0001354488-12-002600.txt : 20120515 0001354488-12-002600.hdr.sgml : 20120515 20120515171509 ACCESSION NUMBER: 0001354488-12-002600 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 16 CONFORMED PERIOD OF REPORT: 20120331 FILED AS OF DATE: 20120515 DATE AS OF CHANGE: 20120515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FUNCTION (X) INC. CENTRAL INDEX KEY: 0000725876 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROGRAMMING, DATA PROCESSING, ETC. [7370] IRS NUMBER: 330637631 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-13803 FILM NUMBER: 12845981 BUSINESS ADDRESS: STREET 1: 150 FIFTH AVENUE STREET 2: SUITE 900 CITY: NEW YORK STATE: NY ZIP: 10001 BUSINESS PHONE: 212-231-0092 MAIL ADDRESS: STREET 1: 150 FIFTH AVENUE STREET 2: SUITE 900 CITY: NEW YORK STATE: NY ZIP: 10001 FORMER COMPANY: FORMER CONFORMED NAME: GATEWAY INDUSTRIES INC /DE/ DATE OF NAME CHANGE: 19980629 FORMER COMPANY: FORMER CONFORMED NAME: GATEWAY COMMUNICATIONS INC DATE OF NAME CHANGE: 19920703 10-Q 1 fncx_10q.htm FORM 10-K fncx_10q.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Form 10-Q
 
   
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
For the quarterly period ended March 31, 2012
 
OR
   
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
For the transition period from  ____________ to ____________
 
Commission File No. 00-13803
 
Function(x) Inc.
(Exact name of Registrant as specified in its charter)
 
Delaware
  
33-0637631
(State or other jurisdiction of incorporation or organization)
  
(I.R.S. Employer Identification Number)
 
902 Broadway, 11th Floor, New York, NY  10010
(Address of Principal Executive Offices and Zip Code)
 
Registrant’s Telephone Number, Including Area Code: (212) 231-0092
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  o  No  þ
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  þ  No  o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer o Accelerated filer   o
Non-accelerated filer o Smaller reporting company   þ
(Do not check if a smaller reporting company)
      
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  o  No  þ
 
As of May 15, 2012, there were 150,507,971 shares of the registrant’s common stock outstanding.
 
 
 
 
 
TABLE OF CONTENTS
 
PART I. FINANCIAL INFORMATION
         
Item 1.
Consolidated Financial Statements
      
 
Consolidated Balance Sheets as of March 31, 2012 (Unaudited) and June 30, 2011
     3  
 
Consolidated Statements of Operations for the Nine Months Ended March 31, 2012 and 2011 (Unaudited)
     4  
 
Consolidated Statements of Operations for the Three Months Ended March 31, 2012 and 2011 (Unaudited)
     5  
 
Consolidated Statements of Changes in Stockholders’ Equity (Deficit) for the Nine Months Ended March 31, 2012 (Unaudited)
     6  
 
Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 2012 and 2011 (Unaudited)
     7  
 
Notes to Consolidated Financial Statements (Unaudited)
     8  
           
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
     19  
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
     25  
Item 4.
Controls and Procedures
     26  
   
PART II. OTHER INFORMATION
           
Item 1.
Legal Proceedings
     27  
Item 1.A.
Risk Factors
        
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
     27  
Item 3.
Defaults Upon Senior Securities
     28  
Item 4.
Mine Safety Disclosures
     28  
Item 5.
Other Information
     28  
Item 6.
Exhibits
     28  

 
2
 
 
Function(x) Inc.
CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands, Except Share Data)
 
    
March 31,
    
June 30,
  
   
2012
   
2011
  
Assets:
   (Unaudited)        
Current assets:
            
Cash and cash equivalents
  
$
4,297
    
$
3,794
  
Accounts receivable
    
603
      
--
  
Prepaid expenses
    
1,013
      
46
  
Other receivables
    
959
      
29
  
Total current assets
    
6,872
      
3,869
  
Restricted cash
    
695
      
695
  
Interest in corporate jet, net
    
1,269
      
1,511
  
Capitalized software costs
    
3,801
      
317
  
Property & equipment, net
    
2,584
      
79
  
Intellectual property, net
    
4,034
      
--
  
Goodwill
    
3,015
      
--
  
Other assets
    
40
      
--
  
Total assets
  
$
22,310
    
$
6,471
  
                 
Liabilities and stockholders’ equity:
                
Current liabilities:
                
Accounts payable and accrued expenses
  
$
4,028
    
$
1,105
  
Reward points payable
    
1,983
      
--
  
Other current liabilities
    
244
      
--
  
Deferred revenue
    
681
      
--
  
Current portion of loan payable
    
38
      
49
  
Total current liabilities
    
6,974
      
1,154
  
Loan payable, less current portion
    
865
      
891
  
Other long-term liabilities
    
1,272
      
342
  
Total liabilities
  
$
9,111
    
$
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 March 31, 2012 and authorized 300,000,000 shares, issued and outstanding 134,941,797 shares as of June 30, 2011
    
153
      
139
  
Additional paid-in capital
    
122,633
      
36,416
  
Accumulated deficit
    
(109,372
)
    
(32,471
)
Function(x) Inc. stockholders’ equity
    
13,414
      
4,084
  
Noncontrolling interest
    
(215
)
    
--
  
Total Equity
    
13,199
      
4,084
  
Total liabilities and stockholders’ equity
  
$
22,310
    
$
6,471
  
 
See Notes to Consolidated Financial Statements (Unaudited)
 
 
3
 
 
Function(x) Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, Amounts in Thousands, Except Share and Per Share Data)
 
   
Nine Months Ended
    
Nine Months Ended
  
   
March 31, 2012
    
March 31, 2011
  
Revenues
  
$
556
    
$
--
  
Cost of watchpoints and engagement points
    
(3,197
)
    
--
  
Selling, general and administrative
    
(74,605
)
    
(8,458
)
Operating loss
  
 
(77,246
)
    
(8,458
)
                 
Other income:
                
Interest income, net
    
130
      
24
  
Total other income
    
130
      
24
  
                 
Net loss
    
(77,116)
      
(8,434
)
   
 
            
Net loss attributable to non-controlling interest
    
(215
)
    
--
  
                 
Net loss attributable to Function(x) Inc.
  
$
(76,901
)
  
$
(8,434
)
                 
Net loss per common share attributable to Function(x) common stockholders - basic and diluted
  
$
(0.53
)
    
(0.34
)
                 
Weighted average common shares outstanding - basic and diluted
    
146,369,447
      
24,948,912
  
 
See Notes to Consolidated Financial Statements (Unaudited)
 
 
4
 
 
Function(x) Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, Amounts in Thousands, Except Share and Per Share Data)
 
   
Three Months Ended
    
Three Months Ended
  
   
March 31, 2012
    
March 31, 2011
  
Revenues
  
$
556
    
$
--
  
Cost of watchpoints and engagement points
    
(3,197
)
    
--
  
Selling, general and administrative
  
 
(24,324
)
    
(8,431
)
Operating loss
  
 
(26,965
)
    
(8,431
)
                 
Other income:
                
Interest income, net
    
35
      
24
  
Total other income
    
35
      
24
  
                 
Net loss
    
(26,930
)
    
(8,407
)
                 
Net loss attributable to non-controlling interest
    
(215
)
    
--
  
                 
Net loss attributable to Function(x) Inc.
  
$
(26,715
)
  
$
(8,407
)
   
 
            
Net loss per common share attributable to Function(x) common stockholders - basic and diluted
  
$
(0.18
)
  
$
(0.11
)
                 
Weighted average common shares outstanding - basic and diluted
    
149,417,062
      
75,098,547
  
 
See Notes to Consolidated Financial Statements (Unaudited)
 
 
5
 
 
Function(x) Inc.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(Unaudited, Amounts in Thousands, Except Share and Per Share Data)
 
    Function(x) Inc. Stockholders              
   
 
Common
Stock
    
Additional
Paid-In
Capital
    
Accumulated
Deficit
    
Stockholders’
Equity
    
Non-Controlling
Interest
    
 
Total
Equity
  
Balance June 30, 2011
   $ 139     $ 36,416     $ (32,471 )   $ 4,084     $ --     $ 4,084  
Net loss
                     (76,901 )     (76,901 )     (215 )     (77,116 )
Private placement of common stock and warrants for cash
     14       33,399       --       33,413       --       33,413  
Compensation charge for fair value of common stock and warrants issued in
                                     --          
connection with private placement
     --       19,456       --       19,456       --       19,456  
Interest income on notes receivable from shareholders
     --       (105 )     --       (105 )     --       (105 )
Employee stock options - share based compensation
     --       4,619       --       4,619       --       4,619  
Restricted stock - share based compensation
     --       25,190       --       25,190       --       25,190  
Stock issued for WatchPoints acquisition
     --       1,600       --       1,600       --       1,600  
Stock issued for Loyalize acquisition
     --       1,719       --       1,719       --       1,719  
Capital related to corporate jet
     --       336       --       336       --       336  
Notes receivable from shareholders
     --       3       --       3       --       3  
Balance March 31, 2012
   $ 153     $ 122,633     $ (109,372 )   $ 13,414     $ (215 )   $ 13,199  
 
See Notes to Consolidated Financial Statements (Unaudited)
 
 
6
 
 
Function(x) Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, Amounts in Thousands, Except Share Data)
 
   
Nine Months Ended March 31, 2012
    
Nine Months Ended March 31, 2011
  
Operating activities:
            
Net loss
  
$
(77,116
)
    
(8,434
)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
                
Restricted stock - share based compensation
    
25,190
      
2,678
  
Warrants issued for services
    
--
      
2,529
  
Employee stock options - share based compensation
    
4,619
      
--
  
Common stock and warrants issued in connection with Private Placement-share based compensation
    
19,456
      
--
  
Depreciation and Amortization
    
1,328
      
--
  
Impairment of TIPPT intangible asset
    
2,250
      
--
  
Increase in fair value of Loyalize guarantee
    
125
      
--
  
             
--
  
Changes in operating assets and liabilities:
                
Accounts receivable
    
(603
)
    
--
  
Other receivables
    
(930
)
    
(156
)
Prepaid expenses
    
(967
)
    
(71
)
Other assets
    
(40
)
    
--
  
Deferred revenue
    
197
      
--
  
Accounts payable and accrued expenses
    
2,923
      
847
  
Reward points liability
    
1,983
      
--
  
Other liabilities
    
1,266
      
--
  
Net cash used in operating activities
    
(20,319
)
    
(2,607
)
                 
Investing activities:
                
Purchase of property and equipment
    
(2,629
)
    
(15
)
WatchPoints acquisition
    
(2,620
)
    
--
  
TIPPT acquisition
    
(2,250
)
    
--
  
Loyalize acquisition
    
(3,094
)
    
--
  
Capitalized software costs
    
(1,859
)
    
--
  
Net cash used in investing activities
    
(12,452
)
    
(15)
  
                 
Financing activities:
                
Issuance of common stock and warrants for cash
    
33,413
      
10,718
  
Payments on loan
    
(37
)
    
--
  
Payments on shareholder notes
    
3
      
--
  
Interest income on notes receivable from shareholders
    
(105
)
    
--
  
Net cash provided by financing activities
    
33,274
      
10,718
  
             
--
  
Net increase in cash 
    
503
      
8,096
  
                 
Cash at Beginning of Period
    
3,794
      
--
  
                 
Cash at End of Period
  
$
4,297
      
8,096
  
                 
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
  
$
28
          
Capital related to corporate jet
  
$
336
          
Loyalize guarantee
  
$
120
          
 
See Notes to Consolidated Financial Statements (Unaudited)
 
 
7
 
.
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 three and nine months ended March 31, 2012 and 2011 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 nine months ended March 31, 2012 and 2011 has 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 nine months ended March 31, 2012 and 2011 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 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”). 

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 Company conducts its business under the name Function(x) Inc., with the ticker symbol FNCX.  The Company has four wholly-owned subsidiaries, Project Oda, Inc., Viggle Inc., Loyalize, Inc. (formerly known as Fn(x)I Holding Corporation), and Sports Hero, Inc., 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
 
General
 
Our business is built on a 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.  We currently do not have any agreements in place with advertisers or vendors whereby the advertisers or vendors issue rewards to our users when the users redeem their points.  We have purchased and will continue to purchase gift cards from vendors that we will issue to users upon the redemption of their points.  The Company has only generated nominal revenue to date, and there is no guarantee that we will be able to generate sufficient revenue in the future to continue to purchase gift cards from vendors.
 
 
8
 
 
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, 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
 
Cash and 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.
 
Revenue

Advertising Revenue:  We generate advertising revenue primarily from display and video advertising, which is typically sold on a cost-per-thousand impressions, or CPM basis, and completed engagements on a cost per engagement (CPE) basis.  Advertising campaigns typically range from one to 12 months, and advertisers generally pay us based on a minimum of delivered impressions or the satisfaction of other criteria, such as click-throughs.

The Company recognizes revenue when: (1) persuasive evidence exists of an arrangement with the customer reflecting the terms and conditions under which products or services will be provided; (2) delivery has occurred or services have been provided; (3) the fee is fixed or determinable; and (4) collection is reasonably assured. For all revenue transactions, the Company considers a signed agreement, a binding insertion order or other similar documentation to be persuasive evidence of an arrangement.

Deferred Revenue:  Our deferred revenue consists principally of both prepaid but unrecognized revenue and advertising fees received or billed in advance of the delivery or completion of the delivery of services.  Deferred revenue is recognized as revenue when the services are provided and all other revenue recognition criteria have been met.

Watchpoints and Engagement Points

The Company issues points to its users as an incentive to utilize the Viggle app and its features.  Users can redeem these points for rewards.  The Company records the cost of these points based on the weighted average cost of redemptions during the period.   Points earned but not redeemed are classified as a liability.
 
Users earn points for various activities and the Company reports points earned for checking into shows and points earned for engaging in advertiser sponsored content as a separate line in its statement of operations.  All other points earned by users are reflected as a marketing expense in selling, general and administrative expense.
 
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, receivables, accounts payable, and other current liabilities 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.
 
 
9
 

Property and Equipment

Property and equipment (consisting of computers, software, furniture and fixtures, and leasehold improvements) 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, software, furniture and fixtures are being depreciated over a useful life of three years, leasehold improvements are depreciated over a useful life of 10 years consistent with the life of the underlying lease.

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 March 31, 2012, the carrying value of the intellectual property for TIPPT’s contract with the 100 Mile Group is impaired and accordingly the company has taken a charge in the current period for approximately $2,250 related to the asset impairment.  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 nine months ended March 31, 2012 was $351 and $701, respectively.

The Company, through its acquisition of a 65% common stock interest in TIPPT, acquired identifiable intangible assets valued at $4,628.  As of March 31, 2012, $2,378 of warrants payable contingent consideration for the acquisition has been derecognized and is no longer included as part of the fair value of the consideration paid to acquire the asset. As a result of this derecognition and the $2,250 impairment noted above, the carrying value of the TIPPT intangible assets as of March 31, 2012 is $0.  (See Note #14, Subsequent Events).

The Company, through its acquisition of the assets of Loyalize on December 31, 2011 acquired certain intellectual property (patent application, trade names and domain names) and recorded goodwill.  As of March 31, 2012, the fair value of the intangibles is $526 and the goodwill is $3,015.

Internal Use Software

The Company recorded $1,842 of capitalized software as part of the Loyalize acquisition as of March 31, 2012.  The Company records amortization of the software on a straight-line basis over the estimated useful life of the software.  As revenue producing activities commenced in the third quarter of 2012, $116 of amortization expense has been recorded for the three months and nine months ended March 31, 2012.

The Company records and capitalizes computer software costs and, appropriately, certain costs have been capitalized in the amounts of $2,176 and $317 as of March 31, 2012 and June 30, 2011, respectively, in accordance with ASC 350-40.  The Company records amortization of the software on a straight-line basis over the estimated useful life of the software. As revenue producing activities commenced in the third quarter of 2012, $100 of amortization expense has been recorded for the three months and nine months ended March 31, 2012.
 
 
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Marketing

Marketing costs are expensed as incurred.  Marketing expense for the Company for the three and nine months ended March 31, 2012 was $2,402 and $4,126, respectively, and for the three and nine months ended March 31, 2011 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 unlikely that the deferred tax assets 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.

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 consolidated financial statements.
 
 
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4.  Basis of Consolidation

The consolidated financial 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.  As of March 31, 2012 the Company has reflected $215 of a non-controlling interest for the 35% owners of TIPPT Media, Inc. to reflect their share of the TIPPT Media, Inc. loss of $613.  There was no non-controlling interest as of June 30, 2011.
 
5.  Acquisitions

WatchPoints Acquisition

On September 29, 2011 in furtherance of its business plan, the Company, through its wholly-owned subsidiary, Project Oda, Inc., purchased certain assets of Mobile Messaging Solutions, Inc.’s Watchpoints business. The consideration for such transaction consisted of $2,500 in cash and 200,000 shares of the Company’s common stock with a fair value of $8.00 per share on the date of the transaction. The Watchpoints business is involved in developing, selling, maintaining and improving an interactive broadcast television application utilizing audio recognition technology. The assets purchased, and the related value allocated to each, include intellectual property ($4,209) and certain computer-related equipment ($11). The intellectual property included patent filings for audio verification technology and the provision of value-added programming/services based on such verification and trademarks for the “Watchpoints” name. The value allocated to the intellectual property is being amortized over the expected useful life of the Company’s software product. The Company also paid Kai Buehler, the CEO of Watchpoints, a $300 finder’s fee, which was recorded to selling, general and administrative expenses in the nine months ended March 31, 2012, and appointed him as a full-time Senior Vice President of the Company.

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 shares of common stock exercisable under the warrant were valued at $2,378 using the Black Scholes valuation model.  The value of these warrants as of March 31, 2012 is $0 (See Note #14, Subsequent Events).
 
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 (See Note #14, Subsequent Events). .

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. As of March 1, 2012, the Company has written down to zero the carrying value of all the the TIPPT assets and has taken a charge which is included in selling, general, and administrative expense (see Note #14, Subsequent Events).

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 nine months ended March 31, 2012 as if the Trusted Opinion 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 March 31
    
Nine Months Ended
March 31
  
     2012       2011      2012       2011  
Revenue
   $ 556       97     $ 561     $ 98  
Operating (Loss)
     (26,930 )     (9,903 )     (78,858 )     (1,926 )
Loss Per Share (basic and diluted
     (0.18 )     (0.13 )     (0.54 )     (0.17 )

6.  Property and Equipment

Property and Equipment consists of the following:

   
March 31, 2012
    
June 30, 2011
  
Leasehold Improvements
   $ 1,506     $ ---  
Furniture and Fixtures
     436       9  
Computer Equipment
     713       60  
Software
     101       14  
      2,756       83  
Accumulated Depreciation and amortization
     (172 )     (4 )
Property and Equipment, net
   $ 2,584     $ 79  

7.  Intellectual Property

       
March 31, 2012
    
June 30, 2011
  
 
Description
  
Amortization
Period
  
 
Amount
    
Accumulated
Amortization
    
Carrying
Value
    
 
Amount
    
Accumulated
Amortization
    
Carrying
Value
  
                                                     
Intellectual Property
  
36 months
   $ 4,735     $ (701 )   $ 4,034     $ --     $ --     $ --  
                                                     
Total
         4,735       (701 )     4,034       --       --       --  

Amortization of intellectual property charges to selling, general and administrative expenses for the 9 months ended March 31, 2012 amounted to $701.  Future annual amortization expense expected is as follows:

Years Ending June 30,
      
2012
   $ 395  
2013
     1,578  
2014
     1,578  
2015
     789  
2016
     ---  
 
 
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8. 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 March 31, 2012 and June 30, 2011 were $37 and $0, respectively.

9. 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.  As of March 31, 2012, $640 had been drawn by TIPPT Media, Inc. under the TIPPT Loan.  (See Note #14, “Subsequent Events”)

In connection with the purchase from Trusted Opinion Inc. of the Loyalize assets, the Company is also 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 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.

We are subject to litigation and other claims that arise in the ordinary course of business. While the ultimate result of our outstanding legal matters cannot presently be determined, the Company does not expect that the ultimate disposition will have a material adverse effect on our results of operations or financial condition. However, legal matters are inherently unpredictable and subject to significant uncertainties, some of which are beyond our control. As such, there can be no assurance that the final outcome will not have a material adverse effect upon our financial condition and results of operations.

10. Stockholders’ Equity (Deficit)
 
As of March 31, 2012 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. 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).
 
11. 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 March 31, 2012 the Compensation Committee of the Company’s Board of Directors authorized the grants of restricted stock and stock options described below.
 
 
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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
  
Fifteen (15) Executives
  
Various
     8,670,000     $ 142,918     $ 16.48  

The total compensation was $8,218 and $25,190 for the three and nine months ended March 31, 2012.  The total compensation was $2,678 for the three and nine months ended March 31, 2011.  No shares actually vested.  As of March 31, 2012, there was $106,962 in total unrecognized share-based compensation costs.

Stock Options

The following table summarizes the Company’s stock option activity for the nine months ended March 31, 2012:

   
Number of Options
  
Outstanding at June 30, 2011
     0  
Granted
     5,334,167  
Exercised
     0  
Forfeited and cancelled
     (372,500 )
Outstanding at March 31, 2012
     4,961,667  

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 March 31, 2012.  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 nine months ended March 31, 2012 (none were granted in 2011) was estimated based on the following weighted average assumptions:

   
Three Months Ended March 31, 2012
    
Nine Months Ended
March 31, 2012
  
Expected volatility
     69 %     60 %
Risk-free interest rate
     1.14 %     1.22 %
Expected dividend yield
     0       0  
Expected life (in years)
     6.25       6.25  
Estimated fair value per option granted
   $ 3.81     $ 4.12  
 
 
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The total compensation expense of $1,209 and $4,619 was included in the accompanying Statement of Operations in selling, general and administrative expenses for the three and nine months ended March 31, 2012, respectively.  There were no such expenses for the three and nine months ended March 31, 2011.  No shares actually vested during the periods and the grants provide for vesting annually in arrears over the next four years.  As of March 31, 2012, there was approximately $15,757 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 nine months ended March 31, 2012 of approximately $344 and $2,210, respectively, 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 nine months ended March 31, 2012 of approximately $753 and $2,222, 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 third quarter of approximately $72 as a result of the foregoing grants.

On February 16, 2012, the Compensation Committee, pursuant to such program, granted to 41 employees an aggregate of 244,792 non-qualified stock options with an exercise price of $6.05 per share and a fair market value of $3.81 per option.  The options vest over four years.  The Company has taken a compensation charge in the third quarter of approximately $36 as a result of the foregoing grants.

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 selling, general and administrative expenses on the Consolidated Statement of Operations for the nine months ended March 31, 2012.
 
 
15
 
 
12.  Income Taxes
 
For the three and nine months ended March 31, 2012 and 2011, 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 $4,923. The Company has established a full valuation allowance against its deferred tax assets related to its Net Operating Loss carryforward of $4,923 as of March 31, 2012.  As a result of the change in control pursuant to the Recapitalization, the utilization of the $4,923 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.   
 
13.  Related Party Transactions

Recapitalization Notes

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 for the three and nine months ended March 31, 2012 is $35 and $105, respectively.

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 nine months ended March 31, 2012, the Company billed Circle $85 and $243, respectively. For the three and nine months ended March 31, 2011, the Company billed Circle $28 and $28, respectively.  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. The balance due from Circle on March 31, 2012 was $57, of which $31was paid.

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 nine months ended March 31, 2012, the Company billed Mr. Sillerman $47 and $88, respectively.  For the three and nine months ended March 31, 2011, the Company billed Mr. Sillerman  $5 and $5, respectively.   The balance due from Mr. Sillerman on March 31, 2012 was $34, which has been paid.
 
 
16
 

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 accounted for as expensed selling, marketing, general and administrative expenses on the Consolidated Statement of Operations for the nine months ended March 31, 2012.

14.  Subsequent Events

PIPE Transaction

On May 10, 2012, the Company completed the placement of 3,418,182 units (the “Private Placement Units”) to accredited and institutional investors at an aggregate purchase price of $9,400.  Each Private Placement Unit consists 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 $2.75 per Private Placement Unit.  If the Company sells shares of its common stock for the purpose of raising capital at a price below $4.00 per share before the expiration of the exercise period of the warrant, the exercise price of all warrants will be adjusted to the lowest price at which the shares were sold, the result of this re-pricing feature will result in liability accounting which will be marked to market.  The proceeds of the offering, less expenses, are to be used for general corporate purposes, including marketing and product development. The Company is obligated to file a registration statement for the common shares and the shares underlying the warrant which are the subject of the PIPE within 30 days of the effectiveness of the currently pending Form S-1 and to use commercially reasonable efforts thereafter to have the registration statement declared effective within 120 days.  An executive of the Company participated in the private placement and as a result the Company will record a stock based compensation charge of approximately $1,600 in the 4th quarter.  
 
Line of Credit
 
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 were to be used for general corporate obligations and working capital.  The terms of the line of credit are simple interest accruing at 6% until maturity, which will be on the earlier of (i) 12 months from the date of 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.  On April 4, 2012, MJX, LLC, an affiliate of Robert F.X. Sillerman, the Company’s Executive Chairman, committed the first $10 million of a line of credit pursuant to a line of credit grid promissory note.  In consideration for entering into the line of credit, Mr. Sillerman was entitled to certain options.  However, on May 10, 2012, the line of credit agreement with MJX LLC was terminated.  The Company has no obligations under the line of credit agreement.  No options to purchase shares of the Company’s common stock were issued in connection with the line of credit.
 
TIPPT Media, Inc.

