 February 8, 2011

FOR VALUE RECEIVED, Mitchell J. Nelson and Leslie Nelson, individuals (the “Payor”), hereby unconditionally promises to pay to the order of Gateway Industries, Inc., a Delaware corporation (the “Payee”), in lawful money of the United States of America in immediately available funds, the principal sum of Nine Thousand Seven Hundred Twenty Dollars and No Cents ($9,720.00), together with interest thereon, compounded annually, from the date hereof through maturity at the annual rate equal to the long-term Applicable Federal Rate in effect as of the date hereof, as published by the Internal Revenue Service (calculated on the actual number of days elapsed and an assumed year of 360 days) (the “Stated Rate”). This principal amount, together with interest accrued thereon at the Stated Rate commencing on the date hereof, shall be due and payable in full on February 8, 2016 (the “Scheduled Maturity Date”).

The principal and accrued interest balance of this Note may be prepaid in whole or in part at any time without a premium or penalty of any kind.

If any term or provision of this Note shall be held invalid, illegal or unenforceable, the validity of all other terms and provisions hereof shall in no way be affected thereby.

[Signature Page Follows]

IN WITNESS WHEREOF, the Payor has executed this Promissory Note the day and year first written above.

________________________________

Mitchell J. Nelson

EX-14.1 9 exhibit_14-1.htm CODE OF BUSINESS CONDUCT AND ETHICS exhibit_14-1.htm

Exhibit 14.1

FUNCTION (X) INC. (the "Company")

CODE OF BUSINESS CONDUCT AND ETHICS

Introduction

This Code of Business Conduct and Ethics covers a wide range of business practices and procedures. It does not cover every issue that may arise, but it sets out basic principles to guide all employees and directors of the Company. All Company employees and directors must conduct themselves accordingly and seek to avoid even the appearance of improper behavior. In appropriate circumstances, the Code should also be provided to and followed by the Company’s agents and representatives, including consultants. In the event that the Board of Directors adopts a policy specific to any of the matters addressed in this Code, all company employees and directors are subject to the provisions of such policy as such policy may be in effect from time to time.

If a law conflicts with a policy in this Code, the employee or director must comply with the law; however, if a local custom or policy conflicts with this Code, the employee or director must comply with the Code. If an employee or director has any questions about these conflicts, the employee or director should ask his or her supervisor, or consult with internal or external legal counsel, as to how to handle the situation.

Any employee or director who violates the standards in this Code will be subject to disciplinary action. If an employee or director is in a situation that the employee or director believes may violate or lead to a violation of this Code, the employee or director should follow the guidelines described in Section 14 of this Code.

1.	Compliance with Laws, Rules, and Regulations

Obeying the law, both in letter and in spirit, is the foundation on which this Company’s ethical standards are built. All employees and directors must respect and obey the laws of the cities, states, and countries in which the Company operates. Although not all employees and directors are expected to know the details of these laws, it is important to know enough to determine when to seek advice from supervisors, managers, or other appropriate personnel.

The Company holds information and training sessions to promote compliance with laws, rules, and regulations, including insider-trading laws.

2.	Conflicts of Interest

A “conflict of interest” exists when an individual’s private interest interferes in any way – or even appears to conflict – with the interests of the Company as a whole. A conflict situation can arise when an employee, officer, or director takes actions or has interests that may make it difficult to perform his or her work on behalf of the Company in an objective and effective manner. Conflicts of interest may also arise when an employee, officer, or director, or a member of his or her family, receives improper personal benefits as a result of his or her position in the Company. Loans to, or guarantees of obligations of, employees and their family members may create conflicts of interest.

It is almost always a conflict of interest for a Company employee to work simultaneously for a competitor, customer, or supplier. An employee is not allowed to work for a competitor as a consultant or board member. The best policy is to avoid any direct or indirect business connection with the Company's customers, suppliers, or competitors, except on the Company's behalf.

Conflicts of interest are prohibited as a matter of Company policy, except under guidelines approved by the Board of Directors. Conflicts of interest may not always be clear-cut, so if a question arises, the employee or director should consult with higher levels of management, the Company’s internal auditor or the Company’s internal legal counsel. Any employee, officer, or director who becomes aware of a conflict or potential conflict should bring it to the attention of a supervisor, manager, or other appropriate personnel, or consult the procedures described in Section 14 of this Code.

3.	Insider Trading

Employees or directors who have access to confidential information are not permitted to use or share that information for stock trading purposes or for any other purpose except the conduct of the Company's business. All non-public information about the Company should be considered confidential information. To use non-public information for personal financial benefit or to “tip” others who might make an investment decision on the basis of this information is not only unethical but also illegal. In addition, the Company, may at any time, and from time to time, declare a “black-out period” during which no trading by employees in the Company’s stock may take place. If a question arises, the employee or director should consult the Company’s Chief Financial Officer. All employees and directors are subject to the provisions of any insider trading policy adopted by the Board of Directors, and as may be in effect from time to time.

4.	Corporate Opportunities

Employees, officers, and directors are prohibited from taking for themselves personally opportunities that are discovered through the use of corporate property, information, or position without the consent of the Board of Directors. No employee or director may use corporate property, information, or position for improper personal gain, and no employee or director may compete with the Company directly or indirectly. Employees, officers, and directors owe a duty to the Company to advance its legitimate interests when the opportunity to do so arises.

5.	Competition and Fair Dealing

The Company seeks to outperform competitors fairly and honestly. The Company seeks competitive advantages through superior performance, never through unethical or illegal business practices. Stealing proprietary information, possessing trade secret information that was obtained without the owner’s consent, or inducing such disclosures by past or present employees of other companies is prohibited. Each employee, officer, and director should endeavor to respect the rights of and deal fairly with the Company’s customers, suppliers, competitors, and employees. No employee, officer, or director should take unfair advantage of anyone through manipulation, concealment, or abuse of privileged information, misrepresentation of material facts, or any other intentional unfair-dealing practice.

To maintain the Company’s valuable reputation, compliance with the Company's quality processes and safety requirements is essential. In the context of ethics, quality requires that the Company's products and services meet reasonable customer expectations. All inspection and testing documents must be handled in accordance with all applicable regulations.

The purpose of business entertainment and gifts in a commercial setting is to create good will and sound working relationships, not to gain unfair advantage with customers. No gift or entertainment should ever be offered, given, provided, or accepted by any Company employee, family member of an employee, or agent unless it (1) is not a cash gift, (2) is consistent with customary business practices, (3) is not excessive in value, (4) cannot be construed as a bribe or payoff, and (5) does not violate any laws or regulations. An employee should discuss with his or her supervisor any gifts, proposed gifts or other benefits that the employee receives.

6.	Discrimination and Harassment

The diversity of the Company’s employees is a tremendous asset. The Company is firmly committed to providing equal opportunity in all aspects of employment and will not tolerate any illegal discrimination or harassment of any kind. Examples include derogatory comments based on racial or ethnic characteristics and unwelcome sexual advances.

7.	Health and Safety

The Company strives to provide each employee with a safe and healthful work environment. Each employee has responsibility for maintaining a safe and healthy workplace for all employees by following safety and health rules and practices and reporting accidents, injuries, and unsafe equipment, practices, or conditions.

Violence and threatening behavior are not permitted. Employees should report to work in condition to perform their duties, free from the influence of illegal drugs or alcohol. The use of illegal drugs in the workplace will not be tolerated.

8.	Record-Keeping

The Company requires honest and accurate recording and reporting of information in order to make responsible business decisions. For example, only the true and actual number of hours worked should be reported.

Many employees regularly use business expense accounts, which must be documented and recorded accurately. If an employee is not sure whether a certain expense is legitimate, the employee should ask his or her supervisor or the Company's controller. Rules and guidelines are available from the Accounting Department.

All of the Company’s books, records, accounts, and financial statements must be maintained in reasonable detail, must appropriately reflect the Company’s transactions, and must conform both to applicable legal requirements and to the Company’s system of internal controls. Unrecorded or “off the books” funds or assets should not be maintained unless permitted by applicable law or regulation.

Business records and communications often become public, and the Company and its employees should avoid exaggeration, derogatory remarks, guesswork, or inappropriate characterizations of people and companies that can be misunderstood. This applies equally to e-mail, internal memos, and formal reports. Records should always be retained or destroyed according to the Company’s record retention policies. In accordance with those policies, in the event of litigation or governmental investigation, employees or directors must consult with the Company’s Chief Financial Officer before taking any action because it is critical that any impropriety or possible appearance of impropriety be avoided.

9.	Confidentiality

Employees, officers, and directors must maintain the confidentiality of confidential information entrusted to them by the Company or its customers, except when disclosure is authorized by an executive officer or required or mandated by laws or regulations. Confidential information includes all non-public information that might be of use to competitors or harmful to the Company or its customers, if disclosed. It also includes information that suppliers and customers have entrusted to us. The obligation to preserve confidential information continues even after employment ends.

10.	Protection and Proper Use of Company Assets

All employees, officers, and directors should endeavor to protect the Company’s assets and ensure their efficient use. Theft, carelessness, and waste have a direct impact on the Company’s profitability. Any suspected incident of fraud or theft should be immediately reported for investigation. Company assets should be used for legitimate business purposes and should not be used for non-Company business, though incidental personal use may be permitted.

The obligation of employees to protect the Company’s assets includes its proprietary information. Proprietary information includes intellectual property, such as trade secrets, patents, trademarks, and copyrights, as well as business, marketing and service plans, engineering and manufacturing ideas, designs, databases, records, salary information, and any unpublished financial data and reports. Unauthorized use or distribution of this information would violate Company policy. It could also be illegal and result in civil or even criminal penalties.

11.	Payments to Government Personnel

The U.S. Foreign Corrupt Practices Act prohibits giving anything of value, directly or indirectly, to officials of foreign governments or foreign political candidates in order to obtain or retain business. It is strictly prohibited to make illegal payments to government officials of any country.

In addition, the U.S. government has a number of laws and regulations regarding business gratuities that may be accepted by U.S. government personnel. The promise, offer, or delivery to an official or employee of the U.S. government of a gift, favor, or other gratuity in violation of these rules would not only violate Company policy but could also be a criminal offense. State and local governments, as well as foreign governments, may have similar rules.

12.	Waivers of the Code of Business Conduct and Ethics

Any waiver of this Code for executive officers or directors may be made only by the Board or a Board committee and will be promptly disclosed to stockholders as required by law or stock exchange regulation.

13.	Reporting any Illegal or Unethical Behavior

Employees or directors are encouraged to talk to supervisors, managers, or other appropriate personnel, including the Company’s legal counsel, when in doubt about the best course of action in a particular situation. Employees or directors should report any observed illegal or unethical behavior and any perceived violations of laws, rules, regulations, or this Code to appropriate personnel. It is the policy of the Company not to allow retaliation for reports of misconduct by others made in good faith by employees or directors. Employees or directors are expected to cooperate in internal investigations of misconduct. Individuals who are uncomfortable reporting incidents of misconduct in person may also report the misconduct via the Company’s Whistle Blower Hotline at (866) 291-6625.

14.	Compliance Procedures

We must all work to ensure prompt and consistent action against violations of this Code. However, in some situations it is difficult to know right from wrong. Since we cannot anticipate every situation that will arise, it is important that we have a way to approach a new question or problem. These are the steps to keep in mind:

●	Make sure you have all the facts. In order to reach the right solutions, we must be as fully informed as possible.

●	Ask yourself: What specifically am I being asked to do? Does it seem unethical or improper? This will enable you to focus on the specific question you are faced with and the alternatives you have. Use your judgment and common sense; if something seems unethical or improper, it probably is.

●	Clarify your responsibility and role. In most situations, there is shared responsibility. Are your colleagues informed? It may help to get others involved and discuss the problem.

●

Discuss the problem with your supervisor. This is the basic guidance for all situations. In many cases, your supervisor will be more knowledgeable about the question and will appreciate being brought into the decision-making process. Remember that it is your supervisor’s responsibility to help solve problems.

●

Seek help from Company resources. In the rare case where it may not be appropriate to discuss an issue with your supervisor, or where you do not feel comfortable approaching your supervisor with your question, discuss it locally with your office manager or your Human Resources manager. If that also is not appropriate, call the Company’s Whistle Blower Hotline at (866) 291-6625, which will put you in direct contact with the appropriate people at Company headquarters. If you prefer to write, address your concerns to the Company's Chief Executive Officer or Chief Financial Officer.

●

You may report ethical violations in confidence and without fear of retaliation. If your situation requires that your identity be kept secret, your anonymity will be protected. The Company does not permit retaliation of any kind against employees or directors for good faith reports of ethical violations.

●	Always ask first, act later: If you are unsure of what to do in any situation, seek guidance before you act.

EX-23.2 10 exhibit_23-2.htm CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM exhibit_23-2.htm

Exhibit 23.2

Consent of Independent Registered Public Accounting Firm

Function(x) Inc.

New York, New York

We hereby consent to the use in the Prospectus constituting a part of this Registration Statement of our report dated September 28, 2011, relating to the consolidated financial statements of Function(x) Inc. which is contained in that Prospectus. We also consent to the reference to us under the caption “Experts” in the Prospectus.

