fncx_s1a.htm

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.

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.

F-7

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. The Company has two wholly-owned subsidiaries, Project Oda, Inc. and Viggle Inc, each a Delaware corporation.

The Company’s loyalty program will be delivered to consumers in the form of a free application, or app, that works on multiple device types, including mobile phones, tablets and laptops. The user experience is simple. The consumer downloads the app, creates an account and while watching TV, taps the check in button. Using the device’s microphone, the application collects an audio sample of what the user is watching on television and uses proprietary technology to convert that sample into a digital fingerprint. Within seconds, that digital fingerprint is matched against a database of reference fingerprints that are collected from over 100 English and Spanish television channels within the United States. The Company is able to verify TV check-ins across broadcast, cable, online, satellite, time-shifted and on-demand content. The ability to verify check-ins is critical because users are rewarded points for each check in. Users can redeem the points within the app’s rewards catalogue for items that have a monetary value such as movie tickets, music and gift cards.

In addition to television show check-in points, users can earn additional points by engaging with brand or network sponsored games, videos, polls or quizzes related to the show that they are watching and by inviting friends or sharing their activities via social media. In addition to rewards, there will also be sweepstakes opportunities and instant win games for higher value prizes or unique experiences. The Company’s product will be limited to participants who are 13 years of age or older.

The Company intends to complete the first version of the application to the fourth calendar quarter of 2011. If the app is approved by Apple, the Company's intention is to make the app available to the public in the Apple iTunes App Store at the beginning of the first calendar quarter of 2012. If approved the app will work on Apple iOS devices such as the iPhone and iPod Touch.

The iOS release will be followed by a version of the application for use on Android smartphones and tablets, which the Company anticipates to be within the first calendar quarter of 2012. In order to complete the Android version of the application, the Company must complete the conversion and testing of its existing software used for the Apple application on Android smartphones and tablets. The Company will consider adding versions for other mainstream mobile operating systems such as Windows Phone and Blackberry based on demand and other business factors. Distribution of the product will occur via regular online marketplaces for content and applications used by such mobile operating systems, and will include iTunes for iOS devices or the Android marketplace for devices using the Android operating system.

F-8

The back-end technology for the application has been designed to accommodate the significant numbers of simultaneous check-ins required to support primetime television audiences. This back-end technology is currently operational and there are no material steps required prior to the launch of our mobile applications. The Company’s plan is to expand its capacity to support simultaneous check-ins around major television events such as the Super Bowl. In addition to the Company’s own dedicated co-location facilities on the east and west coasts, the Company is using third-party cloud computing services from Amazon Web Services to help the Company scale its technical capacity as efficiently as possible.

While most people watch television, the Company is targeting male and female consumers between the ages of 18-49. This target audience was selected due to the amount of television they consume on a weekly basis as well as the likelihood that they will have smartphones and other wireless devices such as tablets and laptops with them while viewing television. To build its user base, the Company will target this audience using traditional media techniques such as direct response, banner, and mobile advertising, public relations, search engine optimization and search engine marketing across online, broadcast and print media outlets.

When a user signs up for and downloads the Company’s app, the Company will collect the user’s email, zip code and television provider. The email enables the Company to verify the user and reduces the chance of fraud. The zip code allows the Company to present a relevant list of cable and satellite providers to the user to deliver the correct channel listing data. Knowing the television provider in turn helps the Company to increase the rate of success for television show matching. The Company encourages the user to provide additional information such as their birthday and physical mailing address. The user’s birthday information helps the Company verify that a user is at least 13 years old. The physical mailing address is required for the delivery of physical goods selected by the user in the application rewards catalogue. This information also helps the Company better target relevant advertising to the user. The Company manages this information in adherence with standard privacy policies and regulations.

Operations

The Company is creating a product that encourages consumer participation and active engagement through incentives and brand- and network-sponsored content. The Company intends to market its product through various channels, including online advertising, broad-based media (such as television and radio), as well as various strategic partnerships. The Company intends to utilize co-location facilities and the services of third-party cloud computing providers, more specifically, Amazon Web Services, to help it efficiently manage and operate certain aspects of its platform.

Like many applications, the Company’s initial product integrates into users’ existing social media networks, making it possible for users to share their activity with friends, family and followers. The social media experience within the Company’s product is important, and will be complementary to the core value proposition of generating revenue through advertising sales.

Revenue

The Company plans to generate revenue from advertising sales. Because the application is not yet available to the public, the Company has not yet generated any revenues. Advertising will be sold primarily to brand marketers and television networks by the Company’s dedicated sales team. The Company’s focus is on brand marketers that are most relevant to its target demographic of consumers between the ages of 18-49, and are active in television, digital and retail marketing. The Company’s sales team is also briefing large advertising and media agencies on its capabilities so that they might recommend integration of the Company’s application into their client proposals. Regarding television marketers, the Company is focusing on TV networks and producers based on their relevance to our target audience, their reach and popularity. The Company is prioritizing networks and shows that it knows to be actively engaged in digital extensions, such as Social TV or second screen technology. Additionally, the Company expects to gain revenue from the sale of television show related merchandise such as show music, DVDs and apparel, all of which is featured within the application and sold through online retail partners such as iTunes and Amazon.

F-9

Initially, the Company anticipates revenues to be generated substantially in the United States.

Seasonality

The Company expects its business to be affected by regular retail seasonality and by the normal rhythm of TV industry programming. Retail seasonality will impact how much brand marketers will spend to market their products and services at different points throughout the year. TV industry seasonality will impact the Company’s business because the amount network marketers will spend to promote certain TV programming will change during series premieres, summer time, ratings weeks or around major TV events such as the Super Bowl, Oscars, or Grammys. The Company believes revenues will be slowest during the summer, or the third calendar quarter. Variable expenses associated with marketing, future product releases, consumer incentives and advertising services will fluctuate in relation to 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 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.

F-10

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).

F-11

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.

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.

F-12

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

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:

F-13

	(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.

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.

F-14

	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.

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.

F-15

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).

F-16

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.

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.

F-17

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 three-year warrants are callable by the Company after February 26, 2012 if a registration statement for the resale of the shares of common stock issuable upon exercise of the warrants has been declared effective for 30 days and the closing bid price of such shares equals at least $4.00 per share for a period of at least 20 consecutive trading days after effectiveness of such registration statement. 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 non-callable 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.

F-18

Function(x) Inc.

CONSOLIDATED BALANCE SHEETS

(Amounts in Thousands, Except Share Data)

	December 31,
	2011			June 30,
	(Unaudited)			2011

Assets:
Current assets:
Cash and cash equivalents	$	17,410		$	3,794
Prepaid expenses		258			46
Other receivables		1,018			29
Total current assets		18,686			3,869
Restricted cash		695			695
Interest in corporate jet, net		1,347			1,511
Capitalized software costs		3,453			317
Equipment, net		1,457			79
Intellectual property, net		9,013			---
Goodwill		3,015			---
Total assets	$	37,666		$	6,471

Liabilities and stockholders’ equity:
Current liabilities:
Accounts payable and accrued expenses	$	1,901		$	1,105
Current portion of loan payable		51			49
Other current liabilities		2,822			---
Deferred revenue		484			---
Total current liabilities		5,258			1,154
Loan payable, less current portion		865			891
Other long-term liabilities		1,176			342
Total liabilities	$	7,299		$	2,387

Commitments and contingencies

Stockholders' equity:
Preferred stock, $0.001 par value, authorized 1,000,000 shares, no shares issued and outstanding		---			---
Common stock, $0.001 par value, authorized 300,000,000 shares, issued and outstanding 149,417,062 shares as of December 31, 2011 and authorized 300,000,000 shares, issued and outstanding 134,941,797 shares as of June 30, 2011		153			139
Additional paid-in capital		113,244			36,416
Accumulated deficit		(83,030	)		(32,471	)
Total stockholders' equity		30,367			4,084

Total liabilities and stockholders’ equity	$	37,666		$	6,471

See Notes to Consolidated Financial Statements (Unaudited)

S-1

Function(x) Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited, Amounts in Thousands, Except Share and Per Share Data)

	Six Months Ended			Six Months Ended
	December 31, 2011			December 31, 2010
Revenues	$	---		$	---

Operating Expenses:
General and administrative		(50,654	)		(2	)
Operating loss		(50,654	)		(2	)

Other income:
Interest income, net		95			---
Total other income		95			---

Net loss before income taxes		(50,559	)		(2	)

Net loss	$	(50,559	)	$	(2	)

Net loss per common share - basic and diluted		(0.35	)		---

Weighted average common shares outstanding - basic and diluted		144,782,014			419,280	*

* As adjusted for the Reverse Split

See Notes to Consolidated Financial Statements (Unaudited)

S-2

Function(x) Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited, Amounts in Thousands, Except Share and Per Share Data)

	Three Months Ended			Three Months Ended
	December 31, 2011			December 31, 2010
Revenues	$	---		$	---

Operating Expenses:
General and administrative		(16,724	)		(2	)
Operating loss		(16,724	)		(2	)

Other income:
Interest income, net		55			---
Total other income		55			---

Net loss before income taxes		(16,669	)		(2	)

Net loss	$	(16,669	)	$	(2	)

Net loss per common share - basic and diluted		(.11	)		---

Weighted average common shares outstanding - basic and diluted		149,141,797			419,280	*

* as adjusted for the reverse split

See Notes to Consolidated Financial Statements (Unaudited)

S-3

Function(x) Inc.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

(Unaudited, Amounts in Thousands, Except Share and Per Share Data)

	Common Stock		Additional Paid-In Capital			Accumulated Deficit			Total
Balance June 30, 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 - share based compensation		---		10,772			---			10,772
Balance June 30, 2011	$	139	$	36,416		$	(32,471	)	$	4,084
Net loss							(50,559	)		(50,559	)
Private placement of common stock and warrants for cash		14		33,399			---			33,413
Compensation charge for fair value of common stock and warrants issued in
connection with private placement		---		19,456			---			19,456
Interest income on notes receivable from shareholders		---		(70	)		---			(70	)
Employee stock options - share based compensation		---		3,412			---			3,412
Restricted stock - share based compensation		---		16,972			---			16,972
Stock issued for WatchPoints acquisition		---		1,600			---			1,600
Stock issued for Loyalize acquisition		---		1,719			---			1,719
Capital related to corporate jet		---		336			---			336
Notes receivable from shareholders		---		4			---			4
Balance December 31, 2011	$	153	$	113,244		$	(83,030	)	$	30,367

See Notes to Consolidated Financial Statements (Unaudited)

S-4

Function(x) Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, Amounts in Thousands, Except Share Data)

	Six Months Ended December 31, 2011			Six Months Ended December 31, 2010
Operating activities:
Net loss	$	(50,559	)	$	(2)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Restricted stock - share based compensation		16,972			---
Employee stock options - share based compensation		3,412			---
Common stock and warrants issued in connection with Private Placement		19,456			---
Depreciation and Amortization		573			---
Increase in fair value of TIPPT Warrants		324			---
Changes in operating assets and liabilities:
Other receivables		(897	)		---
Prepaid expenses		(212	)		---
Accounts payable and accrued expenses		795			2
Other liabilities		1,170			---
Net cash used in operating activities		(8,966	)		---

Investing activities:
Purchase of equipment		(1,393	)		---
WatchPoints acquisition		(2,620	)		---
TIPPT acquisition		(2,250	)		---
Loyalize acquisition		(3,180	)		---
Capitalized software costs		(1,294	)		---
Net cash used in investing activities		(10,737	)		---
Financing activities:
Issuance of common stock and warrants for cash		33,413			---
Payments on loan		(24	)		---
Interest income on notes receivable from shareholders		(70	)		---
Net cash provided by financing activities		33,319

Net increase in cash		13,616			---

Cash at Beginning of Period		3,794			--

Cash at End of Period	$	17,410		$	--

Supplemental cash flow information:
Non-cash investing and financing activities
Stock issued for WatchPoints acquisition	$	1,600		$	---
Stock issued for Loyalize acquisition	$	1,719		$	---
Cash paid during the year for interest	$	14		$	---
Capital related to corporate jet	$	336		$	---
Warrants issued for TIPPT	$	2,378		$	---
Loyalize guarantee	$	120		$	---

See Notes to Consolidated Financial Statements (Unaudited)

S-5

Function(x) Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, Amounts in Thousands, Except Share Data)

1. Basis of Presentation

On February 24, 2011, the Company changed its year-end from December 31 to June 30. The financial statements for the fiscal year ended June 30, 2011 and June 30, 2010 and for the three and six months ended December 31, 2011 and 2010 reflect the results of operations of Function(x) Inc. and its consolidated subsidiaries (collectively, the “Company”), each a Delaware corporation. The financial information in this report for the three and six months ended December 31, 2011 and 2010 have not been audited, but in the opinion of management all adjustments (which include normal recurring adjustments) necessary for a fair presentation have been made. The operating results for the three and six months ended December 30, 2011 and 2010 are not necessarily indicative of the results for the full year.

The financial statements included herein should be read in conjunction with the financial statements and notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2011.

2. Organization and Background

Formation and Former Business

The Recapitalization

S-6

The Company conducts its business under the name Function(x) Inc., with the ticker symbol FNCX. The Company has three wholly-owned subsidiaries, Project Oda, Inc., Viggle Inc., and Loyalize, Inc (formerly known as Fn(x)I Holding Corporation), each a Delaware corporation, and a majority-owned subsidiary, TIPPT Media, Inc., a Delaware corporation, which has its financial information consolidated with Function(x) Inc.

The Company’s New Line of Business

Function(x) started a new line of business upon completion of the Recapitalization. The Company’s business is a loyalty program that rewards users for watching television and is built on the simple concept: Watch TV. Earn Rewards. The business, which operates under the name ‘Viggle,’ is a loyalty program that rewards our users for watching television. Users receive points for checking in to and interacting with their favorite TV shows and can then redeem these points for real items such as movie tickets, music and gift cards. We plan to generate revenue through advertising and the sale of merchandise related to the TV shows and other entertainment viewed by users that would appear in users’ mobile devices through the use of the application.

S-7

Going Concern

These financial statements have been prepared on a going concern basis, which implies the Company will continue to realize its assets and discharge its liabilities in the normal course of business. The Company is unlikely to pay dividends or generate significant revenue or earnings in the immediate or foreseeable future. The continuation of the Company as a going concern is dependent upon the continued financial support from its stockholders and the ability of the Company to obtain necessary equity or debt financing to continue development of its new business and to generate revenue. Management intends to raise additional funds through equity and/or debt offerings until sustainable revenues are developed. There is no assurance such equity and/or debt offerings will be successful or that development of the new business will be successful. The accompanying financial statements do not include any adjustments that might result from the outcome of these uncertainties.

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 and Cash Equivalents and Restricted Cash

Use of Estimates

S-8

Fair Value of Financial Instruments

The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents, other receivables, 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. Equipment is being depreciated over a useful life of 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 December 31, 2011, there was no impairment of its long-lived assets.

The Company, through its acquisition of the assets of WatchPoints, purchased certain intellectual property (trademark applications, patent applications, and domain names). This acquisition has been deemed to be a defensive acquisition and the fair value of the intellectual property acquired of $4,209 is being amortized over the estimated useful life of the Company’s Viggle software of three years on a straight-line basis. Amortization expense of the intellectual property for the three and six months ended December 31, 2011 was $350.

The Company, through its acquisition of a 65% common stock interest in TIPPT, acquired identifiable intangible assets valued at $4,628. As of December 31, 2011, no impairment has been recorded.

The Company, through its acquisition of the assets of Loyalize on December 31, 2011, purchased certain intellectual property (trademarks, patent applications, domain names) and recorded goodwill. As of December 31, 2011, the fair value of the intellectual property and goodwill are $526 and $3,015, respectively.

Internal Use Software

The Company recorded $1,842 of capitalized software as part of the Loyalize acquisition as of December 31, 2011. Once revenue producing activities commence, the Company will amortize the costs of the software on a straight-line basis or appropriate usage basis over the estimated useful life of the software.

The Company is in the application development stage of its internal use computer software and, appropriately, certain costs have been capitalized in the amounts of $1,611 and $317 as of December 31, 2011 and June 30, 2011, respectively, in accordance with ASC 350-40.

Marketing

Marketing costs are expensed as incurred. Marketing expense for the Company for the three and six months ended December 31, 2011 was $820 and $1,723, respectively, and for the three and six months ended December 31, 2010 was $0.

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. In accordance with ASC 740-10, 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.

S-9

Stock-Based Compensation

Recently Issued Accounting Pronouncements

4. Basis of Consolidation

The consolidated statements include the accounts of Function(x) Inc., our wholly-owned subsidiaries and our majority-owned subsidiary. All intercompany transactions and balances have been eliminated.

S-10

5. Acquisitions

TIPPT Media Inc.

On December 23, 2011, the Company obtained a sixty-five (65%) percent ownership interest in TIPPT Media Inc., a Delaware corporation (“TIPPT”), which will sell coupons and/or discount codes on behalf of third parties by engaging individuals with a public profile to promote products via internet-based social networking and microblogging websites and other similar internet-based methods of electronic communications. In consideration for its investment in TIPPT, the Company paid $2,000 in cash, forgave the repayment of a $250 promissory note owed to the Company by TIPPT LLC, a Delaware limited liability company and the minority stockholder of TIPPT, and agreed to issue a warrant to purchase 1 million shares of the Company’s common stock at an exercise price equal to 115% of the 20-day trading average of the Company’s common stock if certain performance conditions are met within four months of the closing of the transaction. The Company deems it probable that these performance conditions will be met. The shares of common stock exercisable under the warrant were valued at $2,378 using the Black Scholes valuation model. The Company recorded the value of these shares of common stock to intangible assets and current liabilities and will reclassify the liability to equity upon meeting the performance conditions. The warrant value will be marked to market until the warrants are earned. At December 31, 2011, the Company recorded a mark to market valuation increase of $324 recorded in general and administrative expenses on the Consolidated Statement of Operations.

