Attached files
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K/A
(Amendment
No. 2 )
(Mark
One)
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x
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ANNUAL
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For
the fiscal year ended December 31, 2008
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o
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TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For
the transition period from ___________ to ___________
Commission
file number 001-34027
FUND.COM
INC.
(Formerly
known as Eastern Services Holdings, Inc.)
(Exact
name of registrant as specified in its charter)
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Delaware
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30-0284778
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(State
or other jurisdiction of incorporation or organization)
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(I.R.S.
Employer Identification No.)
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14
Wall Street, 20th Floor
New
York, NY
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10005
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(Address
of principal executive offices)
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(Zip
Code)
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Registrant’s
telephone number, including area code
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(212) 618-1633
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Securities
registered under Section 12(b) of the Exchange Act:
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Title
of each class
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Name
of each exchange on which registered
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None
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None
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Securities
registered under Section 12(g) of the Exchange Act:
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None
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Indicate
by check mark if the Registrant is a well known seasoned issuer as defined in
Rule 405 of the securities Act. Yes o No x
Indicate
by check mark if Registrant is not required to file reports pursuant to Section
13 or Section 15 (d) of the Act. Yes o No x
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 x No o
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 o No o
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of Registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. 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.
Large
accelerated filer o Accelerated
Filer
o
Non-accelerated
filer o Smaller
reporting company x
Indicate
by check mark whether the Registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o No
x
The
aggregate market value of the voting common stock held by non-affiliates of the
Registrant as of June 30, 2008 (the last business day of the Registrant’s most
recently completed second fiscal quarter) was approximately
$84,758,783.
The
number of outstanding shares of the Registrant’s Common Stock as of the close of
business on November 20 , 2009 was 46,115,905 shares of Class A Common Stock and 6,387,665
shares of Class B Common Stock.
Documents
incorporated by reference: None.
EXPLANATORY
NOTE
Fund.com
Inc. (the “Company”) is filing this Amendment No. 2 to its Annual Report on Form 10-K /A for the fiscal year ended December 31, 2008, which
was originally filed with the Securities and Exchange Commission (“SEC”) on May
7, 2009 (the “Original Form 10-K”) and amended on
August 7, 2009 (“Amendment No. 1”), to incorporate the Company’s
revisions and responses to a letter of comment from the staff of the SEC dated
as of November 12 , 2009.
This Form
10-K/A includes new certifications as exhibits 31.1, 31.2, 32.1 and 32.2 by our
principal executive officer and principal financial officer as required by
Rules 12b-15 and 13a-14 promulgated under the Securities Exchange Act of
1934, as amended (the “Exchange Act”). Except for the amended disclosures set
forth below, the information in this Form 10-K/A has not been updated to
reflect events that occurred after May 7, 2009, the filing date of our Original
Form 10-K. Accordingly, this Form 10-K/A should be read in conjunction with
our filings made with the SEC subsequent to the filing of the Original Form
10-K, including any amendments to those filings. The following sections have
been amended, without limitation:
Forward-Looking
Statements and Associated Risks
Part I –
Item 1. Business.
Part I – Item 1A. Risk Factors .
Part I –
Item 3. Legal Proceedings.
Part II –
Item 5. Market for Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities.
Part II –
Item 6. Management’s Discussion and Analysis of Financial Condition and Results
of Operations.
Part II –
Item 8. Financial Statements and Supplementary Data.
Part III
– Item 15. Exhibits, Financial Statement Schedules.
Except as
set forth above, all other information in the Company’s Original Form 10-K and Amendment No. 1 remain unchanged . The Company has
re-filed the entire Form 10-K in order to provide more convenient access to the
amended information in context.
TABLE
OF CONTENTS
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Part
I
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Item
1.
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1
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Item
1A.
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14 | |
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Item
1B.
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26
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Item
2.
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Item
3.
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26
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Item
4.
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26
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Part
II
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26
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Item
5.
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26
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Item
6.
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29 | |
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Item
7.
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29
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Item
7A.
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39 | |
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Item
8.
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39
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Item
9.
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39
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Item
9(T).
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40
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Item
9B.
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44
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Part
III
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Item
10.
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44
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Item
11.
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49
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Item
12.
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54
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Item
13.
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56
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Item
14.
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57
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Part
IV
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Item
15.
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57
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59
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Forward-Looking Statements and Associated Risks
Some
statements contained in this annual report on Form 10-K that are not historical
facts (including without limitation statements to the effect that we "believe,"
"expect," "anticipate," "plan," "intend," "foresee," “may,” “could,” “should,”
“would,” “target,” “goal,” or other similar expressions) are
forward-looking statements. These forward-looking statements are based on our
current expectations and beliefs concerning future developments and their
potential effects on us. There can be no assurance that future developments
affecting us will be those anticipated by us. All comments concerning our
expectations for future revenue and operating results are based on our forecasts
of our plan of operation and do not include the potential impact of any future
acquisitions or operations. These forward-looking statements involve significant
risks and uncertainties (some of which are beyond our control) and assumptions.
Should one or more of these risks or uncertainties materialize, or should any of
our assumptions prove incorrect, actual results may vary in material respects
from those projected in the forward-looking statements.
PART I
Item 1. Business.
Introduction.
Fund.com
Inc. (the “Company,” “we”, “us” or “our”) is an online content provider and lead
generation platform for the financial services community, including investment
funds and the savings and retirement markets. Our objective is to engage
individual investors and to match their needs with interested fund product
providers. Our www.fund.com
website is intended to be approachable by everyday investors and to serve as an
educational and research resource. Through our recently acquired 60%-owned
subsidiary AdvisorShares Investments, LLC (“AdvisorShares”), we are seeking to
establish a series of proprietary exchange traded funds (“ETF”) that would be
actively managed by select registered investment advisors (“RIA(s)”). With a
view to expanding our platform in the financial services community, we recently
entered into an agreement to make a strategic investment in National Holdings
Corporation, the public parent corporation of National Securities Corporation,
vFinance Investments Inc. and EquityStation, Inc., recognized investment bankers
with over 700 FINRA registered representatives.
We also
intend, through our wholly-owned subsidiary Fund.com Managed Products Inc.
(formerly known as Meade Managed Products Inc.), to research and develop
intellectual property in the form of fund investment indexes and related
index-linked investment products and to license this intellectual property to
third parties in consideration for recurring license fees paid to us based on a
fixed percentage of assets managed by such third party using index-linked
investment products. Through another of our wholly-owned subsidiary, Fund.com
Capital Inc. (formerly know as Meade Capital Inc.), we intend to structure and
invest in index-linked investment products, generally referred to as structured
products.
Our
principal executive office is located at 14 Wall Street, 20th
Floor, New York, New York 10005. Our telephone number is
(212) 618-1633. We maintain a website at www.fund.com and
AdvisorShares maintains a website at
www.advisorshares.com. These websites, and the information
contained therein, are not part of this annual report.
Our
History and the Reverse Merger
We were
originally incorporated as Eastern Service Holdings, Inc. under the laws of the
State of Delaware on November 5, 2004, and commenced operations for the purposes
of evaluating, structuring and completing a merger with Eastern Services Group,
Inc. On November 9, 2004, Eastern Service Holdings, Inc. obtained all of the
outstanding stock of Eastern Services Group, Inc. Eastern Services Group, Inc.,
was established in the State of Nevada in February 1998 and formerly provided
state and local tax consultation and analysis to casinos in the Las Vegas
metropolitan area. On December 21, 2007, all of the issued and
outstanding shares of common stock of Eastern Services Group, Inc. were sold to
Richard S. Carrigan in exchange for approximately $105,000 in accrued salary.
Following the sale, Eastern Services Holdings, Inc had no debts, liabilities or
obligations.
- 1
-
On
January 15, 2008, our predecessor, also known as Fund.com Inc. (‘Old Fund”),
merged (the “Merger”) with and into Eastern Services Holdings, Inc. (“Eastern”)
pursuant to an Agreement and Plan of Merger, dated as of January 15, 2008 (the
"Agreement"). In connection with the merger, Eastern Services Holdings, Inc., as
the surviving corporation of the Merger (the “Surviving Corporation”) changed
its name to Fund.com Inc. Pursuant to the Agreement, each share of common stock,
par value $0.00001 per share of Old Fund (“Old Fund Common Stock”) was converted
into the right to receive 0.1278 validly issued, fully paid and non-assessable
shares of Class A Common Stock of our Company, as the Surviving Corporation;
provided, that, if a holder of Old Fund Common Stock also held Series A
Preferred Stock, par value $.001 per share, of Old Fund (“Old Fund Preferred
Stock”) then each share of Old Fund Common Stock held by such holder was
converted into the right to receive 0.1278 validly issued, fully paid and
non-assessable shares of Class B Common Stock of the Surviving Corporation (and
Old Fund Preferred Stock held by such holder was cancelled). Each share of
common stock, $0.001 par value per share, of Eastern was converted into the
right to receive one validly issued, fully paid and non-assessable share of
Class A Common Stock of the Surviving Corporation. As a result, at closing of
the Merger, we issued 37,112,345 shares of our Class A Common Stock and
6,387,665 shares of our Class B Common Stock to former shareholders of Old Fund,
representing 87% of our outstanding Class A Common Stock and 100% of our Class B
Common Stock following the merger.
Each
share of Class A Common stock has one (1) vote per share. Each share
of Class B Common Stock has ten (10) votes per share. The holders of
Class B Common Stock shall have the right to convert each share of Class B
Common Stock into one share of Class A Common Stock (adjusted to reflect
subsequent stock splits, combinations, stock dividends and recapitalizations).
Unless otherwise indicated, the share and per share information contained herein
has been adjusted to reflect a 9-for-1 dividend on the Surviving Corporation’s
Class A Common Stock and Class B Common Stock, payable to holders of record of
the Surviving Corporation’s Class A Common Stock and Class B Common Stock on
January 15, 2008.
The
merger consideration was determined as a result of arm’s-length negotiations
between the parties. At the time of the closing of the Merger, as of January 15,
2008, Ahkee Rahman, the sole director, resigned from all offices held with
Eastern Services Holdings, Inc. and from the position as the
director. Our current Directors and Officers are included in Part
III, Item 10 of this annual report. Prior to the Merger, there
were no material relationships between Eastern Services Holdings, Inc. and
Fund.com or any of our respective affiliates, directors or
officers. Following the Merger, we succeeded to the business of Old
Fund, as our sole line of business.
The
shares of our Class A Common Stock and Class B Common Stock issued to Old Fund’s
shareholders as part of the merger were not registered under the Securities Act
of 1933, as amended. These shares may not be sold or offered for sale in the
absence of an effective registration statement for the shares under the
Securities Act of 1933, as amended, or an applicable exemption from the
registration requirements. Certificates evidencing these shares of common stock
contain a legend stating the same. No shares of the Surviving Corporation’s
common stock issued to Old Fund’s shareholders were immediately eligible for
sale in the public market without restriction pursuant to
Rule 144.
Our Class
A Common Stock trades on the FINRA OTC Bulletin Board. Our ticker
symbol on the OTC Bulletin Board is FNDM. Following the Merger, we
relocated our executive offices to 14 Wall Street, 20th
Floor, New York, New York 10005.
About
AdvisorShares
On
October 31, 2008, the Company entered into a Purchase and Contribution
Agreement, dated as of October 31, 2008 (the “Purchase and Contribution
Agreement”), with AdvisorShares Investments, LLC (“AdvisorShares”), Wilson Lane
Group, LLC,
and Noah Hamman, the Managing Member and principal officer of
AdvisorShares. Pursuant to the Purchase and Contribution Agreement, the Company
purchased 6,000,000 Units of AdvisorShares, (representing 60% of the outstanding
membership interests of AdvisorShares) for a purchase price of $4,000,000, with
an initial contribution of $275,000 and up to an additional $3,725,000 being
contributed to AdvisorShares upon the achievement of certain milestones relating
to AdvisorShares’ receiving from the Securities and Exchange Commission (the
“SEC”) of its
notice (the “SEC
Exemptive Order”) regarding the approval of the application for exemptive
relief and total assets under management. In connection with our acquisition of
60% of the equity interests in AdvisorShares, we entered into an Amended and
Restated Limited Liability Company Agreement of AdvisorShares, dated as of
October 31, 2008 (the “LLC Agreement”), and was admitted as a member of
AdvisorShares. The Company currently owns 60% of the outstanding units of
AdvisorShares after the initial contribution of $275,000 by the Company. The
Company will maintain its ownership of 60% of the outstanding units of
AdvisorShares irrespective of AdvisorShares receiving exemptive relief from the
SEC or AdvisorShares achieving any additional milestones. However,
failure to pay the $1,000,000 to AdvisorShares for achievement of the first
milestone, if and when exemptive relief is granted by the SEC, could result in
the Company forfeiting up to approximately 93% of its equity interest in
AdvisorShares and a removal of the Company’s appointed Class A
Director.
- 2
-
To
finance our acquisition of 60% of the equity of AdvisorShares, we issued, and IP
Global Investors Ltd. purchased, a promissory note in the aggregate principal
amount of $325,000 (the “Note”). The principal and unpaid interest on
the Note is payable upon demand at any time following 30 business days notice,
and carries a 9% interest rate.
AdvisorShares
is expected to be a developer of proprietary exchange traded funds, also known
as ETFs, with a focus on “actively managed” ETFs upon the successful achievement
of exemptive relief and effectiveness of the AdvisorShares Trust initial
registration statement.
AdvisorShares
will seek to partner with SEC registered Investment Advisers (“SubAdvisor”) to
create individual actively managed ETFs that are customized for specific
investments such as bonds, equities, currencies and commodities, and allow the
SubAdvisor to actively manage the portfolio within each ETF. The AdvisorShares
ETFs will enable its SubAdvisor partners to create individual actively
managed ETFs that are customized for specific investments such as bonds,
equities, currencies and commodities, and allow the SubAdvisor to actively
manage the portfolio within each ETF. The AdvisorShares ETFs will
enable its SubAdvisor partners to customize investments for their clients, may
actively rebalance (unlike index funds) and may be bought and sold as easily as
any listed security. According to Tiburon Strategic Advisors, there
are currently 10,466 RIAs in the United States that manage $37.5 trillion in
professionally managed assets. Many
of these RIAs are potential partners for
AdvisorShares.
The
AdvisorShares acquisition enhances our strategic goal of connecting individual
investors with appropriate diversified fund products and to also assist asset
fund managers in building client assets under management. We believe that ETFs
are one of the most significant products developed since money market funds in
the 1970’s with ETF asset growth approaching $800 billion. We also believe that
economic conditions for ETFs continue to be highly favorable in the United
States inasmuch as ETFs are the mutual fund industry's fastest-growing
marketplace. According to the National Stock Exchange, ETF’s
attracted nearly $178.4 billion in net inflows in 2008, and now represent
approximately 31% of all trading volume in the United States equities
market.
AdvisorShares
and AdvisorShares Trust, a Delaware open-end investment management company (the
“Trust”) that was recently formed by AdvisorShares for the purpose of offering a
series of exchange traded funds (the “Funds”), filed an application with the SEC
under the Investment Company Act of 1940 (the “Investment Company Act”) on
January 31, 2008, as amended on October 17, 2008. The application
requests an order from the SEC, exempting AdvisorShares and the Trust from the
provisions of the Investment Company Act and permitting (a) the issuance of
series of open-ended management investment companies to issue shares (“Shares”)
redeemable in large aggregations only (“Creation Units”),
(b) engaging in secondary market transactions in Shares at negotiated
market prices; and (c) certain affiliated persons of the series to deposit
securities into, and receive securities from, the series in connection with the
purchase and redemption of the Creation Units (the “Exemption
Order”).
On
December 23, 2008, the SEC issued a notice advising that it would issue a final
order granting the requested relief unless it orders a hearing on the
application based on requests for a hearing given by third parties by not later
than January 15, 2009. A third party timely filed a
hearing request involving an intellectual property dispute which AdvisorShares
believes is unrelated to the merits of the application. AdvisorShares
believes that a final Exemption Order approving the application will be issued
by the SEC within the next 30 to 60 days.
The final
Exemption Order permits AdvisorShares and the Trust to form Funds that may
invest in exchange traded products that invest primarily in commodities or
currency, but otherwise operate in a manner similar to exchange traded products
registered under the Investment Company Act. In addition, the Funds may also
invest in equity securities or fixed income securities traded in a U.S. or
non-U.S. markets, as well as futures contracts, options on such futures
contracts, swaps, forward contracts or other derivatives, and shares of money
market mutual funds or other investment companies, all in accordance with their
investment objectives. The Funds may also invest in equity securities or fixed
income securities traded in international markets or in a combination of equity,
fixed income and U.S. money market securities and/or non-U.S. money market
securities.
- 3
-
On March
12, 2009, AdvisorShares and the Trust filed a registration statement with the
Securities and Exchange Commission to register under the Securities and Exchange
Act of 1933 and the Investment Company Act of 1940, the initial ETF to be
offered by the Trust to be known as the (ticker: DENT) Dent Tactical ETF (the
“Initial Fund”). AdvisorShares will act as the investment advisor to the Fund
and the day-to-day portfolio management of the Fund will be provided by HS Dent
Investment Management LLC, a registered sub-advisor to the Fund. HS
Dent Investment Management LLC was previously affiliated with the AIM Dent
Demographic Trends Fund, a fund registered under the Investment Company Act of
1940, as amended, with reported assets of approximately $1.0
billion.
The
Company’s and AdvisorShares’ business plan is contingent upon the effectiveness
of the registration statement and
receipt of exemptive relief from the requirements of the Investment Company Act
of 1940 from the SEC. As of the date of our initial Form 10-K, the
registration statement has not been declared effective by the SEC and exemptive
relief has not been granted by the SEC.
If the SEC does not declare such registration statement effective or
grant such exemptive relief, AdvisorShares would not be able to carry out its
business plan and would not continue as a going concern, and would likely be
sold, merged, or liquidated (via bankruptcy or otherwise) and we would therefore
not reap any of the intended benefit of owning AdvisorShares. In such
case, we will lose our investment and have to undergo the process of seeking
another acquisition that could provide us with the results we hope to receive
from acquiring our membership interest in AdvisorShares. We can provide not
assurance that we would be successful in locating an appropriate target or in
consummating any such transaction.
The
Initial Fund is intended to be a “fund of funds,” which means that it will seek
to achieve its investment objective by investing primarily in other
exchange-traded funds (the “Underlying ETFs”), including shares of certain
exchange-traded products that are not registered as investment companies under
the Investment Company Act of 1940, as amended. Unlike the Underlying ETFs, the
Initial Fund will not track or replicate a specific index. The Initial
Fund will charge its own expenses and also indirectly bear a proportionate share
of the Underlying ETFs’ expenses.
As
sub-advisor to the Initial Fund, HS Dent Investment Management LLC will select a
group of Underlying ETFs for the Initial Fund in which to invest pursuant to an
“active” management strategy for asset allocation, security selection and
portfolio construction. The Initial Fund intends to periodically change
the composition of its portfolio to best meet its investment
objective.
HS Dent
is an economic research and forecasting company providing financial
professionals and individuals with the proprietary economic tools needed to
accurately forecast the economy based on The Dent Method, a long term economic
forecasting technique based on the study of and changes in demographic trends
and their impact on our economy. The Dent Method has been in use by financial
professionals for over 20 years. For two decades Harvey Dent, the
principal of HS Dent Investment Management LLC, has been principally engaged as
the managing member of HS Dent Publishing, LLC, in authoring books, special
reports, and a newsletter on the topic of economic change and how to estimate
economic change by analyzing demographics, predictable consumer spending
patterns, and technological innovation. Mr. Dent earned a bachelor’s
degree from University of South Carolina and an MBA from Harvard
University.
The
holdings of the Initial Fund and all other Funds
organized by AdvisorShares and the Trust will be disclosed on its website daily
after the close of trading on the listing Exchange and prior to the opening of
trading on the Exchange the following day.
Unlike
conventional mutual funds, Shares of the Funds may be created and redeemed,
principally in-kind, in Creation Units at each day’s next calculated net asset
value (“NAV”). These creation and redemption arrangements are designed to
protect ongoing shareholders from the adverse effects on the portfolio of the
Funds that could arise from frequent cash creation and redemption transactions.
In a conventional mutual fund, redemptions can have an adverse tax impact on
taxable shareholders because of the mutual fund’s need to sell portfolio
securities to obtain cash to meet fund redemptions. These sales may generate
taxable gains for the shareholders of the mutual funds, whereas the Funds’
in-kind redemption mechanism generally will not lead to a tax event for Funds or
its ongoing shareholders.
- 4
-
Proposed
Investment in National Holdings Corporation
On April
8, 2009, we entered into a definitive Securities Purchase Agreement (the
“Purchase Agreement”), with National Holdings Corporation, a Delaware
corporation (“NHC”) whereby the Company has agreed to provide a minimum $5
million financing to NHC (the “Financing”) after the satisfaction or waiver of a
number of closing conditions set forth in the Purchase Agreement, in exchange
for an aggregate of 5,000 shares of NHC to be created Series C Convertible
Preferred Stock, par value $0.01 per share (the “Series C Preferred Stock”) at a
purchase price of $1,000.00 per share, and warrants, exercisable at any time,
and entitling the holder to purchase up to an aggregate of 25,333,333 shares of
common stock of NHC (on an as-exercised basis) with an exercise price of $0.75
per share. Until such time as the Series C Convertible
Preferred Stock is created and authorized, the Warrants entitle us to purchase
up to an aggregate of 17,500 shares of Series C Convertible Preferred Stock at
an exercise price of $1,000 per share and 2,000,000 shares of NHC common stock
(on an as-exercised basis) with an exercise price of $0.75 per
share. In connection with the Financing, we provided NHC with an
initial investment tranche of $500,000, as evidenced by NHC’s limited recourse
promissory note, dated April 8, 2009, which note shall automatically convert
into shares of Series C Preferred Stock upon consummation of the Financing or,
if we are unable to close the balance of the Financing by April 30, 2009, into
666,666 shares of NHC common stock also based on a $0.75 per common share
price. The closing of the Financing is subject to various and
customary closing conditions and was expected to close on or prior to April 30,
2009. We borrowed the $500,000 initial tranche from Global Asset Fund
Limited, (“GAF”), through a loan, which is secured by a pledge of NHC’s limited
recourse note and all of our rights and interests in the Purchase
Agreement. On May 4, 2009, we entered into an extension agreement
with NHC, pursuant to which the parties agreed to extend the outside date to
close the Financing to May 29, 2009. In consideration for obtaining the
extension, we agreed that if we are unable to obtain the funding to consummate
the Financing by May 29, 2009, we would pay up to $200,000 in professional fees
incurred by NHC in connection with the proposed transaction. We further
agreed to place such amount in escrow by May 11, 2009; failing which NHC could
terminate the proposed transaction at that time. On April 29, 2009,
our $500,000 NHC limited recourse note was converted into 666,667 shares of NHC
common stock, which are pledged as collateral to secure our $500,000 loan from
GAF. The $500,000 note to GAF is now due and payable. However, with
the extension of the Financing, GAF has not made a demand for payment. If
GAF does demand payment prior to the new closing date, we expect that they will
foreclose on the 666,667 shares of NHC common stock we received pursuant to the
conversion of the Limited Recourse Note.
If we
complete the $5.0 million Financing, until the earlier to occur of a “Triggering
Event” (as defined) or December 31, 2009, the Series C Preferred Stock entitles
the Company to vote with the common stock of NHC on all matters on which NHC
common stockholders may vote, and to cast that number of votes equal to 100% of
the number of shares NHC capital stock entitled to vote at such meeting, plus
one vote. A “Triggering Event” is defined as our exercise of such
number of the warrants that will result in the purchase of not less than
13,333,333 shares of NHC common stock and payment by us to NHC of a minimum of
$10.0 million. We may exercise our warrants at any time to cause a
“Triggering Event” to occur. However, except in connection with a
strategic acquisition that we approve, without the approval of the NHC board of
directors, we may not exercise the warrants or otherwise purchase capital stock
of NHC that would result in our owning more than 50% of the then outstanding NHC
common stock.
Upon
completion of the $5.0 million Financing, we are entitled to initially designate
two representatives on the NHC board of directors, and if we cause a Triggering
Event to occur on or before December 31, 2009, we may designate up to 50% of the
total number of directors of NHC. Our intention is, through the
exercise of our warrants, to provide NHC with the financing necessary to enable
it to make one or more strategic acquisitions in the investment banking and
financial management and services businesses. In such connection, we
have a certain preferential rights to provide such
financing. However, subject to our obtaining the necessary funding,
it is our intention to exercise our warrants in an amount sufficient to cause a
Triggering Event to occur by not later than December 31, 2009.
If we
complete the $5.0 million Financing, our agreements with NHC contain certain
covenants and agreements whereby our consent (or that of our designees on the
NHC board of directors) is required for certain major actions by NHC and its
subsidiaries. In addition, our Chief Executive Officer, Gregory
Webster would become President and CEO of the National Asset Management
subsidiary of NHC, and we would participate on the merger and acquisition
committee of NHC.
We are
currently in negotiations with a third party investor to provide us with the
funding to make the $5.0 million investment in NHC and consummate the
Financing. However, there can be no assurance that the prospective
investor will provide such funding or that the Financing will be consummated on
terms acceptable to us, if at all. The
closing of the Financing is subject to various and customary closing conditions
and was expected to close on or about April 30, 2009; however, the parties
agreed to extend the closing date to May 29, 2009 and therefore, the Financing
has not yet closed.
- 5
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About
National Holdings Corporation
NHC,
a Delaware corporation organized in 1996, is a financial services
organization, operating primarily through its wholly owned subsidiaries,
National Securities Corporation (“National Securities”), vFinance Investments,
Inc. (“vFinance Investments”) and EquityStation, Inc. (“EquityStation”)
(collectively, the “Broker Dealer Subsidiaries”). The Broker Dealer
Subsidiaries conduct a national securities brokerage business through its main
offices in New York, New York, Boca Raton, Florida, and Seattle,
Washington.
Through
its Broker Dealer Subsidiaries, NHC (i) offers full service retail brokerage to
approximately 45,000 high net worth and institutional clients, (ii) provides
investment banking, merger, acquisition and advisory services to micro, small
and mid-cap high growth companies, and (iii) engages in trading securities,
including making markets in over 3,500 micro and small cap stocks and provides
liquidity in the United States Treasury marketplace. The Broker Dealer
Subsidiaries are introducing brokers and clear all transactions through clearing
organizations on a fully disclosed basis. They are registered with the
Securities and Exchange Commission, are members of the Financial Industry
Regulatory Authority ("FINRA") and Securities Investor Protection Corporation
("SIPC"). vFinance Investments is also a member of the National Futures
Association ("NFA").
The
Broker Deal Subsidiaries currently engage approximately 700 securities brokers
who operate primarily as independent contractors. An independent
contractor registered representative who becomes an affiliate of a Broker Dealer
Subsidiary typically establishes his own office and is responsible for the
payment of expenses associated with the operation of such office, including
rent, utilities, furniture, equipment, stock quotation machines and general
office supplies. The independent contractor registered representative
is entitled to retain a higher percentage of the commissions generated by his
sales than an employee registered representative at a traditional employee-based
brokerage firm. This arrangement allows NHC to operate with a reduced
amount of fixed costs and lowers the risk of operational losses for
non-production.
In July
1994, National Securities formed a wholly owned subsidiary, National Asset
Management, Inc., a Washington corporation ("NAM"). NAM is a
federally-registered investment adviser providing asset management advisory
services to high net worth clients for a fee based upon a percentage of assets
managed. Another subsidiary of NHC, National Insurance Corporation, a Washington
corporation ("National Insurance") provides fixed insurance products to its
clients, including life insurance, disability insurance, long term care
insurance and fixed annuities. National Insurance finalized certain
requisite state registrations during the second quarter of fiscal year 2007 and
commenced business operations that have been de minimus to date.
In
addition to the customary closing conditions, the consummation of the proposed
Financing is subject to NHC obtaining the approval of FINRA, which approval will
require us to provide certain information to NHC and its broker-dealer
subsidiaries for submission to FINRA, including information concerning our
Company and our sources of the Financing. There can be no assurance
that FINRA will approve the Financing and the proposed transaction with NHC and
its subsidiaries
Working
Capital Loan with IP Global Investors LTD
Effective May 1, 2009, we entered into a $1.343 million
line of credit agreement with IP Global under which we are permitted to receive
loans of up to $1,343,000, less $723,000 of prior
advances that we received from IP Global
through April 30, 2009; provided, that
such additional advances are for approved corporate purposes. In
consideration for these advances, we:
(i) agreed to pay 9% interest on all
advances (including the prior advances),
(ii) granted the lender the right to convert the note into our
Class A Common Stock at $0.60 per share (subject to certain adjustments) and
(iii) are obligated to pay certain fees to the lender (see
“Management’s Discussions and Analysis of Financial Condition and Results of
Operations” elsewhere in this Annual Report.) All of our subsidiaries guaranteed payment
of the note and we issued IP Global a lien on most of our accounts and our
domain name to secure payment of the Note. Additionally, we agreed to issue IP Global a warrant
to purchase that number of shares of our Class A common stock equal to
$1,343,000, divided by an exercise price of $0.60 per shares (subject to certain
adjustments, including weighted average anti-dilution
adjustments).
- 6
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Our
Business Strategy
We
believe that by combining a powerful media network with the origination and
distribution of investment fund products, we can uniquely position ourself at
the center of the pooled investment solutions arena, for both the mass and
institutional markets. Our strategy is to
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Originate
and distribute fund solutions based upon the needs of
investors
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Build
a media network addressing the investment needs of the mass and
institutional markets; and
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Grow
through strategic acquisitions
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Our
market audience is large. According to the Investment Company Institute, in
2008, 45.6 percent of U.S. households owned shares of mutual funds or other
U.S.-registered investment companies -- including exchange-traded funds,
closed-end funds, and unit investment trusts -- representing an estimated 53.3
million households and 93.2 million investors. According to the Financial Times,
investors pulled a net $320 billion from mutual funds in 2008, a record in both
dollar terms and as a percentage of assets. Reflecting an uncertainty amongst
individuals about how investment savings should be allocated, we believe that
this represents a large market opportunity for Fund.com.
Through
our AdvisorShares acquisition, we believe that we will be able to benefit in the
growth of the ETF market sector, which in 2008 were at record levels in the
United States. According to Strategic Insight:
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At
the end of 2008, the United States ETF industry had 698 ETFs with assets
of $497.12 billion from 18 providers on three
exchanges;
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In
2008, assets fell by 14.4%, which is less than the 38.58% fall in the MSCI
World index in USD terms;
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In
2008, the number of ETFs increased by 16% with 144 new ETFs
launched;
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In
2008, the average daily trading volume in US dollar has increased by 33%
to US$77 billion;
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In
the United States, net sales of mutual funds (excluding ETFs) were
US$270.9 billion, while net sales of ETFs domiciled in the United States
were US$109.6 billion during the first 10 months of 2008 according to
Strategic Insight.
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Additionally,
there were 136 other ETPs (Exchange Traded Products) with assets of
US$45.34 billion from 18 providers on two
exchanges.
|
About
Exchange Traded Funds
An
exchange-traded fund (or ETF) is an investment
vehicle traded on stock exchanges,
much like stocks. An ETF holds assets such
as stocks or bonds and trades at approximately the same price as the net asset value of its underlying assets over the
course of the trading day. Most ETFs track an index, such as the S&P 500 or MSCI
EAFE. ETFs may be attractive as investments because of their low costs,
tax efficiency, and stock-like features. In a survey of investment professionals
conducted in March 2008, 67% called ETFs the most innovative investment vehicle
of the last two decades and 60% reported that ETFs have fundamentally changed
the way they construct investment portfolios.
Only
so-called authorized
participants (typically, large institutional investors) actually obtain or
redeem shares of an ETF directly from the fund manager, and then only in creation units, large blocks
of tens of thousands of ETF shares that can be exchanged in-kind with baskets of the underlying
securities. Authorized participants may hold the ETF shares or they may act as
market makers on the open market, using
their ability to exchange creation units with their underlying securities to
provide liquidity of the ETF shares and
help ensure that their intraday market price approximates the net asset value of
the underlying assets. Other investors, such as individuals using a retail
brokerage, trade ETF shares on this secondary
market.
- 7
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An ETF
combines the valuation feature of a mutual
fund or unit investment trust, which
can be purchased or redeemed at the end of each trading day for its net asset
value, with the tradability feature of a closed-end fund, which trades throughout the
trading day at prices that may be more or less than its net asset value.
Closed-end funds are not considered to be exchange-traded funds, even though
they are funds and are traded on an exchange. ETFs have been available in the
United States since 1993 and in Europe since 1999. ETFs traditionally have been
index funds, but in 2008 the Securities and Exchange Commission began to
authorize the creation of actively managed
ETFs.
ETFs
offer public investors an undivided interest in a pool of securities and other assets and thus are similar
in many ways to traditional mutual funds, except that shares in an ETF can be
bought and sold throughout the day like stocks on a securities exchange through
a broker-dealer. Unlike traditional mutual funds, ETFs do not sell or redeem
their individual shares at net asset value, or NAV. Instead, financial
institutions purchase and redeem ETF shares directly from the ETF, but only in
large blocks, varying in size by ETF from 25,000 to 200,000 shares, called
"creation units." Purchases and redemptions of the creation units generally are
in kind, with the institutional investor
contributing or receiving a basket of securities of the same type and proportion
held by the ETF, although some ETFs may require or permit a purchasing or
redeeming shareholder to substitute cash for some or all of the securities in
the basket of assets.