/s/ BDO USA, LLP

New York, New York

October 6, 2011

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Entity Filer Category Statement of Financial Position [Abstract] ASSETS Cash and Cash Equivalents Prepaid Expenses Other Receivables TOTAL CURRENT ASSETS Restricted Cash Investment in Interests in Corporate Jet Capitalized Software Costs, Net Equipment, Net TOTAL ASSETS LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) Accounts Payable and Accrued Expenses Current Portion of Loan Payable TOTAL CURRENT LIABILITIES Loans Payable, less current portion Other Long-Term Liabilities TOTAL LIABILITIES COMMITMENTS AND CONTINGENCIES STOCKHOLDERS’ EQUITY (DEFICIT): Preferred stock, $0.001 par value, authorized 1,000,000 shares, no shares issued and outstanding Common stock, $0.01 par value: authorized 300,000,000 shares, issued and outstanding 134,941,797 shares as of June 30, 2011 and authorized 1,000,000 shares, issued and outstanding 419,200 shares (as adjusted for the Reverse Split) as of June 30, 2010 Additional paid-in-capital Accumulated deficit TOTAL STOCKHOLDERS’ EQUITY (DEFICIT) TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) Stockholders’ Equity Preferred Stock shares par value Preferred Stock shares Authorized Preferred Stock shares Issued Preferred Stock shares Outstanding Common Stock shares par value Common Stock shares Authorized Common Stock shares Issued Common Stock shares Outstanding Income Statement [Abstract] REVENUES GENERAL AND ADMINISTRATIVE EXPENSES OPERATING LOSS OTHER INCOME: Interest income, net Total Other Income NET LOSS BEFORE INCOME TAXES INCOME TAXES NET LOSS Net loss per common share - basic and diluted Weighted average common shares outstanding - basic and diluted Statement [Table] Statement [Line Items] Opening Balance Net Loss Issuance of Common Stock Notes Receivable from Shareholders Warrants Issued for Services Exercise of Warrants Restricted Stock Issued for Services Ending Balance Statement of Cash Flows [Abstract] CASH FLOWS FROM OPERATING ACTIVITIES: Net loss Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Restricted Stock issued for services Warrants issued for services Depreciation Changes in operating assets and liabilities: Other Receivables Prepaid Expenses Accounts payable and accrued expenses Other liabilities Net Cash Used in Operating Activities CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of Equipment Increase in Restricted Cash Investment in Interests in Corporate Jet Capitalized Software Costs Net Cash Used in Investing Activities CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of Common Stock for Cash Net Cash from Financing Activities NET INCREASE IN CASH Cash at Beginning of Period Cash at End of Period Supplemental Cash Flow Information: Non-Cash Financing Activities: Issuance of shares relating to payment of a portion of the debt due to J. Howard, Inc. Corporate Jet Information: Purchase of a 9.375% interest in a G-IV jet. 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The consolidated financial statements as of June 30, 2011 and June 30, 2010 have been presented to reflect twelve months of activities and reflect the results of the Company and its consolidated subsidiaries. The consolidated financial statements of  the Company include the accounts of all subsidiaries. All intercompany accounts and transactions have been eliminated.   2.  Organization and Background   Formation and Former Business   The Company was incorporated in Delaware in July 1994 and had no operating business or full-time employees from December 1996 to 2000, when it acquired all of the outstanding Common Stock of Oaktree Systems, Inc. (Oaktree).  Through Oaktree, the Company provided cost effective marketing solutions to organizations needing sophisticated information management tools.  In December 2007, Marketing Data, Inc. acquired an 80% interest in Oaktree for $1 and the Companys ownership interest in Oaktree was reduced to 20% of Oaktrees outstanding Common Stock.   On October 24, 2010, Oaktree repurchased the Companys remaining 20% interest in Oaktree for $0.10.  As a result, Marketing Data, Inc. owned 100% of the outstanding Common Stock of Oaktree.   After the disposition of the Companys interest in Oaktree and prior to the Recapitalization, the Company was not active and had no operating business.  After the disposition of the Oaktree interest, the Company began to explore the redeployment of its existing assets by identifying and merging with or investing in one or more operating businesses.  The Board of Directors approved the Recapitalization effecting such change.   The Recapitalization   As previously disclosed, on February 7, 2011, Function(x) Inc. (formerly Gateway Industries, Inc., the Company) entered into the Agreement and Plan of Recapitalization (the Recapitalization Agreement) by and among the Company, Sillerman Investment Company LLC, a Delaware limited liability company (Sillerman), and EMH Howard LLC, a New York limited liability company (EMH Howard).    Pursuant to the Recapitalization Agreement, Sillerman, together with other investors approved by Sillerman, invested in the Company by acquiring 120,000,000 newly issued shares of common stock of the Company in a private placement transaction at a price of $0.03 per share (on a post-split basis as described below), as a result of which Sillerman and the other investors acquired approximately 99% of the outstanding shares of common stock, with Sillerman (together with Robert F.X. Sillerman personally) directly or indirectly beneficially owning more than a majority of the outstanding shares of common stock. Upon consummation, the proceeds of the private placement of $3,600 ($220 in cash and $3,380 in five-year promissory notes with interest accruing at the annual rate equal to the long-term Applicable Federal Rate in effect as of the date of the Recapitalization Agreement, which was 4.15% per annum) were received.   On February 16, 2011, immediately after the Recapitalization was consummated, the Company issued 13,232,597 shares of common stock to an institutional investor (for $10,000) at a price of approximately $0.76 per share, and 940,000 shares of common stock to an accredited investor ($500) at a price of approximately $0.53 per share. The shares of common stock issued in such placements were exempt from registration under the Securities Act of 1933, as amended (the Securities Act), pursuant to an exemption from registration for transactions not involving a public offering under Section 4(2) of the Securities Act, and the safe harbors for sales under Section 4(2) provided by Regulation D promulgated pursuant to the Securities Act.  Transfer of the shares was restricted by the Company in accordance with the requirements of the Securities Act.   On February 16, 2011, the Company issued a five year warrant for 100,000 shares with an exercise price of $0.80 per share to Berenson Investments LLC.  Berenson & Company, LLC, an affiliate of Berenson Investments LLC, was the financial advisor to Sillerman in connection with the Recapitalization.  On May 9, 2011, Berenson Investments LLC exercised the warrant and paid $80 for 100,000 shares of the Companys common stock.   As part of the Recapitalization, the Company also issued 250,000 shares to J. Howard, Inc., an entity affiliated with Jack L. Howard, a director and officer of the Company prior to the Recapitalization, and its designees (which included former directors of the Company) in connection with partially extinguishing outstanding debt of $171 owed to J. Howard, Inc. The fair market value of the shares at issuance was $0.03 per share.  The remaining debt of $163 was satisfied on February 15, 2011 by payment to J. Howard, Inc. in such amount.  In addition, J. Howard, Inc. was paid $37 to be used for payment of expenses incurred in connection with the Recapitalization on behalf of the Company.    As part of the Recapitalization, the Company effectuated a 1 for 10 reverse split of its issued and outstanding common stock (the Reverse Split). The Reverse Split became effective on February 16, 2011. Under the terms of the Reverse Split, each share of common stock, issued and outstanding as of such effective date, was automatically reclassified and changed into one-tenth of one share of common stock, without any action by the stockholder. Fractional shares were rounded up to the nearest whole share.  All share and per share amounts have been restated to reflect the Reverse Split.   The newly recapitalized company changed its name to Function (X) Inc. effective as of the date of the Recapitalization and changed its name to Function(x) Inc. on June 22, 2011.  It now conducts its business under the name Function(x) Inc., with the ticker symbol FNCX.  We have two wholly-owned subsidiaries, Project Oda, Inc. and Viggle Inc, each a Delaware corporation.   The Companys New Line of Business   The Companys business is to create and manage digital products and services that encourage consumer participation and active engagement with media and entertainment content.  These digital media products are designed to accommodate a variety of media and entertainment experiences, including but not limited to television, movies, games and music.  The Company plans to generate revenues from advertising, sponsorship, e-commerce and other sources based on the aggregation of registered users.   The Company plans to host, maintain, develop and operate a suite of digital products that will leverage proprietary technology.  The initial products will be delivered via mobile applications and websites, marketed to high value media consumers.  In addition, the Company is developing and managing software and databases for the identification of multimedia content, commercials, and promotional information that will be used on multiple types of internet-connected devices.  We will also use our software and databases to deliver highly targeted advertising and marketing solutions via digital services, initially on mobile phones and other handheld mobile devices.   The Companys initial product design will be distributed on a variety of mainstream mobile operating systems.  The products will verify user engagement of various forms of entertainment content through a real-time check-in process. The initial market for the product targets TV audiences across various channels and platforms:  broadcast and cable networks, live, time-shifted and on-demand television, as well as online distribution of television programming.  The Companys consumer participation and engagement will be limited to participants who are 13 years of age or older.   The Beta product was delivered for usability testing in September and will undergo further testing in the fourth quarter of calendar 2011.  The Company is targeting an initial release to be made in such quarter or early 2012.  The national launch to a wider general audience is scheduled for 2012.   Since the Recapitalization and prior to the end of the fiscal year, the Company hired personnel with diverse backgrounds in General Management in Digital Media and Entertainment, along with specialists in Product Development, Engineering, Marketing, Analytics, Sales and Business Development, along with Human Resources, Finance and Legal for the purpose of furthering the business plan and building the first product.   Operations   We are creating a social media experience around traditional media consumption that encourages consumer participation and active engagement through incentives, brand-sponsored content, and network-sponsored content. We intend to market our service through various channels, including online advertising, broad-based media (such as television and radio), as well as various strategic partnerships. We intend to utilize co-location facilities and the services of third-party cloud computing providers, more specifically, Amazon Web Services, to help us efficiently manage and create our platform.   Revenue   Our plan is to derive revenues from advertising programs and marketing solutions generated from two revenue streams, entertainment providers and brand advertisers.  We will begin operations by offering a new social media experience to consumers to drive engagement with providers and brands through our digital mobile services, with focus on smartphone applications.  Initially, we anticipate revenues to be generated substantially in the United States.   Seasonality   Our revenue is expected to exhibit a seasonal pattern that reflects variation in accordance with entertainment offerings and the desire of advertisers to try to influence consumers purchasing habits.  As a consequence, revenue is expected to vary modestly throughout the year, although we anticipate revenues to be slowest in the third calendar quarter.  Additionally, the growth in variable expenses associated with marketing, new product releases, consumer incentives, and advertising services will fluctuate with revenue, but not necessarily by the same percentage.    3.  Summary of Significant Accounting Policies   Change of Fiscal Year:  On February 24, 2011, the Board of Directors of the Company approved a change to the Company's fiscal year end from December 31 to June 30.   Cash, Cash Equivalents and Restricted Cash   The Company considers all highly liquid securities purchased with remaining maturities of 90 days or less to be cash equivalents.  Cash equivalents are stated at cost which approximates market value and primarily consists of money market funds that are readily convertible into cash.  Restricted cash comprises amounts held in deposits that were required as collateral under the lease of office space.   Use of Estimates   The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the 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 expenses during the reporting period.  These estimates include, among others, fair value of financial assets and liabilities, net realizable values on long-lived assets, certain accrued expense accounts, and estimates related to stock-based compensation.  Actual results could differ from those estimates.   Fair Value of Financial Instruments   The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents and accounts payable approximate fair value because of the immediate or short-term maturity of these financial instruments.  The Companys debt approximates fair value as current borrowing rates for the same or similar issues are the same as those that were given to the Company at the issuance of its debt.   Equipment   Equipment (consisting of computers, software, furniture and fixtures) is recorded at historical cost and is depreciated using the straight-line method over their estimated useful lives.  The useful life and depreciation method are reviewed periodically to ensure that the depreciation method and period are consistent with the anticipated pattern of future economic benefits.  Expenditures for maintenance and repairs are charged to operations as incurred while renewals and betterments are capitalized.  Gains and losses on disposals are included in the results of operations.  The useful life of the equipment is being depreciated over three years.   Impairment of Long-Lived Assets.   The Company applies the provisions of Accounting Standards Codification (ASC) Topic 360, Property, Plant, and Equipment, which addresses financial accounting and reporting for the impairment or disposal of long-lived assets.  ASC 360 requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets carrying amounts.  In that event, a loss is recognized based on the amount by which the carrying amount exceeds the fair value of the long-lived assets.  Loss on long-lived assets to be disposed of is determined in a similar manner, except that fair values are reduced for the cost of disposal.  Based on its review, the Company believes that as of June 30, 2010 and June 30, 2011, there was no significant impairment of its long-lived assets.    Internal Use Software   The Company capitalizes costs related to the development of internal use software in accordance with ASC 350-40.  When capitalized, the Company will amortize the costs of computer software developed for internal use on a straight-line basis or appropriate usage basis over the estimated useful life of the software.  Currently, the Company is in the application development stage of its computer software development and, appropriately, certain costs have been capitalized in the amounts of $317 and $0 as of June 30, 2011 and June 30, 2010, respectively.   Marketing   Marketing costs are expensed as incurred.  Marketing expense for the Company in 2011 and 2010 was $1,005 and $0, respectively.   Income Taxes   The Company uses the liability method of accounting for income taxes as set forth in ASC 740, Income Taxes.  Under the liability method, deferred taxes are determined based on the temporary differences between the financial statement and tax basis of assets and liabilities using tax rates expected to be in effect during the years in which the basis differences reverse.  A valuation allowance is recorded when it is more likely than not that some of the deferred tax assets will not be realized.  We assess our income tax positions and record tax benefits for all years subject to examination based upon our evaluation of the facts, circumstances and information available at the reporting date.  For those tax positions where there is a greater than 50% likelihood that a tax benefit will be sustained, our policy will be to record the largest amount of tax benefit that is more likely than not to be realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information.  For those income tax positions where there is less than 50% likelihood that a tax benefit will be sustained, no tax benefit will be recognized in the financial statements.   Stock-Based Compensation   The Company accounts for stock-based compensation in accordance with ASC 718, Compensation Stock Compensation.  Under the fair value recognition provisions of ASC 718, stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense ratably over the requisite service period.  The Company uses the Black-Scholes option pricing model to determine the fair value of stock options and warrants issued.  Stock-based awards issued to date are comprised principally of restricted stock awards (RSUs).   Recently Issued Accounting Pronouncements   In October 2009, the FASB issued Accounting Standards Update (ASU) No. 2009-13, Multiple-Deliverable Revenue Arrangements.  The new standard changes the requirements for establishing separate units of accounting in a multiple element arrangement and requires the allocation of arrangement consideration to each deliverable based on the relative selling price.  The selling price for each deliverable is based on vendor-specific objective evidence (VSOE) if available, third-party evidence if VSOE is not available, or estimated selling price if neither VSOE or third-party evidence is available.  ASU 2009-13 is effective for revenue arrangements entered into in fiscal years beginning on or after June 15, 2010.  The Company does not expect that the provisions of the new guidance will have a material effect on its consolidated financial statements.   In January 2010, the FASB issued ASU No. 2010-06, Improving Disclosures about Fair Value Measurements, which requires additional disclosures about the amounts of and reasons for significant transfers in and out of Level 1 and Level 2 fair value measurements.  This standard also clarifies existing disclosure requirements related to the level of disaggregation of fair value measurements for each class of assets and liabilities and disclosures about inputs and valuation techniques used to measure fair value for both recurring and non-recurring Level 2 and Level 3 measurements.  Since this new accounting standard only required additional disclosure, the adoption of the standard in the first quarter of 2010 did not impact the Companys consolidated financial statements.  Additionally, effective for interim and annual periods beginning after December 15, 2010, this standard will require additional disclosure and require an entity to present disaggregated information about activity in Level 3 fair value measurements on a gross basis, rather than one net amount.   In May 2011, the Financial Accounting Standards Board (FASB) released ASU 2011-04 Fair Value Measurement, which amends ASC 820 Fair Value Measurements and Disclosures. This standard will be effective beginning in the first calendar quarter of 2012 and the Company is in the process of assessing the impact of this standard on the Companys Consolidated Financial Statements.   In May 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2011-05, Comprehensive Income: Presentation of Comprehensive Income.  The ASU amends FASB Codification Topic 220, Comprehensive Income, to require an entity 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.  ASU 2011-05 is effective for fiscal years, and interim periods within those fiscal years beginning after December 15, 2011, and early adoption is permitted.  The adoption of this standard will not have an impact on the Companys financial statements as they currently conform.     4.  Interests in Corporate Jet   The Company executed an agreement with NJI Sales, Inc. (NetJets) to bundle a 3.125% fractional share of a G-IV jet owned by Mr. Sillerman with a value of $336 with a new 6.25% fractional share of a G-IV jet which was purchased from NetJets by the Company.  The purchase price for the 6.25% interest was $1,175, payable $235 upon signing and the balance of $940 in debt with interest at 6% per annum, monthly payments of $9 and a five-year balloon of $661.   Monthly management fees (aggregate for both shares) are approximately $26.  Based on the anticipated travel schedule for Mr. Sillerman and the anticipated residual value of the plane at the end of the five-year period of usage, the Company is expected to realize cost savings. The Companys Audit Committee approved entering into this related party transaction and on June 17, 2011, the independent members of the Companys Board of Directors approved the transaction. The Company accounted for the transaction by recording the interests as investment assets and the related debt amounts to Mr. Sillerman and NetJets   5.  Equipment   Equipment, consisting of computers, software, furniture and furnishings, were purchased in connection with setting up the Companys office space.  The amount of such purchase was $83.   6. Loans Payable   J. Howard, Inc. had been supporting the daily operations of the Company from 2007 until the Recapitalization.  As of December 31, 2010, the Company owed J. Howard, Inc. $82 as a result thereof, which amount was increased as of the completion of the Recapitalization on February 15, 2011 to $171.  As part of the Recapitalization, the Company issued 250,000 shares (at a fair market value of $0.03 per share) to J. Howard, Inc., a director and officer of the Company prior to the Recapitalization, and its designees (which included former directors of the Company) in connection with partially extinguishing outstanding debt owed to J. Howard, Inc.  The remaining debt of $163 was satisfied on February 15, 2011 by payment to J. Howard, Inc. in such amount.  In addition, J. Howard, Inc. was paid $37 to be used for payment of expenses incurred in connection with the Recapitalization on behalf of the Company.   As described in footnote 4 above, the Company financed the purchase of a 6.25% fractional interest in a G-IV jet.  The financing of $940 provides for interest at the rate of 6% per annum, monthly payments of $9 and a balloon payment at maturity in 5 years of $661.  