In connection with the transaction, the Company entered into a five-year Line of Credit Agreement, pursuant to which the Company may provide advances to TIPPT to finance its working capital obligations, in an aggregate principal amount not to exceed $20,000, with an interest rate not to exceed four percent (4%) per annum. The facility is secured by the remaining 35% of the common shares of TIPPT Media, Inc. owned by TIPPT, LLC, subject to release under certain circumstances described in the loan agreement in the event the shares are converted into common shares of FNCX. The credit facility may be drawn for approved expenses in accordance with the budget approved at the time of the commitment, as updated quarterly. In addition, the Company entered into a Stockholders Agreement with TIPPT LLC regarding, among other things, restrictions on the transfer of shares in TIPPT and the potential exchange under certain circumstances of all or a portion of the 35% interest in TIPPT held by TIPPT LLC into the Company’s common stock.

The Company determined that immediately before the transaction , the activities of TIPPT did not constitute a business. Therefore, the Company accounted for the TIPPT transaction as an asset acquisition in accordance with ASC 350, Intangibles – Goodwill and Other .

TIPPT Purchase Price Allocation

The total estimated purchase price for the TIPPT assets is composed of the following:

Cash	$	2,000
Forgiveness Promissory Note		250
Fair Value of Common Stock Warrant		2,378
Total Purchase Price	$	4,628

The purchase price has been allocated to the assets acquired (identifiable intangible assets) as of the closing date of December 23, 2011 based on their estimated fair values.

Details of the estimated fair values of assets acquired of TIPPT Media Inc. information available at the date of preparation of the financial statements are as follows:

Assets acquired:

Intellectual Property Contracts

4,628

The Company has included the operating results of TIPPT Media, Inc. in its consolidated financial statements since the date of acquisition.

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Loyalize

On December 31, 2011, in furtherance of its business plan, the Company, through a newly created wholly owned subsidiary, FN(x) I Holding Corporation, now known as Loyalize Inc (“FN(x)I” or “Loyalize”), purchased from Trusted Opinion Inc. (“Trusted Opinion”), substantially all of its assets, including certain intellectual property and other assets relating to the “Loyalize” business owned by Trusted Opinion, pursuant to an asset purchase agreement executed by the Company and FN(x) I on such date (the “Asset Purchase Agreement”) . In consideration for its purchase of the such assets, the Company agreed to pay Trusted Opinion $3,000 in cash and agreed to deliver 275,038 of the Company’s common shares as follows: 65,254 shares delivered directly to Seller within three business days of delivery of the financial statements and 209,784 shares (the “Escrowed Shares”) delivered within three business days of closing to American Stock Transfer and Trust Company LLC, as escrow agent, to be held until December 31, 2012 to secure certain representations, warranties and indemnities given by Trusted Opinion under the Asset Purchase Agreement. The Company valued the 275,038 common shares as of the date of closing at $1,719 based on the $6.25 per share closing price of its common stock on the date of closing. In addition to certain minor purchase price adjustments to be made post-closing, the Company is obligated to also fund as a purchase price adjustment the difference, if any, by which $1,839 exceeds the calculated value (computed based on the average closing price of the Company’s common shares during the 20 days prior to December 31, 2012) of the 275,038 shares on December 31, 2012, either in cash or in common shares of the Company, at the Company’s option. Such additional consideration shall not be payable until claims which remain subject to determination and secured by all the Escrowed Shares are no longer outstanding. The additional consideration shall be eliminated to the extent final claims exceed the value of the shares then remaining in escrow.

Loyalize Purchase Price Allocation

The Company accounted for the purchase of Loyalize using the acquisition method, and accordingly the consideration paid has been allocated on a preliminary basis to the fair value of assets acquired and liabilities assumed based on management’s best estimates of fair value, taking into account all relevant information available to the time these consolidated financial statements were prepared. The Company expects that the actual amounts for each of the fair values of these assets and liabilities acquired will vary for the amounts presented below and that such variation may be significant.

The total estimated purchase price is composed of the following:

Cash	$	3,185
Fair Value of Common Stock		1,719
Fair Value of Common Stock Guarantee		120
Total Initial Purchase Price	$	5,024

Details of the estimated fair values of assets acquired and liabilities assumed from Trusted Opinion are based on information available at the date of preparation of the financial statements, and are as follows:

Assets acquired:

Other Receivable	$	92
Equipment		33
Intellectual Property		526
Capitalized Software		1,842
Goodwill		3,015
	$	5,508

Less liabilities assumed:

Deferred Revenue	$	(484	)

Net assets acquired	$	5,024

The actual adjustments that the Company will ultimately make in finalizing the allocation of the purchase price of Trusted Opinion to the fair value of the net assets acquired at December 31, 2011 will depend on a number of factors, including additional information available at such time.

The following table presents the unaudited pro forma results of the Company for the three and six months ended December 31, 2011 as if the Loyalize acquisition occurred on July 1, 2010. These results are not intended to reflect the actual operations of the Company had the acquisition occurred on July 1, 2010.

	Three Months Ended December 31						Six Months Ended December 31
	2011			2010			2011			2010
Revenue	$	1			-		$	6			1
Operating (Loss)		(16,842	)		(704	)		(52,027	)		(992	)
Loss Per Share (basic and diluted)		(0.12	)		(1.44	)		(0.37	)		(1.78	)

S-12

6. Equipment

Equipment consists of the following:

	December 31, 2011			June 30, 2011
Leasehold Improvements	$	854		$	---
Furniture and Fixtures		208			9
Computer Equipment		370			60
Software		88			14
		1,520			83
Accumulated Depreciation		(63	)		(4	)
Equipment, net	$	1,457		$	79

7. Loans Payable

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. Payments on this debt during the period ended December 31, 2011 and June 30, 2011 were $26 and $0, respectively.

8. Commitments and Contingencies

In connection with the acquisition of 65% of the common shares in TIPPT Media, Inc. on December 23, 2011, the Company agreed to provide TIPPT Media, Inc. a credit facility of $20,000, with interest to accrue at the rate of four percent (4%) per annum and be payable at its maturity in 5 years (the “TIPPT Loan”). The facility is secured by the remaining 35% of the common shares of TIPPT Media, Inc owned by TIPPT, LLC, subject to release under certain circumstances described in the loan agreement in the event the shares are converted into common shares of FNCX. The credit facility may be drawn for approved expenses in accordance with the budget approved at the time of the commitment, as updated quarterly. (See Note 5, “ Acquisitio ns ”). As of December 31, 2011, no funds had been drawn by TIPPT Media, Inc. under the TIPPT Loan.

In connection with the purchase from Trusted Opinion Inc. of the Loyalize assets, as described in Note 5, “ Acquisitio ns ” , the Company is obligated to also fund as a purchase price adjustment the difference, if any, in the amount by which $1,839 exceeds the calculated value (computed based on the average closing price of its common shares during the 20 days prior to December 31, 2012) of the 275,038 shares on December 31, 2012, either in cash or in common shares of the Company, at Buyer’s election, provided that such additional consideration shall not be payable until claims which remain subject to determination and secured by all the Escrowed Shares are no longer outstanding and the additional consideration shall be eliminated to the extent final claims exceed the value of the shares then remaining in escrow.

There are no lawsuits or claims pending against the Company.

9. Stockholders’ Equity (Deficit)

As of December 31, 2011 and June 30, 2011, there were 300,000,000 shares of authorized common stock and 149,417,062 and 134,941,797 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. The Company may issue shares of preferred stock in one or more series as may be determined by the Company's 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).

S-13

On August 25, 2011, the Company completed the placement of 14,000,000 units (the “Units”). 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 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 net proceeds of the offering, $35,000, are to be used for general corporate purposes, including marketing and product development. The three-year warrants are callable by the Company after February 26, 2012 if a registration statement for the resale of the shares of common stock issuable upon exercise of the warrants has been declared effective for 30 days and the closing bid price of such shares equals at least $4.00 per share for a period of at least 20 consecutive trading days after effectiveness of such registration statement. Tejas Securities Group, Inc. (“Tejas”) acted as one of the placement agents in connection with the offering. Tejas received 285 Units in the offering and also received as compensation (in addition to cash commission paid) a five-year non-callable warrant for 540,000 common shares at $2.50 per share and 100,000 warrants on the same basis as the investors.

As a result of Sillerman Investment Company, LLC’s participation in the placement, 2,560,000 units were considered to have been acquired by Robert F.X. Sillerman with a deemed fair value (based upon the traded value of the stock at the time) in excess of the price paid. This resulted in a non-cash compensation charge of $19,456.

In connection with the September 29, 2011 acquisition of the WatchPoints assets owned by Mobile Messaging Systems LLC, the Company issued 200,000 shares of the Company’s common stock with a fair value of $8.00 per share to Mobile Messaging Systems LLC.

In connection with the December 31, 2011 purchase of the Loyalize business, the Company agreed to deliver 275,038 shares of the Company’s common stock. The shares were offered and sold as a private placement and 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. The 275,038 shares of Company common stock are to be delivered as follows: 65,254 shares delivered directly to Trusted Opinion within three business days of delivery of the financial statements of the acquired business and 209,784 shares (the “Escrowed Shares”) delivered within three business days of closing to American Stock Transfer and Trust Company LLC, as escrow agent, to be held until December 31, 2012 to secure certain representations, warranties and indemnities given by Trusted Opinion under the Asset Purchase Agreement. The Company valued the 275,038 shares of the Company’s common stock as of the date of closing at $1,719 based on the $6.25 closing price of its common stock on the date of acquisition. In addition to certain minor purchase price adjustments to be made post-closing, the Company is obligated to also fund as a purchase price adjustment the difference, if any, in the amount by which $1,839 exceeds the calculated value (based on the average closing price of the Company’s common stock during the 20 days prior to December 31, 2012) of the 275,038 shares of the Company’s common stock on December 31, 2012, either in cash or in shares of the Company’s common stock, at FN(x) I’s election. Such additional consideration shall not be payable until claims which remain subject to determination and are secured by all the Escrowed Shares are no longer outstanding. The additional consideration shall be eliminated to the extent final claims exceed the value of the shares then remaining in escrow.

10. Share-Based Payments

Equity Incentive Plan

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 December 31, 2011 the Compensation Committee of the Company’s Board of Directors authorized the grants of restricted stock and stock options described below.

Restricted Stock

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 that date and is recognized as an expense over the requisite service period.

	Date of Grant		Common Shares				Aggregate Fair Value on Date of Grant				Weighted Average Grant Date Fair Value
Fourteen (14) Executives	Various			8,540,000			$	141,896			$	16.62

The total compensation was $8,594 and $16,972 for the three and six months ended December 31, 2011. There were no such expenses for the three and six months ended December 31, 2010. No shares actually vested. As of December 31, 2011, there was $114,037 in total unrecognized share-based compensation costs.

S-14

Stock Options

The following table summarizes the Company’s stock option activity for the six months ended December 31, 2011:

	Number of Options
Outstanding at June 30, 2011		0
Granted		5,086,875
Exercised		0
Forfeited and cancelled		0
Outstanding at December 31, 2011		5,086,875

The Company is accounting for these options at fair market value of the options on the date of grant, with the value being recognized over the requisite service period. No shares were vested as of December 31, 2011. The fair value of each option award is estimated using a Black-Scholes option valuation model. Expected volatility is based on the historical volatility of the price of comparable companies’ stock. The risk-free interest rate is based on U.S. Treasury issues with a term equal to the expected life of the option. The Company uses historical data to estimate expected dividend yield, expected life and forfeiture rates. Options generally have an expiration of 10 years and vest over a period of 3 or 4 years. The fair value of the options granted during the three and six months ended December 31, 2011 (none were granted in 2010) was estimated based on the following weighted average assumptions:

	Three Months Ended December 31, 2011			Six Months Ended December 31, 2011
Expected volatility		60	%		60	%
Risk-free interest rate		1.17	%		1.20	%
Expected dividend yield		0			0
Expected life (in years)		6.25			6.25
Estimated fair value per option granted	$	3.55		$	3.87

The total compensation expense of $1,481 and $3,412 were included in the accompanying Statement of Operations in general and administrative expenses for the three and six months ended December 31, 2011. There were no such expenses for the three and six months ended December 31, 2010. No shares actually vested during the periods and the grants provide for vesting annually in arrears over the next four years. As of December 31, 2011, there was approximately $17,640 of total unrecognized stock-based compensation cost.

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 of 1,250,000 non-qualified stock options was made on August 26, 2011 with each option having an exercise price of $2.50 per share and a fair market value of $4.42. 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 has taken a compensation charge for the three and six months ended December 31, 2011 of approximately $348 and $1,865 as a result of the foregoing 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. Of this total, 510,000 were issued with an exercise price of $2.50 per share and a fair market value of $4.45 per option, 1,535,000 were issued with an exercise price of $2.50 per share and a fair market value of $4.42 per option, and 1,500,000 were issued with an exercise price of $5.00 per share and a fair market value of $3.63 per option. The options vest over three to four years. The Company has taken a compensation charge for the three and six months ended December 31, 2011 of approximately $413 and $1,055, respectively, as a result of the foregoing grants.

On November 16, 2011, the Compensation Committee, pursuant to such program, granted to 24 employees an aggregate of 294,375 non-qualified stock options. Of this total, 144,375 were issued with an exercise price of $5.50 per share and a fair market value of $3.10 per option, and 150,000 were issued with an exercise price of $2.50 per share and a fair market value of $3.99 per option. The options vest over three to four years. The Company has taken a compensation charge in the second quarter of approximately $79 as a result of the foregoing grants.

S-15

Warrants

In connection with the August 25, 2011 private placement offering, the following warrants were issued:

Tejas Securities Group, Inc., as partial compensation for placement fees, was issued 540,000 five-year non-callable warrants with an exercise price of $2.50 per warrant, and 385,000 three-year warrants with an exercise price of $4.00 per warrant. Each of the warrants is exercisable for one share of the Company’s common stock. The fair value of these warrants is $3,949, accounted for as a cost of raising equity.

Robert F.X. Sillerman was issued 2,560,000 three-year warrants with an exercise price of $4.00 per warrant. Each of the warrants is exercisable for one share of the Company’s common stock. The fair value of these warrants is $9,216, accounted for as an expense to general and administrative expenses on the Consolidated Statement of Operations for the six months ended December 31, 2011.

In connection with the December 23, 2011 acquisition of a 65% interest in TIPPT Media, Inc., the Company has agreed to issue a warrant to TIPPT, LLC for 1 million shares of the Company’s common stock to be purchased at an exercise price equal to 115% of the 20-day trading average of the Company’s common stock if certain performance conditions are met within four months of December 23, 2011. The Company deems it probable that these performance conditions will be met. The shares of common stock exercisable under the warrant were valued at $2,378 using the Black Scholes valuation model. The Company recorded the value of these shares of common stock to intangible assets and current liabilities and will reclassify the liability to equity upon meeting the performance conditions. The warrant value will be marked to market until the warrants are earned. At December 31, 2011, the Company recorded a mark to market valuation increase of $324 recorded in general and administrative expenses on the Consolidated Statement of Operations.

11. Income Taxes

For the three and six months ended December 31, 2011 and 2010, the Company did not record an income tax benefit because it has incurred taxable losses and has no history of generating taxable income and therefore the Company cannot presently anticipate the realization of a tax benefit on its Net Operating Loss carryforward of $6,023. The Company has established a full valuation allowance against its deferred tax assets related to its Net Operating Loss carryforward of $6,023 as of December 31, 2011. As a result of the change in control pursuant to the Recapitalization, the utilization of the $6,023 Net Operating Loss carryforward will be substantially limited.

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

The Company may in the future become subject to federal, state and local income taxation though it has not been since its inception. The Company is not presently subject to any income tax audit in any taxing jurisdiction.

12. Related Party Transactions

Recapitalization Notes

S-16

Shared Services Agreements

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 three and six months ended December 31, 2011, the Company billed Circle $78 and $157, respectively. The Company had no billings to Circle for the three and six months ended December 31, 2010. Such billings primarily relate to support consisting of legal and administrative services. These services are to be reviewed and, if appropriate, approved by Circle’s Audit Committee and the Company’s Audit Committee. We believe the balance due from Circle on December 31, 2011 was $26.

Certain Company accounting personnel may provide personal accounting services to our Executive Chairman, Robert F.X. Sillerman. To the extent that 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 three and six months ended December 31, 2011, the Company billed Mr. Sillerman $27 and $41, respectively. The Company had no billings to Mr. Sillerman for the three and six months ended December 31, 2010. The balance due from Mr. Sillerman on December 31, 2011 was $27, which has been paid.

As part of the transaction in which the Company acquired a 65% interest in TIPPT Media on December 23, 2011, the Company entered into a shared services agreement with TIPPT Media, pursuant to which it shares costs for various administrative, financial, accounting, legal and operational services, and personnel supporting each of those areas. The shared services agreement provides, in general, for sharing of the applicable support provided to either company by such personnel, which allocation shall be calculated on a quarterly basis. The Company is generally responsible for advancing the salary to such employees and will be reimbursed by TIPPT 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 a representative of each Company to meet periodically to assess whether the services have been satisfactorily performed and to discuss whether the allocation has been fair, after which each representative will, if appropriate, approve the allocations made and whether payments need to be adjusted or reimbursed, depending on the circumstances. As of December 31, 2011, no such services were rendered and the balance due from TIPPT on December 31, 2011 was $0.