On May 14, 2012, the Company sold to TIPPT LLC a 50% ownership interest in TIPPT for $500,000, payable by a Purchase Money Note with interest accruing at 4% per annum and maturing on December 31, 2016.  The Company retains a 15% ownership interest in TIPPT.  As part of the transaction, the Company’s obligation to provide advances to TIPPT under the $20,000.000 line of credit was terminated.  Instead TIPPT issued an Amended and Restated Promissory Note to the Company pursuant to which TIPPT agrees to pay the Company $1,200,655.99, which represents $700,655.99 that was outstanding under the line of credit on April 30, 2012 and an additional $500,000 that the Company has agreed to loan to TIPPT.  In addition, as part of the transaction, the Company terminated the stockholders agreement and entered into an Amended and Restated Stockholders Agreement (the “Stockholders Agreement”) with TIPPT LLC to provide the Company with certain stockholder protections regarding the Company’s remaining interest in TIPPT.  The Company’s representatives on the TIPPT Media Inc. board of directors, Mr. Sillerman, Ms. Scardino, and Mr. Nelson, resigned from the TIPPT Media Inc. board of directors.  The Company is entitled to a board observer on the TIPPT Media Inc. board.  The warrant to purchase one million shares of the Company’s common stock to TIPPT LLC was never issued.

As part of the Company’s review of the fair value of its intangible assets for the three-month period ending March 31, 2012, the Company has 1) derecognized the $2,378,412 of contingent consideration attributable to the Company’s warrant that was to be issued to TIPPT LLC because the warrant was never issued; 2) performed a review of the fair value of the remaining $2,250,000 carrying value of such agreement.  The Company is taking an impairment charge for the full carrying value of such agreement.  Accordingly the carrying value as of March 31, 2012 is zero.

The foregoing description of the transaction is not complete and is qualified by reference to, and should be read in conjunction with, the full text of the Purchase Money Note, the Amended and Restated Promissory Note and the Stockholders Agreement, a copy of each of which is filed as Exhibit 10.22, 10.23, and 10.24, respectively, hereto.
 
 
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FORWARD LOOKING STATEMENTS
 
   In addition to historical information, this Form 10-Q (this “Quarterly Report”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are those that predict or describe future events or trends and that do not relate solely to historical matters. You can generally identify forward-looking statements as statements containing the words “believe,” “expect,” “will,” “anticipate,” “intend,” “estimate,” “project,” “assume” or other similar expressions, although not all forward-looking statements contain these identifying words. All statements in this Quarterly Report regarding our future strategy, future operations, projected financial position, estimated future revenue, projected costs, future prospects, and results that might be obtained by pursuing management’s current plans and objectives are forward-looking statements. You should not place undue reliance on our forward-looking statements because the matters they describe are subject to known and unknown risks, uncertainties and other unpredictable factors, many of which are beyond our control. Our forward-looking statements are based on the information currently available to us and speak only as of the date on which this Quarterly Report was filed with the Securities and Exchange Commission (“SEC”). We expressly disclaim any obligation to issue any updates or revisions to our forward-looking statements, even if subsequent events cause our expectations to change regarding the matters discussed in those statements. Over time, our actual results, performance or achievements will likely differ from the anticipated results, performance or achievements that are expressed or implied by our forward-looking statements, and such difference might be significant and materially adverse to our stockholders.
 
 
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ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
The following management’s discussion and analysis of financial condition and results of operations of the Company should be read in conjunction with the historical audited financial statements and footnotes of the Company included in its Annual Report on Form 10-K for the fiscal year ended June 30, 2011. Our future results of operations may change materially from the historical results of operations reflected in our historical financial statements.

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

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

The Company’s New Line of Business

General:  Our business is built on a 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.  We currently do not have any agreements in place with advertisers or vendors whereby the advertisers or vendors issue rewards to our users when the users redeem their points.  We have purchased and will continue to purchase gift cards from vendors that we will issue to users upon the redemption of their points.  The Company has only generated nominal revenue to date, and there is no guarantee that we will be able to generate sufficient revenue in the future to continue to purchase gift cards from vendors.

Our Loyalty Program:  Our 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 proprietary 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. We are 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. Our product is limited to participants who are 13 years of age or older.
 
 
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Since our launch on January 25, 2012, and through March 31, 2012, we have accumulated 354,501 registered active users (or RAUs).  Our members have checked-in to 12,603,511 TV programs, spent an average of 90 minutes of active time within Viggle per session, completed an average of 29 engagements per day and have redeemed points for 203,269 total rewards.

Registered active users are computed by determining those users that are both registered on Viggle and have earned points within the preceding 90 days.  It is not possible to earn points on the Viggle app without registering.  In order to avoid double-counting and limit the instances of fraud, the app is limited to five accounts per device (so as to allow for use by family members sharing a device), users are limited to a maximum of 6,000 points per day and users are not able to share or combine points with different users or devices.

Our Technology:  We have completed a first version of the application, which has been approved by Apple.  We launched the app to the public 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 and update the application with a goal of improving overall performance and usability.
 
The iOS release will be followed by a version of the application for use on Android smartphones and tablets which we anticipate to be within the second calendar quarter of 2012. In order to complete the Android version of the application, we must complete the conversion and testing of our existing software used for the Apple application on Android smartphones and tablets.  We 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.
 
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.  Our plan is to expand our capacity to support simultaneous check-ins around major television events such as the Super Bowl. In addition to our own dedicated co-location facilities on the east and west coasts, we are using third-party cloud computing services from Amazon Web Services to help us scale our technical capacity as efficiently as possible.
 
The technology supporting our unique feature of digital fingerprinting and our matching technology is subject to a currently unissued but pending patent.
 
Revenue:  The application became available to the public on January 25, 2012.  We have begun to generate nominal revenues. Advertising will be sold primarily direct to brand marketers and television networks by our dedicated sales team.  The Company recognizes revenue when: (1) persuasive evidence exists of an arrangement with the customer reflecting the terms and conditions under which products or services will be provided; (2) delivery has occurred or services have been provided; (3) the fee is fixed or determinable; and (4) collection is reasonably assured. For all revenue transactions, the Company considers a signed agreement, a binding insertion order or other similar documentation to be persuasive evidence of an arrangement.  Our focus is on brand marketers that are most relevant to our target demographic of consumers between the ages of 18-49, and are active in television, digital and retail marketing. Our sales team is also briefing large advertising and media agencies on our capabilities so that they might recommend integration of our application into their client proposals.  We have and plan to generate revenue from standard mobile media advertising sales and affiliate programs: (i) when our users click and view advertisements in our application, (ii) when our users complete an engagement (defined as a poll or quiz or game or slide show) appearing in our application that is created by an advertising agency or the Company’s brand partners or by our team ; and or (iii) through affiliate or bounty commissions to third parties if our users purchase items or subscribe to services after clicking from our application to other applications and/or websites.  With the exception of one-time sponsorships with advertisers (which are charged a separate and specific fee), all advertising is serviced via a third-party advertising server for billing and verification purposes.  Revenues, if any, will be generated by measuring delivered impressions on a cost per thousand (CPM) basis and completed engagements on a cost per engagement (CPE) basis.  Therefore, our sales team contracts with brand advertisers to deliver a specific number of impressions and/or engagements for a specific price per thousand impressions (CPM) and/or per completed engagement.  The third-party ad server then serves the ads and/or engagements within the application during the course of using Viggle.  As impressions and engagements are delivered and completed, we will bill brand partners or advertising agencies on a monthly basis for the media delivered at our contracted rates.
 
Initially, we anticipate revenues to be generated substantially in the United States.
 
 
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Target Consumer:  While most people watch television, we are 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 our user base, we 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 our app, we collect the user’s email, zip code and television provider. The email enables us to verify the user and reduces the chance of fraud. The zip code allows us 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 us to increase the rate of success for television show matching. We encourage the user to provide additional information such as their birthday and physical mailing address.  The user’s birthday information helps us 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 us better target relevant advertising to the user. We manage this information in adherence with standard privacy policies and regulations.
 
Competition:  The market for digital and social media applications is intensely competitive and subject to rapid change.  New competitors may be able to launch new businesses at relatively low cost.  Many consumers maintain simultaneous relationships with multiple digital brands and products and can easily shift consumption from one provider to another. Additionally, the “Social TV” category is nascent and has yet to attract the attention of the mainstream consumer and marketers.  Many of our competitors are larger, more established and well-funded and have a history of successful operations.  Although the Company launched its first version of the application on January 25, 2012, there can be no guarantee of how successful the launch will be or how effectively the technology will perform.
 
While there are a variety of companies currently in the market that offer either manual check-in or audio verification, we believe our application , if it performs as expected, will differ  significantly because (a) we offer users real, as opposed to virtual, rewards such as movie tickets, music and gift cards, (b) other companies do not currently position themselves as a loyalty program for television, and (c) we offer a comprehensive range of features and functionality, such as automatic check-ins using audio verification, in-app digital advertising engagements (such as games or videos, real-time polls and quizzes) and full social media integration. Such integration makes it easy for users to share what they are doing within the application with their social network and to follow show-specific commentary on Twitter and Facebook. We also offer the user a listing of current or upcoming shows for which they can set reminders, learn more information and indicate their support of the show by “liking” it.
 
Other companies in the “Social TV” market focus on the simple ability of a user to communicate their television viewing activity to others in the user’s social media circles.  Instead of real rewards, these other companies offer their users virtual points, leader board status, digital badges or stickers. We believe that our target market will be motivated by the ability to earn real rewards on a frequent basis and to interact in real time via show-specific polls, quizzes, videos and games.
 
Our principal competitors can be grouped into the following categories:
 
●
Companies that do not offer audio sampling or matching technology. With these products, users have to manually enter information into the app about what they are watching or doing. Users are primarily incentivized with status and/or virtual goods, such as digital badges or stickers.  Companies in this category include: Get Glue, Miso, Kiip, ScreenTribe, Tuner Fish, Yap, Zee Box, Nielsen’s RewardTV.com and CrowdTwist.  Except for ScreenTribe and Nielsen's RewardTV.com, none of these companies provide real rewards.
 
●
Companies that deliver many of the same social sharing features as those listed above and also utilize audio sampling and matching so users can identify and share what they are doing automatically.  Companies in this category include: Shazam, IntoNow and Umami. None of these companies provide a continuous real rewards program.  Their offers are made on a limited one-off basis.
 
●
Companies that offer non-branded or white label features and functionality as components of a third party brand’s products. Companies in this category include: Ex-Machina, BunchBall, Zeitera, Audible Magic and GraceNote. None of these companies offer a cohesive product with the breadth and focus of our application, nor do they directly offer real rewards.
 
Since we have only recently launched our application, we have limited experience in its actual performance and there is no assurance it will perform as we expect or that users will prefer our application over the applications of our competitors.
 
 
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Consolidated Operating Results Three Months Ended March 31, 2012 Compared to Three Months Ended March 31, 2011
 
Operating revenue for the three months ended March 31, 2012 and 2011 was $556 and $0, respectively. Cost of watchpoints and engagement points for the three months ended March 31, 2012 and 2011 was $3,197 and $0, respectively. Selling, general and administrative  expenses were $24,324 for the three months ended March 31, 2012 as against $8,431 for the three months ended March 31, 2011.

Revenue
 
Operating revenue for the three months ended March 31, 2012 increased by $556 primarily due to sale of media time during the period.  The Company commenced commercial operations on January 25, 2012, thus there was no revenue recorded for the three months ended March 31, 2011.

Cost of Watchpoints and Engagement Points

Cost of watchpoints and engagement points for the three months ended March 31, 2012 increased by $3,197 primarily due to the cost of Viggle reward points earned by users of the application for checking into shows and engaging with advertising content.  There were no such costs for the three months ended March 31, 2011.
 
Selling, General and Administrative expenses

Selling, general and administrative expenses increased in the three months ended March 31, 2012 by $15,893 (including $9,425 of stock based compensation charges), primarily due to personnel costs of $6,198 (including $2,602 of stock based compensation charges), Board of Directors fees of $452 (including $344 of stock based compensation), $2,678 technical and operating costs to run the product, $2,403 of marketing expenses, $545 of professional fees, office rents of $258, depreciation and amortization expense of $1,125, travel and entertainment costs of $658, and charges related to TIPPT of $2,750.   Selling, general and administrative expenses for the three months ended March 31, 2011 were $8,431.
 
Interest Income, Net
 
We had net interest income of $35 in the three months ended March 31, 2012 versus $24 in the three months ended March 31, 2011.
 
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.
 
 
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Consolidated Operating Results Nine Months Ended March 31, 2012 Compared to Nine Months Ended March 31, 2011
 
Operating revenue for the nine months ended March 31, 2012 was $556 versus $0 for the nine months ended March 31, 2011. Cost of watchpoints and engagement points for the nine months ended March 31, 2012 was $3,197 and $0 for the nine months ended March 31, 2011. Selling, general and administrative expenses were $74,605 for the nine months ended March 31, 2012 as against $8,458 for the nine months ended March 31, 2011.
 
Revenue
 
Operating revenue in the nine months ended March 31, 2012 increased by $556 from the sale of advertising on the Viggle app. There was no operating revenue for the nine months ended December 31, 2011.
 
Cost of Watchpoints and Engagement Points

Cost of watchpoints and engagement points for the nine months ended March 31, 2012 increased by $3,197 primarily due to the cost of Viggle reward points earned by users of the application for checking into shows and engaging with advertising content.  There were no such costs for the nine months ended March 31, 2011.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased in the nine months ended March 31, 2012 by $66,147 (including $43,397 of stock based compensation charges), primarily due to personnel costs of $49,923 (including $41,187 of stock based compensation charges), Board of Directors fees of $2,535 (including $2,210 of stock based compensation), $2,678 of technical and operating costs to run the product, $4,126 of marketing expenses, $659 of professional fees, office rents of $643, depreciation and amortization expense of $1,329, travel and entertainment costs of $1,464, and charges related to TIPPT of $2,750.  Selling, general and administrative expenses for the nine months ended March 31, 2011 were $8,458.
 
Interest Income, Net
 
We had net interest income of $130 in the nine months ended March 31, 2012 versus $24 in the nine months ended March 31, 2011.
 
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.
 
 
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Liquidity and Capital Resources
 
At March 31, 2012 and 2011, we had cash balances of $4,297 and $3,794, respectively.

Pursuant to the Recapitalization, Sillerman, together with other investors approved by Sillerman, invested in the Company by acquiring 120,000,000 newly issued shares of common stock of the Company in a private placement transaction, in which we raised $3,600 ($220 in cash and $3,380 in five-year promissory notes with interest accruing at 4.15% per annum).  In addition, 250,000 shares were issued to J. Howard, Inc. and its designees at a fair market value of $0.03 per share.  Immediately after the recapitalization, as a result of the private placements to Adage Capital Management LP (“Adage”) and KPLB LLC (“KPLB”), both selling stockholders (in addition to J. Howard, Inc. and its designees) in the Form S-1 filed with the Securities and Exchange Commission on May 25, 2011 and the Form S-1/A filed with the Securities and Exchange Commission on September 30, 2011, we have raised $10,500.

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 proceeds of the offering, less expenses, are to be used for general corporate purposes, including marketing and product development.

The Company’s capital requirements to fund its business plan are variable based on a few key factors: the number of members, the amount of points earned per member, the amount of points redeemed for rewards, and our cost to purchase, acquire, and/or trade for rewards combine to determine our rewards cost for the next 12 months.  Rewards costs are expected to be the largest cost to our business for the foreseeable future, and therefore, controlling these costs will have the greatest impact on our liquidity and capital resources.  We anticipate the ability to lower rewards cost through greater purchasing power garnered through higher volume purchases of gift cards and merchandise for our Rewards Catalog, but there is no guarantee we will lower our rewards costs in the next 12 months.  As we increase members of Viggle, we expect to generate revenue from the sale of digital media within our application and expect these sales to be a source of liquidity within the next 12 months.  However, there is no guarantee that revenues will exceed rewards cost in the next 12 months or ever.  We have the ability to control rewards cost through the restriction of new member acquisition, the limitation of point earning opportunities within the application, and the re-pricing of points in terms of how many are needed to redeem for purchased rewards within the application.  In respect to our operating costs, employee salaries, the amount of marketing expenditures, leases of office space, and research & development costs constitute the majority of our monthly operating costs.  With the exception for leased office space, our operating costs are largely discretionary over the next 12 months and will be reflective of management’s view of the current opportunities for Viggle within the marketplace.  Even though we utilize significant computing resources to run our mobile platform, we do not invest in computer hardware but instead we lease our hardware, bandwidth, and co-location facilities and accordingly can limit the cost of these servers to be in line with user growth.  The Company plans to carefully manage its growth and related costs to ensure it has sufficient capital resources to meet the goals of business plan for the next twelve months.
 
On May 10, 2012, the Company completed the placement of 3,418,182 units (the “Private Placement Units”) to accredited and institutional investors at an aggregate purchase price of $9,400.  Each Private Placement Unit consists 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 $2.75 per Private Placement Unit.  If the Company sells shares of its common stock for the purpose of raising capital at a price below $4.00 per share before the expiration of the exercise period of the warrant, the exercise price of all warrants will be adjusted to the lowest price at which the shares were sold, the result of this re-pricing feature will result in liability accounting which will be marked to market.  The proceeds of the offering, less expenses, are to be used for general corporate purposes, including marketing and product development. The Company is obligated to file a registration statement for the common shares and the shares underlying the warrant which are the subject of the PIPE within 30 days of the effectiveness of the currently pending Form S-1 and to use commercially reasonable efforts thereafter to have the registration statement declared effective within 120 days.  An executive of the Company participated in the private placement and as a result the Company will record a stock based compensation charge of approximately $1,600 in the 4th quarter.
 
Cash Flow for the Nine Months Ended March 31, 2012 and 2011

Operating Activities

Cash used in operating activities of $20,319 for the nine months ended March 31, 2012 consisted of $8,893 primarily related to salaries and related employee benefits costs, $2,859 of rewards costs (primarily gift cards), $2,678 of technical and operating costs to run the product, $3,055 of marketing-related costs, $452 of outside legal fees, $643 of rent expense and $1,464 of travel and entertainment expenses.

Investing Activities

$12,452 was used in investing activities for the nine months ended March 31, 2012, which consisted of $2,629 for the purchase of property and equipment, $1,859 related to capitalized software costs and $7,964 related to the acquisitions of WatchPoints, TIPPT, and Loyalize.
 
 
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Financing Activities
 
Cash provided by financing activities of $33,274 for the nine months ended March 31, 2012 reflects the cash from the placement of common stock and warrants on August 25, 2011 in the amount of $33,413.

Dividends
 
We have no intention of paying any cash dividends on our common stock for the foreseeable future. The terms of any future debt agreements we may enter into are likely to prohibit or restrict the payment of cash dividends on our common stock.
 
Commitments and Contingencies

In connection with the purchase from Trusted Opinion Inc. of the Loyalize assets, the Company is obligated to also fund as a purchase price adjustment for 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 the Company’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.

We are subject to litigation and other claims that arise in the ordinary course of business. While the ultimate result of our outstanding legal matter cannot presently be determined, the Company does not expect that the ultimate disposition will have a material adverse effect on our results of operations or financial condition. However, legal matters are inherently unpredictable and subject to significant uncertainties, some of which are beyond our control. As such, there can be no assurance that the final outcome will not have a material adverse effect upon our financial condition and results of operations.

Application of Critical Accounting Policies
 
During the three months ended March 31, 2012, there have been no significant changes related to the Company’s critical accounting policies and estimates as disclosed in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” set forth in the Company’s Annual Report on Form 10-K for the year fiscal year ended June 30, 2011.
 
Off Balance Sheet Arrangements
 
We do not have any off balance sheet arrangements.
 
PIPE Transaction

As disclosed in Note 14, Subsequent Events, on May 10, 2012, the Company completed the placement of 3,418,182 units (the “Private Placement Units”) to accredited and institutional investors at an aggregate purchase price of $9,400,000.  Each Private Placement Unit consists 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 $2.75 per Private Placement Unit.

The form of the Subscription and the Warrant pursuant to which the accredited and institutional investors subscribed for the Units are attached as Exhibits 10.1 and 10.2 and incorporated herein by reference.

TIPPT Media, Inc.

As disclosed in Note 14, Subsequent Events, on May 14, 2012, the Company sold to TIPPT LLC a 50% ownership interest in TIPPT for $500,000, payable by a Purchase Money Note with interest accruing at 4% per annum and maturing on December 31, 2016.  The Company retains a 15% ownership interest in TIPPT.  As part of the transaction, the Company’s obligation to provide advances to TIPPT under the $20,000.000 line of credit was terminated.  Instead TIPPT issued an Amended and Restated Promissory Note to the Company pursuant to which TIPPT agrees to pay the Company $1,201, which represents $701 that was outstanding under the line of credit on April 30, 2012 and an additional $500 that the Company has agreed to loan to TIPPT.  In addition, as part of the transaction, the Company terminated the stockholders agreement and entered into an Amended and Restated Stockholders Agreement (the “Stockholders Agreement”) with the TIPPT LLC to provide the Company with certain stockholder protections regarding the Company’s remaining interest in TIPPT. 

The form of the Purchase Money Note, the Amended and Restated Promissory Note and the Stockholders Agreement, a copy of each of which is filed as Exhibit 10.3, 10.4, and 10.5, respectively, hereto.
 
ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
 
We are exposed to market risk arising from changes in market rates and prices, interest rates and the market price of our common stock. To mitigate these risks, we may utilize derivative financial instruments, among other strategies. We do not use derivative financial instruments for speculative purposes. To the extent that our deposits are in excess of Federal Deposit Insurance Program maximums, we bear that potential risk.
 
Foreign Exchange Risk
 
We presently have no operations outside the United States. As a result, we do not believe that our financial results have been or will be materially impacted by changes in foreign currency exchange rates.
 
 
25
 

Interest Rate Risk
 
Although certain subscription agreements were funded on the basis of promissory notes, the interest rate in those notes has been fixed and is not subject to variation.  To the extent that we have or maintain deposits with financial institutions that pay interest on those deposits, we have market risk.
 
ITEM 4.  CONTROLS AND PROCEDURES
 
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Securities & Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Principal Accounting Officer, to allow timely decisions regarding required disclosure.  In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, as ours are designed to do, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As of March 31, 2012, an evaluation was performed under the supervision and with the participation of our management, including our Chief Executive Officer and Principal Accounting Officer of the effectiveness of the design and operation of our disclosure controls and procedures.  Based upon that evaluation, our Chief Executive Officer and Principal Accounting Officer concluded that our disclosure controls and procedures were effective.
 
Changes in Internal Control over Financial Reporting
 
There was no change in internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) that occurred during the three months ended March 31, 2012 that has materially affected or is reasonably likely to materially affect our internal control over financial reporting.
 
 
26
 
 
PART II — OTHER INFORMATION
 
ITEM 1.  LEGAL PROCEEDINGS
 
We are subject to litigation and other claims that arise in the ordinary course of business. While the ultimate result of our outstanding legal matter cannot presently be determined, the Company does not expect that the ultimate disposition will have a material adverse effect on our results of operations or financial condition. However, legal matters are inherently unpredictable and subject to significant uncertainties, some of which are beyond our control. As such, there can be no assurance that the final outcome will not have a material adverse effect upon our financial condition and results of operations.
 
ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
 
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 dated such date among the Company, FN(x) I and Trusted Opinion (the “Asset Purchase Agreement”) .  In consideration for its purchase of the Loyalize assets, the Company agreed to pay Trusted Opinion $3,000 in cash and 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.  At the closing $1,500 of the cash consideration was disbursed to Trusted Opinion and $1,500,000 was placed in escrow with Trusted Opinion’s counsel, Wilson Sonsini Goodrich & Rosati, P.C., to be disbursed to Trusted Opinion upon delivery by Trusted Opinion of certain financial statements.  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 required 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 the Company’s 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 for the difference, by which $1,839 exceeds the calculated value (based on the average closing price of its 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 the Company’s option.  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.

The foregoing description of the Asset Purchase Agreement is not complete and is qualified by reference to, and should be read in conjunction with, the full text of the agreement, a copy of which is filed as Exhibit 10.1 to the Company’s Form 8-K filed with the SEC on January 4, 2012 and incorporated herein by reference.
 
 
27
 
 
ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

None.
 
ITEM 4.  MINE SAFETY DISCLOSURES
 
None.
 
ITEM 5.  OTHER INFORMATION
 
None.
 
ITEM 6.  EXHIBITS
 
Exhibits
 
The documents set forth below are filed herewith or incorporated herein by reference to the location indicated.

Exhibit No.
  
Description
     
10.1  
Form of Subscription Agreement
     
10.2  
Form of Warrant
     
10.3  
Purchase Money Note from TIPPT LLC
     
10.4  
Amended and Restated Promissory Note from TIPPT LLC
     
10.5  
Amended and Restated Stockholders Agreement between TIPPT LLC, Function(x) Inc., and TIPPT Media Inc.
     
 
Quarterly Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
     
 
Quarterly Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
     
 
Quarterly Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
     
 
Quarterly Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 
28
 
 
SIGNATURES
 
Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf of the undersigned thereunto duly authorized.
 
  Function(x) Inc.  
       
May 15, 2012
By: 
 /s/ Janet Scardino  
    Janet Scardino  
   
Chief Executive Officer
  
       
       
  By:
/s/ William B. Manning
  
   
William B. Manning
  
    Principal Financial Officer  
   
(Principal Financial Officer and Principal Accounting Officer)
  
 
 
 
29
 
 
INDEX TO EXHIBITS
 
The documents set forth below are filed herewith.
 

Exhibit No.
  
