Attached files

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EX-23.1 - CONSENT - Circle Entertainment, Inc.cexe_ex231.htm
EX-21.1 - LIST OF SUBSIDIARIES - Circle Entertainment, Inc.cexe_ex211.htm
EX-31.1 - CERTIFICATION - Circle Entertainment, Inc.cexe_ex311.htm
EX-23.2 - CONSENT - Circle Entertainment, Inc.cexe_ex232.htm
EX-31.2 - CERTIFICATION - Circle Entertainment, Inc.cexe_ex312.htm
EXCEL - IDEA: XBRL DOCUMENT - Circle Entertainment, Inc.Financial_Report.xls
EX-32.1 - CERTIFICATION - Circle Entertainment, Inc.cexe_ex321.htm
EX-32.2 - CERTIFICATION - Circle Entertainment, Inc.cexe_ex322.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-K
 
þ
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended December 31, 2014
 
OR
 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from __________to___________         

Commission File No.  001-33902
 
Circle Entertainment Inc.
 (Exact name of Registrant as specified in its charter)
 
Delaware
 
36-4612924
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification Number)
 
70 East 55th Street
New York, New York 10022
(Address of Principal Executive Offices and Zip Code)
 
Registrant’s Telephone Number, Including Area Code: (212) 838-3100

Securities Registered Pursuant to Section 12(b) of the Act:
 
Title of Each Class
 
Name of Each Exchange on Which Registered
None
   
 
Securities Registered Pursuant to Section 12(g) of the Act:
 
Common Stock, par value $0.01 per share
(Title of Class)
 
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  þ
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes  o       No  þ
 
Indicate by check mark whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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  þ       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    þ    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 the 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.   þ

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer     o
Accelerated filer     o
Non-accelerated filer     o
Smaller reporting company     þ
   
(Do not check if a smaller reporting company)
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  o      No  þ
 
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant on June 30, 2014, based on the closing bid price of such stock on the Pink Sheets on such date, was $205,027.
 
As of February 24, 2015, there were 65,076,162 shares of the registrant’s common stock outstanding.
 
Documents Incorporated by Reference:   None.
 


 
 
 
 
 
Circle Entertainment Inc.
Annual Report on Form 10-K
December 31, 2014
 
     
Page
PART I
 
Item 1.
Business
 
3
       
Item 1A.
Risk Factors
 
10
       
Item 1B.
Unresolved Staff Comments
 
14
       
Item 2.
Properties
 
14
       
Item 3.
Legal Proceedings
 
14
       
Item 4.
Mine Safety Disclosures
 
15
 
PART II
 
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
 
16
       
Item 6.
Selected Financial Data
 
17
       
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
17
       
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
 
21
       
Item 8.
Financial Statements and Supplementary Data
 
22
       
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
 
41
       
Item 9A.
Controls and Procedures
 
41
       
Item 9B.
Other Information
 
42
 
PART III
 
Item 10.
Directors, Executive Officers and Corporate Governance
 
43
       
Item 11.
Executive Compensation
 
47
       
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
 
49
       
Item 13.
Certain Relationships and Related Transactions, and Director Independence
 
52
       
Item 14.
Principal Accountant Fees and Services
 
54
 
PART IV
 
Item 15.
Exhibits and Financial Statement Schedules
 
55
       
SIGNATURES
 
60
 
 
2

 

PART I
 
ITEM 1.  BUSINESS

In this Annual Report on Form 10-K, unless the context indicates otherwise, the words “we,” “us,” “our,” “Circle Entertainment,” and the “Company” collectively refer to Circle Entertainment Inc. (formerly known as FX Real Estate and Entertainment Inc.) and its current consolidated subsidiaries, Circle Entertainment SV-I, LLC, Circle Entertainment SV-Management, LLC, Circle Entertainment SV-Orlando, LLC, Circle Entertainment Orlando-Property LLC, FXL, Inc., Circle Heron LLC, FX Luxury, LLC, and Circle I Drive LLC.

Recent Developments

Liquidation or Dissolution of the Company

Our Board of Directors (the “Board”) is continuing to evaluate a liquidation or dissolution of the Company because our controlling stockholders (as named below) have withdrawn their proposal (as described below) to acquire the Company and we do not currently generate any revenue from our location-based entertainment line of business, which is inactive and will require significant capital and financing to develop and commercialize, and we do not have any definitive funding commitments in place (or the ability to complete equity and/or debt financings) to fund our short-term or long-term liquidity needs, including making cash capital contributions to the Orlando, Florida project in which we have a minority ownership interest to fund the project’s development costs in excess of those budgeted therefor.  Thus far, the development costs for the Orlando, Florida project have significantly exceeded the budgeted costs therefor and, as a result, we are required to fund our ratable portion of such excess costs in order to maintain our minority ownership interest in the Orlando, Florida project.  We are not able to fund our ratable portion of these excess costs and unless we do so our minority ownership interest in the Orlando, Florida project will be significantly diluted in terms of ownership and value.

Our Board has been evaluating a liquidation or dissolution of the Company before our controlling stockholders withdrew their proposal to acquire the Company.

During 2014, our controlling stockholders provided us with $1,250,566 of funding to pay certain of our expenses, which allowed us to continue as a going concern. We have classified that funding as capital contributions in our consolidated financial statements included elsewhere in this report.  There is no assurance that our controlling stockholders will provide any additional funding to us as capital contributions or otherwise.

The Withdrawn Proposal

As has been previously reported, on December 30, 2013, the independent members of the Board received a letter (the "Letter") from Paul C. Kanavos, the President and a greater than 10% stockholder of the Company, Robert F.X. Sillerman, a non-independent member of the Board and a greater than 10% stockholder of the Company, and Brett Torino, a greater than 10% stockholder of the Company, in which Kanavos, Sillerman and Torino proposed to acquire all of the shares of common stock of the Company that they did not beneficially own for a purchase price of $0.03 per share pursuant to a short-form merger and related transactions (the "Proposal").  Messrs. Kanavos, Sillerman and Torino beneficially own more than 50% of the outstanding shares of the Company’s common stock.  In March 2014, Harvey Silverman, a member of our Board, and Mitchell J. Nelson, our Executive Vice President and General Counsel, among others, indicated that they intended to participate with Messrs. Sillerman, Kanavos and Torino in the transactions contemplated by the Proposal.

Consistent with its fiduciary duties, the Board reviewed and evaluated the Letter and the Proposal, including the formation in March 2014 of a Special Committee of independent directors to evaluate the Proposal, made up of Michael J. Meyer and David Ledy.  The Special Committee retained independent legal counsel and an independent financial advisor in connection with its evaluation of the Proposal.

As has been previously reported, on December 31, 2014, CEN Holdings delivered a letter to the independent members of the Board withdrawing the Proposal.
 
Overview of the Company and its Inactive Business
 
Until receipt of the Proposal on December 30, 2013, the Company had been pursuing the development and commercialization of its location-based entertainment line of business since September 10, 2010, which is inactive and will require significant capital and financing to develop and commercialize.  The Company does not currently generate any revenue from its inactive location-based entertainment line of business and, as described below, its expenses had been funded by proceeds from a development loan for the Orlando, Florida project and under a Funding Agreement (as described below) between the project owner (which is controlled by Messrs. Sillerman, Kanavos and Torino) and the Company. However, the funding by the project owner under the Funding Agreement, which began during the fourth quarter of 2012, has exceeded the Funding Agreement’s limit and, thus, ceased in December, 2013. Messrs. Kanavos, Sillerman and Torino financed substantially all of the Company’s short-term liquidity requirements from 2010 through 2014 and currently continue to do so at their discretion.

 
3

 
 
As has been previously reported, in November 2012, the Company restructured its position under the existing transaction agreement (the “Transaction Agreement”, as more particularly described herein) for the Orlando project (i.e ., co-development of an entertainment destination center on International Drive in Orlando, Florida) pursuant to a First Amendment to the Transaction Agreement and Assignment of Rights (the “First Amendment”, as more particularly described herein).

Also has been previously reported, in August 2012, the Company terminated its SkyView™ related license and development agreements (the “SkyView Agreements”, as more particularly described herein) pursuant to a termination and settlement agreement as described herein.

In connection with the First Amendment, an institutional investor/lender (the  “Financing Source”) acquired the parcel of property designated under the Transaction Agreement for the Orlando project  (the “Square Parcel”), and leased the Square Parcel to entities owned by I Drive Live Parent, LLC (the “Project Owner”), which is an affiliate of Messrs. Kanavos, Sillerman and Torino  (the “Company Principals”) and others (collectively, the “Principals”), and provided financing for the construction of the Orlando project, which such  Principals  guaranteed as a condition to obtaining the financing.  The Company received an 8.5% ownership interest in the Project Owner and benefitted from a funding agreement (the “Funding Agreement”) with the Project Owner entered into pursuant to which certain of the Company’s then outstanding obligations (approximately $5,700,000) were satisfied by the Project Owner, including those required to be satisfied in connection with our termination of the SkyView Agreements pursuant to a Termination and Settlement Agreement (as more particularly described herein).  The Project Owner also agreed to fund Company’s reasonable overhead between $100,000 and $250,000 a month as long as the Financing Source continued to fund the construction requirements under the facility for the Orlando project that was entered into simultaneously with the closing, and if insufficient to meet those expenses, then each of Paul C. Kanavos and Mitchell J. Nelson, executive officers of the Company, have agreed to subordinate his salary to the payment of the other overhead expenses, and the consultant of the Company with the ownership interest in the Project Owner has also agreed to subordinate his consulting fees to the payment of the other overhead expenses.  As of December 31, 2014, the Company is in arrears on current year salaries and consulting fees due to its executive officers and consultants. Amounts accrued to Mr. Kanavos are approximately $1,711,791 as of December 31, 2014. Amounts accrued to Mr. Nelson are approximately $806,250 as of December 31, 2014.  The Company has amounts accrued to Maple Hill Companies LLC, the consultant referenced above, of approximately $600,000 as of December 31, 2014. Such amounts are included in the item “Accounts payable and accrued expenses” set forth on the Company’s consolidated balance sheets included elsewhere in this report.  More specific details regarding these developments, as they evolved, are contained in this Section.

As indicated above, our Board is continuing to evaluate a liquidation or dissolution of the Company because our controlling stockholders have withdrawn their Proposal to acquire the Company and we do not currently generate any revenue from our location-based entertainment line of business, which is in active and will require significant capital and financing to develop and commercialize, and we do not have any definitive funding commitments in place (or the ability to complete equity and/or debt financings) to fund our short-term or long-term liquidity needs, including making cash capital contributions to the Orlando, Florida project in which we have a minority ownership interest to fund the project’s development costs in excess of those budgeted therefor. As a result, we have received an opinion from our auditor expressing substantial doubt as to our ability to continue as a going concern.

Investors should read all of the information set forth in this Annual Report on Form 10-K in order to better understand the financial condition of, and risks of investing in, the Company.
 
 Evolution of the Company’s Business Prior to Becoming Inactive

The Transaction Agreement

As has previously been reported, on February 28, 2011, in furtherance of its location-based entertainment line of business, the Company, through its  wholly-owned subsidiary Circle Entertainment Property-Orlando, LLC (the “Circle Subsidiary”), entered into a Transaction Agreement with The Square, LLC, Orlando Hotel International SPE, LLC, and Orlando Hotel International SPE Holdings, LLC (The Square, LLC, Orlando Hotel International SPE, LLC, and Orlando Hotel International SPE Holdings, LLC are collectively the “Whittall Parties”) to co-develop a project in Orlando, Florida on which the Company’s SkyView™ observation wheel was to be placed beside retail, restaurant and bar and entertainment facilities.

Under the Transaction Agreement, the Circle Subsidiary agreed to acquire a 65% interest in the ownership of two adjacent properties, the “OHI Parcel” of 10 acres and the “Square Parcel” of 18 acres (collectively, the “Property”), then owned by certain of the Whittall Parties, and located on International Drive in Orlando, Florida.  The closing of the transaction, which was initially estimated to occur in the second half of 2011 and was delayed  (until the closing held simultaneously with the execution of the First Amendment), was subject to the satisfaction of a number of conditions, including (a) the rearrangement of the existing first mortgage loans on the Property with CIBC (the “CIBC Loan”) to extend their existing maturity dates for five years and increase the principal balances thereof by approximately $11 million in the aggregate (the proceeds of which are to be used to improve the Property and for tenant installations); (b) acquiring good title to the Property; and (c) the new property owner entering into a 99-year lease for property upon which the Company’s SkyView™ observation wheel and a 25,000 square foot retail, service and maintenance building will be located.  The Circle Subsidiary was responsible for funding certain obligations between execution of the Transaction Agreement and the closing as follows:  (a) $65,000 for reimbursement of real estate tax escrow payments for November and December 2010; (b) approximately $20,000 per month for real estate tax obligations after December 2010; (c) $50,000, representing approximately 65% of the monthly interest payments required (prepayment of a portion may be required to maintain CIBC interest reserves); (d) up to $45,000 per month for architectural and engineering services relating to the site design; and (e) 65% of ongoing property expenses, estimated at $2,000 per month.  The Whittall Parties were to be responsible for funding 35% of the obligations specified in clauses (b)-(e) in the previous sentence.  The Property was to be developed in two phases, each constituting approximately 102,000 square feet.  The closing of the CIBC Loan was contingent on pre-leasing of approximately 102,000 square feet at the Property, of which the SkyView™ observation wheel was to be 25,000 square feet.   As part of the closing, the Circle Subsidiary was required to fund $5 million in the aggregate towards the development of the Property (but amounts advanced as set forth above were to be offset against the funding required at closing).  In addition to the required equity contributions, under the terms of the CIBC Loan, the Company was responsible for building and installing the SkyView™ observation wheel and terminal building at an approximate cost of $50 million and needed to arrange the financing necessary to do so.   
 
 
4

 
 
The foregoing description of the Transaction Agreement is not complete and is qualified in its entirety by reference to the full text of the Transaction Agreement, a copy of which is listed and incorporated by reference as Exhibit 10.23 to this report and is incorporated by reference herein.

For over 18 months, the Company sought potential financing for the development of an entertainment destination center in Orlando, Florida as contemplated by the Transaction Agreement to no avail.  Based on the Company’s tenuous financial condition, the large scale of the project, the complexity of construction of an observation wheel, arranging appropriate financing without significant credit support from the Company proved to be impossible.

However, eventually, the Financing Source emerged and agreed to explore possible methods for financing the purchase of the property, its development and erection of the observation wheel as an entertainment destination center, but only if acceptable credit enhancements would come forward.  The Principals agreed to provide personal guarantees and other consideration (as described below) which served as the basis for the Financing Source to finalize the transaction.