Private Placement

Sillerman Investment Company, LLC purchased units for $11,376 in the August 25, 2011 private placement. As a result of Sillerman Investment Company, LLC’s participation in the placement, 2,560,000 units were considered to have been acquired by Robert F.X. Sillerman with a deemed fair value, based upon the traded value of the stock at the time, in excess of the price paid. This resulted in a non-cash compensation charge of $19,456 for the six months ended December 31, 2011.

13. Subsequent Events

The Company launched its app in the Apple iTunes App Store on January 25, 2012. The approved version of the app works on Apple iOS devices such as the iPhone, iPad and iPod Touch. The App has been successfully tested with employees of the Company as well as friends and family of employees for several months, and although the App has been launched to the public, there is no guarantee how successful the launch will be or how effectively the technology will perform. The App will be continuously tested and updated with a goal of improving overall performance and usability.

On April 4, 2012, the Company's Board of Directors authorized the Company to raise $20 million through a line of credit, the proceeds of which shall be used for general corporate obligations and working capital. The terms of the line of credit are simple interest accruing at 6% per annum until maturity, which will be on the earlier of (i) 12 months from the date of the first draw or (ii) upon the funding of at least $40 million from one or more debt or equity transactions of the Company or any of its wholly-owned subsidiaries. MJX, LLC, an affiliate of Robert F.X. Sillerman, the Company's Executive Chairman, has committed the first $10 million of such line of credit pursuant to the line of credit grid promissory note ("Line of Credit Note"). In the event that Mr. Sillerman's $10 million commitment is not supplemented or increased by any other lender, then the maturity date will be on the earlier of (i) 12 months from the date of the first draw or (ii) upon the funding of at least $30 million from one or more debt or equity transactions of the Company or any of its wholly-owned subsidiaries. As consideration for entering into the line of credit commitment, each lender will be issued options, the amount of which will be calculated on the basis of one option to purchase one share of the Company's common stock for each twenty dollars ($20.00) committed. The options will be exercisable for three years from the date of issuance at an exercise price equal to the weighted average closing price for the first 30 trading days when 25,000 or more shares have traded per day following the effectiveness of the Form S-1 registering the August 2011 PIPE shares (the "Option Pricing"). As additional consideration for entering into the line of credit commitment, upon each draw from the line of credit, each lender (including MJX LLC) will be issued options at the rate of an option to purchase one share of the Company's common stock for each $10 of draw, at the Option Pricing.

Because this was a related party transaction involving Mr. Sillerman, our Executive Chairman, the Company's independent directors reviewed and approved the transaction.

TRUSTED OPINION INC.

(A Development-Stage Enterprise)

FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009 AND

THE PERIOD FROM MARCH 7, 2005 (INCEPTION)

TO DECEMBER 31, 2010

Table of Contents

	Page

Independent Auditors' Report		S-23

Financial Statements
Balance sheets		S-24
Statements of operations		S-25
Statements of changes in shareholders' equity (deficit)		S-26-27
Statements of cash flows		S-28
Notes to financial statements		S-29

S-22

INDEPENDENT AUDITORS' REPORT

To the Board of Directors

Trusted Opinion Inc.

We have audited the accompanying balance sheets of Trusted Opinion Inc. (a development-stage enterprise) (the "Company") as of December 31, 2010 and 2009, and the related statements of operations, changes in shareholders' equity (deficit) and cash flows for the years then ended and for the period from March 7, 2005 (inception) to December 31, 2010. 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 auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes 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, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements present fairly, in all material respects, the financial position of Trusted Opinion Inc. as of December 31, 2010 and 2009, and the results of its operations and its cash flows for the years then ended and from March 7, 2005 (inception) to December 31, 2010, in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As shown in the financial statements, the Company has incurred a significant loss in both 2010 and 2009, and as of December 31, 2010, the Company's current Liabilities exceeded its current assets by approximately $632,000, and its total liabilities exceeded its total assets by approximately $625,000. These conditions raise substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.


	CERTIFIED PUBLIC ACCOUNTANT
January 16, 2012

S-23

TRUSTED OPINION INC.

(A Development-Stage Enterprise)

BALANCE SHEETS

DECEMBER 31, 2010 AND 2009

	2010			2009
ASSETS
Current assets:
Cash and cash equivalents	$	110,920		$	599,265
Employee loans		-			3,000
Due from affiliate		65,094			-
Prepaid expenses and other assets		24,751			80,127
Total current assets		200,765			682,392
Property and equipment, net		-			20,712
Capitalized software costs, net		-			554,840
Intangible assets, net		7,312			111,039
TOTAL ASSETS	$	208,077		$	1,368,983

LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)

Current liabilities:
Accounts payable	$	1,430		$	60,618
Accrued expenses and other liabilities		45,701			13,767
Due to shareholder		785,616			-
Total current liabilities		832,747			74,385
Commitments and contingencies (Notes 8 and 10)
Shareholders' equity (deficit):
Preferred stock		17,160			17,160
Common stock		10,661			10,661
Additional paid-in capital		5,953,852			5,712,903
Deficit accumulated during the development stage		(6,606,343	)		(4,446,126	)
Total shareholders' equity (deficit)		(624,670	)		1,294,598
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
(DEFICIT)	$	208,077		$	1,368,983

See accompanying notes to financial statements.

S-24

TRUSTED OPINION INC.

(A Development-Stage Enterprise)

STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009 AND

THE PERIOD FROM MARCH 7, 2005 (INCEPTION) TO DECEMBER 31, 2010

	Year ended December 31, 2010			Year ended December 31, 2009			Period from March 7, 2005 (inception) to December 31, 2010
Revenues	$	2,094		$	1,776		$	5,802
Costs and expenses:
Cost of revenue (exclusive of depreciation and amortization shown separately below)		134,127			94,990			268,108
Product development costs		443,896			172,188			1,411,339
General and administrative		314,266			211,345			1,535,317
Sales and marketing		442,684			188,191			1,165,221
Depreciation, amortization and impairment charges		787,071			41,708			1,423,916
Total costs and expenses	2,122,044				708,422			5,803,901
Loss from operations		(2,119,950	)	(706,646		)		(5,798,099	)
Other income (expense):
Interest expense - loan		(35,616	)		-			(63,133	)
Interest expense - warrants		-			-			(469,287	)
Loss on extinguishment of debt		-			-			(284,618	)
State taxes		(800	)		(1,320	)		(5,944	)
Other		(3,851	)		3,332			24,655
Other income (expense), net		(40,267	)		2,012			(798,327	)

Net loss	$	(2,160,217	)	$	(704,634	)	$	(6,596,426	)

See accompanying notes to financial statements.

S-25

TRUSTED OPINION INC.

STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY (DEFICIT)

FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009 AND

THE PERIOD FROM MARCH 7, 2005 (INCEPTION) TO DECEMBER 31, 2010

	Preferred $.001 Par Value; 24,286,000 Shares Authorized				Common $.001 Par Value; 55,000,000 Shares Authorized						Additional paid-in capital			Deficit accumulated during the development stage			Total
	Shares Issued and Outstanding		Amount		Shares Issued and Outstanding			Amount			Additional paid-in capital			Deficit accumulated during the development stage			Total
Balance - March 7, 2005		-	$	-		-		$	-		$	-		$	-		$	-
Issuance of common stock in March		-		-		10,016,835			10,017			-			(9,917	)		100
Net loss - 2005		-		-		-			-			-			(251,478	)		(251,478	)
Balance - December 31, 2005		-		-		10,016,835			10,017			-			(261,395	)		(251,378	)
Issuance of common stock in December		-		-		957,436			957			8,617			-			9,574
Issuance of preferred stock in May		2,613,950		2,614		-			-			912,386			-			915,000
Net loss - 2006		-		-		-			-			-			(254,735	)		(254,735	)
Balance - December 31, 2006		2,613,950		2,614		10,974,271			10,974			921,003			(516,130	)		418,461
Interest expense - warrants		-		-		-			-			469,287			-			469,287
Share-based compensation		-		-		-			-			74,854			-			74,854
Repurchase of common stock in March		-		-		(558,504	)		(559	)		(5,026	)		-			(5,585	)
Stock options exercised in April		-		-		245,496			246			2,210			-			2,456
Issuance of preferred stock in November		2,097,043		2,097		-			-			597,903			-			600,000
Issuance of preferred stock in exchange for convertible notes payable in November		3,711,867		3,712		-			-			1,058,317			-			1,062,029
Net loss - 2007		-		-		-			-			-			(1,870,827	)		(1,870,827	)
Balance - December 31, 2007		8,422,860	$	8,423		10,661,263		$	10,661		$	3,118,548		$	(2,386,957	)	$	750,675

See accompanying notes to financial statements.

S-26

TRUSTED OPINION INC.

STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY (DEFICIT) (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009 AND

THE PERIOD FROM MARCH 7, 2005 (INCEPTION) TO DECEMBER 31, 2010

	Preferred $.001 Par Value; 24,286,000 Shares Authorized				Common $.001 Par Value; 55,000,000 Shares Authorized				Additional paid-in capital		Deficit accumulated during the development stage			Total
	Shares Issued and Outstanding		Amount		Shares Issued and Outstanding		Amount		Additional paid-in capital		Deficit accumulated during the development stage			Total
Balance - December 31, 2007		8,422,860	$	8,423		10,661,263	$	10,661	$	3,118,548	$	(2,386,957	)	$	750,675
Share-based compensation		-		-		-		-		50,275		-			50,275
Issuance of preferred stock in December		5,242,556		5,242		-		-		1,494,758		-			1,500,000
Net loss - 2008		-		-		-		-		-		(1,354,535	)		(1,354,535	)
Balance - December 31, 2008		13,665,416		13,665		10,661,263		10,661		4,663,581		(3,741,492	)		946,415
Share-based compensation		-		-		-		-		52,817		-			52,817
Issuance of preferred stock in September		3,495,037		3,495		-		-		996,505		-			1,000,000
Net loss - 2009		-		-		-		-		-		(704,634	)		(704,634	)
Balance - December 31, 2009		17,160,453		17,160		10,661,263		10,661		5,712,903		(4,446,126	)		1,294,598
Share-based compensation		-		-		-		-		240,949		-			240,949
Net loss - 2010		-		-		-		-		-		(2,160,217	)		(2,160,217	)
BALANCE - DECEMBER 31, 2010		17,160,453	$	17,160		10,661,263	$	10,661	$	5,953,852	$	(6,606,343	)	$	(624,670	)

See accompanying notes to financial statements.

S-27

TRUSTED OPINION INC.

(A Development-Stage Enterprise)

STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009 AND

THE PERIOD FROM MARCH 7, 2005 (INCEPTION) TO DECEMBER 31, 2010

	Year ended December 31, 2010			Year ended December 31, 2009			Period from March 7, 2005 (inception) to December 31, 2010

Cash flows from operating activities:
Net loss	$	(2,160,217	)	$	(704,634	)	$	(6,596,426	)
Adjustments to reconcile net loss to net cash used in operating activities:
Loss on sale of fixed assets		5,391			-			5,391
Loss on extinguishment of debt		-			-			284,618
Depreciation, amortization and impairment charges		787,071			41,708			1,423,916
Share-based compensation		240,949			52,818			418,895
Interest expense attributable to warrants		-			-			469,287
Changes in assets and liabilities:
Employee loans		3,000			(3,000	)
Due from affiliate		(65,094	)		-			(65,094	)
Prepaid expenses and other assets		55,376			(1,886	)		(24,751	)
Accounts payable		(59,188	)		(40,271	)		1,430
Accrued expenses and other liabilities		67,550			9,728			108,728
Net cash used in operating activities		(1,125,162	)		(645,537	)		(3,974,006	)

Investing activities:
Proceeds from sale of fixed assets		7,000			-			7,000
Additions to property and equipment		(2,749	)		(4,392	)		(117,371	)
Additions to capitalized software costs		(110,122	)		(554,840	)		(1,207,901	)
Additions to intangible assets		(7,312	)		(9,845	)		(118,347	)
Net cash used in investing activities		(113,183	)		(569,077	)		(1,436,619	)

Financing activities:
Proceeds from stock options exercised		-			-			2,456
Proceeds from issuance of common stock		-			-			9,674
Repurchase of common stock		-			-			(5,585	)
Proceeds from issuance of preferred stock		-			1,000,000			4,015,000
Proceeds from shareholder loan (including convertible notes payable)		750,000			-			1,500,000
Net cash provided by financing activities		750,000			1,000,000			5,521,545

Net increase (decrease) in cash and cash equivalents		(488,345	)		(214,614	)		110,920
Cash and cash equivalents - beginning		599,265			813,879
CASH AND CASH EQUIVALENTS - ENDING		110,920		$	599,265			110,920

Supplemental disclosure of cash flow information:
Taxes paid	$	800		$	1,320		$	5,944

Noncash investing and financing activities:
Issuance of preferred stock in exchange for convertible notes payable	$	-		$	-		$	777,411

See accompanying notes to financial statements.

S-28

TRUSTED OPINION INC.

(A Development-Stage Enterprise)

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2010 AND 2009

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and Nature of Operations

Trusted Opinion Inc. (the "Company") was incorporated on March 7, 2005 in the state of Delaware and began operations on May 25, 2005.

The Company is engaged in the development and marketing of software products and services in the social media and advertising industry. From its inception, the Company was engaged in the development of a social recommendations network website, trustedopinion.com ("TROP"), covering the United States, Asia and Europe, having approximately 1.5 million users worldwide. In 2010, the Company made the decision to refocus its efforts and develop a collection of "white-label" products and services ("Loyalize"), offered to media companies, and to discontinue further development of TROP.

The Company's activities since inception have been organizational activities, including recruiting personnel, establishing office facilities, conducting research and development, performing business and financial planning and raising capital. The Company has had minimal operations and generated minimal revenue to date. Accordingly, in connection with the preparation of the financial statements, the Company is considered to be in the development stage under the authoritative guidance for development stage entities, Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 915, and is subject to the risks associated with the activities of development-stage companies.

Financial Accounting Standards Board's Accounting Standards Codification

In June 2009, FASB issued authoritative guidance that established the FASB ASC as the source of authoritative accounting principles generally accepted in the United States of America ("GAAP") recognized by the FASB to be applied by nongovernmental entities. The Codification supersedes all of the existing accounting and reporting standards upon its effective date and, subsequently, the FASB will not issue new standards in the form of FASB Statements, FASB Staff Positions, or Emerging Issues Task Force Abstracts. The guidance is not intended to change or alter existing GAAP. The guidance became effective for the Company on December 31, 2009. The adoption of this guidance did not have an impact on the Company's financial position, results of operations or cash flows.

Cash and Cash Equivalents

Cash and cash equivalents consist primarily of cash on deposit and money market accounts that are readily convertible into cash and purchased with original maturities of three months or less.

Use of Estimates

The preparation of financial statements in conformity with GAAP 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 revenue and expenses during the reporting period. Actual results could differ from those estimates.

S-29

TRUSTED OPINION INC.

(A Development-Stage Enterprise)

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2010 AND 2009

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Revenue Recognition

The Company derives revenue from providing a free online service with display advertising. There is no downloadable software, distribution or technology delivered to consumers. Advertising income is recognized in the period it is earned. No significant revenue has been earned to date.

Software Development Costs

Costs for software developed for internal use are accounted for in accordance with FASB ASC 350, Intangibles - Goodwill and Other - Internal-Use Software. FASB ASC 350 requires the capitalization of certain costs incurred in connection with developing or obtaining internal-use software. Such capitalized costs are included in "Capitalized software costs" in the balance sheets. The Company amortizes the costs of internal-use software over two years.

Costs that are incurred in the preliminary project stage are expensed as incurred and are included in "Product development costs" in the accompanying statements of operations. Once the capitalization criteria of FASB ASC 350 have been met, external direct costs of materials and services consumed in developing or obtaining internal-use computer software, payroll and payroll-related costs for employees who are directly associated with, and who devote time to the project (to the extent their time is spent directly on the project) and interest costs incurred in connection with developing the software, are capitalized.

The Company accounts for the costs to develop software that it plans to market externally in accordance with FASB ASC 985-20, Software - Costs of Software to be Sold, Leased, or Marketed, whereby costs for the development of new software products and substantial enhancements to existing software products are expensed as incurred until technological feasibility has been established, at which time any additional costs are capitalized. Technological feasibility is established upon completion of a working model. The Company amortizes the costs of software obtained or developed to be sold, leased or marketed over three years.

For the years ended December 31, 2010 and 2009, and for the period from March 7, 2005 (inception) through December 31, 2010, software development costs not capitalized, have been charged to "Product development costs" in the accompanying statements of operations.

Property and Equipment

Property and equipment are carried at cost. Expenditures for maintenance and repairs are expensed currently, while renewals and betterments that materially extend the life of an asset are capitalized. The costs of assets sold, retired, or otherwise disposed of and the related allowance for depreciation, are eliminated from the accounts, and any resulting gain or loss is recognized.

Depreciation is provided using the straight-line and various accelerated methods over the estimated useful lives of the assets, which are as follows:

Computers 3 years

Equipment 3 years

Furniture and fixtures 5 years

S-30

TRUSTED OPINION INC.

(A Development-Stage Enterprise)

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2010 AND 2009

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Intangible Assets

Intangible assets are carried at cost and are amortized over their useful lives. The costs of assets sold, retired, or otherwise disposed of, and the related allowance for amortization, are eliminated from the accounts, and any resulting gain or loss is recognized.

Long-lived Assets and Impairment of Long-Lived Assets

The Company reviews long-lived assets, including property and equipment, capitalized software costs, and other intangible assets, for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. When it is determined that impairment has occurred, a charge to operations will be recorded. Impairment on property and equipment or other intangible assets, if any, is assessed using discounted cash flows.