Description
     
10.1  
Form of Subscription Agreement
     
10.2  
Form of Warrant
     
10.3  
Purchase Money Note from TIPPT LLC
     
10.4  
Amended and Restated Promissory Note from TIPPT LLC
     
10.5  
Amended and Restated Stockholders Agreement between TIPPT LLC, Function(x) Inc., and TIPPT Media Inc.
     
 
Quarterly Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
     
 
Quarterly Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
     
 
Quarterly Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
     
 
Quarterly Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
30
 EX-10.1 2 fncx_ex101.htm fncx_ex101.htm
Exhibit 10.1
 
Function(x) Inc.
902 Broadway
New York, New York 10010
SUBSCRIPTION AGREEMENT
 
[________________]
[________________]
[________________]
[________________]

Ladies and Gentlemen:

Function(x) Inc., a Delaware corporation (the “Company”), is hereby privately offering (the “Offering”) units (the “Units”) consisting of (i) one (1) share of common stock, $0.001 par value per share, of the Company (a “Share”), and (ii) one (1) detachable warrant to purchase one (1) share (a “Warrant Share”), which warrant shall have a three year term and an exercise price of $4.00 per Warrant Share (the “Warrant”), at a purchase price of $2.75 per Unit (the “Purchase Price”) to the undersigned, in reliance on the exemption from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), provided by Rule 506 of Regulation D under the Securities Act.  This subscription agreement and the Purchase Price will be deposited in an escrow account at Kramer Levin Naftalis & Frankel LLP, to be released upon the satisfaction of the conditions of the Offering.  The Units, the Shares, the Warrants and the Warrant Shares are sometimes collectively referred to in this Subscription Agreement as the “Securities.”

The Company intends to use the proceeds from the Offering to fund its working capital requirements in order to develop its business as described in the Company’s quarterly report on Form 10-Q for the quarter ending December 31, 2011, and which effort will be led by Robert F.X. Sillerman.  Upon completion of the Offering, the Company will continue to be quoted on the Pink Sheets or the OTC Bulletin Board.  The Securities to be issued in the Offering will be restricted securities under the Securities Act and the Shares and the Warrant Shares cannot be resold unless pursuant to registration or an exemption from registration under the Securities Act.  The Company has agreed to file with the Securities and Exchange Commission (“SEC”) a registration statement on Form S-1 (the “Registration Statement”) to register the Shares and Warrant Shares for resale within thirty (30) days after the SEC has declared the Company’s pending registration statement effective and to use commercially reasonable efforts thereafter to have such Registration Statement declared effective by the SEC within one hundred and twenty (120) days of the filing of such Registration Statement with the SEC.

1.           Subscription. Subject to the terms and conditions of this subscription agreement (“Subscription Agreement”), the undersigned (“Purchaser”) hereby agrees to be legally bound to purchase the number of Units set forth on the Subscription Page of this Subscription Agreement. Purchaser hereby irrevocably tenders this Subscription Agreement for the purchase of such Units.  Purchaser further sets forth statements herein upon which the Company may rely to determine the suitability of the Purchaser as a purchaser of such Units.
 
2.           Conditions to Subscription.  The Purchaser understands and agrees that this subscription is made subject to the following terms and conditions:
 
(a)           This subscription shall be deemed to be accepted by the Company only when it is signed by the Company;

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

(c)           The Company has the right to accept or reject this subscription in whole or in part; and

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

 
1
 
 
If this subscription is rejected by the Company in its sole and absolute discretion or because the Company terminates or cancels the Offering, the Company shall promptly return the Purchase Price received from the Purchaser without interest thereon or deduction therefrom, and this Subscription Agreement shall thereafter be of no further force or effect.

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

 
(a)
(i)
Purchaser has received and has read and fully understands this Subscription Agreement.

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

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

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

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

(b)           Purchaser is an “accredited investor” within the meaning of Rule 501(a)(3), as promulgated under the Securities Act.

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

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

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

 
2
 
 
(f)           Purchaser acknowledges:

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

(ii)   Purchaser has reviewed the Company’s quarterly report on Form 10-Q for the quarter ending February 14, 2012.   Purchaser has had an opportunity to ask questions of and receive answers from, or obtain additional information from, the Company concerning the financial and other affairs of the Company, and to the extent deemed necessary in light of such Purchaser’s personal knowledge of the Company’s affairs, Purchaser has asked such questions and received answers to the full satisfaction of such Purchaser.

(iii)   Purchaser acknowledges that the nondisclosure agreement entered into in connection with the Offering and its investment remains in full force and effect.

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

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

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

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

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

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

 
3
 
 
7.           Applicable Law. The internal laws of the State of New York (without giving effect to any choice or conflict of law provision or rule (whether of the State of York or any other jurisdiction) that would cause the application of laws of any other jurisdiction) shall govern all matters arising out of or relating to this Subscription Agreement, including its interpretation, construction, performance and enforcement.  Any action or proceeding arising out of or relating to this Subscription Agreement must be brought in the courts of the State of New York, New York County, or, if it has or can acquire jurisdiction, in the United States District Court for the Southern District of New York.  Each of the parties knowingly, voluntarily and irrevocably submits to the exclusive jurisdiction of each such court in any such action or proceeding and waives any objection it may now or hereafter have to venue or to convenience of forum. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS SUBSCRIPTION AGREEMENT, OR ANY TRANSACTIONS CONTEMPLATED HEREBY.  EACH OF THE PARTIES HERETO HEREBY WAIVES ANY RIGHT IT MAY HAVE TO TRANSFER OR CHANGE THE VENUE OF ANY LITIGATION BROUGHT AGAINST IT IN ACCORDANCE WITH THIS SECTION AND FURTHER WAIVES ANY CLAIM BASED ON FORUM NON CONVENIENS.

8.           Disclosure Notices.

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

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


[SUBSCRIPTION PAGE FOLLOWS]
 
 
4
 
 
SUBSCRIPTION PAGE

IN WITNESS WHEREOF, the undersigned has executed this Subscription Agreement this _____ day of [______], 2012.

Units being purchased:                                                                                                                     
Purchase Price:                                                                                                                     

Wire Transfer Purchase Price to:
 
Bank:   Citibank, N.A.
    666 Fifth Avenue
    New York, NY 10103
 
ABA : 021000089
Account #: 9985290786
Account Name: Kramer Levin Naftalis & Frankel LLP IOLA Account
Reference:  Function(x) Subscription

_________________________________________
Please print exact name (registration) that Purchaser
desires on records of the Company
 
_____________________
_____________________
_____________________
_____________________
 
Telephone ____________________
Fax Number___________________
_________________________________________
Social Security or Taxpayer I.D. Number

_________________________________________
State of Organization, if applicable
 
 
5
 
 
If the subscriber is an INDIVIDUAL, complete the following and sign in the space provided:
 
  , 2012    
Date     Signature of Purchaser
       
       
      Name (please type or print)
       
       
      Signature of Spouse or Co-Owner if funds are to be invested as joint tenants by the
      entirety, joint tenants with right of survivorship or tenants in common
       
       
      Name (please type or print)
 
 
 
 
 
 
 
[Individual Signature Page]
 
 
6
 
 
The undersigned hereby represents and warrants that the undersigned is a general partner of the partnership named below (“Partnership”), and has been duly authorized by the Partnership to acquire the Units and that he has all requisite authority to acquire such Units.

The undersigned represents and warrants that each of the above representations or agreements or understandings set forth herein applies to that Partnership and he is authorized by such Partnership to execute this Subscription Agreement.
 
  , 2012      
Date     Name of Partnership  
      (Please type or print)  
         
         
      By:    
      Name:    
      Title:    
 



[Partnership Signature Page]
 
 
7
 
 
The undersigned hereby represents and warrants that the undersigned is a manager of the limited liability company named below (“Company”), and has been duly authorized by the Company to acquire the Units and that he has all requisite authority to acquire such Units.

The undersigned represents and warrants that each of the above representations or agreements or understandings set forth herein applies to that Company and he is authorized by such Company to execute this Subscription Agreement.
 
  , 2012      
Date     Name of Partnership  
      (Please type or print)  
         
         
      By:    
      Name:    
      Title: Manager  
 
 
                                                                       

[LLC Signature Page]
 
 
8
 
 
The undersigned hereby represents and warrants that the undersigned is the investment adviser of the fund named below (the “Purchaser”), and is duly authorized by the Purchaser to acquire the Units and that it has all requisite authority to acquire such Units.

The Purchaser represents and warrants that each of the above representations or agreements or understandings set forth herein applies to the Purchaser and it is authorized by such Purchaser to execute this Subscription Agreement.
 
  , 2012      
Date     Name of Partnership  
      (Please type or print)  
         
         
      [________], on behalf of its investment advisory client,  
      [_________]  
         
         
      By:    
      Name:    
      Title:    
 
 
 
 
[Fund Signature Page]
 
 
9
 
 
COMPANY’S ACCEPTANCE

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

ACCEPTED as to [______] Units:

Function(x) Inc.
 
By:______________________________
Name:___________________________
Title: ___________________________

Date:____________________, 2012
 
 
10
 
 
EXHIBIT A
 
Risk Factors
 
Since the Company has a limited operating history and has generated only nominal revenues to date, the Company may be unable to achieve or maintain profitability.  The likelihood of the Company’s success must be considered in light of the problems, expenses, difficulties, complications and delays frequently encountered by a small developing company.
 
The Company has limited financial resources and has generated only nominal revenues to date. The likelihood of the Company’s success must be considered in light of the problems, expenses, difficulties, complications and delays frequently encountered by a small developing company starting a new business enterprise and the highly competitive environment in which the Company will operate. Since the Company has a limited operating history, the Company cannot assure you that the Company’s business will be profitable or that the Company will ever generate sufficient revenues to fully meet the Company’s expenses and totally support the Company’s anticipated activities.
 
The Company’s ability to continue as a business and implement the Company’s business plan will depend on the Company’s ability to raise sufficient debt or equity.   There is no assurance such debt and/or equity offerings will be successful or that the Company will remain in business or be able to implement the Company’s business plan if the offerings are not successful.
 
If the Company is unable to successfully develop and market the Company’s products or the Company’s products do not perform as expected, the Company’s business and financial condition will be adversely affected.
 
With the release of any new product release, the Company is subject to the risks generally associated with new product introductions and applications, including lack of market acceptance, delays in development and implementation, and failure of products to perform as expected. In order to introduce and market new or enhanced products successfully with minimal disruption in customer purchasing patterns, the Company must manage the transition from existing products in the market. There can be no assurance that the Company will be successful in developing and marketing, on a timely basis, product enhancements or products that respond to technological advances by others, that the Company’s new products will adequately address the changing needs of the market or that the Company will successfully manage product transitions. Further, failure to generate sufficient cash from operations or financing activities to develop or obtain improved products and technologies could have a material adverse effect on the Company’s results of operations and financial condition.
 
In addition, the Company’s technology is currently undergoing testing and is still under development. While certain aspects of the product may currently be functioning on a basic level, the Company must perform more testing to ensure that the different components work together effectively and the audio sampling and matching technology being developed by us is accurate, performs well and integrates with metadata and points systems.  Although the product has been approved by Apple for the Apple iOS devices and has been launched, there is no assurance if and when the Company may follow this release with versions for use on the Android smartphones or tablets, as currently planned.  Further, even if the Company is successful in bringing the product into the market, there can be no assurance that the product will generate sufficient income from brand and network advertisers, which could have a material adverse effect on the Company’s results of operations and financial condition.
 
 
11
 
 
Since there is doubt as to the Company’s ability to continue as a going concern, it may be difficult for the Company to effectuate its business plan.
 
The Company has incurred losses since its inception and has not yet been successful in establishing profitable operations. These factors raise substantial doubt about the ability of the Company to continue as a going concern. Unanticipated costs and expenses, or the inability to generate revenues, could require additional financing; which would be sought through equity or debt financing, or asset sales. The fact that there are going concern considerations may make raising additional funds or obtaining loans more difficult. To the extent financing is not available, the Company may not be able to, or may be delayed in, implementing its business plan, developing its property and/or meeting its obligations. This could result in the entire loss of any investment in shares of the Company’s common stock. The Company will continue to evaluate its projected expenditures relative to its available cash and to evaluate additional means of financing in order to satisfy its working capital and other cash requirements.
 
The Company may seek to raise additional funds, finance acquisitions or develop strategic relationships by issuing capital stock that would dilute your ownership.
 
The Company has financed its operations, and the Company expects to continue to finance its operations, acquisitions and develop strategic relationships, by issuing equity or convertible debt securities, which could significantly reduce the percentage ownership of the Company’s existing stockholders. Furthermore, any newly issued securities could have rights, preferences and privileges senior to those of the Company’s existing stock. Moreover, any issuances by us of equity securities may be at or below the prevailing market price of the Company’s common stock and in any event may have a dilutive impact on your ownership interest, which could cause the market price of stock to decline. The Company may also raise additional funds through the incurrence of debt or the issuance or sale of other securities or instruments senior to the Company’s shares of common stock. The holders of any debt securities or instruments the Company may issue would have rights superior to the rights of the Company’s common stockholders.
 
The Company’s common stock price may fluctuate significantly and you may lose all or part of your investment.
 
Because the Company is a newly operating company, there are few objective metrics by which the Company’s progress may be measured. Consequently, the Company expects that the market price of its common stock will likely fluctuate significantly. There can be no assurance whether or when the Company will generate revenue from the license, sale or delivery of the Company’s unique products and services. In the absence of product revenue as a measure of the Company’s operating performance, the Company anticipates that investors and market analysts will assess its performance by considering factors such as:
 
●  
announcements of developments related to the Company’s business;
 
●  
developments in the Company’s strategic relationships with companies;
 
●  
the Company’s ability to enter into or extend investigation phase, development phase, commercialization phase and other agreements with new and/or existing partners;
 
●  
announcements regarding the status of any or all of the Company’s collaborations or products;
 
●  
market perception and/or investor sentiment regarding the Company’s products and services;
 
●  
announcements regarding developments in the digital and mobile technology and the broadcast and entertainment industries in general;
 
●  
the issuance of competitive patents or disallowance or loss of the Company’s patent or trademark rights; and
 
●  
quarterly variations in the Company’s operating results.
 
The Company will not have control over many of these factors but expect that the Company’s stock price may be influenced by them. As a result, the Company’s stock price may be volatile and you may lose all or part of your investment.
 
 
12
 
 
The market for purchases and sales of the Company’s common stock may be very limited, and the sale of a limited number of shares could cause the price to fall sharply.
 
The Company’s securities are very thinly traded. Accordingly, it may be difficult to sell shares of the common stock without significantly depressing the value of the stock. Unless the Company is successful in developing continued investor interest in the Company’s stock, sales of the Company’s stock could continue to result in major fluctuations in the price of the stock.
 
Since the Company does not intend to declare dividends for the foreseeable future, and the Company may never pay dividends, you may not realize a return on your investment unless the price of the Company’s common stock appreciates and you sell your common stock.
 
The Company will not distribute cash to its stockholders until and unless the Company can develop sufficient funds from operations to meet its ongoing needs and implement its business plan. The time frame for that is inherently unpredictable, and you should not plan on it occurring in the near future, if at all.  The Company’s payment of any future dividends will be at the discretion of the Company’s board of directors after taking into account various factors, including but not limited to the Company’s financial condition, operating results, cash needs, growth plans and the terms of any credit agreements that the Company may be a party to at the time.  Accordingly, investors must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize a return on their investment.  Investors seeking cash dividends should not purchase the Company’s common stock.
 
Since the Company is controlled by current insiders and affiliates of the Company, you and our other non-management shareholders will be unable to affect the outcome in matters requiring shareholder approval.
 
Sillerman Investment Company, LLC (“Sillerman”) and current affiliates and insiders control a majority of the total voting power, with Sillerman, together with Robert F.X. Sillerman personally, directly or indirectly beneficially owning more than a majority of the outstanding shares of common stock.  As a result, Sillerman essentially has the ability to elect all of the Company’s directors and to approve any action requiring stockholder action, without the vote of any other stockholders.  It is possible that the interests of Sillerman could conflict in certain circumstances with those of other stockholders.  Such concentrated ownership may also make it difficult for the Company’s shareholders to receive a premium for their shares of the Company’s common stock in the event the Company merges with a third party or enter into other transactions that require shareholder approval.  These provisions could also limit the price that investors might be willing to pay in the future for shares of the Company’s common stock.
 
The Company relies on key members of management, the loss of whose services could adversely affect the Company’s success and development.
 
The Company’s success depends to a certain degree upon certain key members of the management. These individuals are a significant factor in the Company’s growth and ability to meet its business objectives.  In particular, the Company’s success is highly dependent upon the efforts of its executive officers and directors, particularly Robert F.X. Sillerman, the Company’s Executive Chairman and Director.  The loss of the Company’s executive officers and directors could slow the growth of the Company’s business, or it may cease to operate at all, which may result in the total loss of an investor’s investment.
 
Compensation may be paid to the Company’s officers, directors and employees regardless of the Company’s profitability, which may limit the Company’s ability to finance its business plan and adversely affect its business.
 
Robert F.X. Sillerman, the Company’s Executive Chairman and director and Janet Scardino, the Company’s Chief Executive Officer and director are receiving compensation and any other current or future employees of the Company may be entitled to receive compensation, payments and reimbursements regardless of whether the Company operates at a profit or a loss. Any compensation received by Mr. Sillerman, Ms. Scardino or any other senior executive in the future will be determined from time to time by the board of directors or the Company’s Compensation Committee.  Such obligations may negatively affect the Company’s cash flow and ability to finance its business plan, which could cause the Company’s business to fail.
 
 
13
 
 
Some of the Company’s officers and directors may have conflicts of interest in business opportunities that may be disadvantageous to us.
 
Robert F.X. Sillerman, the Company’s Executive Chairman and director, and Mitchell Nelson, the Company’s Executive Vice President, General Counsel, Secretary and director, are each engaged in other business endeavors, including serving as executive officers of Circle Entertainment Inc. (“Circle”).   Under Mr. Sillerman’s employment agreement, he is obligated to devote his working time to the Company’s affairs, but may continue to perform his responsibilities as an executive officer of Circle, as well as in other outside non-competitive businesses.  Mr. Sillerman has agreed to present to the Company any business opportunities related to or appropriate for the Company’s business plan.  Pursuant to Mr. Nelson’s employment agreement, he is obligated to devote such time and attention to the affairs of the Company as is necessary for him to perform his duties as Executive Vice President and General Counsel.  Although Circle and the Company have generally different business plans, interests and programs, it is conceivable there may be a conflict of interest in determining where a potential opportunity should be brought.  Conflicts of interest are prohibited as a matter of Company policy, except under guidelines approved by the board of directors, as set forth in the Company’s Code of Business Conduct and Ethics.
 
The Company’s business and growth may suffer if the Company is unable to attract and retain key officers or employees.
 
The Company’s success depends on the expertise and continued service of the Company’s Executive Chairman, Robert F.X Sillerman, and certain other key executives and technical personnel. It may be difficult to find a sufficiently qualified individual to replace Mr. Sillerman or other key executives in the event of death, disability or resignation, resulting in the Company’s being unable to implement its business plan and the Company having no operations or revenues.
 
Furthermore, the Company’s ability to expand operations to accommodate its anticipated growth will also depend on its ability to attract and retain qualified media, management, finance, marketing, sales and technical personnel.  However, competition for these types of employees is intense due to the limited number of qualified professionals.  The Company’s ability to meet its business development objectives will depend in part on the Company’s ability to recruit, train and retain top quality people with advanced skills who understand the Company’s technology and business.  The Company believes that it will be able to attract competent employees, but no assurance can be given that the Company will be successful in this regard. If the Company is unable to engage and retain the necessary personnel, its business may be materially and adversely affected.
 
The Company is uncertain of the Company’s ability to manage its growth.
 
The Company’s ability to grow its business is dependent upon a number of factors including the Company’s ability to hire, train and assimilate management and other employees, the adequacy of the Company’s financial resources, the Company’s ability to identify and efficiently provide such new products and services as the Company’s customers may require in the future and the Company’s ability to adapt its own systems to accommodate expanded operations.
 
 
14
 
 
Because of pressures from competitors with more resources, the Company may fail to implement the Company’s business strategy profitably.
 
The digital and mobile technology business is highly fragmented and extremely competitive and subject to rapid change. The market for customers is intensely competitive and such competition is expected to continue to increase. The Company believes that its ability to compete depends upon many factors within and beyond the Company’s control, including the timing and market acceptance of new solutions and enhancements to existing businesses developed by us, the Company’s competitors, and their advisors.  Function(x) is an entertainment company that utilizes digital media and Smartphone technology.  If the Company is successful, larger and more established entertainment companies with significantly greater resources may try to enter the market with similar technologies, and may be in better competitive positions than the Company is.  Many consumers maintain simultaneous relationships with multiple digital brands and products and can easily shift consumption from one provider to another.  The Company’s principal competitors are in segments such as the following:
 
●  
Applications promoting social TV experiences and discussions; and
 
●  
White label providers of social media and media-specific applications.
 
In addition, new competitors may be able to launch new businesses at relatively low cost.  Therefore, the Company cannot be sure that the Company will be able to successfully implement the Company’s business strategy in the face of such competition.
 
The Company may be unable to compete with larger or more established companies in two industries.
 
The Company faces a large and growing number of competitors in the digital and mobile technology and entertainment industries.  If the Company successfully marries digital and mobile technology and entertainment, the Company will have competitors from both the digital and mobile and the entertainment industries. Many of these competitors have substantially greater financial, technical and marketing resources, larger customer bases, longer operating histories, greater name recognition, and more established relationships in the industry than does the Company. As a result, certain of these competitors may be in better positions to compete with us for customers and audiences. The Company cannot be sure that the Company will be able to compete successfully with existing or new competitors.
 
If the Company’s products do not achieve market acceptance, the Company may not have sufficient financial resources to fund the Company’s operations, further development or to meet the Company’s financial obligations under the TIPPT line of credit.
 
While the Company believes that a viable market exists for the products the Company is developing, there can be no assurance that such technology will prove to be an attractive alternative to conventional or competitive products in the markets that the Company has identified for exploitation. In the event that a viable market for the Company’s products cannot be created as envisaged by the Company’s business strategy or the Company’s products do not achieve market acceptance, the Company may need to commit greater resources than are currently available to develop a commercially viable and competitive product. There can be no assurance that the Company would have sufficient financial resources to fund such development or that such development would be successful. In addition, if the Company’s products do not generate sufficient revenues, or the Company is unable to raise additional capital, the Company may be unable to fund the Company’s operations or meet the Company’s obligations under the line of credit agreement, by and between the Company and TIPPT Media Inc., which would result in us being in default under the line of credit.  The Company’s ability to raise additional funds will depend on financial, economic and other factors, many of which are beyond the Company’s control. There can be no assurance that, when required, sufficient funds will be available to us on satisfactory terms.
 
The Company’s business will suffer if its network systems fail or become unavailable.
 
A reduction in the performance, reliability and availability of the Company’s network infrastructure would harm its ability to distribute its products to its users, as well as the Company’s reputation and ability to attract and retain users and content providers. The Company’s systems and operations could be damaged or interrupted by fire, flood, power loss, telecommunications failure, Internet breakdown, earthquake and similar events. The Company’s systems could also be subject to viruses, break-ins, sabotage, acts of terrorism, acts of vandalism, hacking, cyber-terrorism and similar misconduct. The Company might not carry adequate business interruption insurance to compensate us for losses that may occur from a system outage. Any system error or failure that causes interruption in availability of products or an increase in response time could result in a loss of potential customers or content providers, which could have a material adverse effect on the Company’s business, financial condition and results of operations. If the Company suffers sustained or repeated interruptions, then the Company’s products and services could be less attractive to its users and the Company’s business would be materially harmed.
 
 
15
 
 
The Company may be unable to protect the Company’s intellectual property rights from third-party claims and litigation, which could be expensive, divert management’s attention, and harm the Company’s business.
 
The Company’s success is dependent in part on obtaining, maintaining and enforcing the Company’s proprietary rights and its ability to avoid infringing on the proprietary rights of others. The Company seeks patent protection for those inventions and technologies for which the Company believe such protection is suitable and is likely to provide a competitive advantage to us.   Because patent applications in the United States are maintained in secrecy until either the patent application is published or a patent is issued, the Company may not be aware of third-party patents, patent applications and other intellectual property relevant to the Company’s products that may block the Company’s use of its intellectual property or may be used in third-party products that compete with the Company’s products and processes. In the event a competitor successfully challenges the Company’s products, processes, patents or licenses or claims that the Company has infringed upon their intellectual property, the Company could incur substantial litigation costs defending against such claims, be required to pay royalties, license fees or other damages or be barred from using the intellectual property at issue, any of which could have a material adverse effect on the Company’s business, operating results and financial condition.
 
The Company also relies substantially on trade secrets, proprietary technology, nondisclosure and other contractual agreements, and technical measures to protect the Company’s technology, application, design, and manufacturing know-how, and work actively to foster continuing technological innovation to maintain and protect the Company’s competitive position.  The Company cannot assure you that steps taken by the Company to protect its intellectual property will be adequate, that the Company’s competitors will not independently develop or patent substantially equivalent or superior technologies or be able to design around patents that the Company may receive, or that the Company’s intellectual property will not be misappropriated.
 
The Company’s Common Stock is subject to risks arising from restrictions on reliance on Rule 144 by shell companies or former shell companies.
 
Under a regulation of the SEC known as “Rule 144,” a person who has beneficially owned restricted securities of an issuer and who is not an affiliate of that issuer may sell them without registration under the Securities Act provided that certain conditions have been met. One of these conditions is that such person has held the restricted securities for a prescribed period, which will be 6 months or 1 year, depending on various factors. The holding period for the Company’s common stock would be 1 year if the Company’s common stock could be sold under Rule 144. However, Rule 144 is unavailable for the resale of securities issued by an issuer that is a shell company (other than a business combination related shell company) or that has been at any time previously a shell company. The SEC defines a shell company as a company that has (a) no or nominal operations and (b) either (i) no or nominal assets, (ii) assets consisting solely of cash and cash equivalents; or (iii) assets consisting of any amount of cash and cash equivalents and nominal other assets. Until the Recapitalization, the Company was a shell company.
 