Total payments on this debt in the next five years are as follows:   <table cellspacing="0" cellpadding="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%"> <tr style="vertical-align: bottom"> <td style="padding-bottom: 1.5pt; font-weight: bold">Years Ending June 30,</td> <td style="padding-bottom: 1.5pt; font-size: 12pt; font-weight: bold"> </td> <td colspan="2" style="border-bottom: black 1.5pt solid; font-size: 12pt; font-weight: bold; text-align: center"> (in thousands)</td> <td nowrap="nowrap" style="padding-bottom: 1.5pt; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="width: 88%">2012</td> <td style="width: 1%; text-align: right"> </td> <td style="width: 1%">$</td> <td style="width: 9%; text-align: right">49</td> <td nowrap="nowrap" style="width: 1%"> </td></tr> <tr style="vertical-align: bottom"> <td>2013</td> <td style="text-align: right"> </td> <td> </td> <td style="text-align: right">52</td> <td nowrap="nowrap"> </td></tr> <tr style="vertical-align: bottom"> <td>2014</td> <td style="text-align: right"> </td> <td> </td> <td style="text-align: right">56</td> <td nowrap="nowrap"> </td></tr> <tr style="vertical-align: bottom"> <td>2015</td> <td style="text-align: right"> </td> <td> </td> <td style="text-align: right">59</td> <td nowrap="nowrap"> </td></tr> <tr style="vertical-align: bottom"> <td>2016</td> <td style="text-align: right"> </td> <td> </td> <td style="text-align: right">724</td> <td nowrap="nowrap"> </td></tr> <tr style="vertical-align: bottom"> <td style="padding-bottom: 1.5pt"> </td> <td style="padding-bottom: 1.5pt"> </td> <td style="border-bottom: black 1.5pt solid"> </td> <td style="border-bottom: black 1.5pt solid; text-align: right"> </td> <td nowrap="nowrap" style="padding-bottom: 1.5pt"> </td></tr> <tr style="vertical-align: bottom"> <td style="padding-bottom: 3pt">Total</td> <td style="padding-bottom: 3pt; text-align: right"> </td> <td style="border-bottom: black 2.25pt double"> $</td> <td style="border-bottom: black 2.25pt double; text-align: right">940</td> <td nowrap="nowrap" style="padding-bottom: 3pt"> </td></tr> </table>   7. Commitments and Contingencies   Total rent expense for the Company under operating leases for the years ended June 30, 2011 and 2010 was less than $65 and $0, respectively. The Companys future minimum rental commitments under noncancelable operating leases are as follows:   <table cellspacing="0" cellpadding="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%"> <tr style="vertical-align: bottom"> <td style="padding-bottom: 1.5pt"> </td> <td style="padding-bottom: 1.5pt; font-size: 12pt; font-weight: bold"> </td> <td colspan="2" style="border-bottom: black 1.5pt solid; font-size: 12pt; font-weight: bold; text-align: center"> (in thousands)</td> <td nowrap="nowrap" style="padding-bottom: 1.5pt; font-weight: bold"> </td></tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold">Years Ending June 30,</td> <td style="text-align: right"> </td> <td colspan="2" style="text-align: right"> </td> <td nowrap="nowrap"> </td></tr> <tr style="vertical-align: bottom"> <td style="width: 88%">2012</td> <td style="width: 1%; text-align: right"> </td> <td style="width: 1%">$</td> <td style="width: 9%; text-align: right">338</td> <td nowrap="nowrap" style="width: 1%"> </td></tr> <tr style="vertical-align: bottom"> <td>2013</td> <td style="text-align: right"> </td> <td> </td> <td style="text-align: right">595</td> <td nowrap="nowrap"> </td></tr> <tr style="vertical-align: bottom"> <td>2014</td> <td style="text-align: right"> </td> <td> </td> <td style="text-align: right">611</td> <td nowrap="nowrap"> </td></tr> <tr style="vertical-align: bottom"> <td>2015</td> <td style="text-align: right"> </td> <td> </td> <td style="text-align: right">628</td> <td nowrap="nowrap"> </td></tr> <tr style="vertical-align: bottom"> <td>2016</td> <td style="text-align: right"> </td> <td> </td> <td style="text-align: right">647</td> <td nowrap="nowrap"> </td></tr> <tr style="vertical-align: bottom"> <td style="padding-bottom: 1.5pt">Thereafter</td> <td style="padding-bottom: 1.5pt; text-align: right"> </td> <td style="border-bottom: black 1.5pt solid"> </td> <td style="border-bottom: black 1.5pt solid; text-align: right">3,912</td> <td nowrap="nowrap" style="padding-bottom: 1.5pt"> </td></tr> <tr style="vertical-align: bottom"> <td> </td> <td> </td> <td> </td> <td style="text-align: right"> </td> <td nowrap="nowrap"> </td></tr> <tr style="vertical-align: bottom"> <td style="padding-bottom: 3pt">Total</td> <td style="padding-bottom: 3pt; text-align: right"> </td> <td style="border-bottom: black 2.25pt double">$</td> <td style="border-bottom: black 2.25pt double; text-align: right">6,731</td> <td nowrap="nowrap" style="padding-bottom: 3pt"> </td></tr> </table>   As of June 30, 2011, the Company has entered into employment contracts with certain key executives and employees, which include provisions for severance payments in the event of specified terminations of employment. Expected payments under existing employment contracts are as follows:    <table cellspacing="0" cellpadding="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%"> <tr style="vertical-align: bottom"> <td style="padding-bottom: 1.5pt"> </td> <td style="padding-bottom: 1.5pt; font-size: 12pt"> </td> <td colspan="2" style="border-bottom: black 1.5pt solid; font-size: 12pt; font-weight: bold; text-align: center"> (in thousands)</td> <td style="padding-bottom: 1.5pt; font-size: 12pt"> </td></tr> <tr style="vertical-align: bottom"> <td style="width: 88%; font-weight: bold">Year Ending June 30,</td> <td style="width: 1%"> </td> <td style="width: 1%"> </td> <td style="width: 9%; text-align: right"> </td> <td style="width: 1%"> </td></tr> <tr style="vertical-align: bottom"> <td>2012</td> <td> </td> <td> $</td> <td style="text-align: right">2,229</td> <td> </td></tr> <tr style="vertical-align: bottom"> <td>2013</td> <td> </td> <td> </td> <td style="text-align: right">2,326</td> <td> </td></tr> <tr style="vertical-align: bottom"> <td>2014</td> <td> </td> <td> </td> <td style="text-align: right">2,427</td> <td> </td></tr> <tr style="vertical-align: bottom"> <td>2015</td> <td> </td> <td> </td> <td style="text-align: right">2,534</td> <td> </td></tr> <tr style="vertical-align: bottom"> <td style="padding-bottom: 1.5pt">Thereafter</td> <td style="padding-bottom: 1.5pt"> </td> <td style="border-bottom: black 1.5pt solid"> </td> <td style="border-bottom: black 1.5pt solid; text-align: right"></td> <td style="padding-bottom: 1.5pt"> </td></tr> <tr style="vertical-align: bottom"> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td></tr> <tr style="vertical-align: bottom"> <td style="padding-bottom: 3pt">Total</td> <td style="padding-bottom: 3pt"> </td> <td style="border-bottom: black 2.25pt double">$</td> <td style="border-bottom: black 2.25pt double; text-align: right">9,516</td> <td style="padding-bottom: 3pt"> </td></tr> </table>   As of June 30, 2011, the Company has entered into an agreement for network services with Carpathia Hosting Inc. (Carpathia) for a two-year term.  The anticipated payments under this agreement are $71 per month.  The exact amount may vary from month to month depending on usage and additional services which may be supplied by Carpathia.   There are no lawsuits or claims pending against the Company. 8. Stockholders Equity (Deficit)   As of June 30, 2011 and 2010, there were 300,000,000 and 1,000,000 shares of authorized common stock, respectively, and 134,941,797 and 419,280 (adjusted to reflect post reverse split shares) shares of common stock issued and outstanding, respectively. Except as otherwise provided by Delaware law, the holders of our common stock are entitled to one vote per share on all matters to be voted upon by the stockholders.   The Companys Board of Directors is authorized to issue 1,000,000 shares of preferred stock, par value $0.001 per share. We may issue shares of preferred stock in one or more series as may be determined by our board of directors, who may establish the designation and number of shares of any series, and may determine, alter or revoke the rights, preferences, privileges and restrictions pertaining to any wholly unissued series (but not below the number of shares of that series then outstanding).   9. Share-Based Payments   Equity Incentive Plan   Stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense over the requisite service period, which is the vesting period, on a straight-line basis. The Company uses the Black-Scholes option pricing model to determine the fair value of stock options and warrants issued. Stock-based awards issued to date are comprised principally of restricted stock awards (RSUs).   The 2011 Executive Incentive Plan (the "Plan") of the Company was approved on February 21, 2011 by the written consent of the holder of a majority of the Company's outstanding common stock. The Plan provides the Company the ability to grant to any officer, director, employee, consultant or other person who provides services to the Company or any related entity, options, stock appreciation rights, restricted stock awards, dividend equivalents and other stock-based awards and performance awards, provided that only employees are entitled to receive incentive stock options in accordance with IRS guidelines. The Company reserved 30,000,000 shares of common stock for delivery under the Plan. Pursuant to the Executive Incentive Plan and the employment agreements, between February 15, 2011 and June 30, 2011 the Compensation Committee of the Companys Board of Directors authorized the grants of restricted stock described below.  The per share fair value of RSUs granted with service conditions was determined on the date of grant using the fair market value of the shares on the date of grant.   <table align="center" cellspacing="0" cellpadding="0" style="width: 100%"> <tr style="vertical-align: bottom"> <td style="font: 10pt Times New Roman, Times, Serif; padding-bottom: 1.5pt"> </td> <td style="border-bottom: black 1.5pt solid">   Date of Grant</td> <td style="font: bold 12pt Times New Roman, Times, Serif; padding-bottom: 1.5pt"> </td> <td colspan="2" style="border-bottom: black 1.5pt solid">   Common Shares</td> <td nowrap="nowrap" style="font: bold 12pt Times New Roman, Times, Serif; padding-bottom: 1.5pt"> </td> <td style="font: bold 12pt Times New Roman, Times, Serif; padding-bottom: 1.5pt"> </td> <td colspan="2" style="border-bottom: black 1.5pt solid; font: bold 12pt Times New Roman, Times, Serif; text-align: center"> Aggregate Fair Value on Date of Grant</td> <td nowrap="nowrap" style="font: bold 12pt Times New Roman, Times, Serif; padding-bottom: 1.5pt"> </td> <td style="font: bold 12pt Times New Roman, Times, Serif; padding-bottom: 1.5pt"> </td> <td colspan="2" style="border-bottom: black 1.5pt solid"> Weighted Average Grant Date Fair Value</td> <td nowrap="nowrap" style="font: 10pt Times New Roman, Times, Serif; padding-bottom: 1.5pt"> </td></tr> <tr style="vertical-align: bottom"> <td style="font: 10pt Times New Roman, Times, Serif">Seven (7) Executives</td> <td style="font: 10pt Times New Roman, Times, Serif; text-align: center">Various</td> <td style="font: 10pt Times New Roman, Times, Serif"> </td> <td style="font: 10pt Times New Roman, Times, Serif"> </td> <td style="font: 10pt Times New Roman, Times, Serif; text-align: right">7,875,000</td> <td nowrap="nowrap" style="font: 10pt Times New Roman, Times, Serif"> </td> <td style="font: 10pt Times New Roman, Times, Serif"> </td> <td style="font: 10pt Times New Roman, Times, Serif">$</td> <td style="font: 10pt Times New Roman, Times, Serif; text-align: right">137,906</td> <td nowrap="nowrap" style="font: 10pt Times New Roman, Times, Serif"> </td> <td style="font: 10pt Times New Roman, Times, Serif"> </td> <td style="font: 10pt Times New Roman, Times, Serif">$</td> <td style="font: 10pt Times New Roman, Times, Serif; text-align: right">17.51</td> <td nowrap="nowrap" style="font: 10pt Times New Roman, Times, Serif"> </td></tr> <tr> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td></tr> </table>   The Company is accounting for these values at fair market value of the shares on the date of grant, with the value being recognized over the requisite service period.  No shares were vested and no shares are forfeited as of June 30, 2011.   The total compensation expense of $10,772 was included in the accompanying Statement of Operations in general and administrative expenses for the year ended June 30, 2011.  There were no such expenses for the year ended June 30, 2010.  No shares actually vested during the periods and the grants provide for vesting annually in arrears over the next five years.  As of June 30, 2011 there was approximately $127 of total unrecognized stock-based compensation cost.   On February 16, 2011, the Company issued a five year warrant for 100,000 shares with an exercise price of $0.80 per share to Berenson & Company, LLC, financial advisor to Sillerman in connection with the Recapitalization, which vested on issuance. The fair value of the Berenson Warrant was determined to be $2,529 using the Black-Scholes option pricing model considering the contractual life of 5 years; expected volatility of 60%; and risk-free interest rate of 2.37%.  This amount was charged to general and administrative expense at the date of issuance.  On May 9, 2011, Berenson Investments LLC exercised the warrant and paid $80 for 100,000 shares of our common stock.     10.  Income Taxes   For the year ended June 30, 2011 and 2010, the Company did not record an income tax benefit because it has incurred taxable losses, it has no history of generating taxable income, and the Company cannot presently anticipate the realization of a tax benefit on its Net Operating Loss carryforward of $12,017 and $5,490 as of June 30, 2011 and 2010, respectively.  Accordingly, a full valuation allowance has been established on the related deferred tax assets.   Because of the change of control pursuant to the Recapitalization, utilization of prior fiscal year net operating loss carryforwards of $5,490 will be substantially limited.   The Company will recognize interest and penalties related to any uncertain tax positions through income tax expense.   The Company may in the future become subject to federal, state and city income taxation for years 2008 through 2010 under the normal statute of limitations. Generally, for state tax purposes, the Companys 2008 through 2010 tax years remain open for examination by the tax authorities under a four year statute of limitations. However, certain states may keep their statute open for six to ten years. There are no income tax audits currently in process with any taxing jurisdictions.   11.  Related Party Transactions   Asset Contribution Agreement   At the closing of the Recapitalization, the Company entered into an Asset Contribution Agreement with Sillerman Investment Corporation, a Delaware corporation (SIC), an affiliate of Robert F.X. Sillerman, our Executive Chairman, whereby SIC assigned certain intellectual property assets used in its business to the Company in exchange for an agreement by the Company to reimburse SIC for expenses incurred in connection with the development of such intellectual property assets and its related business, whenever incurred, at or after the closing, in an aggregate amount not to exceed $2,000.  Pursuant thereto, $1,312 was reimbursed and charged to general and administrative expense in the fiscal year.  This total amount was expensed since the reimbursement related to business operating expenses and expenses related to the development of the Companys product which were incurred during the preliminary stages of product development and are to be expensed under the guidance of ASC 350-40. Because such transaction was subject to certain rules regarding affiliated transactions, the Audit Committee and a majority of the independent members of the Board of Directors approved such reimbursement.   Debt Owed to J. Howard Inc.   As of the Recapitalization, the Company owed J. Howard Inc. the amount of $171 in connection with supporting the daily operations of the Company since 2007.  As part of the Recapitalization, the Company issued 250,000 shares at fair market value of $0.03 per share to J. Howard, Inc., a director and officer of the Company prior to the Recapitalization, and its designees (which included former directors of the Company) in connection with partially extinguishing outstanding debt owed to J. Howard, Inc and the remaining portion of the debt was satisfied by the Company as part of the Recapitalization on February 15, 2011. The remaining debt of $163 was satisfied on February 15, 2011 by payment to J. Howard, Inc. in such amount.  In addition, J. Howard, Inc. was paid $37 to be used for payment of expenses incurred in connection with the Recapitalization on behalf of the Company.   Recapitalization Notes and Expenses   In connection with the Recapitalization, Robert F.X. Sillerman (and his spouse and entities controlled by him), and Mitchell Nelson, each executive officers of the Company, executed promissory notes in accordance with their subscription agreements for the payment of the purchase price of the shares, in the amounts of $3,242 and $10, respectively.  Each note is an unsecured five-year note with interest accruing at the annual rate equal to the long-term Applicable Federal Rate in effect as of the date of the Recapitalization Agreement (which was 4.15% per annum).  Mr. Nelson satisfied his note on April 1, 2011.  The notes are due five years after issuance, with interest accrued at the rate of 4.15% per annum, and have been presented as a reduction of the related paid in capital in the accompanying financial statements. Interest income recorded on these notes in the year ended June 30, 2011 is $49.    In addition, Sillerman Investment Company, LLC was relieved of the obligation to pay $200 in connection with the initial structure of the Recapitalization to J. Howard, Inc. as reimbursement of advances made by J. Howard, Inc. to the Company to support its daily obligations since 2007.  The obligation arose from the initial proposal that investors would invest directly in Sillerman Investment Company, LLC prior to the Recapitalization.  When the structure of the Recapitalization changed, resulting in investments directly in the Company in connection with the Recapitalization, the obligation to pay J. Howard, Inc. became the obligation of the Company.  Because such transaction involved a related party, the Audit Committee of the Company's Board of Directors approved and the independent members of the Board ratified the payment of the obligation by the Company.   Shared Services Agreement   In an effort to economize on costs and be efficient in its use of resources, the Company entered into a shared services agreement with Circle Entertainment Inc. (Circle) as of February 15, 2011, pursuant to which it shares costs for legal and administrative services in support of Mitchell J. Nelson, its General Counsel and General Counsel to Circle.  The shared services agreement provides, in general, for sharing on a 50/50 basis of the applicable support provided by either company to Mr. Nelson in connection with his capacity as General Counsel, and an allocation generally based on the services provided by Mr. Nelson, which are initially estimated to be divided evenly between the companies.  The Company is responsible for advancing the salary to Mr. Nelson for both companies and will be reimbursed by Circle for such salary and benefits (but not for any bonus, option or restricted share grant made by either company, which will be the responsibility of the company making such bonus, option or restricted share grant).  The agreement provides for the Chief Executive Officer or President of each Company to meet periodically to assess whether the services have been satisfactorily performed and to discuss whether the allocation has been fair.  The Audit Committee of each companys Board of Directors will then review and, if appropriate, approve the allocations made and whether payments need to be adjusted or reimbursed, depending on the circumstances.  Because this transaction is subject to certain rules regarding affiliate transactions, the Audit Committee and a majority of the independent members of the Companys Board of Directors have approved the shared services agreement.  This is deemed to be an affiliate transaction because Mr. Sillerman is Chairman and Mr. Nelson is Executive Vice President and General Counsel of Circle.  For the fiscal year ended June 30, 2011, the Company incurred and billed Circle $107 for support, consisting primarily of legal and administrative services. These services provided were approved by Circles Audit Committee and the Companys Audit Committee and the related fees were paid ($25 was paid after June 30, 2011).   In addition, certain of the Companys accounting personnel may provide personal accounting services to our Executive Chairman, Robert F.X. Sillerman.  To the extent such services are rendered, Mr. Sillerman shall reimburse the Company therefor.  The reimbursement for any such services shall be reviewed by the Companys Audit Committee.  For the fiscal year ended June 30, 2011, $18 was incurred and paid by Mr. Sillerman for such services ($4 was paid after June 30, 2011).   Consultant   Benjamin Chen, an independent director, is acting as a consultant to the Company in the area of technology, systems architecture and technical operations.  He has been paid $72 for his services through June 30, 2011.    NetJets   The Company executed an agreement with NetJets to bundle a 3.125% fractional share of a G-IV jet owned by Mr. Sillerman with a value of $336 with a new 6.25% fractional share of a G-IV jet which was purchased from NetJets by the Company. The purchase price for the 6.25% interest was $1,175, payable $235 upon signing and the balance of $940 is financed with interest at 6% per annum, monthly payments of $9 and, a five-year balloon of $661.   Monthly management fees (aggregate for both shares) are approximately $26.  Based on the anticipated travel schedule for Mr. Sillerman and the anticipated residual value of the plane at the end of the five-year period of usage, the Company is expected to realize cost savings. The Companys Audit Committee approved entering into this related party transaction, and on June 17, 2011, the independent members of the Companys Board of Directors approved the transaction. The Company accounted for the transaction by recording the interests as investment assets and the related debt amounts to Mr. Sillerman and NetJets.   12. Fair Value Measurement   The Company values its assets and liabilities using the methods of fair value as described in ASC 820, Fair Value Measurements and Disclosures.  ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value.  The three levels of fair value hierarchy are described below:   Level 1 Quoted prices in active markets for identical assets or liabilities.   Level 2 Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities.   Level 3 Inputs that are generally unobservable and typically reflect managements estimates of assumptions that market participants would use in pricing the asset or liability.   In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible, and considers counter-party credit risk in its assessment of fair value.  Observable or market inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Companys assumptions based on the best information available.   The Company has certain assets and liabilities that are required to be recorded at fair value on a recurring basis in accordance with accounting principles generally accepted in the United States.  The Companys investment in overnight money market institutional funds, which amounted to $3,797 as of June 30, 2011, is included in Cash and Cash Equivalents on the accompanying consolidated balance sheets and is classified as a Level 1 input.  The carrying value for Cash and Cash Equivalents and Accounts Payable approximate fair value because of the immediate or short-term maturity of these financial instruments.  The Companys debt of $940 to finance the purchase of an interest in a G-IV jet approximates fair value due to market interest rates. It is not practical to fair value the $336 for the related party debt.   13.  Subsequent Events (unaudited)   Private Placement   On August 25, 2011, the Company completed the placement of 14,000,000 units (the Units), each Unit consisting of (i) one (1) share of common stock, $0.001 par value per share of the Company and (ii) one (1) detachable three (3) year warrant to purchase one (1) share of common stock of the Company with an exercise price of $4.00 per warrant share, at a purchase price of $2.50 per Unit, for an aggregate purchase price of $35,000 to accredited and institutional investors.  The Units issued in such placement were exempt from registration under the Securities Act of 1933, as amended (the Securities Act), pursuant to an exemption from registration for transactions not involving a public offering under Section 4(2) of the Securities Act, and the safe harbors for sales under Section 4(2) provided by Regulation D promulgated pursuant to the Securities Act. Transfer of the shares was restricted by the Company in accordance with the requirements of the Securities Act.  The proceeds of the offering, $35,000, are to be used for general corporate purposes, including marketing and product development.  Tejas Securities Group, Inc. (Tejas) and Craig-Hallum Capital Group, LLC acted as placement agents in connection with the offering and received compensation of $1,350 and $165, respectively.  Tejas purchased units in the offering for $713 and received as additional compensation a five-year warrant for 540,000 common shares at $2.50 per share and 100,000 warrants on the same basis as the investors.  Sillerman Investment Company, LLC purchased $5,000 worth of Units in the placement, and Sillerman Investment Company, LLC, as nominee purchased $6,376 of Units in the placement. The Company will take a compensation charge in the first quarter of approximately $17,162 as a result of the foregoing.   Stock Option Grants   On August 26, 2011, the Compensation Committee adopted a Company-wide stock option program and granted to 32 employees an aggregate of 3,545,000 non-qualified stock options at $2.50 per share or $5.00 per share, depending on recipient, vesting over three to four years, depending on when the employee started at the Company. The Company will take a compensation charge in the first quarter of approximately $1,037 as a result of the foregoing.   On August 12, 2011, the Compensation Committee of the Board of Directors approved a stock option plan for non-management directors. Each director is to receive 250,000 non-qualified stock options for common shares of the Company under the Executive Equity Incentive Plan. The initial grant was made on August 26, 2011 at $2.50 per share. One-fourth of the grant vested on the grant date and the balance will vest pro-rata annually in arrears over the next three years, so long as the director remains in office on the vesting date. 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Consolidated Balance Sheets (Parenthetical) (USD $)