The
ability to purchase and redeem creation units gives ETFs an arbitrage mechanism intended to minimize the
potential deviation between the market price and the net asset value of ETF
shares. Existing ETFs have transparent portfolios, so institutional investors
will know exactly what portfolio assets they must assemble if they wish to
purchase a creation unit, and the exchange disseminates the updated net asset
value of the shares throughout the trading day, typically at 15-second
intervals. If there is strong investor demand for an ETF, its share price will
(temporarily) rise above its net asset value per share, giving arbitrageurs an
incentive to purchase additional creation units from the ETF and sell the
component ETF shares in the open market. The additional supply of ETF shares
increases the ETF's market capitalization
and reduces the market price per share, generally eliminating the premium over
net asset value. A similar process applies when there is weak demand for an ETF
and its shares trade at a discount from net asset value.
Under
existing regulations, a new ETF must receive an order from the Securities and
Exchange Commission, or SEC, giving it relief from provisions of the Investment Company Act of 1940 that would not
otherwise allow the ETF structure. In 2008, however, the SEC proposed rules that
would allow the creation of ETFs without the need for exemptive orders. Under
the SEC proposal, an ETF would be defined as a registered open-end management
investment company that:
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Issues
(or redeems) creation units in exchange for the deposit (or delivery) of
basket assets the current value of which is disseminated on a per share
basis by a national securities exchange at regular intervals during the
trading day;
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Identifies
itself as an ETF in any sales
literature;
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Issues
shares that are approved for listing and trading on a securities
exchange;
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Discloses
each business day on its publicly available web site the prior business
day's net asset value and closing market price of the fund's shares, and
the premium or discount of the closing market price against the net asset
value of the fund's shares as a percentage of net asset value;
and
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Either
is an index fund, or discloses each business day on its publicly available
web site the identities and weighting of the component securities and
other assets held by the fund.
|
The SEC
rule proposal would allow ETFs either to be index funds or to be fully
transparent actively managed funds. Historically, all ETFs in the United States
have been index funds. In 2008, however, the SEC began issuing exemptive orders
to fully transparent actively managed ETFs. The SEC rule proposal
indicates that the SEC is not suggesting that it will not consider future
applications for exemptive orders for actively managed ETFs that do not satisfy
the proposed rule's transparency requirements.
- 8
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Some ETFs
invest primarily in commodities or commodity-based instruments, such as crude
oil and precious metals. Although these commodity ETFs are similar in practice
to ETFs that invest in securities, they are not "investment companies" under the
Investment Company Act of 1940.
Among the
advantages of ETFs are the following:
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Lower costs - ETFs
generally have lower costs than other investment products because most
ETFs are not actively managed and because ETFs are insulated from the
costs of having to buy and sell securities to accommodate shareholder
purchases and redemptions. ETFs typically have lower marketing,
distribution and accounting expenses, and most ETFs do not have 12b-1
fees.
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Buying and selling
flexibility - ETFs can be bought and sold at current market prices
at any time during the trading day, unlike mutual funds and unit
investment trusts, which can only be traded at the end of the trading day.
As publicly traded securities, their shares can be purchased on margin and
sold short, enabling the use of hedging strategies, and traded using stop
orders and limit orders, which allow investors to specify the price points
at which they are willing to trade.
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Tax efficiency - ETFs
generally generate relatively low capital gains, because they typically
have low turnover of their portfolio securities. While this is an
advantage they share with other index funds, their tax efficiency is
further enhanced because they do not have to sell securities to meet
investor redemptions.
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Market exposure and
diversification - ETFs provide an economical way to rebalance
portfolio allocations and to "equitize" cash by investing it quickly. An
index ETF inherently provides diversification across an entire index. ETFs
offer exposure to a diverse variety of markets, including broad-based
indexes, broad-based international and country-specific indexes, industry
sector-specific indexes, bond indexes, and
commodities.
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Transparency - ETFs,
whether index funds or actively managed, have transparent portfolios and
are priced at frequent intervals throughout the trading
day.
|
An
Actively Managed ETF is not an index fund, and thus does not seek to replicate
the performance of a specified index. An Index-based ETF
seeks to replicate the holdings of a specified index. An actively managed ETF
uses an active investment strategy to meet its investment objective. Thus, the
Fund’s investment sub-advisor to ActiveShares has discretion on a daily basis to
manage the Fund’s portfolio in accordance with the Fund’s investment
objective.
Fund.com
Technologies Inc.
We divide
the market for our fund information products and services into two segments:
individual investors, and financial advisors and institutions, such as banks,
insurance companies, mutual fund companies and brokerage firms.
Individual
Investors
It is our
intention to build, as quickly as possible, a large community of investors or
potential investors and to provide them with a forum where they will find
information and data that they have collectively deemed relevant to financial
investment decision making. We feel that charging for content will impair our
ability to build this community; therefore at this time, we intend that the
majority of our website content will be free.
- 9
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We intend
to derive a portion of our revenue from subscription sales. Certain items, like
analyst reports, will be made available for purchase, at a profit to us, to
those members of the www.fund.com
community willing to subscribe to this data. However, we believe a significant
portion of revenue will be derived from advertising and lead generation. These
revenues are expected to be closely correlated to the number of unique visitors
to our website.
We
believe that many of these investors seek out third-party sources of information
to validate the advice they receive. We also believe that it is in the best
interests of financial professionals that investors become better educated on
their investment decisions, as a better informed investor will optimize a
financial planner’s ability to structure a risk aligned portfolio for its
customer. For this reason, we believe that www.fund.com can be
positioned as a resource to which financial advisors and even fund companies can
refer their clients to become better educated on fund investments, in effect
making our customer - the financial advisor - also a source of visitors to our
website.
We also
believe that investors are looking for independent sources for investment
information for advice verification. While the demand for investment information
and advice has increased, we believe that there is often a gap between the
demand and the level of trust investors have in the information they are
provided. Our site, www.fund.com, will be
a community site populated by visitors whose primary agenda is to share
financial information for the purpose of making sounder collective investment
decisions. Where an investor may question the motivations of a financial
advisor, an analyst or even a journalist, we believe an investor is less likely
to question information that has been vetted and ranked by the www.fund.com investor
peer community.
Financial Advisors and
Institutions
We expect
to derive a reasonable portion of our revenue from lead generation and
advertising sales, primarily from companies within the financial services
industry. Given the nature and intended manner of presentation of our content,
namely, always current finance related information and community based
information analysis, we anticipate our audience will present an attractive
demographic for advertisers. We believe the typical visitor to our site will
be:
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highly
inclined to make an investment, most likely in a fund;
and
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a
frequent return visitor, given that the information on our site is
constantly being updated by our user
community.
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We will
derive revenue from fees generated when lead forms filled in by www.fund.com visitors
are submitted to funds or financial advisors.
We
have partnered with a third-party firm that will offer, on
the behalf of Fund.com, a variety of advertising options that may be purchased
individually or in packages, such as “run-of-site” banner advertisements that
run throughout our web site, priced CPM (cost per thousand impressions); premium
positioning advertising featuring targeted advertisements; CPC (cost per click)
search advertisements; sponsorships, which will run in a fixed area of our web
site for a set duration; and advertising on email bulletins and other
newsletters delivered to our community. We may also launch a contextual
advertising program whereby advertisements from our inventory of advertisers
would be served on www.fund.com
affiliated websites like accreditedinvestor.com.
We
believe that there is a significant and growing pool of financial advisors and
fund companies that we can draw from for advertising and lead revenue. As of
year-end 2008, there were, according to ICI, 16,079 investment companies in the
United States: 8,752 mutual funds (including funds that invest in other funds),
6,030 unit investment trusts, 668 closed-end funds, and 629 exchange traded
funds.
- 10
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Fund.com
the Website
The
initial development of the website was completed in February,
2009. We intend to continually update the site with new content and
features on a quarterly basis. The initial visitation to the site is
in accordance with expectations.
Fund.com
Managed Products, Inc.
Our
wholly-owned subsidiary, Fund.com Managed Products, Inc., a Delaware
corporation, will specialize in developing asset management products. These
products may include the identification, construction, publishing of investment
indices and the development of a proprietary suite of actively managed ETF
solutions through our affiliate, AdvisorShares.
Fund.com
Managed Products, Inc. intends to evaluate demand from its user community for
such products and will seek to develop products where our management determines
demand will result in adequate fee income.
Fund.com
Capital Inc.
Fund.com Capital Inc. (then known as Meade Capital,
Inc.) was originally established by Meade Technologies, Inc., the Company’s
predecessor, to invest in financial entities and structure unregistered
financial products and instruments, including fund management companies, and
structured products offered or managed by such entities. As a result, at the
time of the merger with Meade Technologies in January 2008, the Company believed
that the certificate of deposit investment would provide the Company with a
material asset base, would serve as the basis for unregistered structured
products and would provide capital for one or more potential acquisitions within
its then business model as set forth in its business plan disclosed in a Current
Report on Form 8-K filed with the Commission on January 17,
2008. However, in view of the Company’s need for additional working
capital, its decision to abandon the issuance of unregistered structured
products in favor of pursuing exclusively investment products registered under
the Securities Act and Global Bank’s right to exchange and swap the three year
certificate of deposit for a long-term annuity instrument that would not provide
the Company with liquidity, our management determined that it would need to seek
additional financing for the Company in order to support our other strategic
initiatives, and could no longer place undue reliance on the investment in the
certificate of deposit.
Revenue
Prospects
Online Advertising Revenue.
Driving visitors to www.fund.com will be
critical to our success. We believe our sales and marketing efforts will be
responsible for generating a significant portion of new visits to our site.
Additionally, we believe www.fund.com will
have other competitive advantages in the generation of website traffic,
including two key low cost means of generating traffic to www.fund.com,
namely:
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1.
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its
affiliation and cross-branding relationship with EQUITIES Magazine (a
company affiliated with our largest shareholder in terms of votes), an
established financial media company; and
|
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2.
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the
URL www.fund.com is a domain name
that is broad, easy to remember and highly
marketable.
|
Database Lead Generation. We
intend to market financial information products to potential customers
identified in proprietary databases, including databases owned by EQUITIES
Magazine. It is our intention that we will be paid a fixed fee by
lead partners such as fund companies, financial planners and other financial
service information providers when one of our referrals opens an account with
one of these lead partners. Our success will be dependent on the quality of the
databases we market to and the appeal of the information-based products we are
selling. Additional revenue will be derived from subscriptions to our
eDirectory for individual brokers/advisors. This will provide the
broker/advisor a listing on our website and the opportunity to obtain a
lead.
- 11
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Content
Licensing. Through Fund.com Managed Products Inc., we may
research and develop intellectual property in the form of fund investment
indexes and related index-linked investment products and to license this
intellectual property to third parties in consideration for recurring license
fees paid to us based on a fixed percentage of assets managed by such third
party using our index-linked investment products. We intend to develop other
content and other licensing agreements.
Advisory Fees. Our
intention is to enter into consulting agreements to provide advisory services to
third party investment product providers. These third party providers
may also enter into a license agreement for the indexes that we may develop in
the future. We
anticipate that these consulting agreements will provide for Fund.com Managed
Products, Inc. to assist in establishing investment products that use our
content as an investment benchmark. Although we will not be the
issuer of these investment products, we anticipate generating fees from both our
consulting services and from third party indexes that are the subject of our
licensing agreements.
Structured
Products . Fund.com Capital Inc. (then known as Meade
Capital, Inc.) was originally established by Meade Technologies, Inc., the
Company’s predecessor, to invest in financial entities and structure
unregistered financial products and instruments, including fund management
companies, and structured products offered or managed by such entities. As a
result, at the time of the merger with Meade Technologies in January 2008, the
Company believed that the certificate of deposit investment would provide the
Company with a material asset base, would serve as the basis for unregistered
structured products and would provide capital for one or more potential
acquisitions within its then business model as set forth in its business plan
disclosed in a Current Report on Form 8-K filed with the Commission on January
17, 2008. However, in view of the Company’s need for additional
working capital, its decision to abandon the issuance of unregistered structured
products in favor of pursuing exclusively investment products registered under
the Securities Act and Global Bank’s right to exchange and swap the three year
certificate of deposit for a long-term annuity instrument that would not provide
the Company with liquidity, our management determined that it would need to seek
additional financing for the Company in order to support our other strategic
initiatives, and could no longer place undue reliance on the investment in the
certificate of deposit.
Marketing,
Content and Distribution
We plan
to pursue a variety of sales and marketing initiatives to increase traffic to
www.fund.com,
license our content, expose our brands and build our customer databases. We
believe that these initiatives will include promoting our services using online
and email marketing, establishing content syndication and subscription
distribution relationships with leading companies with whom we have had
discussions, including with EQUITIES Magazine, and engaging in an ongoing public
awareness campaign.
Marketing
costs will be comprised of expenses associated with expanding brand awareness of
our products and services to consumers and may include key word campaigns on
internet search engines, print and internet advertising, marketing and promotion
costs.
Competitive Business Conditions and
Competitive Position
We
anticipate that we will be in competition with both traditional and online
companies engaged in the creation and distribution of business, investment,
investment ratings content and index licensing.
We have
several direct on-line competitors with long operating histories and well
established brands such as Thestreet.com, The Wall Street Journal Online
(www.wsj.com), Forbes.com, SmartMoney.com, MarketWatch.com, The Motley Fool and
CNBC.com, as well as financial portals such as Yahoo! Finance and Google
Finance. Our investment index competitors include Morningstar, Dow Jones,
Standard & Poor’s, The Financial Times and MSCI Barra, a public company
majority owned by Morgan Stanley.
Many of
our competitors are established and have far greater financial resources, more
experience and larger staffs than do we. Additionally, many have
proven operating histories, which we lack. We expect to face strong
competition from both well-established companies and small independent
companies. Significant competitive factors in our market include: the
quality, originality, timeliness, insightfulness and trustworthiness of our
content, our ability to introduce products and services that keep pace with new
investing trends, the ease of use of services developed and the effectiveness of
our sales and marketing efforts.
- 12
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Subsidiaries
We have
two wholly owned subsidiaries; Fund.com Technologies Inc., and Fund.com Managed
Products Inc. Fund.com Managed Products Inc. has a wholly owned
subsidiary, Fund.com Capital Inc. We also have a 60% interest in
AdvisorShares Investments LLC.
Employees
We
currently have three key employees in the following capacities; Chief Executive
Officer, Chief Operating Officer, and Chief Financial Officer. We consider our
relations with our employees to be good. We have never had a work stoppage, and
none of our employees is represented by collective bargaining agreements. We
believe that our future success will depend in part on our ability to attract,
integrate, retain and motivate highly qualified personnel and upon the continued
service of our senior management and key technical personnel. None of our key
personnel is bound by employment agreements that prohibit them from ending their
employment at any time. Competition for qualified personnel in our industry and
geographical location is intense. We cannot provide assurance that we will be
successful in attracting, integrating, retaining and motivating a sufficient
number of qualified employees to conduct our business in the
future.
Intellectual
Property
We will
rely on a combination of trademark, copyright and trade secret and laws in the
United States and abroad as well as contractual provisions to protect our
proprietary technology. We currently have trademarks registered in the United
States for certain domain addresses which we own. and intend to file for
trademarks in the future for our assets. We will rely on contractual provisions
and copyright laws to protect source and the content of our intellectual
property.
Governmental
Regulation
We are an
information services company and online advertising business. The growth and
development of the market for internet commerce and communications has prompted
both federal and state laws and regulations concerning the collection and use of
personally identifiable information (including consumer credit and financial
information under the Gramm-Leach-Bliley Act), consumer protection, the content
of online publications, the taxation of online transactions and the transmission
of unsolicited commercial email, popularly known as “spam.” More laws and
regulations are under consideration by various governments, agencies and
industry self-regulatory groups. We believe that our practices are in compliance
with applicable laws.
Our
activities may include, among other things, the offering of stand-alone services
providing fund recommendations and analysis to subscribers, in contrast to
providing such information as part of a larger online financial publication of
more general and regular circulation. As a result, we may in the future be
required to register with the Securities and Exchange Commission as an
investment advisor under the Investment Advisers Act of 1940. Investment
advisors are subject to Securities and Exchange Commission regulations covering
all aspects of the operation of their business, including, among
others:
·advertising,
·record-keeping,
·conduct of directors, officers and
employees, and
·supervision of advisory
activities.
- 13
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Reports
to Security Holders
The
Company is a reporting company and files annual, quarterly and current reports,
proxy statements and other information with the SEC. For further
information with respect to the Company, you may read and copy its reports,
proxy statements and other information, at the SEC public reference rooms at 100
F. Street, N.E., Washington, D.C. 20549. You can request
copies of these documents by writing to the SEC and paying a fee for the copying
cost. Please call the SEC at 1-800-SEC-0330 for more information
about the operation of the public reference rooms. The Company’s SEC
filings are also available at the SEC’s web site at
http://www.sec.gov.
Copies of
Company’s Annual Reports on Form 10K, Quarterly Reports on Form 10-Q, Current
Reports on Form 8-K, and amendments to those reports filed or furnished pursuant
to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are all
available on our website www.fund.com free of charge, within a week after we
file same with the SEC.
Item 1A. Risk Factors.
Risks
Relating to Our Business and Industry
We
are still in an early stage of development and have earned limited revenue to
date.
We are a
development-stage company. We have earned limited revenues to date and have
supported our operations primarily through private equity investment. Our
operations are subject to all of the risks inherent in the establishment of a
new business enterprise. Our likelihood of success must be considered in light
of the problems, expenses and delays frequently encountered in connection with a
new business and the development of new products and new
technology.
We
have a limited operating history, which limits the information available to you
to evaluate our business, and have a history of operating losses and uncertain
future profitability.
On
January 15, 2008, we completed the Merger. Since that time, operating
and development expenses have been funded by cash on hand at January 15, 2008,
private placements of equity sales and notes from existing
shareholders. We will require additional sources of capital to
fund operating expenses until such time that the Company becomes
profitable. If we are unable to secure additional external financing
on a timely basis, we will not have sufficient cash to fund our working capital
and capital expenditure requirements and we will be forced to cease operations.
In such event, the shares of our common stock may cease to have any
value. There is limited operating and financial information to
evaluate our historical performance and our future prospects. We face the risks
and difficulties of a development-stage company including the uncertainties of
market acceptance, competition, cost increases and delays in achieving business
objectives. We cannot assure you that we will succeed in addressing any or all
of these risks or that our efforts will generate significant revenue or achieve
future profitability. Our failure to do so would have an adverse effect on our
business, financial condition and operating results.
We
will require substantial additional financing.
We
will need to raise substantial additional capital to fund operations and
grow our business. Our existing capital and future revenues are not expected to
be sufficient to support the expenses of our operations. We will
require significant capital in order to accomplish our short-term
goals. For the past six months we have
relied on loans and advances from IP Global, Inc., a privately owned
intellectual property financing company, to provide us with working capital to
pay our operating expenses. Through April 30, 2009, we have borrowed
an aggregate of $723,000 from this lending source. Effective May
1, 2009, we entered into a $1.343 million line of credit agreement with IP
Global under which we are permitted to receive loans of up to $1,343,000, less
the $723,000 of prior advances through April 30, 2010; provided,
that such additional advances are for approved corporate purposes. In
consideration for these advances, we have agreed to pay 9% interest on all
advances (including the prior loans), granted the lender the right to convert
our note into our Class A Common Stock at $0.60 per share (subject to certain
adjustments) and are obligated to pay certain fees to the lender (see
“Management’s Discussions and Analysis of Financial Condition and Results of
Operations” elsewhere in this Annual Report. We may require
additional working capital financing in the future, but may not be able
to obtain additional financing on favorable terms or at all. If we
are unable to raise additional funds when needed, we may be unable to continue
operating, fund our development and expansion, pursue more aggressive marketing
programs, successfully promote our brand name, develop or enhance our products
and services, take advantage of business opportunities or respond to competitive
pressures, any of which could have a material adverse effect on our business and
the price of our stock.
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Potential Conflicts Of Interest
From time
to time, we have entered into transactions with persons and entities deemed to
be our affiliates, including entering into an agreement pertaining to a
certificate of deposit with Global Bank of Commerce Limited, an affiliate of one of our shareholders (GBC
Wealth Management Limited). In addition, if we
consummate our proposed investment in National Holdings Corporation, we
expect to enter into one or more financing
agreements with a third party investor that is
affiliated with one of our shareholders, or its affiliates. Notwithstanding these potential conflicts of interest,
our board of directors believes that the terms of these transactions
will be at least as favorable to us as we could have been obtained from unaffiliated
parties. There can be no assurance, however, that future conflicts of
interest will not arise with respect thereto, or that if conflicts do
arise, they will be resolved in a manner favorable to us.
The
interests of our controlling shareholders could conflict with those of our other
shareholders resulting in the approval of corporate actions that are not in your
interests.
Our
executive officers and principal shareholders, collectively own or control
approximately 35% of our Class A Common Stock (and approximately 94% of our
voting power). In addition, Equities Media Acquisition Corp Inc., as holder of
all of our outstanding Class B common stock, controls approximately 60% of our
voting power and accordingly has voting control over our Company. Class B
holders therefore have significant influence over management and affairs and
over all matters requiring stockholder approval, including the election of
directors and significant corporate transactions, such as a merger or other sale
of our company or its assets, for the foreseeable future. The Class B Common
shareholder is able to control the outcome of shareholder votes, including votes
concerning: amendments to our certificate of incorporation and by-laws; the
approval of significant corporate transactions like a merger or sale of our
assets; and control the election of our board of directors. This controlling
influence could have the effect of delaying or preventing a change in control,
even if our other shareholders believe it is in their best
interest.
The success of our and
AdvisorShares’ business plan is contingent upon the
effectiveness of a registration statement submitted by AdvisorShares to the SEC on March
12, 2009 and the grant by the SEC of exemptive relief from the requirements of
the Investment Company Act of 1940 pursuant to an application submitted by
AdvisorShares on January 18, 2008. If the SEC does not declare such
registration statement effective or grant such exemptive relief, AdvisorShares may not be able to
carry out its business planand would not continue as a going
concern, in which case
we will lose our investment and have to undergo the process of
seeking another
acquisition that could provide us with the results we hope to receive from
acquiring our membership interest in AdvisorShares.
On March
12, 2009, AdvisorShares filed a registration statement with the SEC to register
under the Securities Act of 1933, as amended, and the Investment Company Act of
1940, the initial exchange traded fund to be offered by AdvisorShares Trust, to
be known as the Dent Tactical ETF. In addition, AdvisorShares submitted an
application for exemptive relief from the requirements of the Investment Company
Act of 1940 on January 18, 2008. As of the date of our initial Form
10-K, the registration statement has not been declared effective by the SEC and
exemptive relief has not been granted by the SEC. No assurance can be
given that the SEC will declare the registration statement effective or grant
exemptive relief from the Investment Company Act of 1940. The Company’s and
AdvisorShares’ business plan is contingent upon the effectiveness of the
registration statement and receipt of such exemptive relief from the SEC.
If the SEC does not declare such registration statement effective or grant
such exemptive relief, AdvisorShares would not be able to carry out its business
plan and would not continue as a going concern, and would likely be sold,
merged, or liquidated (via bankruptcy or otherwise) and we would therefore not
reap any of the intended benefit of owning AdvisorShares. In such
case, we will lose our investment and have to undergo the process of seeking
another acquisition that could provide us with the results we hope to receive
from acquiring our membership interest in AdvisorShares. We can provide not
assurance that we would be successful in locating an appropriate target or in
consummating any such transaction.
If Arrow Investment Advisors, LLC prevails in its
arbitration proceeding against Mr. Noah Hamman, AdvisorShares Investments LLC’s
chief executive officer and part owner of Arrow, this could impact the amount of
ownership Mr. Hamman indirectly holds in AdvisorShares in that Mr. Hamman could
lose his 40% interest in AdvisorShares to Arrow. In addition,
if Arrow prevails, Arrow could assert claims that the Purchase and Contribution
Agreement (to which we are a party) was inappropriately executed and seek to
nullify the obligations associated with such agreement. In either
case, we will lose our investment in AdvisorShares and have to undergo the
process of seeking another acquisition that could provide us with the results we
hope to receive from acquiring our membership interest in
AdvisorShares.
An arbitration proceeding was commenced on November 7,
2008 against Mr. Noah Hamman, AdvisorShares' CEO and part owner ("Member") of
Arrow Investment Advisors, LLC ("Arrow"), by Arrow. The arbitration
was commenced pursuant to the provisions of the LLC Operating Agreement of Arrow
and brought under the auspices of the International Institute for Conflict
Prevention and Resolution in New York, as required under the LLC Operating
Agreement. The arbitration involves the other Members of Arrow who have asserted
an ownership claim regarding Mr. Hamman's ownership interest in
AdvisorShares. Such Members claim that AdvisorShares’ business
is based on the improper usurpation and conversion by Mr. Hamman of Arrow’s
corporate opportunities and assets, including the business of
AdvisorShares. The arbitration hearing is currently scheduled for
December 14, 2009 and a decision is expected approximately 30 days
thereafter.
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If the other Members of Arrow
prevail on their claims, this could impact the amount of ownership Mr. Hamman
indirectly holds in AdvisorShares in that Mr. Hamman could lose his 40% interest
in AdvisorShares to Arrow. In addition, if Arrow prevails,
Arrow could assert other claims including that the Purchase and Contribution
Agreement (to which we are a party) was inappropriately executed and seek to
nullify the obligations associated with that agreement. In such event, we could
lose our investment in AdvisorShares and have to
undergo the process of seeking another acquisition that could provide us with
the results we hope to receive from acquiring our membership interest in
AdvisorShares. Although we would vigorously defend against any award in the
arbitration that would cause us to lose our investment in AdvisorShares, there
is no assurance that we would be successful in such defense, or if required, in
locating or consummating an appropriate alternative acquisition
transaction.
We may be exposed
to risks relating to our disclosure controls and our internal controls and may
need to incur significant costs to comply with applicable
requirements.
Based on
the evaluation done by our management at December 31, 2008, our disclosure
controls were deemed ineffective, in that we could not assure that information
required to be disclosed in our SEC reports is recorded, processed,
summarized and reported within the time periods specified in the Securities and
Exchange Commission’s rules and forms, and communicated to our management, so as
to allow timely decisions regarding required disclosures. Due to SEC
comments we received concerning the late filing of our Annual Report on Form
10-K for the year ending December 31, 2008, we re-examined our controls and
procedures and only then did management recognize the material weakness in our
controls and procedures. Generally, due to timing constraints related to the
finalization of material agreements, we were unable to simultaneously
close the books on a timely basis to generate all the necessary disclosure for
inclusion in our Annual Report on Form 10-K, which caused us to be late
in the filing of such report. Through our examination, we
also realized that our internal controls were ineffective.
No
assurances can be given that we will be able to adequately remediate existing
deficiencies in disclosure controls and not have deficiencies when we report on
internal controls. We may be required to expend additional resources
to identify, assess and correct any additional weaknesses in disclosure or
internal control and to otherwise comply with the internal controls rules under
Section 404 of the Sarbanes-Oxley Act, when applicable.
If we are unable
to establish appropriate internal financial reporting controls and procedures,
it could cause us to fail to meet our reporting obligations, result in the
restatement of our financial statements, harm our operating results, subject us
to regulatory scrutiny and sanction, cause investors to lose confidence in our
reported financial information and have a negative effect on the market price
for shares of our common stock.
Effective
internal controls are necessary for us to provide reliable financial reports and
effectively prevent fraud. We maintain a system of internal control over
financial reporting, which is defined as a process designed by, or under the
supervision of, our principal executive officer and principal financial officer,
or persons performing similar functions, and effected by our board of directors,
management and other personnel, 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.
As a
public company, we have significant additional requirements for enhanced
financial reporting and internal controls. We are required to document and test
our internal control procedures in order to satisfy the requirements of Section
404 of the Sarbanes-Oxley Act of 2002, which requires annual management
assessments of the effectiveness of our internal controls over financial
reporting and at some point, a report by our independent registered public
accounting firm addressing these assessments. The process of designing and
implementing effective internal controls is a continuous effort that requires us
to anticipate and react to changes in our business and the economic and
regulatory environments and to expend significant resources to maintain a system
of internal controls that is adequate to satisfy our reporting obligations as a
public company.
We cannot
assure you that we will not, in the future, identify additional areas requiring
improvement in our internal control over financial reporting. We cannot assure
you that the measures we will take to remediate any areas in need of improvement
will be successful or that we will implement and maintain adequate controls over
our financial processes and reporting in the future as we continue our growth.
If we are unable to establish appropriate internal financial reporting controls
and procedures, it could cause us to fail to meet our reporting obligations,
result in the restatement of our financial statements, harm our operating
results, subject us to regulatory scrutiny and sanction, cause investors to lose
confidence in our reported financial information and have a negative effect on
the market price for shares of our common stock.
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Risks
Related To The Investment Company Act Of 1940.
Although
we do not believe that we are an investment company within the meaning of the
Investment Company Act of 1940 (the “1940 Act”), if we are deemed to be an
investment company under the 1940 Act because of our investment securities
holdings, we must register as an investment company under the 1940 Act. The 1940
Act and the rules thereunder contain detailed parameters for the organization
and operation of investment companies. Among other things, the
1940 Act and the rules thereunder limit or prohibit transactions with
affiliates, impose limitations on the issuance of debt and equity securities,
generally prohibit the issuance of options and impose certain governance
requirements. We intend to conduct our operations so that we will not be deemed
to be an investment company under the 1940 Act. If anything were to happen
which would cause us to be deemed to be an investment company under the 1940
Act, requirements imposed by the 1940 Act, including limitations on our capital
structure, ability to transact business with affiliates and ability to
compensate key employees, could make it impractical for us to continue our
business as currently conducted and materially adversely affect our business,
financial condition and results of operations. In addition, we may be required
to limit the amount of investments that we make as a principal or otherwise
conduct our business in a manner that does not subject us to the registration
and other requirements of the 1940 Act.
Substantially
all of our assets are invested in an account with Global Bank of Commerce
Limited, an Antigua Bank.
Substantially
all of our capital, $20.0 million, has been invested in a three year
non-cancellable certificate of deposit due and payable on November 8, 2010 with
Global Bank of Commerce Limited , which is the parent of one of our shareholders
(GBC Wealth Management Limited). As a result, we have only limited
liquidity for the foreseeable future, and will need to raise substantial
additional capital to pursue our business.
Global
Bank of Commerce is a bank
located in Antigua whose issued financial instruments have not been rated by any
security rating agency such as Standard and Poor’s, Moody’s or Fitch.
Accordingly, we have substantial credit risk and exposure arising from this
holding and concentration of assets in one institution. Our financial condition
is largely dependent on Global Bank of Commerce performing its obligations under
the CD. We believe that our $20.0 million deposit represents a
significant portion of Global Bank of Commerce’s total deposits and net
worth. This deposit does not have the benefit of any governmental or
third party insurance. Global Bank of Commerce is not subject to the
types of capital requirements and other regulations that apply to U.S. financial
institutions. Accordingly, there can be no assurance that Global Bank
of Commerce has or will have the financial wherewithal to repay the CD on a
timely basis, or all.
If Global
Bank of Commerce were to go bankrupt or become insolvent, or otherwise fail to
perform its obligations under the CD, our assets, financial condition, results
of operations and cash flow would severely suffer as a
result. Moreover, Global Bank of Commerce Limited is located in
Antigua and, as a result, it may be difficult or impossible for us to bring an
action against Global Bank of Commerce Limited in the United States in the event
that we believe that Global Bank of Commerce defaults on its obligations to
us. If Global Bank of Commerce defaults on the CD, we in any event may
have no practical remedy. Our inability to enforce or obtain a remedy under our
agreement with Global Bank of Commerce would severely damage our assets,
financial condition and viability.
We
may issue shares of preferred stock that could defer a change of control or
dilute the interests of our common shareholders and our charter documents could
defer a takeover effort, which could inhibit your ability to receive an
acquisition premium for your shares or your ability to sell your shares of
common stock.
Our
certificate of incorporation permits our board of directors to issue up to
10,000,000 shares of preferred stock without shareholder approval. All shares of
the preferred stock remain available for issuance. Shares of our preferred
stock, if issued, could contain dividend, liquidation, conversion, voting or
other rights which could adversely affect the rights of our common shareholders
and which could also be utilized, under some circumstances, as a method of
discouraging, delaying or preventing a change in control. Provisions of our
certificate of incorporation, by-laws and Delaware law could make it more
difficult for a third party to acquire us, even if many of our shareholders
believe it is in their best interest. These provisions may decrease your ability
to sell your shares of our common stock.
We
depend on the services of our executive officers, and a loss of any of these
individuals may harm our business.
Our
performance is substantially dependent upon the performance of our executive
officers and, to a lesser extent, certain other employees. The familiarity of
these key employees to their respective industries makes these employees
especially critical to our success. The loss of the services of any of our
executive officers or key employees may harm our business and the cost to
replace such individuals may put a strain on our limited resources.
Our
future is dependent on the successful development of the Company’s technology,
products and services.
We are in
the initial stages of the development of www.fund.com and
there is no assurance that when development is finished www.fund.com will
perform as expected. Our ability to continue operations will depend
on the success of our development and integration of supplemental leading edge
technology, and there is no assurance that the development and integration will
be successful.
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The
market acceptance of a new investment content provider is
uncertain.
Even if
we are successful in the development of our technology, our success will depend
upon the acceptance of our product by the general public. Insufficient market
acceptance of our product would have a material adverse effect on our business,
financial condition and results of operations. We anticipate a significant
portion of our revenue to come from selling leads to mutual funds and investment
brokers. Funds and brokers may not want to pay for these leads.
We
will need to expand our skilled personnel and retain those personnel that we do
hire.
We will
be required to hire and retain skilled employees at all levels of our operations
in a market where such qualified employees are in high demand and are subject to
receiving competing offers. The inability to hire needed employees on
a timely basis and/or the inability to retain those that we do hire could have a
material adverse effect on our ability to meet the schedule of our strategic
plan.
We
will need to successfully manage our growth, which we expect to be significant
for the foreseeable future.
We plan
on growing at a rapid pace, which will require, in part, the constant addition
of new personnel in all areas of our operations. Even if we are
successful in finding and hiring the appropriate personnel, there will be a
significant strain placed on our managerial, operational, reporting and
financial resources. We have taken preliminary steps to put in place
the necessary legal, accounting, human resource management and other
relationships and tools to enable us to deal with this growth more
efficiently. However, there is no assurance that we will be able to
successfully manage this rapid growth.