The SEC has provided an exception to this unavailability if and for as long as the following conditions are met:
 
 
●
The issuer of the securities that was formerly a shell company has ceased to be a shell company,

 
●
The issuer of the securities is subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act,

 
●
The issuer of the securities has filed all Exchange Act reports and material required to be filed, as applicable, during the preceding 12 months (or such shorter period that the issuer was required to file such reports and materials), other than Current Reports on Form 8-K; and

 
●
At least one year has elapsed from the time that the issuer filed current comprehensive disclosure with the SEC reflecting its status as an entity that is not a shell company known as “Form 10 Information.”

 
16
 
 
Stockholders who receive our restricted securities will not be able to sell them pursuant to Rule 144 without registration until the Company has met the other requirements of this exception and then for only as long as the Company continues to meet those requirements and are not a shell company. No assurance can be given that the Company will meet these requirements or that, if the Company has met them, the Company will continue to do so, or that the Company will not again be a shell company.

Changes to federal, state or international laws or regulations applicable to the Company’s business could adversely affect the Company’s business.
 
The Company’s business is subject to a variety of federal, state and international laws and regulations, including those with respect to privacy, advertising generally, consumer protection, content regulation, intellectual property, defamation, child protection, advertising to and collecting information from children, taxation, employment classification and billing. These laws and regulations and the interpretation or application of these laws and regulations could change. In addition, new laws or regulations affecting the Company’s business could be enacted. These laws and regulations are frequently costly to comply with and may divert a significant portion of management’s attention. If the Company fails to comply with these applicable laws or regulations, the Company could be subject to significant liabilities which could adversely affect the Company’s business.
 
There are many federal, state and international laws that may affect the Company’s business including measures to regulate consumer privacy, the use of copyrighted material, the collection of certain data, network neutrality, patent litigation, cyber security, child protection, subpoena and warrant processes, employee classification and others.
 
In addition, most states have enacted legislation governing the breach of data security in which sensitive consumer information is released or accessed. If the Company fails to comply with these applicable laws or regulations the Company could be subject to significant liabilities which could adversely affect the Company’s business.
 
Many of the Company’s potential partners are subject to industry specific laws and regulations or licensing requirements, including in the following industries: pharmaceuticals, online gaming, alcohol, adult content, tobacco, firearms, insurance, securities brokerage, real estate, sweepstakes, free trial offers, automatic renewal services and legal services. If any of the Company’s advertising partners fail to comply with any of these licensing requirements or other applicable laws or regulations, or if such laws and regulations or licensing requirements become more stringent or are otherwise expanded, the Company’s business could be adversely affected. Furthermore, these laws may also limit the way the Company advertises the Company’s products and services or cause us to incur compliance costs, which could affect the Company’s revenues and could further adversely impact the Company’s business.
 
There are a number of significant matters under review and discussion with respect to government regulations which may affect the business the Company intends to enter and/or harm the Company’s customers, and thereby adversely affect its business, financial condition and results of operations.
 
 
 
17
EX-10.2 3 fncx_ex102.htm fncx_ex102.htm
Exhibit 10.2
 
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), ANY STATE SECURITIES LAW OR ANY OTHER SECURITIES LAWS AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS THEREUNDER AND IN COMPLIANCE WITH APPLICABLE STATE SECURITIES OR BLUE SKY LAWS.

FUNCTION(X) INC.

WARRANT
 
CUSIP No. ______  
Warrant No. _____     Dated:   [______], 2012
   
Holder:  
Number of Shares:     

Function(x) Inc., a corporation organized and existing under the laws of the State of Delaware (the “Company”), hereby certifies that, for value received, the holder whose name appears above or its registered assigns (“Holder”), is entitled, subject to the terms set forth herein, to purchase from the Company up to the total number of shares appearing above of Common Stock, $0.001 par value (including any class of common equity of the Company or any successor  company for which such Common Stock becomes exchangeable or into which it becomes convertible, directly or indirectly, pursuant to any reorganization, recapitalization, reclassification, merger, combination, share exchange or similar transaction as provided in Section 3, the “Common Stock”), of the Company (each such share, a “Warrant Share”), at an exercise price equal to $4.00 per share (as adjusted from time to time as provided in Section 7, the “Exercise Price”), at any time and from time to time from and after this date through and including [_______], 2015 or earlier as provided herein (the “Expiration Date”), and subject to the following terms and conditions:

1  Registration of Warrant.  The Company shall register this Warrant, upon records to be maintained by the Company for that purpose (the “Warrant Register”), in the name of the record Holder hereof from time to time.  The Company may deem and treat the registered Holder of this Warrant as the absolute owner hereof (notwithstanding any notations of ownership or writing hereon made by any person other than the Company) for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, and the Company shall not be affected by any notice to the contrary.

2.  Registration of Transfers and Exchanges.

(a)  The Company shall register the transfer of any portion of this Warrant in the Warrant Register, upon surrender of this Warrant, with the Form of Assignment attached hereto appropriately completed and duly executed by the Holder or its duly authorized agent, to the Company at the office specified in or pursuant to Section 3(b) and upon the Holder's compliance with Section 4, provided that such transfer is made in compliance with the Securities Act and state securities laws.  Upon any such registration of transfer, a new warrant to purchase Common Stock, in substantially the form of this Warrant (any such new warrant, a “New Warrant”), evidencing the portion of this Warrant so transferred shall be issued to the transferee (a “Transferee”) and a New Warrant evidencing the remaining portion of this Warrant not so transferred, if any, shall be issued to the transferring Holder.  The acceptance of the New Warrant by the Transferee thereof shall be deemed the acceptance of such Transferee of all of the rights and obligations of a holder of a Warrant.  Notwithstanding anything to the contrary contained in this Section 2(a), a transfer of any portion of this Warrant will not be effected until the Company has received an opinion of counsel reasonably satisfactory to the Company, to the effect that registration under the Securities Act is not required in connection with such proposed transfer.
 
 
1
 

(b)  This Warrant is exchangeable, upon the surrender hereof by the Holder to the office of the Company specified in or pursuant to Section 3(b), for one or more New Warrants, evidencing in the aggregate the right to purchase the number of Warrant Shares which may then be purchased hereunder.  Any such New Warrant shall be dated the date of such exchange.

3.  Duration, Exercise of Warrants and Redemption.

(a)  This Warrant shall be exercisable by the registered Holder on any day other than a Saturday, Sunday or legal holiday on which the commercial banks in the City of New York, New York, are required or permitted by law to remain closed (a “Business Day”), at any time and from time to time on or after 5:00 p.m., New York City time, [_______], 2012 to and including [_______], 2015.   At 5:00 p.m., New York City time, on the Expiration Date, the portion of this Warrant not exercised prior thereto shall be and become void and of no value.

(b)  The Holder may exercise this Warrant by—

(i) delivering the Form of Election to Purchase attached hereto appropriately completed and duly executed, to the Company at its office at 902 Broadway, New York, New York 10010, or at such other address as the Company may specify in writing to the then registered Holder,

(ii) surrendering this Warrant to the Company, properly endorsed by the Holder and

(iii) tendering payment for the number of the Warrant Shares that the Holder intends to purchase in the form of cash, bank or certified check made payable to the order of the Company, or by wire transfer of immediately available funds, of an amount of consideration equal to the Exercise Price in effect on the Date of Exercise multiplied by the number of Warrant Shares that the Holder intends to purchase hereunder.

Upon proper exercise of this Warrant by the Holder, the Company shall promptly issue or cause to be issued and cause to be delivered to or upon the written order of the Holder and in such name or names as the Holder may designate, one or more certificates representing, in the aggregate, the number of Warrant Shares issuable upon such exercise, free of restrictive legends other than as required by this Warrant or by law.  Any person so designated by the Holder to receive Warrant Shares shall be deemed to have become holder of record of such Warrant Shares as of the Date of Exercise of this Warrant.
 
 
2
 

A “Date of Exercise” means the date on which the Company shall have received (i) this Warrant (or any New Warrant, as applicable), with the Form of Election to Purchase attached hereto (or attached to such New Warrant) appropriately completed and duly executed, and (ii) payment of the Exercise Price for the number of Warrant Shares so indicated by the holder hereof to be purchased.

(c)  This Warrant shall be exercisable, either in its entirety or, from time to time, for a portion of the number of Warrant Shares.  If this Warrant is exercised for less than all of the Warrant Shares which may be purchased under this Warrant, the Company shall issue or cause to be issued, at its expense, a New Warrant evidencing the right to purchase the remaining number of Warrant Shares for which no exercise has been evidenced by this Warrant.

(d)  The certificate or certificates for Warrant Shares issued upon exercise of this Warrant shall be stamped or imprinted (unless registered under the Securities Act) with a legend substantially in the following form:

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933 (THE “ACT”) OR APPLICABLE STATE SECURITIES LAWS, AND SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE ACT AND APPLICABLE STATE SECURITIES LAWS.

4.  Payment of Taxes.  The Company shall pay all documentary stamp taxes attributable to the issuance of Warrant Shares upon the exercise of this Warrant; provided, however, that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the registration or issue of any certificates for Warrant Shares or Warrants in a name other than that of the registered Holder of the Warrant surrendered, and the Company shall not be required to issue or cause to be issued or deliver or cause to be delivered the certificates for Warrant Shares unless or until the person or persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid or is not required to be paid.  The Holder shall be responsible for all other tax liability that may arise as a result of holding or transferring this Warrant or receiving Warrant Shares upon exercise hereof.

5.  Replacement of Warrant.  If this Warrant is mutilated, lost, stolen or destroyed, the Company may in its discretion issue or cause to be issued in exchange and substitution for and upon cancellation hereof, or in lieu of and in substitution for this Warrant, a New Warrant, but only upon receipt of such mutilated warrant or evidence reasonably satisfactory to the Company of such loss, theft or destruction.  Applicants for a New Warrant under such circumstances shall also comply with such other reasonable regulations and procedures, pay such reasonable charges and provide such indemnity as the Company may prescribe.

6.  Reservation of Warrant Shares.  The Company covenants that it shall at all times reserve and keep available out of its authorized and unissued Common Stock, solely for the purpose of enabling it to issue Warrant Shares upon exercise of this Warrant as herein provided, the number of Warrant Shares which are then issuable and deliverable upon the exercise of this entire Warrant, free from preemptive rights or any other actual contingent purchase rights of persons other than the Holders (taking into account the adjustments and restrictions of Section 7).  The Company covenants that all Warrant Shares that shall be so issuable and deliverable shall, upon issuance and the payment of the applicable Exercise Price in accordance with the terms hereof, be duly authorized, validly issued and fully paid and nonassessable.  The Company shall provide for and maintain the listing of the Common Stock, including the Warrant Shares, upon any securities exchange or interdealer quotation system, if any, which is the principal exchange or system on which the Common Stock is then traded or listed.
 
 
3
 

7.  Certain Adjustments.  The Exercise Price payable upon exercise of this Warrant is subject to adjustment from time to time as set forth in this Section 7.  Upon each such adjustment of the Exercise Price pursuant to this Section 7, the Holder shall thereafter prior to the Expiration Date be entitled to purchase, at the Exercise Price then in effect pursuant hereto, the number of Warrant Shares obtained by multiplying the Exercise Price in effect immediately prior to such adjustment by the number of Warrant Shares issuable upon exercise of this Warrant immediately prior to such adjustment and dividing the product thereof by the Exercise Price resulting from such adjustment.

(a)  Stock Splits and Combinations.  If the Company, at any time while this Warrant is outstanding, (i) subdivides outstanding shares of Common Stock into a larger number of shares or (ii) combines outstanding shares of Common Stock into a smaller number of shares, then in each such case the Exercise Price shall be adjusted to equal the price obtained by multiplying the Exercise Price in effect immediately prior to the effective date of such subdivision or combination by a fraction, (1) the numerator of which shall be the number of shares of Common Stock outstanding immediately before such event and (2) the denominator of which shall be the number of shares of Common Stock outstanding immediately after such event.  Any adjustment pursuant to this Section 7(a) shall become effective immediately after the effective date of such subdivision or combination.

(b)  Reclassification.  In case of any reclassification or change of the shares of Common Stock issuable upon exercise of this Warrant (other than a change in par value, or as a result of a subdivision or combination covered by Section 7(a), but including any change in the shares into one or more classes or series of shares), then the Holder shall have the right thereafter to exercise this Warrant only for the shares of stock and other securities of the Company and property receivable by holders of Common Stock following such reclassification or change, and the Holder shall thereafter upon exercise of this Warrant be entitled to receive such amount of securities or property attributable to the number of Warrant Shares such Holder would have been entitled to receive had such Holder exercised this Warrant immediately prior to such action.  The terms of any such reclassification or other change shall include such terms so as to continue to give to the Holder the right to receive the securities or property set forth in this Section 7(b) upon any exercise following any such reclassification or other action.

(c)  Merger, Consolidation, Etc.   If (A) any person (the “Acquirer”) directly or indirectly acquires the Company in a transaction in which the Company is merged with or into or consolidated with another person or (B) the Company sells or conveys all or substantially all of its assets to another person (unless, subsequent to such merger, consolidation or other transaction, the Company is the surviving entity and the stockholders of the Company immediately prior to the transaction constitute at least a majority of the stockholders of the Company following the transaction, this Section 7(c) shall not apply with respect to such merger, consolidation or other transaction) (such merger, consolidation or other transaction referred to hereinafter as a “Change”), then, upon exercise of this Warrant at any time after the consummation of the Change but prior to the Expiration Date, in lieu of the Warrant Shares (or other securities, cash, assets or other property) purchasable upon the exercise of this Warrant prior to such Change, the Holder shall be entitled to receive such Warrant Shares or other securities, cash, assets or any other property whatsoever which such Holder would have been entitled to receive after the occurrence of such Change had this Warrant been exercised immediately prior to such Change.  As a condition to the consummation of such Change, the Company shall take all reasonable steps to cause the Acquirer to execute and deliver to the Holder of this Warrant a written instrument in which the Acquirer assumes all of the obligations under this Warrant and any adjustments to the Warrant as assumed by the Acquirer that may occur subsequent to the effective date of such Change shall be as nearly equivalent as may be practicable to the adjustments provided for in Section 7 of this Warrant.

The Company shall give written notice of any Change to the Holder, in accordance with Section 7(e), at least ten Business Days prior to the effective date of the Change.   The Company’s failure to give notice required by this Section 7(c) or any defect therein shall not affect the validity of the Change covered by this Section 7(c).  However, if the Company fails to give notice, the responsibilities of the Company with respect to this Section 7(c) shall be assumed by the Acquirer and nothing in this paragraph shall prejudice the rights of the Holder pursuant to this Warrant.
 
 
4
 

(d)  Issuance of Additional Shares of Common Stock.  Except as provided in Section 7(a) through 7(c), if the Company, at any time while this Warrant is outstanding, shall issue additional shares of Common Stock in connection with a public or private offering of Common Stock for the purpose of raising capital (“Additional Shares of Common Stock”), at a price per share less than the Exercise Price then in effect, then the Exercise Price upon such issuance shall be adjusted to the price equal to the consideration per share paid for such Additional Shares of Common Stock.

(e)  All calculations under this Section 7 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be.

(f)  If:

(i) the approval of any stockholders of the Company shall be required in connection with any reclassification or change of the shares of Common Stock issuable upon exercise of this Warrant (other than a change in par value, or as a result of a subdivision or combination, but including any change in the shares into one or more classes or series of shares); or

(ii) the Company shall authorize the voluntary dissolution, liquidation or winding up of the affairs of the Company,

then the Company shall cause to be mailed to each Holder at their last addresses as they shall appear upon the Warrant Register, at least 10 calendar days prior to the applicable record or effective date hereinafter specified, a notice stating the date on which such reclassification or change, or dissolution, liquidation or winding up is expected to become effective or close, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities, cash or other property deliverable upon such reclassification or change, dissolution, liquidation or winding up; provided, however, that the failure to mail such notice or any defect therein or in the mailing thereof shall not affect the validity of the corporate action required to be specified in such notice.

(g)  Notice of Adjustments.  The Company shall promptly, and in any event within ten (10) Business Days, notify the Holder of this Warrant of any adjustment in the Exercise Price or number of Warrant Shares issuable upon the exercise of this Warrant pursuant to the provisions of this Section 7.  Such notice shall be in writing and shall set forth, in reasonable detail, the reason for such adjustment and the calculation thereof.  No defect in such notice, or in the mailing thereof, shall affect any such adjustment or the rights of the Holder hereunder.

8.  Fractional Shares.  The Company shall not be required to issue or cause to be issued fractional Warrant Shares on the exercise of this Warrant.  The number of full Warrant Shares which shall be issuable upon the exercise of this Warrant shall be computed on the basis of the aggregate number of Warrant Shares purchasable on exercise of this Warrant so presented.  If any fraction of a Warrant Share would, except for the provisions of this Section 8, be issuable on the exercise of this Warrant, the Company shall, at its option, (i) pay an amount in cash equal to the Market Price of one share of Common Stock on the Date of Exercise of such Warrant multiplied by such fraction or (ii) round the number of Warrant Shares issuable, up to the next whole number.

9. Registration Rights.  The Company shall file with the Securities and Exchange Commission (the “SEC”) a registration statement on Form S-1 (the “Registration Statement”) to register the Warrant Shares for resale within thirty (30) days after the Company’s pending registration statement has been declared effective by the SEC and to use commercially reasonable efforts thereafter to have such Registration Statement declared effective by the SEC within one hundred and twenty (120) days of the filing of the Registration Statement with the SEC.
 
 
5
 
 
10.  Notices.  Any and all notices or other communications or deliveries hereunder shall be in writing and shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile telephone number specified in this Section 10 prior to 4:30 p.m. (New York City time) on a Business Day, (ii) the next Business Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile telephone number specified in this Section 10 later than 4:30 p.m. (New York City time) on any date and earlier than 11:59 p.m. (New York City time) on such date, (iii) the Business Day following the date of mailing, if sent by nationally recognized overnight courier service, or (iv) upon actual receipt by the party to whom such notice is required to be given.  The addresses for such communications shall be:  (1) if to the Company, to Function(x) Inc., at the address of its chief executive offices, Attention: Chief Executive Officer or (ii) if to the Holder, to the Holder at the address or facsimile number appearing on the Warrant Register or such other address or facsimile number as the Holder may provide to the Company in accordance with this Section 10.

11.  Miscellaneous.

(a)   This Warrant shall be binding on and inure to the benefit of the parties hereto and their respective successors and assigns, except that the obligations of the Company hereunder shall not be assigned except by operation of law.  This Warrant may be amended only in writing duly executed by the Company and the Holder.

(b)  Subject to Section 11(a), nothing in this Warrant shall be construed to give to any person or corporation other than the Company and the Holder any legal or equitable right, remedy or cause under this Warrant; this Warrant shall be for the sole and exclusive benefit of the Company and the Holder and its successors and assigns.

(c)  This Warrant shall be governed by and construed and enforced in accordance with the internal laws of the State of New York applicable to contracts made and to be performed entirely in such State.

(d)  The headings herein are for convenience only, do not constitute a part of this Warrant and shall not be deemed to limit or affect any of the provisions or interpretation of this Warrant.

(e)  This Warrant shall be deemed to be jointly drafted by the Company and the Holder and shall not be construed against any person as the drafter hereof.

(f)  In case any one or more of the provisions of this Warrant shall be invalid or unenforceable in any respect, the validity and enforceability of the remaining terms and provisions of this Warrant shall not in any way be affected or impaired thereby and the parties shall attempt in good faith to agree upon a valid and enforceable provision which shall be a commercially reasonable substitute therefor, and upon so agreeing, shall incorporate such substitute provision in this Warrant.

(g)  Nothing contained in this Warrant shall be construed as conferring upon the Holder hereof the right to vote or to consent as stockholders in respect of the meetings of stockholders or the election of members of the Board of Directors of the Company or any other matter, or any rights whatsoever as stockholders of the Company or as imposing any obligation on such holder to purchase any securities or as imposing any li­abilities on such Holder as a stockholder of the Company, whether such obligation or liabilities are asserted by the Company or by creditors of the Company.
 
[THIS SPACE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE TO FOLLOW]
 
 
6
 

IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its duly authorized officer on the date first written above.
 
 
  FUNCTION(X) INC.  
  By:  
     
  Name:  Mitchell J. Nelson  
  Title:   Executive Vice President  
 
 
7
 

FORM OF ELECTION TO PURCHASE
 
(To be executed by the Holder to exercise the right to purchase shares of Common Stock under the Warrant)

To Function(x) Inc.:

In accordance with the Warrant enclosed with this Form of Election to Purchase, the undersigned hereby irrevocably elects to purchase  _____________ shares of Common Stock, $0.001 par value  (“Common Stock”), of Function(x) Inc. and encloses herewith $________ in cash or certified or official bank check or checks or wire transfer of immediately available funds, which sum represents the aggregate Exercise Price (as defined in the Warrant) for the number of shares of Common Stock to which this Form of Election to Purchase relates, together with any applicable taxes payable by the undersigned pursuant to the Warrant.

The undersigned requests that certificates for the shares of Common Stock issuable upon this exercise be issued in the name of
 
  PLEASE INSERT SOCIAL SECURITY OR TAX IDENTIFICATION NUMBER
   
   
   
   
(Please print name and address)
 
   
 
 
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If the number of shares of Common Stock issuable upon this exercise shall not be all of the shares of Common Stock which the undersigned is entitled to purchase in accordance with the enclosed Warrant, the undersigned requests that a New Warrant (as defined in the Warrant) evidencing the right to purchase the shares of Common Stock not issuable pursuant to the exercise evidenced hereby be issued in the name of and delivered to:
 
 
(Please print name and address)
   
   
   
 
     
Dated:   (Signature)
  (Print)    
  (By:)     
  (Name:)   
  (Title:)  
 
(Signature must conform in all respects to name of holder as specified on the face of the Warrant)
 
9
 
 
FORM OF ELECTION TO TRANSFER

[To be completed and executed only upon transfer of the Warrant]

FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto ________________________________ the right represented by the within Warrant to purchase  ____________ shares of Common Stock of Function(x) Inc. to which the within Warrant relates, together with all title and interest therein, and hereby irrevocably appoints ________________ attorney to transfer said right on the books of Function(x) Inc. with full power of substitution in the premises.
 
 
Dated:    
     
_______________, ____ 20__ (Signature must conform in all respects to name of holder   
  as specified on the face of the Warrant)  
     
     
  Address of Transferee  
     
     
     
In the presence of:    
     
______________________________________    
 
10
EX-10.3 4 fncx_ex103.htm fncx_ex103.htm
Exhibit 10.3
 
TIPPT LLC
 
LIMITED RECOURSE PROMISSORY NOTE
 
New York, New York
 
May 14, 2012 $500,000.00
 
FOR VALUE RECEIVED, on December 23, 2016 (the “Maturity Date”), TIPPT LLC, a Delaware limited liability company (the "Borrower"), with its offices at 116 West 23rd Street, New York, NY 10010, promises to pay to the order of FUNCTION(X) INC., a Delaware corporation (the "Lender") at its offices at 902 Broadway, 11th Floor, New York, New York 10010, or at such other place as the Lender may designate in writing, Five Hundred Thousand Dollars ($500,000.00) (the “Principal Amount”), plus accrued and unpaid interest thereon.  This Limited Recourse Promissory Note (this “Note”) is issued pursuant to that certain Stock Purchase Agreement, dated as of May 14, 2012, by and between the Borrower and the Lender, pursuant to which the Lender is selling to the Borrower 50,000,000 shares of Common Stock of TIPPT Media Inc. (the “Shares”).  In the event that the Borrower is required, as a result of a regulatory requirement, to distribute any Shares to its members at a time when any amounts of principal or interest are outstanding under this Note, the Borrower shall distribute such Shares to its members subject to the repayment obligations under this Note, such that in the event of any failure to repay any principal or interest under this Note, the Lender may seek recourse solely against the Shares; provided, however, that such requirement shall in no way subject any member who receives any Shares in such distribution to any personal liability beyond the Shares or if such Shares have been transferred the value of the Shares such member has received. Each member’s liability, if any, shall be several and not joint, and such member’s proportionate liability shall be based on such member’s percentage ownership interest in the Borrower at the time of the distribution of the Shares; provided, further, that no distribution of Shares shall in any way relieve the Borrower of any of its obligations to repay any amounts of principal or interest outstanding under this Note.
 
1) Interest.  (a) Borrower will pay interest on the unpaid principal amount of this Promissory Note from the date hereof until paid in full. Interest shall accrue at the compounded interest rate computed quarterly equal to four percent (4%) per annum. Interest shall be computed on the basis of a 365 day year for actual days elapsed, but in no event higher than the maximum rate permitted under applicable law.
 
(b) Borrower will pay interest, calculated at the rate set forth above, upon the Maturity Date. In addition, Borrower will pay a default rate for late charges (the “late charges”) equal to four percent (4%) per annum in excess of the rate set forth herein if the entire Principal Amount and all accrued interest thereon has not been paid when due hereunder. Notwithstanding the foregoing however, in no event shall interest exceed the maximum legal rate permitted by law. All payments, including insufficient payments, shall be credited, regardless of their designation by Borrower, first to outstanding late charges or other amounts due hereunder, then to interest and the remainder, if any, to principal.
 
 
1
 
 
2) Mandatory Prepayment.  If at any time after the date hereof, the Borrower directly or indirectly raises a cumulative amount of capital, whether through one or more transactions after the date hereof, by issuing Equity Securities (as defined below) of at least an aggregate of Twenty Million Dollars ($20,000,000.00) (which amount is herein the “Target Amount”), the Maturity Date of this Promissory Note shall be adjusted and accelerated to occur simultaneously with the closing of the capital raise in which Borrower has reached the Target Amount and on such date the entire outstanding amount of all Advances hereunder, together with all accrued and unpaid interest thereon and any other late charges or amounts due hereunder, shall become immediately due and payable.  For purposes hereof, “Equity Securities” shall mean any stock or other equity securities of the Borrower, or any debt or other instrument, such as a convertible note, a stock option, or warrant, that upon exercise or conversion can allow any holder of such debt or other instrument to receive any stock or equity securities of the Borrower.
 