As a result, the restructuring incorporated in the First Amendment was proposed.  Because of the Company Principals’ involvement in these transactions, the Company’s Board of Directors appointed a special committee of the independent members of the Board to consider whether the proposed transaction was fair, from a financial view, to non-participating and unaffiliated shareholders of the Company.  The Special Committee retained independent counsel and a financial advisor and concluded, with the assistance of such advisors, that the proposed transaction is fair, from a financial view, to the Company’s non-participating and unaffiliated shareholders.

The First Amendment to the Transaction Agreement

The Transaction Agreement was terminated on November 16, 2012 with respect to the “Square Parcel” (consisting of 18 acres) to facilitate the sale of the Square Parcel to ID Center (FL) LLC, an unaffiliated third party owned by the Financing Source, and related transactions to proceed with development of the Square Parcel.  The Financing Source’s purchase of the Square Parcel was financed with a $60,000,000 acquisition and construction loan with CIBC (Canadian Imperial Bank of Canada).
 
Termination of the Transaction Agreement with respect to the Square Parcel was effectuated upon the Company’s entry into the First Amendment.  Under the First Amendment, the Company assigned all of its rights in the Square Parcel along with all of its right, title and interest to all development plans, licenses, and related intellectual property, as well as other rights and agreements developed in connection and pursuant to the Transaction Agreement relating to the Square Parcel to the Project Owner and its subsidiaries IDL Master Tenant, LLC and IDL Wheel Tenant, LLC (collectively, the “IDL Subsidiaries”);

The Transaction Agreement had remained in effect with respect to the other property known as the “OHI Parcel" (consisting of 10 acres) until it expired on December 31, 2013.

The foregoing description of the First Amendment is not complete and is qualified in its entirety by reference to the full text of the First Amendment, which is listed and incorporated by reference as Exhibit 10.24 and is incorporated herein by reference.

In consideration of the First Amendment:

the Financing Source through an affiliate entered into two long-term leases with the IDL Subsidiaries, pursuant to which the Square Parcel will be developed into an entertainment destination center anchored by an observation wheel (one long-term lease is for 40 years and relates to the destination center, while the other long-term lease is for 99 years and relates to the observation wheel);

the Financing Source through an affiliate provided a construction loan of $50,000,000 to the Parent and the IDL Subsidiaries to finance construction of the center and observation wheel;

The Company Principals (namely Robert F.X. Sillerman, Paul C. Kanavos and Brett Torino) and Charles Whittall (together with the Company Principals, the “Principals”) personally guaranteed $40,000,000 of the loan for construction of the observation wheel, $40,000,000 of the loan for completion of the center (with a several limit of $10,000,000),  the destination center lease rent for 5 years from opening and the wheel lease rent for 3 years from opening,  and a standard environmental indemnity.  To the extent the Company has a pro rata interest, it would be responsible for contributing its pro rata share under a guarantee, but it will not have primary liability to the guaranteed party;

 
5

 
 
(i) the Company received an 8.5% membership interest in the Parent subject to the terms and conditions of the Parent’s operating agreement (the “Operating Agreement”) into which the Company and the Principals entered on November 16, 2012 and a description of which is set forth below and (ii) the Company received a commitment from the Project Owner and the IDL Subsidiaries to disburse to the Company certain of the construction loan proceeds they receive from the Financing Source subject to the terms and conditions of the Funding Agreement into which the parties entered on November 16, 2012 and a description of which is set forth below; and

The Principals and the Company agreed to share with the Financing Source 10% of the profits in excess of $90,000,000 generated from one or more observation wheels in which all or any of them have an ownership interest for 7 years after completion of this destination center and observation wheel.
 
The completion of the foregoing transactions on November 16, 2012 represented a restructuring of those originally contemplated under the Transaction Agreement.

The Second Amendment to the Transaction Agreement

On December 31, 2014, the Transaction Agreement expired as to the other property, known as the “OHI Parcel”, consisting of 10 acres in Orlando, Florida.  As has been previously reported, on June 11, 2013, the Company and the other parties to the Transaction Agreement entered into the Second Amendment to Transaction Agreement (the “Second Amendment”) pursuant to which the closing date for acquisition of the OHI Parcel was extended to December 31, 2013 from June 30, 2013.  In addition, pursuant to the Second Amendment to Transaction Agreement, the Company’s required capital contribution to purchase the 65% interest in the OHI Parcel has been increased from $1,000,000.00 to $2,000,000.00. As an inducement for the Whittal Parties to enter into the Second Amendment to Transaction Agreement, certain of the majority owners of the Project Owner, who are also the majority stockholders of the Company, agreed to extend the Whittal Parties a loan of up to $2,000,000.00 to fund tenant improvements on the OHI Parcel.

However, the closing of the acquisition of the OHI Parcel did not occur on December 31, 2013.  As a result, the Transaction Agreement, as amended by the Second Amendment, expired.  There are no further discussions between the parties relating to the OHI Parcel.

The foregoing description of the Second Amendment is not complete and is qualified in its entirety by reference to the full text of the Second Amendment, which is listed and incorporated by reference as Exhibit 10.31 and is incorporated herein by reference.
 
Operating Agreement

Subject to the terms and conditions of the Operating Agreement, the Company, through a wholly-owned subsidiary, owns an 8.5% membership interest in the Project Owner while the Principals (through corporate affiliates) own approximately 87.25% of the total membership interests in the Project Owner and a consultant to the Company owns approximately 4.25%.

Pursuant to the Operating Agreement, the affairs of Project Owner will be managed by managers selected by the members other than the Company.  The Company will be liable for its pro rata share of required additional capital contributions, but the remedies if it is unable to fund all or any portion of required additional capital contributions would be dilution of the Company’s membership interest (dilution of 25% and 50% for the first and second time, respectively, and dilution of 25% for each time thereafter), subordination of the Company's right to receive distributions of net cash flow and the loss of the Company's voting rights.  Voting by members is in accordance with percentage interests, so the Company’s vote of 8.5% will, in all likelihood, not be significant in decision-making authority.  The Operating Agreement further provides that the transfer of membership interests may only be made with consent of a super-majority of the non-transferring members.  There are tag-along rights in the event a member decides to sell its membership interest.  Under the Operating Agreement, distributions of cash or property  will be made first, to members for a preferred return of 12% per annum on their capital contributions; second, to unreturned additional capital contributions; and third, in accordance with percentage interests.  Because of the terms of the loans on the Square Parcel, it is not anticipated that the Company will receive any distributions until the $50,000,000 loan to construct the observation wheel is paid off, as the Financing Source has a cash sweep provision and will apply all excess cash to repayment of the loan and interest earned thereon, estimated to be a minimum of more than 5 years from closing.  There is no assurance that there will ever be distributions to the Company under the Operating Agreement or the amount of any such distributions.

The foregoing description of the Operating Agreement is not complete and is qualified in its entirety by reference to the full text of the Operating Agreement, which is listed and incorporated by reference as Exhibit 10.25 and is incorporated herein by reference.
 
Funding Agreement

Under the Funding Agreement, certain proceeds shall be disbursed to the Company from project financing, from time to time, only if, as and when disbursed by the lenders.  The Funding Agreement includes a separate commitment to fund between $100,000 and $250,000 a month for ongoing overhead expenses of the Company from the monthly draws for construction and improvements to the property so long as such draws continue, which is anticipated to be approximately 18 to 20 months (from December 2012) during the construction period and if insufficient to meet those expenses, then each of Paul C. Kanavos and Mitchell J. Nelson, executive officers of the Company,  have agreed to subordinate his salary to the payment of  the other overhead expenses, and the consultant of the Company with the ownership interest in the Project Owner has also agreed to subordinate his consulting fees to the payment of  the other overhead expenses. As of December 31, 2014, the Company is in arrears on current year salaries and consulting fees due to its executive officers and consultants. Amounts accrued to Mr. Kanavos are approximately $143,554 as of December 31, 2014. Amounts accrued to Mr. Nelson are approximately $150,000 as of December 31, 2014. The Company has amounts accrued to Maple Hills Companies LLC, the consultant referenced above, of approximately $300,000 as of December 31, 2014. Such amounts are included in the item “Accounts payable and accrued expenses” set forth on the Company’s consolidated balance sheets included elsewhere in this report.
 
 
6

 
 
As a result of the closing the following outstanding obligations were satisfied:  the balance of monies due under the Termination and Settlement Agreement; services relating to the Orlando project, consisting of project management, legal, shared services for project support, architecture, and ride engineering; shared services due to Viggle Inc. (as described under “Item 13. Certain Relationships and Related Transactions, and Director Independence” of this report); compensation due to Paul Kanavos; consulting fees due for project and general services; expenses due to Company employees; administrative payroll; office rent; and fees owed to the special financial advisor.  Additionally, $650,000 was funded in consideration of the settlement of the stockholder derivative lawsuit (as described under “Item 3. Legal Proceedings” of this report), although it could not be paid at the time of the Funding Agreement.

 However, the funding by the project owner under the Funding Agreement, which began during the fourth quarter of 2012, has exceeded the Funding Agreement’s limit and, thus, ceased in December, 2013. Messrs. Kanavos, Sillerman and Torino financed substantially all of the Company’s short-term liquidity requirements from 2010 through 2014 and currently continue to do so at their discretion.

The foregoing description of the Funding Agreement is not complete and is qualified in its entirety by reference to the full text of the Funding Agreement, which is listed and incorporated by reference as Exhibit 10.26 and is incorporated herein by reference.
 
The SkyViewAgreements

On September 10, 2010, we, through our wholly-owned subsidiary, Circle Entertainment SV-I, LLC (“Circle”), entered into an Exclusive License Agreement (the “License Agreement”) with William J. Kitchen ("Kitchen") and US ThrillRides, LLC (Kitchen’s wholly-owned corporate affiliate, "ThrillRides" and together with Kitchen, the "ThrillRides Parties"), pursuant to which the ThrillRides Parties granted a worldwide exclusive license to us to use and commercially exploit all of Kitchen’s patents, ThrillRides’ trademark and Kitchen’s other intellectual property, trade secrets and know-how pertaining to all aspects of the adaptation of an observation wheel legally known as a SkyView™ including, without limitation, its engineering, design, development, construction, operation and maintenance (collectively, the "SkyView Technology").  Concurrently with their entry into the License Agreement, the parties also entered into a related Development Agreement (the "Development Agreement") pursuant to which the ThrillRides Parties are responsible for the supervision and management of the construction, development, and installation of SkyViews on our behalf.
 
Termination of the SkyView Agreements

On August 23, 2012, a Termination and Settlement Agreement was entered into by the Company, terminating the License Agreement and the Development Agreement (together with the License Agreement, the “ SkyView™ Agreements ”) relating to the SkyView™ technology.  The principal terms of the Termination and Settlement Agreement are as follows:

1.  
The parties to the SkyView™ Agreements have released each other from all obligations thereunder.

2.  
Circle (including, among others, its affiliates, sub-licensees and assigns) will have the right, but not the obligation, to use the SkyView™ escape technology in as many as four (4) wheel amusement rides:  one in Orlando, Florida and three (3) others at sites to be designated within 36 months.  Each designated site will be protected by a 100 mile geographic radius against competing wheel amusement rides affiliated with the ThrillRides Parties (as well as their affiliates, successors, assigns and other specified persons).

3.  
To the extent that there are any improvements made in the escape system (which may be used exclusively for that purpose), Kitchen will be the owner of such improvements.
 
 4.  
Circle has paid $290,000 towards legal fees purportedly due under the SkyView™ Agreements in connection with protecting Kitchen’s intellectual property through patent filings and certain pending third party litigation and will be required to pay up to an additional $150,000 for related legal fees incurred by Kitchen.  Circle has also paid $40,000 to reimburse the ThrillRides Parties for expenses incurred by them under the SkyView™ Agreements.

5.  
Circle paid Kitchen a one-time $4 million royalty in November 2012 upon closing the First Amendment and the related financing transactions with the Financing Source to fund construction of the Orlando project.

The foregoing description of the Termination and Settlement Agreement is not complete and is qualified in its entirety by reference to the full text of the form of Termination and Settlement Agreement which is listed and incorporated by reference as Exhibit 10.27 and is incorporated herein by reference.

The Company’s obligations under the Termination and Settlement Agreement have been fully funded and its other obligations satisfied as of the date hereof.
 
 
7

 
 
The Company’s Former Line of Business
 
As has been previously reported, on December 15, 2010, our former subsidiary which had owned property in Las Vegas, Nevada for redevelopment was reorganized and emerged from its Chapter 11 bankruptcy proceeding under new ownership pursuant to its plan of reorganization as confirmed by the bankruptcy court on November 8, 2010.   As a result, we no longer have an ownership interest in such property.  
 
The Company’s Sources of Funding for the Years 2014, 2013, 2012 and 2011

As described below, Messrs. Kanavos, Sillerman and Torino financed substantially all of the Company’s short-term liquidity requirements from 2010 through 2014 and currently continue to do so at their discretion.

Capital Contributions and the Funding Agreement

During 2014, the Company funded its short-term capital requirements through capital contributions of approximately $1,250,566 provided by Messrs. Kanavos, Sillerman and Torino.
 
During 2013, the Company funded its short-term capital requirements with funding of approximately $1,900,000 under the Funding Agreement.

As a result, the Company recorded equity contributions during the years ended December 31, 2014 and 2013 in the amount of approximately $1,250,566 and $605,346, respectively.

During the fourth quarter of 2012, the Company funded its short-term capital requirements and obligations under the Termination and Settlement Agreement with funding of approximately of $ 5,700,000 under the Funding Agreement.
 
Series B Convertible Preferred Stock Units

On February 8 through February 14, 2011, the Company entered into subscription agreements with accredited investors, pursuant to which the purchasers purchased from the Company an aggregate of 330 units at a purchase price of $1,000 per unit. Each unit consists of (x) one share of the Company’s newly issued Series B Convertible Preferred Stock, and (y) a warrant to purchase up to a specified number of shares of the Company’s common stock (determined based on the product of (i) the initial stated value of $1,000 per share of Series B Convertible Preferred Stock divided by the weighted average closing price per share of the Company’s common stock as reported on the Pink Sheets over the 30-day period immediately preceding the applicable closing date and (ii) 200%) at a specified exercise price per share (such exercise price representing 150% of the applicable closing price referred to in preceding clause (i)).  The number of shares of the Company’s common stock underlying each warrant ranges from 3,175.61 shares to 5,538.62 shares and the exercise price per share at which each warrant is exercisable ranges from $0.3149 to $0.5417 due to variances in the closing prices referenced in clause (y) of the preceding sentence. The warrants are exercisable for a period of 5 years.   The Company generated aggregate proceeds of $330,000 from the sale of the units.  The Company used the proceeds to fund working capital requirements and for general corporate purposes.  The Company also issued 35 shares of Series B convertible Preferred Stock in satisfaction of a $35,000 sales commission owed to an individual in connection with previous sales of the Company’s securities in the offering.