We
must reach agreements with third parties to supply us with the hardware,
software and infrastructure necessary to provide our services, and the loss of
access to this hardware, software or infrastructure or any decline or
obsolescence in functionality could cause our customers’ businesses to suffer,
which, in turn, could decrease our revenues and increase our costs.
We have
certain contemplated strategic vendor relationships that will be critical to our
strategy. We cannot assure you that these relationships can be
obtained or maintained on terms favorable to us or at all. Our
success depends substantially on obtaining relationships with strategic
partners, such as search engine technology developers, community polling
software providers and outsourced software programmers. If we are
unable to obtain or maintain our relationship with strategic partners, our
business, prospects, financial condition and results of operations will be
materially adversely affected.
We
may be impacted by general economic conditions, which would negatively affect
our business.
The
global and U.S. economies are experiencing significantly reduced business
activity as a result of, among other factors, disruptions in the financial
system in the past year, and that trend appears to be continuing into 2009. We
have observed dramatic declines in the asset levels of the investing public
which includes the 401(K) participate market. The housing market during the past
year, with falling home prices and increasing foreclosures and unemployment,
have resulted in significant write-downs of asset values by financial
institutions, including government-sponsored entities and major commercial and
investment banks. These write-downs, initially of mortgage-backed securities but
spreading to credit default swaps and other derivative securities have caused
many financial institutions to seek additional capital, to merge with larger and
stronger institutions and, in some cases, to fail.
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Current
market turmoil and tightening of credit have led to an increased level of
consumer and commercial delinquencies, lack of consumer confidence, increased
market volatility and widespread reduction of business activity generally. The
resulting economic pressure on consumers and lack of confidence in the financial
markets has, in some cases, adversely affected the financial services
industry.
The
rates we charge for our services may decline over time, which would reduce our
revenues and adversely affect our profitability.
As our
business model gains acceptance and attracts the attention of competitors, we
may experience pressure to decrease the fees for our services, which could
adversely affect our revenues and gross margin. If we are unable to
sell our services at acceptable prices, or if we fail to offer additional
services with sufficient profit margins, our revenue growth will slow and our
business and financial results will suffer.
The
market for web investment content is competitive.
Our
proposed products and services will compete with products and services offered
by numerous other entities. Because we currently have no patented
technology that would bar competitors from our market, and other barriers to
entry in our market are relatively low, new competitors could enter our market
at any time in the future.
We
believe that our primary competitors include:
|
·
|
web
sites offering investment information together with other related
services, such as wsj.com, forbes.com, smartmoney.com, marketwatch.com,
thestreet.com, cnbc.com, fool.com and
Morningstar.com;
|
|
·
|
general
purpose consumer web sites such as Google and Yahoo! that also offer
financial investment content on their sites;
and
|
|
·
|
traditional
print media such as newspapers and
magazines.
|
Many of
our existing and potential competitors have longer operating histories in the
internet market, greater name recognition, larger consumer bases and
significantly greater financial, technical and marketing resources than we do.
Some of our competitors may also be able to provide customers with additional
benefits at lower overall costs in an effort to increase market share. We cannot
be sure that we will be able to match cost reductions by our competitors. Our
competitors and other companies may form strategic relationships with each other
to compete with us. These relationships may take the form of strategic
investments, joint-marketing agreements, licenses or other contractual
arrangements, which arrangements may increase our competitors’ ability to
address customer needs with their product and service offerings. We believe that
there is likely to be consolidation in our markets, which could lead to
increased price competition and other forms of competition that could cause our
business to suffer.
If
we are unable to develop our web services and content, our business will
suffer.
To remain
competitive we must continue to enhance and improve the ease of use,
responsiveness, functionality and features of our web site. These efforts may
require us to develop internally or to license increasingly complex
technologies. In addition, many companies are continually introducing new
internet-related products, services and technologies, which will require us to
update or modify our technology. Developing and integrating new products,
services or technologies into our web site could be expensive and time
consuming. Any new features, functions or services may not achieve market
acceptance or enhance our brand loyalty. We have not completed development and
testing of certain of our proposed web site features. If we fail to develop and
introduce or acquire these features or other new features, functions or services
effectively and on a timely basis, we may not continue to attract new users and
may be unable to retain our existing users. Furthermore, we may not succeed in
incorporating new internet technologies, or in order to do so, we may incur
substantial expenses.
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Any
factors that limit the amount advertisers are willing to spend on advertising on
our web sites could have a material adverse effect on our business.
We expect
to derive reasonable revenue in the foreseeable future through the sale of
advertising space and hyperlinks on our web site. Any factors that limit the
amount advertisers are willing to spend on advertising on our web site could
have a material adverse effect on our business. These factors may
include:
● a
lack of standards for measuring web site traffic or effectiveness of web site
advertising;
● a
lack of established pricing models for internet advertising;
●
the failure of traditional media advertisers to adopt internet
advertising;
●
the introduction of alternative advertising sources; and
● a
lack of significant growth in web site traffic.
Continuing
to demonstrate the effectiveness of advertising on our web site is critical to
our ability to generate advertising revenue. Currently, there are no widely
accepted standards to measure the effectiveness of internet advertising, and we
cannot be certain that such standards will develop sufficiently to support our
growth through internet advertising. A number of different pricing models are
used to sell advertising on the internet. Pricing models are typically either
CPM-based (cost per thousand impressions) or performance-based. We utilize the
CPM-based model, which is based upon the number of advertisement impressions,
and the performance-based, or cost-per-click (“CPC”), model, which generates
revenue based on each individual click on a particular advertisement. We cannot
predict which pricing model, if any, will emerge as the industry standard.
Therefore, it is difficult for us to project our future advertising rates and
revenues. For instance, banner advertising, which we anticipate to be one of our
primary sources of online revenue, may not be an effective advertising method in
the future. If we are unable to adapt to new forms of internet advertising and
pricing models, our business could be adversely affected.
If
we fail to detect click-through fraud or unscrupulous advertisers, we could lose
the confidence of our advertisers, thereby causing our business to
suffer.
We are
exposed to the risk of fraudulent clicks on our ads by persons seeking to
increase the advertising fees paid to us. Clickthrough fraud occurs when a
person clicks on an ad displayed on our web site in order to generate revenue to
us and to increase the cost for the advertiser. If we were unable to detect this
fraudulent activity and find new evidence of past fraudulent clicks, we may have
to issue refunds retroactively of amounts previously paid to us. In addition, if
fraudulent clicks are not detected, the affected advertisers may experience a
reduced return on their investment in our advertising programs because the
fraudulent clicks would not lead to potential revenue for the
advertisers.
We are
also exposed to the risk that advertisers who advertise on our website will
advertise interest rates on a variety of financial products that they do not
intend to honor. Such “bait and switch” activity encourages consumers to contact
fraudulent advertisers over legitimate advertisers because the fraudulent
advertisers claim to offer a better interest rate.
Both
“bait and switch” and click-through fraud would negatively affect our
profitability, and could hurt our reputation and our brand. This could lead
advertisers to become dissatisfied with our advertising programs, which could
lead to loss of advertisers and revenue.
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We
face government regulation and legal uncertainties, which could increase our
costs or limit our business opportunities.
The
growth and development of the market for internet commerce and communications
has prompted both federal and state laws and regulations concerning the
collection and use of personally identifiable information (including consumer
credit and financial information under the Gramm-Leach-Bliley Act), consumer
protection, the content of online publications, the taxation of online
transactions and the transmission of unsolicited commercial email, popularly
known as “spam.” More laws and regulations are under consideration by various
governments, agencies and industry self-regulatory groups. Although our
compliance with applicable federal and state laws, regulations and industry
guidelines has not had a material adverse effect on us, new laws and regulations
may be introduced and modifications to existing laws may be enacted that require
us to make changes to our business practices. Although we believe that our
practices are in compliance with applicable laws, regulations and policies, if
we were required to defend our practices against investigations of state or
federal agencies or if our practices were deemed to be a violation of applicable
laws, regulations or policies, we could be penalized and our activities
enjoined. Any of the foregoing could increase the cost of conducting online
activities, decrease demand for our services, and lessen our ability to
effectively market our services, or otherwise materially adversely affect our
business, financial condition and results of operations.
Our
activities may include, among other things, the offering of stand-alone services
providing fund recommendations and analysis to subscribers, in contrast to
providing such information as part of a larger online financial publication of
more general and regular circulation. As a result, we may in the future be
required to register with the Securities and Exchange Commission as an
investment advisor under the Investment Advisers Act of 1940. The securities
industry in the United States is subject to extensive regulation under both
federal and state laws. A failure to comply with regulations applicable to
securities industry participants could materially and adversely affect our
business, results of operations and financial condition. Investment advisors are
subject to Securities and Exchange Commission regulations covering all aspects
of the operation of their business, including, among others:
·advertising,
·record-keeping,
·conduct of directors, officers and
employees, and
·supervision of advisory
activities.
Violations
of the regulations governing the actions of investment advisors may result in
the imposition of censures or fines, the issuance of cease-and-desist orders,
and the suspension or expulsion of us, our officers, or our employees from the
securities business. Our ability to comply with all applicable securities laws
and rules is largely dependent on our establishment and maintenance of
appropriate compliance systems (including proper supervisory procedures and
books and records requirements), as well as our ability to attract and retain
qualified compliance personnel. Because we operate in an industry subject to
extensive regulation, new regulation, changes in existing regulation, or changes
in the interpretation or enforcement of existing laws and rules could have a
material adverse effect on our business, results of operations and financial
condition.
Our
assets will include intellectual property (such as domain
names). Under accounting rules, we will be required to value these
assets on an annual basis. It is possible that the value of the
assets may be impaired.
We
may not be able to protect the web site address that is important to our
business.
Our web
site address, or domain name, is important to our business. The
regulation of domain names is subject to change. Some proposed changes include
the creation of additional top-level domains in addition to the current
top-level domains, such as “.com,” “.net” and “.org.” It is also
possible that the requirements for holding a domain name could
change. Therefore, we may not be able to obtain or maintain relevant
domain names for all of the areas of our business. It may also be
difficult for us to prevent third parties from acquiring domain names that are
similar to ours, that infringe our trademarks or that otherwise decrease the
value of our intellectual property.
- 21
-
Government
regulations and legal uncertainties could affect the growth of the
internet.
A number
of legislative and regulatory proposals under consideration by federal, state,
local and foreign governmental organizations may lead to laws or regulations
concerning various aspects of the internet, including online content, user
privacy, access charges, liability for third-party activities and jurisdiction.
Additionally, it is uncertain as to how existing laws will be applied to the
internet. The adoption of new laws or the application of existing laws may
decrease the growth in the use of the internet, which could in turn decrease the
usage and demand for our services or increase our cost of doing
business.
Some
local telephone carriers have asserted that the increasing popularity and use of
the internet have burdened the existing telecommunications infrastructure, and
that many areas with high internet use have begun to experience interruptions in
telephone service. These carriers have petitioned the Federal Communications
Commission to impose access fees on internet service providers and online
service providers. If access fees are imposed, the costs of communicating on the
internet could increase substantially, potentially slowing the increasing use of
the internet. This could in turn decrease demand for our services or increase
our cost of doing business.
Taxation
of internet transactions could slow the use of the internet.
The tax
treatment of the internet and electronic commerce is currently
unsettled. A number of proposals have been made at the federal, state
and local level and by various foreign governments to impose taxes on the sale
of goods and services and other internet activities. The internet Tax
Information Act places a three-year moratorium on new state and local taxes on
internet commerce. However, future laws may impose taxes or other
regulations on internet commerce, which could substantially impair the growth of
electronic commerce.
We
depend on continued improvements to our computer network and the infrastructure
of the internet.
Any
failure of our computer systems that causes interruption or slower response time
of our website or services could result in a smaller number of users of our
website. If sustained or repeated, these performance issues could
reduce the attractiveness of our website to consumers and our products and
services to investment professionals and internet
advertisers. Increases in the volume of our website traffic could
also strain the capacity of our existing computer systems, which could lead to
slower response times or system failures. This would cause the number
of search inquiries, other revenue producing offerings and our informational
offerings to decline, any of which could hurt our revenue growth and our brand
loyalty. We may need to incur additional costs to upgrade our
computer systems in order to accommodate increased demand if our systems cannot
handle current or higher volumes of traffic.
The
recent growth in internet traffic has caused frequent periods of decreased
performance. Our ability to increase the speed with which we provide services to
consumers and to increase the scope of these services is limited by and
dependent upon the speed and reliability of the internet. Consequently, the
emergence and growth of the market for our services is dependent on the
performance of and future improvements to the internet.
Our
internal network infrastructure could be disrupted.
Our
operations will depend upon our ability to maintain and protect our computer
systems. Our systems, when they are operational will be vulnerable to
damage from break-ins, unauthorized access, vandalism, fire, earthquakes, power
loss, telecommunications failures and similar events.
- 22
-
Experienced
computer programmers, or hackers, may attempt to penetrate our network security
from time to time. A hacker who penetrates our network security could
misappropriate proprietary information or cause interruptions in our
services. We might be required to expend significant capital and
resources to protect against, or to alleviate, problems caused by
hackers. We also may not have a timely remedy against a hacker who is
able to penetrate our network security. In addition to purposeful
security breaches, the inadvertent transmission of computer viruses could expose
us to litigation or to a material risk of loss.
We
could face liability for information on our website and for products and
services sold over the internet.
We will
provide third-party content on our website. We could be exposed to
liability with respect to this third-party information. Persons might
assert, among other things, that, by directly or indirectly providing links to
websites operated by third parties, we should be liable for copyright or
trademark infringement or other wrongful actions by the third parties operating
those websites. They could also assert that our third party
information contains errors or omissions, and consumers could seek damages for
losses incurred if they rely upon incorrect information.
We may
enter into agreements with other companies under which we share with these other
companies’ revenues resulting from the purchase of services through direct links
to or from our web site. These arrangements may expose us to
additional legal risks and uncertainties, including local, state, federal and
foreign government regulation and potential liabilities to consumers of these
services, even if we do not provide the services ourselves. We cannot
assure you that any indemnification provided to us in our agreements with these
parties, if available, will be adequate. Even if these claims do not
result in liability to us, we could incur significant costs in investigating and
defending against these claims. Our general liability insurance may
not cover all potential claims to which we are exposed and may not be adequate
to indemnify us for all liability that may be imposed.
Acquisitions
that we may undertake will involve a number of inherent risks, any of which
could cause us not to realize the benefits anticipated to result.
Our
strategy includes expanding our assets and operations through combinations or
acquisitions. Integrating newly-acquired businesses is expensive and
time consuming. Combinations and acquisitions involve inherent risks,
such as:
|
·
|
uncertainties
in assessing the value, strengths and potential profitability of, and
identifying the extent of all weaknesses, risks, contingent and other
liabilities of, acquisition or other transaction
candidates;
|
|
·
|
the
potential of key management and employees of an acquired
business;
|
|
·
|
the
ability to achieve identified operating and financial synergies
anticipated to result from a combination or
acquisition;
|
|
·
|
problems
that could arise from the integration of the acquired business or assets;
and
|
|
·
|
unanticipated
changes in business, industry or general economic conditions that affect
the assumptions underlying the combination or
acquisition.
|
Any one
or more of these factors could cause us not to realize the benefits anticipated
to result from any combination or acquisition or could result in unexpected
liabilities.
- 23
-
Risks
Related to Exchange Traded Funds
General
Risks
Exchange
traded funds are subject to a number of risks that may affect the value of its
shares. The value of an investment in the ETF is based on the performance of the
Underlying ETFs in which it invests and the allocation of its assets among those
Underlying ETFs. The key risks of an investment in an ETF include the key
risks of investing in the Underlying ETFs. The EFTs share price will
fluctuate. An investor could lose money on his or its investment and the
particular ETF invested in Fund could also return less than other
investments:
·
If the securities market as a whole goes down;
·
If any of the Underlying ETFs in the portfolio do not increase in value
as expected;
·
If interest rates go up, causing the value of debt securities held by an
Underlying ETF to decline;
·
If the issuer of a debt security is unable to make timely payments of
principal or interest when due;
·
If returns from the types of securities in which an Underlying ETF
invests underperform returns from the various general securities markets or
different asset classes;
·
Because investments in foreign securities may have more frequent and
larger price changes than U.S. securities and may lose value due to changes in
currency exchange rates and other factors;
·
Because an Underlying ETF may, at various times, concentrate in the
securities of a particular industry, group of industries, or sector, and when a
fund is overweighted in an industry, group of industries, or sector, it may be
more sensitive to any single economic, business, political, or regulatory
occurrence than a fund that is not overweighted in an industry, group of
industries, or sector;
·
Because the market value of exchange-traded fund shares may differ from
their net asset value as a result of market supply and demand, the shares may
trade at a premium or discount;
·
If the sub-advisor’s asset allocation decisions do not anticipate market
trends successfully; and
· As
with any fund, there is no guaranty that an ETF will achieve its
goals.
Additional
Risks of ETFs
Liquidity Risk – Trading in
shares may be halted because of market conditions or for reasons that, in the
view of the Exchange, make trading in shares inadvisable. In addition, trading
in shares is subject to trading halts caused by extraordinary market volatility
pursuant to “circuit breaker” rules. There can be no assurance that the
requirements necessary to maintain the listing of the shares of the Funds will
continue to be met or will remain unchanged.
Trading Risk – Shares may trade below
their NAV. The NAV of shares will fluctuate with changes in the market value of
the Fund’s holdings. The trading prices of shares will fluctuate in accordance
with changes in NAV as well as market supply and demand. However, given that
shares can be created and redeemed only in Creation Units at NAV (unlike shares
of many closed-end mutual funds, which frequently trade at appreciable discounts
from, and sometimes premiums to, their NAVs), the Advisor does not believe that
large discounts or premiums to NAV will exist for extended periods of
time.
Early Closing Risk – The
normal close of trading of securities listed on Nasdaq and the NYSE is
4:00 p.m., Eastern Time. Unanticipated early closings of securities
exchanges and other financial markets may result in the Fund’s or an Underlying
ETF’s inability to buy or sell securities or other financial instruments on that
day. If an exchange or market closes early on a day when the Fund or an
Underlying ETF needs to execute a high volume of trades late in a trading day,
the Fund or an Underlying ETF might incur substantial trading
losses.
- 24
-
Equity Risk – The equity
markets are volatile, and the value of the ETFs’ equity securities, may
fluctuate significantly from day to day. This volatility may cause the
value of your investment in the Fund to decrease.
Fixed Income Risk – An ETF’s investment in
fixed income securities will change in value in response to interest rate
changes and other factors, such as the perception of the issuer’s
creditworthiness. For example, the value of fixed income securities will
generally decrease when interest rates rise, which may cause the value of an ETF
to decrease. In addition, an EFT’s investment in fixed income securities with
longer maturities will fluctuate more in response to interest rate
changes.
Foreign Currency Risk – An ETF may hold securities
denominated in foreign currency. The value of securities denominated in
foreign currencies can change when foreign currencies strengthen or weaken
relative to the U.S. Dollar. These currency movements may negatively impact the
value of an ETF security even when there is no change in the value of the
security in the issuer’s home country.
Foreign Securities Risk – An ETF’s investments
in securities of foreign companies can be more volatile than investments in U.S.
companies. Diplomatic, political, or economic developments could adversely
affect investment in foreign countries. Foreign companies generally are not
subject to accounting, auditing, and financial reporting standards comparable to
those applicable to U.S. companies.
Risks
Related to Our Common Stock
Because we became public through a
reverse merger, we may not be able to attract the attention of major brokerage
firms.
Additional
risks are associated with us becoming public through a reverse merger. For
example, security analysts of major brokerage firms may not provide coverage of
us since there is no incentive to brokerage firms to recommend the purchase of
our common stock. We cannot assure you that brokerage firms will want to conduct
any public offerings on our behalf in the future.
Our
common stock may be considered a “penny stock” and may be difficult to
sell.
The
Securities and Exchange Commission has adopted regulations which generally
define “penny stock” to be an equity security that has a market or exercise
price of less than $5.00 per share, subject to specific exemptions. The market
price of our common stock may be below $5.00 per share and therefore may be
designated as a “penny stock” according to Securities and Exchange Commission
rules. This designation requires any broker or dealer selling these securities
to disclose certain information concerning the transaction, obtain a written
agreement from the purchaser and determine that the purchaser is reasonably
suitable to purchase the securities. These rules may restrict the ability of
brokers or dealers to sell our common stock and may affect the ability of our
stockholders to sell their shares. In addition, since our common stock is quoted
on the OTC Bulletin Board, our stockholders may find it difficult to obtain
accurate quotations of our common stock and may find few buyers to purchase the
stock or a lack of market makers to support the stock price.
We
may engage in additional financing that could lead to dilution of existing
stockholders.
We have
relied on both equity and debt financing to carry on our business to date, which
has consisted primarily of development, the negotiation of strategic alliances
and marketing activities. Any future financings by us may result in substantial
dilution of the holdings of existing stockholders and could have a negative
impact on the market price of our common stock. Furthermore, we cannot assure
you that such future financings will be possible.
- 25
-
We
do not anticipate paying dividends in the foreseeable future; you should not buy
our stock if you expect dividends.
We
currently intend to retain our future earnings to support operations and to
finance expansion and, therefore, we do not anticipate paying any cash dividends
on our common stock in the foreseeable future.
We
may be required to record a significant charge to earnings if our intangible
assets become impaired
We are
required under generally accepted accounting principles to review our intangible
assets for impairment when events or changes in circumstances indicate the
carrying value may not be recoverable. Factors that may be considered a change
in circumstances indicating that the carrying value of our intangible assets may
not be recoverable include, among others, material changes in the actual
activity level for our domain name as compared to original expectation and
recent transactions with respect to domain names acquired. We may be
required to record a significant charge to earnings in our consolidated
financial statements during the period in which any impairment of intangible
assets is determined. This could adversely impact our results of
operations.
Our
current corporate headquarters are located at 14 Wall Street, 20th floor, New
York, NY, 10005. As of December 31, 2008, the Company does not own or
maintain any property plant or equipment of any material nature. The
corporate headquarters were leased on a contractual basis through March 31, 2009
and are now maintained on a month to month basis.
Item
3. Legal
Proceedings.
At
December 31, 2008, there were no legal actions pending against us, or any
subsidiary, or of which our property, or the property of any subsidiary, was
subject nor to our knowledge are any such proceedings contemplated.
Our subsidiary , AdvisorShares Investments, LLC is currently not involved in any legal
proceedings.
Notwithstanding
the foregoing, an arbitration proceeding was commenced on November 7, 2008
against Mr. Noah Hamman, AdvisorShares' CEO and part owner ("Member") of Arrow
Investment Advisors, LLC ("Arrow"), by Arrow. The arbitration was
commenced pursuant to the provisions of the LLC Operating Agreement of Arrow and
brought under the auspices of the International Institute for Conflict
Prevention and Resolution in New York, as required under the LLC Operating
Agreement. The arbitration involves the other Members of Arrow who have asserted
an ownership claim regarding Mr. Hamman's ownership interest in
AdvisorShares. Such Members claim that AdvisorShares’ business is
based on the improper usurpation and conversion by Mr. Hamman of Arrow’s
corporate opportunities and assets, including the business
of AdvisorShares. The arbitration hearing is currently scheduled for
December 14, 2009 and a decision is expected approximately 30 days
thereafter.
If the
other Members of Arrow prevail on their claims, this could impact the amount of
ownership Mr. Hamman indirectly holds in AdvisorShares in that Mr. Hamman could
lose his 40% interest in AdvisorShares to Arrow. In addition, if Arrow
prevails, Arrow could assert other claims including that the Purchase and Contribution Agreement
( to which we are a party ) was inappropriately
executed and seek to nullify the obligations associated with that agreement.
In such event, we could lose our investment in AdvisorShares and
have to undergo the process of seeking another acquisition that could provide us
with the results we hope to receive from acquiring our membership interest in
AdvisorShares. Although we would vigorously defend against any award in the
arbitration that would cause us to lose our investment in AdvisorShares, there
is no assurance that we would be successful in such defense, or if required, in
locating or consummating an appropriate alternative acquisition
transaction.
Item 4. Submission of Matters to a Vote
of Security Holders.
During
the 2008 fiscal year, including the fourth quarter of the 2008 covered by this
report, no matter was submitted to a vote of security holders through the
solicitation of proxies or otherwise.
PART
II
Item
5. Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity.
Our Class
A Common Stock is currently quoted on the OTCBB under the symbol “FNDM” and
began trading January 19, 2008. There is a limited trading market for our Class
A Common Stock and there is currently no trading market for our Class B common
stock. The closing sale prices in the table reflect inter-dealer
prices, without retail mark-up or commissions and may not represent actual
transactions.
- 26
-
|
High
|
Low
|
|||||||
|
First quarter 2008
(January 1, 2008 - March 31, 2008)
|
$
|
4.25
|
$
|
3.90
|
||||
|
Second
quarter 2008 (April 1, 2008 - June 30, 2008)
|
$
|
3.25
|
$
|
3.01
|
||||
|
Third
quarter 2008 (July 1, 2008 - September 30, 2008)
|
$
|
4.00
|
$
|
3.25
|
||||
|
Fourth
quarter 2008 (October 1, 2008 - December 31, 2008)
|
$
|
3.00
|
$
|
2.90
|
||||
Holders
As of May
5, 2009, we had approximately 401 record holders of our common stock. This
number excludes any estimate by us of the number of beneficial owners of shares
held in street name, the accuracy of which cannot be guaranteed.
Dividends
Holders
of our common stock are entitled to receive dividends if, as and when declared
by the Board of Directors out of funds legally available
therefore. On January 4, 2008, we declared (and subsequently paid) a
900% dividend on our common stock, or nine shares for each share of common
stock, to all holders of record on January 15, 2008. We currently intend to
retain any future earnings for use in the operation and expansion of our
business and do not anticipate paying any cash dividends on our common stock to
our stockholders for the foreseeable future.
Securities
Authorized for Issuance Under Equity Compensation Plans
On
December 27, 2007, our Board of Directors approved the Company’s 2007 Stock
Incentive Plan for the issuance of up to 5,055,000 shares of our common
stock. The plan was approved by our stockholders on December 27,
2007. We intend to make all of our equity-based awards on a
going-forward basis under the stock incentive plan. The purpose of our stock
incentive plan is to attract, retain and motivate officers and other key
employees and to provide these persons with incentives and rewards for superior
performance and contribution.
The plan
is administered by the Board of Directors, however the board may delegate any or
all of its administrative functions to one or more committees. The board may
select plan participants and authorize grants. The award agreements
issued under the stock incentive plan list the exercise price, the conditions
and restrictions that must be satisfied for an individual to vest in an award
and the term of the award. The terms of the award agreements may
differ from participant to participant, and the board has discretion to
accelerate vesting in the event of a change in control or other
events.
The board
may amend, suspend, or terminate the 2007 Stock Incentive Plan at any time and
for any reason. If not terminated earlier, the plan will automatically terminate
on December 27, 2017.
The
following table provides information as of December 31, 2008 with respect to
compensation plans (including individual compensation arrangements) under which
our securities are authorized for issuance:
- 27
-
|
Plan
Category
|
Number
of securities to be issued upon exercise of outstanding options, warrants
and rights
(a)
|
Weighted
average exercise price of outstanding options, warrants and
rights
(b)
|
Number
of securities remaining available for future issuance under equity
compensation plans (excluding securities reflected in column
(a))
(c)
|
||||||
|
Equity
Compensation plans approved by security holders
|
5,055,000 | 3.06 |
none
|
||||||
|
Equity
compensation plans not approved by security holders (1)
|
704,111 | 3.25 |
none
|
||||||
|
Total
|
5,759,111 | 3.08 |
none
|
||||||
(1) Equity compensation plans not
approved by security holders. The options to
purchase an aggregate of 704,111 shares of our Class A common stock at a
weighted average exercise price of $3.25 which were not approved by our
shareholders as of December 31, 2008 were approved by our board of directors in
excess of the number of shares authorized by the 2007 Stock Incentive
Plan. Accordingly, although it was intended to issue such options
under the 2007 Stock Incentive Plan which was previously approved by our
shareholders, such options were issued outside of such plan. However,
our board of directors adopted an amendment to the 2007 Stock Incentive Plan to
increase the number of shares reserved for issuance thereunder to 10,000,000
shares of Class A common stock, which was subsequently approved by a majority of
our shareholders by written consent in April 2009.
Recent
Sales of Unregistered Securities
Upon our
inception, we issued an aggregate of 18,700,000 (not giving effect to the
9-for-1 dividend on the Surviving Corporation’s Class A Common Stock and Class B
Common Stock) shares of our common stock to seven investors, three of whom were
co-founders of the Company. The shares were valued at $0.0001 per
share.
In
November 2007, we issued an aggregate of 10,350,000 (not giving effect to the
9-for-1 dividend on the Surviving Corporation’s Class A Common Stock and Class B
Common Stock) shares of our common stock to eight accredited investors in a
private placement. The shares were valued at $2.00 per share and
received gross proceeds of $20,700,000.
On
November 5, 2007, we sold 5,000,000 (not giving effect to the 9-for-1 dividend
on the Surviving Corporation’s Class A Common Stock and Class B Common Stock)
shares of our common stock and 2,500,000 (not giving effect to the 9-for-1
dividend on the Surviving Corporation’s Class A Common Stock and Class B Common
Stock) shares of our Series A Preferred Stock to an accredited investor and
received gross proceeds of $10,000,000.
On
December 27, 2007, we granted options to purchase 138,024 and 1,938,087 shares
of Class A common stock with exercise prices of $2.30 per share to Michael
Hlavsa and Raymond Lang, respectively.
To
accomplish the merger between Eastern Services Holdings, Inc. and Fund.com,
Eastern issued an aggregate of 37,112,345 shares of our Class A Common Stock and
6,387,665 shares of our Class B Common Stock in exchange for all of the issued
and outstanding capital stock of Fund.com.
On March
4, 2008, we granted options to purchase 1,000,000, 1,000,000 and 500,000 shares
of Class A common stock with exercise prices of $3.50 to Gregory Webster,
Phillip Gentile, and Raul Biancardi, respectively.
On March
28, 2008, we granted options to purchase 250,000 shares of Class A common stock
with an exercise price of $4.00 to Ivar Eilertsen.
On May
16, 2008, we granted options to purchase 250,000 shares of Class A common stock
with an exercise price of $4.00 to Keith Laslop.
On August
6, 2008, we granted options to purchase 653,000 shares of Class A common stock
with an exercise price of $3.25 to Gregory Webster.
Additionally,
warrants to purchase 45,000 shares of Class A were issued on July 7, 2008 and
additional warrants for up to 50,000 shares of Class A Common stock were issued
on August 21, 2008; said warrants were exercised at $.001 per
share.
In
connection with a financing we closed on July 7, 2008 and August 21, 2008, we
sold 475,000 shares of our common stock at a purchase price of $2.00 per share
to one accredited investor,Westmoore Capital Group, Series II.
All of
the above offerings and sales were deemed to be exempt under Rule 506 of
Regulation D and Section 4(2) of the Securities Act of 1933, as amended. No
advertising or general solicitation was employed in offering the securities. The
offerings and sales were made to a limited number of persons, all of whom were
accredited investors, business associates of Fund.com Inc. or executive officers
of Fund.com Inc., and transfer was restricted by Fund.com Inc. in accordance
with the requirements of the Securities Act of 1933. In addition to
representations by the above-referenced persons, we have made independent
determinations that all of the above-referenced persons were accredited or
sophisticated investors, and that they were capable of analyzing the merits and
risks of their investment, and that they understood the speculative nature of
their investment. Furthermore, all of the above-referenced persons were provided
with access to our Securities and Exchange Commission
filings.
- 28
-
Item 6. Selected Financial Data.
Not
applicable.
Item 7. Management’s Discussion and Analysis
of Financial Condition and Results of Operation.
FORWARD-LOOKING
INFORMATION
This
report contains forward-looking statements regarding our plans, expectations,
estimates and beliefs. Actual results could differ materially from
those discussed in, or implied by, these forward-looking
statements. Forward-looking statements are identified by words such
as “believe,” “anticipate,” “expect,” “intend,” “plan,” “will,” “may,” and other
similar expressions. In addition, any statements that refer to
expectations, projections or other characterizations of future events or
circumstances are forward-looking statements. We have based these
forward-looking statements largely on our
expectations. Forward-looking statements are subject to risks and
uncertainties, certain of which are beyond our control. Actual
results could differ materially from those anticipated as a result of the
factors described in the “Risk Factors” and detailed in our other Securities and
Exchange Commission filings.
Because
of these risks and uncertainties, the forward-looking events and circumstances
discussed in this report or incorporated by reference might not
transpire. Factors that cause actual results or conditions to differ
from those anticipated by these and other forward-looking statements include
those more fully described in the “Risk Factors” section and elsewhere in this
report.
The
following discussion contains forward-looking statements and involves numerous
risks and uncertainties, including, but not limited to, those described in the
"Risk Factors" section of this filing. Actual results may differ materially from
those contained in any forward-looking statements.
The
following discussion and analysis of financial condition and results of
operations relates to the operations and financial condition reported in our
financial statements for the year ended December 31,
2008.
The
following discussion should be read in conjunction with our financial statements
and the notes thereto which appear elsewhere in this report. The
results shown herein are not necessarily indicative of the results to be
expected in any future periods. This discussion contains
forward-looking statements based on current expectations, which involve
uncertainties. Actual results and the timing of events could differ
materially from the forward-looking statements as a result of a number of
factors. Readers should also carefully review factors set forth in
other reports or documents that we file from time to time with the Securities
and Exchange Commission.
Overview
In the
quarter ending December 31, 2007, we completed the sale of equity securities
totaling aggregate gross proceeds of $30,700,000. The proceeds were used to
execute the initial phase of our business plan, which included the acquisition
of certain intellectual property consisting primarily of our domain names and
also funding our wholly-owned subsidiary, Fund.com Capital Inc.