The fair value of long-lived assets is determined on a Level 3 basis in which significant unobservable inputs are utilized primarily using the "income approach," which starts with a forecast of all the expected future net cash flows, some of which are more certain than others. Some of the more significant estimates and assumptions inherent in the long-lived asset impairment estimation process include: the amount and timing of projected future cash flows; the discount rate selected to measure the risks inherent in the future cash flows; and the assessment of the asset's life cycle and the competitive trends impacting the asset.

Income Taxes

The Company files income tax returns in the U.S. federal jurisdiction and in California, With few exceptions, the Company is no longer subject to U.S. federal, state and local income tax examinations by taxing authorities for years before 2007.

The Company uses the asset and liability method of accounting for income taxes pursuant to FASB ASC 740, Income Taxes. Under the asset and liability method of FASB ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets, including tax loss and credit carry-forwards, and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred income tax expense represents the change during the period in the deferred tax assets and deferred tax liabilities. The components of the deferred tax assets and liabilities are individually classified as current and noncurrent based on their characteristics.

Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

S-31

TRUSTED OPINION INC.

(A Development-Stage Enterprise)

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2010 AND 2009

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Uncertain Tax Positions

Effective January 1, 2009, the Company recognizes and measures its unrecognized tax benefits in accordance with FASB ASC 740. Under that guidance, the Company assesses the likelihood, based on their technical merit, that tax positions will be sustained upon examination based on the facts, circumstances and information available at the end of each period. The measurement of unrecognized tax benefits is adjusted when new information is available, or when an event occurs that requires a change. The standard also provides guidance on interest and penalties, accounting in interim periods, disclosures and transition.

Advertising

Advertising costs are expensed as incurred. Advertising expense totaled $20, $1,278 and $22,196 for the years ended December 31, 2010 and 2009, and for the period from March 7, 2005 (inception) through December 31, 2010, respectively.

Fair Value Measurements

In January 2010, the FASB issued Accounting Standards Update ("ASU") No. 2010-06, Improving Disclosures about Fair Value Measurements. This update amends FASB ASC 820, Fair Value Measurements and Disclosures, to require new disclosures for significant transfers in and out of Level I and Level 2 fair value measurements, disaggregation regarding classes of assets and liabilities, valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements for Level 2 or Level 3. These disclosures are effective for reporting periods beginning after December 15, 2009. Additional new disclosures regarding the purchases, sales, issuances and settlements in the rollforward of activity in Level 3 fair value measurements are effective for fiscal years beginning after December 15, 2010. The Company adopted certain of the relevant disclosure provisions of ASU 2010-06 on January 1, 2010, and will adopt certain other provisions on January 1, 2011.

FASB ASC 820 establishes a framework for measuring fair value. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). Categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs. Under the new standard, fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date.

The three levels of the fair value hierarchy under FASB ASC 820 are described as follows:

Level 1 inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Company has the ability to access.

S-32

TRUSTED OPINION INC.

(A Development-Stage Enterprise)

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2010 AND 2009

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Fair Value Measurements (continued)

Level 2 inputs to the valuation methodology include: quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in inactive markets; inputs other than quoted prices that are observable for the asset or liability; and, inputs that are derived principally from or corroborated by observable market data by correlation or other means. If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability.

Level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurement.

Share-based Compensation Plan

The Company has a share-based compensation plan. This plan is administered by the board of directors to motivate certain employees in the performance of their duties by further compensating these individuals through the grant of options to purchase shares of the Company's common stock issued under the Company's 2007 Stock Plan (the "Plan"). Under the Plan, the Company may grant options for up to a total of 21,298,507 shares of common stock. The exercise price of each option is equal to the fair value of the Company's stock on the date of grant. The maximum term of the options is 10 years and the options vest over a maximum of 4 years from the vesting commencement date, pursuant to the Plan and option grant agreement.

The Company has adopted the fair value-based method of accounting prescribed in FASB ASC 718, Compensation - Stock Compensation, for its employee stock option plan. The Company applies the Black-Scholes valuation method to compute the estimated fair value of the stock options and recognizes compensation expense, net of estimated forfeitures, on a straight-line basis so that the award is fully expensed at the vesting date.

Subsequent Events

In May 2009, the FASB issued guidance related to subsequent events, which was primarily codified into FASB ASC 855, Subsequent Events. This guidance establishes general standards of accounting for and disclosure of events that occur after the date of the balance sheet but before financial statements are issued. In particular, the guidance sets forth: (1) the period after the date of the balance sheet during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements; (2) the circumstances under which an entity should recognize events or transactions occurring after the date of the balance sheet in its financial statements; and (3) the disclosures that an entity should make about events or transactions that occurred after the date of the balance sheet.

In accordance with FASB ASC 855, the Company has evaluated subsequent events through January 16, 2012, the date on which these financial statements were available to be issued. There were no material subsequent events other than those described in the first paragraph of Note 14 that required recognition or additional disclosure in these financial statements.

S-33

TRUSTED OPINION INC.

(A Development-Stage Enterprise)

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2010 AND 2009

NOTE 2. GOING CONCERN

Since inception, the Company has generated insignificant revenue, has incurred losses from operations and has incurred cumulative net losses of approximately $6,600,000. The Company has also been dependent upon the receipt of capital investment or other financing to fund its operations. As further described in Note 14, on December 31, 2011, the Company executed an asset purchase agreement for the sale of substantially all of its intellectual property and assets. The Company currently has no source of operating revenue and the amount of capital required to sustain operations is subject to future events and uncertainties. It may be necessary for the Company to secure additional working capital through loans or sales of capital stock, and there can be no assurance that such funding will be available in the future. These conditions raise substantial doubt about the Company's ability to continue as a going concern.

The accompanying financial statements have been presented on the basis of the continuation of the Company as a going concern and do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classifications of liabilities that might be necessary should the Company be unable to continue as a going concern.

NOTE 3. CONCENTRATION OF CREDIT RISK

The Company places its cash and cash equivalents, which may at times be in excess of Federal Deposit Insurance Corporation insurance limits, with major financial institutions and attempts to limit the amount of credit exposure with any one institution.

NOTE 4. FAIR VALUE MEASUREMENTS

Assets and liabilities measured at fair value are based on one or more of three valuation techniques identified in the tables below. The valuation techniques are as follows:

(a)	Market approach. Prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities;

(b)	Cost approach. Amount that would be required to replace the service capacity of an asset (replacement cost); and

(c)	Income approach. Techniques to convert future amounts to a single present amount based on market expectations (including present value techniques, option-pricing and excess earnings models).

The following table summarizes the valuation of the Company's investments within the fair value hierarchy levels for financial assets as of December 31, 2010:

Description	Level 1		Level 2		Level 3		Total		Valuation Technique

Cash and cash equivalents:
Money market mutual funds	$	100,025	$	-	$	-	$	100,025		(a)

S-34

TRUSTED OPINION INC.

(A Development-Stage Enterprise)

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2010 AND 2009

NOTE 4. FAIR VALUE MEASUREMENTS (CONTINUED)

The following table summarizes the valuation of the Company's investments within the fair value hierarchy levels for financial assets as of December 31, 2009:

Description	Level 1		Level 2		Level 3		Total		Valuation Technique

Cash and cash equivalents:
Money market mutual funds	$	580,045	$	-	$	-	$	580,045		(a)

NOTE 5. PROPERTY AND EQUIPMENT

Property and equipment consisted of the following at December 31, 2010 and 2009:

	2010			2009
Computer	$	14,897		$	12,147
Machinery and equipment		3,439			96,979
Furniture and fixtures		2,460			2,460
		20,796			111,586
Less: accumulated depreciation		(20,796	)		(90,874	)
Property and equipment, net	$	-		$	20,712

Depreciation expense for the years ended December 31, 2010 and 2009, and for the period from March 7, 2005 (inception) through December 31, 2010 totaled $11,070, $19,086 and $104,980, respectively.

During 2010, the Company sold equipment with a net book value of $12,391 for $7,000. The loss on the sale is included in "Other" in the accompanying statements of operations.

NOTE 6. CAPITALIZED SOFTWARE COSTS

Capitalized software costs consisted of the following at December 31, 2010 and 2009:

	2010		2009
Website and internally developed software costs	$	-		1,097,779
Less: accumulated amortization		-		(542,939	)

Capitalized software costs, net	$	-	$	554,840

From 2005 through 2007, the Company incurred website and internally developed software costs totaling $542,939 to develop the TROP product. The initial prototype of the website ("TROP 1") was completed and placed in service on February 1, 2007 and was fully amortized through January 31, 2009. Amortization expense relating to TROP 1 for the year ended December 31, 2009 and for the period from March 7, 2005 (inception) through December 31, 2010, totaled $22,622 and $542,939, respectively.

S-35

TRUSTED OPINION INC.

(A Development-Stage Enterprise)

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2010 AND 2009

NOTE 6. CAPITALIZED SOFTWARE COSTS (CONTINUED)

In late 2008, the Company decided to make enhancement modifications to TROP 1 and began development of a second generation website ("TROP 2"). During 2009 and 2010, the Company capitalized $554,840 and $109,722, respectively, of website and internally developed software costs relating to TROP 2. The asset was placed in service on March 1, 2010. Amortization expense relating to TROP 2 for the year ended December 31, 2010, totaled $138,534.

On March 1, 2010, the Company removed the fully amortized website and internally developed software costs of $542,939 relating to TROP 1 from its balance sheets.

On August 1, 2010, the Company made the decision to abandon the TROP 2 product and write off the related costs. Accordingly, the Company removed $664,962 of costs and $138,534 of accumulated amortization relating to TROP 2 and recognized an impairment loss of $526,428 which is included in "Depreciation, amortization and impairment charges" in the accompanying statements of operations. Pursuant to accounting guidance contained in FASB ASC 350, the Company has written down these costs to $-0- based on the income approach (discounted cash flow analysis) as discussed in FASB ASC 820, utilizing Level 3 inputs, that is, inputs that are unobservable and significant to the fair value measurement.

NOTE 7. INTANGIBLE ASSETS

Intangible assets consisted of the following at December 31, 2010 and 2009:

	2010		2009
Patents	$	2,312	$	93,571
Trademarks		5,000		17,468
Intangible assets, net	$	7,312	$	111,039

From 2005 through 2009, the Company capitalized legal fees totaling $93,571 relating to obtaining a patent and $17,468 relating to obtaining trademarks for the TROP software.

On August 1, 2010, the Company made the decision to abandon the TROP product and wrote off the related costs. For the year ended December 31, 2010, the Company recognized an impairment loss on TROP of $93,571 for patents and $17,468 for trademarks, which are included in "Depreciation, amortization and impairment charges" in the accompanying statements of operations.

During the year ended December 31, 2010, the Company capitalized legal fees totaling $2,312 relating to obtaining a patent and $5,000 relating to obtaining a trademark for the Loyalize software.

NOTE 8. COMMITMENTS

On April 15, 2009, the Company entered into a monthly agreement to sublet office space. The agreement calls for monthly rental payments of $1,200. In May 2010, the Company subleased additional space and the monthly rent increased to $1,600 per month.

S-36

TRUSTED OPINION INC.

(A Development-Stage Enterprise)

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2010 AND 2009

NOTE 8. COMMITMENTS (CONTINUED)

On December 14, 2010, the Company entered into a non-cancelable operating lease for office space through December 31, 2011 for $1,332 a month. As of December 31, 2010, future minimum rental payments under this lease are $15,984.

The Company maintains a corporate apartment used by the Chairman of the Company for business travel. As of December 31, 2010, the Future minimum rental payments required under this lease are $30,000.

Rent expense incurred under these operating leases for the years ended December 31, 2010 and 2009 and for the period from March 7, 2005 (inception) through December 31, 2010, amounted to $48,332, $45,605 and $175,161, respectively.

NOTE 9. EMPLOYEE BENEFIT PLAN

The Company maintains a non-contributory defined contribution 401(k) plan (the "401k Plan") with a salary reduction feature covering substantially all full-time employees who are eligible upon employment start date. Employer contributions to the 401k Plan are discretionary. For the years ended December 31, 2010 and 2009 and for the period from March 7, 2005 through December 31, 2010, no employer contributions have been made.

NOTE 10. RELATED PARTY TRANSACTIONS

Due to shareholder

In 2010, the Company received $750,000 in unsecured interest-bearing notes from a shareholder. The notes bear interest at 10% per annum and are due on demand. "Due to shareholder" on the accompanying balance sheets, consists of principal and accrued interest in 2010 of $35,616.

Service agreement

On August 2, 1010, the Company entered into an agreement with an entity related through common ownership with a major shareholder of the Company. The Company provides services for product development, general consulting, logistical, technical and administrative support services from time to time to the related party. All costs and expenses incurred for these services are reimbursed to the Company. The amount of reimbursed expenses charged in 2010 amounted to $65,094 and was included as a reduction of the various payroll and rent expenses to which it pertained, and as "Due from affiliate" on the accompanying balance sheets.

NOTE 11. INCOME TAXES

The components of deferred tax asset as of December 31, 2010, are as follows:

	Current		Noncurrent			Total deferred tax asset, net
Share-based compensation	$	-	$	350,000		$	350,000
Operating loss carryforward		-		2,250,000			2,250,000
Valuation allowance		-		(2,600,000	)		(2,600,000	)
Deferred tax asset, net	$	-	$	-		$	-

S-37

TRUSTED OPINION INC.

(A Development-Stage Enterprise)

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2010 AND 2009

NOTE 11. INCOME TAXES (CONTINUED)

The components of deferred tax asset as of December 31, 2009, are as follows:

	Current		Noncurrent			Total deferred tax asset, net
Share-based compensation	$	-	$	250,000		$	250,000
Operating loss carryforward		-		1,700,000			1,700,000
Valuation allowance		-		(1,950,000	)		(1,950,000	)
Deferred tax asset, net	$	-	$	-		$	-

As of December 31, 2010, the Company has net operating loss carryforwards of approximately $5,321,396 for federal income tax purposes and $4,970,445 for California income tax purposes. As of December 31, 2009, the Company has net operating loss carryforwards of approximately $4,047,798 for federal income tax purposes and $3,699,705 for California income tax purposes. These carryforwards are available to offset future taxable income in those jurisdictions. The net operating loss carryforwards expire from 2025 through 2029 for federal and 2026 through 2029 for California if not utilized.

For financial statement purposes, the Company has incurred a loss in each period since its inception. Based on the available objective evidence, including the Company's history of losses, management believes it is more likely than not that the net deferred tax assets may not be fully realizable. Accordingly, the Company provided for a full valuation allowance against its deferred tax assets at December 31, 2010 and 2009.

For the years ended December 31, 2010 and 2009, and for the period from March 7, 2005 (inception) through December 31, 2010, the increase to the valuation allowance amounted to $650,000, $600,000 and $2,600,000, respectively.

NOTE 12. SHAREHOLDERS' EQUITY

Classes of Stock

The Company is currently authorized to issue shares in three separate classes: Common, Series A Preferred Stock and Series A-2 Preferred Stock. A shareholder holding shares of any class shall have all the rights, powers, duties, and obligations described herein for a shareholder of such class. Pursuant to the Company's latest amendment to its Certificate of Incorporation, dated March 11, 2011, the Company may currently issue up to 55,000,000 shares of common stock - $.001 par value, up to 4,286,000 shares of its Series A Preferred Stock - $.001 par value, and up to 20,000,000 shares of its Series A-2 Preferred Stock - $.001 par value.

At December 31, 2010, there were 10,661,263, 2,613,950 and 14,546,503 shares outstanding of common stock, Series A Preferred Stock and Series A-2 Preferred Stock, respectively.

Voting: The holders of Series A and Series A-2 Preferred Stock (the "Preferred Shareholders") have the right to vote together with common shareholders on an as-converted basis, and not as a separate class, except as required by law. The Series A Preferred Stock and Series A-2 Preferred Stock classes shall each be entitled to elect one member of the Company's board of directors. The common shareholders, voting as a separate class, shall be entitled to elect the three remaining members of the Company's board of directors.

S-38

TRUSTED OPINION INC.

(A Development-Stage Enterprise)

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2010 AND 2009

NOTE 12. SHAREHOLDERS' EQUITY (CONTINUED)

Classes of Stock (continued)

Dividends: The Preferred Shareholders have preferential rights with respect to the payment of dividends by the Company. Should the Company declare a dividend for any class of company stock, the Series A-2 Preferred shareholders are first entitled to a cumulative dividend. Subject to the dividend rights of the Series A-2 Preferred Stock, the Series A Preferred Stock shall receive a non-cumulative dividend. Dividends may be paid on the common stock and are subject to the prior dividend rights of the Series A and A-2 Preferred Stock.

Conversion: Each share of Series A and Series A-2 Preferred Stock is convertible into one share of common stock. Series A Preferred Stock is subject to a mandatory conversion upon the occurrence of certain "Automatic Conversion" events, as defined in the agreements.

Liquidation: In the event of any liquidation, dissolution or winding up of the Company, either voluntary or involuntary, the holders of the Series A-2 Preferred Stock are entitled to receive a liquidation preference on any distribution of the assets of the Company. Following the full payment of the Series A-2 distribution, the holders of the Series A Preferred Stock shall be entitled to receive a liquidation preference prior to any distributions to the holders of common stock. After payment to the Preferred Shareholders, the entire remaining assets of the Company legally available for distribution shall by distributed with equal priority and pro-rata among the holders of the common stock.

Redemption: The Series A and Series A-2 Preferred Stock are not mandatorily redeemable by the Company.

Stock Split

In 2006, the board of directors authorized a 1,005 to 1 stock split, thereby increasing the number of shares to 10,016,835 at the time of the stock split and decreasing the par value of each share to $.001 per share. All references in the accompanying financial statements to the number of common shares and per share amounts for 2005 have been restated to reflect the stock split.

Repurchase of Common Stock

In 2007, the Company repurchased 558,504 nonvested shares from a shareholder at the original purchase price of $0.01 per share. The total purchase price amounted to $5,585.