On February 15 through March 8, 2011, the Company entered into subscription agreements with certain of its directors, executive officers and greater than 10% stockholders and other accredited investors, pursuant to which the purchasers purchased from the Company an aggregate of 85 units at a purchase price of $1,000 per unit. Each unit consists of (x) one share of the Company’s Series B Convertible Preferred Stock, $0.01 par value per share, and (y) a warrant to purchase up to a specified number of shares of the Company’s common stock (determined based on the product of (i) the initial stated value of $1,000 per share of Series B Convertible Preferred Stock divided by the weighted average closing price per share of the Company’s common stock as reported on the Pink Sheets over the 30-day period immediately preceding the applicable closing date and (ii) 200%) at a specified exercise price per share (such exercise price representing 150% of the applicable closing price referred to in preceding clause (i))  The number of shares of the Company’s common stock underlying each warrant ranges from 2,676 shares to 2,820 shares and the exercise price per share at which each warrant is exercisable ranges from $0.5319 to $0.5606 due to variances in the closing prices referenced in clause (y) of the preceding sentence. The warrants are exercisable for a period of 5 years.  The Company generated aggregate proceeds of $85,000 from the sale of the units.  The Company used the proceeds to fund working capital requirements and for general corporate purposes.
 
 
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Unsecured Demand Loans

In the year 2011, certain of the Company’s directors, executive officers and greater than 10% stockholders made unsecured demand loans to the Company totaling $7,050,000, bearing interest at the rate of 6% per annum.

On January 30 through January 31, 2012, certain of the Company’s directors, executive officers and greater than 10% stockholders made unsecured demand loans to the Company totaling $750,000, bearing interest at the rate of 6% per annum.

On March 8 through March 13, 2012, certain of the Company’s directors, executive officers and greater than 10% stockholders made unsecured demand loans to the Company totaling $600,000, bearing interest at the rate of 6% per annum.

On April 10 through April 16, 2012, certain of the Company’s directors, executive officers and greater than 10% stockholders made unsecured demand loans to the Company totaling $750,000, bearing interest at the rate of 6% per annum.

On June 7 through June 11, 2012, certain of the Company’s directors, executive officers and greater than 10% stockholders made unsecured demand loans to the Company totaling $450,000, bearing interest at the rate of 6% per annum.

On July 20 through July 25, 2012, certain of the Company’s directors, executive officers and greater than 10% stockholders made unsecured demand loans to the Company totaling $450,000, bearing interest at the rate of 6% per annum.

On August 16 through August 17, 2012, certain of the Company’s directors, executive officers and greater than 10% stockholders made unsecured demand loans to the Company totaling $400,000, bearing interest at the rate of 6% per annum.

On August 29, 2012, certain of the Company’s directors, executive officers and greater than 10% stockholders made unsecured demand loans to the Company totaling $200,000, bearing interest at the rate of 6% per annum.

On October 1, 2012, certain of the Company’s directors, executive officers and greater than 10% stockholders made unsecured demand loans to the Company totaling $285,000, bearing interest at the rate of 6% per annum.

On October 18, 2012, certain of the Company’s directors, executive officers and greater than 10% stockholders made unsecured demand loans to the Company totaling $75,000, bearing interest at the rate of 6% per annum.

On November 7, 2012, certain of the Company’s directors, executive officers and greater than 10% stockholders made unsecured demand loans to the Company totaling $75,000, bearing interest at the rate of 6% per annum.

The Company used the loan proceeds to fund working capital requirements and for general corporate purposes. Because certain of the directors, executive officers and greater than 10% stockholders of the Company made the loans, a majority of the Company’s disinterested directors approved the loans.

Intellectual Property
 
We do not currently have any intellectual property rights. If we acquire any intellectual property rights in the future then we intend to protect any such intellectual property rights through a combination of patent, trademark, copyright, rights of publicity, and other laws, as well as licensing agreements and third party nondisclosure and assignment agreements.  Our failure to obtain or maintain adequate protection of our intellectual property rights for any reason could have a material adverse effect on our business, financial condition and results of operations.
 
Employees
 
As of December 31, 2014, the Company had a total of 1 full-time employee.  Management considers its relations with its employee to be good.
 
Principal Executive Offices
 
The principal executive offices of the Company are located at 70 East 55th Street, New York, New York 10022 and our telephone number is (212) 796-8199.
 
 
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Available Information
 
The Company is subject to the informational requirements of the Securities Exchange Act of 1934 and electronically files reports and other information with, and electronically furnishes reports and other information to, the Securities and Exchange Commission. Such reports and other information filed or furnished by the Company may be inspected and copied at the Securities and Exchange Commission’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Please call the Securities and Exchange Commission at 1-800-SEC-0330 for further information on the operation of the Public Reference Room. The Securities and Exchange Commission also maintains an Internet site that contains reports, proxy statements and other information about issuers, like us, who file electronically with the Securities and Exchange Commission. The address of the Securities and Exchange Commission’s website is http://www.sec.gov.
 
In addition, the Company makes available free of charge through its website, http://fxle.client.shareholder.com its Annual Reports on Form 10-K, 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, as amended, as soon as reasonably practicable after such documents are electronically filed with, or furnished to, the Securities and Exchange Commission. This reference to our Internet website does not constitute incorporation by reference in this report of the information contained on or hyperlinked from our Internet website and such information should not be considered part of this report.
      
 ITEM 1A.  RISK FACTORS
 
Various portions of this report contain forward-looking statements that involve risks and uncertainties. Actual results, performance or achievements could differ materially from those anticipated in these forward-looking statements as a result of certain risk factors, including those set forth below and elsewhere in this report.  These risk factors are not presented in the order of importance or probability of occurrence.

Risks Related to Our Business

We have no existing operations or operating history with respect to our location-based entertainment line of business and, thus, our Board is evaluating a liquidation or dissolution of the Company.

Our Board is evaluating a liquidation or dissolution of the Company because our controlling stockholders have withdrawn their Proposal (as described elsewhere in this report) to acquire the Company and we do not currently generate any revenue from our location-based entertainment line of business, which is inactive and will require significant capital and financing to develop and commercialize, and we do not have any definitive funding commitments in place (or the ability to complete equity and/or debt financings) to fund our short-term or long-term liquidity needs, including making cash capital contributions to the Orlando, Florida project in which we have a minority ownership interest to fund the project’s development costs in excess of those budgeted therefor.

During 2014, our controlling stockholders provided us with $1,250, 566 of funding to pay certain of our expenses, which allowed us to continue as a going concern.  There is no assurance that our controlling stockholders will provide any additional funding to us as capital contributions or otherwise.

  Because we do not currently generate any revenue, we are dependent on our controlling stockholders’ discretionary financing to continue as a going concern.

Our controlling stockholders financed substantially all of the Company’s short-term liquidity requirements from 2010 through 2014 and currently continue to do so at their discretion. Because we do not currently generate any revenue, we are dependent on such discretionary financing to continue as a going concern. As a result of the foregoing, our Board is evaluating a liquidation or dissolution of the Company.

If the Company is not liquidated or dissolved, our capital requirements will be significant to develop and commercialize our location-based entertainment line of business, which is inactive, and we may not be able to raise capital to satisfy these significant requirements on terms that are not unduly expensive or burdensome to us or disadvantageous to our existing stockholders or at all.

If the Company is not liquidated or dissolved, we will need significant amounts of capital to develop and commercialize our location-based entertainment line of business, which is inactive. Currently, we have no established long-term financing arrangements. Therefore, we will need to seek long-term financing through the issuance of equity, the incurrence of debt, and/or through strategic partnerships as well as other arrangements with corporate partners.

Even if we are able to raise additional cash or obtain financing through the public or private sale of debt and/or equity securities, funding from joint-venture or strategic partners, debt financing or short-term loans, the terms of such transactions may be unduly expensive or burdensome to us or disadvantageous to our existing stockholders. For example, we may be forced to sell or issue our securities at significant discounts to market, or pursuant to onerous terms and conditions, including the issuance of preferred stock with disadvantageous dividend, voting or veto, board membership, conversion, redemption or liquidation provisions; the issuance of convertible debt with disadvantageous interest rates and conversion features; the issuance of warrants with cashless exercise features; the issuance of securities with anti-dilution provisions; the issuance of high-yield securities and bank debt with restrictive covenants and security packages; and the grant of registration rights with significant penalties for the failure to quickly register. If we are able to raise debt financing, we may be required to secure the financing with all of our future business assets, which could be sold or retained by the creditor should we default in our payment obligations.
 
 
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Our independent registered public accounting firm has rendered a report expressing substantial doubt as to our ability to continue as a going concern.
 
Our independent registered public accounting firm has issued an audit report dated February 24, 2015 in connection with the audit of our consolidated financial statements as of and for the period ending December 31, 2014 that includes an explanatory paragraph expressing substantial doubt as to our ability to continue as a going concern due to our need to secure additional capital in order to pay our obligations as they become due. Our controlling stockholders financed substantially all of the Company’s short-term liquidity requirements from 2010 through 2014 and currently continue to do so at their discretion. Our Board is evaluating a liquidation or dissolution of the Company.

The concentration of ownership of our capital stock with our affiliates will limit your ability to influence corporate matters.
 
Robert F.X. Sillerman, a director of the Company, and Paul C. Kanavos, our President, beneficially own in the aggregate approximately 57.28% of our outstanding common stock and 33% of our outstanding Series A and Series B Convertible Preferred Stock, and our executive officers and directors together beneficially own approximately 60.43% of our outstanding common stock and 51% of our outstanding Series A and Series B Convertible Preferred Stock. Our executive officers and directors therefore have the ability to influence our management and affairs and the outcome of matters submitted to stockholders for approval, including a plan of liquidation or dissolution, the election and removal of directors, amendments to our charter, approval of any equity-based employee compensation plan and any stock splits or any merger, consolidation or sale of all or substantially all of our assets. As a result of this concentrated control, unaffiliated stockholders of our company have a limited ability to meaningfully influence corporate matters and, as a result, we may take actions that our unaffiliated stockholders do not view as beneficial. As a result, the value and/or liquidity of our common stock could be adversely affected.
 
We have potential business conflicts with certain of our executive officers because of their relationships with other entities and their ability to pursue business activities for themselves and others that may compete with our business activities.
 
Potential business conflicts exist between us and our executive officers as a result of the following:
 
 
Paul Kanavos, our President, is permitted to devote a portion of his time to providing services for or on behalf of Flag Luxury Properties, LLC and to other businesses, so long as he devotes sufficient time to satisfy his work requirements with our company.
     
 
Mitchell J. Nelson, our Executive Vice President and General Counsel, is permitted to devote a portion of his time to providing services for or on behalf of Viggle Inc., a publicly-traded company, and SFX Entertainment Inc., a publicly-traded company, for each of which Mr. Sillerman is the Executive Chairman, Chief Executive Officer and controlling stockholder, and with which we have shared services agreements, and to other businesses, so long as he devotes sufficient time to satisfy his work requirements with our company.
  
We may not be able to resolve any potential conflicts with these executive officers. Even if we do so, however, because of their ownership interest in us, these executive officers will have leverage with negotiations over their performance that may result in a resolution of such conflicts that may be less favorable to us than if we were dealing with another third party.
 
We have entered into related party transactions on terms that some stockholders may consider not to be in their best interests.

 We have entered into shared services agreements with entities controlled by Robert F.X. Sillerman, a director and our largest stockholder, whereby certain of our employees, including our General Counsel and Executive Vice President, Mitchell J. Nelson, are permitted to devote a portion of their time providing services to such entities.  Because such agreements are subject to certain rules regarding “affiliated” transactions, a majority of the independent members of the Board of Directors and the Audit Committee of the Board of Directors each approve such agreements, which are summarized as follows.  The terms of these agreements, despite being approved by the independent members of the Board of Directors and the Audit Committee, may not be considered by some stockholders to be in their best interests.

As of February 15, 2011, the Company entered into a shared services agreement with Function (x) Inc., now known as Viggle, Inc. (“Viggle”), pursuant to which it shares costs for legal services and administrative services in support of Mitchell J. Nelson, its General Counsel and Executive Vice President to Viggle.  The shared services agreement provides, in general, for sharing on a 50/50 basis of the applicable support provided by either company to Mr. Nelson in connection with his services for each company, and an allocation generally based on the services provided by Mr. Nelson, which are initially estimated to be divided evenly between the companies.  Viggle will initially be responsible for advancing the salary to Mr. Nelson for both companies and will be reimbursed by the Company for such salary and benefits (but not for any bonus, option or restricted share grant made by either company, which will be the responsibility of the company making such bonus, option or restricted share grant).  The agreement provides for the President of each company to meet periodically to assess whether the services have been satisfactorily performed and to discuss whether the allocation has been fair.  The audit committees of each company’s board of directors will then review and, if appropriate, approve the allocations made and whether payments need to be adjusted or reimbursed, depending on the circumstances.

 
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As of October 31, 2013, the Company has stopped making payments to Viggle for its share of Mr. Nelson’s salary, and Mr. Nelson is not being paid for the 25% of his salary that would be paid by the Company.

As of January 4, 2013, the Company entered into a shared services agreement with SFX Holding Corporation, now known as SFX Entertainment Inc. (“SFX”), pursuant to which it shares costs for legal services and administrative services in support of Mitchell J. Nelson, its Senior Legal Advisor and the Company’s General Counsel.  The shared services agreement provides, in general, for sharing the applicable support provided by either company to Mr. Nelson, and an allocation generally based on the services provided by Mr. Nelson, which are estimated to be divided 25% to Viggle, 50% to SFX, and 25% to the Company.  Mr. Nelson will continue to be paid by Viggle, and SFX will reimburse the Company or Viggle for its portion of such salary and benefits (but not for any bonus, option or restricted share grant made by either company, which will be the responsibility of the company making such bonus, option or restricted share grant).
 
We may lose the services of our key personnel, including certain senior executives and critical consultants and advisors, if we are not able to satisfy our payment obligations under their agreements.
 
Our performance is dependent on the continued efforts of our executive officers and consultants and advisors with whom we have agreements. Due to our current financial situation, there can be no guarantee that we will be able to continue to make required payments under the executive employment agreements for 2012 or required payments under our agreements with critical consultants and advisors.  The loss of the services of any of our executive officers or other key employees or critical consultants and advisors could adversely affect our business.  Such payments have not been made since October 1, 2009.  Amounts accrued for Paul Kanavos are approximately $1,711,791 as of December 31, 2014.  Mr. Kanavos was not paid between October 1, 2009 and March 31, 2011 and has received partial payment of $25,000 per month since April 1, 2011.  Amounts accrued for Mitchell Nelson are approximately $806,250 as of December 31, 2014.  Mr. Nelson was not paid between October 1, 2009 and April 30, 2010 and has received partial payment of $20,000 per month since May 1, 2010, increasing to $25,000 on April 1, 2011.  Messrs. Kanavos and Nelson have each agreed to subordinate his salary to the payment of our other overhead expenses if the funding we receive under the Funding Agreement is insufficient to meet all of our overhead expenses.