We
capitalized Fund.com Capital Inc. with $20,000,000 from proceeds generated from
our equity placements. On November 9, 2007, Fund.com Capital entered
into a $20,000,000 certificate of deposit with an Antigua bank, the Global
Bank of Commerce, which is an affiliate of one of our stockholders (GBC Wealth
Management Limited). The deposit is credited with earned interest at
5% per annum for the term of three years and is all due and payable at the end
of the term. Subject to receipt of any necessary approvals
(including the approval of Global Bank of Commerce, which approval could be
withheld in its sole discretion), we may seek to use all or a portion of this
$20,000,000 to fund one or more control investments.
We
believe that a structured product that is benchmarked to an index published by
EQUITIES Magazine, would provide important statistical and investment
data. We believe that this data could be useful in further developing
our business plan This track record may assist Fund.com Capital Inc.
in the future should Fund.com Capital Inc. seek to develop a registered
investment product available for sale to third parties. No decision
has been taken to develop such a product or to register same with the Securities
and Exchange Commission.
Fund.com Capital Inc. (then known as Meade Capital,
Inc.) was originally established by Meade Technologies, Inc., the Company’s
predecessor, to invest in financial entities and structure unregistered
financial products and instruments, including fund management companies, and
structured products offered or managed by such entities. As a result, at the
time of the merger with Meade Technologies in January 2008, the Company believed
that the certificate of deposit investment would provide the Company with a
material asset base, would serve as the basis for unregistered structured
products and would provide capital for one or more potential acquisitions within
its then business model as set forth in its business plan disclosed in a Current
Report on Form 8-K filed with the Commission on January 17,
2008. However, in view of the Company’s need for additional working
capital, its decision to abandon the issuance of unregistered structured
products in favor of pursuing exclusively investment products registered under
the Securities Act and Global Bank’s right to exchange and swap the three year
certificate of deposit for a long-term annuity instrument that would not provide
the Company with liquidity, our management determined that it would need to seek
additional financing for the Company in order to support our other strategic
initiatives, and could no longer place undue reliance on the investment in the
certificate of deposit.
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Our plan
of operations may also consist of licensing our content to third parties. This
content may include proprietary indexes as well as service marks and trademarks.
Third party product providers, like banks and asset management companies,
license a range of indexes, such as the Russell 2000 from the Frank Russell
Companies or the S&P 500 from Standard and Poors/McGraw Hill. We may have
similar business arrangements to license indexes in return for the payment of
licensing fees.
In
addition to our fund product development and publishing business, our plan of
operation is to invest in the further development of our websites. This will
include certain capital expenditures for technology, content and database
management, including certain online advertising systems and affiliate marketing
systems that management believes will assist in executing our customer
acquisition business plan. Our websites are anticipated to evolve over time as
we introduce new content and features and generally seek to improve the customer
experience and to improve the lead generating efficiency of the websites,
consistent with our business plan. In addition to databases created from parties
registering at our websites, we also intend to expand our access to targeted
databases of investors that may be interested in our services or our advertising
clients’ services. This is anticipated to include certain joint ventures
currently in negotiations and certain database acquisitions. Our website was
launched in March 2009 with the full planned feature set accessible at www.fund.com. On
August 20, 2008 we negotiated an advertising arrangement with a third-party
vendor, Investor Channel, that sells our advertising inventory to potential
clients for content and sponsorship deals. We anticipate that it will cost
approximately $200,000 to continue the development and enhancement of www.fund.com with new
quarterly releases. Marketing costs will be approximately $250,000.
Our other website, www.accreditedinvestor.com is in the planning phase and it is
expected to cost $500,000 in development and license fees. No release
date has been established.
We have outsourced our technology to
operate our online network and supporting systems on servers at a secure
third-party co-location facility in the Colorado area. This third-party facility
is manned, and our infrastructure and network connectivity monitored
continuously, on a 24 hour a day, 365 day a year basis. This facility is powered
continuously from multiple sources, including uninterruptible power supplies and
emergency power generators. The vast majority of the information presented on
www.fund.com, including backend databases that
serve and store information, will be stored in and delivered from server
farms.
Our
operating and capital requirements in connection with operations have been and
will continue to be significant. Based on our current plans, we anticipate that
revenues earned from lead generation will be the primary source of funds for
operating activities. In addition to existing cash and cash equivalents, we may
rely on bank borrowing, if available, or sales of securities to meet the basic
capital and liquidity needs for the next 12 months. Additional capital may be
sought to fund the development of www.fund.com and
marketing efforts, which may also include bank borrowing, or a private placement
of securities. However, we have no agreements for funding at this time and there
can be no assurance that funding will be available if we require
it.
Upon our
inception we issued an aggregate of 18,700,000 (not giving effect to the 9-for-1
dividend on the Surviving Corporation’s Class A Common Stock and Class B Common
Stock) shares of our common stock, par value $0.0001 per share, to seven
investors, three of whom were co-founders of the Company. The shares
were valued at $0.0001 per share. These shares were issued pursuant
to the exemption provided by Section 4(2) of the Securities Act of 1933 for
transactions by an issuer not involving a public offering. In
November 2007, we issued an aggregate of 10,350,000 (not giving effect to the
9-for-1 dividend on the Surviving Corporation’s Class A Common Stock and Class B
Common Stock) shares of our common stock to eight accredited investors in a
private placement. The shares were valued at $2.00 per share and
received gross proceeds of $20,700,000. On November 5, 2007, we sold
5,000,000 (not giving effect to the 9-for-1 dividend on the Surviving
Corporation’s Class A Common Stock and Class B Common Stock) shares of our
common stock and 2,500,000 (not giving effect to the 9-for-1 dividend on the
Surviving Corporation’s Class A Common Stock and Class B Common Stock) shares of
our Series A Preferred Stock to an accredited investor and received gross
proceeds of $10,000,000. Substantially all of the proceeds of the
Series A Preferred Stock transaction were used to acquire the domain name www.fund.com.
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Prior to
the Merger and not giving effect to the 9-for-1 dividend on the Surviving
Corporation’s Class A Common Stock and Class B Common Stock, Fund.com had
authorized a total 110,000,000 shares, of which 105,000,000 were authorized as
common stock and 5,000,000 shares were authorized as Preferred Stock and
2,500,000 shares of the Preferred Stock were designated as Series A Preferred
Stock. Following the Merger, we had authorized a total of 110,000,000
shares of common stock, par value $0.001 per share, of which 100,000,000 shares
were authorized as Class A Common Stock, 10,000,000 shares were authorized as
Class B Common Stock. In addition, 10,000,000 shares were authorized
as Preferred Stock. Following the Merger, 43,612,335 shares of Class
A Common Stock were outstanding, 6,387,665 shares of Class B Common Stock were
outstanding and no shares of Preferred Stock were outstanding.
We
anticipate that our cash requirements for the next 12 months for expenses
related to infrastructure and business development should be approximately
$1,000,000. We believe proceeds from the sale of both equity and debt
instruments will be sufficient to meet presently anticipated working capital and
capital expenditure requirements over the next few months. However,
their can be no assurance that the sale of equity or notes will take
place. To the extent that we do not generate sufficient revenues, we
will be forced to reduce our expenses and/or seek additional
financing. As of May 5, 2009 there were no commitments for long-term
capital expenditures.
Recent Debt Financing
For the past six months we have
relied on loans and advances from IP Global, Investors LTD., a
privately owned intellectual property financing company, to provide us with
working capital to pay our operating expenses. Through April 30,
2009, we have borrowed an aggregate of $723,000 from this
lending source. Effective May 1, 2009, we entered into a one year
$1.343 million line of credit agreement with IP Global under which we are
permitted to receive loans of up to $1,343,000, less the $723,000 of prior
advances, through April 30, 2009; provided, that
such additional advances are for approved corporate purposes. In
consideration for these advances, we have agreed to pay 9% interest on all
approved advances (including the prior loans), granted the lender the right to
convert our note into shares of our Class A Common Stock at a conversion price
equal to $0.60 per share (subject to certain adjustments, including weighted
average anti-dilution adjustments) and are obligated to pay certain fees to the
lender in certain circumstances. Such fees include a $16,500 per month loan
servicing fee which accrues and is payable on the maturity date of the note, and
a CD release fee (to be paid if the lender arranges for an early payment on our
CD with Global Bank of Commerce that matures November
2010 on terms satisfactory to
us), payable in shares of our class A
common stock determined by dividing $1,343,000 by the Conversion Price then in
effect.
In addition to the note and fees, under the terms of our
loan agreement, we agreed to issue to the lender a warrant to purchase
that number of shares of our Class A common stock equal to
$1,343,000, divided by an exercise price of $0.60 per shares (subject to certain
adjustments, including weighted average anti-dilution
adjustments).
Off-Balance
Sheet Arrangements.
We have
no off-balance sheet arrangements that have or are reasonably likely to have a
current or future effect on our financial conditions, changes in financial
condition, revenue or expenses, results of operations, liquidity, capital
expenditures or capital resources.
Description
of Property.
Our
corporate headquarters are located at 14 Wall Street, 20th floor, New York, NY,
10005.
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Critical
Accounting Policies
Our
discussion and analysis of results of operations and financial condition are
based upon our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States of
America. The preparation of these consolidated financial statements requires us
to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities. We base our estimates on historical experience and on various
other assumptions that are believed to be reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying
values of assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates under different
assumptions or conditions.
The
Company considered the quality and variability of information regarding the
financial condition and operating performance that may have changed in the past
and future that may have a material effect and has quantified them where
possible. Specifically the Company considers risk of variability with changes in
contract which may affect the recognition of income and also the possibility of
changes in the tax code which may affect the long term rates of
return.
Results
from Operations
Year
Ended December 31, 2008 as compared to the Year Ended December 31, 2007
Revenues
Due to
the Company being in the developmental stage, it had no revenues for either the
year ended December 31, 2008 or December 31, 2007.
Total
Expenses
There was
no cost of revenue for the year ended December 31, 2008 or the year ended
December 31, 2007.
Operating
expense includes payroll, office expenses, travel and entertainment, consulting
fees, stock option expense and professional fees. For the year ended December
31, 2008 operating expense was $4,551,545 compared to $387,781 in operating
expense for the same period in 2007, an increase of $4,163,764. The increase is
attributable to a full year of operation in 2008 and implementation of the
development plan for the Company.
Interest
Income
Interest
income was primarily received from the $20 million Certificate of Deposit.
Interest income for the year ended December 31, 2008 was $1,001,021 and for the
year ended December 31, 2007, $138,461. The increase was directly attributable
to the length of time that the Company had the Certificate of Deposit in
place.
Net
Loss
We had a
net loss of $3,472,250 for the year ended December 31, 2008 as compared to a net
loss of $219,700 for the year ended December 31, 2007. This is
primarily due to the increase in operating expense related to a full year of
development partially offset by a full year of interest income.
Liquidity
and Capital Resources
We have
historically satisfied our cash requirements through issuance of common stock
for cash and notes payable. We anticipate that cash requirements will continue
to increase as we continue to expend resources to build infrastructure, develop
a business plan and establish a marketing network, customer support and
administrative organization. As of December 31, 2008, we had cash of
$158,083.
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Current
assets as of December 31, 2008 were $158,083, which consisted principally of
cash. Total current liabilities as of December 31, 2008 were $1,551,790 which
consisted of accounts and notes payable and advances from a
shareholder.
Certificate
of Deposit from Global Bank of Commerce
The
structuring and initiation of the investment in the Certificate of Deposit was
an investment strategy was developed by the private entity (Meade Technologies
Inc.) which merged (the “Merger”) with and
into Eastern Services Holdings, Inc. pursuant to an Agreement and Plan of Merger
dated as of January 15, 2008 (the “Merger Agreement”).
On November 9, 2007, Meade Capital, a wholly owned subsidiary of Meade
Technologies Inc. (both privately owned companies), invested in a
$20,000,000 three-year Certificate of Deposit with the Global Bank of Commerce
(the “CD”) as
part of its business strategy. This investment was made prior to completing the
merger with Eastern Services Holdings, Inc. which occurred on January 15, 2008
and prior to current management’s engagement by Meade. As part of the Merger,
the Company’s name was changed to Fund.com Inc, and its subsidiary’s name to
Fund.com Capital.
Fund.com
Capital Inc. ( then known as Meade Capital, Inc.) was
originally established by Meade Technologies, Inc.,
the Company’s predecessor, to invest in financial entities and structure
unregistered financial products and instruments, including fund management
companies, and structured products offered or managed by such entities. As
a result, at the time of the merger with Meade Technologies in January 2008, the
Company believed that the certificate of deposit investment would provide the
Company with a material asset base, would serve as the basis for unregistered
structured products and would provide capital for one or more potential
acquisitions within its then business model as set forth in its business
plan disclosed in a Current Report on Form 8-K filed with the Commission on
January 17, 2008. However, in view of the Company’s need for
additional working capital, its decision to abandon the issuance of unregistered
structured products in favor of pursuing exclusively investment products
registered under the Securities Act and Global Bank’s right to exchange and swap
the three year certificate of deposit for a long-term annuity instrument that
would not provide the Company with liquidity, our management determined that it
would need to seek additional financing for the Company in order to support our
other strategic initiatives, and could no longer place undue reliance on the
investment in the certificate of deposit.
Purchase
and Contribution Agreement with AdvisorShares
There
have been discussions with Global Bank of Commerce in order to attempt to alter
the terms and conditions under which the CD was issued, which if successful,
would enhance our liquidity. However, there can be no assurance that
those negotiations will be successful or will result in sufficient liquidity to
finance the Company’s plans and similar attempts in
the past were unsuccessful. Therefore, the Company entered into an
agreement to finance its acquisition of 60% of the equity of AdvisorShares, the
Company issued, and IP Global Investors Ltd. purchased, a promissory note in the
aggregate principal amount of $325,000 (the “IP Global Note”). The
principal and unpaid interest on the IP Global Note is payable upon demand at
any time following 30 business days notice, and carries a 9% interest
rate.
The
funding requirement for the additional $3,725,000 to AdvisorShares will be made
in accordance with the achievement of specific milestones as defined in the
Purchase and Contribution Agreement (the “Agreement”) dated
October 31, 2008, including (i) $1,000,000 within 30 days of the issuance by the
SEC of its notice regarding approval of the application of AdvisorShares for
exemptive relief under the Investment Company Act of 1940; (ii) $725,000 within
30 days of receipt by the Company from AdvisorShares’ independent auditors
verifying total assets under management equal to $150,000,000; (iii) $1,000,000
within 30 days of receipt by
the Company from AdvisorShares’ independent auditors verifying total assets
under management equal to $250,000,000; and (iv) $1,000,000 within 30 days
of receipt by
the Company from AdvisorShares’ independent auditors verifying total assets
under management equal to $450,000,000.
The
Company does not currently have the capital or resources to make the $1,000,000
payment to AdvisorShares following AdvisorShares’ receipt of the final Exemptive
Order from the SEC, or to make the additional $2,725,000 in payments to
AdvisorShares following AdvisorShares’ achievement of the remaining
milestones. However, the Company is currently negotiating with IP
Global and Equities Media Acquisition Corp. Inc., a principal stockholder of the
Company, for a line of credit facility that will provide the Company with
additional working capital and the funds necessary to meet its obligations to
AdvisorShares under the Purchase Agreement. Although it believes that
such credit facility will be entered into in the near future, there is no
assurance that this will be the case, or that, if obtained, such credit facility
will be on terms that are beneficial to the Company or its
shareholders. In addition, in order to obtain funds to satisfy the
remaining payment obligations to AdvisorShares (assuming the remaining
milestones are achieved), we may utilize any of several potential options,
including cash on hand from operating results, the issuance of debt or equity
securities, or a combination thereof. No assurance can be given that
we will have available cash on hand from operating results or be able to obtain
additional financing on favorable terms, if at all. Moreover, the
Company cannot predict with certainty if and when the remaining milestones for
total assets under management will be met by AdvisorShares. The
$20,000,000 Certificate of Deposit we
purchased from the Global Bank of Commerce will become liquid in November 2010
and if the remaining milestones are achieved at such time, we intend to use such
funds to satisfy any remaining payments owed to
AdvisorShares.
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Recent Accounting
Pronouncements
Employers’
Disclosures about Postretirement Benefit Plan Assets
In
December 2008, the Financial Accounting Standards Board (“FASB”) issued FASB
Staff Position on Financial Accounting Standard (“FSP FAS”) No. 132(R)-1,
“Employers’ Disclosures about Postretirement Benefit Plan Assets.” This FSP
amends FASB Statement No. 132(R) (“SFAS No. 132(R)”), “Employers’ Disclosures
about Pensions and Other Postretirement Benefits,” to provide guidance on an
employer’s FSP FAS
No. 132(R)-1 also includes a technical amendment to SFAS No. 132(R) that
requires a nonpublic entity to disclose net periodic benefit cost for each
annual period for which a statement of income is presented. The required
disclosures about plan assets are effective for fiscal years ending after
December 15, 2009. The technical amendment was effective upon issuance of FSP
FAS No. 132(R)-1. The Company currently has no such plans and does anticipate
that its adoption of SFAS No 132(R) will have an impact on its consolidated
financial position and results of operations.
Effective
Date of FASB Interpretation No. 48 for Certain Nonpublic
Enterprises
In
December 2008, the FASB issued FSP FIN No. 48-3, “Effective Date of FASB
Interpretation No. 48 for Certain Nonpublic Enterprises.” FSP FIN No.
48-3 defers the effective date of FIN No. 48, “Accounting for Uncertainty in
Income Taxes,” for certain nonpublic enterprises as defined in SFAS No. 109,
“Accounting for Income Taxes.” However, nonpublic consolidated
entities of public enterprises that apply U.S. generally accepted accounting
principles (GAAP) are not eligible for the deferral. FSP FIN No. 48-3 was
effective upon issuance. The impact of adoption was not material to
the Company’s consolidated financial condition or results of
operations.
Disclosures
by Public Entities (Enterprises) about Transfers of Financial Assets and
Interests in Variable Interest Entities
In
December 2008, the FASB issued FSP FAS No. 140-4 and FIN No. 46(R) -8,
“Disclosures by Public Entities (Enterprises) about Transfers of Financial
Assets and Interests in Variable Interest Entities.” This FSP amends SFAS No.
140, “Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities,” to require public entities to provide
additional disclosures about transfers of financials assets. FSP FAS No. 140-4
also amends FIN No. 46(R)-8, “Consolidation of Variable Interest Entities,” to
require public enterprises, including sponsors that have a variable interest
entity, to provide additional disclosures about their involvement with a
variable interest entity. FSP FAS No. 140-4 also requires certain additional
disclosures, in regards to variable interest entities, to provide greater
transparency to financial statement users. FSP FAS No. 140-4 is effective for
the first reporting period (interim or annual) ending after December 15, 2008,
with early application encouraged. The Company is currently assessing the impact
of FSP FAS No. 140-4 on its consolidated financial position and results of
operations.
Accounting
for an Instrument (or an Embedded Feature) with a Settlement Amount That is
Based on the Stock of an Entity’s Consolidated Subsidiary
In
November 2008, the FASB issued FSP Emerging Issues Task Force (“EITF”) Issue No.
08-8, “Accounting for an Instrument (or an Embedded Feature) with a Settlement
Amount That is Based on the Stock of an Entity’s Consolidated Subsidiary.” EITF
No. 08-8 clarifies whether a financial instrument for which the payoff to the
counterparty is based, in whole or in part, on the stock of an entity’s
consolidated subsidiary is indexed to the reporting entity’s own stock. EITF No.
08-8 also clarifies whether or not stock should be precluded from qualifying for
the scope exception of SFAS No. 133, “Accounting for Derivative Instruments and
Hedging Activities,” or from being within the scope of EITF No. 00-19,
“Accounting for Derivative Financial Instruments Indexed to, and Potentially
Settled in, a Company’s Own Stock.” EITF No. 08-8 is effective for fiscal years
beginning on or after December 15, 2008, and interim periods within those fiscal
years. The Company is currently assessing the impact of EITF No. 08-8 on its
consolidated financial position and results of operations.
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Accounting
for Defensive Intangible Assets
In
November 2008, the FASB issued EITF Issue No. 08-7, “Accounting for Defensive
Intangible Assets.” EITF No. 08-7 clarifies how to account for
defensive intangible assets subsequent to initial measurement. EITF
No. 08-7 applies to all defensive intangible assets except for intangible assets
that are used in research and development activities. EITF No. 08-7
is effective for intangible assets acquired on or after the beginning of the
first annual reporting period beginning on or after December 15,
2008. The Company is currently assessing the impact of EITF No. 08-7
on its consolidated financial position and results of operations.
Equity
Method Investment Accounting Considerations
In
November 2008, the FASB issued EITF Issue No. 08-6 (“EITF No. 08-6”), “Equity
Method Investment Accounting Considerations.” EITF No. 08-6 clarifies
accounting for certain transactions and impairment considerations involving the
equity method. Transactions and impairment dealt with are initial
measurement, decrease in investment value, and change in level of ownership or
degree of influence. EITF No. 08-6 is effective on a prospective
basis for fiscal years beginning on or after December 15, 2008. The
Company is currently assessing the impact of EITF No. 08-6 on its consolidated
financial position and results of operations.
Determining
the Fair Value of a Financial Asset When the Market for That Asset is Not
Active
In
October 2008, the FASB issued FSP FAS No. 157-3, “Determining the Fair Value of
a Financial Asset When the Market for That Asset is Not Active.” This
FSP clarifies the application of SFAS No. 157, “Fair Value Measurements,” in a
market that is not active. The FSP also provides examples for
determining the fair value of a financial asset when the market for that
financial asset is not active. FSP FAS No. 157-3 was effective upon
issuance, including prior periods for which financial statements have not been
issued. The impact of adoption was not material to the Company’s
consolidated financial condition or results of operations.
Issuer’s
Accounting for Liabilities Measured at Fair Value with a Third-Party Credit
Enhancement
In
September 2008, the FASB issued EITF Issue No. 08-5 (“EITF No. 08-5”), “Issuer’s
Accounting for Liabilities Measured at Fair Value with a Third-Party Credit
Enhancement.” This FSP determines an issuer’s unit of accounting for
a liability issued with an inseparable third-party credit enhancement when it is
measured or disclosed at fair value on a recurring basis. FSP EITF
No. 08-5 is effective on a prospective basis in the first reporting period
beginning on or after December 15, 2008. The Company is currently
assessing the impact of FSP EITF No. 08-5 on its consolidated financial position
and results of operations.
Disclosures
about Credit Derivatives and Certain Guarantees: An Amendment of FASB Statement
No. 133 and FASB Interpretation No. 45; and Clarification of the Effective Date
of FASB Statement No. 161
In
September 2008, the FASB issued FSP FAS No. 133-1, “Disclosures about Credit
Derivatives and Certain Guarantees: An Amendment of FASB Statement No. 133 and
FASB Interpretation No. 45; and Clarification of the Effective Date of FASB
Statement No. 161.” This FSP amends FASB Statement No. 133,
“Accounting for Derivative Instruments and Hedging Activities,” to require
disclosures by sellers of credit derivatives, including credit derivatives
embedded in a hybrid instrument. The FSP also amends FASB
Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others,” to require
and additional disclosure about the current status of the payment/performance
risk of a guarantee. Finally, this FSP clarifies the Board’s intent
about the effective date of FASB Statement No. 161, “Disclosures about
Derivative Instruments and Hedging Activities.” FSP FAS No. 133-1 is
effective for fiscal years ending after November 15, 2008. The
Company is currently assessing the impact of FSP FAS No. 133-1 on its
consolidated financial position and results of operations.
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Determining
Whether Instruments Granted in Share-Based Payment Transactions Are
Participating Securities
In
June 2008, the FASB issued EITF Issue No. 03-6-1, “Determining Whether
Instruments Granted in Share-Based Payment Transactions Are Participating
Securities.” EITF No. 03-6-1 addresses whether instruments granted in
share-based payment transactions are participating securities prior to vesting
and, therefore, need to be included in the earnings allocation in computing
earnings per share under the two-class method. The EITF 03-6-1 affects entities
that accrue dividends on share-based payment awards during the awards’ service
period when the dividends do not need to be returned if the employees forfeit
the award. EITF 03-6-1 is effective for fiscal years beginning after
December 15, 2008. The Company is currently assessing the impact of EITF
03-6-1 on its consolidated financial position and results of
operations.
Determining
Whether an Instrument (or an Embedded Feature) Is Indexed to an entity's Own
Stock
In June
2008, the FASB ratified EITF Issue No. 07-5, "Determining Whether an Instrument
(or an Embedded Feature) Is Indexed to an Entity's Own Stock.” EITF
07-5 provides that an entity should use a two step approach to evaluate whether
an equity-linked financial instrument (or embedded feature) is indexed to its
own stock, including evaluating the instrument's contingent exercise and
settlement provisions. It also clarifies on the impact of foreign
currency denominated strike prices and market-based employee stock option
valuation instruments on the evaluation. EITF 07-5 is effective for
fiscal years beginning after December 15, 2008. The Company currently
does not have such instruments and does not anticipate that its adoption of EITF
07-5 will have an impact on its consolidated financial position and results of
operations.
Accounting
for Financial Guarantee Insurance Contracts—an interpretation of FASB Statement
No. 60
In May
2008, the FASB issued SFAS No. 163, “Accounting for Financial Guarantee
Insurance Contracts – an interpretation of FASB Statement No.
60”. This statement requires that an insurance enterprise recognize a
claim liability prior to an event of default (insured event) when there is
evidence that credit deterioration has occurred in an insured financial
obligation. SFAS No. 163 also clarifies how SFAS No. 60 applies to
financial guarantee insurance contracts, including the recognition and
measurement to be used to account for premium revenue and claim liabilities to
increase comparability in financial reporting of financial guarantee insurance
contracts by insurance enterprises. SFAS No. 163 is effective for
financial statements issued for fiscal years beginning after December 15, 2008,
and all interim periods within those fiscal years, except for some disclosures
about the insurance enterprise’s risk-management activities of the insurance
enterprise be effective for the first period (including interim periods)
beginning after issuance of SFAS No. 163. Except for those
disclosures, earlier application is not permitted.
Accounting
for Convertible Debt Instruments That May Be Settled in Cash upon Conversion
(Including Partial Cash Settlement)
In
May 2008, the FASB issued FSP Accounting Principles Board (“APB”) Opinion
No. 14-1, “Accounting for Convertible Debt Instruments That May Be
Settled in Cash upon Conversion (Including Partial Cash Settlement).” The FSP
clarifies the accounting for convertible debt instruments that may be settled in
cash (including partial cash settlement) upon conversion. The FSP
requires issuers to account separately for the liability and equity components
of certain convertible debt instruments in a manner that reflects the issuer's
nonconvertible debt (unsecured debt) borrowing rate when interest cost is
recognized. The FSP requires bifurcation of a component of the debt,
classification of that component in equity and the accretion of the resulting
discount on the debt to be recognized as part of interest expense in our
consolidated statement of operations. The FSP requires retrospective
application to the terms of instruments as they existed for all periods
presented. The FSP is effective for fiscal years beginning after
December 15, 2008 and early adoption is not permitted. The Company is
currently evaluating the potential impact of FSP APB 14-1 upon its consolidated
financial statements.
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The
Hierarchy of Generally Accepted Accounting Principle
In May
2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted
Accounting Principles.” SFAS No. 162 identifies the sources of
accounting principles and the framework for selecting the principles used in the
preparation of financial statements. SFAS No. 162 is effective 60
days following the SEC's approval of the Public Company Accounting Oversight
Board amendments to AU Section 411, "The Meaning of Present Fairly in Conformity
with Generally Accepted Accounting Principles". The Company has
adopted SFAS 162.
Determination
of the Useful Life of Intangible Assets
In April
2008, the FASB issued FSP FAS No. 142-3, “Determination of the Useful Life of
Intangible Assets”, which amends the factors that should be considered in
developing renewal or extension assumptions used to determine the useful life of
intangible assets under SFAS No. 142 “Goodwill and Other Intangible
Assets”. The intent of this FSP is to improve the consistency between the
useful life of a recognized intangible asset under SFAS No. 142 and the period
of the expected cash flows used to measure the fair value of the asset under
SFAS No. 141 (revised 2007) “Business Combinations” and other U.S. generally
accepted accounting principles. The Company is currently
evaluating the potential impact of FSP FAS No. 142-3 on its consolidated
financial statements.
Disclosure
about Derivative Instruments and Hedging Activities
In March
2008, the FASB issued SFAS No. 161, “Disclosure about Derivative
Instruments and Hedging Activities, an amendment of SFAS No.
133.” This statement requires that objectives for using derivative instruments
be disclosed in terms of underlying risk and accounting designation. The Company
is required to adopt SFAS No. 161 on January 1, 2009. The Company currently has
not such instruments and does not anticipate that its adoption of
SFAS 161 will have an impact on its consolidated financial
statements.
Delay
in Effective Date
In
February 2008, the FASB issued FSP FAS No. 157-2, “Effective Date of FASB
Statement No. 157”. This FSP delays the effective date of SFAS No. 157 for
all nonfinancial assets and nonfinancial liabilities, except those that are
recognized or disclosed at fair value on a recurring basis (at least annually)
to fiscal years beginning after November 15, 2008, and interim periods
within those fiscal years. The impact of adoption was not material to the
Company’s consolidated financial condition or results of
operations.
Business
Combinations
In
December 2007, the FASB issued SFAS No. 141(R) “Business
Combinations.” This Statement replaces the original SFAS No.
141. This Statement retains the fundamental requirements in SFAS
No. 141 that the acquisition method of accounting (which SFAS No. 141
called the purchase
method) be used for all business combinations and for an acquirer to be
identified for each business combination. The objective of SFAS No. 141(R) is to
improve the relevance, and comparability of the information that a reporting
entity provides in its financial reports about a business combination and its
effects. To accomplish that, SFAS No. 141(R) establishes principles and
requirements for how the acquirer:
|
a.
|
Recognizes
and measures in its financial statements the identifiable assets acquired,
the liabilities assumed, and any noncontrolling interest in the
acquiree.
|
|
b.
|
Recognizes
and measures the goodwill acquired in the business combination or a gain
from a bargain purchase.
|
|
c.
|
Determines
what information to disclose to enable users of the financial statements
to evaluate the nature and financial effects of the business
combination.
|
- 37
-
This
Statement applies prospectively to business combinations for which the
acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008 and may not be applied before
that date. The Company
is unable at this time to determine the effect that its adoption of SFAS No.
141(R) will have on its consolidated results of operations and financial
condition.
Noncontrolling
Interests in Consolidated Financial Statements—an amendment of ARB No.
51
In
December 2007, the FASB issued SFAS No. 160 “Noncontrolling Interests in
Consolidated Financial Statements – an amendment of ARB No. 51.” This
Statement amends the original Accounting Review Board (ARB) No. 51 “Consolidated
Financial Statements” to establish accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an
ownership interest in the consolidated entity that should be reported as equity
in the consolidated financial statements. This Statement is effective for fiscal
years and interim periods within those fiscal years, beginning on or after
December 15, 2008 and may not be applied before that date. The
Company is unable at this time to determine the effect that its adoption of SFAS
No. 160 will have on its consolidated results of operations and financial
condition.
Fair
Value Option for Financial Assets and Financial Liabilities
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities – Including an amendment of SFAS No.
115,” which becomes effective for the Company on February 1, 2008, permits
companies to choose to measure many financial instruments and certain other
items at fair value and report unrealized gains and losses in earnings. Such
accounting is optional and is generally to be applied instrument by instrument.
The election of this fair-value option did not have a material effect on its
consolidated financial condition, results of operations, cash flows or
disclosures.
- 38
-
Fair
Value Measurements
In
September 2006, the FASB issued SFAS No. 157, "Fair Value
Measurements.” SFAS No. 157 provides guidance for using fair value to
measure assets and liabilities. SFAS No. 157 addresses the requests
from investors for expanded disclosure about the extent to which companies’
measure assets and liabilities at fair value, the information used to measure
fair value and the effect of fair value measurements on earnings. SFAS No. 157
applies whenever other standards require (or permit) assets or liabilities to be
measured at fair value, and does not expand the use of fair value in any new
circumstances. SFAS No. 157 is effective for financial statements issued for
fiscal years beginning after November 15, 2007 and was adopted by the Company in
the first quarter of fiscal year 2008. There was no material impact on the
Company’s consolidated results of operations and financial condition due to the
adoption of SFAS No. 157.
Accounting
Changes and Error Corrections
In May
2005, the FASB issued SFAS No. 154, "Accounting Changes and Error Corrections,”
which replaces APB Opinion No. 20, "Accounting Changes," and SFAS No. 3,
"Reporting Accounting Changes in Interim Financial Statements - An Amendment of
APB Opinion No. 28”. SFAS No. 154 provides guidance on the accounting for and
reporting of accounting changes and error corrections, and it establishes
retrospective application, or the latest practicable date, as the required
method for reporting a change in accounting principle and the reporting of a
correction of an error. SFAS No. 154 is effective for accounting changes and
corrections of errors made in fiscal years beginning after December 15, 2005.
SFAS 154 was adopted at the Company’s inception and did not have a material
impact on its consolidated results of operations and financial
condition.
Management
does not believe that any other recently issued, but not yet effective,
accounting standards if currently adopted would have a material effect on the
accompanying financial statements.
Off-Balance Sheet
Arrangements
We do not
have any off-balance sheet arrangements, financings, or other relationships with
unconsolidated entities or other persons, also known as “special purpose
entities” (SPEs).
Item 7A. Quantitative and Qualitative
Disclosure About Market Risk
Not
applicable.
Item 8. Financial Statements and
Supplementary Data.
The
financial statements required by this Item appear following Item 15 of this
Report and are incorporated herein by reference.
Item 9. Changes In and Disagreements With
Accountants on Accounting and Financial Disclosure.