3) Optional Prepayment.The Borrower may, upon prior notice to the Lender not later than the 12:00 Noon, New York City time on the 5th business day prior to the date of prepayment, prepay all or any portion of the then outstanding Principal Amount, in whole or in part, without premium or penalty.  Each such notice of prepayment given pursuant to this Section 3 (each a “Notice of Prepayment”) shall specify the prepayment date and the principal amount of this Promissory Note to be prepaid.  If a Notice of Prepayment is given, the Borrower shall make such prepayment and the prepayment amount specified in such Notice of Prepayment shall be due and payable on the date specified therein. Any repayment or prepayment of any principal shall be accompanied by and late charges or other amounts then due hereunder, together with accrued interest on the principal amount repaid or prepaid.  Upon any such prepayment, the Principal Amount of this Promissory Note shall be reduced to reflect the amount of the principal so pre-paid.
 
4) Events of Default.  Lender may demand payment of the entire unpaid amount of all Advances hereunder, together with all accrued and unpaid interest thereon, at the option of the Lender, at any time and from time to time in the Lender’s sole and absolute discretion, upon the occurrence and continuance of any one or more of the following events (each an “Event of Default” and collectively, the “Events of Default”): (a) the non-payment of any of the obligations hereunder on the date such payment is due and payable; (b) dissolution or liquidation, as applicable, of the Borrower; (c) any petition in bankruptcy being filed by or against the Borrower or any proceedings in bankruptcy, or under any Acts of Congress or similar applicable state law relating to the relief of debtors, being commenced for the relief or readjustment of any indebtedness of the Borrower either through reorganization, composition, extension or otherwise; provided, however, that Borrower shall have a sixty (60) day grace period to obtain the dismissal or discharge of involuntary proceedings filed against it; (d) the making by the Borrower of an assignment for the benefit of creditors, calling a meeting of creditors for the purpose of effecting a composition or readjustment of its debts, or filing a petition seeking to take advance of any other law providing for the relief of debtors; (e) the appointment of any receiver of any material property of the Borrower or (f) the Borrower makes a distribution of assets to its members other distributions of cash currently held by the Borrower, unless required by a regulatory requirement, and in the case of a distribution made due to a regulatory requirement, the provisions of the introductory paragraph with respect to disbursements of Shares shall apply.
 
 
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5) Guaranty. This Promissory Note is secured by and shall have the benefits of the Guaranty, pursuant to which TIPPT Media Inc. agrees to guaranty the obligations of the Borrower hereunder (the “Guaranty”).
 
6) Governing Law. This Promissory Note shall be governed by, and construed in accordance with, the laws of the State of New York, without regard to its rules on conflicts of laws and for the performance of obligations wholly within such state.
 
7) No Waiver. No failure or delay on the part of the Lender in exercising any right, power, or remedy hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any such right, power, or remedy preclude any other or further exercise thereof or the exercise of any other right, power, or remedy hereunder. The rights and remedies provided herein are cumulative, and are not exclusive of any other rights, powers, privileges, or remedies, now or hereafter existing, at law or in equity or otherwise.
 
8) Costs and Expenses. Borrower shall reimburse the Lender for all costs and expenses incurred by the Lender in connection with the collection of and enforcement of this Promissory Note or any document, instrument or agreement relating thereto.
 
9) Amendments. No amendment, modification, or waiver of any provision of this Promissory Note nor consent to any departure by Borrower therefrom shall be effective unless the same shall be in writing and signed by the Lender and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given.
 
10) Successors and Assigns. This Promissory Note shall be binding upon Borrower and its heirs, legal representatives, successors and assigns and the terms hereof shall inure to the benefit of the Lender and its successors and assigns, including subsequent holders hereof.
 
11) Severability. The provisions of this Promissory Note are severable, and if any provision shall be held invalid or unenforceable in whole or in part in any jurisdiction, then such invalidity or unenforceability shall not in any manner affect such provision in any other jurisdiction or any other provision of this Promissory Note in any jurisdiction.
 
12) Entire Agreement. This Promissory Note is issued pursuant to the terms of a Stock Purchase Agreement, by and between Lender and Borrower of even date herewith (the “Stock Purchase Agreement”).  This Promissory Note, together with the Guaranty, the Stock Purchase Agreement and the other documents referred to in the Guaranty and the Stock Purchase Agreement, sets forth the entire agreement of Borrower and the Lender with respect to this Promissory Note and may be modified only by a written instrument executed by Borrower and the Lender.
 
13) Headings. The headings herein are for convenience only and shall not limit or define the meaning of the provisions of this Promissory Note.
 
14) Jurisdiction; Service of Process. Borrower agrees that in any action or proceeding brought on or in connection with this Promissory Note (i) the Supreme Court of the State of New York for the County of New York, or (in a case involving diversity of citizenship) the United States District Court in the Southern District of New York, shall have jurisdiction of any such action or proceeding, (ii) service of any summons and complaint or other process in any such action or proceeding may be made by the Lender upon Borrower by registered or certified mail directed to Borrower at its address referenced above, Borrower hereby waiving personal service thereof, and (iii) within thirty (30) days after such mailing Borrower shall appear or answer to any summons and complaint or other process, and should Borrower fail to appear to answer within said thirty day period, it shall be deemed in default and judgment may be entered by the Lender against Borrower for the amount as demanded in any summons or complaint or other process so served.
 
 
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15) WAIVER OF THE RIGHT TO TRIAL BY JURY. BORROWER AND, BY ITS ACCEPTANCE HEREOF, THE LENDER, HEREBY IRREVOCABLY WAIVE THE RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING, CLAIM, OR COUNTERCLAIM, WHETHER IN CONTRACT OR TORT, AT LAW OR IN EQUITY, IN ANY MANNER CONNECTED WITH THIS PROMISSORY NOTE OR ANY TRANSACTIONS HEREUNDER. NO OFFICER OF THE LENDER HAS AUTHORITY TO WAIVE, CONDITION, OR MODIFY THIS PROVISION.
 
 
    TIPPT LLC  
       
    By:  
    Name:  
    Title:  
 
 
 4
EX-10.4 5 fncx_ex104.htm fncx_ex104.htm
Exhibit 10.4
 
TIPPT Media Inc.
 
AMENDED AND RESTATED PROMISSORY NOTE
 
New York, New York
 
May 14, 2012 $1,200,655.99
 
1) FOR VALUE RECEIVED, on December 23, 2016 (the “Maturity Date”), TIPPT Media Inc., a Delaware corporation (the "Borrower"), with its offices at 116 West 23rd Street, New York, NY 10010, promises to pay to the order of FUNCTION(X) INC., a Delaware corporation (the "Lender") at its offices at 902 Broadway, 11th Floor, New York, New York 10010, or at such other place as the Lender may designate in writing, the aggregate amount of all Advances (as defined below), plus accrued and unpaid interest thereon.  The aggregate amount of all Advances hereunder shall not exceed One Million Two Hundred Thousand Six Hundred Fifty-Five Dollars and Ninety-Nine Cents ($1,200,655.99).
 
This Amended and Restated Promissory Note (this “Promissory Note”) amends and restates that certain Line of Credit Grid Promissory Note, dated as of December 23, 2011 (the “Original Note”).  The Borrower issued the Original Note on December 23, 2011 in favor of the Lender, and as of the date of this Promissory Note, there remains outstanding $700,655.99 (the “Outstanding Principal Amount”) under the Original Note.  Upon execution hereof, the Original Note will be deemed amended and restated hereby, the Outstanding Principal Amount and accrued interest and other amounts due under the Original Note shall be evidenced hereby and the Outstanding Principal Amount shall constitute and be deemed the initial advance under this Promissory Note (the “Initial Advance”).  In addition, the Lender shall make an additional advance (the “Additional Advance”) to Borrower in the amount of $500,000.  The Initial Advance, together with the Additional Advance hereunder, shall be referred to as the “Advances.”  The parties agree that Lender will disburse the Additional Advance as follows: (a) first, to make payments of expenses on behalf of the Borrower, as set forth on Exhibit A, and (b) the balance, directly to the Borrower.

The Original Note was issued pursuant to that certain Line of Credit Agreement, dated as of December 23, 2011, by and between Borrower and Lender (the “Line of Credit Agreement”).  Upon the execution hereof, the Line of Credit Agreement is hereby terminated.  Accordingly, the amounts outstanding under the Line of Credit Agreement will be the Initial Advance hereunder, and the Lender shall have no further obligation to fund any amounts to Borrower pursuant to the Line of Credit Agreement.

1) Interest.  (a) Borrower will pay interest on each of the unpaid Advances outstanding under this Promissory Note from the date such Advance is made by Lender until the date that such Advance is paid in full. The Advances shall be deemed to have been made on the date this Promissory Note is executed.  Interest shall accrue at the compounded interest rate computed quarterly equal to four percent (4%) per annum. Interest shall be computed on the basis of a 365 day year for actual days elapsed, but in no event higher than the maximum rate permitted under applicable law.
 
 
1
 
 
(b) Borrower will pay interest, calculated at the rate set forth above, upon the Maturity Date. In addition, Borrower will pay a default rate for late charges (the “late charges”) equal to four percent (4%) per annum in excess of the rate set forth herein on the unpaid amount of all Advances and all accrued interest thereon which has not been paid when due hereunder. Notwithstanding the foregoing however, in no event shall interest exceed the maximum legal rate permitted by law. All payments, including insufficient payments, shall be credited, regardless of their designation by Borrower, first to outstanding late charges or other amounts due hereunder, then to interest and the remainder, if any, to principal.
 
2) Mandatory Prepayment.  If at any time after the date hereof, the Borrower raises a cumulative amount of capital, whether through one or more transactions after the date hereof, by issuing Securities (as defined below) of at least an aggregate of Twenty Million Dollars ($20,000,000.00) (which amount is herein the “Target Amount”), the Maturity Date of this Promissory Note shall be adjusted and accelerated to occur simultaneously with the closing of the capital raise in which Borrower has reached the Target Amount and on such date the entire outstanding amount of all Advances hereunder, together with all accrued and unpaid interest thereon and any other late charges or amounts due hereunder, shall become immediately due and payable.  For purposes hereof, “Securities” shall mean any stock or other equity securities of the Borrower, or any debt instrument, such as a note or line of credit.
 
3) Optional Prepayment.  The Borrower may, upon prior notice to the Lender not later than the 12:00 Noon, New York City time on the 5th business day prior to the date of prepayment, prepay all or any portion of the then outstanding amount of all Advances, in whole or in part, without premium or penalty.  Each such notice of prepayment given pursuant to this Section 3 (each a “Notice of Prepayment”) shall specify the prepayment date and the principal amount of this Promissory Note to be prepaid.  If a Notice of Prepayment is given, the Borrower shall make such prepayment and the prepayment amount specified in such Notice of Prepayment shall be due and payable on the date specified therein. Any repayment or prepayment of any principal shall be accompanied by and late charges or other amounts then due hereunder, together with accrued interest on the principal amount repaid or prepaid.  Upon any such prepayment, the amount of the Advances outstanding under this Promissory Note shall be reduced to reflect the amount of Advances so pre-paid.
 
4) Events of Default.  Lender may demand payment of the entire unpaid amount of all Advances hereunder, together with all accrued and unpaid interest thereon, at the option of the Lender, at any time and from time to time in the Lender’s sole and absolute discretion, upon the occurrence and continuance of any one or more of the following events (each an “Event of Default” and collectively, the “Events of Default”): (a) the non-payment of any of the obligations hereunder on the date such payment is due and payable; (b) dissolution or liquidation, as applicable, of the Borrower; (c) any petition in bankruptcy being filed by or against the Borrower or any proceedings in bankruptcy, or under any Acts of Congress or similar applicable state law relating to the relief of debtors, being commenced for the relief or readjustment of any indebtedness of the Borrower either through reorganization, composition, extension or otherwise; provided, however, that Borrower, as the case may be, shall have a sixty (60) day grace period to obtain the dismissal or discharge of involuntary proceedings filed against it; (d) the making by the Borrower of an assignment for the benefit of creditors, calling a meeting of creditors for the purpose of effecting a composition or readjustment of its debts, or filing a petition seeking to take advance of any other law providing for the relief of debtors; or (e) the appointment of any receiver of any material property of the Borrower.
 
 
2
 
 
5) Governing Law. This Promissory Note shall be governed by, and construed in accordance with, the laws of the State of New York, without regard to its rules on conflicts of laws and for the performance of obligations wholly within such state.
 
6) No Waiver. No failure or delay on the part of the Lender in exercising any right, power, or remedy hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any such right, power, or remedy preclude any other or further exercise thereof or the exercise of any other right, power, or remedy hereunder. The rights and remedies provided herein are cumulative, and are not exclusive of any other rights, powers, privileges, or remedies, now or hereafter existing, at law or in equity or otherwise.
 
7) Costs and Expenses. Borrower shall reimburse the Lender for all costs and expenses incurred by the Lender in connection with the collection of and enforcement of this Promissory Note or any document, instrument or agreement relating thereto.
 
8) Amendments. No amendment, modification, or waiver of any provision of this Promissory Note nor consent to any departure by Borrower therefrom shall be effective unless the same shall be in writing and signed by the Lender and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given.
 
9) Successors and Assigns. This Promissory Note shall be binding upon Borrower and its heirs, legal representatives, successors and assigns and the terms hereof shall inure to the benefit of the Lender and its successors and assigns, including subsequent holders hereof.
 
10) Severability. The provisions of this Promissory Note are severable, and if any provision shall be held invalid or unenforceable in whole or in part in any jurisdiction, then such invalidity or unenforceability shall not in any manner affect such provision in any other jurisdiction or any other provision of this Promissory Note in any jurisdiction.
 
11) Entire Agreement. This Promissory Note sets forth the entire agreement of Borrower and the Lender with respect to this Promissory Note and may be modified only by a written instrument executed by Borrower and the Lender.
 
12) Headings. The headings herein are for convenience only and shall not limit or define the meaning of the provisions of this Promissory Note.
 
13) Jurisdiction; Service of Process. Borrower agrees that in any action or proceeding brought on or in connection with this Promissory Note (i) the Supreme Court of the State of New York for the County of New York, or (in a case involving diversity of citizenship) the United States District Court in the Southern District of New York, shall have jurisdiction of any such action or proceeding, (ii) service of any summons and complaint or other process in any such action or proceeding may be made by the Lender upon Borrower by registered or certified mail directed to Borrower at its address referenced above, Borrower hereby waiving personal service thereof, and (iii) within thirty (30) days after such mailing Borrower shall appear or answer to any summons and complaint or other process, and should Borrower fail to appear to answer within said thirty day period, it shall be deemed in default and judgment may be entered by the Lender against Borrower for the amount as demanded in any summons or complaint or other process so served.
 
 
3
 
 
14) WAIVER OF THE RIGHT TO TRIAL BY JURY. BORROWER AND, BY ITS ACCEPTANCE HEREOF, THE LENDER, HEREBY IRREVOCABLY WAIVE THE RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING, CLAIM, OR COUNTERCLAIM, WHETHER IN CONTRACT OR TORT, AT LAW OR IN EQUITY, IN ANY MANNER CONNECTED WITH THIS PROMISSORY NOTE OR ANY TRANSACTIONS HEREUNDER. NO OFFICER OF THE LENDER HAS AUTHORITY TO WAIVE, CONDITION, OR MODIFY THIS PROVISION.
 
 
    TIPPT Media, Inc.  
       
    By:  
       
    Name:  
    Title:  
       
Agreed:      
       
Function(x) Inc.      
       
By:        
       
Name:      
Title:      
 
 
4
 
 
 
 
 
 
 
Exhibit A

Disbursements of Additional Advance
 
 
 

 
5
 
EX-10.5 6 fncx_ex105.htm fncx_ex105.htm
Exhibit 10.5

 
 
Amended and Restated Stockholders Agreement
 

by and among

 
TIPPT MEDIA INC.
 

and

 
the Stockholders named herein
 
dated as of

May 14, 2012


 
TABLE OF CONTENTS
 
 
1
 
 
TABLE OF CONTENTS
 
ARTICLE I DEFINITIONS
     1  
         
ARTICLE II BOARD OBSERVER RIGHTS
        
         
Section 2.01 Board Observer.
     6  
Section 2.02 Obligations of the Board.
     6  
         
ARTICLE III TRANSFER OF INTERESTS
     7  
         
Section 3.01 General Restrictions on Transfer.
     7  
Section 3.02 Right of First Refusal.
     9  
Section 3.03 Drag-along Rights.
     11  
Section 3.04 Tag-along Rights.
     12  
Section 3.05 Sale of Majority Stockholder.
     15  
Section 3.06 Preemtpive Rights.
     15  
         
ARTICLE IV OTHER AGREEMENTS
     16  
         
Section 4.01 Corporate Opportunities.
     16  
Section 4.02 Confidentiality.
     16  
         
ARTICLE V INFORMATION AND REGISTRATION RIGHTS
     17  
         
Section 5.01 Financial Statements.
     17  
Section 5.02 Inspection Rights.
     18  
Section 5.03 Registration Rights.
     18  
         
ARTICLE VI REPRESENTATIONS AND WARRANTIES
     19  
         
Section 6.01 Representations and Warranties.
     19  
         
ARTICLE VII TERM AND TERMINATION
     20  
         
Section 7.01 Termination.
     20  
Section 7.02 Effect of Termination.
     21  
 
 
2
 
 
ARTICLE VIII MISCELLANEOUS
     21  
         
Section 8.01 Expenses.
     21  
Section 8.02 Release of Liability.
     21  
Section 8.03 Notices.
     22  
Section 8.04 Interpretation.
     22  
Section 8.05 Headings.
     23  
Section 8.06 Severability.
     23  
Section 8.07 Entire Agreement.
     23  
Section 8.08 Successors and Assigns.
     23  
Section 8.09 No Third-party Beneficiaries.
     23  
Section 8.10 Amendment and Modification; Waiver.
     24  
Section 8.11 Governing Law.
     24  
Section 8.12 Dispute Resolution.
     24  
Section 8.13 Equitable Remedies.
     25  
Section 8.14 Counterparts.
     25  
 
 
3
 
 
AMENDED AND RESTATED STOCKHOLDERS AGREEMENT
 
This Amended and Restated Stockholders Agreement (this "Agreement"), dated as of May 14, 2012 (the "Effective Date"), is entered into by and among TIPPT Media Inc. a Delaware corporation (the "Company"), Function(x) Inc., a Delaware corporation (the "Minority Stockholder"), TIPPT LLC a Delaware limited liability company (the "Majority Stockholder" and, together with the Minority Stockholder, the "Initial Stockholders") and each other Person who after the date hereof acquires Common Stock of the Company and becomes a party to this Agreement by executing a Joinder Agreement (such Persons, collectively with the Initial Stockholders, the "Stockholders").
 
RECITALS
 
 WHEREAS, the Company was formed by the Majority Stockholder and the Minority Stockholder on December 22, 2011 for the purposes of conducting and operating the Business, and on December 23, 2011, the Majority Stockholder and the Minority Stockholder entered into the Stockholders Agreement dated as of such date (the “Original Agreement”);
 
 WHEREAS, as of the date hereof, the Minority Stockholder is selling to the Majority Stockholder 50,000,000 shares of the common stock of the Company representing a 50% interest in the issued and outstanding Common Stock of the Company (the “Share Purchase”);
 
 WHEREAS, after the Share Purchase, the Majority Stockholder owns 85,000,000 shares of the common stock of the Company, representing 85% of the issued and outstanding Common Stock of the Company and the Minority Stockholder owns 15,000,000 shares of the Common Stock of the Company, representing 15% of the issued and outstanding Common Stock of the Company; and
 
 WHEREAS, the Initial Stockholders and the other parties hereto deem it in their best interests and in the best interests of the Company to amend and restate the Original Agreement on the terms set forth herein.
 
 NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter set forth and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
 
 
ARTICLE I
 
Definitions
 
Capitalized terms used herein and not otherwise defined shall have the meanings set forth in this Article I.
 
"Affiliate" means with respect to any Person, any other Person who, directly or indirectly (including through one or more intermediaries), controls, is controlled by, or is under common control with, such Person.  For purposes of this definition, "control," when used with respect to any specified Person, shall mean the power, direct or indirect, to direct or cause the direction of the management and policies of such Person, whether through ownership of voting securities or partnership or other ownership interests, by contract or otherwise; and the terms "controlling" and "controlled" shall have correlative meanings.
 
 
4
 
 
"Agreement" has the meaning set forth in the preamble.
 
"Applicable Law" means all applicable provisions of (a) constitutions, treaties, statutes, laws (including the common law), rules, regulations, decrees, ordinances, codes, proclamations, declarations or orders of any Governmental Authority, (b) any consents or approvals of any Governmental Authority and (c) any orders, decisions, advisory or interpretative opinions, injunctions, judgments, awards, decrees of, or agreements with, any Governmental Authority.
 
"Board" has the meaning set forth in Error! Reference source not found.
 
"Business" means the sale of coupons and/or discount codes on behalf of third parties, in each case, utilizing the promotion thereof by individuals with a public profile via internet-based social networking and microblogging websites and other similar internet-based methods of electronic communications.
 
"Business Day" means a day other than a Saturday, Sunday or other day on which commercial banks in the City of New York are authorized or required to close.
 
"By-laws" means the by-laws of the Company, as amended, modified, supplemented or restated from time to time in accordance with the terms of this Agreement.
 
"Call" has the meaning set forth in Section 3.07.
 
 "Certificate of Incorporation" means the certificate of incorporation of the Company, as filed on December 22, 2011, with the Secretary of State of the State of Delaware and as amended, modified, supplemented or restated from time to time in accordance with the terms of this Agreement.
 
"Claimant" has the meaning set forth in Section 8.12(b).
 
"Common Stock" means the common stock, par value $0.001 per share, of the Company and any securities issued in respect thereof, or in substitution therefor, in connection with any stock split, dividend or combination, or any reclassification, recapitalization, merger, consolidation, exchange or similar reorganization.
 
"Company" has the meaning set forth in the preamble.
 
"Competitor" means any Person that directly or indirectly competes with the Company in the Business (or any portion thereof) and/or whose business is or includes the Business (or any portion thereof).
 
 
5
 
 
“Control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ownership of voting securities or general partnership or managing member interests, by contract or otherwise.
 
"Corporate Opportunity" has the meaning set forth in Section 4.01.
 
"Dispute" has the meaning set forth in Section 8.12(a).
 
"Drag-along Notice" has the meaning set forth in Section 3.03(b).
 
"Drag-along Sale" has the meaning set forth in Section 3.03(a).
 
"Drag-along Stockholder" has the meaning set forth in Section 3.03(a).
 
"Dragging Stockholder" has the meaning set forth in Section 3.03(a).
 
"Effective Date" has the meaning set forth in the preamble.
 
"Exchange Act" means the Securities Exchange Act of 1934, as amended, or any successor federal statute, and the rules and regulations thereunder, which shall be in effect at the time.
 
"Fair Market Value" shall mean the value as determined by an independent investment bank retained by the Company in accordance with Section 3.05.
 
"Fiscal Year" means for financial accounting purposes, July 1 to June 30.
 
"GAAP" means United States generally accepted accounting principles in effect from time to time.
 
"Government Approval" means any authorization, consent, approval, waiver, exception, variance, order, exemption, publication, filing, declaration, concession, grant, franchise, agreement, permission, permit, or license of, from or with any Governmental Authority, the giving notice to, or registration with, any Governmental Authority or any other action in respect of any Governmental Authority.
 
"Governmental Authority" means any federal, state, local or foreign government or political subdivision thereof, or any agency or instrumentality of such government or political subdivision, or any self-regulated organization or other non-governmental regulatory authority or quasi-governmental authority (to the extent that the rules, regulations or orders of such organization or authority have the force of Law), or any arbitrator, court or tribunal of competent jurisdiction.
 
"Initial Public Offering" means any offering of Common Stock, directly or indirectly, pursuant to a registration statement filed in accordance with the Securities Act.
 
"Initial Stockholders" has the meaning set forth in the preamble.
 
"Information" has the meaning set forth in Section 4.02(b).
 
"Joinder Agreement" means the joinder agreement in form and substance of Exhibit A attached hereto.
 
 
6
 
 
"Lien" means any lien, claim, charge, mortgage, pledge, security interest, option, preferential arrangement, right of first offer, encumbrance or other restriction or limitation of any nature whatsoever.
 
"Majority Stockholder" has the meaning set forth in the preamble.
 
"Majority Stockholder Sale Notice" has the meaning set forth in Error! Reference source not found..
 
"Majority Stockholder Sale Transaction" has the meaning set forth in Section 3.05(a).
 
“Member of the Immediate Family” means, with respect to any natural Person, (a) each spouse or natural or adopted child of such Person; (b) each natural or adopted child of any Person described in clause (a) above; (c) each trust created solely for the benefit of one or more of the Persons described in clauses (a) and (b) above; and (d) each custodian or guardian of any property of one or more of the Persons described in clauses (a) through (c) above in his or her capacity as such custodian or guardian.
 
"Minority Stockholder" has the meaning set forth in the preamble.
 
"Minority Selling Stockholder" has the meaning set forth in Section 3.05(a).
 
“Non-Dilutive Issuances" has the meaning set forth in Section 3.06.
 
"Observer" has the meaning set forth in Section 2.01.
 
"Offered Shares" has the meaning set forth in Section 3.02(a).
 
"Offering Stockholder" has the meaning set forth in Section 3.02(a).
 
"Offering Stockholder Notice" has the meaning set forth in Section 3.02(b).
 
"Organizational Documents" means the By-laws and the Certificate of Incorporation.
 
"Permitted Transferee" means with respect to any Stockholder, any Affiliate of such Stockholder.
 
"Person" means an individual, corporation, partnership, joint venture, limited liability company, Governmental Authority, unincorporated organization, trust, association or other entity.
 
"Preemptive Rights Issuance" has the meaning set forth in Section 3.07.
 