We continue to need to enhance our internal controls and financial reporting systems to comply with the Sarbanes-Oxley Act of 2002.
 
We are subject to reporting and other obligations under the Securities and Exchange Act of 1934, as amended, and Section 404 of the Sarbanes-Oxley Act of 2002. Section 404 requires us to assess and attest to the effectiveness of our internal control over financial reporting.  The loss of certain key accounting and finance personnel, coupled with our limited financial and human resources has materially affected our internal controls over financial reporting, including internal controls over accounting for stock based compensation, accounting for long-lived assets and the financial statement close process. In addition, we amended our Annual Report on Form 10-K for the year ended December 31, 2012 to restate its audited consolidated financial statements (other than the consolidated statement of operations) as of December 31, 2012 and for the year then ended to reflect the effects of accounting and reporting errors related to the incorrect classification and recording of the funds the Company received prior to December 31, 2012 under the Funding Agreement.  The funds received by the Company prior to and since December 31, 2012 under the Funding Agreement have been classified and recorded as equity contributions.

As a result, material weaknesses in internal controls over financial reporting, as previously determined since before December 31, 2010, continue to persist.  Although we had initiated a process which would allow our company to remediate the internal control weaknesses, this process has been terminated due to our financial constraints and limited activities.

There is no assurance we will proceed at any time to complete the process, or even if we do that the process will remediate the foregoing internal control weaknesses or prevent the occurrence of additional material weaknesses in our internal control over financial reporting.
 
Risks Related to Our Common Stock
 
If the Company is dissolved or liquidated our common stock will be cancelled automatically and cease being quoted on the Pink Sheets and it is highly likely that the holders of our common stock will not receive any distributions on their common stock in connection therewith because of the Company’s distressed financial condition, among other reasons.

Our common stock will be cancelled automatically and cease being quoted on the Pink Sheets if the Company is dissolved or liquidated and it is highly likely that the holders of our common stock will not receive any distributions on their common stock in connection therewith because of the Company’s distressed financial condition and obligations that are senior to our common stock, including our Series A Convertible Preferred Stock and Series B Convertible Preferred Stock.  Therefore, investing in our common stock is highly speculative.

If the Company is not dissolved or liquidated, substantial amounts of our common stock and other equity securities could be sold in the near future, which could depress our stock price.
 
If the Company is not dissolved or liquidated, the Company will need to sell substantial amounts of common stock and other equity security to continue as a going concern. We cannot predict the effect, if any, that market sales of shares of common stock or the availability of shares of common stock for sale will have on the market price of our common stock prevailing from time to time.
 
 
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All of the outstanding shares of common stock belonging to officers, directors and other affiliates are currently “restricted securities” under the Securities Act. Approximately 55 million shares of these restricted securities are eligible for sale in the public market at prescribed times pursuant to Rule 144 under the Securities Act, or otherwise. Sales of a significant number of these shares of common stock in the public market or the appearance of such sales could reduce the market price of our common stock and could negatively impact our ability to sell equity in the market to fund our business plans. In addition, we expect that we will be required to issue a large amount of additional common stock and other equity securities in order to adequately capitalize the Company. The issuance of these securities could negatively affect the value of our stock.
 
If the Company is not dissolved or liquidated and the Company is able to successfully develop and commercialize its location-based entertainment line of business, we do not anticipate paying cash dividends on our common stock in the foreseeable future, and the lack of dividends may have a negative effect on our stock price.
 
If the Company is not dissolved or liquidated and the Company is able to successfully develop and commercialize its location-based entertainment line of business, which is inactive, we will retain any future earnings to support operations and to finance expansion and therefore do not anticipate paying any cash dividends on our common stock in the foreseeable future. Furthermore, our Series A Convertible Preferred Stock and Series B Convertible Preferred Stock are senior to our common stock as to the right to receive cash dividends.  There are current dividend arrearages on our Series A Convertible Preferred Stock and Series B Convertible Preferred Stock and unless and until such arrearages are satisfied in full, we may not pay cash dividends on our common stock.  In addition, the terms of any future debt agreements we may enter into are likely to prohibit or restrict the payment of cash dividends on our common stock.
 
If the Company is not dissolved or liquidated, our issuance of additional shares of our preferred stock, common stock, or options or warrants to purchase those shares, would dilute proportionate ownership and voting rights.
 
If the Company is not dissolved or liquidated, our issuance of shares of preferred stock, common stock, or options or warrants to purchase those shares, could negatively impact the value of a stockholder’s shares of common stock as the result of preferential voting rights or veto powers, dividend rights, disproportionate rights to appoint directors to our board, conversion rights, redemption rights and liquidation provisions granted to preferred stockholders, including the grant of rights that could discourage or prevent the distribution of dividends to stockholders, or prevent the sale of our assets or a potential takeover of our company that might otherwise result in stockholders receiving a distribution or a premium over the market price for their common stock.
 
We are entitled, under our certificate of incorporation to issue up to 300 million common and 75 million “blank check” preferred shares. After taking into consideration our outstanding common stock and Series A Convertible Preferred Stock and Series B Convertible Preferred Stock as of February 24, 2015, we will be entitled to issue up to 234,923,838 additional common shares, and 74,996,000 preferred shares.  Our board may generally issue those common and preferred shares, or options or warrants to purchase those shares, without further approval by our stockholders based upon such factors as our board of directors may deem relevant at that time. Any preferred shares we may issue shall have such rights, preferences, privileges and restrictions as may be designated from time-to-time by our board, including preferential dividend rights, voting rights, conversion rights, redemption rights and liquidation provisions.
 
We cannot give you any assurance that we will not issue additional common or preferred shares, or options or warrants to purchase those shares, under circumstances we may deem appropriate at the time.
 
Certain provisions of Delaware law and our charter documents could discourage a takeover that stockholders may consider favorable.
 
Certain provisions of Delaware law and our certificate of incorporation and by-laws may have the effect of delaying or preventing a change of control or changes in our management. These provisions include the following:
 
 
Our board of directors has the right to elect directors to fill a vacancy created by the expansion of the board of directors or the resignation, death or removal of a director, subject to the right of the stockholders to elect a successor at the next annual or special meeting of stockholders, which limits the ability of stockholders to fill vacancies on our board of directors.
   
 
Our stockholders may not call a special meeting of stockholders, which would limit their ability to call a meeting for the purpose of, among other things, voting on acquisition proposals.
     
 
Our by-laws may be amended by our board of directors without stockholder approval, provided that stockholders may repeal or amend any such amended by-law at a special or annual meeting of stockholders.
   
 
Our bylaws also provide that any action required or permitted to be taken by our stockholders at an annual meeting or special meeting of stockholders may not be taken by written action in lieu of a meeting.
   
 
Our certificate of incorporation does not provide for cumulative voting in the election of directors, which could limit the ability of minority stockholders to elect director candidates.
   
 
Stockholders must provide advance notice to nominate individuals for election to the board of directors or to propose matters that can be acted upon at a stockholders’ meeting. These provisions may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of our company.
   
 
Our board of directors may authorize and issue, without stockholder approval, shares of preferred stock with voting or other rights or preferences that could impede the success of any attempt to acquire our company.
 
 
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As a Delaware corporation, by an express provision in our certificate of incorporation, we have elected to “opt out” of the restrictions under Section 203 of the Delaware General Corporation Law regulating corporate takeovers. In general, Section 203 prohibits a publicly-held Delaware corporation from engaging, under certain circumstances, in a business combination with an interested stockholder for a period of three years following the date the person became an interested stockholder.
   
ITEM 1B. UNRESOLVED STAFF COMMENTS
 
 As a smaller reporting company, the Company is not required to provide the information required by this Item.
 
ITEM 2.  PROPERTIES
 
The following table sets forth certain information with respect to the Company’s principal location as of December 31, 2014.
 
Location
 
Name of Property
 
Type/Use of Property
 
Approximate Size
 
Owned or Leased
                 
New York, NY
 
Corporate Office
 
Executive Offices
 
5,000 sq. ft.
 
Leased through September 2019(1)
 
(1)  
This lease is cancelable at any time, without premium or payment, at the discretion of the Company.

ITEM 3. LEGAL PROCEEDINGS

Huff Litigation

As has been previously reported, on July 12, 2012, the Company’s then directors Harvey Silverman, Michael J. Meyer, John D. Miller, Robert Sudack, Paul C. Kanavos and Robert F.X. Sillerman, as defendants, Mitchell J. Nelson, an officer of the Company, as a defendant, Brett Torino, a stockholder and former officer of the Company, as a defendant, and certain entities owned and controlled by Messrs. Sillerman, Kanavos and Torino, as defendants, and The Huff Alternative Fund, L.P. and The Huff Alternative Parallel Fund, L.P., then stockholders of the Company, as plaintiffs (collectively, "Huff"), entered into a Stipulation and Settlement Agreement (the "Settlement Agreement") to settle the derivative lawsuit filed on April 28, 2010 by Huff on behalf of the Company in the Supreme Court of the State of New York, County of New York (Index No. 650338/2010E) subject to final approval by such Court.

Under the terms of the Settlement Agreement:

The Company has agreed to elect to its board of directors an additional independent director, who shall also serve as a member of all committees of the board of directors. The Company is required to elect such additional independent director within sixty (60) days after the Effective Date (as such term is defined in the Settlement Agreement) and is not permitted to decrease the number of independent directors for a period of at least three (3) years from the Effective Date;

The Company and the other defendants have agreed to pay the sum of $950,000 to Huff as payment for part of the costs and expenses (including attorneys’ fees) incurred by Huff in connection with the lawsuit and the results achieved in the lawsuit. Such payment is due and payable in full within fifteen (15) days of the Effective Date; and

The Company and the other defendants and Huff have agreed to release the other (including their respective affiliates) from claims related to the lawsuit or any other lawsuit, provided that Huff has preserved certain claims against Mr. Torino and his affiliates (except the Company and the other defendants).

On September 10, 2012, the Settlement Agreement was preliminarily approved by the Supreme Court of the State of New York, County of New York (the "Preliminary Approval") as being fair, reasonable and adequate.

Under the Court’s order for the Preliminary Approval, the Company was required to publish no later than 10 business days from September 10, 2012, the Notice Of Pendency And Proposed Settlement Of Shareholder Derivative Litigation (i) as an exhibit to a Current Report on Form 8-K and (ii) on its website along with the Settlement Agreement.  The Company satisfied in a timely manner the publication requirements cited in the preceding sentence. The Company was also required to publish no later than 10 business days from September 10, 2012 a Summary Notice of Pendency and Proposed Settlement of Shareholder Derivative Litigation once in each of the national editions of The Wall Street Journal and USA Today.  The Company satisfied in a timely manner the foregoing publications requirements in the national editions of The Wall Street Journal and USA Today.
 
 
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The Court approved entry of the order on December 13, 2012, and there was a 30-day period to appeal after entry of the order, after which (assuming no appeal was taken) the terms will be effective upon the payment of $950,000 to Huff.  The appeal period was over on January 14, 2013 and the order was final.  Under the Settlement Agreement, January 14, 2013 is deemed to be the “Effective Date” of the Settlement Agreement.  The $950,000 was funded timely, $650,000 by the Company and $300,000 by its insurance carrier.

Effective March 1, 2013, in accordance with the requirements of the Settlement Agreement, the Company’s Board of Directors, upon the recommendation of the Nominating and Corporate Governance Committee, unanimously elected Andrew Perel as a member of the Board of Directors to serve until the next annual meeting of stockholders or the earlier of his resignation, removal and death and appointed Mr. Perel to serve as a member of the Board’s Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee. Immediately prior to Mr. Perel’s election to the Board and his appointment to the Audit Committee, the Compensation Committee and the Nominating and Corporate Governance Committee, the Board increased the size of the Board to seven (7) members from six (6) members and increased the size of each of the Audit Committee, the Compensation Committee and the Nominating and Corporate Governance Committee by one member.  Mr. Perel is an "independent" director (as defined in the Settlement Agreement and also as defined in the Company’s Charters for the Board of Directors’s Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee, and by applicable rules of The NASDAQ Global Market and the Securities and Exchange Commission relating thereto).  Mr. Perel was reelected as a member of the Board of Directors at the Company’s 2013 annual meeting of stockholders held on September 9, 2013.

The foregoing description of the Settlement Agreement is not complete and is qualified in its entirety by reference to the full text of the Settlement Agreement which is listed and incorporated by reference as Exhibit 10.29 to this report, and is incorporated herein by reference.

Miscellaneous
 
From time to time the Company may be involved in various claims and legal actions arising in the ordinary course of its business. There were no pending material claims or legal matters as of December 31, 2014.
 
ITEM 4.  MINE SAFETY DISCLOSURES
 
 This Item is not applicable to the Company.

 
 
15

 
 
PART II
 
ITEM 5.  MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
 
Market Information
 
Our common stock, par value $0.01 per share (the “Common Stock”), is quoted on Pink Sheets under the symbol CEXE. PK.   If the Company is dissolved or liquidated our common stock will be cancelled automatically and cease being quoted on the Pink Sheets. The following table sets forth the high and low closing bid prices for our Common Stock for the quarterly periods for the years ended December 31, 2014 and 2013.  These bid prices represent prices quoted by broker-dealers on the Pink Sheets.  The quotations reflect inter-dealer prices, without retail mark-up, markdown or commissions, and may not represent actual transactions.

   
2014
 
   
High
   
Low
 
   
December 31, 2014
 
$
0.025
     
0.01
 
September 30, 2014
 
$
0.0345
     
0.02
 
June 30, 2014
 
$
0.026
     
0.022
 
March 31, 2014
 
$
0.03
     
0.015
 

   
2013
 
   
High
   
Low
 
     
December 31, 2013
 
$
0.0985
   
$
0.021
 
September 30, 2013
 
$
0.05
   
$
0.03
 
June 30, 2013
 
$
0.08
   
$
0.0211
 
March 31, 2013
 
$
0.12
   
$
0.01
 

As of February 24, 2015, there were 403 holders of record of our Common Stock.
 
Dividend Policy
 
If the Company is not dissolved or liquidated and the Company is able to successfully develop and commercialize its location-based entertainment line of business, which is inactive, we would retain any future earnings to support operations and to finance expansion and therefore do not anticipate paying any cash dividends on our Common Stock in the foreseeable future. Furthermore, our Series A Convertible Preferred Stock and Series B Convertible Preferred Stock are senior to our Common Stock as to the right to receive cash dividends.  There are current dividend arrearages on our Series A Convertible Preferred Stock and Series B Convertible Preferred Stock and unless and until such arrearages are satisfied in full, we may not pay cash dividends on our Common Stock.  In addition, the terms of any future debt agreements we may enter into are likely to prohibit or restrict, the payment of cash dividends on our common stock.