On March
4, 2008, on the recommendation of the Audit Committee, the Board of Directors of
the Company dismissed Gately & Associates, LLC as the Company’s independent
registered public accountants for any reporting period subsequent to December
31, 2007. Gately & Associates, LLC reports on the financial
statements for the preceding two years did not contain an adverse opinion or
disclaimer of opinion, nor were they modified as to uncertainty, audit scope, or
accounting principles. There were no disagreements with Gately &
Associates, LLC on matters of accounting principles or practices, financial
statement disclosure, or auditing scope and procedure, which disagreements or
reportable events would require specific disclosure as required by Item 304 of
Regulation S-K.
We
provided Gately & Associates with a copy of the disclosures in this Report
and requested that they furnish us with a letter addressed to the Securities and
Exchange Commission stating whether or not Gately & Associates agrees with
the statements in this Item 8. Gately & Associates informed us that no such
letter is necessary.
- 39
-
On March
4, 2008, on the recommendation of the Audit Committee, the Board of Directors
approved the engagement of Jewett, Schwartz, Wolfe & Associates to be the
Company’s independent registered public accountants going forward. We
did not consult Jewett, Schwartz, Wolfe & Associates regarding the filing of
Form 10-KSB for the period ending December 31, 2007, nor regarding the
application of accounting principles to a specific transaction, either completed
or proposed, or the type of audit opinion that might be rendered on our
financial statements, and no written or oral advice was provided by Jewett,
Schwartz, Wolfe & Associates that was a factor considered by us in reaching
a decision as to the accounting, auditing or financial reporting
issues.
Item 9(T). Controls and Procedures.
Evaluation
of Disclosure Controls and Procedures
As of the
end of the period covered by this annual report on Form 10-K, we evaluated the
effectiveness of the design and operation of (i) our disclosure controls and
procedures, and (ii) our internal control over financial reporting. The
evaluators who performed this evaluation were our Chief Executive Officer and
Chief Financial Officer; their conclusions, based on and as of the date of the
Evaluation (i) with respect to the effectiveness of our disclosure controls and
(ii) with respect to any change in our internal controls that occurred during
the most recent fiscal quarter that has materially affected, or is reasonably
likely to materially affect our Internal Controls are presented
below.
CEO
and CFO Certifications
Attached
to this annual report, as Exhibits 31.1 and 31.2, are certain certifications of
the CEO and CFO, which are required in accordance with the Exchange Act and the
Commission’s rules implementing such section (the "Rule 13a-14(a)/15d-14(a)
Certifications"). This section of the annual report contains the
information concerning the evaluation referred to in the Rule
13a-14(a)/15d-14(a) Certifications. This information should be read in
conjunction with the Rule 13a-14(a)/15d-14(a) Certifications for a more complete
understanding of the topic presented.
Disclosure
Controls and Internal Controls
Disclosure
controls are procedures designed with the objective of ensuring that information
required to be disclosed in the Company's reports filed with the Securities and
Exchange Commission under the Securities Exchange Act, such as this annual
report, is recorded, processed, summarized and reported within the time period
specified in the Commission’s rules and forms. Disclosure controls are also
designed with the objective of ensuring that material information relating to
the Company is made known to the CEO and the CFO by others, particularly during
the period in which the applicable report is being prepared. Internal controls,
on the other hand, are procedures which are designed with the objective of
providing reasonable assurance that (i) the Company's transactions are properly
authorized, (ii) the Company’s assets are safeguarded against unauthorized or
improper use, and (iii) the Company's transactions are properly recorded and
reported, all to permit the preparation of complete and accurate financial
statements in conformity with accounting principals generally accepted in the
United States.
Limitations
on the Effectiveness of Controls
The
Company's management does not expect that their disclosure controls or their
internal controls will prevent all error and all fraud. A control system, no
matter how well developed and operated, can provide only reasonable, but not
absolute assurance that the objectives of the control system are met. Further,
the design of the control system must reflect the fact that there are resource
constraints, and the benefits of controls must be considered relative to their
costs. Because of the inherent limitations in all control systems, no evaluation
of controls can provide absolute assurance that all control issues and instances
of fraud, if any, within the Company have been detected. These inherent
limitations include the realities that judgments in decision-making can be
faulty and that breakdowns can occur because of simple error or mistake.
Additionally, controls can be circumvented by the individual acts of some
persons, by collusion of two or more people, or by management override of the
control. The design of a system of controls also is based in part upon certain
assumptions about the likelihood of future events, and there can be no assurance
that any design will succeed in achieving its stated objectives under all
potential future conditions. Over time, control may become inadequate because of
changes in conditions, or because the degree of compliance with the policies or
procedures may deteriorate. Because of the inherent limitations in a
cost-effective control system, misstatements due to error or fraud may occur and
not be detected.
- 40
-
Scope
of the Evaluation
The CEO
and CFO’s evaluation of the our disclosure controls included a review of the
controls’ (i) objectives, (ii) design, (iii) implementation, and (iv) the effect
of the controls on the information generated for use in this annual report. In
the course of the evaluation, the CEO and CFO sought to identify data errors,
control problems and acts of fraud, and they sought to confirm that appropriate
corrective action, including process improvements, was being undertaken. This
type of evaluation is done on a quarterly basis so that the conclusions
concerning the effectiveness of our controls can be reported in our quarterly
reports on Form 10-Q and annual reports on Form 10-K. The overall goals of these
various evaluation activities are to monitor our disclosure controls and
internal controls, and to make modifications if and as necessary. Our external
auditors also review internal controls in connection with their audit and review
activities. Our intent in this regard is that the disclosure controls and the
internal controls will be maintained as dynamic systems that change (including
improvements and corrections) as conditions warrant.
Among
other matters, the evaluation was to determine whether there were any
significant deficiencies or material weaknesses in our internal controls, which
are reasonably likely to adversely affect our ability to record, process,
summarize and report financial information, or whether the evaluators identified
any acts of fraud, whether or not material, involving management or other
employees who have a significant role in our internal controls. This information
was important for both the evaluation, generally, and because the Rule
13a-14(a)/15d-14(a) Certifications, Item 5, require that the CEO and CFO
disclose that information to our Board (audit committee), and our independent
auditors, and to report on related matters in this section of the annual report.
In the professional auditing literature, "significant deficiencies" are referred
to as "reportable conditions". These are control issues that could have
significant adverse affect on the ability to record, process, summarize and
report financial data in the financial statements. A "material weakness" is
defined in the auditing literature as a particularly serious reportable
condition where the internal control does not reduce, to a relatively low level,
the risk that misstatement caused by error or fraud may occur in amounts that
would be material in relation to the financial statements and not be detected
within a timely period by employees in the normal course of performing their
assigned functions. The evaluators also sought to deal with other controls
matters in the evaluation, and in each case, if a problem was identified, they
considered what revisions, improvements and/or corrections to make in accordance
with our ongoing procedures.
Conclusions
Based
upon the evaluation, our CEO and CFO concluded that our disclosure controls and
procedures as of December 31, 2008 were not effective such
that the information required to be disclosed by us in reports filed under the
Exchange Act is (i) recorded, processed, summarized and reported within the time
periods specified in the SEC’s rules and forms and (ii) accumulated and
communicated to our management, including our CEO and CFO, as appropriate to
allow timely decisions regarding disclosure. They concluded that the Company’s
disclosure controls were ineffective due to the inability to timely file the
annual report on Form 10-K and the material weaknesses in its internal controls
over financial reporting as
described below, which led us to file our 10-K late. The actions
being taken to address these ineffective disclosure controls and procedures are
set forth below in Management’s Report on Internal Control Over Financial
Reporting. Based upon the Evaluation, our CEO and CFO also concluded that our
internal controls are not effective at that assurance level to provide
reasonable assurance that our financial statements are fairly presented in
conformity with accounting principles generally accepted in the United States,
as more fully described below in Management’s Report on Internal Control Over
Financial Reporting.
Management’s
Report on Internal Control Over Financial Reporting.
Board of
Directors of Fund.com Inc:
Management
of Fund.com Inc is responsible for establishing and maintaining adequate
internal control over financial reporting for the Company. The Company’s
internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with U.
S. generally accepted accounting principles. The Company’s internal control over
financial reporting includes those policies and procedures that: (i) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the Company’s assets, (ii) provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with U.S. generally accepted
accounting principles, and that receipts and expenditures of the Company are
being made only in accordance with authorizations of management and directors of
the Company; and, (iii) provide reasonable assurance regarding prevention of
timely detection of unauthorized acquisition, use or disposition of the
Company’s assets that could have a material effect on the financial
statements.
- 41
-
Internal
control over financial reporting includes the controls themselves, monitoring
and internal auditing practices and actions taken to correct deficiencies as
identified.
Because
of its inherent limitations, internal control over financial reporting, no
matter how well designed, may not prevent or detect misstatements. Accordingly,
even effective internal control over financial reporting can provide only
reasonable assurance with respect to financial statement preparation. Also, the
effectiveness of internal control over financial reporting was made as of a
specific date. Projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate because of changes
in conditions, or that the degree of compliance with the policies or procedures
may deteriorate.
Management
conducted an assessment of the effectiveness of the Company’s internal control
over financial reporting as of December 31, 2008, based on criteria for
effective internal control over financial reporting described in “Internal
Control—Integrated Framework” issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Management’s assessment included an
evaluation of the design of the Company’s internal control over financial
reporting and testing of the operational effectiveness of its internal control
over financial reporting. Management reviewed the results of its assessment with
the Audit Committee of the Company’s Board of Directors.
Based on
this assessment, management determined that, as of December 31, 2008, Fund.Com
Inc. did not maintained effective
internal control over financial reporting. Management identified the
following specific material weaknesses in the Company’s internal controls over
its financial reporting processes (a material weakness is a deficiency, or a
combination of control deficiencies, in internal control over financial
reporting such that there is a reasonable possibility that a material
misstatement of the Company’s annual or interim financial statements will not be
prevented or detected on a timely basis):
|
•
|
Policies
and Procedures for the Financial Close and Reporting Process — Currently
there are no written policies or procedures that clearly define the roles
in the financial close and reporting process. The various roles
and responsibilities related to this process should be defined,
documented, updated and communicated. Failure to have such
policies and procedures in place amounts to a material weakness to the
Company’s internal controls over its financial reporting
processes.
|
|
•
|
Inability
to close our books and generate required disclosure – Due to timing
constraints related to the finalization of material agreements, we
recognize a material weakness regarding our inability to simultaneously
close the books on a timely basis each month and quarter and to generate
all the necessary disclosure for inclusion in our filings with the
Securities and Exchange Commission. This material weakness caused us to be
late in our filing.
|
|
•
|
Accounting
and Finance Personnel Weaknesses – Our current accounting staff is
relatively small and we do not have the required infrastructure of meeting
the higher demands of being a U.S. public company. Due to the size of our
accounting staff, we have limitations in the segregation of duties
throughout the financial reporting processes. Due to the
pervasive nature of this issue, the lack of segregation of duties amounts
to a material weakness to the Company’s internal controls over its
financial reporting
processes.
|
- 42
-
In light
of the foregoing, once we have the adequate funds, management plans to develop
the following additional procedures to help address these material
weaknesses. We believe that these additional steps will further
enhance and strengthen the remediation steps we implemented in fiscal 2008 to
address the material weaknesses we discovered in our 2007 evaluation, which we
believed were sufficient to cure such material weakness. We recognize
now that these must be expanded and developed to help ensure we achieve and
maintain effective controls and procedures. The Company will create
and refine a structure in which critical accounting policies and estimates are
identified, and together with other complex areas, are subject to review by
other members of management as well as the Company’s independent
accountant. We also plan to enhance and test our quarter-end and
year-end financial close process. Additionally, our board of
directors will increase its review of our disclosure controls and
procedures. We also intend to develop and implement policies and
procedures for the financial close and reporting process, such as identifying
the roles, responsibilities, methodologies, and review/approval process; we also
hope to implement a detailed financial close plan and enhanced and timelier
review of manual journal entries, account reconciliations, estimates and
judgments. Finally, it is our interntion to engage professionals on
an as needed basis to assist the Company in the financial reporting
process. We believe these actions will remediate the material
weaknesses by focusing additional attention and resources in our internal
accounting functions. However, the material weaknesses will not be
considered remediated until the applicable remedial controls operate for a
sufficient period of time and management has concluded, through testing, that
these controls are operating effectively and even then, we cannot assure you
that this will be sufficient. We may be required to expend additional resources
to identify, assess and correct any additional weaknesses in disclosure or
internal control. The Company cannot make assurances that it will not identify
additional material weaknesses in its internal control over financial reporting
in the future.
As of the
date of the of this report, we have taken the following steps to address the
above-referenced material weakness in our internal control over financial
reporting to ensure that all information will be recorded, processed, summarized
and reported accurately:
|
1.
|
We
have amended the 10-K to include the Management’s Report on Internal
Controls Over Financial Reporting;
|
|
2.
|
We
will continue to educate our management personnel on compliance with the
disclosure requirements of the Securities Exchange Act of 1934
and Regulation S-K; and
|
|
3.
|
We
have increased management oversight of accounting and reporting
functions.
|
The
presence of these material weaknesses does not mean that any misstatement has
occurred in our financial statements, but only that our present controls might
not be adequate to detect or prevent a material misstatement in a timely
manner.
This
annual report does not include an attestation report of our registered public
accounting firm regarding internal control over financial reporting.
Management’s report was not subject to attestation by our registered public
accounting firm pursuant to temporary rules of the Securities and Exchange
Commission that permit us to provide only management’s report in this annual
report.
- 43
-
Fund.com
Inc.
Gregory
Webster, CEO
Michael
Hlavsa, CFO
Changes
in Internal Controls
There
were no changes (including corrective actions with regard to significant
deficiencies or material weaknesses) in our internal controls over financial
reporting that occurred during the fourth quarter of fiscal 2008 that has
materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting. However, additional disclosures, as
well as the remediation measures outlined above in Management’s Report on
Internal Control Over Financial Reporting will likely affect our internal
controls over financial reporting. We recognize certain weaknesses in
our control procedures and are in the process of implementing remediation
measures to correct them.
Item 9B. Other Information.
None.
PART
III
Item 10. Directors, Executive Officers and
Corporate Governance.
The
following table and text set forth the names and ages of all directors and
executive officers as of May 5, 2009. The Board of Directors is comprised of
only one class. All of the directors will serve until a successor is elected and
qualified or until their earlier resignation or removal. To date we have not had
an annual meeting. There are no family relationships among our directors and
executive officers. Also provided herein are brief descriptions of the business
experience of each director, executive officer and advisor during the past five
years and an indication of directorships held by each director in other
companies subject to the reporting requirements under the Federal securities
laws.
In
connection with the Merger that closed on January 15, 2008, Ms. Rahman resigned
as our sole director and officer and the persons listed in the table below
became our officers and directors. As of January 16, 2008, Mr. Klaus
replaced Ms. Rahman as our acting Chief Executive Officer and served as such
until February 1, 2008. On February 1, 2008 Mr. Lang replaced Mr.
Klaus as our Chief Executive Officer. On August 6, 2008, Mr. Webster
was appointed as our Chief Executive Officer and ceased acting as our
President. In connection therewith, Mr. Lang was appointed as our
President and ceased acting as our Chief Executive Officer.
As of
January 31, 2009, Mr. Rennick resigned as our Executive Vice
President.
On
February 17, 2009, the Company accepted Raymond Lang’s resignation as one of the
Company’s board members and as the Company’s President, effective as of February
12, 2009; he also resigned from his positions with the Company’s subsidiaries.
Mr. Lang did not resign in connection with any disagreement with the Company or
its management.
Effective
February 20, 2009, Michael Hlavsa and Darren Rennick also resigned from the
Board of Directors, but Mr. Hlavsa is maintaining his position as our Chief
Financial Officer. Neither Mr. Hlavsa nor Mr. Rennick resigned from
the Board of Directors in connection with any disagreement with the Company or
its management. In conjunction with the resignations of Messrs Lang,
Hlavsa and Rennick, the Board will decrease its size from nine members to six
members. The Board believes that this reduction in size is
appropriate to reflect the corporate governance responsibilities and obligations
of the Company.
- 44
-
|
Name
|
Age
|
Position
|
|
Daniel
Klaus
|
35
|
Chairman
|
|
Michael
Hlavsa
|
55
|
Chief
Financial Officer
|
|
Lucas
Mann
|
29
|
Chief
Marketing Officer and Director
|
|
Gregory
Webster
|
48
|
Chief
Executive Officer, Director
|
|
Philip
Gentile
|
56
|
Chief
Operating Officer and Executive Vice President
|
|
Ivar
Eilertsen
|
51
|
Independent
Director
|
|
Raul
Biancardi
|
46
|
Independent
Director / Chairman Audit and Compensation Committee
|
|
Keith
Laslop
|
37
|
Independent
Director
|
Daniel
Klaus – Chairman and Director
Mr. Klaus
served as our acting Chief Executive Officer from formation to February 2008,
our Chairman since that time and as our Director since October
2007. Mr. Klaus is an entrepreneur and investor in new media
companies, including Internet-based media companies. From April 2006 to the
present Mr. Klaus has served as Chief Executive Officer of the online media
company Music Nation, Inc. a company he co-founded and has lead through three
rounds of institutional debt and equity financings. Mr. Klaus has served on the
board of directors of Music Nation since July 2006. From June 2006 to
January 2006 Mr. Klaus served as Managing Director of SoundBank, a special
opportunities fund formed in partnership with Cheyne Capital. Since
2001, Mr. Klaus has been the Chief Executive Officer and Founder of Fabric
Group, LLC a media advisory firm with such clients as Goldman Sachs, Cheyne
Capital, Bertelsmann, Yahoo! Inc., Music Match and Sony Pictures. Prior to 2001,
Mr. Klaus launched BrandFarm, an on-line incubator. In 2007, Mr. Klaus was named
as one of the top 100 Internet executives in New York by Silicon Alley, a
leading Internet publication.
Michael
Hlavsa – Chief Financial Officer
Mr.
Hlavsa has served as our Chief Financial Officer and as a Director since
November 2007 until February 2009. Mr. Hlavsa is both a Certified
Public Accountant and a Certified Internal Auditor. From its
inception in March 2007, Mr. Hlavsa has served as the Chief Financial Officer
and continues as a Director of Asia Special Situation Acquisition Corp., a blank
check company. From October 2004 to the present, Mr. Hlavsa has been
the principal owner of Signature Gaming Management LLC, a consulting firm
specializing in advising emerging companies engaged in gaming
operations.
From
November 2007 until February 2008, Mr. Hlavsa served as the Interim Chief
Financial Officer of the Kiowa Casino Operating Authority, a Native American
entity and was responsible for the financial aspects of the casino and for
leading the restructuring of $93 million in debt. From February 2005
to August 2005 Mr. Hlavsa served as chief executive officer for Titan Cruise
Lines, which operated a casino on a 2,000 passenger ship with high speed
shuttles. From July 2001 to October 2004, Mr. Hlavsa was the Chief Executive
Officer of SunCruz Casinos, the largest day cruise gaming company in the United
States. From 1997 to 2000, Mr. Hlavsa was Managing Partner at Casino Princesa in
Miami, Florida where he was responsible for the development and operation of a
large mega-yacht gaming vessel. From 1993 to 1997, he served as Chief Financial
Officer and also Vice President, Midwest Region, for Lady Luck Gaming
Corporation, a publicly traded company. From 1991 to 1993, Mr. Hlavsa was the
Vice President of Finance and Administration for the Sands Hotel and Casino in
Las Vegas, Nevada. His first 12 years of gaming experience was in Atlantic City,
New Jersey in various audit and finance positions with well-established gaming
companies such as Caesars, Tropicana and Trump Plaza. He received a bachelor of
science degree from Canisius College in Buffalo, New York in 1975.
- 45
-
Lucas
Mann – Chief Marketing Officer .and Director
Mr. Mann
has served as our Chief Marketing Officer and as our Director since October
2007. Mr. Mann served as Chief Marketing Officer and Co-Founder of online media
company, Music Nation, from May 2006 to present. Previously, from 2004 to 2006
Mr. Mann served as president of Clique Inc./Sparkart LLC, a Silicon Valley-based
new media company. While at Clique, Inc., Mr. Mann focused on monetizing
intellectual property via the creation of brand extensions such as websites,
fanclubs, merchandise and new technologies for entertainment companies like
Universal Music Group and Warner Music Group. Additionally, Mr. Mann founded
Mann Media Partners, a Los Angeles-based consultancy firm, developed new
entertainment product distribution strategies and offered brand and design
consulting for clients including Warner Bros. Records, EMI, and Major League
Baseball athletes, among others. During 2002 and 2003, Mr. Mann split
time between Warner Bros. Records, developing and executing marketing plans for
some of the worlds best knows musical acts, and his own management company,
handling all aspects of the career of several successful artists.
Gregory
Webster - Chief Executive Officer and Director
Mr.
Webster brings over 20 years of management experience throughout the financial
services, brokerage and insurance industries, including extensive global wealth
leadership experience.
Prior to
his current position at Fund.com, Mr. Webster was the President and CEO of HSBC
Brokerage (USA) Inc., one of the largest banks in the world, where he was
responsible for approximately $32.5 billion of client assets. Mr. Webster
additionally held a seat on the Board of HSBC Asset Management (Americas) and
served as Head of Securities of HSBC North America. In the latter role, Mr.
Webster served on the board of directors and oversaw all the wealth management
advisory services of HSBC Securities (Canada) Inc. and Merrill-Lynch HSBC
(Canada) Inc., and was responsible for trading and execution services for HSBC
subsidiaries and international affiliates.
Before
joining HSBC in 2000, Mr. Webster led the Guardian Life Insurance Company in the
formation and SEC Registration of a newly formed broker/dealer, Park Avenue
Securities, LLC. Mr. Webster served as President of Park Avenue Securities,
where he managed the securities operations and the distribution of wealth
management and insurance products through a field force of approximately 4,000
registered representatives across the country. Prior to Park Avenue, Mr. Webster
was the Chief Operating Officer for NYLIFE Securities, Inc., a subsidiary of New
York Life Insurance Company, where he managed the wealth management proposition
for approximately 8,000 registered representatives nationally. Mr. Webster was
previously a Director of Private Client Services at Dreyfus Service Corporation,
a subsidiary of Mellon Bank. Mr. Webster received his B.S. in
Marketing from the School of Business from Arizona State University, and a
Masters Degree in Business Administration in Finance from Long Island
University
Philip
Gentile - Chief Operating Officer and Executive Vice President
Mr.
Gentile has over twenty-five years of experience in the financial services and
securities industry. Prior to joining Fund.com, he served in Morgan Stanley’s
Global Wealth Management Group as Vice President of Vendor Management Office,
where he managed the bank’s technology and operations vendors. Prior to Morgan
Stanley, Mr. Gentile was Vice President of Business Operations at Standard &
Poor's, Inc., a subsidiary of McGraw-Hill. In addition to working at top-tier
financial firms, Mr. Gentile has also owned and operated his own businesses,
including CyberVestors where he developed a marketing newsletter for a small
brokerage firm utilizing Earnings Surprise as a method of identifying investment
opportunities for individual investors. Prior to that, Mr. Gentile was a Senior
Vice President and co-founder of Global Information Technologies, a
re-distributor of online financial services to brokerage and money management
firms who provided aggregation, research and reporting on equities. He began his
career as Vice President of Equity Research for Shearson Lehman Brothers, where
he managed product development for an institutional service, FINSTAT, which
provided research, analysis, back-testing and reporting for equities and mutual
funds. Mr. Gentile received his B.S. in Quantitative Analysis and Economics from
Manhattan College , and subsequently attended Pace University's MBA Finance
Program.
- 46
-
Raul
Biancardi - Independent Director / Chairman Audit and Compensation
Committee
Mr.
Biancardi’s career in finance began in 1993 at Morgan Stanley International. He
moved to Deutsche Bank as Head of Emerging Markets Equities, and to Lehman
Brothers International in 1998, where he served for six years in positions
including Head of Fixed Income Prime Brokerage (Europe) and Head of Wealth and
Asset Management for Europe/Middle East/Africa. He is currently a senior manager
at a leading middle eastern bank. Mr. Biancardi holds a Masters Degree in
Business Administration from Westminster University in London, and Bachelors
Degree in English from Tulane University.
Ivar
Eilertsen - Independent Director / Audit and Compensation
Committee
Mr.
Eilertsen has served since 2006 as the Founding Partner of Harbor Capital
Technologies, LLC, a boutique advisory firm focused on financial technology.
Prior to founding Harbor Capital, Mr. Eilertsen served as Managing Director and
Senior Vice President, Global Accounts for Thomson Financial. Prior to joining
Thomson, Mr. Eilertsen served in senior management roles at ADP Brokerage
Services Group (now Broadridge), and was CEO, Americas and General Manager of
ADP Wilco. Mr. Eilertsen holds a Bachelor of Science Degree from the University
of Oslo, Norway.
Keith
Laslop - Independent Director/Audit and Compensation Committee
Mr.
Laslop has served as a Fund.com board member since May 2008.
Previously, Mr. Laslop served as the President of Prolexic Technologies,
Inc., a managed security service provider, where he recruited and shaped a
new senior management team, as well as put in place sales and marketing
strategies that grew revenues nine-fold over three years
and realized EBIT margins over 20%. Mr. Laslop sold Prolexic in
2008 for an average shareholder ROI of 5X. From September 2001 to
April 2004, Mr. Laslop served as the Chief Financial Officer
and Commercial Director of Elixir Studios Ltd., a London-based interactive
entertainment software developer, where he was responsible for originating and
negotiating new development contracts, as well as managing the financial
performance of and fund-raisings for the company. While at Elixir, Mr.
Laslop brought the company to profitability for the first time in its five year
history by securing multi-million dollar development contracts and secured
three rounds of equity and debt financing. Mr. Laslop earned a Business
Administration degree (Honors) from the University of Western
Ontario and is a Chartered Accountant and Chartered Financial
Analyst. Mr. Laslop has been interviewed by/quoted in National Public
Radio, Wired Magazine, IT Week and other media.
Involvement in Certain Legal
Proceedings
At
December 31, 2008, no officer or director of the Company: (1) had any petition
filed, within the past five years, in Federal Bankruptcy or state insolvency
proceedings on such person's behalf or on behalf of any entity of which such
person was an officer or general partner within two years of filing; (2) had
been convicted in a criminal proceeding within the past five years or is
currently a named subject of a pending criminal proceeding; or (3) had been the
subject, within the past five years, of any order, judgment, decree or finding
(not subsequently reversed, suspended or vacated) of any court or regulatory
authority involving violation of securities or commodities laws, or barring,
suspending, enjoining or limiting any activity relating to securities,
commodities or other business practice.
Compliance with Section
16(a) of the Exchange Act
Section
16(a) of the Exchange Act requires our officers, directors and persons who own
more than 10% of any class of our securities registered under Section 12(g) of
the Exchange Act to file reports of ownership and changes in ownership with the
SEC. Officers, directors and greater than 10% stockholders are required by SEC
regulation to furnish us with copies of all Section 16(a) forms they
file.
Based on
Management’s review of copies of such reports, and without conducting any
independent investigation of our own, we believe that the following person(s)
who, at any time during such fiscal year, was a director, officer or beneficial
owner of more than 10% of the Company’s common stock failed to comply with all
Section 16(a) filing requirements during such fiscal years:
- 47
-
|
Name
|
Number of Late Reports
|
Number of Transactions
not Reported on a
Timely
Basis
|
Failure to File a
Required
Form
|
|||
|
Daniel
Klaus
|
1
|
1
|
3
(1)
|
|||
|
Michael
Hlavsa
|
1
|
1
|
3
(1)
|
|||
|
Lucas
Mann
|
1
|
1
|
3
(1)
|
|||
|
Greg
Webster
|
1
|
1
|
3
(1)
|
|||
|
Ivar
Eilertsen
|
1
|
1
|
3
(1)
|
|||
|
Raul
Biancardi
|
1
|
1
|
3
(1)
|
|||
|
Keith
Laslop
|
1
|
1
|
3
(1)
|
|
1.
|
This
Form 3 was due to be filed with the SEC upon such person becoming one of
our executive officers or
directors.
|
Code of
Ethics
In June
2008, the Company adopted a Code of Ethics and Business Conduct. This
Code provides rules and procedures to help the Company’s employees, officers and
directors recognize and respond to situations that present ethical
issues. This Code applies to all of our employees, officers and
directors, wherever they are located and whether they work for the Company on a
full or part-time basis. Compliance with this code is mandatory and
those who violate the standards in this Code will be subject to disciplinary
action.
Corporate
Governance and Director Independence
During
fiscal 2008 through the present, we were not and are not required to comply with
the director independence requirements of any securities exchange. In
determining whether our directors are independent however, the board of
directors applies the requirements for “independent directors”
as defined in the rules and regulations of the NYSE AMEX (formerly known as the
American Stock Exchange). The Company’s board of directors determined
that Messrs. Biancardi, Eilertsen and Laslop are independent.
Board
Committees
In June
2008, our board of directors has established the following
committees. The Company intends to have charters for these committees
available on our website within the next calendar quarter.
Audit
Committee
Our audit
committee consists of Messrs. Biancardi (chairman of the committee), Eilertsen
and Laslop and the Board has determined that each such person is independent, as
that term is defined in Section 121 of the NYSE
Amex’s Listing Standards and Section 10A(m)(3) of the Securities Exchange Act of
1934. Messrs. Biancardi, Eilertsen and Laslop’s qualifications as an
audit committee financial expert are described in his respective biography
above. Additionally, our board of directors has determined that
Messrs. Biancardi, Eilertsen and Laslop each qualify as an “audit committee
financial expert,” as that term is defined in Item 407 of Regulation S-K and
that each is an independent director as set forth in Section 10A-3 of the
Securities Exchange Act of 1934, as amended..
- 48
-
The audit
committee reviews the professional services and independence of our independent
registered public accounting firm and our accounts, procedures and internal
control. The audit committee selects our independent registered public
accounting firm, reviews and approves the scope of the annual audit, reviews
with the independent public accounting firm our annual audit and annual
consolidated financial statements, reviews with management the status of
internal accounting control, evaluates problem areas having a potential
financial impact on us that may be brought to the committee’s attention by
management, the independent registered public accounting firm or the board of
directors, and evaluates all of our public financial reporting
documents.
Compensation
Committee
Our
compensation committee consists of Messrs. Biancardi (chairman of the
committee), Eilertsen and Laslop. The principal function of the compensation
committee is to review the compensation payable to our officers and
directors.
Item 11. Executive Compensation.
The table
below summarizes the compensation earned for services rendered by the
individuals noted to us in all capacities, for the years indicated.
Some of
the officers listed below did not work for us in any capacity during 2007 or
2008, or only worked for a portion of such years; however, we are required to
include information covering our last two fiscal years for each of the officers
listed below. Accordingly, we strongly advise you to read the
footnotes to the table, which explain the time of service and therefore why such
person may not have received any compensation in certain years.
|
Name
and Principal Position
|
Year
|
Salary
($)
|
Bonus
($)
|
Stock
Awards
($)
|
Option
Awards
($)
|
|
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
(f)
|
|
Ms.
Ahkee Rahman, CEO
(1)
|
2008
|
-0-
|
-0-
|
-0-
|
-0-
|
|
Ms.
Ahkee Rahman, CEO
|
2007
|
-0-
|
-0-
|
-0-
|
-0-
|
|
Mr.
Raymond Lang, President
(2)
|
2008
|
229,167
(3)
|
-0-
|
-0-
|
411,760
|
|
Mr.
Raymond Lang, President
(2)
|
2007
|
-0-
|
-0-
|
-0-
|
-0-
|
|
Mr.
Gregory Webster, Chief
Executive Officer (4)
|
2008
|
208,833
|
-0-
|
-0-
|
610,732
(5)
|
|
Mr.
Gregory Webster, Chief
Executive Officer (4)
|
2007
|
-0-
|
-0-
|
-0-
|
-0-
|
|
Mr.
Michael Hlavsa, Chief
Financial Officer
|
2008
|
110,000
|
-0-
|
-0-
|
29,096
(6)
|
|
Mr.
Michael Hlavsa, Chief
Financial Officer
|
2007
|
-0-
|
-0-
|
-0-
|
-0-
|
|
Mr.
Philip Gentile (7)
|
2008
|
208,333
|
-0-
|
-0-
|
442,519
|
|
Mr.
Philip Gentile
|
2007
|
-0-
|
-0-
|
-0-
|
-0-
|
|
Mr.
Daniel Klaus, Former CEO
|
2008
|
-0-
|
-0-
|
-0-
|
-0-
|
|
Mr.
Daniel Klaus Former CEO
|
2007
|
25,000
|
-0-
|
-0-
|
-0-
|
|
Mr.
Lucas Mann, Chief Marketing Officer
|
2008
|
-0-
|
-0-
|
-0-
|
-0-
|
|
Mr.
Lucas Mann, Chief Marketing Officer
|
2007
|
25,000
|
-0-
|
-0-
|
-0-
|
|
Mr.
Darren Rennick, Executive Vice President
|
2008
|
-0-
|
-0-
|
-0-
|
-0-
|
|
Mr.
Darren Rennick, Executive Vice President
|
2007
|
62,500
|
-0-
|
-0-
|
-0-
|
|
Mr.
Richard Carrigan
|
2008
|
-0-
|
-0-
|
-0-
|
-0-
|
|
Mr.
Richard Carrigan(8)
|
2007
|
15,025
|
-0-
|
-0-
|
-0-
|
- 49
-
|
Name
and Principal Position
|
Year
|
Non-Equity
Incentive
Plan
Compensation
($)
|
Non-Qualified
Deferred
Compensation
Earnings
($)
|
All
other
Compensation
|
Total
($)
|
|
(a)
|
(b)
|
(g)
|
(h)
|
(i)
|
(j)
|
|
Ms.