Jun. 30, 2011

Jun. 30, 2010

Stockholders’ Equity

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Preferred Stock shares Authorized 1,000,000 1,000,000

Preferred Stock shares Issued 0 0

Preferred Stock shares Outstanding 0 0

Common Stock shares par value $ 0.01 $ 0.01

Common Stock shares Authorized 300,000,000 1,000,000

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Consolidated Statements of Operations (USD $)
In Thousands, except Share data
12 Months Ended

Jun. 30, 2011

Jun. 30, 2010

Income Statement [Abstract]

REVENUES $ 0 $ 0

GENERAL AND ADMINISTRATIVE EXPENSES 19,970 9

OPERATING LOSS (19,970) (9)

OTHER INCOME:

Interest income, net 62 0

Total Other Income 62 0

NET LOSS BEFORE INCOME TAXES (19,908) (9)

INCOME TAXES 0 0

NET LOSS $ (19,908) $ (9)

Net loss per common share - basic and diluted $ (0.20) $ (0.02)

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Loans Payable
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Loans Payable

6. Loans Payable

J. Howard, Inc. had been supporting the daily operations of the Company from 2007 until the Recapitalization. As of December 31, 2010, the Company owed J. Howard, Inc. $82 as a result thereof, which amount was increased as of the completion of the Recapitalization on February 15, 2011 to $171. As part of the Recapitalization, the Company issued 250,000 shares (at a fair market value of $0.03 per share) to J. Howard, Inc., a director and officer of the Company prior to the Recapitalization, and its designees (which included former directors of the Company) in connection with partially extinguishing outstanding debt owed to J. Howard, Inc. The remaining debt of $163 was satisfied on February 15, 2011 by payment to J. Howard, Inc. in such amount. In addition, J. Howard, Inc. was paid $37 to be used for payment of expenses incurred in connection with the Recapitalization on behalf of the Company.