Securities Authorized for Issuance under Equity Compensation Plans
 
The table below shows information with respect to our equity compensation plans and individual compensation arrangements as of December 31, 2014.
 
 
Plan Category
 
(a)
Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights
   
(b)
Weighted-Average Exercise Price of Outstanding Options Warrants, and Rights
   
(c)
Number of
Securities
Remaining
Available For
Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a))
 
   
(#)
 
($)
   
(#)
 
Equity compensation plans approved by security holders
   
4,766,961
    $
2.15
     
9,976,389
 
                         
Equity compensation plans not approved by security holders
   
     
     
 
 
For a description of our 2007 Executive Equity Incentive Plan and 2007 Long-Term Incentive Compensation Plan, see Note 7 to our audited consolidated financial statements included elsewhere in this report.
 
 
16

 
 
 ITEM 6. SELECTED FINANCIAL DATA

As a smaller reporting company, the Company is not required to provide the information required by this Item.
 
FORWARD LOOKING STATEMENTS
 
In addition to historical information, this Annual Report on Form 10-K (this “Annual Report”) contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are those that predict or describe future events or trends and that do not relate solely to historical matters. You can generally identify forward-looking statements as statements containing the words “believe,” “expect,” “will,” “anticipate,” “intend,” “estimate,” “project,” “assume” or other similar expressions, although not all forward-looking statements contain these identifying words. All statements in this Annual Report regarding our future strategy, future operations, projected financial position, estimated future revenue, projected costs, future prospects, and results that might be obtained by pursuing management’s current plans and objectives are forward-looking statements. You should not place undue reliance on our forward-looking statements because the matters they describe are subject to known and unknown risks, uncertainties and other unpredictable factors, many of which are beyond our control. Important risks that might cause our actual results to differ materially from the results contemplated by the forward-looking statements are contained in “Item 1A. Risk Factors” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Annual Report and in our subsequent filings with the Securities and Exchange Commission (“SEC”). Our forward-looking statements are based on the information currently available to us and speak only as of the date on which this Annual Report was filed with the SEC. We expressly disclaim any obligation to issue any updates or revisions to our forward-looking statements, even if subsequent events cause our expectations to change regarding the matters discussed in those statements. Over time, our actual results, performance or achievements will likely differ from the anticipated results, performance or achievements that are expressed or implied by our forward-looking statements, and such difference may be significant and materially adverse to our stockholders.

 ITEM 7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
The following management’s discussion and analysis of financial condition and results of operations of the Company should be read in conjunction with our historical audited consolidated financial statements and related notes thereto included elsewhere in this report. Our historical results of operations reflected in such consolidated financial statements are not indicative of our future results of operations as our Board is evaluating a liquidation or dissolution of the Company for the reasons described herein.
 
Recent Developments

Liquidation or Dissolution of the Company

Our Board is continuing to evaluating a liquidation or dissolution of the Company because our controlling stockholders (as named below) have withdrawn their proposal (as described below) to acquire the Company and we do not currently generate any revenue from our location-based entertainment line of business, which is inactive and will require significant capital and financing to develop and commercialize, and we do not have any definitive funding commitments in place (or the ability to complete equity and/or debt financings) to fund our short-term or long-term liquidity needs, including making cash capital contributions to the Orlando, Florida project in which we have a minority ownership interest to fund the project’s development costs in excess of those budgeted therefor. Thus far, the development costs for the Orlando, Florida project have significantly exceeded the budgeted costs therefor and, as a result, we are required to fund our ratable portion of such excess costs in order to maintain our minority ownership interest in the Orlando, Florida project. We are not able to fund our ratable portion of these excess costs and unless we do so our minority ownership interest in the Orlando, Florida project will be significantly diluted in terms of ownership and value.

Our Board has been evaluating a liquidation or dissolution of the Company before our controlling stockholders withdrew their proposal to acquire the Company.

During 2014, our controlling stockholders provided us with $1,250,566 of funding to pay certain of our expenses, which allowed us to continue as a going concern. We have classified that funding as capital contributions in our consolidated financial statements included elsewhere in this report.  There is no assurance that our controlling stockholders will provide any additional funding to us as capital contributions or otherwise.

The Withdrawn Proposal

As has been previously reported, on December 30, 2013, the independent members of the Board received a letter (the "Letter") from Paul C. Kanavos, the President and a greater than 10% stockholder of the Company, Robert F.X. Sillerman, a non-independent member of the Board and a greater than 10% stockholder of the Company, and Brett Torino, a greater than 10% stockholder of the Company, in which Kanavos, Sillerman and Torino proposed to acquire all of the shares of common stock of the Company that they did not beneficially own for a purchase price of $0.03 per share pursuant to a short-form merger and related transactions (the "Proposal").  Messrs. Kanavos, Sillerman and Torino beneficially own more than 50% of the outstanding shares of the Company’s common stock. In March 2014, Harvey Silverman, a member of our Board, and Mitchell J. Nelson, our Executive Vice President and General Counsel, among others, indicated that they intended to participate with Messrs. Sillerman, Kanavos and Torino in the transactions contemplated by the Proposal.

Consistent with its fiduciary duties, the Board reviewed and evaluated the Letter and the Proposal, including the formation in March 2014 of a Special Committee of independent directors to evaluate the Proposal, made up of Michael J. Meyer and David Ledy. The Special Committee retained independent legal counsel and an independent financial advisor in connection with its evaluation of the Proposal.

As has been previously reported, on December 31, 2014, CEN Holdings delivered a letter to the independent members of the Board withdrawing the Proposal.
 
 
17

 
 
Executive Summary

Until receipt of the Proposal on December 30, 2013, the Company had been pursuing the development and commercialization of its location-based entertainment line of business since September 10, 2010, which is inactive and will require significant capital and financing to develop and commercialize.  The Company does not currently generate any revenue from its inactive location-based entertainment line of business and its expenses had been funded by proceeds from a development loan for the Orlando, Florida project and under the Funding Agreement between the project owner (which is controlled by Messrs. Sillerman, Kanavos and Torino) and the Company. However, the funding by the project owner under the Funding Agreement, which began during the fourth quarter of 2012, has exceeded the Funding Agreement’s limit and, thus, ceased in December, 2013. Messrs. Kanavos, Sillerman and Torino financed substantially all of the Company’s short-term liquidity requirements from 2010 through 2014 and currently continue to do so at their discretion.
 
Reference is made to “Item 1. Business—Evolution of the Company’s Business Prior to Becoming Inactive ” of this report for a description of the events and agreements relating to the Company’s pursuit of developing and commercializing its location-based entertainment line of business.

Circle Entertainment Operating Results
 
Our results for the year ended December 31, 2014 reflected revenue of $0 million and operating expenses of approximately $2.5 million. The Company incurred corporate overhead expenses of approximately $0.6 million for the year ended December 31, 2014. Included in corporate overhead expenses for the year ended December 31, 2014 are approximately $0.4 million in shared services charges and approximately $0.2 million in professional fees, including legal and accounting costs.   For the year ended December 31, 2014, we had net interest expense of approximately $0.8 million.
 
For the year ended December 31, 2014, the Company did not record a provision for income taxes because the Company has incurred taxable losses since its formation in 2007.   As it has no history of generating taxable income, the Company reduces any deferred tax assets by a full valuation allowance.  The Company may in the future become subject to federal, state and city income taxation, though it has not been since its inception.
 
Results for the Year Ended December 31, 2014 and 2013
 
 
(amounts in thousands)
 
Year
Ended
December 31,
2014
   
Year
Ended
December 31,
2013
   
Variance
 
Revenue
 
$
   
 $
   
$
---
 
Operating expenses (excluding depreciation and amortization and impairment of land)
   
(2,466
)
   
(1,062
)
   
(1,404
                         
Depreciation and amortization
   
(58
)
   
(15
)
   
(43
                         
Income (loss) from operations
   
(2,524
)
   
(1,077
)
   
(1,447
Interest expense, net and other
   
(753
)
   
(725
)
   
(28
Other expense
   
---
     
---
     
---
 
                         
Net income (loss)
 
$
(3,277
)
   
(1,802
 
$
(1,475
 
Revenue
 
The Company did not generate any revenue in either 2014 or 2013. 
 
 
18

 
 
Operating Expenses

Operating expenses increased by approximately $1.4million, or 134% in 2014 as compared to 2013 primarily due to an increase in selling, general and administration costs of approximately $1.4million, which includes a decrease in funding from the project of $1.3 million, an increase in shared services expense of approximately $0.1 million, an increase in rent expense of less than $0.1 million, a decrease in legal fees of less than $0.1 million and a decrease in other expense of less than $0.1million.
 
Depreciation and Amortization Expense
 
Depreciation and amortization expense increased by approximately $42,753, or 279%, in 2014 as compared to 2013 primarily due to the building and improvements, equipment and furniture & fixtures acquired for the office.

Interest Income/Expense
 
Interest expense, net, increased approximately $27,402, or 3.78 % in 2014 as compared to 2013 due to the compounding of interest calculated on the loans from related parties.

Other Expense

Other expense was approximately $0.0 million in 2014 as compared to approximately $0.0million in 2013.

Liquidity and Capital Resources
 
Introduction — The historical financial statements included in this annual report are not necessarily representative of our planned business going forward or indicative of our future operating and financial results. As discussed elsewhere in this report, our Board is evaluating a liquidation or dissolution of the Company.

During 2014, the Company funded its short-term capital requirements through capital contributions of approximately $1,250,566 provided by Messrs. Kanavos, Sillerman and Torino.
 
During 2013, the Company funded its short-term capital requirements with funding of approximately $1,900,000 under the Funding Agreement.
 
As a result, the Company recorded equity contributions during the years ended December 31, 2014 and 2013 in the amount of approximately $1,250,566 and $605,346, respectively.

As described elsewhere in this report, Messrs. Kanavos, Sillerman and Torino financed substantially all of the Company’s short-term liquidity requirements from 2010 through 2014 and currently continue to do so at their discretion.

If the Company is not liquidated or dissolved, it is highly unlikely that we will be able to continue as a going concern unless we can successfully develop and commercialize our location-based entertainment line of business (which is currently inactive).
 
Cash Flow for the Year Ended December 31, 2014
 
Operating Activities
 
Cash used in operating activities of approximately $1.35 million for the year ended December 31, 2014 consisted primarily of the net loss for the period of approximately $3.3 million which was offset by an increase in other assets of approximately $0.3 million, and an increase in accounts payable of approximately $0.8 million, an increase in due to related parties of approximately $0.75million and an increase in depreciation of less than $0.1 million. There were changes in working capital levels of approximately $1.9 million for the year ended December 31, 2014.

Investing Activities

Cash used in investing activities of less than $0.1 million for the year ended December 31, 2014 primarily reflects the purchase of property and equipment in connection with tenant lease improvements during the period.

 
19

 
 
Financing Activities

Cash provided by financing activities of approximately $1.25 million for the year ended December 31, 2014 reflects capital contributions provided by Messrs. Kanavos, Sillerman and Torino.

Cash Flow for the Year Ended December 31, 2013

Operating Activities
 
Cash used in operating activities of approximately $1.04 million for the year ended December 31, 2013 consisted primarily of the net loss for the period of approximately $1.8 million and an increase in other assets of approximately $0.2 million, which was offset by a decrease in accounts payable of approximately $0.2 million, an increase in due to related parties of approximately $0.73 million and an increase in depreciation of approximately of $0.01 million. There were changes in working capital levels of approximately $0.75 million for the year ended December 31, 2013.

Investing Activities

Cash used in investing activities of approximately $0.3 million for the year ended December 31, 2013 primarily reflects the purchase of property and equipment in connection with tenant lease improvements during the period.

Financing Activities

Cash provided by financing activities of approximately $0.6 million for the year ended December 31, 2013 reflects proceeds from the net contribution received from the Funding Agreement.
 
Dividends
 
If the Company is not dissolved or liquidated and the Company is able to successfully develop and commercialize its location-based entertainment line of business, which is inactive, we will retain any future earnings to support operations and to finance expansion and therefore do not anticipate paying any cash dividends on our common stock in the foreseeable future. Furthermore, our Series A Convertible Preferred Stock and Series B Convertible Preferred Stock are senior to our common stock as to the right to receive cash dividends.  There are current dividend arrearages on our Series A Convertible Preferred Stock and Series B Convertible Preferred Stock and unless and until such arrearages are satisfied in full, we may not pay cash dividends on our common stock.  In addition, the terms of any future debt agreements we may enter into are likely to prohibit or restrict the payment of cash dividends on our common stock.

Commitments and Contingencies
 
Litigation

From time to time the Company may be involved in various claims and legal actions arising in the ordinary course of its business. There were no pending material claims or legal matters as of December 31, 2014.

Inflation
 
Prior to our business becoming inactive, inflation did not affect our efforts to develop and commercialize our location-based entertainment line of business.
 
Application of Critical Accounting Policies and Estimates

In response to the Securities and Exchange Commission’s financial reporting release, FR-60, Cautionary Advice Regarding Disclosure about Critical Accounting Policies, we have selected for discussion below our critical accounting policies and subjective estimation processes.

We continuously monitor our estimates and assumptions to ensure any business or economic changes impacting these estimates and assumptions are reflected in our financial statements on a timely basis, including the sensitivity to change our critical accounting policies.
 
The following accounting policies require significant management judgments and estimates:

 
20

 

Income Taxes
 
We adopted the provisions of Financial Accounting Standards concerning, Accounting for Uncertainty in Income Taxes , and an interpretation of Financial Accounting Standards concerning, Accounting for Income Taxes upon formation of the Company on June 15, 2007. We have no uncertain tax positions under the adopted accounting standards.
 
We account for income taxes in accordance with accounting standards concerning income taxes, which require that deferred tax assets and liabilities be recognized, using enacted tax rates, for the effect of temporary differences between the book and tax basis of recorded assets and liabilities. The accounting standards also require that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred tax assets will not be realized. In determining the future tax consequences of events that have been recognized in our financial statements or tax returns, judgment is required. In determining the need for a valuation allowance, the historical and projected financial performance of the operation that is recording a net deferred tax asset is considered along with any other pertinent information.

Real Estate Investments

All specifically identifiable costs related to development activities are capitalized into capitalized development costs on the consolidated balance sheet. The capitalized costs represent pre-development costs essential to the development of the property and include designing, engineering, legal, consulting, obtaining permits, financing and travel costs incurred during the period of development. We assess development costs for recoverability periodically and when changes in our development plans occur.