Ahkee Rahman, CEO
(1)
|
2008
|
-0-
|
-0
|
-0-
|
-0-
|
|
Ms.
Ahkee Rahman, CEO
|
2007
|
-0-
|
-0-
|
-0-
|
-0-
|
|
Mr.
Raymond Lang, President
|
2008
|
-0-
|
-0-
|
3,899
|
644,826
|
|
Mr.
Raymond Lang, President
|
2007
|
-0-
|
-0-
|
-0-
|
-0-
|
|
Mr.
Gregory Webster Chief
Executive Officer
|
2008
|
-0-
|
-0-
|
3,190
|
822,255
|
|
Mr.
Gregory Webster Chief
Executive Officer
|
2007
|
-0-
|
-0-
|
-0-
|
-0-
|
|
Mr.
Michael Hlavsa, Chief
Financial Officer
|
2008
|
-0-
|
-0-
|
-0-
|
139,096
|
|
Mr.
Michael Hlavsa, Chief
Financial Officer
|
2007
|
-0-
|
-0-
|
-0-
|
-0-
|
|
Mr.
Philip Gentile Chief
Operating Officer
|
2008
|
-0-
|
-0-
|
3,190
|
654,042
|
|
Mr.
Philip Gentile
|
2007
|
-0-
|
-0-
|
-0-
|
-0-
|
|
Mr.
Daniel Klaus, Former CEO
|
2008
|
-0-
|
-0-
|
3,899
|
644,826
|
|
Mr.
Daniel Klaus Former CEO
|
2007
|
-0-
|
-0-
|
-0-
|
25,000
|
|
Mr.
Lucas Mann, Chief Marketing Officer
|
2008
|
-0-
|
-0-
|
-0-
|
-0-
|
|
Mr.
Lucas Mann, Chief Marketing Officer
|
2007
|
-0-
|
-0-
|
-0-
|
25,000
|
|
Mr.
Darren Rennick, Executive Vice President
|
2008
|
-0-
|
-0-
|
-0-
|
-0-
|
|
Mr.
Darren Rennick, Executive Vice President
|
2007
|
-0-
|
-0-
|
-0-
|
62,500
|
|
Mr.
Richard Carrigan
|
2008
|
-0-
|
-0-
|
-0-
|
-0-
|
|
Mr.
Richard Carrigan
|
2007
|
-0-
|
-0-
|
-0-
|
15,025
|
(1) Ms.
Rahman resigned as our sole officer on January 15, 2008 in connection with the
Merger.
(2) Mr.
Lang served as our CEO and one of our directors from February 1, 2008 to August
6, 2008 and as our President from August 6, 2008 to February 12, 2009. In
December 2007, Mr. Lang received a stock option grant to purchase 1,938,087
shares of our Class A Common Stock with an exercise price of $2.30 per share,
pursuant to the 2007 Stock Incentive Plan.
- 50
-
(3) Mr.
Lang resigned as President and a Director, effective as of February 12,
2009. As a result of his resignation and pursuant to his original
employment agreement, Mr. Lang entered into a release agreement with the
Company. The Release Agreement entitles Mr. Lang to receive cash
payments equal to nine months’ of his base salary (approximately $187,500); the
Company paid Mr. Lang $50,000 after the Release Agreement was signed and is to
pay the balance of the severance in five equal installments for the next five
months. As of the date of this Report, we have not yet paid Mr. Lang
the first monthly installment, but intend to do so shortly. The
release agreement also extends Mr. Lang’s time to exercise his vested options to
purchase 484,522 shares of our common stock with an exercise price of $2.30 per
share until the first anniversary of his separation. The Company also
agreed to pay Mr. Lang all of his outstanding unpaid and approved expenses,
which total approximately $860. In exchange for payment of the
severance and expenses, and the modification to the options, the Company is
forever released from any and all claims Mr. Lang may have against the
Company.
(4) Mr.
Webster served as our President from March 4, 2008 to August 6, 2008, and has
been serving as our Chief Executive Officer and one of our directors since
August 6, 2008.
(5) In
March 2008, Mr. Webster received a stock option grant to purchase 1,000,000
shares of our Class A Common Stock with an exercise price of $3.50 per share,
pursuant to the 2007 Stock Incentive Plan. On August 6, 2008, the Board
appointed Gregory Webster, President of the Company, as Chief Executive Officer
of the Company. The amendment to Mr. Webster’s agreement to appoint
him as CEO, also includes an additional option grant to purchase 653,000 shares
of the Company’s Class A Common Stock at a $3.25 price per share based upon the
closing price on the OTC Bulletin Board as of August 5, 2008. The first 153,000
shares will vest upon the grant of the options, with 25% of the remainder
vesting on March 1, 2008 and the balance vesting quarterly over the following 36
months. In the event of a change of control, vesting will accelerate twelve
months.
(6) Mr
Hlavsa has been the Chief Financial Officer since our inception and has served
as a Director until February 20, 2009. In December 2007, Mr.
Hlavsa received a stock option grant to purchase 130,024 shares of our Class A
Common Stock with an exercise price of $2.30 per share, pursuant to the 2007
Stock Incentive Plan.
(7) Mr.
Gentile has served as our Chief Operating Officer and Executive Vice President
of Business Development since March 4, 2008. In March 2008, Mr.
Gentile received a stock option grant to purchase 1,000,000 shares of our Class
A Common Stock with an exercise price of $3.50 per share, pursuant to the 2007
Stock Incentive Plan.
(8) This
reflects salary paid to Mr. Carrigan as the sole employee of an operating
subsidiary of Eastern Services Holdings for 2007.
Outstanding
Equity Awards at Fiscal Year-End
|
Name
|
Number
of Securities
Underlying
Unexercised
Options
(#)
|
Equity
Incentive
Plan
Awards:
Number
of Securities
Underlying
Unexercised
Unearned
Options
(#)
|
Equity
Incentive
Plan
Awards:
Number
of Securities
Underlying
Unexercised
Unearned
Options
(#)
|
Option
Exercise Price
($)
|
Option
Expiration Date
|
|
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
(f)
|
|
Ahkee
Rahman
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
|
Raymond
Lang
|
-0-
|
1,938,087
|
-0-
|
2.30
|
-0-
|
|
Gregory
Webster
|
-0-
|
1,653,000
|
-0-
|
3.40
|
-0-
|
|
Michael
Hlavsa
|
-0-
|
138,024
|
-0-
|
2.30
|
-0-
|
|
Philip
Gentile
|
-0-
|
1,000,000
|
-0-
|
3.50
|
-0-
|
|
Daniel
Klaus
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
|
Lucas
Mann
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
|
Darren
Rennick
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
|
Richard
Carrigan
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
- 51
-
|
Name
|
Number
of Shares or Units
of
Stock That
Have
Not Vested
(#)
|
Market
Value of Shares
of
Units of Stock That
Have
Not Vested
($)
|
Equity
Incentive
Plan
Awards:
Number
of Unearned Shares,
Units
or Other Rights That
Have
Not Vested
(#)
|
Equity
Incentive
Plan
Awards:
Market
or Payout Value of
Unearned
Shares, Units
or
Other Rights That
Have
Not Vested
|
|
(a)
|
(g)
|
(h)
|
(i)
|
(j)
|
|
Ahkee
Rahman
|
-0-
|
-0-
|
-0-
|
-0-
|
|
Raymond
Lang
|
-0-
|
-0-
|
-0-
|
-0-
|
|
Gregory
Webster
|
-0-
|
-0-
|
-0-
|
-0-
|
|
Michael
Hlavsa
|
-0-
|
-0-
|
-0-
|
-0-
|
|
Philip
Gentile
|
-0-
|
-0-
|
-0-
|
-0-
|
|
Daniel
Klaus
|
-0-
|
-0-
|
-0-
|
-0-
|
|
Lucas
Mann
|
-0-
|
-0-
|
-0-
|
-0-
|
|
Darren
Rennick
|
-0-
|
-0-
|
-0-
|
-0-
|
|
Richard
Carrigan
|
-0-
|
-0-
|
-0-
|
-0-
|
Director
Compensation
|
Name
|
Fees Earned
or Paid in Cash
($)
|
Stock
Awards
($)
|
Option
Awards
($)
|
Non-Equity
incentive Plan Compensation
($)
|
|
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
|
Daniel
Klaus
|
-0-
|
-0-
|
-0-
|
-0-
|
|
Lucas
Mann
|
-0-
|
-0-
|
-0-
|
-0-
|
|
Ivar
Eilersten
|
$11,250
|
-0-
|
$105,682
|
-0-
|
|
Raul
Biancardi
|
$12,500
|
-0-
|
$221,259
|
-0-
|
|
Keith
Laslop
|
$9,375
|
-0-
|
$59,913
|
-0-
|
|
Darren
Rennick
|
-0-
|
-0-
|
-0-
|
-0-
|
|
Name
|
Change
in Pension Value and
Nonqualified
Deferred
Compensation
Earnings
|
All
other Compensation
($)
|
Total
($)
|
|
(a)
|
(f)
|
(g)
|
(h)
|
|
Daniel
Klaus
|
-0-
|
-0-
(1)
|
-0-
|
|
Lucas
Mann
|
-0-
|
-0-
(1)
|
-0-
|
|
Ivar
Eilertsen
|
-0-
|
-0-
|
$116,932
|
|
Raul
Biancardi
|
-0-
|
-0-
|
$233,759
|
|
Keith
Laslop
|
-0-
|
-0-
|
$69,288
|
|
Darren
Rennick
|
-0-
|
-0-
(2)
|
-0-
|
|
(1)
Mr. Klaus and Mr. Mann will receive a consulting fee for services provided
to the Company of $300,000 beginning from March 2008 pursuant to a
Consulting Agreement between the Company and Fabric Group LLC (“Fabric”),
and a one time fee of $55,000. Fabric is wholly-owned by Mr. Klaus and Mr.
Mann is a consultant working for Fabric, but shares in the fees received
pursuant to the consulting agreement. The Fabric Consulting
agreement has been renewed pursuant to the terms of the agreement as of
March 9, 2009.
|
|
(2)
Pursuant to a one year Consulting Agreement between the Company and MKL
Consulting Ltd. (“MKL”), which is wholly-owned and managed by Mr. Rennick,
beginning on March 2008, MKL received a $150,000 consulting fee for
services provided to the Company under the consulting
agreement.
|
We pay
the outside Directors $15,000 per year plus reimburse them for any out of
pockets expenses in connection with attending board
meetings. Additionally, outside directors have received grants of
incentive stock options pursuant to our 2007 Equity Incentive Plan.
- 52
-
Employment
Agreements
We have
employment agreements with Raymond Lang, our previous Chief Executive Officer
and President; Michael Hlavsa, our Chief Financial Officer; Gregory Webster our
current Chief Executive Officer; and Philip Gentile, our Chief Operating
Officer.
Effective
August 6, 2008, the Board appointed Raymond Lang, Chief Executive Officer of the
Company, as President of the Company. In conjunction with his
appointment, Mr. Lang was removed as Chief Executive Officer and from all other
positions at the Company. He was also appointed as President of each of the
Company’s subsidiaries, and was removed as Chief Executive Officer and from all
other positions at the subsidiaries. Mr. Lang remained a director of the Company
and each of its subsidiaries.
The
Company has amended the terms of the Employment Agreements with Mr. Lang
and Mr. Webster to reflect their new titles and roles.
Mr. Lang. On December 20,
2007 we entered into an employment agreement with Raymond Lang. Pursuant to the
agreement, beginning February 1, 2008, Mr. Lang began to serve as our Chief
Executive Officer. Unless terminated earlier, the term of the agreement is
scheduled to expire on February 1, 2011. Mr. Lang receives a salary of no less
than $250,000 per annum and will be eligible to participate in any bonus or
incentive compensation plans that we establish for senior executives. We pay the
premium for health care coverage for him and his dependents. He received a stock
option grant to purchase 1,938,087 shares of our Class A Common Stock with an
exercise price of $2.30 per share. The option vests over four years, with 25%
vesting on the first anniversary and the balance vesting with respect to an
additional 1/12th of
the shares following each three months of continuous service thereafter. In the
event his employment is terminated by us without “Cause” or he resigns with
“Good Reason” as these terms are defined in the employment agreement, we will be
obligated to pay to him (i) his base salary though the date of termination, (ii)
any bonus earned in the previous year but not yet paid, (iii) any accrued
vacation through the date of termination, (iv) pro rata bonus for the year of
termination, calculated and payable after year-end, and (v) a lump-sum amount
equal to 9 months’ base salary. The Employment Agreement with Mr. Lang is
incorporated by reference in its entirety from the Form 8-K dated January 17,
2008.
Mr. Lang resigned as President and a
Director as of February 12, 2009. As a result of his resignation and
pursuant to his original employment agreement, Mr. Lang entered into a release
agreement with the Company. The Release Agreement entitles Mr. Lang
to receive cash payments equal to nine months’ of his base salary (approximately
$187,500); the Company paid Mr. Lang $50,000 after the Release Agreement was
signed and is to pay the balance of the severance in five equal installments for
the next five months. As of the date of this Report, we have not yet
paid Mr. Lang the first monthly installment, but intend to do so
shortly. The release agreement also extends Mr. Lang’s time to
exercise his vested options to purchase 484,522 shares of our common stock with an
exercise price of $2.30 per share until the first anniversary of his
separation. The Company also agreed to pay Mr. Lang all of his outstanding
unpaid and approved expenses, which total approximately $860. In
exchange for payment of the severance and expenses, and the modification to the
options, the Company is forever released from any and all claims Mr. Lang may
have against the Company.
Mr. Hlavsa. On October 30,
2007 we entered into an at-will employment agreement with Mr.
Hlavsa. Under the agreement, Mr. Hlavsa was originally schedule to
commence employment on November 15, 2007; however, he did not commence
employment until February 1, 2008. Mr. Hlavsa will receive an annual
base salary of $120,000 per annum. In addition, Mr. Hlavsa is
eligible for a performance bonus of up to $120,000 subject to the achievement of
reasonable performance metrics, as determined by the Board. He
received a stock option grant to purchase 138,024 shares of our Class A Common
Stock with an exercise price of $2.30. The option vests over four years, with
25% vesting on the first anniversary and the balance vesting with respect to an
additional 1/12th of
the shares following each three months of continuous service
thereafter. The Employment Agreement with Mr. Hlavsa is incorporated by
reference in its entirety on Form 8-K dated January 17, 2008.
- 53
-
Mr. Webster. On March 4, 2008
we entered into an employment agreement with Mr. Webster that ends March 1,
2011, but may be automatically renewed for an additional one (1) year term
unless either party provides ninety (90) days written notice prior to the end of
the term. The Employment Agreement permits Mr. Webster to resign at any time
upon 90 days written notice and for the Company to terminate Mr. Webster’s
employment at any time. Mr. Webster will receive nine months severance if he
resigns for Good Reason or is terminated without Cause (each as defined in the
Employment Agreement). His annual base salary is a minimum of $250,000, subject
to review for increase at least annually; however Mr. Webster agreed to reduce
his salary for 2009 until our cash flow position improves, the terms of which
reduction are still being negotiated. He is also entitled to participate in
bonus, incentive and health care benefit plans maintained by the Company from
time to time. In connection with his employment, Mr. Webster was granted an
option to purchase 1,000,000 shares of Class A Common Stock at $3.50 per share.
The option vests over four years, with 25% vesting on the first anniversary and
the balance vesting quarterly over the following 36 months. In the event of a
change of control, vesting will accelerate twelve months, and if Mr. Webster’s
service is terminated by the Company other than for Cause prior to the first
anniversary, vesting will accelerate to the first anniversary. The Employment
Agreement with Mr. Webster is incorporated by reference in its entirety Form 8-K
filed March 10, 2008.
On August 6, 2008, the Board appointed Gregory Webster, President of the Company, as Chief Executive Officer of the Company. In conjunction with his appointment, he was removed as President and from all other positions at the Company. He was also appointed as Chief Executive Officer of each of the Company’s subsidiaries, and was removed as President and from all other positions at the subsidiaries. Mr. Webster was also appointed as a member of the Board of Directors of the Company and its subsidiaries. In connection with his appointment as CEO, we amended his employment agreement, pursuant to which Mr. Webster was granted an additional option to purchase 653,000 shares of the Company’s Class A Common Stock at a $3.25 price per share based upon the closing price on the OTC Bulletin Board as of August 5, 2008. The first 153,000 shares will vest upon the grant of the options, with 25% of the remainder vesting on March 1, 2008 and the balance vesting quarterly over the following 36 months. In the event of a change of control, vesting will accelerate twelve months.
Mr. Gentile. Mr. Gentile is employed pursuant to an Employment Agreement dated as of March 4, 2008, which is substantially identical in form to that of Mr. Webster’s, which is described above. In connection with his employment, Mr. Gentile was granted an option to purchase 1,000,000 shares of Class A Common Stock at $3.50 per share. The option vests over four years, with 25% vesting on the first anniversary and the balance vesting quarterly over the following 36 months. In the event of a change of control, vesting will accelerate twelve months, and if Mr. Gentile’s service is terminated by the Company other than for Cause prior to the first anniversary, vesting will accelerate to the first anniversary. The Employment Agreement with Mr. Gentile is incorporated by reference in its entirety herein from the Current Report on Form 8-K filed March 10, 2008. As of the date of this Report, we owe Mr. Gentile approximately $44,000 under his employment agreement for 2009.
Item 12. Security Ownership of Certain Beneficial Owners
and Management and Related Stockholder Matters.
Securities authorized for issuance
under equity compensation plans. Please see Part II, Item 5:
“Market for Common Equity and Related Stockholder Matters” above.
- 54
-
The
following table sets forth, as of May [ ], 2009: (a) the names and
addresses of each beneficial owner of more than five percent (5%) of our Common
Stock known to us, the number of shares of Common Stock beneficially owned by
each such person, and the percent of our Common Stock so owned before and after
the Share Exchange; and (b) the names and addresses of each director and
executive officer, the number of shares our Common Stock beneficially owned, and
the percentage of our Common Stock so owned, by each such person, and by all of
our directors and executive officers as a group. Each person has sole voting and
investment power with respect to the shares of our Common Stock, except as
otherwise indicated. Beneficial ownership consists of a direct interest in the
shares of Common Stock, except as otherwise indicated. Individual beneficial
ownership also includes shares of Common Stock that a person has the right to
acquire within 60 days from May [ ], 2008.
As of May
5, 2009, there were 44,087,335 shares of our Class A Common Stock and 6,387,665
shares of our Class B Common Stock issued and outstanding.
Unless
otherwise indicated, the address for each person is 14 Wall Street, 20th Floor,
New York, New York 10005
|
Name
of Beneficial Owner
|
Class
A Common Stock
Shares %
|
Class
B Common Stock
Shares %
|
%
Total Voting
Power
(1)
|
||
|
Daniel
Klaus
|
5,429,515
|
10.43%
|
0
|
0
|
5.05%
|
|
Lucas
Mann
|
5,429,515
|
10.43%
|
0
|
0
|
5.05%
|
|
MKL
Consulting (2)
|
4,343,612
|
8.34%
|
0
|
0
|
4.04%
|
|
Michael
Hlavsa
|
0
|
0
|
|||
|
Gregory
Webster
|
0
|
0
|
|||
|
Philip
Gentile
|
0
|
0
|
|||
|
Ivar
Eilertsen
|
0
|
0
|
|||
|
Keith
Laslop
|
0
|
0
|
|||
|
Raul
Biancardi
|
0
|
0
|
|||
|
Equities
Media Acquisition Corp Inc. (3)
|
0
|
0
|
6,387,665
|
100%
|
59.43%
|
|
All
officers and directors as a group (7 persons)
|
10,859,030
|
20.86%
|
0
|
0
|
10.10%
|
|
(1)
|
Percentage total
voting power represents voting power with respect to all shares of our
Class A Common Stock and Class B Common Stock, as a single class. Each
holder of Class B Common Stock is entitled to 10 votes per share of Class
B Common Stock and each holder of Class A Common Stock is entitled to one
vote per share of Class A Common Stock on all matters submitted to our
stockholders for a vote. The Class A Common Stock and Class B Common Stock
vote together as a single class on all matters submitted to a vote of our
stockholders, except as may otherwise be required by law. The Class B
Common Stock is convertible at any time by the holder into shares of Class
A common stock on a share-for-share
basis.
|
|
(2)
|
The
name of the party who has the power to vote and share power to dispose of
the shares held by MKL Consulting Ltd. is Darren Rennick. He
disclaims beneficial ownership of the securities held by such entity,
except to the extent of his pecuniary interest therein. The address of MKL
Consulting Ltd. is c/o AIT Management Services Ltd., PO Box 1348, St.
John’s, Antigua.
|
|
(3)
|
The
name of the party who has the power to vote and share power to dispose of
the shares held by Equities Media Acquisition Corp Inc. is Arne van
Roon. He disclaims beneficial ownership of the securities held
by such entity, except to the extent of his pecuniary interest therein.
The address Equities Media Acquisition Corp Inc. is World Trade Centre
Lugano-Agno Switzerland.
|
- 55
-
Changes
in Control
Pursuant
to the Agreement and Plan of Merger with Fund.com Inc. we issued approximately
37,112,345 shares of our Class A Common Stock and 6,387,665 shares of our Class
B Common Stock to former shareholders of Fund.com Inc., representing 87% of our
outstanding Class A Common Stock and 100% of our Class B Common Stock following
the merger. Therefore, the closing of the merger caused a change in
control.
Item 13. Certain Relationships and Related Transactions
Prior to
the Merger and as of December 31, 2008, there are no material relationships
between us and our then current director and officer other than the use of
office space for which we paid no rent.
On
November 9, 2007, our wholly owned subsidiary – Fund.com Capital Inc. deposited
$20.0 million of its seed funding in a 36 month Certificate of Deposit issued by
an Antigua bank, the Global Bank of Commerce, which is an affiliate of one of
our stockholders (GBC Wealth Management Limited). The deposit is credited with
earned interest at 5% per annum for a term of three years. Subject to receipt of
any necessary approvals (including the approval of Global Bank of Commerce,
which approval could be withheld in its sole discretion), we may seek to use all
or a portion of this $20,000,000 to fund one or more control
investments.
We are party to a consulting agreement with Daniel Klaus – the Company’s Board Chairman, and Fabric Group, LLC – Mr. Klaus’ wholly owned consulting group. Lucas Mann, one of the Company’s directors, is a consultant for the Fabric Group. Pursuant to this agreement, we pay Fabric Group $25,000 per month for the consulting services they provide to the Company. The Company recently entered into a Mutual Consent Agreement with Fabric Group to extend the term of their consulting agreement from March 1, 2008 until February 28, 2010.
We are party to a consulting agreement
with MKL Consulting Ltd., a consulting firm owned by Darren Rennick, one of our
former directors. Pursuant to this agreement, we paid MKL
$12,500 per month for the consulting services
they provided to the Company. However, the consulting agreement expired in
February 2009 and we did not renew it.
Review,
Approval and Ratification of Related Party Transactions
Given our
small size and limited financial resources, we have not adopted formal policies
and procedures for the review, approval or ratification of transactions, such as
those described above, with our executive officers, directors and significant
shareholders. However, we intend that such transactions will, on a
going-forward basis, be subject to the review, approval or ratification of our
board of directors, or an appropriate committee thereof.
Promoters
and Certain Control Persons
Mr.
Daniel Klaus and Mr. Lucas Mann and “promoters,” as defined under
Rule 405 under the Securities Act, as they are any persons who took
the initiative in the formation of our business or in connection with the
formation of our business received 10% of our debt or equity securities or 10%
of the proceeds from the sale of such securities in exchange for the
contribution of property or services.
- 56
-
Item 14. Principal Accounting Fees and
Services.
Audit
Fees
For our
fiscal year ended December 31, 2008, we were billed approximately $11,250 for
professional services rendered for the audit and reviews of our financial
statements. For our fiscal year ended December 31, 2007, we were billed
approximately $6,500 for professional services rendered for the audit and
reviews of our financial statements.
Audit Related
Fees
There were no audit related
fees during fiscal 2008.
Tax Fees
For our
fiscal years ended December 31, 2008 and 2007, we were billed approximately
$3,500 related to professional services rendered for tax compliance, tax advice,
and tax planning.
All Other
Fees
The
Company did not incur any other fees related to services rendered by our
principal accountant for the fiscal years ended December 31, 2008 and
2007.
Part IV
Item 15. Exhibits and Financial Statement Schedules.
|
(a)
|
Financial
Statements and Schedules
|
|
1.
|
Financial
Statements
|
The
following financial statements are filed as part of this report:
A. Consolidated
Balance Sheets as of December 31, 2008 and 2007.
B. Consolidated
Statements of Operations for the year ended of December 31, 2008 and from
September 20, 2007 (inception) through December 31, 2007 and 2008.
C. Consolidated
Statements of Stockholders’ Deficit for the period from September 20, 2007
(inception) through December 31, 2008.
D. Consolidated
Statements of Cash Flows for the year ended of December 31, 2008 and from
September 20, 2007 (inception) through December 31, 2007 and 2008.
|
2.
|
Financial
Statement Schedules
|
Financial statement schedules not included herein have been omitted
because they are either not required, not applicable, or the information is
otherwise included herein.
- 57
-
|
(b)
|
Exhibits.
|
|
Exhibit
No.
|
Description
|
|
2.1
|
Agreement
and Plan of Merger, dated as of January 15, 2008, between Fund.com, Inc.
and Eastern Services Holdings, Inc. (filed as Exhibit 2.1 to Form 8-K,
filed on January 17, 2008, incorporated by reference)
|
|
3.1
|
Amended
and Restated Certificate of Incorporation of Eastern Services Holdings,
Inc. (Filed as Exhibit 3.1 to Form 8-K, filed on January
17, 2008, incorporated by reference)
|
|
3.2
|
Bylaws
of Fund.com. (Filed as Exhibit 3.2 to Form 8-K, filed on January 17, 2008,
incorporated by reference)
|
|
4.1
|
Form
of Common Stock Subscription Agreement (Filed as Exhibit 4.1 to Form 8-K,
filed on January 15, 2008, incorporated by reference)
|
|
4.2
|
Subscription
Agreement, dated as of November 12, 2007, between Meade Technologies Inc.
and Equities Media Acquisition Corp Inc. (Filed as Exhibit 4.2 to Form
8-K, filed on January 15, 2008, incorporated by
reference)
|
|
4.3
|
Form
of Common Stock Purchase Warrant to Purchase Common Stock to IP Global,
Inc. (Filed as Exhibit 4.3 to Form 10-K, filed on May 7, 2009 and
incorporated herein by reference)
|
|
10.1
|
Fund.com,
Inc. 2007 Stock Incentive Plan (Filed as Exhibit 10.1 to Form 8-K, filed
on January 17, 2008, incorporated by reference)
|
|
10.2
|
Employment
Agreement, dated as of December 20, 2007, between Meade Technologies Inc.
and Raymond Lang (Filed as Exhibit 10.2 to Form 8-K, filed on January 17,
2008, incorporated by reference)
|
|
10.3
|
Employment
Agreement, dated as of October 30, 2007, between Meade Technologies Inc.
and Michael Hlavsa (Filed as Exhibit 10.3 to Form 8-K, filed on January
15, 2008, incorporated by reference)
|
|
10.4
|
Certificate
of Deposit Agreement, dated as of November 9, 2007 between Meade Capital
Inc. and Global Bank of Commerce Limited (Filed as Exhibit 10.4 to Form
8-K, filed on January 17, 2008, incorporated by
reference)
|
|
10.5
|
Consulting
Agreement between the Company and Fabric Group, LLC (Filed as Exhibit 10.1 to Form 8-K filed on March 10, 2008
and incorporated herein by reference)
|
|
10.6
|
Consulting
Agreement between the Company and MKL Consulting Ltd. (Filed as Exhibit 10.2 to Form 8-K filed on March 10, 2008
and incorporated berein by reference)
|
|
10.7
|
License
Agreement between Fund.com Managed Products Inc. and Equities Global
Communications, Inc. (Filed as Exhibit 10.3 to Form 8-K, filed on March
10,2008, incorporated by
reference)
|
|
10.8
|
Employment
Agreement between the Company and Gregory Webster (Filed as Exhibit 10.4
to Form 8-K, filed on March 10, 2008, incorporated by
reference)
|
|
10.9
|
Employment
Agreement between the Company and Philip Gentile (Filed as Exhibit 10.5
to Form 8-K, filed on March 10, 2008, incorporated by
reference)
|
|
10.10
|
Form
of Indemnification Agreement (Filed as Exhibit 10.10 to Form 8-K, filed on
March 10, 2008, incorporated by reference)
|
|
10.11
|
Purchase
and Contribution Agreement *
|
|
10.12
|
Amended
and Restated Limited Liability Company Agreement of AdvisorShares
Investments LLC (filed as Exhibit 10.2 to Form 8-K, filed on November 6,
2008 and incorporated herein by reference)
|
|
10.13
|
Employment
agreement with Noah Hammon (filed as Exhibit 10.3 to Form 8-K, filed on
November 6, 2008 and incorporated herein by reference )
|
|
10.14
|
Securities
Purchase Agreement with National Holdings Corporation *
|
|
10.15
|
Limited
Recourse Note dated April 8, 2009 between Fund.com Inc. and National
Holdings Corporation (filed as Exhibit 10.2 to Form 8-K, filed on April
14, 2009 and incorporated herein by reference )
|
|
10.16
|
Pledge
Agreement dated April 8, 2009 between Fund.com Inc. and Global Asset Fund
Limited *
|
|
10.17
|
Demand
Promissory Note dated April 8, 2009 between Fund.com Inc. and Global Asset
Fund Limited (filed as Exhibit 10.4 to Form 8-K, filed on April 14, 2009
and incorporated herein by reference)
|
|
10.18
|
Revolving
Credit Loan Agreement dated as of April 30, 2009 and effective as of May
1, 2009 with IP Global Investors Ltd. (Filed as Exhibit 10.18 to Form
10-K, filed on May 7, 2009, and incorporated herein by
reference)
|
|
10.19
|
Guaranty
Agreement dated as of April 30, 2009 and effective as of May 1, 2009 with
the Company’s subsidiaries in favor of IP Global Inc. (Filed as Exhibit
10.19 to Form 10-K, filed on May 7, 2009, and incorporated herein by
reference)
|
|
10.
20
|
Revolving
Credit Convertible Note dated April 30, 2009 between Fund.com Inc. and IP
Global Inc. (Filed as Exhibit 10.20 to Form 10-K, filed on May 7,
2009, and incorporated herein by reference)
|
|
10.
21
|
Amendment
to Securities Purchase Agreement with National Holdings Corporation (Filed
as Exhibit 10.21 to Form 10-K, filed on May 7, 2009, and incorporated
herein by reference)
|
|
10.22
|
Amendment
No. 2 to Securities Purchase Agreement with National Holdings Corporation
(Filed as Exhibit 10.1 to Form 10-Q, filed on May 15, 2009, and
incorporated herein by reference)
|
|
21
|
Subsidiaries
of the Registrant (Filed as Exhibit 21 to Form 8-K, filed on January 17,
2008, incorporated by reference)
|
|
14.1
|
Code
of Ethics (Filed as Exhibit 14.1 to Form 10-K, filed on May 7, 2009, and
incorporated herein by reference)
|
|
31.1
|
Certification
of principal executive officer pursuant to 18 U.S.C. Section 1350 -
Sarbanes-Oxley Act of 2002
|
|
31.2
|
Certification
of principal financial officer pursuant to 18 U.S.C. Section 1350 -
Sarbanes-Oxley Act of 2002
|
|
32.1
|
Certification
of the chief executive officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
|
|
32.2
|
Certification
of the chief financial officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
|
* Filed herewith
- 58
-
Pursuant
to the requirements of section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
FUND.COM
INC.
Date: November 30 , 2009
By: /s/
Gregory
Webster
Name:
Gregory Webster
Title:
Chief Executive Officer
(Principal
Executive Officer) and Director
Date: November 30, 2009
By: /s/
Michael
Hlavsa
Name:
Michael Hlavsa
Title:
Chief Financial Officer
(Principal
Accounting Officer), Director and Secretary
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
|
Signature
|
Title
|
Date
|
||
|
/s/
Michael
Hlavsa
|
Chief
Financial Officer
|
November 30, 2009
|
||
|
Michael
Hlavsa
|
and
Principal Accounting Officer / Secretary
|
|||
| /s/ Joseph J. Bianco | Chairman of the Board of Directors | November 30, 2009 | ||
| Joseph J. Bianco | ||||
|
/s/
Gregory
Webster
|
Chief
Executive Officer, Director
|
November 30, 2009
|
||
|
Gregory
Webster
|
||||
|
/s/
Ivar
Eilertsen
|
Director
|
November 30, 2009
|
||
|
Ivar
Eilertsen
|
||||
|
|
Director
|
|
||
|
Raul
Biancardi
|
||||
|
/s/
Keith
Laslop
|
Director
|
November 30, 2009
|
||
|
Keith
Laslop
|
- 59
-
FUND.COM
INC.
(A
Development Stage Company)
Consolidated
Financial Statements
For year
ended December 31, 2008
and for
the period September 20, 2007 (inception)
through
December 31, 2007
|
FINANCIAL
STATEMENTS
|
Page
|
|
|
Independent
Auditors Report
|
F-1
|
|
|
Consolidated
Balance Sheets
|
F-2
|
|
|
Consolidated
Statements of Operations
|
F-3
|
|
|
Consolidated
Statements of Stockholders’ Equity
|
F-4
|
|
|
Consolidated
Statements of Cash Flow
|
F-5
|
|
|
Notes
to the Financial Statements
|
F-6
|
|
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Shareholders of
Fund.com,
Inc.
We have
audited the accompanying consolidated balance sheets of Fund.com, Inc. as of
December 31, 2008 and 2007 and the related consolidated statements of
operations, changes in stockholders' equity, and cash flows for the year ended
December 31, 2008 and the period from September 20, 2007 (inception) through
December 31, 2007. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Fund.com, Inc.
as of December 31, 2008 and 2007 and the results of its operations and its cash
flows for the year ended December 31, 2008 and the period from September 20,
2007 (inception) through December 31, 2007in conformity with accounting
principles generally accepted in the United States of America.