"Preemptive Rights Notice" has the meaning set forth in Section 3.07.
 
"Proposed Purchaser" has the meaning set forth in Section 3.05(a).
 
"Proposed Transferee" has the meaning set forth in Section 3.04(a).
 
"Purchase Price" has the meaning set forth in Section 3.08.
 
"Purchase Price Note" has the meaning set forth in Section 3.08.
 
 
7
 
 
"Purchasing Stockholder" has the meaning set forth in Section 3.02(d).
 
"Put" has the meaning set forth in Section 3.08.
 
"Put and Call Shares" has the meaning set forth in Section 3.08.
 
"Related Party Agreement" means any agreement, arrangement or understanding between the Company and any Stockholder, any Affiliate of a Stockholder or any Director, officer or employee of the Company, or with The 100 Mile Group or any officer, director or member thereof, as such agreement may be amended, modified, supplemented or restated in accordance with the terms of this Agreement.
 
"Representative" means, with respect to any Person, any and all directors, officers, employees, consultants, financial advisors, counsel, accountants and other agents of such Person.
 
"Request" has the meaning set forth in Section 8.12(b).
 
"Respondent" has the meaning set forth in Section 8.12(b).
 
"ROFR Notice" has the meaning set forth in Section 3.02(d).
 
"ROFR Notice Period" has the meaning set forth in Section 3.02(d).
 
"ROFR Rightholder" has the meaning set forth in Section 3.02(a).
 
"Sale Notice" has the meaning set forth in Section 3.04(b).
 
"Securities Act" means the Securities Act of 1933, as amended, or any successor federal statute, and the rules and regulations thereunder, which shall be in effect at the time.
 
"Selling Stockholder" has the meaning set forth in Section 3.04(a).
 
"Stockholders" has the meaning set forth in the preamble.
 
"Subsidiary" means with respect to any Person, any other Person of which a majority of the outstanding shares or other equity interests having the power to vote for directors or comparable managers are owned, directly or indirectly, by the first Person.
 
"Tag-along Notice" has the meaning set forth in Section 3.04(c).
 
"Tag-along Period" has the meaning set forth in Section 3.04(c).
 
"Tag-along Sale" has the meaning set forth in Section 3.04(c).
 
"Tag-along Stockholder" has the meaning set forth in Section 3.04(a).
 
"Third Party Purchaser" means any Person or Affiliate of such Person who, immediately prior to the contemplated transaction, (a) is not an Affiliate of the Majority Stockholder, is not an officer, director or member of the Majority Stockholder and is not The 100 Mile Group, any officer, director or member thereof, or any Affiliate of an officer, director or member thereof, or (b) is not a Permitted Transferee of any Person who directly or indirectly owns or has the right to acquire any Common Stock.
 
 
8
 
 
"Transfer" means to, directly or indirectly, sell, transfer, assign, pledge, encumber, hypothecate or similarly dispose of, either voluntarily or involuntarily, or to enter into any contract, option or other arrangement or understanding with respect to the sale, transfer, assignment, pledge, encumbrance, hypothecation or similar disposition of, any Common Stock owned by a Person or any interest (including a beneficial interest) in any Common Stock owned by a Person.
 
"Waived ROFR Transfer Period" has the meaning set forth in Section 3.02(f).
 
ARTICLE II
Board Observer Rights
 
Section 2.01 Board Observer.The Company grants to the Minority Stockholder the right to designate a non-voting Observer (the “Observer”) to the Board of Directors of the Company (the “Board”). The Observer shall have the right to notice of and attendance at all meetings of the Board, the board of directors of any subsidiary of the Company, and any committee of any of the foregoing boards. The Observer shall be entitled to receive and have full access to all information and materials provided to any of the members of the Board or any member of the board of directors of any subsidiary of the Company in connection with any Board Meeting, at the same time as the Board receives such materials, including without limitation any materials distributed to the Board or the board of directors of any subsidiary of the Company seeking their written consent in lieu of a meeting.  The Minority Stockholder will designate the Observer by notice to the Company who shall be reasonably acceptable to the Company, and the Company may change the Observer (subject to the approval of the Company not to be unreasonably withheld) at any time by notice to the Company.  Neither the Minority Stockholder nor the Observer will receive any compensation from the Company for service as an Observer. Notwithstanding the foregoing, (i) the Board or any committee of it may restrict any Person’s attendance as an Observer at any meeting or portion of a meeting and will not be required to provide information or access to information with respect thereto, if the Board or any committee of it, makes a good faith determination, that such Person has a conflict of interest with respect to the subject matter of such portion of the meeting or that the attendance by such Person at such portion of the meeting or the delivery of or provision of access to, such information would cause the Company to lose the benefit of protection in respect of what would otherwise be privileged communications, and (ii) the failure of any Observer, if notice was given, to attend any meeting of the Board or any committee of it shall not prevent any such meeting from proceeding or otherwise affect the validity of such meeting or any actions taken at such meeting.
 
Section 2.02 Obligations of the Board.  The Board shall generally act in good faith and consistent with its fiduciary duties to the Company and its stockholders.
 
 
9
 
 
Section 2.03 Mergers or Consolidation with Non Third Party Purchasers.  Any merger, consolidation or other business combination of the Company with a Person that is not a Third Party Purchaser shall require the prior written consent of the Minority Stockholder.  In addition, for the avoidance of doubt, in the event of any merger, consolidation or other business combination of the Company with a Third Party Purchaser, the Minority Stockholder shall be entitled to receive the same per-share consideration as the Majority Stockholder in such merger, consolidation or other business combination.
 
ARTICLE III
Transfer of Interests
 
Section 3.01 General Restrictions on Transfer.
 
(a) Except as permitted pursuant to Section 3.01Error! Reference source not found. or in accordance with the procedures described in Section 3.02, Section 3.03 or Section 3.04, each Stockholder agrees that such Stockholder will not, directly or indirectly, voluntarily or involuntarily Transfer any of its Common Stock.
 
(b) The provisions of Section 3.02, Section 3.03 and Section 3.04 shall not apply to any of the following Transfers by any Stockholder of any of its Common Stock:
 
(i) to a Permitted Transferee;
 
(ii) pursuant to a merger, consolidation or other business combination of the Company;
 
(iii) if such Stockholder is an individual, to a Member of the Immediate Family of such Stockholder or to a trust created solely for the benefit of such Stockholder or a Member of the Immediate Family of such Stockholder;
 
(iv) in the case of the death or permanent incapacity of such Stockholder that is an individual, to such Stockholder’s personal representative, heirs or legatees.
 
(c) In addition to any legends required by Applicable Law, each certificate representing the Common Stock of the Company shall bear a legend substantially in the following form:
 
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A STOCKHOLDERS AGREEMENT (A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY). NO TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY BE MADE EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF SUCH STOCKHOLDERS AGREEMENT AND (A) PURSUANT TO A REGISTRATION STATEMENT EFFECTIVE UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) PURSUANT TO AN EXEMPTION FROM REGISTRATION THEREUNDER.  THE HOLDER OF THIS CERTIFICATE, BY ACCEPTANCE OF THIS CERTIFICATE, AGREES TO BE BOUND BY ALL OF THE PROVISIONS OF SUCH STOCKHOLDERS AGREEMENT."
 
 
10
 
 
(d) The provisions of Section 3.03 and Section 3.04 shall not apply to a Transfer by the Majority Stockholder in the form of a distribution or dividend of the Common Stock held by it to any of the members or stockholders of the Majority Stockholder; provided, that any such member or stockholder of the Majority Stockholder that is Transferred such Common Stock shall be required, as a condition to such Transfer, to sign the Joinder Agreement as provided in Section 3.01(a) (such distribution or dividend, the “Majority Distribution”). Upon the effective completion of the Majority Distribution, (i) any action to be taken by the Majority Stockholder pursuant to Section 2.01 may be taken by the approval of the holders of a majority of the Common Stock Transferred by the Majority Stockholder in the Majority Distribution and (ii) all other rights, benefits and entitlements of the Majority Stockholder hereunder shall be an individual right, benefit and entitlement of each holder of Common Stock Transferred by the Majority Stockholder in the Majority Distribution (on a pro rata basis) and shall be deemed Initial Stockholders. In addition, the provisions of Section 3.03 and 3.04 shall not apply to one or more Transfers by the Majority Stockholder (in whatever form) of up to 7,500,000 shares of Common Stock to its members; provided, that any such member of the Majority Stockholder that is Transferred such Common Stock shall be required, as a condition to such Transfer, to sign the Joinder Agreement as provided in Section 3.01(a).
 
(e) Not less than 5 days’ prior notice shall be given to the Company by the transferor of any Transfer (whether or not to a Permitted Transferee) of any Common Stock. Prior to consummation of any Transfer by any Stockholder of any of its Common Stock, such party shall cause the transferee thereof to execute and deliver to the Company a Joinder Agreement and agree to be bound by the terms and conditions of this Agreement. Upon any Transfer by any Stockholder of any of its Common Stock, in accordance with the terms of this Agreement, the transferee thereof shall be substituted for, and shall assume all the rights and obligations under this Agreement of, the transferor thereof.
 
(f) Notwithstanding any other provision of this Agreement, each Stockholder agrees that it will not, directly or indirectly, Transfer any of its Common Stock (i) except as permitted under the Securities Act and other applicable federal or state securities laws, and then, if requested by the Company, only upon delivery to the Company of an opinion of counsel in form and substance satisfactory to the Company to the effect that such Transfer may be effected without registration under the Securities Act, (ii) if it would cause the Company or any of its Subsidiaries to be required to register as an investment company under the Investment Company Act of 1940, as amended, or (iii) if it would cause the assets of the Company or any of its Subsidiaries to be deemed plan assets as defined under the Employee Retirement Income Security Act of 1974 or its accompanying regulations or result in any "prohibited transaction" thereunder involving the Company. In any event, the Board may refuse the Transfer to any Person if such Transfer would have a material adverse effect on the Company as a result of any regulatory or other restrictions imposed by any Governmental Authority.
 
 
11
 
 
(g) Any Transfer or attempted Transfer of any Common Stock in violation of this Agreement shall be null and void, no such Transfer shall be recorded on the Company's books and the purported transferee in any such Transfer shall not be treated (and the purported transferor shall continue be treated) as the owner of such Common Stock for all purposes of this Agreement.
 
Section 3.02 Right of First Refusal.
 
(a) If at any time the Minority Stockholder prior to the Majority Distribution (such Stockholder, an "Offering Stockholder") receives a bona fide offer from any Third Party Purchaser who is not an Affiliate of the Minority Stockholder to purchase all or any portion of the Common Stock (the "Offered Shares") owned by the Offering Stockholder and the Offering Stockholder desires to Transfer the Offered Shares (other than Transfers that are permitted by Section 3.01(b) or Transfers made pursuant to Section 3.03), then the Offering Stockholder must first make an offering of the Offered Shares to each Initial Stockholder (each such Initial Stockholder, a "ROFR Rightholder") in accordance with the provisions of this Section 3.02.
 
(b) The Offering Stockholder shall, within five days of receipt of the offer from the Third Party Purchaser, give written notice (the "Offering Stockholder Notice") to the Company and the ROFR Rightholders stating that it has received a bona fide offer from a Third Party Purchaser and specifying:
 
(i) the number of Offered Shares to be Transferred by the Offering Stockholder;
 
(ii) the identity of the Third Party Purchaser;
 
(iii) the per share purchase price and the other material terms and conditions of the Transfer, including a description of any non-cash consideration in sufficient detail to permit the valuation thereof and the Offering Stockholder’s binding valuation of such non-cash consideration; and
 
(iv) the proposed date, time and location of the closing of the Transfer, which shall not be less than 60days from the date of the Offering Stockholder Notice.
 
 
12
 
 
The Offering Stockholder Notice shall constitute the Offering Stockholder's offer to Transfer the Offered Shares to the ROFR Rightholders, which offer shall be irrevocable until the end of the ROFR Notice Period.
 
(c) By delivering the Offering Stockholder Notice, the Offering Stockholder represents and warrants to the Company and to each ROFR Rightholder that: (i) the Offering Stockholder has full right, title and interest in and to the Offered Shares; (ii) the Offering Stockholder has all the necessary power and authority and has taken all necessary action to Transfer such Offered Shares as contemplated by this Section 3.02; and (iii) the Offered Shares are free and clear of any and all Liens other than those arising as a result of or under the terms of this Agreement.
 
(d) Upon receipt of the Offering Stockholder Notice, each ROFR Rightholder shall have 30 days (the "ROFR Notice Period") to elect to purchase all (and not less than all) of the Offered Shares by delivering a written notice (a "ROFR Notice") to the Offering Stockholder and the Company stating that it offers to purchase such Offered Shares on the terms specified in the Offering Stockholder Notice. Any ROFR Notice shall be binding upon delivery and irrevocable by the applicable ROFR Rightholder. If more than one ROFR Rightholder delivers a ROFR Notice, each such ROFR Rightholder (the "Purchasing Stockholder") shall be allocated the number of shares equal to the product of (x) the total number of Offered Shares and (y) a fraction determined by dividing (A) the number of shares of Common Stock owned by such Purchasing Stockholder as of the date of the Offering Stockholder Notice, by (B) the total number of shares of Common Stock owned by all of the Purchasing Stockholders as of such date.
 
(e) Each ROFR Rightholder that does not deliver a ROFR Notice during the ROFR Notice Period shall be deemed to have waived all of such ROFR Rightholder's rights to purchase the Offered Shares under this Section 3.02.
 
(f) If no Stockholder delivers a ROFR Notice in accordance with Section 3.02(d), the Offering Stockholder may, during the 60 day period immediately following the expiration of the ROFR Notice Period, which period may be extended for a reasonable time not to exceed an additional 30 days to the extent reasonably necessary to obtain any Government Approvals (the "Waived ROFR Transfer Period") and subject to the provisions of Section 3.04, Transfer all of the Offered Shares to the Third Party Purchaser on terms and conditions no more favorable to the Third Party Purchaser than those set forth in the Offering Stockholder Notice. If the Offering Stockholder does not Transfer the Offered Shares within such period or, if such Transfer is not consummated within the Waived ROFR Transfer Period, the rights provided hereunder shall be deemed to be revived and the Offered Shares shall not be Transferred to the Third Party Purchaser unless the Offering Stockholder sends a new Offering Stockholder Notice in accordance with, and otherwise complies with, this Section 3.02.
 
(g) Each Stockholder shall take all actions as may be reasonably necessary to consummate the Transfer contemplated by this Section 3.02, including entering into agreements and delivering certificates and instruments and consents as may be deemed necessary or appropriate.
 
(h) At the closing of any Transfer pursuant to this Section 3.02, the Offering Stockholder shall deliver to the Purchasing Stockholders the certificate or certificates representing the Offered Shares to be sold (if any), accompanied by stock powers and all necessary stock transfer taxes paid and stamps affixed, if necessary, against receipt of the purchase price therefor from such Purchasing Stockholders by certified or official bank check or by wire transfer of immediately available funds.
 
 
13
 
 
Section 3.03 Drag-along Rights.
 
(a) If at any time a Stockholder, or group of Stockholders, who holds not less than 51% of the outstanding Common Stock of the Company (a "Dragging Stockholder") receives a bona fide offer from a Third Party Purchaser who is not an Affiliate of the Dragging Stockholder to purchase all of the outstanding Common Stock of the Company, in one transaction or a series of related transactions (a "Drag-along Sale"), the Dragging Stockholder shall have the right to require that each other Stockholder (each, a "Drag-along Stockholder") sell all of their shares of Common Stock to such Third Party Purchaser in the manner set forth in this Section 3.03. Notwithstanding anything to the contrary in this Agreement, each Drag-along Stockholder shall vote in favor of the transaction and take all actions to waive any dissenters, appraisal or other similar rights.
 
(b) The Dragging Stockholder shall exercise its rights pursuant to this Section 3.03 by delivering a written notice (the "Drag-along Notice") to the Company and each Drag-along Stockholder no later than 30 days prior to the closing date of such Drag-along Sale. The Drag-along Notice shall make reference to the Dragging Stockholder's rights and obligations hereunder and shall describe in reasonable detail:
 
(i) the identity of such Third Party Purchaser;
 
(ii) the proposed date, time and location of the closing of the Drag-along Sale;
 
(iii) the per share purchase price and the other material terms and conditions of the Transfer, including a description of any non-cash consideration in sufficient detail to permit the valuation thereof; and
 
(iv) a copy of any form of agreement proposed to be executed in connection therewith.
 
(c) If the Drag-along Sale is structured as a Transfer of Common Stock, then, subject to Section 3.03(d), the Dragging Stockholder and each Drag-along Stockholder shall Transfer all of the Common Stock owned by them in such Drag-along Sale.
 
(d) The consideration to be received by a Drag-along Stockholder shall be the same form and amount of consideration per share of Common Stock to be received by the Dragging Stockholder (or, if the Dragging Stockholder is given an option as to the form and amount of consideration to be received, the same option shall be given) and the terms and conditions of such Transfer shall, except as otherwise provided in the immediately succeeding sentence, be the same as those upon which the Dragging Stockholder Transfers its Common Stock. Each Drag-along Stockholder shall make or provide the same representations, warranties, covenants, indemnities and agreements as the Dragging Stockholder makes or provides in connection with the Drag-along Sale (except that in the case of representations, warranties, covenants, indemnities and agreements pertaining specifically to the Dragging Stockholder, the Drag-along Stockholder shall make the comparable representations, warranties, covenants, indemnities and agreements pertaining specifically to itself); provided, that all representations, warranties, covenants and indemnities shall be made by the Dragging Stockholder and each Drag-along Stockholder severally and not jointly and any indemnification obligation shall be pro rata based on the consideration received by the Dragging Stockholder and each Drag-along Stockholder, in each case in an amount not to exceed the aggregate proceeds received by the Dragging Stockholder and each such Drag-along Stockholder in connection with the Drag-along Sale.
 
 
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(e) The reasonable and documented fees and expenses of the Dragging Stockholder incurred in connection with a Drag-along Sale and for the benefit of all Stockholders (it being understood that costs incurred by or on behalf of a Dragging Stockholder for its sole benefit will not be considered to be for the benefit of all Stockholders), to the extent not paid or reimbursed by the Company or such Third Party Purchaser, shall be shared by all the Stockholders on a pro rata basis, based on the aggregate consideration received by each Stockholder; provided, that no Stockholder shall be obligated to make or reimburse any out-of-pocket expenditure prior to the consummation of the Drag-along Sale.
 
(f) Each Stockholder shall take all actions as may be reasonably necessary to consummate the Drag-along Sale, including entering into agreements and delivering certificates and instruments, in each case consistent with the agreements being entered into and the certificates being delivered by the Dragging Stockholder.
 
(g) The Dragging Stockholder shall have 90 days following the date of the Drag-along Notice in which to consummate the Drag-along Sale, on the terms set forth in the Drag-along Notice (which such 90 day period may be extended for a reasonable time not to exceed an additional 30 days to the extent reasonably necessary to obtain any Government Approvals). If at the end of such period, the Dragging Stockholder has not completed the Drag-along Sale, the Dragging Stockholder may not then effect a transaction subject to this Section 3.03 without again fully complying with the provisions of this Section 3.03.
 
Section 3.04 Tag-along Rights.
 
(a) If at any time an Initial Stockholder (the "Selling Stockholder") proposes to Transfer any shares of its Common Stock to a Third Party Purchaser (the "Proposed Transferee") and the Selling Stockholder cannot or has not elected to exercise its drag-along rights set forth in Section 3.03, each other Stockholder (each, a "Tag-along Stockholder") shall be permitted to participate in such Transfer (a "Tag-along Sale") on the terms and conditions set forth in this Section 3.04.
 
 
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(b) Prior to the consummation of any such Transfer of Common Stock described in Section 3.04(a), and after satisfying its obligations pursuant to Section 3.02, the Selling Stockholder shall deliver to the Company and each other Stockholder a written notice (a "Sale Notice") of the proposed Tag-along Sale subject to this Section 3.04 no later than 60 days prior to the closing date of the Tag-along Sale. The Sale Notice shall make reference to the Tag-along Stockholders' rights hereunder and shall describe in reasonable detail:
 
(i)  the aggregate number of shares of Common Stock the Proposed Transferee has offered to purchase.
 
(ii) the identity of the Proposed Transferee;
 
(iii) the proposed date, time and location of the closing of the Tag-along Sale;
 
(iv) the per share purchase price and the other material terms and conditions of the Transfer, including a description of any non-cash consideration in sufficient detail to permit the valuation thereof; and
 
(v) a copy of any form of agreement proposed to be executed in connection therewith.
 
(c) Each Tag-along Stockholder shall exercise its right to participate in a Transfer of Common Stock by the Selling Stockholder subject to this Section 3.04 by delivering to the Selling Stockholder a written notice (a "Tag-along Notice") stating its election to do so and specifying the number of shares of Common Stock to be Transferred by it no later than 30 days after receipt of the Sale Notice (the "Tag-along Period"). The offer of each Tag-along Stockholder set forth in a Tag-along Notice shall be irrevocable, and, to the extent such offer is accepted, such Tag-along Stockholder shall be bound and obligated to Transfer in the proposed Transfer on the terms and conditions set forth in this Section 3.04. The Selling Stockholder and each Tag-along Stockholder shall have the right to Transfer in a Transfer subject to this Section 3.04 the number of shares of Common Stock equal to the product of (x) the aggregate number of shares of Common Stock the Proposed Transferee proposes to buy as stated in the Sale Notice and (y) a fraction (A) the numerator of which is equal to the number of shares of Common Stock then held by the Selling Stockholder or such Tag-along Stockholder, as the case may be, and (B) the denominator of which is equal to the number of shares then held by all of the Stockholders (including, for the avoidance of doubt, the Selling Stockholder).
 
(d) Each Tag-along Stockholder who does not deliver a Tag-along Notice in compliance with Section 3.04(c) above shall be deemed to have waived all of such Tag-along Stockholder's rights to participate in such Transfer, and the Selling Stockholder shall (subject to the rights of any participating Tag-along Stockholder) thereafter be free to Transfer to the Proposed Transferee its shares of Common Stock at a per share price that is no greater than the per share price set forth in the Sale Notice and on other same terms and conditions which are not materially more favorable to the Selling Stockholder than those set forth in the Sale Notice without any further obligation to the non-accepting Tag-along Stockholders.
 
 
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(e) Each Tag-along Stockholder participating in a Transfer pursuant to this Section 3.04 shall receive the same form and amount of consideration per share, unless otherwise agreed to by all Stockholders, as the Selling Stockholder after deduction of such Tag-along Stockholder's proportionate share of the related expenses in accordance with Section 3.04(g) below.
 
(f) Each Tag-along Stockholder shall make or provide the same representations, warranties, covenants, indemnities and agreements as the Selling Stockholder makes or provides in connection with the Tag-along Sale (except that in the case of representations, warranties, covenants, indemnities and agreements pertaining specifically to the Selling Stockholder, the Tag-along Stockholder shall make the comparable representations, warranties, covenants, indemnities and agreements pertaining specifically to itself); provided, that all representations, warranties, covenants and indemnities shall be made by the Selling Stockholder and each Tag-along Stockholder severally and not jointly and any indemnification obligation in respect of breaches of representations and warranties shall be pro rata based on the consideration received by the Selling Stockholder and each Tag-along Stockholder, in each case in an amount not to exceed the aggregate proceeds received by the Selling Stockholder and each such Tag-along Stockholder in connection with any Tag-along Sale.
 
(g) The reasonable and documented fees and expenses of the Selling Stockholder incurred in connection with a Tag-along Sale and for the benefit of all Stockholders (it being understood that costs incurred by or on behalf of the Selling Stockholder for its sole benefit will not be considered to be for the benefit of all Stockholders), to the extent not paid or reimbursed by the Company or the Proposed Transferee, shall be shared by all the Stockholders participating in the Tag-along Sale on a pro rata basis, based on the aggregate consideration received by each such Stockholder; provided, that no Stockholder shall be obligated to make or reimburse any out-of-pocket expenditure prior to the consummation of the Tag-along Sale.
 
(h) Each Tag-along Stockholder shall take all actions as may be reasonably necessary to consummate the Tag-along Sale, including entering into agreements and delivering certificates and instruments, in each case consistent with the agreements being entered into and the certificates being delivered by the Selling Stockholder.
 
(i) The Selling Stockholder shall have 90 days following the expiration of the Tag-along Period in which to Transfer the shares of Common Stock described in the Sale Notice, on the terms set forth in the Sale Notice (which such 90 day period may be extended for a reasonable time not to exceed an additional 30 days to the extent reasonably necessary to obtain any Government Approvals). If at the end of such 90day period, the Selling Stockholder has not completed such Transfer, the Selling Stockholder may not then effect a Transfer of Common Stock subject to this Section 3.04 without again fully complying with the provisions of this Section 3.04.
 
 
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(j) If the Selling Stockholder Transfers to the Proposed Transferee any of its shares of Common Stock in breach of this Section 3.04, then each Tag-along Stockholder shall have the right to Transfer to the Selling Stockholder, and the Selling Stockholder undertakes to purchase from each Tag-along Stockholder, the number of shares of Common Stock that such Tag-along Stockholder would have had the right to Transfer to the Proposed Transferee pursuant to this Section 3.04, for a per share amount and form of consideration and upon the terms and conditions on which the Proposed Transferee bought such Common Stock from the Selling Stockholder, but without indemnity being granted by any Tag-along Stockholder to the Selling Stockholder; provided, that, nothing contained in this Section 3.04 shall preclude any Stockholder from seeking alternative remedies against such Selling Stockholder as a result of its breach of this Section 3.04. The Selling Stockholder shall also reimburse each Tag-along Stockholder for any and all reasonable and documented out-of-pocket fees and expenses, including reasonable legal fees and expenses, incurred pursuant to the exercise or the attempted exercise of the Tag-along Stockholder's rights.
 