Share Warrants

In October 2007, the Company issued 1,791,172 warrants at an exercise price of $.001, to the Series A Preferred Shareholders. The warrants vested upon issuance and expire on December 21, 2012. The Company calculated the fair value of the warrants issued using the Black-Scholes option valuation model with the following assumptions; risk-free interest rate - 4.6%; expected volatility of common stock - 20.2%; dividend yield - 0%; expected option term - 5 years.

The Company recognized interest costs relating to the warrants during the year ended December 31, 2007, in the amount of $469,287, which is included in "Interest expense - warrants" in the accompanying statements of operations in the period from March 7, 2005 (inception) through December 31, 2010.

S-39

TRUSTED OPINION INC.

(A Development-Stage Enterprise)

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2010 AND 2009

NOTE 12. SHAREHOLDERS' EQUITY (CONTINUED)

Issuance of Preferred Stock and Extinguishment of Convertible Debt

In 2006 and 2007, the Company issued $250,000 and $500,000, respectively, of convertible notes with an interest rate of 6%. On November 7, 2007, the Company cancelled the notes and converted them to Series A-2 Preferred Shares at a discount of 30% on the $250,000 note and 25% on the $500,000 note. At the date of conversion, the balance of the notes was $777,411, including principal of $750,000 and accrued interest of $27,411. In exchange for the notes, the Preferred Shareholder received 3,711,867 Series A-2 Preferred Shares which were valued at $1,062,029. During the year ended December 31, 2007, the Company recognized a loss on extinguishment of debt of $284,618, which is included in the accompanying statements of operations in the period from March 7, 2005 (inception) through December 31, 2010.

NOTE 13. SHARE-BASED COMPENSATION PLAN

The following is a summary of the status of the share-based payment plan for the years ended December 31, 2010 and 2009, and for the period from March 7, 2005 (inception) through December 31, 2010:

				Weighted Average
	Number of Shares			Per Share Exercise Price		Grant Date Per Share Fair Value
Outstanding at March 7, 2005		-		$	-	$	-
Granted		1,599,977			0.10		0.12
Exercised		(245,496	)		0.01		0.26
Outstanding at December 31, 2008		1,354,481			0.11		0.09
Granted		420,000			0.06		0.23
Outstanding at December 31, 2009		1,774,481			0.10		0.13
Granted		5,207,530			0.13		0.23
Forfeited		(140,000	)		0.06		0.23
Outstanding at December 31, 2010		6,842,011			0.12		0.20
Options exercisable at December 31, 2010		1,797,667			0.10		0.23
Nonvested options as of December 31, 2010		5,044,344			0.06		0.24

The exercise price of stock options granted during the years ended December 31, 2010 and 2009, and for the period from March 7, 2005 (inception) through December 31, 2010 was equal to market value on the date of grant. During the years ended December 31, 2010 and 2009, and for the period from March 7, 2005 (inception) through December 31, 2010, options to purchase 5,207,530, 420,000 and 7,227,507 shares of common stock, respectively, were granted. The options vest over a maximum of 4 years. The options granted during the years ended December 31, 2010 and 2009 will be fully vested by December 31, 2014 and October 31, 2013, respectively. The options granted during the years ended December 31, 2008 and 2007 were fully vested as of December 31, 2010.

S-40

TRUSTED OPINION INC.

(A Development-Stage Enterprise)

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2010 AND 2009

NOTE 13. SHARE-BASED COMPENSATION PLAN (CONTINUED)

The estimated fair value of each stock option award was determined on the date of grant using the Black-Scholes option valuation model with the following assumptions:

	Years Ended December 31,
	2009			2010

Risk-free interest rate		2.5	%		0.8% - 2.1	%
Expected volatility of common stock		22.3	%		22.5% - 30.4	%
Dividend yield		0	%		0	%
Expected option term (in years)		5			5

The risk-free interest rate assumption is based on the yield to maturity on a U.S. Treasury security with a term commensurate to that of the option or warrant being valued. The Company has elected to use the calculated value method to account for the options and warrants granted. A nonpublic entity that is unable to estimate the expected volatility of the price of its underlying share may measure awards based on a "calculated value," which substitutes the volatility of an appropriate index for volatility of the Company's own share price. Currently, there is no active market for the Company's common shares. In addition, management has determined that it is unable to reasonably estimate the fair value of the options on the date of grant because the Company has not issued any new common stock for several years and management has not been able to identify a similar publicly held entity that can be used as a benchmark. Therefore, as a substitute for volatility, the Company used the historical volatility of the NYSE Arca Technology Index ("PSE"). The Company assumed that the volatility of the PSE, measured over a historical period commensurate with the term of the option or warrant being valued, is indicative of the future volatility of the Company's stock price. The Company has not paid any dividends since inception and does not anticipate paying dividends on the common stock in the foreseeable future. The expected option term of 5 years represents an estimate of the effective term of each option and warrant considering (1) the options are employee stock options that are subject to forfeiture and (2) estimated time horizon until a liquidity event.

As share-based compensation expense recognized in the accompanying statements of operations is based on stock option awards ultimately expected to vest, such expense should be reduced for estimated forfeitures. The authoritative guidance for compensation under FASB ASC 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The Company has very few employees and the stock options vest periodically; therefore, the Company did not estimate any forfeitures during the years ended December 31, 2010 and 2009, and the period from March 7, 2005 (inception) through December 31, 2010, and the Company adjusts share-based compensation expense for any forfeitures as they occur.

The Company's determination of fair value is affected by the stock price, as well as a number of assumptions that require judgment. The weighted average fair value of the options granted during the years ended December 31, 2010 and 2009, and the period from March 7, 2005 (inception) through December 31, 2010, were $0.23, $0.23 and $0.21 per share, respectively.

S-41

TRUSTED OPINION INC.

(A Development-Stage Enterprise)

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2010 AND 2009

NOTE 13. SHARE-BASED COMPENSATION PLAN (CONTINUED)

During the years ended December 31, 2010 and 2009, and for the period from March 7, 2005 (inception) through December 31, 2010, the Company recognized compensation costs relating to vested share-based compensation of $240,949, $52,817 and $418,895, respectively. The costs have been charged to operations.

In 2007, an employee exercised options to purchase 245,496 shares at an exercise price of $.01 per share. The total purchase price for the shares was $2,456.

In 2010, an employee left the Company and forfeited 140,000 stock options at a fair value of $0.232 per share at the date of the grant. Accordingly, the Company reduced its share-based compensation for the year ended December 31, 2010, by $9,473, the portion of the grant that had vested.

The following is a summary of nonvested shares as of December 31, 2010:

	Number of Shares			Weighted Average Grant Date Per Share Fair Value
Balance - December 31, 2009		549,397		$	0.21
Granted during the year		5,207,530			0.23
Vested during the year		(572,583	)		0.21
Forfeited during the year		(140,000	)		0.23
Balance -December 31, 2010		5,044,344			0.24

As of December 31, 2010, there was $1,210,642 of unrecognized compensation cost related to nonvested share-based compensation, which is expected to be recognized over a period of five years, as follows:

Year ending December 31:	Amount
2011	$	404,609
2012		317,271
2013		314,565
2014		174,197
	$	1,210,642

S-42

TRUSTED OPINION INC.

(A Development-Stage Enterprise)

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2010 AND 2009

NOTE 14. OTHER MATTERS

On December 31, 2011 (the "Closing Date"), the Company executed an asset purchase agreement with an unaffiliated entity (the "Buyer") with respect to the acquisition of substantially all of the Company's assets, consisting primarily of the Company's intellectual property (the Loyalize technology) and various other assets. The purchase price for the transferred intellectual property and other assets was $4,638,815, payable in cash of $3,000,000 and shares of the Buyer's stock valued at $1,638,815 on the Closing Date. As of January 16, 2012, the Company has received consideration of $2,750,000, including cash of $1,500,000 and shares valued at $1,250,000, and the Company expects the remaining balance of the purchase price to be received by January 30, 2012, in accordance with the terms of the asset purchase agreement. If on December 31, 2012, the aggregate fair value of the stock consideration, based on the average closing price of the Buyer's stock for the 20 days preceding December 31, 2012, is not at least $1,838,815, then the Buyer will provide $200,000 of additional consideration to the Company. The additional consideration will be provided in either cash or shares of the Buyer's stock, at the Buyer's discretion, by January 10, 2013, in accordance with the terms of the asset purchase agreement.

Pursuant to the Company's employment agreements with various employees, in the event of a change of control, including a sale of substantially all of the Company's assets as discussed above, these employees are entitled to additional compensation as set forth in these agreements.

S-43

TRUSTED OPINION INC.

(A Development-Stage Enterprise)

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010,

AND THE PERIOD FROM MARCH 7, 2005 (INCEPTION)

TO SEPTEMBER 30, 2011

Table of Contents

	Page

Financial Statements (Unaudited)
Balance sheets		S-45
Statements of operations		S-46
Statements of changes in shareholders' equity (deficit)		S-47-48
Statements of cash flows		S-49
Notes to financial statements		S-50

S-44

TRUSTED OPINION INC.

(A Development-Stage Enterprise)

BALANCE SHEETS

SEPTEMBER 30, 2011 AND 2010
(Unaudited)

	2011			2010

ASSETS
Current assets:
Cash and cash equivalents	$	195,243		$	162,039
Accounts receivable, net		67,533			224
Prepaid expenses and other assets		13,193			40,574
Total current assets		275,969			202,837
Property and equipment, net		13,794			-
Capitalized software costs, net		307,739			-
Intangible assets, net		16,449			7,312
TOTAL ASSETS	$	613,951		$	210,149

LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accrued expenses and other liabilities	$	95,306		$	-
Deferred revenue		446,569			-
Due to shareholder		2,145,411			518,493
Total current liabilities		2,687,286			518,493
Commitments and contingencies (Notes 9 and 11)
Shareholders' deficit:
Preferred stock		17,160			17,160
Common stock		10,661			10,661
Additional paid-in capital		6,770,275			5,808,816
Deficit accumulated during the development stage		(8,871,431	)		(6,144,981	)
Total shareholders' deficit		(2,073,335	)		(308,344	)
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT	$	613,951		$	210,149

See accompanying notes to financial statements (Unaudited).

S-45

TRUSTED OPINION INC.

(A Development-Stage Enterprise)

STATEMENTS OF OPERATIONS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010, AND

THE PERIOD FROM MARCH 7, 2005 (INCEPTION) TO SEPTEMBER 30, 2011
(Unaudited)

	Nine months ended September 30, 2011			Nine months ended September 30, 2010			Period from March 7, 2005 (inception) to September 30, 2011
Revenues	$	101,864		$	1,913		$	107,667
Costs and expenses:
Cost of revenue (exclusive of depreciation and amortization shown separately below)		173,024			106,663			390,540
Product development costs		660,782			345,643			2,128,523
General and administrative		605,483			185,749			2,122,998
Sales and marketing		622,066			261,580			1,798,336
Depreciation, amortization and impairment charges		11,923			777,974			1,435,838
Total costs and expenses		2,073,278			1,677,609		7,876,235
Loss from operations		(1,971,414	)		(1,675,696	)		(7,768,568	)
Other income (expense):
Interest expense - loan		(95,235	)		(18,493	)		(158,367	)
Interest expense - warrants		(197,504	)		-			(666,791	)
Loss on extinguishment of debt		-			-			(284,618	)
State taxes		(953	)		(800	)		(6,897	)
Other		18			(3,866	)		23,727
Other expense, net		(293,674	)		(23,159	)		(1,092,946	)
Net loss	$	(2,265,088	)	$	(1,698,855	)	$	(8,861,514	)

See accompanying notes to financial statements (Unaudited).

S-46

TRUSTED OPINION INC.

STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY (DEFICIT)

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010

AND THE PERIOD FROM MARCH 7, 2005 (INCEPTION) TO SEPTEMBER 30, 2011
(Unaudited)

	Preferred $.001 Par Value; 24,286,000 Shares Authorized				Common $.001 Par Value; 55,000,000 Shares Authorized						Additional paid-in capital			Deficit accumulated during the development stage			Total
	Shares Issued and Outstanding		Amount		Shares Issued and Outstanding			Amount			Additional paid-in capital			Deficit accumulated during the development stage			Total
Balance - March 7, 2005		-	$	-		-		$	-		$	-		$	-		$	-
Issuance of common stock in March		-		-		10,016,835			10,017			-			(9,917	)		100
Net loss - 2005		-		-		-			-			-			(251,478	)		(251,478	)
Balance - December 31, 2005		-		-		10,016,835			10,017			-			(261,395	)		(251,378	)
Issuance of common stock in December						957,436			957			8,617			-			9,574
Issuance of preferred stock in May		2,613,950		2,614		-			-			912,386			-			915,000
Net loss - 2006		-		-		-			-			-			(254,735	)		(254,735	)
Balance - December 31, 2006		2,613,950		2,614		10,974,271			10,974			921,003			(516,130	)		418,461
Interest expense - warrants		-		-		-			-			469,287			-			469,287
Share-based compensation		-		-		-			-			74,854			-			74,854
Repurchase of common stock in March		-		-		(558,504	)		(559	)		(5,026	)		-			(5,585	)
Stock options exercised in April		-		-		245,496			246			2,210			-			2,456
Issuance of preferred stock in November		2,097,043		2,097		-			-			597,903			-			600,000
Issuance of preferred stock in exchange for
convertible notes payable in November		3,711,867		3,712		-			-			1,058,317			-			1,062,029
Net loss - 2007		-		-		-			-			-			(1,870,827	)		(1,870,827	)
Balance - December 31, 2007		8,422,860	$	8,423		10,661,263		$	10,661		$	3,118,548		$	(2,386,957	)	$	750,675

See accompanying notes to financial statements (Unaudited).

S-47

TRUSTED OPINION INC.

STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY (DEFICIT) (CONTINUED)

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010

AND THE PERIOD FROM MARCH 7, 2005 (INCEPTION) TO SEPTEMBER 30, 2011
(Unaudited)

	Preferred $.001 Par Value; 24,286,000 Shares Authorized				Common $.001 Par Value; 55,000,000 Shares Authorized				Additional paid-in capital		Deficit accumulated during the development stage			Total
	Shares Issued and Outstanding		Amount		Shares Issued and Outstanding		Amount		Additional paid-in capital		Deficit accumulated during the development stage			Total
Balance - December 31, 2007		8,422,860	$	8,423		10,661,263	$	10,661	$	3,118,548	$	(2,386,957	)	$	750,675
Share-based compensation		-		-		-		-		50,275		-			50,275
Issuance of preferred stock in December		5,242,556		5,242		-		-		1,494,758		-			1,500,000
Net loss - 2008		-		-		-		-		-		(1,354,535	)		(1,354,535	)
Balance - December 31, 2008		13,665,416		13,665		10,661,263		10,661		4,663,581		(3,741,492)			946,415
Share-based compensation		-		-		-		-		52,817		-			52,817
Issuance of preferred stock in September		3,495,037		3,495		-		-		996,505		-			1,000,000
Net loss - 2009		-		-		-		-		-		(704,634	)		(704,634	)
Balance - December 31, 2009		17,160,453		17,160		10,661,263		10,661		5,712,903		(4,446,126	)		1,294,598
Share-based compensation		-		-		-		-		95,913		-			95,913
Net loss - January - September 2010		-		-		-		-		-		(1,698,855	)		(1,698,855	)
Balance - September 30, 2010		17,160,453		17,160		10,661,263		10,661		5,808,816		(6,144,981	)		(308,344	)
Share-based compensation		-		-		-		-		145,036		-			145,036
Net loss - October - December 2010		-		-		-		-		-		(461,362	)		(461,362	)
Balance - December 31, 2010		17,160,453		17,160		10,661,263		10,661		5,953,852		(6,606,343	)		(624,670	)
Interest expense - warrants		-		-		-		-		197,504		-			197,504
Share-based compensation		-		-		-		-		618,919		-			618,919
Net loss - 2011		-		-		-		-		-		(2,265,088	)		(2,265,088	)
BALANCE-SEPTEMBER 30, 2011		17,160,453	$	17,160		10,661,263	$	10,661	$	6,770,275	$	(8,871,431	)	$	(2,073,335	)

See accompanying notes to financial statements (Unaudited).

S-48

TRUSTED OPINION INC.

(A Development-Stage Enterprise)

STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010, AND

THE PERIOD FROM MARCH 7, 2005 (INCEPTION) TO SEPTEMBER 30, 2011
(Unaudited)

	Nine months ended September 30, 2011			Nine months ended September 30, 2010			Period from March 7, 2005 (inception) to September 30, 2011
Cash flows from operating activities:
Net loss	$	(2,265,088	)	$	(1,698,855	)	$	(8,861,514	)
Adjustments to reconcile net loss to net cash used in operating activities:
Loss on sale of fixed assets		-			5,391			5,391
Loss on extinguishment of debt		-			-			284,618
Depreciation, amortization and impairment charges		11,923			777,974			1,435,838
Share-based compensation		618,919			95,913			1,037,814
Interest expense attributable to warrants		197,504			-			666,791
Deferred revenue		446,569			-			446,569
Changes in assets and liabilities:
Accounts receivable		(67,533	)		(224	)		(67,533	)
Employee loans		-			3,000			-
Due from affiliate		65,094			-			-
Prepaid expenses and other assets		11,558			39,553			(13,193	)
Accounts payable		(1,430	)		(60,618	)		-
Accrued expenses and other liabilities		159,400			4,725			268,128
Net cash used in operating activities		(823,084	)		(833,141	)		(4,797,091	)

Investing activities:
Proceeds from sale of fixed assets		-			7,000			7,000
Additions to property and equipment		(16,924	)		(963	)		(134,294	)
Additions to capitalized software costs		(316,532	)		(110,122	)		(1,524,433	)
Additions to intangible assets		(9,137	)		-			(127,484	)
Net cash used in investing activities		(342,593	)		(104,085	)		(1,779,211	)

Financing activities:
Proceeds from stock options		-			-			2,456
Proceeds from issuance of common stock		-			-			9,674
Repurchase of common stock		-			-			(5,585	)
Proceeds from issuance of preferred stock		-			-			4,015,000
Proceeds from shareholder loan (including convertible notes payable)		1,250,000			500,000			2,750,000
Net cash provided by financing activities		1,250,000			500,000			6,771,545

Net increase (decrease) in cash and cash equivalents		84,323			(437,226	)		195,243
Cash and cash equivalents - beginning		110,920			599,265			-
CASH AND CASH EQUIVALENTS - ENDING	$	195,243		$	162,039		$	195,243

Supplemental disclosure of cash flow information:
Taxes paid	$	953		$	800		$	6,897

Noncash investing and financing activities:
Issuance of preferred stock in exchange for convertible notes payable	$	-		$	-		$	777,411

See accompanying notes to financial statements (Unaudited).