/s/
JEWETT, SCHWARTZ, WOLFE & ASSOCIATES
Hollywood,
Florida
May 6,
2009
F-1
|
FUND.COM
INC.
|
||||||||
|
(A
Development Stage Company)
|
||||||||
|
CONSOLIDATED
BALANCE SHEETS
|
||||||||
|
For
the years ended December 31, 2008 and December 31, 2007
|
||||||||
|
December
31, 2008
|
December
31, 2007
|
|||||||
|
ASSETS
|
||||||||
|
CURRENT
ASSETS
|
||||||||
|
Cash
|
$ | 158,083 | $ | 605,348 | ||||
|
Total
current assets
|
158,083 | 605,348 | ||||||
|
Property,
plant and equipment, net
|
122 | 122 | ||||||
|
Intangible
Assets, net
|
9,999,500 | 9,999,500 | ||||||
|
Certificate
of Deposit
|
21,138,333 | 20,138,333 | ||||||
|
Advances
on behalf of minority shareholder
|
106,333 | 29,813 | ||||||
|
TOTAL
ASSETS
|
$ | 31,402,371 | $ | 30,773,116 | ||||
|
LIABILITIES
AND STOCKHOLDERS' EQUITY:
|
||||||||
|
CURRENT
LIABILITIES:
|
||||||||
|
Accounts
payable
|
$ | 1,085,210 | $ | 209,102 | ||||
|
Advances
from shareholders
|
23,580 | 77,150 | ||||||
|
Notes
Payable
|
443,000 | 0 | ||||||
|
Total
current liabilities
|
1,551,790 | 286,252 | ||||||
|
TOTAL
LIABILITIES
|
1,551,790 | 286,252 | ||||||
|
STOCKHOLDERS'
EQUITY:
|
||||||||
|
Preferred
stock, 10,000,000 shares authorized, none issued and
outstanding
|
- | 2,500 | ||||||
|
Class
A Common stock, $0.001 par value, 100,000,000 shares
|
||||||||
|
authorized;
44,087,335 shares issued and outstanding
|
44,087 | 338 | ||||||
|
Class
B Common stock, $0.001 par value, 10,000,000 shares
|
||||||||
|
authorized;
6,387,665 shares issued and outstanding
|
6,388 | - | ||||||
|
Additional
paid-in-capital
|
33,492,056 | 30,703,726 | ||||||
|
Accumulated
deficit during the Development Stage
|
(3,691,950 | ) | (219,700 | ) | ||||
|
Total
stockholders' equity
|
29,850,581 | 30,486,864 | ||||||
|
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY
|
$ | 31,402,371 | $ | 30,773,116 | ||||
The
accompanying notes are an integral part of these consolidated financial
statements
F-2
|
FUND.COM
INC.
|
||||||||||||
|
(A
Development Stage Company)
|
||||||||||||
|
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
||||||||||||
|
FOR
THE YEAR ENDED DECEMBER 31, 2008,
|
||||||||||||
|
SEPTEMBER
20, 2007 (INCEPTION) THROUGH DECEMBER 31, 2007 AND
|
||||||||||||
|
SEPTEMBER
20, 2007 (INCEPTION) THROUGH DECEMBER 31, 2008
|
||||||||||||
|
Year
Ended
|
September
20, 2007
|
September
20, 2007
|
||||||||||
|
December
31,
|
(Inception)
through
|
(Inception)
through
|
||||||||||
|
2008
|
December
31, 2007
|
December
31, 2008
|
||||||||||
|
Revenue
|
$ | - | $ | - | $ | - | ||||||
|
Costs
of revenue
|
- | - | - | |||||||||
|
Gross
profit
|
- | - | - | |||||||||
|
Operating
expense
|
4,551,545 | 387,781 | 4,939,326 | |||||||||
|
Loss
from operations before interest income and
|
||||||||||||
|
provision
for (benefit from) income tax
|
(4,551,545 | ) | (387,781 | ) | (4,939,326 | ) | ||||||
|
Other
income
|
1,754 | - | 1,754 | |||||||||
|
Interest
income
|
1,001,021 | 138,461 | 1,139,482 | |||||||||
|
Income
tax expense
|
- | (193 | ) | (193 | ) | |||||||
| 1,002,775 | 138,268 | 1,141,043 | ||||||||||
|
Minority
interest
|
76,520 | 29,813 | 106,333 | |||||||||
|
Net
loss
|
(3,472,250 | ) | (219,700 | ) | (3,691,950 | ) | ||||||
|
Net
loss per common share - basic and diluted (Class A &
B)
|
$ | (0.07 | ) | $ | (0.01 | ) | (0.07 | ) | ||||
|
Weighted
average number of shares outstanding:
|
||||||||||||
|
during
the year - basic and diluted (Class A)
|
43,829,002 | 34,050,000 | 43,829,002 | |||||||||
|
Weighted
average number of shares outstanding:
|
||||||||||||
|
during
the year - basic and diluted (Class B)
|
6,387,665 | - | 6,387,665 | |||||||||
The
accompanying notes are an integral part of these consolidated financial
statements
F-3
|
FUND.COM
INC.
|
||||||||||||||||||||||||||||||||||||
|
(A
Development Stage Company)
|
||||||||||||||||||||||||||||||||||||
|
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY
|
||||||||||||||||||||||||||||||||||||
|
FOR
THE PERIOD SEPTEMBER 20, 2007 (INCEPTION) THROUGH DECEMBER 31,
2008
|
||||||||||||||||||||||||||||||||||||
|
Preferred
Stock
|
Common
Stock - Class A
|
Common
Stock - Class B
|
Additional
|
|||||||||||||||||||||||||||||||||
|
$.001
par value
|
$.001
par value
|
$.001
par value
|
Paid
in
|
Retained
|
||||||||||||||||||||||||||||||||
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
Earnings
|
Total
|
||||||||||||||||||||||||||||
|
September
20, 2007 (inception)
|
- | $ | - | - | $ | - | $ | - | $ | - | $ | - | ||||||||||||||||||||||||
|
Shares
issued to founders
|
18,700,000 | 187 | 1,377 | - | 1,564 | |||||||||||||||||||||||||||||||
|
Issuance
of shares through first private placement
|
2,500,000 | 2,500 | 5,000,000 | 50 | 9,997,450 | 10,000,000 | ||||||||||||||||||||||||||||||
|
Issuance
of shares through second private placement
|
10,350,000 | 101 | 20,699,899 | 20,700,000 | ||||||||||||||||||||||||||||||||
|
AdvisorShares
capitalization
|
5,000 | 5,000 | ||||||||||||||||||||||||||||||||||
|
Net
loss
|
- | - | - | - | - | (219,700 | ) | (219,700 | ) | |||||||||||||||||||||||||||
|
December
31, 2007
|
2,500,000 | $ | 2,500 | 34,050,000 | $ | 338 | - | $ | - | $ | 30,703,726 | $ | (219,700 | ) | $ | 30,486,864 | ||||||||||||||||||||
|
Merger
with Eastern Services Holdings
|
(2,500,000 | ) | (2,500 | ) | 9,562,335 | 43,274 | 6,387,665 | 6,388 | (47,162 | ) | - | |||||||||||||||||||||||||
|
Issuance
of shares through third private placement
|
475,000 | 475 | 949,525 | 950,000 | ||||||||||||||||||||||||||||||||
|
Stock
option grant expense
|
1,880,967 | 1,880,967 | ||||||||||||||||||||||||||||||||||
|
Additional
AdvisorShares capitalization
|
5,000 | 5,000 | ||||||||||||||||||||||||||||||||||
|
Net
loss
|
(3,472,250 | ) | (3,472,250 | ) | ||||||||||||||||||||||||||||||||
|
December
31, 2008
|
- | $ | - | 44,087,335 | $ | 44,087 | 6,387,665 | $ | 6,388 | $ | 33,492,056 | $ | (3,691,950 | ) | $ | 29,850,581 | ||||||||||||||||||||
The
accompanying notes are an integral part of these consolidated financial
statements
F-4
|
FUND.COM
INC.
|
||||||||||||
|
(A
Development Stage Company)
|
||||||||||||
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
||||||||||||
|
FOR
THE YEAR ENDED DECEMBER 31, 2008,
|
||||||||||||
|
SEPTEMBER
20, 2007 (INCEPTION) THROUGH DECEMBER 31, 2007 AND
|
||||||||||||
|
SEPTEMBER
20, 2007 (INCEPTION) THROUGH DECEMBER 31, 2008
|
||||||||||||
|
September
20, 2007
|
September
20, 2007
|
|||||||||||
|
Year
Ended
|
(Inception)
through
|
(Inception)
through
|
||||||||||
|
December
31, 2008
|
December
31, 2007
|
December
31, 2008
|
||||||||||
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
||||||||||||
|
Net
loss
|
$ | (3,472,250 | ) | $ | (219,700 | ) | $ | (3,691,950 | ) | |||
|
Adjustments
to reconcile net loss to net cash
|
||||||||||||
|
used
in operating activities:
|
||||||||||||
|
Compensation
recognized under stock incentive plan
|
1,880,967 | - | 1,880,967 | |||||||||
|
Minority
interest
|
(76,520 | ) | (29,813 | ) | (106,333 | ) | ||||||
|
Changes
in assets and liabilities:
|
||||||||||||
|
Increase
in accounts payable
|
876,108 | 209,102 | 1,085,210 | |||||||||
|
Accrued
interest from certificate of deposit
|
(1,000,000 | ) | (138,333 | ) | (1,138,333 | ) | ||||||
|
Net
cash used in operating activities
|
(1,791,695 | ) | (178,744 | ) | (1,970,439 | ) | ||||||
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
||||||||||||
|
Purchase
of Property, Plant and Equipment
|
- | (122 | ) | (122 | ) | |||||||
|
Certificate
of deposit
|
- | (20,000,000 | ) | (20,000,000 | ) | |||||||
|
Purchase
of intangible asset
|
- | (9,999,500 | ) | (9,999,500 | ) | |||||||
|
Net
cash used in investing activities
|
- | (29,999,622 | ) | (29,999,622 | ) | |||||||
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||||||||
|
Proceeds
from the sale of common stock
|
955,000 | 30,706,564 | 31,661,564 | |||||||||
|
Proceeds
from Notes Payable
|
443,000 | 443,000 | ||||||||||
|
Advances
from shareholders
|
- | 77,150 | 77,150 | |||||||||
|
Repayment
of shareholders advances
|
(53,570 | ) | - | (53,570 | ) | |||||||
|
Net
cash provided by financing activities
|
1,344,430 | 30,783,714 | 32,128,144 | |||||||||
|
INCREASE
(DECREASE) IN CASH
|
(447,265 | ) | 605,348 | 158,083 | ||||||||
|
CASH,
BEGINNING OF YEAR
|
605,348 | - | - | |||||||||
|
CASH,
END OF YEAR
|
$ | 158,083 | $ | 605,348 | $ | 158,083 | ||||||
|
Supplemental
Disclosures
|
||||||||||||
|
Cash
paid during the year for interest
|
$ | - | $ | - | $ | - | ||||||
|
Cash
paid during the year for taxes
|
$ | - | $ | - | $ | - | ||||||
|
Supplemental
disclosure of non-cash financing activities
|
||||||||||||
|
Compensation
recognized under stock incentive plan
|
$ | 1,880,967 | $ | - | $ | 1,880,967 | ||||||
The
accompanying notes are an integral part of these consolidated financial
statements
F-5
FUND.COM
INC.
(A
Development Stage Company)
Notes to
the Consolidated Financial Statements
For year
ended December 31, 2008 and for the period September 20, 2007 (inception)
through
December 31, 2007
NOTE 1 –
ORGANIZATION
The
consolidated financial statements of Fund.Com Inc. (the “Company”) include the
accounts of its wholly owned subsidiaries, Fund.com Online Technologies Inc.
(“FOT”), Fund.com Managed Products Inc. (“FMP”), Fund.com Capital Inc. (“FC”)
and its majority owned subsidiary AdvisorShares Investments, LLC
(“AdvisorShares”). The year end for the Company and its subsidiaries
is December 31.
On
September 20, 2007, the Company was incorporated in the state of
Delaware. The Company is in its development stage and has not begun
the process of operating this business. The Company is still in the
process of researching and developing its business and raising
capital.
On
September 27, 2007, FOT was incorporated in the state of Delaware. FOT is a
wholly owned operating subsidiary of the Company and was established to acquire
the domain name “fund.com” and other related intellectual property and
assets. The subsidiary will be responsible for operating fund.com’s
internet properties.
On
September 27, 2007, FMP was incorporated in the state of
Delaware. FMP is a wholly owned operating subsidiary of the Company
that focuses on asset management advisory services and related
products.
On
September 27, 2007, FC was incorporated in the state of Delaware. FC
is a wholly owned operating subsidiary of FMP that will serve as an investment
vehicle for the purposes of making active (non-passive) investments in other
financial institutions, fund management companies or, in certain instances,
products offered or managed by either.
On
October 12, 2006, AdvisorShares was incorporated in the state of
Delaware. AdvisorShares is a developer of proprietary exchange traded
funds, also known as ETFs, with a focus on “actively managed” ETFs
Change of
name
On
January 8, 2008, the Company and its subsidiaries changed their names to the
following:
|
To
|
From
|
|
|
Meade
Technology Inc.
|
Fund.com
Inc.
|
|
|
Meade
Online Technologies Inc.
|
Fund.com
Online Technologies Inc.
|
|
|
Meade
Managed Products Inc.
|
Fund.com
Managed Products Inc.
|
|
|
Meade
Capital Inc.
|
Fund.com
Capital
Inc.
|
F-6
FUND.COM
INC.
(A
Development Stage Company)
Notes to
the Consolidated Financial Statements
For year
ended December 31, 2008 and for the period September 20, 2007 (inception)
through
December 31, 2007
NOTE 2 -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These
financial statements and related notes are presented in accordance with
accounting principles generally accepted in the United States of America.
Significant accounting policies are as follows:
Basis of
Presentation
The
Company has not produced any revenue from its principal business and is a
development stage company as defined by the Statement of Financial Accounting
Standards (SFAS) No. 7 “Accounting and Reporting by Development Stage
Enterprises.”
Principles of
Consolidation
The
consolidated financial statements include the accounts of Fund.com Inc. and its
subsidiaries. All material intercompany accounts and transactions are
eliminated in consolidation.
Use of
Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements. These estimates and assumptions also affect
the reported amounts of revenues, costs and expenses during the reporting
period. Management evaluates these estimates and assumptions on a
regular basis. Actual results could differ from those
estimates.
Revenue
Recognition
The
Company recognizes revenue in accordance with Staff Accounting Bulletin (SAB)
No. 104, “Revenue Recognition in Financial Statements” which established that
revenue can be recognized when persuasive evidence of an arrangement exists, the
product has been shipped, all significant contractual obligations have been
satisfied and collection is reasonably assured.
Cash and Cash
Equivalents
The
Company considers all highly liquid investments with an original maturity of
three months or less to be cash equivalents. Cash and cash
equivalents are defined to include cash on hand and cash in the
bank.
Certificate of
Deposit
The
Company deposited $20,000,000 into a fixed Certificate of Deposit with an
interest rate of 5.00% per annum, for a term of three years. Accrued
interest of $1,138,333 and $138,333 has been recorded as of December 31, 2008
and 2007, respectively.
F-7
FUND.COM
INC.
(A
Development Stage Company)
Notes to
the Consolidated Financial Statements
For year
ended December 31, 2008 and for the period September 20, 2007 (inception)
through
December 31, 2007
NOTE 2 -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Concentration
of Credit Risk
Substantially
all of the Company’s capital, $20 million, has been invested in a three
year non-cancellable certificate of deposit due and payable on November 8, 2010
with Global Bank of Commerce Limited (Global) , which is the parent company of
one of our shareholders. Global is a bank located in Antigua whose
issued financial instruments have not been rated by any security rating
agency such as
Standard and Poor’s, Moody’s or Fitch. We have requested and received audited
financial statements for Global Bank of Commerce at December 31, 2008 and the
year then ended. The audit report was issued by PKF Chartered
Accountants, an
established global accounting firm. The financial statements were
presented in accordance with International Financial Reporting Standards and
indicated that the bank has positive equity of approximately
$76,500,000. Further, the financial statements indicate that our $20
million CD represents approximately 20% of the banks’ total
deposits. This deposit does not have the benefit of any governmental or
third party insurance.
There is
a substantial asset concentration with respect to the Global Bank of Commerce,
as discussed above. However, there is no material valuation or foreign
exchange impairment associated with the deposit. Investors are
encouraged to obtain additional information regarding the financial viability of
Global Bank of Commerce, that such information, permitted by Antiguan banking
law, is available to them.
Advertising
Costs
All
advertising costs are charged to expense as incurred. There was no advertising
expense for the periods ended December 31, 2008 and 2007.
Research and
Development
Costs are
expensed as incurred. There were no research and development expense
for the periods ended December 31, 2008 and 2007.
Property and
Equipment
Property
and equipment is recorded at cost and depreciated over the estimated useful
lives of the assets using principally the straight-line method. When items are
retired or otherwise disposed of, income is charged or credited for the
difference between net book value and proceeds realized
thereon. Ordinary maintenance and repairs are charged to expense as
incurred, and replacements and betterments are capitalized. The range
of estimated useful lives to be used to calculate depreciation for principal
items of property and equipment are as follow:
|
Asset
Category
|
Depreciation/
Amortization
Period
|
|
|
Furniture
and Fixture
|
3
Years
|
|
|
Office
equipment
|
3
Years
|
|
|
Leasehold
improvements
|
5
Years
|
Income
Taxes
Deferred
income taxes are recognized based on the provisions of SFAS No. 109, "Accounting
for Income Taxes" ("SFAS 109") for the tax consequences in future years of
differences between the tax bases of assets and liabilities and their financial
reporting amounts based on enacted tax laws
F-8
FUND.COM
INC.
(A
Development Stage Company)
Notes to
the Consolidated Financial Statements
For year
ended December 31, 2008 and for the period September 20, 2007 (inception)
through
December 31, 2007
NOTE 2 -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
and
statutory tax rates applicable to the periods in which the differences are
expected to affect taxable
income. Valuation allowances are established when necessary to reduce deferred
tax assets to the amount expected to be realized.
Earnings Per Share
Basic
earnings per share is computed by dividing net income (loss) available to common
shareholders by the weighted average number of common shares outstanding during
the reporting period. Diluted earnings per share reflects the potential dilution
that could occur if stock options and other commitments to issue common stock
were exercised or equity awards vest resulting in the issuance of common stock
that could share in the earnings of the Company. Common
shareholders include both Class A and Class B as the holders of Class A common
stock shall be entitled to receive, on a pari passu basis with the holders of
Class B common stock, if, as and when declared from time to time by the Board of
Directors out of any assets of the Company legally available therefor, such
dividends as may be declared from time to time by the Board of
Directors.
Fair Value of Financial
Instruments
The fair
value of a financial instrument is the amount at which the instrument could be
exchanged in a current transaction between willing parties other than in a
forced sale or liquidation. The carrying amounts of financial
instruments, including cash, accounts payable and accrued expenses approximate
fair value because of the relatively short maturity of the
instruments.
Accounting for the
Impairment of Long-Lived Assets
The
long-lived assets held and used by the Company are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
assets may not be recoverable. It is reasonably possible that these assets could
become impaired as a result of technology or other industry changes.
Determination of recoverability of assets to be held and used is by comparing
the carrying amount of an asset to future net undiscounted cash flows to be
generated by the assets. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of assets exceeds the fair value of the assets. Assets to be disposed of
are reported at the lower of the carrying amount or fair value less costs to
sell.
During
the fourth quarter of 2008, the Company tested the carrying value of its
intangible assets for impairment. The results of the tests indicated
that the carrying value of the intangible assets was not impaired as of December
31, 2008.
Stock-Based
Compensation
In
October 10, 2006 FASB Staff Position (FSP) issued FSP FAS 123(R)-5 “Amendment of
FASB Staff Position FAS 123(R)-1 - Classification and Measurement of
Freestanding Financial Instruments Originally issued in Exchange of Employee
Services under FASB Statement No. 123(R)”. The
FSP provides that instruments that
were originally issued as employee compensation and
then modified, and that modification is made to the terms of the
instrument solely to reflect an
equity restructuring that occurs when
the holders are no longer employees,
F-9
FUND.COM
INC.
(A
Development Stage Company)
Notes to
the Consolidated Financial Statements
For year
ended December 31, 2008 and for the period September 20, 2007 (inception)
through
December 31, 2007
NOTE 2 -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
then no
change in the recognition or the measurement (due to a change
in classification) of those instruments will result if
both of the following conditions are met: (a). There is no increase in fair
value of the award (or the ratio of intrinsic value to the exercise
price of the award is preserved, that is, the holder is made whole),
or the antidilution provision is not added to the terms of the award
in contemplation of an
equity restructuring; and (b). All holders of the same
class of equity instruments (for example, stock options) are treated in the same
manner. The provisions in this FSP shall be applied in the first
reporting period beginning January 1, 2007. The Company does not
expect the adoption of FSP FAS 123(R)-5 to have a material impact on its
consolidated results of operations and financial condition.
Recent Accounting
Pronouncements
Employers’
Disclosures about Postretirement Benefit Plan Assets
In
December 2008, the Financial Accounting Standards Board (“FASB”) issued FASB
Staff Position on Financial Accounting Standard (“FSP FAS”) No. 132(R)-1,
“Employers’ Disclosures about Postretirement Benefit Plan
Assets.” This FSP amends FASB Statement No. 132(R) (“SFAS No.
132(R)”), “Employers’ Disclosures about Pensions and Other Postretirement
Benefits,” to provide guidance on an employer’s disclosures about plan assets of
a defined benefit pension or other postretirement plan.
FSP FAS
No. 132(R)-1 also includes a technical amendment to SFAS No. 132(R) that
requires a nonpublic entity to disclose net periodic benefit cost for each
annual period for which a statement of income is presented. The
required disclosures about plan assets are effective for fiscal years ending
after December 15, 2009. The technical amendment was effective upon
issuance of FSP FAS No. 132(R)-1. The Company currently has no such plans and
does anticipate that its adoption of SFAS No 132(R) will have an impact on its
consolidated financial position and results of operations.
Effective
Date of FASB Interpretation No. 48 for Certain Nonpublic
Enterprises
In
December 2008, the FASB issued FSP FIN No. 48-3, “Effective Date of FASB
Interpretation No. 48 for Certain Nonpublic Enterprises.” FSP FIN No.
48-3 defers the effective date of FIN No. 48, “Accounting for Uncertainty in
Income Taxes,” for certain nonpublic enterprises as defined in SFAS No. 109,
“Accounting for Income Taxes.” However, nonpublic consolidated
entities of public enterprises that apply U.S. generally accepted accounting
principles (GAAP) are not eligible for the deferral. FSP FIN No. 48-3 was
effective upon issuance. The impact of adoption was not material to
the Company’s consolidated financial condition or results of
operations.
Disclosures
by Public Entities (Enterprises) about Transfers of Financial Assets and
Interests in Variable Interest Entities
In
December 2008, the FASB issued FSP FAS No. 140-4 and FIN No. 46(R) -8,
“Disclosures by Public Entities (Enterprises) about Transfers of Financial
Assets and Interests in Variable Interest
F-10
FUND.COM
INC.
(A
Development Stage Company)
Notes to
the Consolidated Financial Statements
For year
ended December 31, 2008 and for the period September 20, 2007 (inception)
through
December 31, 2007
NOTE 2 –
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Entities.” This
FSP amends SFAS No. 140, “Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities,” to require public entities to
provide additional disclosures about transfers of financials
assets. FSP FAS No. 140-4 also amends FIN No. 46(R)-8, “Consolidation
of Variable Interest Entities,” to require public enterprises, including
sponsors that have a variable interest entity, to provide additional disclosures
about their involvement with a variable interest entity. FSP FAS No.
140-4 also requires certain additional disclosures, in regards to variable
interest entities, to provide greater transparency to financial statement
users. FSP FAS No. 140-4 is effective for the first reporting period
(interim or annual) ending after December 15, 2008, with early application
encouraged. The Company is currently assessing the impact of FSP FAS
No. 140-4 on its consolidated financial position and results of
operations.
Accounting
for an Instrument (or an Embedded Feature) with a Settlement Amount That is
Based on the Stock of an Entity’s Consolidated Subsidiary
In
November 2008, the FASB issued FSP Emerging Issues Task Force (“EITF”) Issue No.
08-8, “Accounting for an Instrument (or an Embedded Feature) with a Settlement
Amount That is Based on the Stock of an Entity’s Consolidated
Subsidiary.” EITF No. 08-8 clarifies whether a financial instrument
for which the payoff to the counterparty is based, in whole or in part, on the
stock of
an entity’s consolidated subsidiary is indexed to the reporting entity’s own
stock. EITF No. 08-8 also clarifies whether or not stock should be
precluded from qualifying for the scope exception of SFAS No. 133, “Accounting
for Derivative Instruments and Hedging Activities,” or from being within the
scope of EITF No. 00-19, “Accounting for Derivative Financial Instruments
Indexed to, and Potentially Settled in, a Company’s Own Stock.” EITF
No. 08-8 is effective for fiscal years beginning on or after December 15, 2008,
and interim periods within those fiscal years. The Company is
currently assessing the impact of EITF No. 08-8 on its consolidated financial
position and results of operations.
Accounting
for Defensive Intangible Assets
In
November 2008, the FASB issued EITF Issue No. 08-7, “Accounting for Defensive
Intangible Assets.” EITF No. 08-7 clarifies how to account for
defensive intangible assets subsequent to initial measurement. EITF
No. 08-7 applies to all defensive intangible assets except for intangible assets
that are used in research and development activities. EITF No. 08-7
is effective for intangible assets acquired on or after the beginning of the
first annual reporting period beginning on or after December 15,
2008. The Company is currently assessing the impact of EITF No. 08-7
on its consolidated financial position and results of operations.
Equity
Method Investment Accounting Considerations
In
November 2008, the FASB issued EITF Issue No. 08-6 (“EITF No. 08-6”), “Equity
Method Investment Accounting Considerations.” EITF No. 08-6 clarifies
accounting for certain transactions and impairment considerations involving the
equity method. Transactions and impairment dealt with are initial
measurement, decrease in investment value, and change in level
F-11
FUND.COM
INC.
(A
Development Stage Company)
Notes to
the Consolidated Financial Statements
For year
ended December 31, 2008 and for the period September 20, 2007 (inception)
through
December 31, 2007
NOTE 2 –
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
of
ownership or degree of influence. EITF No. 08-6 is effective on a
prospective basis for fiscal years beginning on or after December 15,
2008. The Company is currently assessing the impact of EITF No. 08-6
on its consolidated financial position and results of operations.
Determining
the Fair Value of a Financial Asset When the Market for That Asset is Not
Active
In
October 2008, the FASB issued FSP FAS No. 157-3, “Determining the Fair Value of
a Financial Asset When the Market for That Asset is Not Active.” This
FSP clarifies the application of SFAS No. 157, “Fair Value Measurements,” in a
market that is not active. The FSP also provides examples for
determining the fair value of a financial asset when the market for that
financial asset is not active. FSP FAS No. 157-3 was effective upon
issuance, including prior periods for which financial statements have not been
issued. The Company has determined that the impact of adoption was
not material to the Company’s consolidated financial condition or results of
operations considered the guidance offered in FSP FAS 157-3 regarding
determining the fair value of a financial asset when there is no active market
for that asset, specifically as it relates to our certificate of deposit, within
the context of nonperformance risk and liquidity risk.
Issuer’s
Accounting for Liabilities Measured at Fair Value with a Third-Party Credit
Enhancement
In
September 2008, the FASB issued EITF Issue No. 08-5 (“EITF No. 08-5”), “Issuer’s
Accounting for Liabilities Measured at Fair Value with a Third-Party Credit
Enhancement.” This FSP determines an issuer’s unit of accounting for
a liability issued with an inseparable third-party credit enhancement when it is
measured or disclosed at fair value on a recurring basis. FSP EITF
No. 08-5 is effective on a prospective basis in the first reporting period
beginning on or after December 15, 2008. The Company is currently
assessing the impact of FSP EITF No. 08-5 on its consolidated financial position
and results of operations.
Disclosures
about Credit Derivatives and Certain Guarantees: An Amendment of FASB Statement
No. 133 and FASB Interpretation No. 45; and Clarification of the Effective Date
of FASB Statement No. 161
In
September 2008, the FASB issued FSP FAS No. 133-1, “Disclosures about Credit
Derivatives and Certain Guarantees: An Amendment of FASB Statement No. 133 and
FASB Interpretation No. 45; and Clarification of the Effective Date of FASB
Statement No. 161.” This FSP amends FASB Statement No. 133,
“Accounting for Derivative Instruments and Hedging Activities,” to require
disclosures by sellers of credit derivatives, including credit derivatives
embedded in a hybrid instrument. The FSP also amends FASB
Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others,” to require
and additional disclosure about the current status of the payment/performance
risk of a guarantee. Finally, this FSP clarifies the Board’s intent
about the effective date of FASB Statement No. 161, “Disclosures about
Derivative Instruments and Hedging Activities.” FSP FAS No. 133-1 is
effective for fiscal years ending after November 15, 2008. The
Company is currently assessing the impact of FSP FAS No. 133-1 on its
consolidated financial position and results of operations.
F-12
FUND.COM
INC.
(A
Development Stage Company)
Notes to
the Consolidated Financial Statements
For year
ended December 31, 2008 and for the period September 20, 2007 (inception)
through
December 31, 2007
NOTE 2 –
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Determining
Whether Instruments Granted in Share-Based Payment Transactions Are
Participating Securities
In
June 2008, the FASB issued EITF Issue No. 03-6-1, “Determining Whether
Instruments Granted in Share-Based Payment Transactions Are Participating
Securities.” EITF No. 03-6-1 addresses
whether instruments granted in share-based payment transactions are
participating securities prior to vesting and, therefore, need to be included in
the earnings allocation in computing earnings per share under the two-class
method. The EITF 03-6-1 affects entities that accrue dividends on share-based
payment awards during the awards’ service period when the dividends do not need
to be returned if the employees forfeit the award. EITF 03-6-1 is effective for
fiscal years beginning after December 15, 2008. The Company is currently
assessing the impact of EITF 03-6-1 on its consolidated financial position and
results of operations.
Determining
Whether an Instrument (or an Embedded Feature) Is Indexed to an entity's Own
Stock
In June
2008, the FASB ratified EITF Issue No. 07-5, "Determining Whether an Instrument
(or an Embedded Feature) Is Indexed to an Entity's Own Stock.” EITF
07-5 provides that an entity should use a two step approach to evaluate whether
an equity-linked financial instrument (or embedded feature) is indexed to its
own stock, including evaluating the instrument's contingent exercise and
settlement provisions. It also clarifies on the impact of foreign
currency denominated strike prices and market-based employee stock option
valuation instruments on the evaluation. EITF 07-5 is effective for
fiscal years beginning after December 15, 2008. The Company currently
does not have such instruments and does not anticipate that its adoption of EITF
07-5 will have an impact on its consolidated financial position and results of
operations.
Accounting
for Financial Guarantee Insurance Contracts—an interpretation of FASB Statement
No. 60
In May
2008, the FASB issued SFAS No. 163, “Accounting for Financial Guarantee
Insurance Contracts – an interpretation of FASB Statement No.
60”. This statement requires that an insurance enterprise recognize a
claim liability prior to an event of default (insured event) when there is
evidence that credit deterioration has occurred in an insured financial
obligation. SFAS No. 163 also clarifies how SFAS No. 60 applies to
financial guarantee insurance contracts, including the recognition and
measurement to be used to account for premium revenue and claim liabilities to
increase comparability in financial reporting of financial guarantee insurance
contracts by insurance enterprises. SFAS No. 163 is effective for
financial statements issued for fiscal years beginning after December 15, 2008,
and all interim periods within those fiscal years, except for some disclosures
about the insurance enterprise’s risk-management activities of the insurance
enterprise are effective for the first period (including interim periods)
beginning after issuance of SFAS No. 163. Except for those
disclosures, earlier application is not permitted.
F-13
FUND.COM
INC.
(A
Development Stage Company)
Notes to
the Consolidated Financial Statements
For year
ended December 31, 2008 and for the period September 20, 2007 (inception)
through
December 31, 2007
NOTE 2 –
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Accounting
for Convertible Debt Instruments That May Be Settled in Cash upon Conversion
(Including Partial Cash Settlement)
In
May 2008, the FASB issued FSP Accounting Principles Board (“APB”) Opinion
No. 14-1, “Accounting for Convertible Debt Instruments That May Be
Settled in Cash upon Conversion (Including Partial Cash Settlement).” The FSP
clarifies the accounting for convertible debt instruments that may be settled in
cash (including partial cash settlement) upon
conversion. The
FSP
requires issuers to account separately for the liability and equity components
of certain convertible debt instruments in a manner that reflects the issuer's
nonconvertible debt (unsecured debt)
borrowing rate when interest cost is recognized. The FSP requires
bifurcation of a component of the debt, classification of that component in
equity and the accretion of the resulting discount on the debt to be recognized
as part of interest expense in our consolidated statement of
operations. The FSP requires retrospective application to the terms
of instruments as they
existed for all periods presented. The FSP is effective for fiscal
years beginning after December 15, 2008 and early adoption is not
permitted. The Company is currently evaluating the potential impact
of FSP APB 14-1 upon its consolidated financial statements.
The
Hierarchy of Generally Accepted Accounting Principles
In May
2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted
Accounting Principles.” SFAS No. 162 identifies the sources of
accounting principles and the framework for selecting the principles used in the
preparation of financial statements. SFAS No. 162 is effective 60
days following the SEC's approval of the Public Company Accounting Oversight
Board amendments to AU Section 411, "The Meaning of Present Fairly in Conformity
with Generally Accepted Accounting Principles". The Company has
adopted SFAS 162.