We follow the provisions of Accounting Standards Codification concerning Accounting for the Impairment or Disposal of Long-Lived Assets . In accordance with the financial standards, we review our real estate portfolio for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable based upon expected undiscounted cash flows from the property. We determine impairment by comparing the property’s carrying value to an estimate of fair value. In the event that the carrying amount of the property is not recoverable and exceeds its fair value, we will write down the asset to fair value.

All capitalized pre-development costs essential to the development of the property including designing, engineering, legal, consulting, obtaining permits, financing and travel costs were reclassified as an investment in the Project Owner due to the restructured position of the Transaction Agreement pursuant to the First Amendment.

Share-Based Payments
 
In accordance with Financial Accounting Standards concerning Share-Based Payments, the fair value of stock options is estimated as of the grant date based on a Black-Scholes option pricing model. Judgment is required in determining certain of the inputs to the model, specifically the expected life of options and volatility. As a result of the Company’s short operating history, no reliable historical data is available for expected lives and forfeitures. The Company estimates the expected life of its stock option grants at the midpoint between the vesting dates and the end of the contractual term. This methodology is known as the simplified method and is used because the Company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term. We estimated forfeitures based on management’s experience. The expected volatility is based on an analysis of comparable public companies operating in our industry.

Recent Accounting Pronouncements
 
There have been no recent accounting pronouncements or changes in accounting pronouncements that impacted the years ended December 31, 2014 and 2013, or which are expected to impact future periods, which were not previously disclosed in prior periods.

Off Balance Sheet Arrangements
 
We do not have any off balance sheet arrangements.
 
Seasonality
 
Prior to our business becoming inactive, we did not experience any seasonality.
 
ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
  As a smaller reporting company, the Company is not required to provide the information required by this Item.
 
 
21

 
 
 ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
 Table of Contents to Financial Statements
 
   
Page
 
       
Circle Entertainment Inc.
     
       
Reports of Independent Registered Public Accounting Firms
 
23-24
 
       
Consolidated Balance Sheets as of December 31, 2014 and 2013
 
25
 
       
Consolidated Statements of Operations for the years ended December 31, 2014  and 2013
 
26
 
       
Consolidated Statements of Cash Flows for the years ended December 31, 2014 and 2013
 
27
 
       
Consolidated Statements of Stockholders’ Deficit for the years ended December 31, 2014 and 2013
 
28
 
       
Notes to Consolidated Financial Statements
 
29
 


 
 
 
22

 
 
 Circle Entertainment Inc.
Report of Independent Registered Public Accounting Firm
 
To the Board of Directors and Stockholders of Circle Entertainment, Inc:

We have audited the accompanying consolidated balance sheet of Circle Entertainment, Inc. (“the Company”) as of December 31, 2014 and the related consolidated statement of operations, stockholders’ deficit, and cash flows for the year ended December 31, 2014. Our audits also included the financial statement schedule listed in the Index at Item 15. These financial statements and schedule are the responsibility of the entity’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 audits provide a reasonable basis for our opinion.
 
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Circle Entertainment, Inc. as of  December 31, 2014 and the results of its operations and its cash flows for the year ended December 31, 2014 in conformity with accounting principles generally accepted in the United States of America.
 
The accompanying consolidated financial statements have been prepared assuming Circle Entertainment, Inc. will continue as a going concern.  As more fully discussed in Note 3 to the consolidated financial statements, the Company has limited available cash, has a working capital deficiency and will need to rely on discretionary funding from its controlling stockholders or secure new financing or additional capital in order to pay its obligations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plan as to these matters is also described in Note 3. These financial statements do not include adjustments that might result in from the outcome of this uncertainty.
 

 
/s/ RBSM, LLP
Las Vegas, Nevada
February 24, 2015

 
23

 
 
Circle Entertainment Inc.
Report of Independent Registered Public Accounting Firm
 
To the Board of Directors and Shareholders of Circle Entertainment Inc:
 
We have audited the accompanying consolidated balance sheet of Circle Entertainment Inc. (the “Company”) as of December 31, 2013, and the related consolidated statement of operations, stockholders’ equity (deficit) and cash flow for the year ended December 31, 2013. Our audit also included the financial statement schedule listed in the Index at Item 15. These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule 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. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Circle Entertainment Inc. at December 31, 2013, and the consolidated result of its operations and cash flow for the year ended December 31, 2013, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
 
The accompanying financial statements have been prepared assuming Circle Entertainment Inc. will continue as a going concern. As more fully discussed in Note 3 to the consolidated financial statements, the Company has limited available cash, has a working capital deficiency and will need to rely on the Funding Agreement ore secure new financing or additional capital in order to pay its obligations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plan as to these matters is also described in Note 3. These financial statements do not include adjustments that might result from the outcome of this uncertainty.

/s/   L.L. Bradford & Company, LLC
Las Vegas, Nevada
March 25, 2014
 
 
24

 
 
Circle Entertainment Inc.
 
CONSOLIDATED BALANCE SHEETS
 
   
December 31,
   
December 31,
 
   
2014
   
2013
 
ASSETS
           
             
Current assets:
           
Cash and cash equivalents
 
$
132,146
   
$
271,549
 
                 
Prepaid expenses and other current assets
   
95,772
     
21,481
 
                 
Total current assets
   
227,918
     
293,030
 
Investment in real estate:
               
Furniture, fixtures and equipment
   
372,034
     
336,288
 
Capitalized development costs
   
---
     
---
 
Less: accumulated depreciation
   
(88,553
   
(30,458
                 
Net investment in real estate
   
283,481
     
305,830
 
Other assets
   
---
     
---
 
Due from related party
   
---
     
378,538
 
                 
Total assets
 
$
511,399
   
$
977,398
 
                 
LIABILITIES AND STOCKHOLDERS’ DEFICIT
               
                 
Current liabilities:
               
Accounts payable and accrued expenses
 
$
5,380,427
   
$
4,573,290
 
Other current liabilities
               
Due to related parties
   
2,376,177
     
1,623,380
 
Loans from and payable to related parties
   
11,083,000
     
11,083,000
 
                 
Total current liabilities
   
18,839,604
     
17,279,670
 
Other long-term liabilities
   
---
     
---
 
                 
Total liabilities
   
18,839,604
     
17,279,670
 
Contingently redeemable stockholders’ deficit
   
---
     
---
 
Stockholders’ deficit:
               
Preferred stock, $0.01 par value: authorized 75,000,000 shares, 1,500 shares of Series A Preferred, 2,500 shares of Series B Preferred issued and outstanding at December 31, 2014 and December 31, 2013, and no share and 1 share of Non-Voting Designated Stock issued and outstanding at December 31, 2014 and December 31, 2013, respectively
   
40
     
40
 
Common stock, $0.01 par value: authorized 300,000,000 shares, 65,076,162 and 65,076,162 shares issued and outstanding at December 31, 2014 and December 31, 2013, respectively
   
650,762
     
650,762
 
Additional paid-in-capital
   
97,463,459
     
96,212,893
 
Accumulated deficit
   
(116,442,466
)
   
(113,165,967
)
                 
Total stockholders’ deficit
   
(18,328,205
)
   
(16,302,272
)
                 
Total liabilities and stockholders’ deficit
 
$
511,399
   
$
977,398
 
 
See accompanying notes to consolidated financial statements
 
 
25

 

Circle Entertainment Inc.
 
CONSOLIDATED STATEMENTS OF OPERATIONS
 
   
Consolidated
   
Consolidated
 
   
Year Ended
   
Year Ended
 
   
December 31,
   
December 31,
 
   
2014
   
2013
 
             
Revenue
 
$
---
   
$
 
                 
Operating expenses:
               
Selling, general and administrative expenses
   
2,465,608
     
1,061,715
 
Depreciation and amortization
   
58,096
     
15,343
 
                 
Total operating expenses
   
2,523,704
     
1,077,058
 
                 
Loss from operations
   
(2,523,704
)
   
(1,077,058
                 
Interest income
   
2
     
3
 
Interest expense
   
(752,797
)
   
(725,395
)
Other income (expense)
   
---
     
---
 
Income tax expense
   
---
     
---
 
                 
                 
Net loss
 
$
(3,276,499
 
$
(1,802,450
)
                 
Basic and diluted loss per share
 
$
(0.05
 
$
(0.03
)
                 
Basis and diluted average number of common shares outstanding
   
65,076,162
     
65,076,162
 
 
See accompanying notes to consolidated financial statements
 
 
26

 

Circle Entertainment Inc.
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
   
Consolidated
   
Consolidated
 
   
Year Ended
   
Year Ended
 
   
December 31,
   
December 31,
 
   
2014
   
2013
 
             
Cash flows from operating activities:
           
Net loss
 
$
(3,276,499
 
$
(1,802,450
)
Adjustments to reconcile net loss to cash used by operating activities:
               
Depreciation and amortization
   
58,096
     
15,343
 
Changes in operating assets and liabilities:
               
Other current and non-current assets
   
304,247
     
(196,745
)
Accounts payable and accrued expenses
   
807,137
     
217,021
 
Accrued license fees
   
---
     
  ---
 
Due to related parties
   
752,797
     
725,394
 
                 
Net cash used in operating activities
   
(1,354,222
)
   
(1,041,437
)
                 
Cash flows used in  investing activities:
               
Capitalized development costs
   
---
     
---
 
Purchase of property and equipment
   
(35,747
)
   
(316,034
                 
Net cash used in  investing activities
   
(35,747
)
   
(316,034
                 
Cash flows provided by financing activities:
               
Capital contributions
   
1,250,566
     
---
 
                 
Net contribution received from Funding Agreement
   
---
     
605,346
 
Loans from related parties
   
---
     
---
 
                 
Net cash provided by financing activities
   
1,250,566
     
605,346
 
                 
Net increase in cash and equivalents
   
(139,403
   
752,125
 
Cash and cash equivalents — beginning of period
   
271,549
     
1,023,674
 
                 
Cash and cash equivalents — end of period
 
$
132,146
   
$
271,549
 
                 
Supplemental cash flow disclosures:
               
Cash paid for interest
 
$
---
   
$
---
 

See accompanying notes to consolidated financial statements
 
 
27

 
 
Circle Entertainment Inc.
 
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
 
   
Preferred Stock
   
Common Stock
   
Additional
   
Stock
Subscription
   
Accumulated
       
   
Shares
   
Amount
   
Shares
   
Amount
   
Paid-In-Capital
   
Receivable
   
Deficit
   
Total
 
                                                 
Balance at December 31, 2012 (Restated)
   
4,000
     
40
     
65,076,161
     
650,762
     
95,607,547
     
---
     
(111,363,517
)
   
(15,105,168
)
Private placement of units
   
---
     
---
     
---
     
---
     
---
     
---
     
---
     
---
 
Stock subscription receivable
   
---
     
---
     
---
     
---
     
---
     
---
     
---
     
---
 
Conversion of Non-Voting preferred share
   
---
     
---
     
1
     
---
     
---
     
---
     
---
     
---
 
Accrued salary surrender and reversal
   
---
     
---
     
---
     
---
     
---
     
---
     
---
     
---
 
Net contribution received from the Funding Agreement
   
---
     
---
     
---
     
---
     
605,346
     
---
     
---
     
605,346
 
Net income
   
---
     
---
     
---
     
---
     
---
     
---
     
(1,802,450
   
(1,802,450
Balance at December 31, 2013
   
4,000
     
40
     
65,076,162
     
650,762
     
96,212,893
             
(113,165,967
)    
(16,302,272
)
Private placement of units
   
---
     
---
     
---
     
---
     
---
     
---
     
---
     
---
 
Stock subscription receivable
   
---
     
---
     
---
     
---
     
---
     
---
     
---
     
---
 
Stock option expense
   
---
     
---
     
---
     
---
     
---
     
---
     
---
     
---
 
Capital contributions
   
---
     
---
     
---
     
---
     
1,250,566
     
---
     
---
     
1,250,566
 
Net contribution received from the Funding Agreement
   
---
     
---
     
---
     
---
     
---
     
---
     
---
     
---
 
Net income
   
---
     
---
     
---
     
---
     
---
     
---
     
(3,276,499
)
   
(3,276,499
Balance at December 31, 2014
   
4,000
     
40
     
65,076,162
     
650,762
     
97,463,459
     
---
     
(116,442,466
)
   
(18,328,205
)
 
See accompanying notes to consolidated financial statements

 
28

 
 
Circle Entertainment Inc.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
1.  Basis of Presentation
 
The financial information contained in these consolidated financial statements for the years ended December 31, 2014 and 2013 reflects the results of operations of Circle Entertainment Inc. (“Circle” or the “Company”), a Delaware corporation, and its consolidated subsidiaries.

The consolidated financial statements of Circle include the accounts of all subsidiaries and the Company’s share of earnings or losses of joint ventures and affiliated companies under the equity method of accounting. All intercompany accounts and transactions have been eliminated.
 
2.   Business of the Company
 
Recent Developments

Liquidation or Dissolution of the Company

The Board of Directors (the “Board”) of the Company is continuing to evaluating a liquidation or dissolution of the Company because the Company’s controlling stockholders (as named below) have withdrawn their proposal (as described below) to acquire the Company and the Company does not currently generate any revenue from its location-based entertainment line of business, which is inactive and will require significant capital and financing to develop and commercialize, and the Company does not have any definitive funding commitments in place (or the ability to complete equity and/or debt financings) to fund its short-term or long-term liquidity needs, including making cash capital contributions to the Orlando, Florida project in which the Company has a minority ownership interest to fund the project’s development costs in excess of those budgeted therefor.  Thus far, the development costs for the Orlando, Florida project have significantly exceeded the budgeted costs therefor and, as a result, the Company is required to fund its ratable portion of such excess costs in order to maintain its minority ownership interest in the Orlando, Florida project.  The Company is not able to fund its ratable portion of these excess costs and unless it does so its minority ownership interest in the Orlando, Florida project will be significantly diluted in terms of ownership and value.

The Board has been evaluating a liquidation or dissolution of the Company before the Company’s controlling stockholders withdrew their proposal to acquire the Company.

During 2014, the Company’s controlling stockholders provided the Company with $1,250,566 of funding to pay certain of its expenses, which allowed the Company to continue as a going concern. The Company has classified that funding as capital contributions in the consolidated financial statements to which these notes relate.  There is no assurance that the Company’s controlling stockholders will provide any additional funding to the Company as capital contributions or otherwise.

The Withdrawn Proposal

On December 30, 2013, the independent members of the Board received a letter (the "Letter") from Paul C. Kanavos, the President and a greater than 10% stockholder of the Company, Robert F.X. Sillerman, a non-independent member of the Board and a greater than 10% stockholder of the Company, and Brett Torino, a greater than 10% stockholder of the Company, in which Kanavos, Sillerman and Torino proposed to acquire all of the shares of common stock of the Company that they did not beneficially own for a purchase price of $0.03 per share pursuant to a short-form merger and related transactions (the "Proposal").  Messrs. Kanavos, Sillerman and Torino beneficially own more than 50% of the outstanding shares of the Company’s common stock.  In March 2014, Harvey Silverman, a member of our Board, and Mitchell J. Nelson, our Executive Vice President and General Counsel, among others, indicated that they intended to participate with Messrs. Sillerman, Kanavos and Torino in the transactions contemplated by the Proposal.