S-49

TRUSTED OPINION INC.

(A Development-Stage Enterprise)

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 2011 AND 2010
(Unaudited)

NOTE 1.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and Nature of Operations

Trusted Opinion Inc. (the “Company”) was incorporated on March 7, 2005 in the state of Delaware and began operations on May 25, 2005.

The Company is engaged in the development and marketing of software products and services in the social media and advertising industry. From its inception, the Company was engaged in the development of a social recommendations network website, trustedopinion.com (“TROP”), covering the United States, Asia and Europe, having approximately 1.5 million users worldwide. In 2010, the Company made the decision to refocus its efforts and develop a collection of “white-label” products and services (“Loyalize”), offered to media companies, and to discontinue further development of TROP.

The Company’s activities since inception have been organizational activities, including recruiting personnel, establishing office facilities, conducting research and development, performing business and financial planning and raising capital. The Company has had minimal operations and generated minimal revenue to date. Accordingly, in connection with the preparation of the financial statements, the Company is considered to be in the development stage under the authoritative guidance for development stage entities, Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 915, and is subject to the risks associated with the activities of development-stage companies.

Cash and Cash Equivalents

Cash and cash equivalents consist primarily of cash on deposit and money market accounts that are readily convertible into cash and purchased with original maturities of three months or less.

Accounts Receivable

Accounts receivable are stated at the amount the Company expects to collect. The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. Management considers the following factors when determining the collectibility of specific customer accounts: customer credit-worthiness, past transaction history with the customer, current economic industry trends, and changes in customer payment terms. If the financial conditions of the Company’s customers were to deteriorate, adversely affecting their ability to make payments, additional allowances would be required. Based on management’s assessment, the Company provides for estimated uncollectible amounts through a charge to earnings and a credit to a valuation allowance. Balances that remain outstanding after the Company has made reasonable collection efforts are written off through a charge to the valuation allowance and a credit to accounts receivable.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) 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 revenue and expenses during the reporting period. Actual results could differ from those estimates.

S-50

TRUSTED OPINION INC.

(A Development-Stage Enterprise)

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 2011 AND 2010
(Unaudited)

NOTE 1.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Revenue Recognition

The Company derived revenue from TROP by providing a free online service with display advertising. There is no downloadable software, distribution or technology delivered to consumers. Advertising income is recognized in the period it is earned.

The Company derived revenue from Loyalize by providing advertising services to customers in connection with social networks, applications, publishing platforms and social games, in the nature of creating specialized brand engagements and promotions on behalf of advertisers and the sale, rendering and delivery of such engagements and promotions to its network. The Company may host the applications, platforms and social games or may provide downloadable software to the customer. Income relating to the services is recognized in the period it is earned.

No significant revenue has been earned to date from Loyalize.

Prepayment on contracts may be required for specific customers with payment terms. Deferred revenue results from the prepayment of such fees and is recognized as revenue when the revenue is earned based on the terms of the agreement.

Software Development Costs

Costs for software developed for internal use are accounted for un accordance with FASB ASC 350, Intangibles - Goodwill and Other - Internal-Use Software. FASB ASC 350 requires the capitalization of certain costs incurred in connection with developing or obtaining internal-use software. Such capitalized costs are included in "Capitalized software costs" in the balance sheets. The Company amortizes the costs of internal-use software over two years.

Costs that are incurred in the preliminary project stage are expensed as incurred and included in "Product development costs" in the accompanying statements of operations. Once the capitalization criteria of FASB ASC 350 have been met, external direct costs of materials and services consumed in developing or obtaining internal-use computer software, payroll and payroll-related costs for employees who are directly associated with, and who devote time to the project (to the extent their time is spent directly on the project) and interest costs incurred in connection with developing the software, are capitalized.

For the nine months ended September 30, 2011 and 2010, and for the period from March 7, 2005 (inception) through September 30, 2011, software development costs not capitalized, have been charged to "Product development costs" in the accompanying statements of operations.

S-51

TRUSTED OPINION INC.

(A Development-Stage Enterprise)

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 2011 AND 2010
(Unaudited)

NOTE 1.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Property and Equipment

Property and equipment are carried at cost. Expenditures for maintenance and repairs are expensed currently, while renewals and betterments that materially extend the life of an asset are capitalized. The costs of assets sold, retired, or otherwise disposed of, and the related allowance for depreciation, are eliminated from the accounts, and any resulting gain or loss is recognized.

Depreciation is provided using the straight-line and various accelerated methods over the estimated useful lives of the assets, which are as follows:

	Computers	3 years
	Equipment	3 years
	Furniture and fixtures	5 years

Intangible Assets

Long-lived Assets and Impairment of Long-Lived Asset

The fair value of long-lived assets is determined on a Level 3 basis in which significant unobservable inputs are utilized primarily using the “income approach,” which starts with a forecast of all the expected future net cash flows, some of which are more certain than others. Some of the more significant estimates and assumptions inherent in the long-lived asset impairment estimation process include: the amount and timing of projected future cash flows; the discount rate selected to measure the risks inherent in the future cash flows; and the assessment of the asset’s life cycle and the competitive trends impacting the asset.

Income Taxes

The Company files income tax returns in the U.S. federal jurisdiction and in California. With few exceptions, the Company is no longer subject to U.S. federal, state and local income tax examinations by taxing authorities for years before 2007.

The Company uses the asset and liability method of accounting for income taxes pursuant to FASB ASC 740, Income Taxes. Under the asset and liability method of FASB ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets, including tax loss and credit carryforwards, and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period

S-52

TRUSTED OPINION INC.

(A Development-Stage Enterprise)

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 2011 AND 2010
(Unaudited)

NOTE 1.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Income Taxes (continued)

that includes the enactment date. Deferred income tax expense represents the change during the period in the deferred tax assets and deferred tax liabilities. The components of the deferred tax assets and liabilities are individually classified as current and noncurrent based on their characteristics.

Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

Uncertain Tax Positions

Advertising

Advertising costs are expensed as incurred. The Company incurred no advertising expenses for the nine months ended September 30, 2011 and 2010. Advertising expense totaled $22,198 for the period from March 7, 2005 (inception) to September 30, 2011.

Fair Value Measurements

In January 2010, the FASB issued Accounting Standards Update (“ASU”) No. 2010-06, Improving Disclosures about Fair Value Measurements. This update amends FASB ASC 820, Fair Value Measurements and Disclosures, to require new disclosures for significant transfers in and out of Level 1 and Level 2 fair value measurements, disaggregation regarding classes of assets and liabilities, valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements for Level 2 or Level 3. These disclosures are effective for reporting periods beginning after December 15, 2009. Additional new disclosures regarding the purchases, sales, issuances and settlements in the rollforward of activity in Level 3 fair value measurements are effective for fiscal years beginning after December 15, 2010. The Company adopted certain of the relevant disclosure provisions of ASU 2010-06 on January 1, 2010, and certain other provisions on January 1, 2011.

S-53

TRUSTED OPINION INC.

(A Development-Stage Enterprise)

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 2011 AND 2010
(Unaudited)

NOTE 1.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Fair Value Measurements (continued) The three levels of the fair value hierarchy under FASB ASC 820 are described as follows: Level 1 inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Company has the ability to access. Level 2 inputs to the valuation methodology include: quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in inactive markets; inputs other than quoted prices that are observable for the asset or liability; and, inputs that are derived principally from or corroborated by observable market data by correlation or other means. If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability. Level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurement.

	Share-based Compensation Plan The Company has a share-based compensation plan. This plan is administered by the board of directors to motivate certain employees in the performance of their duties by further compensating these individuals through the grant of options to purchase shares of the Company’s common stock issued under the Company’s 2007 Stock Plan (the “Plan”). Under the Plan, the Company may grant options for up to a total of 21,298,507 shares of common stock. The exercise price of each option is equal to the fair value of the Company’s stock on the date of grant. The maximum term of the options is 10 years and the options vest over a maximum of 4 years from the vesting commencement date, pursuant to the Plan and option grant agreement. The Company has adopted the fair value-based method of accounting prescribed in FASB ASC 718, Compensation - Stock Compensation, for its employee stock option plan. The Company applies the Black-Scholes valuation method to compute the estimated fair value of the stock options and recognizes compensation expense, net of estimated forfeitures, on a straight-line basis so that the award is fully expensed at the vesting date.

	Subsequent Events In May 2009, the FASB issued guidance related to subsequent events, which was primarily codified into FASB ASC 855, Subsequent Events. This guidance establishes general standards of accounting for and disclosure of events that occur after the date of the balance sheet but before financial statements are issued. In particular, the guidance sets forth: (1) the period after the date of the balance sheet during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements; (2) the circumstances under which an entity should recognize events or transactions occurring after the date of the balance sheet in its financial statements; and (3) the disclosures that an entity should make about events or transactions that occurred after the date of the balance sheet.

S-54

TRUSTED OPINION INC.

(A Development-Stage Enterprise)

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 2011 AND 2010
(Unaudited)

NOTE 1.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Subsequent Events (continued)

In accordance with FASB ASC 855, the Company has evaluated subsequent events through January 16, 2012, the date on which these financial statements were available to be issued. There were no material subsequent events other than those described in the first paragraph of Note 15 that required recognition or additional disclosure in these financial statements.

NOTE 2.	GOING CONCERN Since inception, the Company has generated insignificant revenue, has incurred losses from operations and has incurred cumulative net losses of approximately $8,860,000. The Company has also been dependent upon the receipt of capital investment or other financing to fund its operations. As further described in Note 15, on December 31, 2011, the Company executed an asset purchase agreement for the sale of substantially all of its intellectual property and assets. The Company currently has no source of operating revenue and the amount of capital required to sustain operations is subject to future events and uncertainties. It may be necessary for the Company to secure additional working capital through loans or sales of capital stock, and there can be no assurance that such funding will be available in the future. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements have been presented on the basis of the continuation of the Company as a going concern and do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classifications of liabilities that might be necessary should the Company be unable to continue as a going concern.

NOTE 3.	CONCENTRATION OF CREDIT RISK The Company places its cash and cash equivalents, which may at times be in excess of Federal Deposit Insurance Corporation insurance limits, with major financial institutions and attempts to limit the amount of credit exposure with any one institution. As of September 30, 2011, one customer accounted for 93% of the Company’s accounts receivable. In 2011, two customers accounted for 100% of the Company’s revenues. There was no significant accounts receivable or revenue concentrations in 2010.

NOTE 4.	FAIR VALUE MEASUREMENTS Assets and liabilities measured at fair value are based on one or more of three valuation techniques identified in the tables below. The valuation techniques are as follows:

(a)	Market approach. Prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities;

(b)	Cost approach. Amount that would be required to replace the service capacity of an asset (replacement cost); and

(c)	Income approach. Techniques to convert future amounts to a single present amount based on market expectations (including present value techniques, option-pricing and excess earnings models).

S-55

TRUSTED OPINION INC.

(A Development-Stage Enterprise)

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 2011 AND 2010
(Unaudited)

NOTE 4.

FAIR VALUE MEASUREMENTS (CONTINUED)

The following table summarizes the valuation of the Company's investments within the fair value hierarchy levels for financial assets as of September 30, 2011:

Description	Level 1		Level 2		Level 3		Total		Valuation Technique

Cash and cash equivalents:
Money market mutual funds	$	175,000	$	-	$	-	$	175,000		(a)

The following table summarizes the valuation of the Company's investments within the fair value hierarchy levels for financial assets as of September 30, 2010:

Description	Level 1		Level 2		Level 3		Total		Valuation Technique

Cash and cash equivalents:
Money market mutual funds	$	100,011	$	-	$	-	$	100,011		(a)

NOTE 5.	PROPERTY AND EQUIPMENT
	Property and equipment consisted of the following at September 30, 2011 and 2010:

	2011			2010
Computer	$	31,820		$	13,112
Machinery and equipment		3,439			3,439
Furniture and fixtures		2,460			2,460
		37,719			19,011
Less: accumulated depreciation		(23,925	)		(19,011	)

Property and equipment, net	$	13,794		$	-

	Depreciation expense for the nine months ended September 30, 2011 and 2010, and for the period from March 7, 2005 (inception) to September 30, 2011 totaled $3,130, $9,285, and $108,109, respectively. During 2010, the Company sold equipment with a net book value of $12,391 for $7,000. The loss on the sale is included in "Other" in the accompanying statements of operations.

NOTE 6.	CAPITALIZED SOFTWARE COSTS

	Capitalized software costs consisted of the following at September 30, 2011 and 2010:

	2011			2010

Software to be sold, leased or marketed	$	316,532		$	-
Less: accumulated amortization		(8,793	)		-

Capitalized software costs, net	$	307,739		$	-

S-56

TRUSTED OPINION INC.

(A Development-Stage Enterprise)

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 2011 AND 2010
(Unaudited)

NOTE 6.	CAPITALIZED SOFTWARE COSTS (CONTINUED)
	In late 2010, the Company began development of the LoyaIize product. During 2011, the Company capitalized $316,532 of software development costs relating to Loyalize. The asset was placed in service on September 1, 2011. Amortization expense relating to Loyalize for the nine months ended September 30, 2011, totaled $8,793

NOTE 7.	INTERNAL USE SOFTWARE
	From 2005 through 2007, the Company incurred website and internally developed software costs totaling $542,939 to develop the TROP product. The initial prototype of the web site (“TROP 1”) was completed and placed in service on February 1, 2007 and was fully amortized through January 31, 2009. In late 2008, the Company decided to make enhancement modifications to TROP 1 and began development of a second generation website (“TROP 2”). During 2009 and 2010, the Company capitalized $554,840 and $109,722, respectively, of website and internally developed software costs relating to TROP 2. The asset was placed in service on March 1, 2010. Amortization expense relating to TROP 2 for the nine months ended September 30, 2010, totaled $138,534. On March 1, 2010, the Company removed the fully amortized website and internally developed software costs of $542,939 relating to TROP 1 from its balance sheets. On August 1, 2010, the Company made the decision to abandon the TROP 2 product and write off the related costs. Accordingly, the Company removed $664,962 of costs and $138,534 of accumulated amortization relating to TROP 2 and recognized an impairment loss of $526,428 which is included in “Depreciation, amortization and impairment charges” in the accompanying statements of operations. Pursuant to accounting guidance contained in FASB ASC 350, the Company has written down these costs to $-0- based on the income approach (discounted cash flow analysis) as discussed in FASB ASC 820, utilizing Level 3 inputs, that is, inputs that are unobservable and significant to the fair value measurement.

NOTE 8.	INTANGIBLE ASSETS
	Intangible assets consisted of the following at September 30, 2011 and 2010:

	2011		2010
Patents	$	2,312	$	2,312
Trademarks		14,137		5,000

Intangibles, net	$	16,449	$	7,312

From 2005 through 2009, the Company capitalized legal fees totaling $93,571 relating to obtaining a patent and $17,468 relating to obtaining trademarks for the TROP software.

On August 1, 2010, the Company made the decision to abandon the TROP product and write off the related costs. In 2010, the Company recognized an impairment loss on TROP of $93,571 for patents and $17,468 for trademarks, which are included in “Depreciation, amortization and impairment charges” in the accompanying statements of operations.

S-57

TRUSTED OPINION INC.

(A Development-Stage Enterprise)

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 2011 AND 2010
(Unaudited)

NOTE 8.	INTANGIBLE ASSETS (CONTINUED)
	During the nine months ended September 30, 2010, the Company capitalized legal fees totaling $2,312 relating to obtaining a patent. During the nine months ended September 30, 2011 and 2010, the Company capitalized legal fees totaling $9,137 and $5,000, respectively, relating to obtaining a trademark for the Loyalize product. The registrations for these intangibles have not yet been approved by the U.S. Patent and Trademark Office and will be amortized when they are placed in service.

NOTE 9.	COMMITMENTS
	On April 15, 2009, the Company entered into a monthly agreement to sublet office space. The agreement calls for monthly rental payments of $1,200. In May 2010, the Company subleased additional space and the monthly rent increased to $1,600 per month. On December 14, 2010, the Company entered into a non-cancelable operating lease for office space through December 31, 2011 for $1,332 a month. As of September 30, 2011, future minimum rental payments under this tease are $3,996. The Company maintains a corporate apartment used by the Chairman of the Company for business travel. The lease expires on June 30, 2012, and as of September 30, 2011, the future minimum rental payments required under the lease are $26,100. Rent expense incurred under these operating leases for the nine months ended September 30, 2011 and 2010, and for the period from March 7, 2005 (inception) to September 30, 2011, amounted to $51,586, $36,700 and $226,747, respectively.