As described in footnote 4 above, the Company financed the purchase of a 6.25% fractional interest in a G-IV jet. The financing of $940 provides for interest at the rate of 6% per annum, monthly payments of $9 and a balloon payment at maturity in 5 years of $661. Total payments on this debt in the next five years are as follows:

Years Ending June 30, (in thousands)

2012 $ 49

2013 52

2014 56

2015 59

2016 724

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Related Party Transactions

11. Related Party Transactions

Asset Contribution Agreement

At the closing of the Recapitalization, the Company entered into an Asset Contribution Agreement with Sillerman Investment Corporation, a Delaware corporation (“SIC”), an affiliate of Robert F.X. Sillerman, our Executive Chairman, whereby SIC assigned certain intellectual property assets used in its business to the Company in exchange for an agreement by the Company to reimburse SIC for expenses incurred in connection with the development of such intellectual property assets and its related business, whenever incurred, at or after the closing, in an aggregate amount not to exceed $2,000. Pursuant thereto, $1,312 was reimbursed and charged to general and administrative expense in the fiscal year. This total amount was expensed since the reimbursement related to business operating expenses and expenses related to the development of the Company’s product which were incurred during the preliminary stages of product development and are to be expensed under the guidance of ASC 350-40. Because such transaction was subject to certain rules regarding “affiliated” transactions, the Audit Committee and a majority of the independent members of the Board of Directors approved such reimbursement.

Debt Owed to J. Howard Inc.

As of the Recapitalization, the Company owed J. Howard Inc. the amount of $171 in connection with supporting the daily operations of the Company since 2007. As part of the Recapitalization, the Company issued 250,000 shares at fair market value of $0.03 per share to J. Howard, Inc., a director and officer of the Company prior to the Recapitalization, and its designees (which included former directors of the Company) in connection with partially extinguishing outstanding debt owed to J. Howard, Inc and the remaining portion of the debt was satisfied by the Company as part of the Recapitalization on February 15, 2011. The remaining debt of $163 was satisfied on February 15, 2011 by payment to J. Howard, Inc. in such amount. In addition, J. Howard, Inc. was paid $37 to be used for payment of expenses incurred in connection with the Recapitalization on behalf of the Company.

Recapitalization Notes and Expenses

In connection with the Recapitalization, Robert F.X. Sillerman (and his spouse and entities controlled by him), and Mitchell Nelson, each executive officers of the Company, executed promissory notes in accordance with their subscription agreements for the payment of the purchase price of the shares, in the amounts of $3,242 and $10, respectively. Each note is an unsecured five-year note with interest accruing at the annual rate equal to the long-term Applicable Federal Rate in effect as of the date of the Recapitalization Agreement (which was 4.15% per annum). Mr. Nelson satisfied his note on April 1, 2011. The notes are due five years after issuance, with interest accrued at the rate of 4.15% per annum, and have been presented as a reduction of the related paid in capital in the accompanying financial statements. Interest income recorded on these notes in the year ended June 30, 2011 is $49.



In addition, Sillerman Investment Company, LLC was relieved of the obligation to pay $200 in connection with the initial structure of the Recapitalization to J. Howard, Inc. as reimbursement of advances made by J. Howard, Inc. to the Company to support its daily obligations since 2007. The obligation arose from the initial proposal that investors would invest directly in Sillerman Investment Company, LLC prior to the Recapitalization. When the structure of the Recapitalization changed, resulting in investments directly in the Company in connection with the Recapitalization, the obligation to pay J. Howard, Inc. became the obligation of the Company. Because such transaction involved a related party, the Audit Committee of the Company's Board of Directors approved and the independent members of the Board ratified the payment of the obligation by the Company.

Shared Services Agreement

In an effort to economize on costs and be efficient in its use of resources, the Company entered into a shared services agreement with Circle Entertainment Inc. (“Circle”) as of February 15, 2011, pursuant to which it shares costs for legal and administrative services in support of Mitchell J. Nelson, its General Counsel and General Counsel to Circle. The shared services agreement provides, in general, for sharing on a 50/50 basis of the applicable support provided by either company to Mr. Nelson in connection with his capacity as General Counsel, and an allocation generally based on the services provided by Mr. Nelson, which are initially estimated to be divided evenly between the companies. The Company is responsible for advancing the salary to Mr. Nelson for both companies and will be reimbursed by Circle for such salary and benefits (but not for any bonus, option or restricted share grant made by either company, which will be the responsibility of the company making such bonus, option or restricted share grant). The agreement provides for the Chief Executive Officer or President of each Company to meet periodically to assess whether the services have been satisfactorily performed and to discuss whether the allocation has been fair. The Audit Committee of each company’s Board of Directors will then review and, if appropriate, approve the allocations made and whether payments need to be adjusted or reimbursed, depending on the circumstances. Because this transaction is subject to certain rules regarding “affiliate” transactions, the Audit Committee and a majority of the independent members of the Company’s Board of Directors have approved the shared services agreement. This is deemed to be an affiliate transaction because Mr. Sillerman is Chairman and Mr. Nelson is Executive Vice President and General Counsel of Circle. For the fiscal year ended June 30, 2011, the Company incurred and billed Circle $107 for support, consisting primarily of legal and administrative services. These services provided were approved by Circle’s Audit Committee and the Company’s Audit Committee and the related fees were paid ($25 was paid after June 30, 2011).

In addition, certain of the Company’s accounting personnel may provide personal accounting services to our Executive Chairman, Robert F.X. Sillerman. To the extent such services are rendered, Mr. Sillerman shall reimburse the Company therefor. The reimbursement for any such services shall be reviewed by the Company’s Audit Committee. For the fiscal year ended June 30, 2011, $18 was incurred and paid by Mr. Sillerman for such services ($4 was paid after June 30, 2011).

Consultant

Benjamin Chen, an independent director, is acting as a consultant to the Company in the area of technology, systems architecture and technical operations. He has been paid $72 for his services through June 30, 2011.

NetJets

The Company executed an agreement with NetJets to bundle a 3.125% fractional share of a G-IV jet owned by Mr. Sillerman with a value of $336 with a new 6.25% fractional share of a G-IV jet which was purchased from NetJets by the Company. The purchase price for the 6.25% interest was $1,175, payable $235 upon signing and the balance of $940 is financed with interest at 6% per annum, monthly payments of $9 and, a five-year balloon of $661. Monthly management fees (aggregate for both shares) are approximately $26. Based on the anticipated travel schedule for Mr. Sillerman and the anticipated residual value of the plane at the end of the five-year period of usage, the Company is expected to realize cost savings. The Company’s Audit Committee approved entering into this related party transaction, and on June 17, 2011, the independent members of the Company’s Board of Directors approved the transaction. The Company accounted for the transaction by recording the interests as investment assets and the related debt amounts to Mr. Sillerman and NetJets.

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Organization and Background
12 Months Ended

Jun. 30, 2011

Notes to Financial Statements

Organization and Background

2. Organization and Background

Formation and Former Business

The Company was incorporated in Delaware in July 1994 and had no operating business or full-time employees from December 1996 to 2000, when it acquired all of the outstanding Common Stock of Oaktree Systems, Inc. (“Oaktree”). Through Oaktree, the Company provided cost effective marketing solutions to organizations needing sophisticated information management tools. In December 2007, Marketing Data, Inc. acquired an 80% interest in Oaktree for $1 and the Company’s ownership interest in Oaktree was reduced to 20% of Oaktree’s outstanding Common Stock. On October 24, 2010, Oaktree repurchased the Company’s remaining 20% interest in Oaktree for $0.10. As a result, Marketing Data, Inc. owned 100% of the outstanding Common Stock of Oaktree. After the disposition of the Company’s interest in Oaktree and prior to the Recapitalization, the Company was not active and had no operating business. After the disposition of the Oaktree interest, the Company began to explore the redeployment of its existing assets by identifying and merging with or investing in one or more operating businesses. The Board of Directors approved the Recapitalization effecting such change.

The Recapitalization

As previously disclosed, on February 7, 2011, Function(x) Inc. (formerly Gateway Industries, Inc., the “Company”) entered into the Agreement and Plan of Recapitalization (the “Recapitalization Agreement”) by and among the Company, Sillerman Investment Company LLC, a Delaware limited liability company (“Sillerman”), and EMH Howard LLC, a New York limited liability company (“EMH Howard”).

Pursuant to the Recapitalization Agreement, Sillerman, together with other investors approved by Sillerman, invested in the Company by acquiring 120,000,000 newly issued shares of common stock of the Company in a private placement transaction at a price of $0.03 per share (on a post-split basis as described below), as a result of which Sillerman and the other investors acquired approximately 99% of the outstanding shares of common stock, with Sillerman (together with Robert F.X. Sillerman personally) directly or indirectly beneficially owning more than a majority of the outstanding shares of common stock. Upon consummation, the proceeds of the private placement of $3,600 ($220 in cash and $3,380 in five-year promissory notes with interest accruing at the annual rate equal to the long-term Applicable Federal Rate in effect as of the date of the Recapitalization Agreement, which was 4.15% per annum) were received.

On February 16, 2011, immediately after the Recapitalization was consummated, the Company issued 13,232,597 shares of common stock to an institutional investor (for $10,000) at a price of approximately $0.76 per share, and 940,000 shares of common stock to an accredited investor ($500) at a price of approximately $0.53 per share. The shares of common stock issued in such placements were exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”), pursuant to an exemption from registration for transactions not involving a public offering under Section 4(2) of the Securities Act, and the safe harbors for sales under Section 4(2) provided by Regulation D promulgated pursuant to the Securities Act. Transfer of the shares was restricted by the Company in accordance with the requirements of the Securities Act.

On February 16, 2011, the Company issued a five year warrant for 100,000 shares with an exercise price of $0.80 per share to Berenson Investments LLC. Berenson & Company, LLC, an affiliate of Berenson Investments LLC, was the financial advisor to Sillerman in connection with the Recapitalization. On May 9, 2011, Berenson Investments LLC exercised the warrant and paid $80 for 100,000 shares of the Company’s common stock.

As part of the Recapitalization, the Company also issued 250,000 shares to J. Howard, Inc., an entity affiliated with Jack L. Howard, a director and officer of the Company prior to the Recapitalization, and its designees (which included former directors of the Company) in connection with partially extinguishing outstanding debt of $171 owed to J. Howard, Inc. The fair market value of the shares at issuance was $0.03 per share. The remaining debt of $163 was satisfied on February 15, 2011 by payment to J. Howard, Inc. in such amount. In addition, J. Howard, Inc. was paid $37 to be used for payment of expenses incurred in connection with the Recapitalization on behalf of the Company.



As part of the Recapitalization, the Company effectuated a 1 for 10 reverse split of its issued and outstanding common stock (the “Reverse Split”). The Reverse Split became effective on February 16, 2011. Under the terms of the Reverse Split, each share of common stock, issued and outstanding as of such effective date, was automatically reclassified and changed into one-tenth of one share of common stock, without any action by the stockholder. Fractional shares were rounded up to the nearest whole share. All share and per share amounts have been restated to reflect the Reverse Split.

The newly recapitalized company changed its name to Function (X) Inc. effective as of the date of the Recapitalization and changed its name to Function(x) Inc. on June 22, 2011. It now conducts its business under the name Function(x) Inc., with the ticker symbol FNCX. We have two wholly-owned subsidiaries, Project Oda, Inc. and Viggle Inc, each a Delaware corporation.

The Company’s New Line of Business

The Company’s business is to create and manage digital products and services that encourage consumer participation and active engagement with media and entertainment content. These digital media products are designed to accommodate a variety of media and entertainment experiences, including but not limited to television, movies, games and music. The Company plans to generate revenues from advertising, sponsorship, e-commerce and other sources based on the aggregation of registered users.

The Company plans to host, maintain, develop and operate a suite of digital products that will leverage proprietary technology. The initial products will be delivered via mobile applications and websites, marketed to high value media consumers. In addition, the Company is developing and managing software and databases for the identification of multimedia content, commercials, and promotional information that will be used on multiple types of internet-connected devices. We will also use our software and databases to deliver highly targeted advertising and marketing solutions via digital services, initially on mobile phones and other handheld mobile devices.