Consistent with its fiduciary duties, the Board reviewed and evaluated the Letter and the Proposal, including the formation in March 2014 of a Special Committee of independent directors to evaluate the Proposal, made up of Michael J. Meyer and David Ledy.  The Special Committee retained independent legal counsel and an independent financial advisor in connection with its evaluation of the Proposal.

As has been previously reported, on December 31, 2014, CEN Holdings delivered a letter to the independent members of the Board withdrawing the Proposal.

 
29

 

Overview of the Inactive Business

Until receipt of the Proposal on December 30, 2013, the Company had been pursuing the development and commercialization of its location-based entertainment line of business since September 10, 2010, which is inactive and will require significant capital and financing to develop and commercialize. The Company does not currently generate any revenue from its inactive location-based entertainment line of business and, as described below, its expenses had been funded by proceeds from a development loan for the Orlando, Florida project in which the Company has a minority ownership interest and under a Funding Agreement (as described below) between the project owner (which is controlled by Messrs. Sillerman, Kanavos and Torino) and the Company. However, the funding by the project owner under the Funding Agreement, which began during the fourth quarter of 2012, has exceeded the Funding Agreement’s limit and, thus, ceased in December, 2013.  Messrs. Kanavos, Sillerman and Torino financed substantially all of our short-term liquidity requirements from 2010 through 2014 and currently continue to do so at their discretion.

As has been previously reported, in November 2012, the Company restructured its position under the existing transaction agreement (the “Transaction Agreement”, as more particularly described herein) for the Orlando project ( i.e., co-development of an entertainment destination center on International Drive in Orlando, Florida) pursuant to a First Amendment to the Transaction Agreement and Assignment of Rights (the “First Amendment”, as more particularly described herein).

Also has been previously reported, in August 2012, the Company terminated its SkyView™ related license and development agreements (the “SkyView Agreements”, as more particularly described herein) pursuant to a termination and settlement agreement as described herein.

In connection with the First Amendment, an institutional investor/lender (the  “Financing Source”) acquired the parcel of property designated under the Transaction Agreement for the Orlando project  (the “Square Parcel”), and leased the Square Parcel to entities owned by I Drive Live Parent, LLC (the “Project Owner”), which is an affiliate of Messrs. Kanavos, Sillerman and Torino  (the “Company Principals”) and others (collectively, the “Principals”), and provided financing for the construction of the Orlando project, which such  Principals  guaranteed as a condition to obtaining the financing.  The Company received an 8.5% ownership interest in the Project Owner and benefitted from a funding agreement (the “Funding Agreement”) with the Project Owner entered into pursuant to which certain of the Company’s then outstanding obligations (approximately   $5,700,000) were satisfied by the Project Owner, including those required to be satisfied in connection with our termination of the SkyView Agreements pursuant to a Termination and Settlement Agreement (as more particularly described herein).  The Project Owner also agreed to fund Company’s reasonable overhead between $100,000 and $250,000 a month as long as the Financing Source continued to fund the construction requirements under the facility for the Orlando project that was entered into simultaneously with the closing and if insufficient to meet those expenses, then each of Paul C. Kanavos and Mitchell J. Nelson, executive officers of the Company, have agreed to subordinate his salary to the payment of the other overhead expenses, and the consultant of the Company with the ownership interest in the Project Owner has also agreed to subordinate his consulting fees to the payment of the other overhead expenses.  As of December 31, 2014, the Company is in arrears on current year salaries and consulting fees due to its executive officers and consultants. Amounts accrued to Mr. Kanavos are approximately $143,554 as of December 31, 2014. Amounts accrued to Mr. Nelson are approximately $150,000 as of December 31, 2014.  The Company has amounts accrued to Maple Hill Companies LLC, the consultant referenced above, of approximately $300,000 as of December 31, 2014. Such amounts are included in the item “Accounts payable and accrued expenses” set forth on the Company’s consolidated balance sheets to which these notes relate. More specific details regarding these developments, as they evolved, are contained in this note.

As indicated above, the Board is continuing to evaluate a liquidation or dissolution of the Company because our controlling stockholders have withdrawn their Proposal to acquire the Company and the Company does not currently generate any revenue from this line of business, which is inactive. If the Company is not liquidated or dissolved, the Company’s ability to continue as a going concern for the next twelve months depends upon whether or not the controlling stockholders continue to provide financing at their discretion.
 
Evolution of the Company’s Business Prior to Becoming Inactive

The Transaction Agreement

As has previously been reported, on February 28, 2011, in furtherance of its location-based entertainment line of business, the Company, through its  wholly-owned subsidiary Circle Entertainment Property-Orlando, LLC (the “Circle Subsidiary”), entered into a Transaction Agreement with The Square, LLC, Orlando Hotel International SPE, LLC, and Orlando Hotel International SPE Holdings, LLC (The Square, LLC, Orlando Hotel International SPE, LLC, and Orlando Hotel International SPE Holdings, LLC are collectively the “Whittall Parties”) to co-develop a project in Orlando, Florida on which the Company’s SkyView™ observation wheel was to be placed beside retail, restaurant and bar and entertainment facilities.

Under the Transaction Agreement, the Circle Subsidiary agreed to acquire a 65% interest in the ownership of two adjacent properties, the “OHI Parcel” of 10 acres and the “Square Parcel” of 18 acres (collectively, the “Property”), then owned by certain of the Whittall Parties, and located on International Drive in Orlando, Florida.  The closing of the transaction, which was initially estimated to occur in the second half of 2011 and was delayed  (until the closing held simultaneously with the execution of the First Amendment), was subject to the satisfaction of a number of conditions, including (a) the rearrangement of the existing first mortgage loans on the Property with CIBC (the “CIBC Loan”) to extend their existing maturity dates for five years and increase the principal balances thereof by approximately $11 million in the aggregate (the proceeds of which are to be used to improve the Property and for tenant installations); (b) acquiring good title to the Property; and (c) the new property owner entering into a 99-year lease for property upon which the Company’s SkyView™ observation wheel and a 25,000 square foot retail, service and maintenance building will be located.  The Circle Subsidiary was responsible for funding certain obligations between execution of the Transaction Agreement and the closing as follows:  (a) $65,000 for reimbursement of real estate tax escrow payments for November and December 2010; (b) approximately $20,000 per month for real estate tax obligations after December 2010; (c) $50,000, representing approximately 65% of the monthly interest payments required (prepayment of a portion may be required to maintain CIBC interest reserves); (d) up to $45,000 per month for architectural and engineering services relating to the site design; and (e) 65% of ongoing property expenses, estimated at $2,000 per month.  The Whittall Parties were to be responsible for funding 35% of the obligations specified in clauses (b)-(e) in the previous sentence.  The Property was to be developed in two phases, each constituting approximately 102,000 square feet.  The closing of the CIBC Loan was contingent on pre-leasing of approximately 102,000 square feet at the Property, of which the SkyView™ observation wheel was to be 25,000 square feet.   As part of the closing, the Circle Subsidiary was required to fund $5 million in the aggregate towards the development of the Property (but amounts advanced as set forth above were to be offset against the funding required at closing).  In addition to the required equity contributions, under the terms of the CIBC Loan, the Company was responsible for building and installing the SkyView™ observation wheel and terminal building at an approximate cost of $50 million and needed to arrange the financing necessary to do so.   
 
 
30

 
 
For over 18 months, the Company sought potential financing for the development of an entertainment destination center in Orlando, Florida as contemplated by the Transaction Agreement to no avail.  Based on the Company’s tenuous financial condition, the large scale of the project, the complexity of construction of an observation wheel, arranging appropriate financing without significant credit support from the Company proved to be impossible.

However, eventually, the Financing Source emerged and agreed to explore possible methods for financing the purchase of the property, its development and erection of the observation wheel as an entertainment destination center, but only if acceptable credit enhancements would come forward.  The Principals agreed to provide personal guarantees and other consideration (as described below) which served as the basis for the Financing Source to finalize the transaction.

As a result, the restructuring incorporated in the First Amendment was proposed.  Because of the Company Principals’ involvement in these transactions, the Company’s Board of Directors appointed a special committee of the independent members of the Board to consider whether the proposed transaction was fair, from a financial view, to non-participating and unaffiliated shareholders of the Company.  The Special Committee retained independent counsel and a financial advisor and concluded, with the assistance of such advisors, that the proposed transaction is fair, from a financial view, to the Company’s non-participating and unaffiliated shareholders.

The First Amendment to the Transaction Agreement

The Transaction Agreement was terminated on November 16, 2012 with respect to the “Square Parcel” (consisting of 18 acres) to facilitate the sale of the Square Parcel to ID Center (FL) LLC, an unaffiliated third party owned by the Financing Source, and related transactions to proceed with development of the Square Parcel.  The Financing Source’s purchase of the Square Parcel was financed with a $60,000,000 acquisition and construction loan with CIBC (Canadian Imperial Bank of Canada).

Termination of the Transaction Agreement with respect to the Square Parcel was effectuated upon the Company’s entry into the First Amendment.  Under the First Amendment, the Company assigned all of its rights in the Square Parcel along with all of its right, title and interest to all development plans, licenses, and related intellectual property, as well as other rights and agreements developed in connection and pursuant to the Transaction Agreement relating to the Square Parcel to the Project Owner and its subsidiaries IDL Master Tenant, LLC and IDL Wheel Tenant, LLC (collectively, the “IDL Subsidiaries”);

The Transaction Agreement had remained in effect with respect to the other property known as the “OHI Parcel" (consisting of 10 acres) until it expired on December 31, 2013.

In consideration of the First Amendment:
 
  the Financing Source through an affiliate entered into two long-term leases with the IDL Subsidiaries, pursuant to which the Square Parcel will be developed into an entertainment destination center anchored by an observation wheel (one long-term lease is for 40 years and relates to the destination center, while the other long-term lease is for 99 years and relates to the observation wheel);
     
  the Financing Source through an affiliate provided a construction loan of $50,000,000 to the Parent and the IDL Subsidiaries to finance construction of the center and observation wheel;
     
  The Company Principals (namely Robert F.X. Sillerman, Paul C. Kanavos and Brett Torino) and Charles Whittall (together with the Company Principals, the “Principals”) personally guaranteed $40,000,000 of the loan for construction of the observation wheel, $40,000,000 of the loan for completion of the center (with a several limit of $10,000,000),  the destination center lease rent for 5 years from opening and the wheel lease rent for 3 years from opening,  and a standard environmental indemnity.  To the extent the Company has a pro rata interest, it would be responsible for contributing its pro rata share under a guarantee, but it will not have primary liability to the guaranteed party;
     
  The Company received an 8.5% membership interest in the Parent subject to the terms and conditions of the Parent’s operating agreement (the “Operating Agreement”) into which the Company and the Principals entered on November 16, 2012 and a description of which is set forth below and (ii) the Company received a commitment from the Project Owner and the IDL Subsidiaries to disburse to the Company certain of the construction loan proceeds they receive from the Financing Source subject to the terms and conditions of the Funding Agreement into which the parties entered on November 16, 2012 and a description of which is set forth below; and
     
  The Principals and the Company agreed to share with the Financing Source 10% of the profits in excess of $90,000,000 generated from one or more observation wheels in which all or any of them have an ownership interest for 7 years after completion of this destination center and observation wheel.
 
 
31

 
 
The completion of the foregoing transactions on November 16, 2012 represented a restructuring of those originally contemplated under the Transaction Agreement.
 
The Second Amendment to the Transaction Agreement

On December 31, 2014, the Transaction Agreement expired as to the other property, known as the “OHI Parcel”, consisting of 10 acres in Orlando, Florida.  As has been previously reported, on June 11, 2013, the Company and the other parties to the Transaction Agreement entered into the Second Amendment to Transaction Agreement (the “Second Amendment”) pursuant to which the closing date for acquisition of the OHI Parcel was extended to December 31, 2013 from June 30, 2013.  In addition, pursuant to the Second Amendment to Transaction Agreement, the Company’s required capital contribution to purchase the 65% interest in the OHI Parcel has been increased from $1,000,000.00 to $2,000,000.00. As an inducement for the Whittal Parties to enter into the Second Amendment to Transaction Agreement, certain of the majority owners of the Project Owner, who are also the majority stockholders of the Company, agreed to extend the Whittal Parties a loan of up to $2,000,000.00 to fund tenant improvements on the OHI Parcel.

However, the closing of the acquisition of the OHI Parcel did not occur on December 31, 2013.  As a result, the Transaction Agreement, as amended by the Second Amendment, expired.  There are no further discussion between the parties relating to the OHI Parcel.
 
Operating Agreement

Subject to the terms and conditions of the Operating Agreement, the Company, through a wholly-owned subsidiary, owns an 8.5% membership interest in the Project Owner while the Principals (through corporate affiliates) own approximately 87.25% of the total membership interests in the Project Owner and a consultant to the Company owns approximately 4.25%.

Pursuant to the Operating Agreement, the affairs of Project Owner will be managed by managers selected by the members other than the Company.  The Company will be liable for its pro rata share of required additional capital contributions, but the remedies if it is unable to fund all or any portion of required additional capital contributions would be dilution of the Company’s membership interest (dilution of 25% and 50% for the first and second time, respectively, and dilution of 25% for each time thereafter), subordination of the Company's right to receive distributions of net cash flow and the loss of the Company's voting rights. Voting by members is in accordance with percentage interests, so the Company’s vote of 8.5% will, in all likelihood, not be significant in decision-making authority.  The Operating Agreement further provides that the transfer of membership interests may only be made with consent of a super-majority of the non-transferring members.  There are tag-along rights in the event a member decides to sell its membership interest.  Under the Operating Agreement, distributions of cash or property  will be made first, to members for a preferred return of 12% per annum on their capital contributions; second, to unreturned additional capital contributions; and third, in accordance with percentage interests.  Because of the terms of the loans on the Square Parcel, it is not anticipated that the Company will receive any distributions until the $50,000,000 loan to construct the observation wheel is paid off, as the Financing Source has a cash sweep provision and will apply all excess cash to repayment of the loan and interest earned thereon, estimated to be a minimum of more than 5 years from closing.  There is no assurance that there will ever be distributions to the Company under the Operating Agreement or the amount of any such distributions.
 