NOTE 10.	EMPLOYEE BENEFIT PLAN
	The Company maintains a non-contributory defined contribution 401(k) plan (the “401k Plan”) with a salary reduction feature covering substantially all full-tune employees who are eligible upon employment start date. Employer contributions to the 401k Plan are discretionary. For the nine months ended September 30, 2011 and 2010, and for the period from March 7, 2005 to September 30, 2011, no employer contributions have been made.

NOTE 11.	RELATED PARTY TRANSACTIONS
	Due to shareholder

In May 2010 and October 2010, the Company received $500,000 and $250,000, respectively, in unsecured interest-bearing notes from a shareholder. In 2011, the Company received an additional $1,250,000 in unsecured interest-bearing advances from the same shareholder. The notes bear interest at 10% per annum. “Due to shareholder” on the accompanying balance sheets, consists of principal and accrued interest on the notes of $145,411 and $18,493 as of September 30, 2011 and September 30, 2010, respectively.

S-58

TRUSTED OPINION INC.

(A Development-Stage Enterprise)

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 2011 AND 2010
(Unaudited)

NOTE 12.	INCOME TAXES
	The components of deferred tax asset as of September 30, 2011, are as follows:

	Current		Noncurrent			Total deferred tax asset, net

Share-based compensation	$	-	$	720,000		$	720,000
Operating loss carryforward		-		3,000,000			3,000,000
Valuation allowance		-		(3,720,000	)		(3,720,000	)
Deferred tax asset, net	$	-	$	-		$	-

The components of deferred tax asset as of September 30, 2010, are as follows:

	Current		Noncurrent			Total deferred tax asset, net

Share-based compensation	$	-	$	292,000		$	292,000
Operating loss carryforward		-		2,108,000			2,108,000
Valuation allowance		-		(2,400,000	)		(2,400,000	)
Deferred tax asset, net	$	-	$	-		$	-

As of September 30, 2011, the Company has net operating loss carryforwards of approximately $7,070,000 for federal income tax purposes and $6,719,000 for California income tax purposes. These carryforwards are available to offset future taxable income in those jurisdictions. The net operating loss carryforwards expire from 2025 through 2029 for federal and 2026 through 2029 for California if not utilized.

For financial statement purposes, the Company has incurred a loss in each period since its inception. Based on the available objective evidence, including the Company's history of losses, management believes it is more likely than not the net deferred tax assets may not be fully realizable. Accordingly, the Company provided for a full valuation allowance against its deferred tax assets at September 30, 2011 and 2010.

For the nine months ended September 30, 2011 and 2010, and for the period from March 7, 2005 (inception) to September 30, 2011, the increase to the valuation allowance amounted to $1,120,000, $450,000 and $3,720,000, respectively.

NOTE 13.

SHAREHOLDERS' EQUITY

Classes of Stock

S-59

TRUSTED OPINION INC.

(A Development-Stage Enterprise)

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 2011 AND 2010
(Unaudited)

NOTE 13.

SHAREHOLDERS' EQUITY (CONTINUED)

Classes of Stock (continued)

Redemption: The Series A and Series A-2 Preferred Stock are not mandatorily redeemable by the Company.

Stock Split

Repurchase of Common Stock

In 2007, the Company repurchased 558,504 nonvested shares from a shareholder at the original purchase price of $0.01 per share. The total purchase price amounted to $5,585.

S-60

TRUSTED OPINION INC.

(A Development-Stage Enterprise)

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 2011 AND 2010
(Unaudited)

NOTE 13.

SHAREHOLDERS' EQUITY (CONTINUED)

Share Warrants

The Company recognized interest costs relating to the warrants during the year ended December 31, 2007, in the amount of $469,287, which is included in "Interest expense - warrants" in the accompanying statements of operations for the period from March 7, 2005 (inception) through September 30, 2011.

On April 1, 2011 the Company issued 3,840,356 warrants for the Company's Series A-2 Preferred Stock at an exercise price of $.2861, to an unrelated party, in accordance with a software and license distribution agreement. 2,743,112 warrants vested upon issuance and the remaining warrants vest upon the occurrence of certain performance criteria, as defined in the agreement. The warrants expire on April 1, 2021. The Company calculated the fair value of the warrants issued using the Black-Scholes option valuation model with the following assumptions; risk-free interest rate — 2.2%; expected volatility of preferred stock — 23.3%; dividend yield - 0%; expected term - 5 years.

The Company recognized interest costs relating to the warrants during the nine months ended September 30, 2011, in the amount of $197,504, which is included in "Interest expense - warrants" in the accompanying statements of operations for the nine months ended September 30, 2011, and the period from March 7, 2005 (inception) through September 30, 2011.

Issuance of Preferred Stock and Extinguishment of Convertible Debt

In 2006 and 2007, the Company issued $250,000 and $500,000, respectively of convertible notes with an interest rate of 6%. On November 7, 2007, the Company cancelled the notes and converted them to Series A-2 Preferred Shares at a discount of 30% on the $250,000 note and 25% on the $500,000 note. At the date of conversion, the balance of the notes was $777,411, including principal of $750,000 and accrued interest of $27,411. In exchange for the notes, the Preferred Shareholder received 3,711,867 Series A-2 Preferred Shares which were valued at $1,062,029. During the year ended December 31, 2007, the Company recognized a loss on extinguishment of debt of $284,618, which is included in the accompanying statements of operations.

S-61

TRUSTED OPINION INC.

(A Development-Stage Enterprise)

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 2011 AND 2010
(Unaudited)

NOTE 14.	SHARE-BASED COMPENSATION PLAN
	The following is a summary of the status of the share-based payment plan for the nine months ended September 30, 2011 and 2010, and for the period from March 7, 2005 (inception) through September 30, 2011:

				Weighted Average
	Number of Shares			Per Share Exercise Price		Grant Date Per Share Fair Value

Outstanding at March 7, 2005		-		$	-	$	-
Granted		2,019,977			0.09		0.14
Exercised		(245,496	)		0.01		0.26

Outstanding at December 31, 2009		1,774,481			0.10		0.13
Granted		3,908,645			0.08		0.30
Forfeited		(140,000	)		0.06		0.23

Outstanding at September 30, 2010		5,543,126			0.09		0.25
Granted		1,298,885			0.06		0.23

Outstanding at December 31, 2010		6,842,011			0.08		0.24
Granted		14,291,035			0.04		0.25
Forfeited		(1,992,556	)		0.05		0.24

Outstanding at September 30, 2011		19,140,490			0.05		0.25

Options exercisable at September 30, 2011		4,126,842			0.07		0.25

Nonvested options as of September 30, 2011		15,013,648			0.05		0.24

The exercise price of stock options granted during the nine months ended September 30, 2011 and 2010, and for the period from March 7, 2005 (inception) to September 30, 2011, was equal to market value on the date of grant. During the nine months ended September 30, 2011 and 2010, and for the period from March 7, 2005 (inception) to September 30, 2011, options to purchase 14,291,035, 3,908,645 and 20,349,652 shares of common stock, respectively, were granted, including, in the nine months ended September 30, 2011, options to acquire 10,972,444 shares of common stock to two members of the Company's board of directors. The options vest over a maximum of 4 years. The options granted during the nine months ended September 30, 2011 and 2010 and for the period from March 7, 2005 (inception) to September 30, 2011, will be fully vested by April 30, 2015, December 31, 2014 and April 30, 2015, respectively.

The estimated fair value of each stock option award was determined on the date of grant using the Black-Scholes option valuation model with the following assumptions:

	Nine Months Ended September 30,
	2010			2011
Risk-free interest rate		1.2% - 2.1	%		1.9	%
Expected volatility of common stock		22.5% - 23.1	%		23.3	%
Dividend yield		0	%		0	%
Expected option term (in years)		5			5

S-62

TRUSTED OPINION INC.

(A Development-Stage Enterprise)

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 2011 AND 2010
(Unaudited)

NOTE 14.

SHARE-BASED COMPENSATION PLAN (CONTINUED)

As share-based compensation expense recognized in the accompanying statements of operations is based on stock option awards ultimately expected to vest, such expense should be reduced for estimated forfeitures. The authoritative guidance for compensation under FASB ASC 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The Company has very few employees and the stock options vest periodically; therefore, the Company did not estimate any forfeitures during the nine months ended September 30, 2011 and 2010, and the period from March 7, 2005 (inception) to September 30, 2011, and the Company adjusts the share-based compensation expense for any forfeitures as they occur.

The Company's determination of fair value is affected by the stock price, as well as a number of assumptions that require judgment. The weighted average fair value of the options granted during the nine months ended September 30, 2011 and 2010, and the period from March 7, 2005 (inception) to September 30, 2011, were $0.25, $0.30 and $0.25 per share, respectively.

During the nine months ended September 30, 2011 and 2010, and for the period from March 7, 2005 (inception) to September 30, 2011, the Company recognized compensation costs relating to vested share-based compensation of $618,919, $95,913 and $1,037,814, respectively. The costs have been charged to operations.

In 2007, an employee exercised options to purchase 245,496 shares at an exercise price of $.01 per share. The total purchase price for the shares was $2,456.

In 2011, four employees left the Company and forfeited 1,992,556 stock options with fair values, at the time of grant, ranging from of $0.23 - $0.25 per share. Accordingly, the Company reduced its share-based compensation for the nine months ended September 30, 2011 by $37,605, the portion of the grant that had vested.

S-63

TRUSTED OPINION INC.

(A Development-Stage Enterprise)

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 2011 AND 2010
(Unaudited)

NOTE 14.	SHARE-BASED COMPENSATION PLAN (CONTINUED)
	The following is a summary of nonvested shares as of September 30, 2011:

	Number of Shares			Weighted Average Grant Date Per Share Fair Value
Balance - December 31, 2010		5,044,344			0.24
Granted during the nine months		14,291,035			0.25
Vested during the nine months		(2,329,175	)		0.24
Forfeited during the nine months		(1,992,556	)		0.24
Balance - September 30, 2011		15,013,648			0.24

As of September 30, 2011, there was $3,735,046 of unrecognized compensation cost related to nonvested share-based compensation, which is expected to be recognized over a period of five years, as follows:

Year ending December 31:	Amount
2011	$	275,129
2012		1,090,606
2013		1,087,503
2014		938,534
2015		343,274
	$	3,735,046

NOTE 15.

OTHER MATTERS

Summary of Significant Accounting Policies

6 Months Ended

12 Months Ended

Dec. 31, 2011

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 and Cash Equivalents and Restricted Cash

Use of Estimates

Fair Value of Financial Instruments

The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents, other receivables,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. Equipment is being depreciated over a useful life of 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 December 31, 2011, there was no impairment of its long-lived assets.

The Company, through its acquisition of a 65% common stock interest in TIPPT, acquired identifiable intangible assets valued at $4,628. As of December 31, 2011, no impairment has been recorded.

Internal Use Software

Marketing

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. In accordance with ASC 740-10, 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 of both restricted stock awards (RSUs) and employee stock options.

Recently Issued Accounting Pronouncements

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.

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

Use of Estimates

Fair Value of Financial Instruments

Equipment

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

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

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.

Organization and Background

6 Months Ended

12 Months Ended

Dec. 31, 2011

Jun. 30, 2011

Notes to Financial Statements

Organization and Background

2. Organization and Background

Formation and Former Business

The Recapitalization

The Company’s New Line of Business

Going Concern

2. Organization and Background

Formation and Former Business

The Recapitalization

The Company intends to complete a first version of the application in the fourth calendar quarter of 2011. If the app is approved by Apple the Company’s intention is to make the app available to the public in the Apple iTunes App Store at the beginning of the first calendar quarter of 2012. If approved, the app will work on Apple iOS devices such as the iPhone, iPad and iPod Touch.

Operations

Revenue

Initially, the Company anticipates revenues to be generated substantially in the United States.

Seasonality

Consolidated Balance Sheets (Unaudited) (USD $)
In Thousands, unless otherwise specified

Dec. 31, 2011

Jun. 30, 2011

Jun. 30, 2010

ASSETS

Cash and Cash equivalents

$ 17,410

$ 3,794

$ 0

Prepaid expenses

258

Other receivables

1,018

TOTAL CURRENT ASSETS

18,686

3,869

Restricted cash

695

Interest in corporate jet

1,347

1,511

Capitalized software costs

3,453

317

Equipment, net

1,457

Intellectual property, net

9,013

Goodwill

3,015

TOTAL ASSETS

37,666

6,471

LIABILITIES AND STOCKHOLDERS' EQUITY

Accounts payable and accrued expenses

1,901

1,105

Current portion of loan payable

Other current liabilities

2,822

Deferred revenue

484

TOTAL CURRENT LIABILITIES

5,258

1,154

Loans payable, less current portion

865

891

Other long-term liabilities

1,176

342

TOTAL LIABILITIES

7,299

2,387

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY:

Preferred stock, $0.001 par value, authorized 1,000,000 shares, no shares issued and outstanding

Common stock, $0.001 par value, authorized 300,000,000 shares, issued and outstanding 149,417,062 shares as of December 31, 2011, 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

153

139

Additional paid-in-capital

113,244

36,416

12,481

Accumulated deficit

(83,030)

(32,471)

(12,563)

TOTAL STOCKHOLDERS' EQUITY

30,367

4,084

(78)

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$ 37,666

$ 6,471

$ 0

Consolidated Statements of Cash Flows (Unaudited) (USD $)
In Thousands, unless otherwise specified

6 Months Ended

12 Months Ended

Dec. 31, 2011

Dec. 31, 2010

Jun. 30, 2011

Jun. 30, 2010

CASH FLOWS FROM OPERATING ACTIVITIES:

Net loss

$ (50,559)

$ (2)

$ (19,908)

$ (9)

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

Restricted Stock - share based compensation

16,972

10,772

Warrants issued for services

2,529

Employee Stock Options - share based compensation

3,412

Common Stock and Warrants issued in connection with Private Placement

19,456

Depreciation and Amortization

573

Increase in fair value of TIPPT Warrants

324

Changes in operating assets and liabilities:

Other Receivables

(897)

(29)

Prepaid Expenses

(212)

(46)

Accounts payable and accrued expenses

795

1,027

Other liabilities

1,170

Net Cash Used in Operating Activities

(8,966)

(5,645)

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchase of Equipment

(1,393)

(83)

Increase in Restricted Cash

(695)

Investment in Interests in Corporate Jet

(235)

WatchPoints Acquisitions

(2,620)

TIPPT acquisition

(2,250)

Loyalize acquisition

(3,180)

Capitalized Software Costs

(1,294)

(317)

Net Cash Used in Investing Activities

(10,737)

(1,330)

CASH FLOWS FROM FINANCING ACTIVITIES:

Issuance of Common Stock and Warrants for Cash

33,413

10,769

Payments on Loan

(24)

Interest income on notes receivable from shareholders

(70)

Net Cash from Financing Activities

33,319

10,769

NET INCREASE IN CASH

13,616

3,794

Cash at Beginning of Period

3,794

Cash at End of Period

17,410

3,794

Non-Cash Financing Activities:

Stock Issued for Watchpoints Acquisition

1,600

Stock issued for Loyalize acquisition

1,719

Cash Paid During the Year for Interest

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

Capital related to Corporate Jet

336

1,276

Warrants issued for TIPPT

2,378

Loyalize guarantee

120

Stock issued for promissory notes

$ 0

$ 3,380

$ 0

Basis of Presentation

6 Months Ended

12 Months Ended

Dec. 31, 2011

Jun. 30, 2011

Notes to Financial Statements

Basis of Presentation

1. Basis of Presentation

Consolidated Balance Sheets (Parenthetical) (USD $)

Dec. 31, 2011

Jun. 30, 2011

Jun. 30, 2010

Stockholders' Equity

Preferred Stock shares par value

$ 0.001

Preferred Stock shares Authorized

1,000,000

Preferred Stock shares Issued

Preferred Stock shares Outstanding

Common Stock shares par value

$ 0.001

Common Stock shares Authorized

300,000,000

1,000,000

Common Stock shares Issued

149,417,062

134,941,797

419,200

Common Stock shares Outstanding

149,417,062

134,941,797

419,200

Document and Entity Information

6 Months Ended

Dec. 31, 2011

Document And Entity Information

Entity Registrant Name

FUNCTION (X) INC.

Entity Central Index Key

0000725876

Document Type

S-1

Document Period End Date

Dec. 31, 2011

Amendment Flag

true

Current Fiscal Year End Date

--06-30

Is Entity a Well-known Seasoned Issuer?

Is Entity a Voluntary Filer?

Is Entity's Reporting Status Current?

Yes

Entity Filer Category

Smaller Reporting Company

Amendment Description

This amendment is being filed to comply with regulations.

Income Taxes

6 Months Ended

12 Months Ended

Dec. 31, 2011

Jun. 30, 2011

Notes to Financial Statements

Income Taxes

11. Income Taxes

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

10. Income Taxes

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

Consolidated Statements of Operations (Unaudited) (USD $)
In Thousands, except Share data, unless otherwise specified

3 Months Ended

6 Months Ended

12 Months Ended

Dec. 31, 2011

Dec. 31, 2010

Dec. 31, 2011

Dec. 31, 2010

Jun. 30, 2011

Jun. 30, 2010

Consolidated Statements Of Operations

Revenues

$ 0

General and administrative

(16,724)

(2)

(50,654)

(2)

(19,970)

OPERATING LOSS

(16,724)

(2)

(50,654)

(2)

(19,970)

(9)

OTHER INCOME:

Interest income, net

Total other income

NET LOSS BEFORE INCOME TAXES

(16,669)

(2)

(50,559)

(2)

(19,908)

(9)

Income taxes

NET LOSS

$ (16,669)

$ (2)

$ (50,559)

$ (2)

$ (19,908)

$ (9)

Net loss per common share - basic and diluted

$ (0.11)

$ 0

$ (0.35)

$ 0

$ (0.20)

$ (0.02)

Weighted average common shares outstanding - basic and diluted

149,141,797

419,280

149,141,797

419,280

100,708,047

419,200

Basis of Consolidation

6 Months Ended

12 Months Ended

Dec. 31, 2011

Jun. 30, 2011

Notes to Financial Statements

Basis of Consolidation

4. Basis of Consolidation

The consolidated statements include the accounts of Function(x) Inc., our wholly-owned subsidiaries and our majority-owned subsidiary. All intercompany transactions and balances have been eliminated.