Section 3.05 Sale of Majority Stockholder.
 
(a) If at any time the Majority Stockholder enters into a transaction or series of transactions with a Third Party Purchaser (the “Proposed Purchaser”) which would result in the sale of all or substantially all of the assets (within the meaning of such term as it is used in Section 271 of Delaware General Corporation Law) of the Majority Stockholder or a sale of more than 50% of the outstanding membership interests of the Majority Stockholder (a “Majority Stockholder Sale Transaction”), such transaction shall be deemed to  a transaction constituting the sale of Common Stock of the Company by the Majority Stockholder which is subject to the provisions of Section 3.03 and 3.04 and provisions thereof shall apply, with such modifications as are appropriate, to the Majority Stockholder Sale Transaction.
 
Section 3.06 Preemptive Rights.  At least thirty days prior to (or if not practicable within thirty days after) issuing any equity or any instrument convertible into equity (such as a stock option, warrant or convertible debt) to an Affiliate of the Majority Stockholder, to an officer, director or member of the Majority Stockholder of any Affiliate or such officer, director or member, or to The 100 Mile Group or any officer, director or member thereof or any Affiliate of any officer, director or member thereof, other than reasonable issuances to Affiliates, officers, directors or members of the Majority Stockholder in their capacities as officers, directors, employees or  consultants of the Company up to a maximum of 12,500,000 shares of Common Stock in the aggregate  (any such issuance, a “Preemptive Rights Issuance”), the Company shall provide the Minority Stockholder a notice (the “Preemptive Rights Notice”).  The Preemptive Rights Notice shall set forth the terms of the proposed issuance, including the price of any equity proposed to be issued in such Preemptive Rights Issuance, the material terms of such Preemptive Rights Issuance, and the identity of the proposed purchasers in such Preemptive Rights Issuance.  The Minority Stockholder may elect, at any time during the ten days following its receipt of the Preemptive Rights Notice, to purchase its proportionate share of the Preemptive Rights Issuance, on the terms set forth in the Preemtpive Rights Notice, at the same time (or within forty days after the date) that the Company closes the Preemptive Rights Issuance.  The Company shall not sell any securities in such Preemptive Rights Issuance on terms more favorable to any party other than the terms offered to the Minority Stockholder.
 
 
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ARTICLE IV
Other Agreements
 
Section 4.01 Corporate Opportunities. Except as otherwise provided in the second sentence of this Section 4.01, (a) no Stockholder or any of its Permitted Transferees or any of their respective Representatives shall have any duty to communicate or present an investment or business opportunity or prospective economic advantage to the Company in which the Company may, but for the provisions of this Section 4.01, have an interest or expectancy (a "Corporate Opportunity"), and (b) no Stockholder or any of its Permitted Transferees or any of their respective Representatives (even if such Person is also an officer or Director of the Company) shall be deemed to have breached any fiduciary or other duty or obligation to the Company by reason of the fact that any such Person pursues or acquires a Corporate Opportunity for itself or its Permitted Transferees or directs, sells, assigns or transfers such Corporate Opportunity to another Person or does not communicate information regarding such Corporate Opportunity to the Company.  The Company renounces any interest in a Corporate Opportunity and any expectancy that a Corporate Opportunity will be offered to the Company; provided, that the Company does not renounce any interest or expectancy it may have in any Corporate Opportunity that is offered to an officer or Director of the Company whether or not such individual is also a Director or officer of a Stockholder, if such opportunity is expressly offered to such Person in his or her capacity as an officer or Director of the Company. The Stockholders hereby recognize that the Company reserves such rights.
 
Section 4.02 Confidentiality.
 
(a) Each Stockholder shall and shall cause its Representatives to, keep confidential and not divulge any information (including all budgets, business plans and analyses) concerning the Company, including its assets, business, operations, financial condition or prospects ("Information"), and to use, and cause its Representatives to use, such Information only in connection with the operation of the Company; provided, that nothing herein shall prevent any Stockholder from disclosing such Information (i) upon the order of any court or administrative agency, (ii) upon the request or demand of any regulatory agency or authority having jurisdiction over such Stockholder, (iii) to the extent compelled by legal process or required or requested pursuant to subpoena, interrogatories or other discovery requests; (iv) to the extent required, in the reasonable opinion of the Stockholder, to comply with Applicable Laws, (v) to the extent necessary in connection with the exercise of any remedy hereunder, (vi) to other Stockholders, (vii) to such Stockholder's Representatives that in the reasonable judgment of such Stockholder need to know such Information or (viii) to any potential Permitted Transferee in connection with a proposed Transfer of Common Stock from such Stockholder as long as such transferee agrees to be bound by the provisions of this Section 4.02 as if a Stockholder, provided, further, that in the case of clause (i), (ii) or (iii), such Stockholder shall notify the other parties hereto of the proposed disclosure as far in advance of such disclosure as practicable and use reasonable efforts to ensure that any Information so disclosed is accorded confidential treatment, when and if available.
 
 
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(b) The restrictions of Section 4.02(a) shall not apply to information that (i) is or becomes generally available to the public other than as a result of a disclosure by a Stockholder or any of its Representatives in violation of this Agreement; (ii) is or becomes available to a Stockholder or any of its Representatives on a non-confidential basis prior to its disclosure to the receiving Stockholder and any of its Representatives, (iii) is or has been independently developed or conceived by such Stockholder without use of the Company's Information or (iv) becomes available to the receiving Stockholder or any of its Representatives on a non-confidential basis from a source other than the Company, any other Stockholder or any of their respective Representatives, provided, that such source is not known by the recipient of the information to be bound by a confidentiality agreement with the disclosing Stockholder or any of its Representatives.
 
(c) Notwithstanding anything to the contrary contained in this Section 4.02, the Minority Stockholder shall be entitled to disclose Information to its members, provided that such members of the Minority Stockholder agree to hold such Information in confidence in accordance with the terms hereof.
 
ARTICLE V
Information and Registration Rights
 
Section 5.01 Financial Statements. In addition to, and without limiting any rights that a Stockholder may have with respect to inspection of the books and records of the Company under Applicable Laws, the Company shall furnish to each Stockholder, the following information:
 
(a) As soon as available, and in any event within 120 days after the end of each Fiscal Year, the balance sheet of the Company as at the end of each such Fiscal Year and the statements of income, cash flows and changes in stockholders’ equity for such year, prepared in accordance with GAAP, applied on a basis consistent with prior years and fairly present in all material respects the financial condition of the Company as of the dates thereof and the results of its operations and changes in its cash flows and stockholders’ equity for the periods covered thereby, and certified by the Chief Executive Officer or the Chief Financial Officer or any officer with similar responsibilities.
 
 
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(b) As soon as available, and in any event within 45 days after the end of each fiscal quarter, the balance sheet of the Company at the end of such quarter and the statements of income, cash flows and changes in stockholders’ equity for such quarter, all in reasonable detail and all prepared in accordance with GAAP, consistently applied, and certified by the Chief Executive Officer or the Chief Financial Officer or any officer with similar responsibilities.
 
(c) To the extent the Company is required by Applicable Law, any annual reports, quarterly reports and other periodic reports (without exhibits) actually prepared by the Company as soon as available. The failure of the Company to provide the information in Sections 5.01(a) or 5.01(b) because such information is unavailable, or the failure of such information to comply with GAAP shall not, in either case, be deemed a breach of this Agreement.
 
Section 5.02 Inspection Rights.
 
(a) The Company shall, and shall cause its officers, Directors and employees to afford each Stockholder that owns at least 5% of the Company's outstanding Common Stock and the Representatives of each such Stockholder the opportunity to consult with its officers from time to time regarding the Company’s affairs, finances and accounts as each such Stockholder may reasonably request upon reasonable notice and in the event the Company has not provided such Stockholder the financial information set forth in Sections 5.01(a) or 5.01(b), the Company shall provide such Stockholder reasonable access upon reasonable notice to the Company’s books and records..
 
(b) The right set forth in Section 5.02(a) above shall not and is not intended to limit any rights which the Stockholders may have with respect to the books and records of the Company, or to inspect its properties or discuss its affairs, finances and accounts under the laws of the jurisdiction in which the Company is incorporated.
 
Section 5.03 Registration Rights.
 
(a) Subject to Section 5.03(b), if at any time or times the Company proposes to consummate an Initial Public Offering, the Company shall give written notice of the proposed registration to the Stockholders not less than 30 Business Days prior to the proposed filing date of the registration statement with the SEC, and shall include in such registration and Initial Public Offering, and in any underwriting of such Initial Public Offering, all shares of Common Stock held by the Majority Stockholder, all shares of Common Stock held by all transferees and assigns of the Majority Stockholder following the Majority Distribution effected in accordance with Section 3.01(d), and their permitted transferees, successors and assigns and all shares of Common Stock held by the Minority Stockholder.
 
 
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(b) If the Initial Public Offering is an underwritten public offering and the managing underwriter advises the Company in writing that in its opinion the number of shares of Common Stock held by the Majority Stockholder,  all shares of Common Stock held by all transferees and assigns of the Majority Stockholder following the Majority Distribution effected in accordance with Section 3.01(d), and their permitted transferees, successors and assigns and all shares of Common Stock held by the Minority Stockholder to be included in such registration exceeds the number that can be sold in such offering consistent with the pricing expectations of the Company, then the Company first shall include in such offering the shares of Common Stock proposed to be sold by the Company if consistent with the aforementioned opinion of the managing underwriter, and second shall include on a pro rata basis the shares of Common Stock of the Majority Stockholder and/or the shares of Common Stock held by all transferees and assigns of the Majority Stockholder following the Majority Distribution effected in accordance with Section 3.01(d), and their permitted transferees, successors and assigns and the shares of Common Stock held by the Minority Stockholder and its permitted transferees, successors and assigns to be included in such registration.
 
(c) If the Company does not register 100% of the shares of Common Stock held by the Minority Stockholder as a result of the opinion of the managing underwriter set forth in Section 5.03(b), the Company shall use its reasonable best efforts to include the Common Stock held by the Minority Stockholder in the next registration statement filed with the SEC; provided, however, that (x) in the event that market or other conditions require a limitation on the number of shares to be sold under the registration statement, the Company may require the Minority Stockholder to enter into an agreement whereby the Minority Stockholder will agree to have the Common Stock held by the Minority Stockholder cut back from sale so that the shares sold pursuant to the registration statement shall be allocated first to the shares of common stock offered by the Company, provided that any shares proposed to be registered for resale by any holders (other than the Minority Stockholder if applicable) shall be cut back on a pro rata basis with the Common Stock of the Minority Stockholder, and (y) if at any time the Company determines for any reason in its sole discretion to not register, to delay or withdraw registration of such securities, the Company may, at its election, give written notice of such determination to the Minority Stockholder, and (i) in the case of a determination not to register, the Company shall be relieved of its obligation to register such securities in connection with such registration, (ii) in the case of a determination to delay registration, shall be permitted to delay registration of the Common Stock held by the Minority Stockholder for the same period as the delay in registering such other securities, and (iii) in the case of a determination to withdraw registration, shall be permitted to withdraw registration.
 
ARTICLE VI
Representations and Warranties
 
Section 6.01 Representations and Warranties. Each Stockholder, severally and not jointly, represents and warrants to the Company and each other Stockholder that:
 
(a) With respect to each Stockholder that is not a natural person, such Stockholder is a corporation or limited liability company duly organized, validly existing and in good standing under the laws of the State of Delaware.
 
 
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(b) With respect to each Stockholder that is not a natural person, such Stockholder has full corporate power and authority to execute and deliver this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement, the performance of its obligations hereunder and the consummation of the transactions contemplated hereby have been duly authorized by all requisite corporate action of each such Stockholder that is not a natural person. Such Stockholder has duly executed and delivered this Agreement.
 
(c) This Agreement constitutes the legal, valid and binding obligation of such Stockholder, enforceable against such Stockholder in accordance with its terms except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or at law). The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby, require no action by or in respect of, or filing with, any Governmental Authority.
 
(d) With respect to each Stockholder that is not a natural person, the execution, delivery and performance by such Stockholder of this Agreement and the consummation of the transactions contemplated hereby do not (i) conflict with or result in any violation or breach of any provision of any of the organizational documents of such Stockholder, (ii) conflict with or result in any violation or breach of any provision of any Applicable Law or (iii) require any consent or other action by any Person under any provision of any material agreement or other instrument to which the Stockholder is a party.
 
(e) Except for this Agreement, such Stockholder has not entered into or agreed to be bound by any other agreements or arrangements of any kind with any other party with respect to the Common Stock, including agreements or arrangements with respect to the acquisition or disposition of the Common Stock or any interest therein or the voting of the Common Stock (whether or not such agreements and arrangements are with the Company or any other Stockholder)..
 
ARTICLE VII
Term and Termination
 
Section 7.01 Termination. This Agreement shall terminate upon the earliest of:
 
(a) the consummation of an Initial Public Offering;
 
 
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(b) the consummation of a merger or other business combination with a Third Party Purchaser involving the Company;
 
(c) the sale of all or substantially all of the assets of the Company;
 
(d) the date on which the Minority Stockholder holds less than 5,000,000 shares of Common Stock;
 
(e) the consummation of a Majority Stockholder Sale Transaction;
 
(f) the consummation of a Drag-along Sale;
 
(g) the dissolution, liquidation, or winding up of the Company; or
 
(h) upon the agreement of the Majority Stockholder and the Minority Stockholder.
 
Section 7.02 Effect of Termination.
 
(a) The termination of this Agreement shall terminate all further rights and obligations of the Stockholders under this Agreement except that such termination shall not effect:
 
(i) the existence of the Company;
 
(ii) the obligation of any Party to pay any amounts arising on or prior to the date of termination, or as a result of or in connection with such termination;
 
(iii) the rights which any Stockholder may have by operation of law as a stockholder of the Company; or
 
(iv) the rights contained herein which, but their terms are intended to survive termination of this Agreement.
 
(b) The following provisions shall survive the termination of this Agreement: this Section 7.02, Section 4.02, Section 8.03, Section 8.11, Section 8.12 and Section 8.13.
 
ARTICLE VIII
Miscellaneous
 
Section 8.01 Expenses. Except as otherwise expressly provided herein, all costs and expenses, including fees and disbursements of counsel, financial advisors and accountants, incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such costs and expenses.
 
Section 8.02 Release of Liability. In the event any Stockholder shall Transfer all of the Common Stock held by such Stockholder in compliance with the provisions of this Agreement without retaining any interest therein, then such Stockholder shall cease to be a party to this Agreement and shall be relieved and have no further liability arising hereunder for events occurring from and after the date of such Transfer.
 
 
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Section 8.03 Notices. All notices, requests, consents, claims, demands, waivers and other communications hereunder shall be in writing and shall be deemed to have been given (a) when delivered by hand (with written confirmation of receipt), (b) when received by the addressee if sent by a nationally recognized overnight courier (receipt requested), (c) on the date sent by facsimile or email of a PDF document (with confirmation of transmission) if sent during normal business hours of the recipient, and on the next Business Day if sent after normal business hours of the recipient or (d) on the third day after the date mailed, by certified or registered mail, return receipt requested, postage prepaid. Such communications must be sent to the respective parties at the following addresses (or at such other address for a party as shall be specified in a notice given in accordance with this Section 8.03):
 
If to TIPPT Media Inc.:
116 West 23rd Street
5th Floor
New York, New York 10010
Facsimile: _____________
Email: david@tipptmedia.com
Attention: David Parker, Chief Executive Officer
 
If to Function(x) Inc.:
902 Broadway
11th Floor
New York, New York 10010
Facsimile: 212-750-3034
Email: mitchell.nelson@functionxinc.com
Attention: Mitchell J. Nelson, Executive Vice President and General Counsel
 
If to TIPPT LLC:
240 East Palisade Avenue, Apt. i-5
Englewood, New Jersey 07631
E-Mail: hdavid@gmail.com
Attn: David Parker
Email: hdavid@gmail.com
Attention: David Parker
 
Section 8.04 Interpretation. For purposes of this Agreement, (a) the words "include," "includes" and "including" shall be deemed to be followed by the words "without limitation"; (b) the word "or" is not exclusive; and (c) the words "herein," "hereof," "hereby," "hereto" and "hereunder" refer to this Agreement as a whole. The definitions given for any defined terms in this Agreement shall apply equally to both the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. Unless the context otherwise requires, references herein: (x) to Articles, Sections, and Exhibits mean the Articles and Sections of, and Exhibits attached to, this Agreement; (y) to an agreement, instrument or other document means such agreement, instrument or other document as amended, supplemented and modified from time to time to the extent permitted by the provisions thereof and (z) to a statute means such statute as amended from time to time and includes any successor legislation thereto and any regulations promulgated thereunder. This Agreement shall be construed without regard to any presumption or rule requiring construction or interpretation against the party drafting an instrument or causing any instrument to be drafted. The Exhibits referred to herein shall be construed with, and as an integral part of, this Agreement to the same extent as if they were set forth verbatim herein.
 
 
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Section 8.05 Headings. The headings in this Agreement are for reference only and shall not affect the interpretation of this Agreement.
 
Section 8.06 Severability. If any term or provision of this Agreement is invalid, illegal or unenforceable in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other term or provision of this Agreement or invalidate or render unenforceable such term or provision in any other jurisdiction. Upon such determination that any term or other provision is invalid, illegal or unenforceable, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in a mutually acceptable manner in order that the transactions contemplated hereby be consummated as originally contemplated to the greatest extent possible.
 
Section 8.07 Entire Agreement. This Agreement and the Organizational Documents constitute the sole and entire agreement of the parties with respect to the subject matter contained herein and therein, and supersede all prior and contemporaneous understandings and agreements, both written and oral, with respect to such subject matter. In the event of any inconsistency or conflict between this Agreement and any Organizational Document, the Stockholders and the Company shall, to the extent permitted by Applicable Law, amend such Organizational Document to comply with the terms of this Agreement.
 
Section 8.08 Successors and Assigns. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and permitted assigns.
 
Section 8.09 No Third-party Beneficiaries. This Agreement is for the sole benefit of the parties hereto and their permitted assigns and nothing herein, express or implied, is intended to or shall confer upon any other Person or entity any legal or equitable right, benefit or remedy of any nature whatsoever under or by reason of this Agreement.
 
 
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Section 8.10 Amendment and Modification; Waiver. This Agreement may only be amended, modified or supplemented by an agreement in writing signed by The Majority Stockholder and the Minority Stockholder; provided, however, that any such amendment, modification or supplement that affects any Stockholder in an adverse manner disproportionately to all other Stockholders shall require the prior written consent of such disproportionately affected Stockholder. No waiver by any party of any of the provisions hereof shall be effective unless explicitly set forth in writing and signed by the party so waiving. No waiver by any party shall operate or be construed as a waiver in respect of any failure, breach or default not expressly identified by such written waiver, whether of a similar or different character, and whether occurring before or after that waiver. No failure to exercise, or delay in exercising, any right, remedy, power or privilege arising from this Agreement shall operate or be construed as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege.
 
Section 8.11 Governing Law. This Agreement shall be governed by and construed in accordance with the internal laws of the State of Delaware without giving effect to any choice or conflict of law provision or rule (whether of the State of Delaware or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than those of the State of Delaware.
 
Section 8.12 Dispute Resolution.
 
(a) Subject to Section 8.13, any dispute, controversy or claim arising out of, relating to, or in connection with, this Agreement or any breach, termination or validity thereof (a "Dispute") shall be finally settled by arbitration. The arbitration shall be conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association in effect at the time of the arbitration, except as they may be modified herein or by mutual agreement of the parties. The seat of the arbitration shall be New York, New York.
 
(b) The arbitration shall be conducted by three arbitrators. The party initiating arbitration (the "Claimant") shall appoint its arbitrator in its request for arbitration (a "Request"). The other party (the "Respondent") shall appoint its arbitrator within 30days of receipt of the Request and shall notify the Claimant of such appointment in writing. If the Respondent fails to appoint an arbitrator within such 30 day period, the arbitrator named in the Request shall decide the Dispute as the sole arbitrator. Otherwise, the two arbitrators appointed by the parties shall appoint a third arbitrator within 30 days after the Respondent has notified the Claimant of the appointment of the Respondent's arbitrator. When the arbitrators appointed by the parties have appointed a third arbitrator and the third arbitrator has accepted the appointment, the two arbitrators shall promptly notify the parties of such appointment. If the two arbitrators appointed by the parties fail or are unable to appoint a third arbitrator or to notify the parties of such appointment, then the third arbitrator shall be appointed by the President of the American Arbitration Associationwhich shall promptly notify the parties of the appointment of the third arbitrator. The third arbitrator shall act as chairman of the panel.
 
 
27
 
 
(c) The arbitration award shall be in writing and shall be final and binding on the parties. The award may include an award of costs, including reasonable attorney's fees and disbursements. Judgement upon award may be entered by any court having jurisdiction thereof or having jurisdiction over the parties or their assets.
 
Section 8.13 Equitable Remedies.  Each party hereto acknowledges that the other parties hereto would be irreparably damaged in the event of a breach or threatened breach by such party of any of its obligations under this Agreement and hereby agrees that in the event of a breach or a threatened breach by such party of any such obligations, each of the other parties hereto shall, in addition to any and all other rights and remedies that may be available to them in respect of such breach, be entitled to an injunction from a court of competent jurisdiction (without any requirement to post bond) granting such parties specific performance by such party of its obligations under this Agreement. In the event that any party files a suit to enforce the covenants contained in this Agreement (or obtain any other remedy in respect of any breach thereof), the prevailing party in the suit shall be entitled to receive in addition to all other damages to which it may be entitled, the costs incurred by such party in conduction the suit, including reasonable attorney's fees and expenses.
 
Section 8.14 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall be deemed to be one and the same agreement. A signed copy of this Agreement delivered by facsimile, email or other means of electronic transmission shall be deemed to have the same legal effect as delivery of an original signed copy of this Agreement.
 



[SIGNATURE PAGE FOLLOWS]

 
28
 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first written above by their respective officers thereunto duly authorized.
 
 
TIPPT MEDIA INC.
 
 
By_____________________
Name:
Title:

 
FUNCTION(X) INC.
 
 
By_____________________
Name:
Title:

 
TIPPT LLC
 
 
By_____________________
Name:
Title:

 
29
 
 
EXHIBIT A
 
JOINDER AGREEMENT
 
Reference is hereby made to the Amended and Restated Stockholders Agreement, dated as of May 8, 2012 (as amended from time to time, the "Stockholders Agreement"), by and among Function(x) Inc., TIPPT LLC and TIPPT Media Inc., a company organized under the laws of Delaware (the "Company"). Pursuant to and in accordance with Section 3.01(d) of the Stockholders Agreement, the undersigned hereby agrees that upon the execution of this Joinder Agreement, it shall become a party to the Stockholders Agreement and shall be fully bound by, and subject to, all of the covenants, terms and conditions of the Stockholders Agreement as though an original party thereto and shall be deemed to be a Stockholder of the Company for all purposes thereof.
 
 
Capitalized terms used herein without definition shall have the meanings ascribed thereto in the Stockholders Agreement.
 



[SIGNATURE PAGE FOLLOWS]
 
 
 
30
 

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of [DATE].

 
[TRANSFEREE STOCKHOLDER]
 
 
By_____________________
 
Name:
Title:

 



31


 EX-31.1 7 fncx_ex311.htm EXHIBIT 31.1 fncx_ex311.htm
EXHIBIT 31.1
 
Quarterly Certification Pursuant to
 
Section 302 of the Sarbanes-Oxley Act of 2002
 
I, Janet Scardino, certify that:
 
1.           I have reviewed this quarterly report on Form 10-Q for the quarterly period ended March 31, 2012 of Function(x) Inc.
 
2.           Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3.           Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4.           The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
(b)  Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
5.           The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
 
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
 
 
/s/ Janet Scardino
  
 
Janet Scardino 
  
 
Chief Executive Officer
  
  (Principal Executive Officer)   
 
Date: May 15, 2012
 EX-31.2 8 fncx_ex312.htm EXHIBIT 31.2 fncx_ex312.htm
EXHIBIT 31.2
 
Quarterly Certification Pursuant to
 
Section 302 of the Sarbanes-Oxley Act of 2002
 
I, William B. Manning, certify that:
 
1.           I have reviewed this quarterly report on Form 10-Q for the quarterly period ended March 31, 2012 of Function(x) Inc.
 
2.           Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3.           Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4.           The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
5.           The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
 
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
 
 
/s/ William B. Manning
  
 
William B. Manning
  
 
Principal Financial Officer
  
  (Principal Financial Officer and Principal Accounting Officer)  
 
Date:  May 15, 2012
 EX-32.1 9 fncx_ex321.htm EXHIBIT 32.1 fncx_ex321.htm
EXHIBIT 32.1
 
Quarterly Certification Pursuant to
 
Section 906 of the Sarbanes-Oxley Act of 2002
 
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), the undersigned officer of Function(x) Inc. (the “Company”), does hereby certify, to such officer’s knowledge, that:
 
The quarterly report on Form 10-Q for the quarterly period ended March 31, 2012 of the Company fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
 
/s/ Janet Scardino
  
 
Janet Scardino 
  
 
Chief Executive Officer
  
  (Principal Executive Officer)   
 
Date: May 15, 2012
 
A signed original of this written statement required by Section 906 has been provided to Function(x) Inc. and will be retained by Function(x) Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
 EX-32.2 10 fncx_ex322.htm EXHIBIT 32.2 fncx_ex322.htm
EXHIBIT 32.2
 
Quarterly Certification Pursuant to
 
Section 906 of the Sarbanes-Oxley Act of 2002
 
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), the undersigned officer of Function(x) Inc. (the “Company”), does hereby certify, to such officer’s knowledge, that:
 
The quarterly report on Form 10-Q the quarterly period ended March 31, 2012 of the Company fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
 
/s/ William B. Manning
  
 
William B. Manning
  
 
Principal Financial Officer
  
  (Principal Financial Officer and Principal Accounting Officer)  
 
Date: May 15, 2012
 
A signed original of this written statement required by Section 906 has been provided to Function(x) Inc. and will be retained by Function(x) Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
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Summary of Significant Accounting Policies
 9 Months Ended
Mar. 31, 2012
Notes to Financial Statements  
Note 3. Summary of Significant Accounting Policies

Cash and 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.