The Company’s initial product design will be distributed on a variety of mainstream mobile operating systems. The products will verify user engagement of various forms of entertainment content through a real-time check-in process. The initial market for the product targets TV audiences across various channels and platforms: broadcast and cable networks, live, time-shifted and on-demand television, as well as online distribution of television programming. The Company’s consumer participation and engagement will be limited to participants who are 13 years of age or older.

The Beta product was delivered for usability testing in September and will undergo further testing in the fourth quarter of calendar 2011. The Company is targeting an initial release to be made in such quarter or early 2012. The national launch to a wider general audience is scheduled for 2012.

Since the Recapitalization and prior to the end of the fiscal year, the Company hired personnel with diverse backgrounds in General Management in Digital Media and Entertainment, along with specialists in Product Development, Engineering, Marketing, Analytics, Sales and Business Development, along with Human Resources, Finance and Legal for the purpose of furthering the business plan and building the first product.

Operations

We are creating a social media experience around traditional media consumption that encourages consumer participation and active engagement through incentives, brand-sponsored content, and network-sponsored content. We intend to market our service through various channels, including online advertising, broad-based media (such as television and radio), as well as various strategic partnerships. We intend to utilize co-location facilities and the services of third-party cloud computing providers, more specifically, Amazon Web Services, to help us efficiently manage and create our platform.

Revenue

Our plan is to derive revenues from advertising programs and marketing solutions generated from two revenue streams, entertainment providers and brand advertisers. We will begin operations by offering a new social media experience to consumers to drive engagement with providers and brands through our digital mobile services, with focus on smartphone applications. Initially, we anticipate revenues to be generated substantially in the United States.

Seasonality

Our revenue is expected to exhibit a seasonal pattern that reflects variation in accordance with entertainment offerings and the desire of advertisers to try to influence consumers’ purchasing habits. As a consequence, revenue is expected to vary modestly throughout the year, although we anticipate revenues to be slowest in the third calendar quarter. Additionally, the growth in variable expenses associated with marketing, new product releases, consumer incentives, and advertising services will fluctuate with revenue, but not necessarily by the same percentage.



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Stockholders’ Equity (Deficit)
12 Months Ended

Jun. 30, 2011

Notes to Financial Statements

Stockholders’ Equity (Deficit)

8. Stockholders’ Equity (Deficit)

As of June 30, 2011 and 2010, there were 300,000,000 and 1,000,000 shares of authorized common stock, respectively, and 134,941,797 and 419,280 (adjusted to reflect post reverse split shares) shares of common stock issued and outstanding, respectively. Except as otherwise provided by Delaware law, the holders of our common stock are entitled to one vote per share on all matters to be voted upon by the stockholders.

The Company’s Board of Directors is authorized to issue 1,000,000 shares of preferred stock, par value $0.001 per share. We may issue shares of preferred stock in one or more series as may be determined by our board of directors, who may establish the designation and number of shares of any series, and may determine, alter or revoke the rights, preferences, privileges and restrictions pertaining to any wholly unissued series (but not below the number of shares of that series then outstanding).

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Subsequent Events
12 Months Ended

Jun. 30, 2011

Notes to Financial Statements

Subsequent Events

13. Subsequent Events (unaudited)

Private Placement

On August 25, 2011, the Company completed the placement of 14,000,000 units (the “Units”), each Unit consisting of (i) one (1) share of common stock, $0.001 par value per share of the Company and (ii) one (1) detachable three (3) year warrant to purchase one (1) share of common stock of the Company with an exercise price of $4.00 per warrant share, at a purchase price of $2.50 per Unit, for an aggregate purchase price of $35,000 to accredited and institutional investors. The Units issued in such placement were exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”), pursuant to an exemption from registration for transactions not involving a public offering under Section 4(2) of the Securities Act, and the safe harbors for sales under Section 4(2) provided by Regulation D promulgated pursuant to the Securities Act. Transfer of the shares was restricted by the Company in accordance with the requirements of the Securities Act. The proceeds of the offering, $35,000, are to be used for general corporate purposes, including marketing and product development. Tejas Securities Group, Inc. (“Tejas”) and Craig-Hallum Capital Group, LLC acted as placement agents in connection with the offering and received compensation of $1,350 and $165, respectively. Tejas purchased units in the offering for $713 and received as additional compensation a five-year warrant for 540,000 common shares at $2.50 per share and 100,000 warrants on the same basis as the investors. Sillerman Investment Company, LLC purchased $5,000 worth of Units in the placement, and Sillerman Investment Company, LLC, as nominee purchased $6,376 of Units in the placement. The Company will take a compensation charge in the first quarter of approximately $17,162 as a result of the foregoing.

Stock Option Grants

On August 26, 2011, the Compensation Committee adopted a Company-wide stock option program and granted to 32 employees an aggregate of 3,545,000 non-qualified stock options at $2.50 per share or $5.00 per share, depending on recipient, vesting over three to four years, depending on when the employee started at the Company. The Company will take a compensation charge in the first quarter of approximately $1,037 as a result of the foregoing.

On August 12, 2011, the Compensation Committee of the Board of Directors approved a stock option plan for non-management directors. Each director is to receive 250,000 non-qualified stock options for common shares of the Company under the Executive Equity Incentive Plan. The initial grant was made on August 26, 2011 at $2.50 per share. One-fourth of the grant vested on the grant date and the balance will vest pro-rata annually in arrears over the next three years, so long as the director remains in office on the vesting date. The Company will take a compensation charge in the first quarter of approximately $1,566 as a result of the foregoing, resulting from selling shares to executives below fair value.

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Share-Based Payments
12 Months Ended

Jun. 30, 2011

Notes to Financial Statements

Share-Based Payments

9. Share-Based Payments

Equity Incentive Plan

Stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense over the requisite service period, which is the vesting period, on a straight-line basis. The Company uses the Black-Scholes option pricing model to determine the fair value of stock options and warrants issued. Stock-based awards issued to date are comprised principally of restricted stock awards (RSUs).

The 2011 Executive Incentive Plan (the "Plan") of the Company was approved on February 21, 2011 by the written consent of the holder of a majority of the Company's outstanding common stock. The Plan provides the Company the ability to grant to any officer, director, employee, consultant or other person who provides services to the Company or any related entity, options, stock appreciation rights, restricted stock awards, dividend equivalents and other stock-based awards and performance awards, provided that only employees are entitled to receive incentive stock options in accordance with IRS guidelines. The Company reserved 30,000,000 shares of common stock for delivery under the Plan. Pursuant to the Executive Incentive Plan and the employment agreements, between February 15, 2011 and June 30, 2011 the Compensation Committee of the Company’s Board of Directors authorized the grants of restricted stock described below. The per share fair value of RSUs granted with service conditions was determined on the date of grant using the fair market value of the shares on the date of grant.

Date of Grant

Common Shares
Aggregate Fair Value on Date of Grant
Weighted Average

Grant Date Fair Value

Seven (7) Executives Various 7,875,000 $ 137,906 $ 17.51

The Company is accounting for these values at fair market value of the shares on the date of grant, with the value being recognized over the requisite service period. No shares were vested and no shares are forfeited as of June 30, 2011.

The total compensation expense of $10,772 was included in the accompanying Statement of Operations in general and administrative expenses for the year ended June 30, 2011. There were no such expenses for the year ended June 30, 2010. No shares actually vested during the periods and the grants provide for vesting annually in arrears over the next five years. As of June 30, 2011 there was approximately $127 of total unrecognized stock-based compensation cost.

On February 16, 2011, the Company issued a five year warrant for 100,000 shares with an exercise price of $0.80 per share to Berenson & Company, LLC, financial advisor to Sillerman in connection with the Recapitalization, which vested on issuance. The fair value of the Berenson Warrant was determined to be $2,529 using the Black-Scholes option pricing model considering the contractual life of 5 years; expected volatility of 60%; and risk-free interest rate of 2.37%. This amount was charged to general and administrative expense at the date of issuance. On May 9, 2011, Berenson Investments LLC exercised the warrant and paid $80 for 100,000 shares of our common stock.

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Commitments and Contingencies
12 Months Ended

Jun. 30, 2011

Notes to Financial Statements

Commitments and Contingencies

7. Commitments and Contingencies

Total rent expense for the Company under operating leases for the years ended June 30, 2011 and 2010 was less than $65 and $0, respectively. The Company’s future minimum rental commitments under noncancelable operating leases are as follows:

(in thousands)

Years Ending June 30,

2012 $ 338

2013 595

2014 611

2015 628

2016 647

Thereafter 3,912

Total $ 6,731

As of June 30, 2011, the Company has entered into employment contracts with certain key executives and employees, which include provisions for severance payments in the event of specified terminations of employment. Expected payments under existing employment contracts are as follows:



(in thousands)

Year Ending June 30,

2012 $ 2,229

2013 2,326

2014 2,427

2015 2,534

Thereafter —

Total $ 9,516

As of June 30, 2011, the Company has entered into an agreement for network services with Carpathia Hosting Inc. (“Carpathia”) for a two-year term. The anticipated payments under this agreement are $71 per month. The exact amount may vary from month to month depending on usage and additional services which may be supplied by Carpathia.

There are no lawsuits or claims pending against the Company.

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Consolidated Statements of Cash Flows (USD $)
In Thousands
12 Months Ended

Jun. 30, 2011

Jun. 30, 2010

CASH FLOWS FROM OPERATING ACTIVITIES:

Net loss $ (19,908) $ (9)

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

Restricted Stock issued for services 10,772 0

Warrants issued for services 2,529 0

Depreciation 4 0

Changes in operating assets and liabilities:

Other Receivables (29) 0

Prepaid Expenses (46) 0

Accounts payable and accrued expenses 1,027 9

Other liabilities 6 0

Net Cash Used in Operating Activities (5,645) 0

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchase of Equipment (83) 0

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Investment in Interests in Corporate Jet (235) 0

Capitalized Software Costs (317) 0

Net Cash Used in Investing Activities (1,330) 0

CASH FLOWS FROM FINANCING ACTIVITIES:

Issuance of Common Stock for Cash 10,769 0

Net Cash from Financing Activities 10,769 0

NET INCREASE IN CASH 3,794 0

Cash at Beginning of Period 0 0

Cash at End of Period 3,794 0

Non-Cash Financing Activities:

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XML 1031 R9.htm IDEA: XBRL DOCUMENT v2.3.0.11

Summary of Significant Accounting Policies
12 Months Ended

Jun. 30, 2011

Notes to Financial Statements

Summary of Significant Accounting Policies

3. Summary of Significant Accounting Policies

Change of Fiscal Year: On February 24, 2011, the Board of Directors of the Company approved a change to the Company's fiscal year end from December 31 to June 30.

Cash, Cash Equivalents and Restricted Cash

The Company considers all highly liquid securities purchased with remaining maturities of 90 days or less to be cash equivalents. Cash equivalents are stated at cost which approximates market value and primarily consists of money market funds that are readily convertible into cash. Restricted cash comprises amounts held in deposits that were required as collateral under the lease of office space.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the 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 expenses during the reporting period. These estimates include, among others, fair value of financial assets and liabilities, net realizable values on long-lived assets, certain accrued expense accounts, and estimates related to stock-based compensation. Actual results could differ from those estimates.

Fair Value of Financial Instruments

The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents and accounts payable approximate fair value because of the immediate or short-term maturity of these financial instruments. The Company’s debt approximates fair value as current borrowing rates for the same or similar issues are the same as those that were given to the Company at the issuance of its debt.

Equipment

Equipment (consisting of computers, software, furniture and fixtures) is recorded at historical cost and is depreciated using the straight-line method over their estimated useful lives. The useful life and depreciation method are reviewed periodically to ensure that the depreciation method and period are consistent with the anticipated pattern of future economic benefits. Expenditures for maintenance and repairs are charged to operations as incurred while renewals and betterments are capitalized. Gains and losses on disposals are included in the results of operations. The useful life of the equipment is being depreciated over three years.

Impairment of Long-Lived Assets.

The Company applies the provisions of Accounting Standards Codification (“ASC”) Topic 360, “Property, Plant, and Equipment”, which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. ASC 360 requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amounts. In that event, a loss is recognized based on the amount by which the carrying amount exceeds the fair value of the long-lived assets. Loss on long-lived assets to be disposed of is determined in a similar manner, except that fair values are reduced for the cost of disposal. Based on its review, the Company believes that as of June 30, 2010 and June 30, 2011, there was no significant impairment of its long-lived assets.



Internal Use Software

The Company capitalizes costs related to the development of internal use software in accordance with ASC 350-40. When capitalized, the Company will amortize the costs of computer software developed for internal use on a straight-line basis or appropriate usage basis over the estimated useful life of the software. Currently, the Company is in the application development stage of its computer software development and, appropriately, certain costs have been capitalized in the amounts of $317 and $0 as of June 30, 2011 and June 30, 2010, respectively.

Marketing

Marketing costs are expensed as incurred. Marketing expense for the Company in 2011 and 2010 was $1,005 and $0, respectively.

Income Taxes

The Company uses the liability method of accounting for income taxes as set forth in ASC 740, Income Taxes. Under the liability method, deferred taxes are determined based on the temporary differences between the financial statement and tax basis of assets and liabilities using tax rates expected to be in effect during the years in which the basis differences reverse. A valuation allowance is recorded when it is more likely than not that some of the deferred tax assets will not be realized. We assess our income tax positions and record tax benefits for all years subject to examination based upon our evaluation of the facts, circumstances and information available at the reporting date. For those tax positions where there is a greater than 50% likelihood that a tax benefit will be sustained, our policy will be to record the largest amount of tax benefit that is more likely than not to be realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. For those income tax positions where there is less than 50% likelihood that a tax benefit will be sustained, no tax benefit will be recognized in the financial statements.