Related Party Transactions

6 Months Ended

12 Months Ended

Dec. 31, 2011

Jun. 30, 2011

Notes to Financial Statements

Related Party Transactions

12. Related Party Transactions

Recapitalization Notes

Shared Services Agreements

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 three and six months ended December 31, 2011, the Company billed Circle $78 and $157, respectively. The Company had no billings to Circle for the three and six months ended December 31, 2010. Such billings primarily relate to support consisting of legal and administrative services. These services are to be reviewed and, if appropriate, approved by Circle’s Audit Committee and the Company’s Audit Committee. We believe the balance due from Circle on December 31, 2011 was $26.

Private Placement

11. Related Party Transactions

Asset Contribution Agreement

Debt Owed to J. Howard Inc.

Recapitalization Notes and Expenses

Shared Services Agreement

Consultant

NetJets

Stockholders' Equity Deficit

6 Months Ended

12 Months Ended

Dec. 31, 2011

Jun. 30, 2011

Notes to Financial Statements

Stockholders' Equity Deficit

9. Stockholders’ Equity (Deficit)

The Company’s Board of Directors is authorized to issue 1,000,000 shares of preferred stock, par value $0.001 per share. The Company may issue shares of preferred stock in one or more series as may be determined by the Company’s 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).

8. Stockholders’ Equity (Deficit)

Subsequent Events

6 Months Ended

12 Months Ended

Dec. 31, 2011

Jun. 30, 2011

Notes to Financial Statements

Subsequent Events

13. Subsequent Events

The Company launched its app in the Apple iTunes App Store on January 25, 2012. The approved version of the app works on Apple iOS devices such as the iPhone, iPad and iPod Touch. We have been successfully testing the app with employees of the Company as well as friends and family of our employees for several months, and although we have launched the app to the public, there is no guarantee how successful the launch will be or how effectively the technology will perform. We will continuously test the application with a goal of improving overall performance and usability.

13. Subsequent Events

Private Placement

Stock Option Grants

Consolidated Statements of 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)

Employee stock options - share based compensation

Stock issued for Loyalize acquisition

Capital related to corporate jet

Interest income on notes receivable from shareholders

Restricted Stock Issued for Services

Ending Balance at Jun. 30, 2010

12,481

(12,563)

(78)

Net Loss

(19,908)

Employee stock options - share based compensation

Capital related to corporate jet

1,276

Issuance of Common Stock

135

13,973

14,108

Notes Receivable from Shareholders

(3,419)

Warrants Issued for Services

2,529

Exercise of Warrants

Restricted Stock Issued for Services

10,772

Ending Balance at Jun. 30, 2011

139

36,416

(32,471)

4,084

Net Loss

(50,559)

Private placement of common stock and warrants for cash

33,399

33,413

Compensation charge for fair value of common stock and warrants issued to Sillerman in connection with private placement

19,456

Employee stock options - share based compensation

3,412

Stock issued for Watchpoints acquisition

1,600

Stock issued for Loyalize acquisition

1,719

Capital related to corporate jet

336

Notes Receivable from Shareholders

Interest income on notes receivable from shareholders

(70)

Restricted Stock Issued for Services

16,972

Ending Balance at Dec. 31, 2011

$ 0

$ 153

$ 113,244

$ (83,030)

$ 30,367

Interest in Corporate Jet

6 Months Ended

12 Months Ended

Dec. 31, 2011

Jun. 30, 2011

Notes to Financial Statements

Interest in Corporate Jet

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

Fair Value Measurement

6 Months Ended

12 Months Ended

Dec. 31, 2011

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.

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

Large Accelerated Filer	o	Accelerated Filer	o
Non-Accelerated Filer	o	Smaller reporting company	þ
(Do not check if a smaller reporting company)

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	(4)

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	149,417,062 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.

2009(1)
First quarter	$	No trades	$	No trades
Second quarter	$	1.00	$	0.60
Third quarter	$	0.60	$	0.50
Fourth quarter	$	0.50	$	0.20
2010 (1)
First quarter	$	0.35	$	0.20
Second quarter	$	0.35	$	0.05
Third quarter	$	0.10	$	0.08
Fourth quarter	$	0.30	$	0.09
2011
First quarter(1)(2)	$	28.00	$	0.01
Second quarter	$	12.50	$	8.30
Third quarter	$	10.70	$	4.75
Fourth quarter	$	9.00	$	4.50

Prospectus Summary			1
Risk Factors			6
Cautionary Note Regarding Forward-Looking Statements			12
Use of Proceeds			12
Dividend Policy			13
Market for Our Common Stock			13
Dilution			13
Management’s Discussion and Analysis of Financial Condition and Results of Operations			14
Our Business			24
Management			31
Executive Compensation			35
Corporate Governance			41
Certain Relationships and Related Transactions			44
Change of Fiscal Year			47
Selling Stockholders			47
Security Ownership of Certain Beneficial Owners and Management			49
Description of Capital Stock			52
Shares Eligible for Future Sale			53
Plan of Distribution			54
Legal Matters			55
Experts			55
Where You Can Find More Information			55
Index to Financial Statements			F-1

	Year Ended June 30, 2011			Year Ended June 30, 2010			Variance
Revenues	$	---		$	---		$	---
General and Administrative Expenses		19,970,000			9,000			19,961,000

Operating Loss		(19,970,000	)		(9,000	)		(19,961,000	)

Other Income
Interest income, net		62,000			---			62,000
Total Other Income		62,000			---			62,000

Net Loss Before Income Taxes		(19,908,000	)		(9,000	)		(19,899,000	)

Income Taxes		---			---			---

Net Loss	$	(19,908,000	)	$	(9,000	)	$	(19,899,000	)

Revenue	$	45,000,000
Less: Rewards Costs		34,000,000
Less: Operating Costs		46,000,000
Less: TIPPT Funding		10,000,000
Net Cash Required	$	45,000,000

Revenue	$	4,600,000
Less: Celebrity Marketing Costs		7,300,000
Less: Operating Costs		7,300,000
Net Cash Required	$	10,000,000

Name	Age*	Position
Robert F.X. Sillerman	63	Director*
Janet Scardino	52	Director*
Mitchell J. Nelson	64	Director*
Benjamin Chen	46	Director
Peter Horan	57	Director
John D. Miller	67	Director
Joseph F. Rascoff	66	Director
Harriet Seitler	56	Director

Robert F.X. Sillerman	63	Executive Chairman**
Janet Scardino	52	Chief Executive Officer**
Mitchell J. Nelson	64	Executive Vice President, General Counsel, Secretary**
Chris Stephenson	46	Chief Marketing Officer
William B. Manning	55	Principal Financial Officer

Name and Principal Position	Fiscal Year	Salary ($)		Bonus ($)		Stock Awards ($)(1)		Option Awards ($)		All Other Compensation ($)		Total ($)
Robert F.X. Sillerman	2011		379,000				85,000,000				650		85,380,000	(2)
Executive Chairman	2010		--		--		--		--		--		--
Janet Scardino	2011		189,000				38,250,000				2,000		38,441,000	(2)
Chief Executive Officer	2010		--		--		--		--		--		--
Christopher Stephenson	2011		67,000				3,588,000				300		3,655,000
Chief Marketing Officer	--		--		--		--		--		--		--

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		85,000,000		--		--
		--		--		--		--		--		--		--		--
Janet Scardino (1) (2)		--		--		--		--		1,500,000		25,500,000		--		--
		--		--		--		--		--		--		--		--
Christopher Stephenson (3)		--		--		--		--		--		--		--		--

(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 which will vest over a three-year period starting at the commencement of the first employment year, 250,000 shares which will vest over a three-year period starting at the commencement of the second employment year, and 250,000 shares which will vest over a three-year period starting at the commencement of the third employment year. All shares were deemed granted on the date of execution of the employment agreement and will be fully vested in five years so long as Ms. Scardino is employed by the Company for such five-year period.
(3)		Includes 350,000 shares which will vest 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. All shares were deemed granted on the date of execution of the employment agreement and will be fully vested in five years so long as Mr. Stephenson is employed by the Company for such five-year period.

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

Benjamin Chen (1)		30,000		---		---		---		30,000
Peter Horan		32,000		---		---		---		32,000
John D. Miller		35,000		---		---		---		35,000
Joseph Rascoff		36,000		---		---		---		36,000
Harriet Seitler		30,000		---		---		---		30,000

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		*
Lisbeth R. Barron(3)		658,000		658,000		0		*
David Bailin		282,000		282,000		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		*

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		11,877,500	$	3.50	18,175,000

Equity compensation plans not approved by security holders		-		-	-

●	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.

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		75.4	%

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)		116,667		*
Harriet Seitler (11)		62,500		*
All directors and named executive officers as a group (9 people)		116,847,167		78.3	%

	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

Consolidated Balance Sheets as of December 31, 2011 (Unaudited) and June 30, 2011		S-1

Consolidated Statements of Operations for the Six Months Ended December 31, 2011 and 2010 (Unaudited)		S-2

Consolidated Statements of Operations for the Three Months Ended December 31, 2011 and 2010 (Unaudited)		S-3

Consolidated Statements of Stockholders’ Equity for the Six Months Ended December 31, 2011 and Fiscal Year Ended June 30, 2011 (Unaudited)		S-4

Consolidated Statements of Cash Flows for the Six Months Ended December 31, 2011 and 2010 (Unaudited)		S-5

Notes to Consolidated Financial Statements (Unaudited)		S-6

Pro Forma Financial Statements for Trusted Opinion Inc. Acquistion

Pro Forma Consolidated Statement of Operations for the year ended June 30, 2011 (Unaudited)		S-18

Pro Forma Consolidated Statement of Operations for the Six Months Ended December 31, 2011 (Unaudited)		S-19

Notes to Unaudited Pro Forma Consolidated Financial Statements		S-20

Trusted Opinion Inc.

Independent Auditors' Report		S-23

Trusted Opinion Inc. Balance Sheets as of December 31, 2010 and 2009		S-24

Trusted Opinion Inc. Statements of Operations for the years ended December 31, 2010 and 2009 and the period from March 7, 2005 (Inception) to December 31, 2010		S-25

Trusted Opinion Inc. Statements of Changes Stockholders’ Equity /(Deficit) for the years ended December 31, 2010 and 2009 and the period from March 7, 2005 (Inception) to December 31, 2010		S-26

Trusted Opinion Inc. Statements of Cash Flows for the years ended December 31, 2010 and 2009 and the period from March 7, 2005 (Inception) to December 31, 2010		S-28

Trusted Opinion Inc. Notes to Financial Statements		S-29

Trusted Opinion Inc. Balance Sheets as of September 30, 2011 and 2010 (Unaudited)		S-45

Trusted Opinion Inc. Statements of Operations for the nine months ended September 30, 2011 and 2010, and the period from March 7, 2005 (Inception) to September 30, 2011 (Unaudited)		S-46

Trusted Opinion Inc. Statement of Changes in Shareholder's Equity for the nine months ended September 30, 2011 and 2010, and the period from March 7, 2005 (Inception) to September 30, 2011 (Unaudited)		S-47

Trusted Opinion Inc. Statements of Cash Flows for the nine months ended September 30, 2011 and 2010, and the period from March 7, 2005 (Inception) to September 30, 2011 (Unaudited)		S-49

Trusted Opinion Inc. Notes to Financial Statements (Unaudited)		S-50

	Function(x) Inc. 12 Months Ended June 30, 2011			Trusted Opinion Inc. 12 Months Ended September 30, 2011			Pro Forma Adjustment			Notes	Pro Forma Statement of Operations
Revenues	$	-		$	102		$	-			$	102
General and administrative expenses		(19,970	)		(2,517	)		(489	)	4(a)(i)(ii)		(22,976	)

Operating loss		(19,970	)		(2,415	)		(489	)			(22,874	)

Other income:
Interest income (expense), net		62			(310	)		310		4(a)(iii)		62
Other		-			(1	)		1		4(a)(iii)		-
Total other income (expense)		62			(311	)		311				62

Net loss before income taxes		(19,908	)		(2,726	)		(178	)			(22,812	)

Income taxes		-			-			-				-

Net loss	$	(19,908	)	$	(2,726	)	$	(178	)		$	(22,812	)

Net loss per common share - basic and diluted	$	(0.20	)								$	(0.22	)

Weighted average common shares outstanding - basic and diluted		100,708,047										100,983,085

	Function(x) Inc. 6 Months Ended December 31, 2011			Trusted Opinion Inc. 6 Months Ended December 31, 2011			Pro Forma Adjustment			Notes	Pro Forma Statement of Operations
Revenues	$	-		$	5		$	-			$	5
General and administrative expenses		(50,654	)		(1,380	)		(245	)	4(b)(i))(ii)		(52,274	)

Operating loss	$	(50,654	)	$	(1,375	)	$	(245	)		$	(52,274	)

Other income:
Interest income (expense), net		95			(105	)		105		4(b)(iii)		95
Other		-			-			-				-
Total other income (expense)		95			(105	)		105				95

Net loss before income taxes		(50,559	)		(1,480	)		(140	)			(52,179	)

Income taxes		-			-			-				-

Net loss	$	(50,559	)	$	(1,480	)	$	(140	)		$	(52,179	)

Net loss per common share -basic and diluted	$	(0.35	)								$	(0.36	)

Weighted average common shares outstanding - basic and diluted		144,782,014										145,057,052

	Amount to be
	Paid(1)
SEC Registration Fee	$	18,546
Legal Fees and Expenses		75,000
Accounting Fees and Expenses		15,000
Total	$	108,546

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. Incorporated by reference to the registrant’s registration statement on Form S-1/A filed on October 7, 2011.
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. Incorporated by reference to the registrant’s registration statement on Form S-1/A filed on November 23, 2011.
10.8		Promissory Note, dated February 8, 2011, between Robert F.X. Sillerman and Function(x) Inc. Incorporated by reference to the registrant’s registration statement on Form S-1/A filed on October 7, 2011.
10.9		Promissory Note, dated February 8, 2011, among Mitchell J. Nelson, Leslie Nelson and Function(x) Inc. Incorporated by reference to the registrant’s registration statement on Form S-1/A filed on October 7, 2011.
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.
10.12		Form of Subscription Agreement, dated February 8, 2011. Incorporated by reference to the registrant’s registration statement on Form S-1/A filed on November 23, 2011.
10.13		MMS Registration Rights Agreement. Incorporated by reference to the registrant’s registration statement on Form S-1/A filed on December 30, 2011.
10.14		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.
10.15		Line of Credit Agreement dated December 22, 2011 between Function(x) Inc. and TIPPT Media Inc. Incorporated by reference to the registrant’s current report on Form 8-K filed on December 29, 2011.
10.16		Stockholders Agreement dated December 22, 2011 among Function(x) Inc., TIPPT Media Inc. and the other stockholders named therein. Incorporated by reference to the registrant’s current report on Form 8-K filed on December 29, 2011.
10.17		Loyalize Asset Purchase Agreement dated December 31, 2011 among Function(x) Inc., FN(x) I Holding Corporation and Trusted Opinion Inc. Incorporated by reference to the registrant’s current report on Form 8-K filed on January 4, 2012.
10.18		Amended and Restated Promotional Services Agreement, dated as of December 21, 2011, by and among TIPPT Media Inc., The 100 Mile Group, LLC and Jesse Itzler.*
10.19		Form of Line of Credit Grid Promissory Note.*
14.1		Code of Business Conduct and Ethics.
21.1		List of the registrant’s Subsidiaries.*
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.*
23.3		Consent of Citrin Cooperman & Company, LLP. *
24		Power of Attorney (set forth on the signature page of the registrant’s registration statement on Form S-1 filed on May 25, 2011).

	FUNCTION(X) INC.

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

Signature	Title	Date

*	Executive Chairman, Director	April 4, 2012
Robert F.X. Sillerman


/s/ Janet Scardino	Chief Executive Officer, Director	April 4, 2012
Janet Scardino


/s/ William S. Manning	Principal Financial Officer, Principal Accounting Officer	April 4, 2012
William S. Manning


/s/ Mitchell J. Nelson	Executive Vice President, General Counsel, Secretary, Director	April 4, 2012
Mitchell J. Nelson


*	Director	April 4, 2012
Benjamin Chen


*	Director	April 4, 2012
Peter Horan


*	Director	April 4, 2012
John D. Miller


*	Director	April 4, 2012
Joseph F. Rascoff


*	Director	April 4, 2012
Harriet Seitler


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

100 Mile:			TIPPT:

THE 100 MILE GROUP, LLC			TIPPT MEDIA INC.

By:			By:
Name			Name
Title			Title

	Function(x) Inc.

Date	By:	/s/
		Name: Janet Scardino
		Title: Chief Executive Officer

Loan Number	Date of draw	Commitment Amount	draw	Maturity Date	Interest Rate	Interest Due upon Maturity Date	Amount Paid	Date Payment
					6%
					6%
					6%
					6%
					6%
					6%
					6%
					6%
					6%
					6%
					6%

Name of Subsidiary	State of Organization
Loyalize Inc. (formerly Fn(x) I Holding Corporation)	Delaware
Project Oda Inc.	Delaware
Viggle Inc.	Delaware

		/s/ Citrin Cooperman & Company, LLP
		CITRIN, COOPERMAN & COMPANY, LLP