 

Revenue

 

Advertising Revenue:  We generate advertising revenue primarily from display and video advertising, which is typically sold on a cost-per-thousand impressions, or CPM basis, and completed engagements on a cost per engagement (CPE) basis.  Advertising campaigns typically range from one to 12 months, and advertisers generally pay us based on a minimum of delivered impressions or the satisfaction of other criteria, such as click-throughs.

 

The Company recognizes revenue when: (1) persuasive evidence exists of an arrangement with the customer reflecting the terms and conditions under which products or services will be provided; (2) delivery has occurred or services have been provided; (3) the fee is fixed or determinable; and (4) collection is reasonably assured. For all revenue transactions, the Company considers a signed agreement, a binding insertion order or other similar documentation to be persuasive evidence of an arrangement.

 

Deferred Revenue:  Our deferred revenue consists principally of both prepaid but unrecognized revenue and advertising fees received or billed in advance of the delivery or completion of the delivery of services.  Deferred revenue is recognized as revenue when the services are provided and all other revenue recognition criteria have been met.

 

Watchpoints and Engagement Points

 

The Company issues points to its users as an incentive to utilize the Viggle app and its features. Users can redeem these points for rewards. The Company records the cost of these points based on the weighted average cost of redemptions during the period. Points earned but not redeemed are classified as liability.

 

Users earn points for various activities and the Company reports points earned for checking into shows and points earned for engaging in advertiser sponsored content as a separate line in its statement of operations. All other points earned by users are reflected as a marketing expense in selling, general and administrative expense.

 

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, receivables, accounts payable, and other current liabilities 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.

 

Property and Equipment

 

Property and equipment (consisting of computers, software, furniture and fixtures, and leasehold improvements) 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, software, furniture and fixtures are being depreciated over a useful life of three years, leasehold improvements are depreciated over a useful life of 10 years consistent with the life of the underlying lease.

 

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 March 31, 2012, the carrying value of the intellectual property  for TIPPT’s contract with the 100 Mile Group is impaired and accordingly the company has taken a charge in the current period for approximately $2,250 related to the asset impairment.  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 nine months ended March 31, 2012 was $351 and $701, respectively.

 

The Company, through its acquisition of a 65% common stock interest in TIPPT, acquired identifiable intangible assets valued at $4,628.  As of March 31, 2012, $2,378 of warrants payable as contingent consideration for the acquisition has been derecognized and is longer included as part of the fair value of the consideration paid to acquire the asset. As a result of this derecognition and the $2,250 impairment noted above, the fair value of the TIPPT intangible assets as of March 31, 2012 is $0.  (See Note #14, Subsequent Events).

 

The Company, through its acquisition of the assets of Loyalize on December 31, 2011 acquired certain intellectual property (patent application, trade names and domain names) and recorded goodwill.  As of March 31, 2012, the fair value of the intangibles is $526 and the goodwill is $3,015.

 

Internal Use Software

 

The Company recorded $1,842 of capitalized software as part of the Loyalize acquisition as of March 31, 2012.  The Company records amortization of the software on a straight-line basis over the estimated useful life of the software.  As revenue producing activities commenced in the third quarter of 2012, $116 of amortization expense has been recorded for the three months and nine months ended March 31, 2012.

 

The Company records and capitalizes computer software costs and, appropriately, certain costs have been capitalized in the amounts of $2,176 and $317 as of March 31, 2012 and June 30, 2011, respectively, in accordance with ASC 350-40.  The Company records amortization of the software on a straight-line basis over the estimated useful life of the software. As revenue producing activities commenced in the third quarter of 2012, $100 of amortization expense has been recorded for the three months and nine months ended March 31, 2012.

 

Marketing

 

Marketing costs are expensed as incurred.  Marketing expense for the Company for the three and nine months ended March 31, 2012 was $2,402 and $4,126, respectively, and for the three and nine months ended March 31, 2011 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 unlikely that 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.

 

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 consolidated financial statements.
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Organization and Background
 9 Months Ended
Mar. 31, 2012
Notes to Financial Statements  
Note 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”). 

 

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 Company conducts its business under the name Function(x) Inc., with the ticker symbol FNCX.  The Company has four wholly-owned subsidiaries, Project Oda, Inc., Viggle Inc., Loyalize, Inc. (formerly known as Fn(x)I Holding Corporation), and Sports Hero, Inc., 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

 

General

 

Our business is built on a 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.  We currently do not have any agreements in place with advertisers or vendors whereby the advertisers or vendors issue rewards to our users when the users redeem their points.  We have purchased and will continue to purchase gift cards from vendors that we will issue to users upon the redemption of their points.  The Company has only generated nominal revenue to date, and there is no guarantee that we will be able to generate sufficient revenue in the future to continue to purchase gift cards from vendors. 

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, 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.
XML 22 R2.htm IDEA: XBRL DOCUMENT v2.4.0.6
CONSOLIDATED BALANCE SHEETS (Unaudited) (USD $)
In Thousands, unless otherwise specified
Mar. 31, 2012
Jun. 30, 2011
ASSETS    
Cash and Cash equivalents $ 4,297 $ 3,794
Accounts receivable 603   
Prepaid expenses 1,013 46
Other receivables 959 29
TOTAL CURRENT ASSETS 6,872 3,869
Restricted cash 695 695
Interest in corporate jet, net 1,269 1,511
Capitalized software costs 3,801 317
Property & equipment, net 2,584 79
Intellectual property, net 4,034   
Goodwill 3,015   
Other assets 40   
TOTAL ASSETS 22,310 6,471
LIABILITIES AND STOCKHOLDERS' EQUITY    
Accounts payable and accrued expenses 4,028 1,105
Reward points payable 1,983   
Other current liabilities 244   
Deferred revenue 681   
Current portion of loan payable 38 49
TOTAL CURRENT LIABILITIES 6,974 1,154
Loans payable, less current portion 865 891
Other long-term liabilities 1,272 342
TOTAL LIABILITIES 9,111 2,387
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 March 31, 2012 and authorized 300,000,000 shares, issued and outstanding 134,941,797 shares as of June 30, 2011 153 139
Additional paid-in-capital 122,633 36,416
Accumulated deficit (109,372) (32,471)
Function(x) Inc. stockholders' equity 13,414 4,084
Noncontrolling interest (215)   
Total Equity 13,199 4,084
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 22,310 $ 6,471
XML 23 R6.htm IDEA: XBRL DOCUMENT v2.4.0.6
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (USD $)
In Thousands, unless otherwise specified
 9 Months Ended
Mar. 31, 2012
Mar. 31, 2011
CASH FLOWS FROM OPERATING ACTIVITIES:    
Net loss $ (77,116) $ (8,434)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:    
Restricted Stock - share based compensation 25,190 2,678
Warrants issued for services    2,529
Employee Stock Options - share based compensation 4,619   
Common Stock and Warrants issued in connection with Private Placement - share based compensation 19,456   
Depreciation and Amortization 1,328   
Impairment of TIPPT intangible asset 2,250   
Increase in fair value of Loyalize guarantee 125   
Changes in operating assets and liabilities:    
Accounts receivable (603)   
Other Receivables (930) (156)
Prepaid Expenses (967) (71)
Other assets (40)   
Deferred revenue 197   
Accounts payable and accrued expenses 2,923 847
Reward points liability 1,983   
Other liabilities 1,266   
Net Cash Used in Operating Activities (20,319) (2,607)
CASH FLOWS FROM INVESTING ACTIVITIES:    
Purchase of property and equipment (2,629) (15)
WatchPoints Acquisitions (2,620)   
TIPPT acquisition (2,250)   
Loyalize acquisition (3,094)   
Capitalized Software Costs (1,859)   
Net Cash Used in Investing Activities (12,452) (15)
CASH FLOWS FROM FINANCING ACTIVITIES:    
Issuance of Common Stock and Warrants for Cash 33,413 10,718
Payments on Loan (37)   
Payments on shareholder notes 3   
Interest income on notes receivable from shareholders (105)   
Net Cash from Financing Activities 33,274 10,718
NET INCREASE IN CASH 503 8,096
Cash at Beginning of Period 3,794   
Cash at End of Period 4,297 8,096
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 28   
Capital related to Corporate Jet 336   
Loyalize guarantee $ 120   
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Basis of Presentation
 9 Months Ended
Mar. 31, 2012
Notes to Financial Statements  
Note 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 nine months ended March 31, 2012 and 2011 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 nine months ended March 31, 2012 and 2011 has 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 nine months ended March 31, 2012 and 2011 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.
XML 26 R3.htm IDEA: XBRL DOCUMENT v2.4.0.6
CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)
Mar. 31, 2012
Jun. 30, 2011
Stockholders' Equity    
Preferred Stock shares par value $ 0.001 $ 0.001
Preferred Stock shares Authorized 1,000,000 1,000,000
Preferred Stock shares Issued 0 0
Preferred Stock shares Outstanding 0 0
Common Stock shares par value $ 0.001 $ 0.001
Common Stock shares Authorized 300,000,000 300,000,000
Common Stock shares Issued 149,417,062 134,941,797
Common Stock shares Outstanding 149,417,062 134,941,797
XML 27 R17.htm IDEA: XBRL DOCUMENT v2.4.0.6
Share-Based Payments
 9 Months Ended
Mar. 31, 2012
Notes to Financial Statements  
Note 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 March 31, 2012 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

  
Fifteen (15) Executives   Various     8,670,000     $ 142,918     $ 16.48  
                             

 

The total compensation was $8,218 and $25,190 for the three and nine months ended March 31, 2012.  The total compensation was $2,678 for the three and nine months ended March 31, 2011.  No shares actually vested.  As of March 31, 2012, there was $106,962 in total unrecognized share-based compensation costs.

 

Stock Options

 

The following table summarizes the Company’s stock option activity for the nine months ended March 31, 2012:

 

    Number of Options  
Outstanding at June 30, 2011     0  
Granted     5,334,167  
Exercised     0  
Forfeited and cancelled     (372,500 )
Outstanding at March 31, 2012     4,961,667  

 

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 March 31, 2012.  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 nine months ended March 31, 2012 (none were granted in 2011) was estimated based on the following weighted average assumptions:

 

    Three Months Ended March 31, 2012    

Nine Months Ended

March 31, 2012

  
Expected volatility     69 %     60 %
Risk-free interest rate     1.14 %     1.22 %
Expected dividend yield     0       0  
Expected life (in years)     6.25       6.25  
Estimated fair value per option granted   $ 3.81     $ 4.12  

 

The total compensation expense of $1,209 and $4,619 was included in the accompanying Statement of Operations in selling, marketing, general and administrative expenses for the three and nine months ended March 31, 2012, respectively.  There were no such expenses for the three and nine months ended March 31, 2011.  No shares actually vested during the periods and the grants provide for vesting annually in arrears over the next four years.  As of March 31, 2012, there was approximately $15,757 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 nine months ended March 31, 2012 of approximately $344 and $2,210, respectively, 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 nine months ended March 31, 2012 of approximately $753 and $2,222, 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 third quarter of approximately $72 as a result of the foregoing grants.

 

On February 16, 2012, the Compensation Committee, pursuant to such program, granted to 41 employees an aggregate of 244,792 non-qualified stock options with an exercise price of $6.05 per share and a fair market value of $3.81 per option.  The options vest over four years.  The Company has taken a compensation charge in the third quarter of approximately $36 as a result of the foregoing grants.

 

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 selling, general and administrative expenses on the Consolidated Statement of Operations for the nine months ended March 31, 2012.
XML 28 R1.htm IDEA: XBRL DOCUMENT v2.4.0.6
Document and Entity Information
 9 Months Ended
Mar. 31, 2012
May 15, 2012
Document And Entity Information    
Entity Registrant Name FUNCTION (X) INC.  
Entity Central Index Key 0000725876  
Document Type 10-Q  
Document Period End Date Mar. 31, 2012  
Amendment Flag false  
Current Fiscal Year End Date --06-30  
Is Entity a Well-known Seasoned Issuer? No  
Is Entity a Voluntary Filer? No  
Is Entity's Reporting Status Current? Yes  
Entity Filer Category Smaller Reporting Company  
Entity Common Stock, Shares Outstanding   150,507,971
Document Fiscal Period Focus Q3  
Document Fiscal Year Focus 2012  
XML 29 R18.htm IDEA: XBRL DOCUMENT v2.4.0.6
Income Taxes
 9 Months Ended
Mar. 31, 2012
Notes to Financial Statements  
Note 11. Income Taxes

For the three and nine months ended March 31, 2012 and 2011, 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 $4,923. The Company has established a full valuation allowance against its deferred tax assets related to its Net Operating Loss carryforward of $4,923 as of March 31, 2012.  As a result of the change in control pursuant to the Recapitalization, the utilization of the $4,923 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.   
XML 30 R4.htm IDEA: XBRL DOCUMENT v2.4.0.6
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (USD $)
In Thousands, except Share data, unless otherwise specified
 3 Months Ended 9 Months Ended
Mar. 31, 2012
Mar. 31, 2011
Mar. 31, 2012
Mar. 31, 2011
Income Statement [Abstract]        
Revenues $ 556    $ 556   
Cost of watchpoints and engagement points (3,197)    (3,197)   
Selling, general and administrative (24,324) (8,431) (74,605) (8,458)
OPERATING LOSS (26,965) (8,431) (77,246) (8,458)
OTHER INCOME:        
Interest income, net 35 24 130 24
Total other income 35 24 130 24
NET LOSS (26,930) (8,407) (77,116) (8,434)
Net loss attributable to non-controlling interest (215)    (215)   
Net loss attributable to Function(x) Inc. $ (26,715) $ (8,407) $ (76,901) $ (8,434)
Net loss per common share attributable to Function(x) common stockholders - basic and diluted $ (0.18) $ (0.11) $ (0.53) $ (0.34)
Weighted average common shares outstanding - basic and diluted 149,417,062 75,098,547 146,369,447 24,948,912
XML 31 R12.htm IDEA: XBRL DOCUMENT v2.4.0.6
Property and Equipment
 9 Months Ended
Mar. 31, 2012
Notes to Financial Statements  
Note 5. Property and Equipment

Property and Equipment consists of the following:

 

    March 31, 2012     June 30, 2011  
Leasehold Improvements   $ 1,506     $ ---  
Furniture and Fixtures     436       9  
Computer Equipment     713       60  
Software     101       14  
      2,756       83  
Accumulated Depreciation and Amortization     (172 )     (4 )
Property and Equipment, net   $ 2,584     $ 79  

 
XML 32 R11.htm IDEA: XBRL DOCUMENT v2.4.0.6
Acquisitions
 9 Months Ended
Mar. 31, 2012
Notes to Financial Statements  
Acquisitions

WatchPoints Acquisition

 

On September 29, 2011 in furtherance of its business plan, the Company, through its wholly-owned subsidiary, Project Oda, Inc., purchased certain assets of Mobile Messaging Solutions, Inc.’s Watchpoints business. The consideration for such transaction consisted of $2,500 in cash and 200,000 shares of the Company’s common stock with a fair value of $8.00 per share on the date of the transaction. The Watchpoints business is involved in developing, selling, maintaining and improving an interactive broadcast television application utilizing audio recognition technology. The assets purchased, and the related value allocated to each, include intellectual property ($4,209) and certain computer-related equipment ($11). The intellectual property included patent filings for audio verification technology and the provision of value-added programming/services based on such verification and trademarks for the “Watchpoints” name. The value allocated to the intellectual property is being amortized over the expected useful life of the Company’s software product. The Company also paid Kai Buehler, the CEO of Watchpoints, a $300 finder’s fee, which was recorded to selling, general and administrative expenses in the nine months ended March 31, 2012, and appointed him as a full-time Senior Vice President of the Company.

 

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 shares of common stock exercisable under the warrant were valued at $2,378 using the Black Scholes valuation model. The value of these warrants as of March 31, 2012 is $0 (See Note #14, Subsequent Events).

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 (See Note #14, Subsequent Events). .

 

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. As of March 31, 2012, the Company has written down to zero the carrying value of all the TIPPT assets and has taken a charge which is included in selling, general, and administrative expenses (see Note #14, Subsequent Events).

 

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 nine months ended March 31, 2012 as if the Trusted Opinion 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 March 31  Nine Months Ended
March 31
   2012  2011  2012  2011
Revenue  $556    97   $561    98 
Operating (Loss)   (26,930)   (9,903)   (78,858)   (1,926)
Loss Per Share (basic and diluted   (0.18)   (0.13)   (0.54)   (0.17)

 
XML 33 R19.htm IDEA: XBRL DOCUMENT v2.4.0.6
Related Party Transactions
 9 Months Ended
Mar. 31, 2012
Notes to Financial Statements  
Note 12. Related Party Transactions

Recapitalization Notes

 

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 for the three and nine months ended March 31, 2012 is $35 and $105, respectively.

 

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 nine months ended March 31, 2012, the Company billed Circle $85 and $243, respectively. For the three and nine months ended March 31, 2011, the Company billed Circle $28 and $28, respectively.  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. The balance due from Circle on March 31, 2012 was $57, of which $31was paid.

 

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 nine months ended March 31, 2012, the Company billed Mr. Sillerman $47 and $88, respectively.  For the three and nine months ended March 31, 2011, the Company billed Mr. Sillerman  $5 and $5, respectively.   The balance due from Mr. Sillerman on March 31, 2012 was $34, which has been paid.

 

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 accounted for as expensed selling, general and administrative expenses on the Consolidated Statement of Operations for the nine months ended March 31, 2012.
XML 34 R15.htm IDEA: XBRL DOCUMENT v2.4.0.6
Commitments and Contingencies
 9 Months Ended
Mar. 31, 2012
Notes to Financial Statements  
Note 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.  As of March 31, 2012, $640 had been drawn by TIPPT Media, Inc. under the TIPPT Loan.  (See Note #14, “Subsequent Events”)

 

In connection with the purchase from Trusted Opinion Inc. of the Loyalize assets, the Company is also 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 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.

 

We are subject to litigation and other claims that arise in the ordinary course of business. While the ultimate result of our outstanding legal matter cannot presently be determined, the Company does not expect that the ultimate disposition will have a material adverse effect on our results of operations or financial condition. However, legal matters are inherently unpredictable and subject to significant uncertainties, some of which are beyond our control. As such, there can be no assurance that the final outcome will not have a material adverse effect upon our financial condition and results of operations.
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Intellectual Property
 9 Months Ended
Mar. 31, 2012
Notes to Financial Statements  
Note 6. Intellectual Property

 

        March 31, 2012     June 30, 2011  

 

Description

  

Amortization

Period

  

 

Amount

    

Accumulated

Amortization

    

Carrying

Value

    

 

Amount

    

Accumulated

Amortization

    

Carrying

Value

  
                                                     
Intellectual Property   36 months   $ 4,735     $ (701 )   $ 4,034     $ --     $ --     $ --  
                                                     
Total         4,735       (701 )     4,034       --       --       --  

 

Amortization of intellectual property charges to selling, general and administrative expenses for the 9 months ended March 31, 2012 amounted to $701.  Future annual amortization expense expected is as follows:

 

Years Ending June 30,      
2012   $ 395  
2013     1,578  
2014     1,578  
2015     789  
2016     ---  

 
XML 36 R14.htm IDEA: XBRL DOCUMENT v2.4.0.6
Loans Payable
 9 Months Ended
Mar. 31, 2012
Notes to Financial Statements  
Note 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 March 31, 2012 and June 30, 2011 were $37 and $0, respectively.
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Stockholders' Equity (Deficit)
 9 Months Ended
Mar. 31, 2012
Notes to Financial Statements  
Note 9. Stockholders' Equity (Deficit)

As of March 31, 2012 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. We may issue shares of preferred stock in one or more series as may be determined by our Board of Directors, who may establish the designation and number of shares of any series, and may determine, alter or revoke the rights, preferences, privileges and restrictions pertaining to any wholly unissued series (but not below the number of shares of that series then outstanding).
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CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (USD $)
In Thousands
Common Stock
Additional Paid-In Capital
Retained Earnings / Accumulated Deficit
Stockholders’ Equity
Noncontrolling Interest
Total
Beginning Balance, Amount at Jun. 30, 2010 $ 4 $ 12,481 $ (12,563) $ (78)    $ (78)
Net loss     (19,908) (19,908)    (19,908)
Issuance of common stock 135 13,973    14,108    14,108
Notes receivable from shareholders    (3,419)    (3,419)    (3,419)
Warrants issued for services    2,529    2,529    2,529
Exercise of warrants    80    80    80
Restricted stock - share based compensation    10,772    10,772    10,772
Ending Balance, Amount at Jun. 30, 2011 139 36,416 (32,471) 4,084    4,084
Net loss     (76,901) (76,901) (215) (77,116)
Notes receivable from shareholders    3    3    3
Private placement of common stock and warrants for cash 14 33,399    33,413    33,413
Compensation charge for fair value of common stock and warrants issued in connection with private placement    19,456    19,456    19,456
Interest income on notes receivable from shareholders    (105)    (105)    (105)
Employee stock options - share based compensation    4,619    4,619    4,619
Stock issued for WatchPoints acquisition    1,600    1,600    1,600
Stock issued for Loyalize acquisition    1,719    1,719    1,719
Capital related to corporate jet    336    336    336
Ending Balance, Amount at Mar. 31, 2012 $ 153 $ 122,633 $ (109,372) $ 13,414 $ (215) $ 13,199
XML 39 R10.htm IDEA: XBRL DOCUMENT v2.4.0.6
Basis of Consolidation
 9 Months Ended
Mar. 31, 2012
Notes to Financial Statements  
Note 4. Basis of Consolidation

The consolidated financial 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.  As of March 31, 2012 the Company has reflected $215 of a non-controlling interest for the 35% owners of TIPPT Media, Inc. to reflect their share of the TIPPT Media, Inc. loss of $613.  There was no non-controlling interest as of June 30, 2011.
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Subsequent Events
 9 Months Ended
Mar. 31, 2012
Notes to Financial Statements  
Note 13. Subsequent Events

PIPE Transaction

 

On May 10, 2012, the Company completed the placement of 3,418,182 units (the “Private Placement Units”) to accredited and institutional investors at an aggregate purchase price of $9,400. Each Private Placement Unit consists 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 $2.75 per Private Placement Unit. If the Company sells shares of its common stock for the purpose of raising capital at a price below $4.00 per share before the expiration of the exercise period of the warrant, the exercise price of all warrants will be adjusted to the lowest price at which the shares were sold, the result of this re-pricing feature will result in liability accounting which will be marked to market. The proceeds of the offering, less expenses, are to be used for general corporate purposes, including marketing and product development. The Company is obligated to file a registration statement for the common shares and the shares underlying the warrant which are the subject of the PIPE within 30 days of the effectiveness of the currently pending Form S-1 and to use commercially reasonable efforts thereafter to have the registration statement declared effective within 120 days. An executive of the Company participated in the private placement and as a result the Company will record a stock based compensation charge of approximately $1,600 in the 4th quarter.

 

Line of Credit

 

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 were to be used for general corporate obligations and working capital. The terms of the line of credit are simple interest accruing at 6% until maturity, which will be on the earlier of (i) 12 months from the date of 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. On April 4, 2012, MJX, LLC, an affiliate of Robert F.X. Sillerman, the Company’s Executive Chairman, committed the first $10 million of a line of credit pursuant to a line of credit grid promissory note. In consideration for entering into the line of credit, Mr. Sillerman was entitled to certain options. However, on May 10, 2012, the line of credit agreement with MJX LLC was terminated. The Company has no obligations under the line of credit agreement. No options to purchase shares of the Company’s common stock were issued in connection with the line of credit.

 

TIPPT Media, Inc.

 

On May 14, 2012, the Company sold to TIPPT LLC a 50% ownership interest in TIPPT for $500,000, payable by a Purchase Money Note with interest accruing at 4% per annum and maturing on December 31, 2016. The Company retains a 15% ownership interest in TIPPT. As part of the transaction, the Company’s obligation to provide advances to TIPPT under the $20,000.000 line of credit was terminated. Instead TIPPT issued an Amended and Restated Promissory Note to the Company pursuant to which TIPPT agrees to pay the Company $1,200,655.99, which represents $700,655.99 that was outstanding under the line of credit on April 30, 2012 and an additional $500,000 that the Company has agreed to loan to TIPPT. In addition, as part of the transaction, the Company terminated the stockholders agreement and entered into an Amended and Restated Stockholders Agreement (the “Stockholders Agreement”) with TIPPT LLC to provide the Company with certain stockholder protections regarding the Company’s remaining interest in TIPPT. The Company’s representatives on the TIPPT Media Inc. board of directors, Mr. Sillerman, Ms. Scardino, and Mr. Nelson, resigned from the TIPPT Media Inc. board of directors. The Company is entitled to a board observer on the TIPPT Media Inc. board. The warrant to purchase one million shares of the Company’s common stock to TIPPT LLC was never issued.

 

As part of the Company’s review of the fair value of its intangible assets for the three-month period ending March 31, 2012, the Company has 1) derecognized the $2,378,412 of contingent consideration attributable to the Company’s warrant that was to be issued to TIPPT LLC because the warrant was never issued; 2) performed a review of the fair value of the remaining $2,250,000 carrying value of such agreement.  The Company is taking an impairment charge for the full carrying value of such agreement.  Accordingly the carrying value as of March 31, 2012 is zero. 

 

The foregoing description of the transaction is not complete and is qualified by reference to, and should be read in conjunction with, the full text of the Purchase Money Note, the Amended and Restated Promissory Note and the Stockholders Agreement, a copy of each of which is filed as Exhibit 10.22, 10.23, and 10.24, respectively, hereto.