Determination
of the Useful Life of Intangible Assets
In April
2008, the FASB issued FSP FAS No. 142-3, “Determination of the Useful Life of
Intangible Assets”, which amends the factors that should be considered in
developing renewal
or extension assumptions used to determine the useful life of intangible assets
under SFAS No. 142 “Goodwill and Other Intangible Assets”. The intent of this
FSP is to improve the consistency between the useful life of a recognized
intangible asset under SFAS No. 142 and the period of the expected cash flows
used to measure the fair value of the asset under SFAS No. 141 (revised 2007)
“Business Combinations” and other U.S. generally accepted accounting principles.
The Company is currently evaluating the potential impact of FSP FAS No. 142-3 on
its consolidated financial statements.
F-14
FUND.COM
INC.
(A
Development Stage Company)
Notes to
the Consolidated Financial Statements
For year
ended December 31, 2008 and for the period September 20, 2007 (inception)
through
December 31, 2007
NOTE 2 –
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Disclosure
about Derivative Instruments and Hedging Activities
In March
2008, the FASB issued SFAS No. 161, “Disclosure about Derivative
Instruments and Hedging Activities, an amendment of SFAS No.
133.” This statement requires that objectives for using derivative instruments
be disclosed in terms of underlying risk and accounting designation. The Company
is required to adopt SFAS No. 161 on January 1, 2009. The Company currently has
not such instruments and does not anticipate that its adoption of SFAS 161 will
have an impact on its consolidated financial statements.
Delay
in Effective Date
In
February 2008, the FASB issued FSP FAS No. 157-2, “Effective Date of FASB
Statement No. 157”. This FSP delays the effective date of SFAS No. 157 for
all nonfinancial assets and nonfinancial
liabilities, except those that are recognized or disclosed at fair value on a
recurring basis (at least annually) to fiscal years beginning after
November 15, 2008, and interim periods within those fiscal years. The
impact of adoption was not material to the Company’s consolidated financial
condition or results of operations.
Business
Combinations
In
December 2007, the FASB issued SFAS No. 141(R) “Business
Combinations.” This Statement replaces the original SFAS No.
141. This Statement retains the fundamental requirements in SFAS
No. 141 that the acquisition method of accounting (which SFAS No. 141
called the purchase
method) be used for all business combinations and for an acquirer to be
identified for each business combination. The objective of SFAS No. 141(R) is to
improve the relevance, and comparability of the information that a reporting
entity provides in its financial reports about a business combination and its
effects. To accomplish that, SFAS No. 141(R) establishes principles and
requirements for how the acquirer:
|
a.
|
.Recognizes
and measures in its financial statements the identifiable assets acquired,
the liabilities assumed, and any noncontrolling interest in the
acquiree
|
|
b.
|
Recognizes
and measures the goodwill acquired in the business combination or a gain
from a bargain purchase.
|
|
c.
|
Determines
what information to disclose to enable users of the financial statements
to evaluate the nature and financial effects of the business
combination.
|
This
Statement applies prospectively to business combinations for which the
acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008 and may not be applied before
that date. The Company
is unable at this time to determine the effect that its adoption of SFAS No.
141(R) will have on its consolidated results of operations and financial
condition.
Noncontrolling
Interests in Consolidated Financial Statements—an amendment of ARB No.
51
In
December 2007, the FASB issued SFAS No. 160 “Noncontrolling Interests in
Consolidated Financial Statements – an amendment of ARB No. 51.” This
Statement amends the original
F-15
FUND.COM
INC.
(A
Development Stage Company)
Notes to
the Consolidated Financial Statements
For year
ended December 31, 2008 and for the period September 20, 2007 (inception)
through
December 31, 2007
NOTE 2 –
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Accounting
Review Board (ARB) No. 51 “Consolidated Financial Statements” to establish
accounting and reporting standards for the noncontrolling interest in a
subsidiary and for the deconsolidation of a subsidiary. It clarifies that a
noncontrolling interest in a subsidiary is an ownership interest in the
consolidated entity that should be reported as equity in the consolidated
financial statements. This Statement is effective for fiscal years and interim
periods within those fiscal years, beginning on or after December 15, 2008 and
may not be applied before that date. The Company is unable at this
time to determine the effect that its adoption of SFAS No. 160 will have on its
consolidated results of operations and financial condition.
Fair
Value Option for Financial Assets and Financial Liabilities
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities – Including an amendment of SFAS No.
115,” which becomes effective for the Company on February 1, 2008, permits
companies to choose to measure many financial instruments and certain other
items at fair value and report unrealized gains and losses in earnings. Such
accounting is optional and is generally to be applied instrument by
instrument.
The
election of this fair-value option did not have a material effect on its
consolidated financial condition, results of operations, cash flows or
disclosures.
Fair
Value Measurements
In
September 2006, the FASB issued SFAS No. 157, "Fair Value
Measurements.” SFAS No. 157 provides guidance for using fair value to
measure assets and liabilities. SFAS No. 157 addresses the requests
from investors for expanded disclosure about the extent to which companies’
measure assets and liabilities at fair value, the information used to measure
fair value and the effect of fair value measurements on earnings. SFAS No. 157
applies whenever other standards require (or permit) assets or liabilities to be
measured at fair value, and does not expand the use of fair value in any new
circumstances. SFAS No. 157 is effective for financial statements issued for
fiscal years beginning after November 15, 2007 and was adopted by the Company in
the first quarter of fiscal year 2008. The Company has reviewed SFAS No. 157
with respect to its assets and liabilities and determined that there was no
material impact on the Company’s consolidated results of operations and
financial condition for the calendar year ending December 31, 2008.
Accounting
Changes and Error Corrections
In May
2005, the FASB issued SFAS No. 154, "Accounting Changes and Error Corrections,”
which replaces APB Opinion No. 20, "Accounting Changes," and SFAS No. 3,
"Reporting Accounting Changes in Interim Financial Statements - An Amendment of
APB Opinion No. 28”. SFAS No. 154 provides guidance on the accounting for and
reporting of accounting changes and error corrections, and it establishes
retrospective application, or the latest practicable date, as the required
method for reporting a change in accounting principle and the reporting of a
correction of an error. SFAS No. 154 is effective for accounting changes and
corrections of errors made in fiscal years beginning after December 15, 2005.
SFAS 154 was adopted at the Company’s
F-16
FUND.COM
INC.
(A
Development Stage Company)
Notes to
the Consolidated Financial Statements
For year
ended December 31, 2008 and for the period September 20, 2007 (inception)
through
December 31, 2007
NOTE 2 –
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
inception
and did not have a material impact on its consolidated results of operations and
financial condition.
NOTE 3 –
INTANGIBLE ASSET
Intellectual Property
Asset:
During
2007, the Company acquired the domain name “fund.com” and other intangible
assets related to intellectual property and trademarks for a total cost of
$9,999,950. The Company
has determined that the intangible assets have an indefinite live but are
subject to periodic impairment assessment under SFAS 142.
NOTE 4 –
EQUITY
Initial
Capitalization
During
2007, the issuances of Class A common stock consisted of the
follows:
|
·
|
18,700,000
shares common stock to its founders totaling
$1,564;
|
|
·
|
5,000,000
shares common stock and 2,500,000 shares preferred series A through
private placement for $2.00 per unit totaling
$10,000,000;
|
|
·
|
10,350,000
shares common stock through a second private placement for $2.00 per share
totaling $20,700,000.
|
Merger
On
January 15, 2008, Fund.com Inc. merged (the “Merger”) with and into Eastern
Services Holdings, Inc. (“Eastern”) pursuant to an Agreement and Plan of Merger,
dated as of January 15, 2008 (the "Agreement"). In connection with the merger
Eastern Services Holdings, Inc. changed its name to Fund.com Inc. (the
"Surviving Corporation"). Pursuant to the Agreement, each share of
common stock, par value $0.00001 per share of Fund (“Fund Common Stock”) was
converted into the right to receive .1278 validly issued, fully paid and
non-assessable shares of Class A Common Stock of the Surviving Corporation;
provided, however, if a holder of Fund Common Stock also held Series A Preferred
Stock, par value $.001 per share, of Fund (“Fund Preferred Stock”) then each
share of Fund Common Stock held by such holder was converted into the right to
receive .1278 validly issued, fully paid and non-assessable shares of Class
B Common Stock (and Fund Preferred Stock held by such holder was
cancelled). Also pursuant to the Agreement, each share of common
stock, $0.001 par value per share, of Eastern was converted into the right to
receive one validly issued, fully paid and non-assessable share of Class A
Common Stock of the Surviving Corporation. Holders of such shares were
entitled to receive the previously declared 9-for-1 stock dividend payable to
holders of record as of January 15, 2008.
As a
result, at closing (and giving effect to the stock dividend) the Company
issued an aggregate of 37,112,345 shares of our Class A Common Stock and
6,387,665 shares of our Class B Common Stock to former shareholders of Fund.com
Inc., representing 87% of our outstanding Class A Common Stock and 100% of our
Class B Common Stock following the merger. The merger consideration was
determined as a result of arm’s-length negotiations between the
parties.
F-17
FUND.COM
INC.
(A
Development Stage Company)
Notes to
the Consolidated Financial Statements
For year
ended December 31, 2008 and for the period September 20, 2007 (inception)
through
December 31, 2007
NOTE 4 –
EQUITY (Continued)
Each
share of Class A Common stock has one (1) vote per share. Each share
of Class B Common Stock has ten (10) votes per share. The holders of
Class B Common Stock have the right to convert each share of Class B Common
Stock into one share of Class A Common Stock (adjusted to reflect subsequent
stock splits, combinations, stock dividends and recapitalizations). Subject to
the prior rights of holders of all classes of stock at the time outstanding
having prior rights as to dividends, the holders of Class A Common Stock shall
be entitled to receive, on a pari passu basis with the holders of Class B Common
Stock, if, as and when declared from time to time by the Board of Directors out
of any assets of the Company legally available therefor, such dividends as may
be declared from time to time by the Board of Directors.
Common
Shares Issued
In
connection with a private placement, the Company issued 475,000 shares of its
Class A common stock at $2.00 per share for total proceeds of $950,000 during
2008.
Stock
Option Plan
On
December 27, 2007, the Company adopted the Meade Technologies Inc. 2007
Incentive Compensation Plan. Under this plan, stock options may be
granted to employees, officers, consultants or others who provide services to
the Company. The Plan is administered by the Board. However, the
Board may delegate any or all administrative functions under the Plan otherwise
exercisable by the Board to one or more Committees. The aggregate
number of Shares authorized for issuance as Awards under the original Plan shall
not exceed five million fifty-five thousand (5,055,000)
Shares. However, on April 30, 2009, the Company received majority
shareholder approval to increase the amount of shares able to be granted under
the Plan to ten million (10,000,000) shares. The number of shares,
exercise price, term and vesting are all determined by the Board at the time of
grant.
On
December 27, 2007, 2,076,111 stock options with a purchase price of $2.30 per
share were granted to officers and employees of the Company.
On March
4, 2008, 2,500,000 stock options with a purchase price of $3.50 were granted to
officers, employees and a director of the Company.
On March
28, 2008, 250,000 stock options with a purchase price of $4.00 were granted to a
director of the Company.
On May
16, 2008, 250,000 stock options with a purchase price of $4.00 were granted to a
director of the Company.
Lastly,
on August 6, 2008, 653,000 stock options with a purchase price of $3.25 were
granted to an officer, employee and director of the Company.
The
Black-Scholes method option pricing model was used to estimate fair value as of
the date of grant using the following assumptions:
|
Risk-Free
|
1.66%
- 4.23%
|
|
|
Expected
volatility
|
50%-
83%
|
|
|
Forfeiture
rate
|
10%
|
|
|
Expected
life
|
4
Years
|
|
|
Expected
dividends
|
-
|
The
following details stock options for the years ending December 31, 2008 and
2007:
|
Weighted
|
Weighted
|
||||||||||||
|
Average
|
Average
|
||||||||||||
|
Weighted
|
Remaining
|
Grant
Date
|
|||||||||||
|
Average
|
Contractual
|
Fair
|
|||||||||||
|
Shares
|
Exercise
Price
|
Term
(Years)
|
Value
|
||||||||||
|
Balance,
December 31, 2007
|
2,076,111 | $ | 2.30 | $ | 0.78 | ||||||||
|
Granted
|
3,653,000 | $ | 3.52 | $ | 2.04 | ||||||||
|
Exercised
|
- | - | - | ||||||||||
|
Canceled
|
- | - | - | ||||||||||
|
Forfeited
|
- | - | - | ||||||||||
|
Balance,
December 31, 2008
|
5,729,111 | $ | 3.08 |
3.06
|
$ | 1.58 | |||||||
|
Exercisable,
December 31, 2008
|
- | - |
-
|
- | |||||||||
The
following details stock option vested shares for the years ending December 31,
2008 and 2007:
|
Shares
|
||||
|
Balance,
December 31, 2007
|
- | |||
|
Vested
|
- | |||
|
Balance,
December 31, 2008
|
- | |||
The
Company had no vested stock options at December 31, 2008.
Based on
the assumptions noted above, the fair market value of the options issued was
valued at $7,497,922.
F-18
FUND.COM
INC.
(A
Development Stage Company)
Notes to
the Consolidated Financial Statements
For year
ended December 31, 2008 and for the period September 20, 2007 (inception)
through
December 31, 2007
NOTE 4 –
EQUITY (Continued)
For the
year ended December 31, 2008, there was $1,880,967 in expense recorded in the
Statement of Operations for stock option grants. There was no expense
recorded for the year ended December 31, 2007.
NOTE 5 –
RELATED PARTY TRANSACTIONS
On March
4, 2008, Fund.com Inc. (the “Company”) entered into a Consulting Agreement with
Fabric Group, LLC (“Fabric”). Fabric is wholly-owned and managed by the
chairman, director and former Chief Executive Officer of the
Company. Under the Consulting Agreement, Fabric will receive an
annual base fee of $300,000, in return for strategic consulting services
provided by both the Chairman and the
Chief Marketing Officer of the Company in the areas of business development,
product marketing and online strategy and for performance of other duties as
requested from time to time by the Board. In addition, pursuant to
the Consulting Agreement, Fabric will receive a one time fee of
$55,000 for services previously rendered to the Company Included in the operating
expenses for the period ending December 31, 2008 and 2007 are $285,000 and
$50,000, respectively. Included in accounts payable as of December 31,
2008, is $255,000 related to this agreement.
On March 4, 2008, the Company entered
into a Consulting Agreement with MKL Consulting Ltd. (“MKL”). MKL is
wholly-owned and managed by the executive vice president and a director of
the Company. Under the Consulting Agreement, MKL will receive an annual base fee
of $150,000, in consideration for services provided to the Company as
Executive Vice President and for performance of other duties as requested from
time to time by the Board. In addition, pursuant to the Consulting
Agreement, MKL will receive a one time fee of $25,000 for services
previously rendered to the Company. Included in the operating
expenses for the period ending December 31, 2008 and 2007 are
$150,000 and $25,000, respectively. Included in accounts
payable as of December 31, 2008, is $125,000 related to this
agreement.
NOTE 6 –
LEASES
The
Company entered into an agreement to lease office space on April 1, 2008 for a
six-month period ending September 30, 2008. This agreement was
extended through March 31, 2009. The amount of the lease payments
approximated $8,000 per month and the total for the period ending December 31,
2008 included in the operating expense was $79,000. The Company has
no other commitments for leases.
NOTE 7 –
INVESTMENT IN SUBSIDIARY
On
October 31, 2008, the Company entered into a Purchase and Contribution
Agreement, dated as of October 31, 2008 (the “Purchase and Contribution
Agreement”), with AdvisorShares Investments, LLC (“AdvisorShares”) and the
Managing Member and principal officer of AdvisorShares. Pursuant to
the Purchase and Contribution Agreement, the Company purchased 6,000,000 Units
of AdvisorShares, (representing 60% of the outstanding membership interests of
AdvisorShares) for a purchase price of $4,000,000, with an initial contribution
of $275,000 and
F-19
FUND.COM
INC.
(A
Development Stage Company)
Notes to
the Consolidated Financial Statements
For year
ended December 31, 2008 and for the period September 20, 2007 (inception)
through
December 31, 2007
NOTE 7 –
INVESTMENT IN SUBSIDIARY (continued)
up to an
additional $3,725,000 being contributed to AdvisorShares upon the achievement of
certain milestones relating to AdvisorShares’ receiving from the Securities and
Exchange Commission (the “SEC”) of its notice
(the “SEC Exemptive
Order”) regarding the approval of the application for exemptive relief
and total assets under management. In connection with our acquisition
of 60% of the equity interests in AdvisorShares, the Company entered into an
Amended and Restated Limited Liability Company Agreement of AdvisorShares, dated
as of October 31, 2008 (the “LLC Agreement”), and was admitted as a member of
AdvisorShares.
NOTE 8 –
INCOME TAX PROVISION
The
provision (benefit) for income taxes from continued operations for the years
ended December 31, 2008 and 2007 consist of the following:
|
|
December
31,
|
|||||||
|
2008
|
2007
|
|||||||
|
Current:
|
||||||||
|
Federal
|
$ | - | $ | - | ||||
|
State
|
- | - | ||||||
| - | - | |||||||
|
Deferred:
|
||||||||
|
Federal
|
$ | (1,070,000 | ) | $ | (59,500 | ) | ||
|
State
|
(188,000 | ) | (10,500 | ) | ||||
| (1,258,000 | ) | (70,000 | ) | |||||
|
Benefit
from the operating loss carryforward
|
1,258,000 | 70,000 | ||||||
|
Benefit
for income taxes, net
|
$ | - | $ | - | ||||
The
difference between income tax expense computed by applying the federal statutory
corporate tax rate and actual income tax expense is as follows:
|
December
31,
|
||||||||
|
2008
|
2007
|
|||||||
|
Statutory
federal income tax rate
|
34.0 | % | 34.0 | % | ||||
|
Decrease
in valuation allowance
|
(40.0 | )% | (40.0 | )% | ||||
|
State
income taxes
|
6.0 | % | 6.0 | % | ||||
|
Effective
tax rate
|
(0 | )% | (0 | )% | ||||
F-20
FUND.COM
INC.
(A
Development Stage Company)
Notes to
the Consolidated Financial Statements
For year
ended December 31, 2008 and for the period September 20, 2007 (inception)
through
December 31, 2007
NOTE 8 –
INCOME TAX PROVISION (continued)
Deferred
income taxes result from temporary differences in the recognition of income and
expenses for the financial reporting purposes and for tax purposes. The net
income tax impact of the deferred tax assets are comprised of the
following:
|
2008
|
December
31,
2007
|
|||||||
|
Deferred
income tax asset:
|
||||||||
|
Net
operating loss carry-forwards
|
$ | 1,258,000 | $ | 70,000 | ||||
|
Valuation
allowance
|
(1,258,000 | ) | (70,000 | ) | ||||
|
Deferred
income tax asset
|
$ | - | $ | - | ||||
The
Company has a net operating loss carryforward of approximately $3,692,000
available to offset future taxable income through 2020.
The
Company has made a 100% valuation allowance of the deferred income tax asset at
December 31, 2008, as it is not expected that the deferred tax assets will be
realized. The net increase in valuation allowance during the year
ended December 31, 2008 was approximately $1,188,000.
NOTE 9
– RESTATEMENT OF FINANCIAL STATEMENTS
The
Company has restated its financial statements for the period ending December 31,
2008. The nature of these restatements and presentation as
originally filed and as restated are presented below:
Consolidated Balance Sheets
for the years ended December 31, 2008 and December 31,
2007
The
assets included an item “Minority Interest” which has been revised to “Advances
on behalf of minority shareholder” to more properly reflect the
item. No changes to financial information were
made.
Consolidated Statement of
Operations for the year ended December 31, 2008 and for the period September 20,
2007 (inception) through December 31, 2007.
The
consolidated statement of operations was revised to in two areas. The
first was to include a column for September 20, 2007 (inception) through
December 31, 2008 which had been omitted in the original
filing. Below is the presentation including the additional
column:
F-21
FUND.COM
INC.
(A
Development Stage Company)
Notes to
the Consolidated Financial Statements
For year
ended December 31, 2008 and for the period September 20, 2007
(inception)
through
December 31, 2007
|
FUND.COM
INC.
|
||||||||||||
|
(A
Development Stage Company)
|
||||||||||||
|
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
||||||||||||
|
FOR
THE YEAR ENDED DECEMBER 31, 2008,
|
||||||||||||
|
SEPTEMBER
20, 2007 (INCEPTION) THROUGH DECEMBER 31, 2007 AND
|
||||||||||||
|
SEPTEMBER
20, 2007 (INCEPTION) THROUGH DECEMBER 31, 2008
|
||||||||||||
|
September
20, 2007
|
September
20, 2007
|
|||||||||||
|
Year
Ended
|
(Inception)
through
|
(Inception)
through
|
||||||||||
|
December
31, 2008
|
December
31, 2007
|
December
31, 2008
|
||||||||||
|
Revenue
|
$ | - | $ | - | $ | - | ||||||
|
|
||||||||||||
|
Costs
of revenue
|
- | - | - | |||||||||
|
Gross
profit
|
- | - | - | |||||||||
|
Operating
expense
|
4,551,545 | 387,781 | 4,939,326 | |||||||||
|
Loss
from operations before interest income and
|
||||||||||||
|
provision
for (benefit from) income tax
|
(4,551,545 | ) | (387,781 | ) | (4,939,326 | ) | ||||||
|
Other
income
|
1,754 | - | 1,754 | |||||||||
|
Interest
income
|
1,001,021 | 138,461 | 1,139,482 | |||||||||
|
Income
tax expense
|
- | (193 | ) | (193 | ) | |||||||
| 1,002,775 | 138,268 | 1,141,043 | ||||||||||
|
Minority
interest
|
76,520 | 29,813 | 106,333 | |||||||||
|
Net
loss
|
(3,472,250 | ) | (219,700 | ) | (3,691,950 | ) | ||||||
|
Net
loss per common share - basic and diluted (Class A &
B)
|
$ | (0.07 | ) | $ | (0.01 | ) | (0.07 | ) | ||||
|
Weighted
average number of shares outstanding:
|
||||||||||||
|
during
the year - basic and diluted (Class A)
|
43,829,002 | 34,050,000 | 43,829,002 | |||||||||
|
Weighted
average number of shares outstanding:
|
||||||||||||
|
during
the year - basic and diluted (Class B)
|
6,387,665 | - | 6,387,665 | |||||||||
The
second was to combine both the Class A and B common shares into one category as
the rights of the classes are identical. Below is presented as
originally filed and the revised information:
F-22
FUND.COM
INC.
(A
Development Stage Company)
Notes to
the Consolidated Financial Statements
For year
ended December 31, 2008 and for the period September 20, 2007
(inception)
through
December 31, 2007
As
originally filed:
|
FUND.COM
INC.
|
||||||||
|
(A
Development Stage Company)
|
||||||||
|
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
||||||||
|
FOR
THE YEAR ENDED DECEMBER 31, 2008 AND
|
||||||||
|
FOR
THE PERIOD SEPTEMBER 20, 2007 (INCEPTION) THROUGH DECEMBER 31,
2007
|
||||||||
|
September
20, 2007
|
||||||||
|
Year
Ended
|
(Inception)
through
|
|||||||
|
December
31, 2008
|
December
31, 2007
|
|||||||
|
Net
loss
|
(3,472,250 | ) | (219,700 | ) | ||||
|
Net
loss per share - basic and diluted (Class A)
|
$ | (0.08 | ) | $ | (0.01 | ) | ||
|
Net
loss per share - basic and diluted (Class B)
|
$ | (0.54 | ) | $ | (0.03 | ) | ||
|
Weighted
average number of shares outstanding:
|
||||||||
|
during
the year - basic and diluted (Class A)
|
43,829,002 | 34,050,000 | ||||||
|
Weighted
average number of shares outstanding:
|
||||||||
|
during
the year - basic and diluted (Class B)
|
6,387,665 | 6,387,665 | ||||||
F-23
FUND.COM
INC.
(A
Development Stage Company)
Notes to
the Consolidated Financial Statements
For year
ended December 31, 2008 and for the period September 20, 2007
(inception)
through
December 31, 2007
As
revised:
|
FUND.COM
INC.
|
||||||||||||
|
(A
Development Stage Company)
|
||||||||||||
|
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
||||||||||||
|
FOR
THE YEAR ENDED DECEMBER 31, 2008,
|
||||||||||||
|
SEPTEMBER
20, 2007 (INCEPTION) THROUGH DECEMBER 31, 2007 AND
|
||||||||||||
|
SEPTEMBER
20, 2007 (INCEPTION) THROUGH DECEMBER 31, 2008
|
||||||||||||
|
September
20, 2007
|
September
20, 2007
|
|||||||||||
|
Year
Ended
|
(Inception)
through
|
(Inception)
through
|
||||||||||
|
December
31, 2008
|
December
31, 2007
|
December
31, 2008
|
||||||||||
|
Net
loss
|
(3,472,250 | ) | (219,700 | ) | (3,691,950 | ) | ||||||
|
Net
loss per common share - basic and diluted (Class A &
B)
|
$ | (0.07 | ) | $ | (0.01 | ) | (0.07 | ) | ||||
|
Weighted
average number of shares outstanding:
|
||||||||||||
|
during
the year - basic and diluted (Class A)
|
43,829,002 | 34,050,000 | 43,829,002 | |||||||||
|
Weighted
average number of shares outstanding:
|
||||||||||||
|
during
the year - basic and diluted (Class B)
|
6,387,665 | - | 6,387,665 | |||||||||
Consolidated Statements of
Cash Flows for the years ended December 31, 2008 and December 31,
2007
The
consolidated statement of cash flows was revised to include a column for
September 20, 2007 (inception) through December 31, 2008 which had been omitted
in the original filing. Below is the presentation including the
additional column:
F-24
FUND.COM
INC.
(A
Development Stage Company)
Notes to
the Consolidated Financial Statements
For year
ended December 31, 2008 and for the period September 20, 2007
(inception)
through
December 31, 2007
|
FUND.COM
INC.
|
||||||||||||
|
(A
Development Stage Company)
|
||||||||||||
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
||||||||||||
|
FOR
THE YEAR ENDED DECEMBER 31, 2008,
|
||||||||||||
|
SEPTEMBER
20, 2007 (INCEPTION) THROUGH DECEMBER 31, 2007 AND
|
||||||||||||
|
SEPTEMBER
20, 2007 (INCEPTION) THROUGH DECEMBER 31, 2008
|
||||||||||||
|
September
20, 2007
|
September
20, 2007
|
|||||||||||
|
Year
Ended
|
(Inception)
through
|
(Inception)
through
|
||||||||||
|
December
31, 2008
|
December
31, 2007
|
December
31, 2008
|
||||||||||
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
||||||||||||
|
Net
loss
|
$ | (3,472,250 | ) | $ | (219,700 | ) | $ | (3,691,950 | ) | |||
|
Adjustments
to reconcile net loss to net cash
|
||||||||||||
|
used
in operating activities:
|
||||||||||||
|
Compensation
recognized under stock incentive plan
|
1,880,967 | - | 1,880,967 | |||||||||
|
Minority
interest
|
(76,520 | ) | (29,813 | ) | (106,333 | ) | ||||||
|
Changes
in assets and liabilities:
|
||||||||||||
|
Increase
in accounts payable
|
876,108 | 209,102 | 1,085,210 | |||||||||
|
Accrued
interest from certificate of deposit
|
(1,000,000 | ) | (138,333 | ) | (1,138,333 | ) | ||||||
|
Net
cash used in operating activities
|
(1,791,695 | ) | (178,744 | ) | (1,970,439 | ) | ||||||
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
||||||||||||
|
Purchase
of Property, Plant and Equipment
|
- | (122 | ) | (122 | ) | |||||||
|
Certificate
of deposit
|
- | (20,000,000 | ) | (20,000,000 | ) | |||||||
|
Purchase
of intangible asset
|
- | (9,999,500 | ) | (9,999,500 | ) | |||||||
|
Net
cash used in investing activities
|
- | (29,999,622 | ) | (29,999,622 | ) | |||||||
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||||||||
|
Proceeds
from the sale of common stock
|
955,000 | 30,706,564 | 31,661,564 | |||||||||
|
Proceeds
from Notes Payable
|
443,000 | 443,000 | ||||||||||
|
Advances
from shareholders
|
- | 77,150 | 77,150 | |||||||||
|
Repayment
of shareholders advances
|
(53,570 | ) | - | (53,570 | ) | |||||||
|
Net
cash provided by financing activities
|
1,344,430 | 30,783,714 | 32,128,144 | |||||||||
|
INCREASE
(DECREASE) IN CASH
|
(447,265 | ) | 605,348 | 158,083 | ||||||||
|
CASH,
BEGINNING OF YEAR
|
605,348 | - | - | |||||||||
|
CASH,
END OF YEAR
|
$ | 158,083 | $ | 605,348 | $ | 158,083 | ||||||
|
Supplemental
Disclosures
|
||||||||||||
|
Cash
paid during the year for interest
|
$ | - | $ | - | $ | - | ||||||
|
Cash
paid during the year for taxes
|
$ | - | $ | - | $ | - | ||||||
|
Supplemental
disclosure of non-cash financing activities
|
||||||||||||
|
Compensation
recognized under stock incentive plan
|
$ | 1,880,967 | $ | - | $ | 1,880,967 | ||||||
F-25
FUND.COM
INC.
(A
Development Stage Company)
Notes to
the Consolidated Financial Statements
For year
ended December 31, 2008 and for the period September 20, 2007 (inception)
through
December 31, 2007
NOTE 10 – SUBSEQUENT EVENTS
Proposed Investment in
National Holdings Corporation
On April
8, 2009, the Company entered into a definitive Securities Purchase Agreement
(the “Purchase Agreement”), with National Holdings Corporation, a Delaware
corporation (“NHC”) whereby the Company has agreed to provide a minimum $5
million financing to NHC (the “Financing”) after the satisfaction or waiver of a
number of closing conditions set forth in the Purchase Agreement, in exchange
for an aggregate of 5,000 shares of NHC to be created Series C Convertible
Preferred Stock, par value $0.01 per share (the “Series C Preferred Stock”) at a
purchase price of $1,000.00 per share, and warrants, exercisable at any time,
and entitling the holder to purchase up to an aggregate of 25,333,333 shares of
common stock of NHC (on an as-exercised basis) with an exercise price of $0.75
per share. Until such time as the Series C Convertible
Preferred Stock is created and authorized, the Warrants entitle us to purchase
up to an aggregate of 17,500 shares of Series C Convertible Preferred Stock at
an exercise price of $1,000 per share and 2,000,000 shares of NHC common stock
(on an as-exercised basis) with an exercise price of $0.75 per
share. In connection with the Financing, the Company provided NHC
with an initial investment tranche of $500,000, as evidenced by NHC’s limited
recourse promissory note, dated April 8, 2009, which note shall automatically
convert into shares of Series C Preferred Stock upon consummation of the
Financing or, if the Company is unable to close the balance of the
Financing by April 30, 2009, into 666,666 shares of NHC common stock also based
on a $0.75 per common share price. The closing of the Financing is
subject to various and customary closing
conditions and is expected to close on or prior to April 30, 2009. We
borrowed the $500,000 initial tranche from Global Asset Fund Limited, (“GAF”),
through a loan, which is secured by a pledge of NHC’s limited recourse note and
all of our rights and interests in the Purchase Agreement. On May 4,
2009, we entered into an extension agreement with NHC, pursuant to which the
parties agreed to extend the outside date to close the Financing to May 29,
2009. In consideration for obtaining the extension, we agreed that if we
are unable to obtain the funding to consummate the Financing by May 29, 2009, we
would pay up to $200,000 in professional fees incurred by NHC in connection with
the proposed transaction. We further agreed to place such amount in escrow
by May 11, 2009; failing which NHC could terminate the proposed transaction at
that time. On April 29, 2009, our $500,000 NHC limited recourse note
was converted into 666,667 shares of NHC common stock, which are pledged as
collateral to secure our $500,000 loan from GAF. The $500,000 note to GAF is now due and
payable. However, with the extension of the Financing, GAF has not made a
demand for payment. If GAF does demand payment prior to the new closing
date, we expect that they will foreclose on the 666,667 shares of NHC common
stock we received pursuant to the conversion of the Limited Recourse
Note.
The
Company is currently in negotiations with a third party investor to provide the
funding to make the $5.0 million investment in NHC and consummate the
Financing. However, there can be no assurance that the prospective
investor will provide such funding or that the Financing with NHC will be
consummated on terms acceptable to us, if at all. The
closing of the Financing is subject to various and customary closing conditions
and due to an agreed upon extension of the closing date, is expected to close on
or prior to May 31, 2009; as a result, the Financing has not yet
closed.
Working Capital Loan with IP
Global Investors LTD
Effective May 1, 2009, the Company entered
into a $1.343 million line of credit agreement with IP Global under which
the Company is permitted to
receive loans of up to $1,343,000, less $723,000 of prior
advances that the Company received from IP Global through April 30, 2009;
provided that such additional advances are for approved corporate
purposes. In consideration for these advances, the Company: (i)
agreed to pay 9% interest on all advances (including the prior advances), (ii)
granted the lender the right to convert the note into our Class A Common Stock
at $0.60 per share (subject to certain adjustments) and (iii) are obligated to
pay certain fees to the lender. All of the Company’s
subsidiaries guaranteed payment of the note and the Company issued
IP Global a lien on most of our accounts and our
domain name to secure payment of the
Note. Additionally, the
Company agreed to issue IP Global a
warrant to purchase that number of shares of our Class A common stock equal to $1,343,000,
divided by an exercise price of $0.60 per shares (subject to certain
adjustments, including weighted average anti-dilution
adjustments).
F-26