Stock-Based Compensation

The Company accounts for stock-based compensation in accordance with ASC 718, Compensation – Stock Compensation. Under the fair value recognition provisions of ASC 718, stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense ratably over the requisite service period. The Company uses the Black-Scholes option pricing model to determine the fair value of stock options and warrants issued. Stock-based awards issued to date are comprised principally of restricted stock awards (RSUs).

Recently Issued Accounting Pronouncements

In October 2009, the FASB issued Accounting Standards Update (“ASU”) No. 2009-13, Multiple-Deliverable Revenue Arrangements. The new standard changes the requirements for establishing separate units of accounting in a multiple element arrangement and requires the allocation of arrangement consideration to each deliverable based on the relative selling price. The selling price for each deliverable is based on vendor-specific objective evidence (“VSOE”) if available, third-party evidence if VSOE is not available, or estimated selling price if neither VSOE or third-party evidence is available. ASU 2009-13 is effective for revenue arrangements entered into in fiscal years beginning on or after June 15, 2010. The Company does not expect that the provisions of the new guidance will have a material effect on its consolidated financial statements.

In January 2010, the FASB issued ASU No. 2010-06, Improving Disclosures about Fair Value Measurements, which requires additional disclosures about the amounts of and reasons for significant transfers in and out of Level 1 and Level 2 fair value measurements. This standard also clarifies existing disclosure requirements related to the level of disaggregation of fair value measurements for each class of assets and liabilities and disclosures about inputs and valuation techniques used to measure fair value for both recurring and non-recurring Level 2 and Level 3 measurements. Since this new accounting standard only required additional disclosure, the adoption of the standard in the first quarter of 2010 did not impact the Company’s consolidated financial statements. Additionally, effective for interim and annual periods beginning after December 15, 2010, this standard will require additional disclosure and require an entity to present disaggregated information about activity in Level 3 fair value measurements on a gross basis, rather than one net amount.

In May 2011, the Financial Accounting Standards Board (FASB) released ASU 2011-04 “Fair Value Measurement”, which amends ASC 820 “Fair Value Measurements and Disclosures”. This standard will be effective beginning in the first calendar quarter of 2012 and the Company is in the process of assessing the impact of this standard on the Company’s Consolidated Financial Statements.

In May 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2011-05, Comprehensive Income: Presentation of Comprehensive Income. The ASU amends FASB Codification Topic 220, Comprehensive Income, to require an entity 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. ASU 2011-05 is effective for fiscal years, and interim periods within those fiscal years beginning after December 15, 2011, and early adoption is permitted. The adoption of this standard will not have an impact on the Company’s financial statements as they currently conform.

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Interests in Corporate Jet
12 Months Ended

Jun. 30, 2011

Notes to Financial Statements

Interests in Corporate Jet

4. Interests in Corporate Jet

The Company executed an agreement with NJI Sales, Inc. (“NetJets”) to bundle a 3.125% fractional share of a G-IV jet owned by Mr. Sillerman with a value of $336 with a new 6.25% fractional share of a G-IV jet which was purchased from NetJets by the Company. The purchase price for the 6.25% interest was $1,175, payable $235 upon signing and the balance of $940 in debt with interest at 6% per annum, monthly payments of $9 and a five-year balloon of $661. Monthly management fees (aggregate for both shares) are approximately $26. Based on the anticipated travel schedule for Mr. Sillerman and the anticipated residual value of the plane at the end of the five-year period of usage, the Company is expected to realize cost savings. The Company’s Audit Committee approved entering into this related party transaction and on June 17, 2011, the independent members of the Company’s Board of Directors approved the transaction. The Company accounted for the transaction by recording the interests as investment assets and the related debt amounts to Mr. Sillerman and NetJets

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Fair Value Measurement
12 Months Ended

Jun. 30, 2011

Notes to Financial Statements

Fair Value Measurement

12. Fair Value Measurement

The Company values its assets and liabilities using the methods of fair value as described in ASC 820, Fair Value Measurements and Disclosures. ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. The three levels of fair value hierarchy are described below:

Level 1 – Quoted prices in active markets for identical assets or liabilities.

Level 2 – Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 – Inputs that are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability.

In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible, and considers counter-party credit risk in its assessment of fair value. Observable or market inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s assumptions based on the best information available.

The Company has certain assets and liabilities that are required to be recorded at fair value on a recurring basis in accordance with accounting principles generally accepted in the United States. The Company’s investment in overnight money market institutional funds, which amounted to $3,797 as of June 30, 2011, is included in Cash and Cash Equivalents on the accompanying consolidated balance sheets and is classified as a Level 1 input. The carrying value for Cash and Cash Equivalents and Accounts Payable approximate fair value because of the immediate or short-term maturity of these financial instruments. The Company’s debt of $940 to finance the purchase of an interest in a G-IV jet approximates fair value due to market interest rates. It is not practical to fair value the $336 for the related party debt.

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The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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Equipment
12 Months Ended

Jun. 30, 2011

Notes to Financial Statements

Equipment

5. Equipment

Equipment, consisting of computers, software, furniture and furnishings, were purchased in connection with setting up the Company’s office space. The amount of such purchase was $83.

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Shareholders Equity (USD $)
In Thousands

Preferred Stock

Common Stock

Additional Paid-In Capital

Retained Earnings / Accumulated Deficit

Total

Opening Balance at Jun. 30, 2009 $ 0 $ 4 $ 12,481 $ (12,554) $ (69)

Net Loss (9) (9)

Ending Balance at Jun. 30, 2010 0 4 12,481 (12,563) (78)

Net Loss (19,908) (19,908)

Issuance of Common Stock 135 13,973 14,108

Notes Receivable from Shareholders (3,419) (3,419)

Warrants Issued for Services 2,529 2,529

Exercise of Warrants 0 80 80

Restricted Stock Issued for Services 10,772 10,772

Ending Balance at Jun. 30, 2011 $ 0 $ 139 $ 36,416 $ (32,471) $ 4,084

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Basis of Presentation
12 Months Ended

Jun. 30, 2011

Notes to Financial Statements

Basis of Presentation

1. Basis of Presentation

On February 24, 2011, the Company changed its year-end from December 31 to June 30. The consolidated financial statements as of June 30, 2011 and June 30, 2010 have been presented to reflect twelve months of activities and reflect the results of the Company and its consolidated subsidiaries. The consolidated financial statements of the Company include the accounts of all subsidiaries. All intercompany accounts and transactions have been eliminated.

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Income Taxes
12 Months Ended

Jun. 30, 2011

Notes to Financial Statements

Income Taxes

10. Income Taxes

For the year ended June 30, 2011 and 2010, the Company did not record an income tax benefit because it has incurred taxable losses, it has no history of generating taxable income, and the Company cannot presently anticipate the realization of a tax benefit on its Net Operating Loss carryforward of $12,017 and $5,490 as of June 30, 2011 and 2010, respectively. Accordingly, a full valuation allowance has been established on the related deferred tax assets. Because of the change of control pursuant to the Recapitalization, utilization of prior fiscal year net operating loss carryforwards of $5,490 will be substantially limited.

The Company will recognize interest and penalties related to any uncertain tax positions through income tax expense.

The Company may in the future become subject to federal, state and city income taxation for years 2008 through 2010 under the normal statute of limitations. Generally, for state tax purposes, the Company’s 2008 through 2010 tax years remain open for examination by the tax authorities under a four year statute of limitations. However, certain states may keep their statute open for six to ten years. There are no income tax audits currently in process with any taxing jurisdictions.

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Consolidated Balance Sheets (USD $)
In Thousands

Jun. 30, 2011

Jun. 30, 2010

ASSETS

Cash and Cash Equivalents $ 3,794 $ 0

Prepaid Expenses 46 0

Other Receivables 29 0

TOTAL CURRENT ASSETS 3,869 0

Restricted Cash 695 0

Investment in Interests in Corporate Jet 1,511 0

Capitalized Software Costs, Net 317 0

Equipment, Net 79 0

TOTAL ASSETS 6,471 0

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

Accounts Payable and Accrued Expenses 1,105 78

Current Portion of Loan Payable 49 0

TOTAL CURRENT LIABILITIES 1,154 78

Loans Payable, less current portion 891 0

Other Long-Term Liabilities 342 0

TOTAL LIABILITIES 2,387 78

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS’ EQUITY (DEFICIT):

Preferred stock, $0.001 par value, authorized 1,000,000 shares, no shares issued and outstanding 0 0

Common stock, $0.01 par value: authorized 300,000,000 shares, issued and outstanding 134,941,797 shares as of June 30, 2011 and authorized 1,000,000 shares, issued and outstanding 419,200 shares (as adjusted for the Reverse Split) as of June 30, 2010 139 4

Additional paid-in-capital 36,416 12,481

Accumulated deficit (32,471) (12,563)

TOTAL STOCKHOLDERS’ EQUITY (DEFICIT) 4,084 (78)

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) $ 6,471 $ 0

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M`AX#%`````@`(H-'/]>G!\^\!@``'-D550%``,?8(].=7@+``$$)0X```0Y`0``4$L%!@`` 0```&``8`&@(``,:/```````` ` end CORRESP 19 filename19.htm corresp.htm

Christopher S. Auguste

Phone 212-715-9265

Fax 212-715-8277

cauguste@KRAMERLEVIN.com

October 7, 2011

VIA EDGAR AND BY FEDERAL EXPRESS

Ms. Jan Woo

United States Securities and Exchange Commission

New York Regional Office

3 World Financial Center, Suite 400

New York, NY 10281-1022

Re: Function(x) Inc.

Registration Statement on Form S-1

Filed May 25, 2011

File No. 333-174481

Dear Ms. Woo:

Reference is made to the letter dated June 21, 2011 (the “Comment Letter”) to Robert F.X. Sillerman, Executive Chairman of Function(x) Inc. (“Function(x)” or, the “Company”), setting forth the comments of the staff of the Securities and Exchange Commission (the “Staff”) regarding the above-referenced Registration Statement on Form S-1 (the “Registration Statement”) filed by the Company with the Securities and Exchange Commission.

This letter sets forth the Company’s responses to the Staff’s comments. For your convenience, the Staff’s comments contained in the Comment Letter have been restated below in their entirety, with the responses to each comment set forth immediately under the comment. The numbered paragraphs in this letter correspond to the numbered paragraphs of the Comment Letter. Please note that the Company has included in Amendment No. 1 to Registration Statement on Form S-1 (“Amendment No. 1”), which is being filed via EDGAR simultaneously with this letter, the revisions described below. We are also sending courtesy copies of this letter and Amendment No.1 to you by Federal Express.

1. We note that you have included the closing price of the common stock on the Pink Sheets Electronic Quotation Service on the prospectus cover page, but have not included a fixed offering price of the securities as required by Item 501(b)(3) of Regulation S-K and Schedule A. This appears to be the functional equivalent of an initial public offering by the company after deregistering your securities in 2004. For initial public offerings that are to be conducted by selling shareholders, we will not object to reliance upon Rule 415(a)(1)(i) and a plan to distribute at a fluctuating market price after admission of your shares to the OTCBB or an exchange, if you state a fixed offering price that will be applicable prior to such admission. Please revise accordingly.

In response to the Staff’s comment, the Company has included in Amendment No. 1 a fixed offering price of the securities as required by Item 501(b)(3) of Regulation S-K and Schedule A.

2. Please disclose on the cover page the amount of the total voting power currently held by current affiliates and insiders of the company, including Robert F.X. Sillerman, your Executive Chairman and Director. This appears to be key information regarding the corporate control of your company that should be disclosed prominently.

In response to the Staff’s comment, the Company has included the requested information on the cover page of Amendment No. 1.

3. You state in the prospectus summary and throughout the prospectus that you are not disclosing any details about your product for competitive reasons and because this product has not reached the stage of a specific plan for its commercial adaption. Please be advised that a description of the principal products or services and their markets is required to be disclosed under Item 101(h) of Regulation S-K. Given that the company intends to focus its new business on digital and mobile technology using this product, revise your filing to provide a robust discussion of the product, its stage of development, the funds necessary to complete development, the market for the product, and any other material factors impacting the development and marketability of the product. Further, consider adding a risk factor regarding the developmental stage of your product and the impact it will have on your proposed business and financial condition if it is not ready for commercial adaptation.

In response to the Staff’s comment, the Company has included the requested Information on pages 1, 12 and 26 of Amendment No. 1.

4. Please review the risk factors to ensure that each risk factor subheading clearly conveys a detailed risk to investors regarding your company, industry or security. Many of your risk factors merely state a fact about your business without fully describing the risks associated with that fact. For example, you state that you do not intend to declare dividends on your common stock and that you are controlled by current insiders and affiliates of the company. Please review your subheadings to ensure that they disclose in the text the specific risk or risks you are addressing.

In response to the Staff’s comment, the Company has revised the risk factors beginning on page 5 of Amendment No. 1.

5. We note that some of your executive officers and directors are involved in other business activities. In this regard, it appears that Robert F.X. Sillerman and Mitchell Nelson serve in executive roles at Circle Entertainment, Inc. Please add a risk factor that alerts investors to a potential conflict of interest and disclose any policies or procedures for the review and approval of any transactions that may cause a conflict of interest.

In response to the Staff’s comment, the Company has included the requested risk factor on page 7 of Amendment No. 1.

6. We note your response in your letter dated March 4, 2010 that you voluntarily filed your Form 10-K for the fiscal year ended December 31, 2010 based on a contractual obligation. Given that you have not filed a registration statement under the Securities Exchange Act and it appears likely that you will not become a fully reporting company but will instead be a Section 15(d) issuer that provides periodic reports but is exempt from many regulatory requirements that apply to fully reporting companies, please include a risk factor that alerts potential investors to the limited reporting status for the company and the limitations on the information and regulatory oversight to which you will be subject as a Section 15(d) issuer. In addition, revise your statement on page 32 that suggests that you will be required to file proxy statements and be subject to Section 14 of the Exchange Act.

In response to the Staff’s comment, the Company has included the requested risk factor on page 9 of Amendment No. 1 and has revised our statement that suggests we would be required to file proxy statements and be subject to Section 14 of the Exchange Act.

7. Please revise to include the number of holders of each class of common stock of the company as of the latest practicable date. See Item 201(b) of Regulation S-K.

In response to the Staff’s comment, the Company has included the requested information on page 11 of Amendment No. 1.

8. You disclose that the company is unlikely to generate significant revenue or earnings in the immediate of foreseeable future. Please amend your filing to clarify how you expect to meet your short and long-term cash requirements for the next 12 months. Quantitative information regarding your financial requirements is necessary to enable investors to assess the company’s financial condition and the likelihood it will be able to pursue its business plan. Please see Item 303(a)(1) of Regulation S-K and Instructions 2 and 3 to Item 303(a) of Regulation S-K for additional guidance. Please expand your disclosure to address the following:

·

State the minimum period of time that you will be able to conduct planned operations using currently available capital resources.

·

Disclose the minimum dollar amount of funding you require to implement your business plan for a minimum period of one year.

·

Address any material costs associated with becoming a publicly reporting company and how you intend to pay for such expenses.

In response to the Staff’s comment, the Company has disclosed on pages 16, 36 and 41 of Amendment No. 1 that on August 25, 2011, the Company completed the placement of 14,000,000 units (the “Units”), each Unit consisting of (i) one (1) share of common stock, $0.001 par value per share of the Company and (ii) one (1) detachable three (3) year warrant to purchase one (1) share of common stock of the Company with an exercise price of $4.00 per warrant share, at a purchase price of $2.50 per Unit, for an aggregate purchase price of $35.0 million to accredited and institutional investors. The proceeds of the offering, less expenses, are to be used for general corporate purposes, including marketing and product development. The Company believes that the net proceeds from the private placement should be sufficient to meet its liquidity needs for the next fiscal year, including the funding requirements of the Company to implement its business plan as well as the costs associated with becoming a publicly reporting company.

9. Please revise to disclose the dates during which Chris Stephenson and Gregory Consiglio worked in their previous organizations. See Item 401 (e) of Regulation S-K.

In response to the Staff’s comment, the Company has included the requested information on page 25 of Amendment No. 1. The Company has removed the disclosure concerning Gregory Consiglio from Amendment No. 1 as Mr. Consiglio is not a named executive officer as such term is defined in Item 402(m) of Regulation S-K.

10. For each director, disclose when the director was elected or appointed to the board of directors, the term of the director, and the specific “experience, qualifications, attributes or skills” that led the company to conclude that the individual should serve as a director. See Item 401(a) and (e) of Regulation S-K.

In response to the Staff’s comment, the Company has included the requested information in the section entitled “Management” beginning on page 22 of Amendment No. 1.

11. Please provide the information required by Item 407(e)(4) under the caption “Compensation Committee Interlocks and Insider Participation” as of the last completed fiscal year.

Item 407(g) of Regulation S-K provides that a registrant that qualifies as a “smaller reporting company” is not required to provide the disclosure required by paragraphs 401(e)(4) and 401(e)(5). The Company is not providing the Item 407(e)(4) disclosure under “Compensation Committee Interlocks and Insider Participation” because it is a smaller reporting company as defined by §229.10(f)(1).

12. You state that none of the selling shareholders has held a position as an officer or director of the company within the past three years. We note from your previous filings that Jack L. Howard served as the company’s Chairman of the Board and Chief Executive Officer and Ronald W. Hayes served as a director of the company during the fiscal year ended December 31, 2010. Please revise.

In response to the Staff’s comment, the Company has revised the disclosure on pages 31 and 37 of Amendment No. 1 to include the requested information.

13. You state that the table on page 28 sets forth information regarding the beneficial ownership of your common stock as of May 24, 2011: (i) by each person who beneficially owns more than 5% of the company’s common stock; (ii) each of your named executive officers and directors; and (iii) all of your executive officers and directors as a group. However, the chart does not appear to include all of this information required by Item 403 of Regulation S-K. Specifically, it does not include Adage Capital Partners L.P. that owns approximately 10% of your outstanding shares nor does the chart separately list each executive officer and director. Please revise.

In response to the Staff’s comment, the Company has revised the disclosure on page 39 of Amendment No. 1 to include the requested information.

14. Please add disclosure regarding the provisions in your bylaws and Certificate of Incorporation governing the election of directors. We note that Article I, Section G of your bylaws dated as of June 26, 1996 requires a plurality vote of the shareholders for the election of directors, rather than a majority of the votes of the holders of common stock that is generally required to take corporate action. To the extent that you have amended or updated the bylaws since 1996, please file it as an exhibit pursuant to Item 601(b)(3)((ii) of Regulation S-K.

In response to the Staff’s comment, the Company has included the requested information on page 31 of Amendment No. 1.

15. Revise to include the date that the report of your independent registered public accounting firm was issued pursuant to Rule 2-02(a) of Regulation S-X.

In response to the Staff’s comment, the Company has revised Amendment No. 1 to include the requested information.

16. Pursuant to Section 2(a)(7) of the Sarbanes Oxley Act and PCAOB Rule 1001, Function (X) is considered the issuer of this registration statement and as such the company’s financial statements must be audited pursuant to the standards of the Public Company Accounting Oversight Board (United States). Revise to include financial statements audited in accordance with PCAOB Standards and ensure that your Independent Auditor’s Report refers to such Standards. We refer you to paragraph 3 of Auditing Standard No. 1, SEC Release No. 34-49708 and Article 2-02 of Regulation S-X.

In response to the Staff’s comment, the Company has included financial statements audited in accordance with PCAOB Standards and the Company’s auditor’s report refers to such Standards.

17. For each sale of unregistered securities within the past three years, other than the 13,232,597 shares of common stock issued to an institutional investor on February 16, 2011, please provide the specific exemption that you relied upon in offering such securities without registration under the Securities Act of 1933.

In response to the Staff’s comment, the Company has revised the disclosure on pages II-1 and II-2 of Amendment No. 1.

18. Please tell us what consideration you have given to filing the promissory notes with Robert F.X. Sillerman and Mitchell Nelson, subscription agreements and other documents related to the private placement of securities to your selling shareholders (other than with KPLB LLC which was filed as Exhibit 4.4), and the Shared Services Agreement with Circle Entertainment Inc.

After consideration and in response to the Staff’s comment, the Company has included the requested information as Exhibits 10.8 and 10.9 to Amendment No. 1.

19. Please file the company’s Articles of Incorporation pursuant to Item 601(b)(3)(i) of Regulation S-K. We note that you have only incorporated by reference the Certificate of Amendment to the Certificate of Incorporation as Exhibit 3.1.

In response to the Staff’s comment, the Company has included the requested information as Exhibit 3.3 to Amendment No. 1.

20. Please update the legal opinion. It appears that the opinion is dated March 25, 2011.

In response to the Staff’s comment, the Company has updated the legal opinion, which is attached as Exhibit 5.1 to Amendment No. 1.

21. We note that the resale registration statement relates to shares that are currently outstanding, though the opinion refers to shares that will be issued in the future. Please revise the opinion to state, if true, that the outstanding shares of common stock are validly issued, fully paid and non-assessable, or advise.

In response to the Staff’s comment, the Company has updated the legal opinion, which is attached as Exhibit 5.1 to Amendment No. 1.

22. The opinion states that in expressing the opinion, counsel relied upon representations and certificates of the officers of the company as to various questions of fact material to the opinion. Please note that it is inappropriate for counsel to include assumptions that are too broad or assume any of the material facts underlying the opinion. Tell us what representations counsel relied upon in preparing the legal opinion, or provide an amended opinion of counsel that does not assume facts that are easily ascertainable such as whether the company is legally incorporated, whether it has sufficient authorized shares, whether it is not in bankruptcy, and whether it has taken all corporate actions necessary to authorize the issuance of shares.

In response to the Staff’s comment, the Company has updated the legal opinion, which is attached as Exhibit 5.1 to Amendment No. 1.

23. The signature page does not indicate the officers who are signing as the company’s chief financial officer and controller or principal accounting officer. Note that any person who occupies more than one of the specified positions needs to indicate each capacity in which signatures are provided. See Instruction 2 to Signatures on Form S-1.

In response to the Staff’s comment, the Company has updated the signature page to Amendment No. 1.

Should you have any questions, please contact me at the phone number or e-mail address set forth above.

Sincerely,

/s/ Christopher S. Auguste

Christopher S. Auguste

CSA:cr

cc: Mitchell J. Nelson (w. encl.)

Consolidated Balance Sheets (Parenthetical) (USD $)	Jun. 30, 2011	Jun. 30, 2010
Stockholders’ Equity
Preferred Stock shares par value	$ 0.001	$ 0.001
Preferred Stock shares Authorized	1,000,000	1,000,000
Preferred Stock shares Issued	0	0
Preferred Stock shares Outstanding	0	0
Common Stock shares par value	$ 0.01	$ 0.01
Common Stock shares Authorized	300,000,000	1,000,000
Common Stock shares Issued	134,941,797	419,200
Common Stock shares Outstanding	134,941,797	419,200

Consolidated Statements of Operations (USD $) In Thousands, except Share data	12 Months Ended
	Jun. 30, 2011	Jun. 30, 2010
Income Statement [Abstract]
REVENUES	$ 0	$ 0
GENERAL AND ADMINISTRATIVE EXPENSES	19,970	9
OPERATING LOSS	(19,970)	(9)
OTHER INCOME:
Interest income, net	62	0
Total Other Income	62	0
NET LOSS BEFORE INCOME TAXES	(19,908)	(9)
INCOME TAXES	0	0
NET LOSS	$ (19,908)	$ (9)
Net loss per common share - basic and diluted	$ (0.20)	$ (0.02)
Weighted average common shares outstanding - basic and diluted	100,708,047	419,200

Document and Entity Information	12 Months Ended
Document and Entity Information	Jun. 30, 2011
Document And Entity Information
Entity Registrant Name	FUNCTION (X) INC.
Entity Central Index Key	0000725876
Document Type	S-1
Document Period End Date	Jun. 30, 2011
Amendment Flag	false
Current Fiscal Year End Date	--06-30
Is Entity a Well-known Seasoned Issuer?	No
Is Entity a Voluntary Filer?	Yes
Is Entity's Reporting Status Current?	Yes
Entity Filer Category	Smaller Reporting Company

Consolidated Statements of Cash Flows (USD $) In Thousands	12 Months Ended
Consolidated Statements of Cash Flows (USD $) In Thousands	Jun. 30, 2011	Jun. 30, 2010
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$ (19,908)	$ (9)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Restricted Stock issued for services	10,772	0
Warrants issued for services	2,529	0
Depreciation	4	0
Changes in operating assets and liabilities:
Other Receivables	(29)	0
Prepaid Expenses	(46)	0
Accounts payable and accrued expenses	1,027	9
Other liabilities	6	0
Net Cash Used in Operating Activities	(5,645)	0
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Equipment	(83)	0
Increase in Restricted Cash	(695)	0
Investment in Interests in Corporate Jet	(235)	0
Capitalized Software Costs	(317)	0
Net Cash Used in Investing Activities	(1,330)	0
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of Common Stock for Cash	10,769	0
Net Cash from Financing Activities	10,769	0
NET INCREASE IN CASH	3,794	0
Cash at Beginning of Period	0	0
Cash at End of Period	3,794	0
Non-Cash Financing Activities:
Issuance of shares relating to payment of a portion of the debt due to J. Howard, Inc.	8	0
Corporate Jet Information: Purchase of a 9.375% interest in a G-IV jet.	1,276	0
Stock issued for promissory notes	$ 3,380	$ 0

Shareholders Equity (USD $) In Thousands	Preferred Stock	Common Stock	Additional Paid-In Capital	Retained Earnings / Accumulated Deficit	Total
Opening Balance at Jun. 30, 2009	$ 0	$ 4	$ 12,481	$ (12,554)	$ (69)
Net Loss				(9)	(9)
Ending Balance at Jun. 30, 2010	0	4	12,481	(12,563)	(78)
Net Loss				(19,908)	(19,908)
Issuance of Common Stock		135	13,973		14,108
Notes Receivable from Shareholders			(3,419)		(3,419)
Warrants Issued for Services			2,529		2,529
Exercise of Warrants		0	80		80
Restricted Stock Issued for Services			10,772		10,772
Ending Balance at Jun. 30, 2011	$ 0	$ 139	$ 36,416	$ (32,471)	$ 4,084

Consolidated Balance Sheets (USD $) In Thousands	Jun. 30, 2011	Jun. 30, 2010
ASSETS
Cash and Cash Equivalents	$ 3,794	$ 0
Prepaid Expenses	46	0
Other Receivables	29	0
TOTAL CURRENT ASSETS	3,869	0
Restricted Cash	695	0
Investment in Interests in Corporate Jet	1,511	0
Capitalized Software Costs, Net	317	0
Equipment, Net	79	0
TOTAL ASSETS	6,471	0
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Accounts Payable and Accrued Expenses	1,105	78
Current Portion of Loan Payable	49	0
TOTAL CURRENT LIABILITIES	1,154	78
Loans Payable, less current portion	891	0
Other Long-Term Liabilities	342	0
TOTAL LIABILITIES	2,387	78
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS’ EQUITY (DEFICIT):
Preferred stock, $0.001 par value, authorized 1,000,000 shares, no shares issued and outstanding	0	0
Common stock, $0.01 par value: authorized 300,000,000 shares, issued and outstanding 134,941,797 shares as of June 30, 2011 and authorized 1,000,000 shares, issued and outstanding 419,200 shares (as adjusted for the Reverse Split) as of June 30, 2010	139	4
Additional paid-in-capital	36,416	12,481
Accumulated deficit	(32,471)	(12,563)
TOTAL STOCKHOLDERS’ EQUITY (DEFICIT)	4,084	(78)
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)	$ 6,471	$ 0