Funding Agreement

Under the Funding Agreement, certain proceeds shall be disbursed to the Company from project financing, from time to time, only if, as and when disbursed by the lenders.  The Funding Agreement includes a separate commitment to fund between $100,000 and $250,000 a month for ongoing overhead expenses of the Company from the monthly draws for construction and improvements to the property so long as such draws continue, which is anticipated to be approximately 18 to 20 months (from December 2012) during the construction period and if insufficient to meet those expenses, then each of Paul C. Kanavos and Mitchell J. Nelson, executive officers of the Company,  have agreed to subordinate his salary to the payment of  the other overhead expenses, and the consultant of the Company with the ownership interest in the Project Owner has also agreed to subordinate his consulting fees to the payment of  the other overhead expenses. As of December 31, 2014, the Company is inarrears on current year salaries and consulting fees due to its executive officers and consultants. Amounts accrued to Mr. Kanavos are approximately $171,946 as of December 31, 2014. Amounts accrued to Mr. Nelson are approximately $93,750 as of December 31, 2014. The Company has amounts accrued to Maple Hills Companies LLC, the consultant referenced above, of approximately $300,000 as of December 31, 2014. Such amounts are included in the item “Accounts payable and accrued expenses” set forth on the Company’s consolidated balance sheets to which these notes relate.

 
32

 
 
As a result of the closing the following outstanding obligations were satisfied:  the balance of monies due under the Termination and Settlement Agreement; services relating to the Orlando project, consisting of project management, legal, shared services for project support, architecture, and ride engineering; shared services due to Viggle Inc. (as described in note 10 to these consolidated financial statements); compensation due to Paul Kanavos; consulting fees due for project and general services; expenses due to Company employees; administrative payroll; office rent; and fees owed to the special financial advisor.  Additionally, $650,000 was funded in consideration of the settlement of the stockholder derivative lawsuit (as described in note 9 to these consolidated financial statements), although it could not be paid at the time of the Funding Agreement.

However, the funding by the project owner under the Funding Agreement, which began during the fourth quarter of 2012, has exceeded the Funding Agreement’s limit and, thus, ceased in December, 2013.  Messrs. Kanavos, Sillerman and Torino financed substantially all of the Company’s short-term liquidity requirements from 2010 through 2014 and currently continue to do so at their discretion.
 
The SkyViewAgreements

On September 10, 2010, we, through our wholly-owned subsidiary, Circle Entertainment SV-I, LLC (“Circle”), entered into an Exclusive License Agreement (the “License Agreement”) with William J. Kitchen ("Kitchen") and US ThrillRides, LLC (Kitchen’s wholly-owned corporate affiliate, "ThrillRides" and together with Kitchen, the "ThrillRides Parties"), pursuant to which the ThrillRides Parties granted a worldwide exclusive license to us to use and commercially exploit all of Kitchen’s patents, ThrillRides’ trademark and Kitchen’s other intellectual property, trade secrets and know-how pertaining to all aspects of the adaptation of an observation wheel legally known as a SkyView™ including, without limitation, its engineering, design, development, construction, operation and maintenance (collectively, the "SkyView Technology").  Concurrently with their entry into the License Agreement, the parties also entered into a related Development Agreement (the "Development Agreement") pursuant to which the ThrillRides Parties are responsible for the supervision and management of the construction, development, and installation of SkyViews on our behalf.
 
Termination of the SkyView Agreements

On August 23, 2012, a Termination and Settlement Agreement was entered into by the Company, terminating the License Agreement and the Development Agreement (together with the License Agreement, the “ SkyView™ Agreements ”) relating to the SkyView™ technology.  The principal terms of the Termination and Settlement Agreement are as follows:

1.  
The parties to the SkyView™ Agreements have released each other from all obligations thereunder.

2.  
Circle (including, among others, its affiliates, sub-licensees and assigns) will have the right, but not the obligation, to use the SkyView™ escape technology in as many as four (4) wheel amusement rides:  one in Orlando, Florida and three (3) others at sites to be designated within 36 months.  Each designated site will be protected by a 100 mile geographic radius against competing wheel amusement rides affiliated with the ThrillRides Parties (as well as their affiliates, successors, assigns and other specified persons).

3.  
To the extent that there are any improvements made in the escape system (which may be used exclusively for that purpose), Kitchen will be the owner of such improvements.

4.  
Circle has paid $290,000 towards legal fees purportedly due under the SkyView™ Agreements in connection with protecting Kitchen’s intellectual property through patent filings and certain pending third party litigation and will be required to pay up to an additional $150,000 for related legal fees incurred by Kitchen.  Circle has also paid $40,000 to reimburse the ThrillRides Parties for expenses incurred by them under the SkyView™ Agreements.

 5.  
Circle paid Kitchen a one-time $4 million royalty in November 2012 upon closing the First Amendment and the related financing transactions with the Financing Source to fund construction of the Orlando project.
 
The Company’s obligations under the Termination and Settlement Agreement have been fully funded and its other obligations satisfied as of the date hereof.

The Company’s Former Line of Business
 
As has been previously reported, on December 15, 2010, our former subsidiary which had owned property in Las Vegas, Nevada for redevelopment was reorganized and emerged from its Chapter 11 bankruptcy proceeding under new ownership pursuant to its plan of reorganization as confirmed by the bankruptcy court on November 8, 2010.   As a result, we no longer have an ownership interest in such property.  
 
 
33

 

The Company’s Sources of Funding for the Years 2014, 2013, 2012 and 2011

As described below, Messrs. Kanavos, Sillerman and Torino financed substantially all of the Company’s short-term liquidity requirements from 2010 through 2014 and currently continue to do so at their discretion.

Capital Contributions and the Funding Agreement

During 2014, the Company funded its short-term capital requirements through capital contributions of approximately $1,250,566 provided by Messrs. Kanavos, Sillerman and Torino.
 
During 2013, the Company funded its short-term capital requirements with funding of approximately $1,900,000 under the Funding Agreement.

As a result, the Company recorded equity contributions during the years ended December 31, 2014 and 2013 in the amount of approximately $1,250,566 and $605,346, respectively.

During the fourth quarter of 2012, the Company funded its short-term capital requirements and obligations under the Termination and Settlement Agreement with funding of approximately of $ 5,700,000 under the Funding Agreement.

Private Equity and Debt Financings
 
During 2012 (prior to the Funding Agreement) and 2011, the Company funded its short-term capital requirements through private equity financings described in Item 1 of this report and Note 6 below and the following debt financings:

In 2011, certain of the Company’s directors, executive officers and greater than 10% stockholders made unsecured demand loans to the Company totaling $7,050,000, bearing interest at the rate of 6% per annum.

On January 30 through January 31, 2012, certain of the Company’s directors, executive officers and greater than 10% stockholders made unsecured demand loans to the Company totaling $750,000, bearing interest at the rate of 6% per annum.

On March 8 through March 13, 2012, certain of the Company’s directors, executive officers and greater than 10% stockholders made unsecured demand loans to the Company totaling $600,000, bearing interest at the rate of 6% per annum.

On April 10 through April 16, 2012, certain of the Company’s directors, executive officers and greater than 10% stockholders made unsecured demand loans to the Company totaling $750,000, bearing interest at the rate of 6% per annum.

On June 7 through June 11, 2012, certain of the Company’s directors, executive officers and greater than 10% stockholders made unsecured demand loans to the Company totaling $450,000, bearing interest at the rate of 6% per annum.

On July 20 through July 25, 2012, certain of the Company’s directors, executive officers and greater than 10% stockholders made unsecured demand loans to the Company totaling $450,000, bearing interest at the rate of 6% per annum.

On August 16 through August 17, 2012, certain of the Company’s directors, executive officers and greater than 10% stockholders made unsecured demand loans to the Company totaling $400,000, bearing interest at the rate of 6% per annum.
 
On August 29, 2012, certain of the Company’s directors, executive officers and greater than 10% stockholders made unsecured demand loans to the Company totaling $200,000, bearing interest at the rate of 6% per annum.
 
On October 1, 2012, certain of the Company’s directors, executive officers and greater than 10% stockholders made unsecured demand loans to the Company totaling $285,000, bearing interest at the rate of 6% per annum.
 
On October 18, 2012, certain of the Company’s directors, executive officers and greater than 10% stockholders made unsecured demand loans to the Company totaling $75,000, bearing interest at the rate of 6% per annum.
 
On November 7, 2012, certain of the Company’s directors, executive officers and greater than 10% stockholders made unsecured demand loans to the Company totaling $75,000, bearing interest at the rate of 6% per annum.
 
The Company used the loan proceeds to fund working capital requirements and for general corporate purposes. Because certain of the directors, executive officers and greater than 10% stockholders of the Company made the loans, a majority of the Company’s disinterested directors approved the loans.
 
 
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3.  Going Concern
 
The accompanying consolidated financial statements are prepared assuming that the Company will continue as a going concern and contemplates the realization of assets and satisfaction of liabilities in the ordinary course of business.

4.  Summary of Significant Accounting Policies
 
Cash and Cash Equivalents
 
All highly liquid investments with original maturities of three months or less are classified as cash and cash equivalents. The fair value of cash and cash equivalents approximates the amounts shown on the financial statements. Cash and cash equivalents consist of unrestricted cash in accounts maintained with major financial institutions.
  
Real Estate Investments
 
Land, buildings and improvements are recorded at cost. All specifically identifiable costs related to development activities are capitalized into capitalized development costs on the consolidated balance sheet. The capitalized costs represent pre-development costs essential to the development of the property and include designing, engineering, legal, consulting, obtaining permits, financing and travel costs incurred during the period of development. We assess development costs for recoverability periodically and when changes in our development plans occur.
 
We follow the provisions of Financial Accounting Standards concerning Accounting for the Impairment or Disposal of Long-Lived Assets. In accordance with the accounting standards, we review our real estate portfolio for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable based upon expected undiscounted cash flows from the property. We determine impairment by comparing the property’s carrying value to an estimate of fair value. In the event that the carrying amount of a property is not recoverable and exceeds its fair value, we will write down the asset to fair value.
 
Loss Per Share/Common Shares Outstanding
 
Earnings (loss) per share are computed in accordance with Financial Accounting Standards concerning Earnings Per Share . Basic earnings (loss) per share are calculated by dividing net income (loss) applicable to common stockholders by the weighted-average number of shares outstanding during the period. Diluted earnings (loss) per share include the determinants of basic earnings (loss) per share and, in addition, gives effect to potentially dilutive common shares. The diluted earnings (loss) per share calculations exclude the impact of all share-based stock plan awards because the effect would be anti-dilutive. For the years ended December 31, 2014 and December 31, 2013, 10,962,794 and 10,962,794 shares, respectively, were excluded from the calculation of diluted earnings per share because their inclusion would have been anti-dilutive.

Share-Based Payments
 
In accordance with Financial Accounting Standards concerning Share-Based Payment s, the fair value of stock options is estimated as of the grant date based on a Black-Scholes option pricing model. Judgment is required in determining certain of the inputs to the model, specifically the expected life of options and volatility. As a result of the Company’s short operating history, no reliable historical data is available for expected lives and forfeitures. The Company estimates the expected life of its stock option grants at the midpoint between the vesting dates and the end of the contractual term. This methodology is known as the simplified method and is used because the Company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term. We estimated forfeitures based on management’s experience. The expected volatility is based on an analysis of comparable public companies operating in the Company’s industry.
 
Income Taxes
 
In calculating the provision for income taxes on an interim basis, the Company uses an estimate of the annual effective tax rate based upon the facts and circumstances known at the time. The Company’s effective tax rate is based on expected income, statutory rates and permanent differences applicable to the Company in the various jurisdictions in which the Company operates.
 
As it has no history of generating taxable income, the Company reduces any deferred tax assets by a full valuation allowance.  For the year ended December 31, 2014, the Company did not record income tax expense due to the losses incurred since inception.  
 
The Company does not have any uncertain tax positions and does not expect any reasonably possible material changes to the estimated amount of liability associated with its uncertain tax positions through December 31, 2014.
 
There are no income tax audits currently in process with any taxing jurisdictions.
  
 
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Use of Estimates
 
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Recent Accounting Pronouncements
 
There have been no accounting pronouncements or changes in accounting pronouncements that impacted the years ended December 31, 2014 and 2013, or which are expected to impact future periods, which were not previously disclosed in prior periods.
 
Reclassifications
 
Certain prior period amounts have been reclassified to conform with current year presentation.
 
5.  Commitments
 
Total rent expense for the Company under operating leases for the years ended December 31, 2014 and 2013 was less than $0.0 million and $0.0 million, respectively. The Company does not have any future minimum rental commitments under non-cancelable operating leases.

The employment agreements for Mr. Kanavos and Mr. Nelson are terminable on 60 days’ notice.  The severance payments, if employment is terminated, are set forth in Item 11. Executive Compensation.  Mr. Sillerman’s employment agreement terminated on December 31, 2012.
 
6.  Stockholders’ Deficit
 
As of December 31, 2014 and 2013, there were 65,076,162 and 65,076,162 shares of common stock issued and outstanding, respectively. Except as otherwise provided by Delaware law, the holders of our common stock are entitled to one vote per share on all matters to be voted upon by the stockholders.
 
The Company’s Board of Directors has the authority, without action by the stockholders, to designate and issue preferred stock in one or more series and to designate the rights, preferences and privileges of each series, which may be greater than the rights of the common stock.   As of December 31, 2014 and 2013, there were 1,500 shares of Series A Convertible Preferred Stock issued and outstanding.  The rights, preferences and privileges of the Series A Convertible Preferred Stock are summarized below.  As of December 31, 2014 and 2013, there were 2,500 shares of Series B Convertible Preferred Stock issued and outstanding, respectively.   The rights, preferences and privileges of the Series B Convertible Preferred Stock are summarized in note 2 to these consolidated financial statements. As of December 31, 2014 and 2013, there was no share and one (1) share of Non-Voting Designated preferred stock issued and outstanding, respectively.

Series A Convertible Preferred Stock Certificate of Designation

The Company created 1,500 shares of Series A Convertible Preferred  Stock by filing a Certificate of Designation (the "Series A Certificate of Designation") with the Secretary of State of the State of Delaware thereby amending its Amended and Restated Certificate of Incorporation, as amended. The Company issued and sold an aggregate of 1,500 shares of the Series A Convertible Preferred Stock as part of the units. The designation, powers, preferences and rights of the shares of Series A Convertible Preferred Stock and the qualifications, limitations and restrictions thereof are contained in the Series A Certificate of Designation and are summarized as follows:
 
 
The shares of Series A Convertible Preferred Stock have an initial stated value of $1,000 per share, which is subject to increase periodically to include accrued and unpaid dividends thereon (as increased periodically, the "Stated Value").
     
 
The shares of Series A Convertible Preferred Stock are entitled to receive quarterly cumulative cash dividends at a rate equal to 8% per annum of the Stated Value whenever funds are legally available and when and as declared by the Company’s board of directors.
     
 
Each share of Series A Convertible Stock are convertible into shares of Company common stock at a conversion prices equal to 120% of the weighted average closing price per share of the Company’s common stock as reported on the Pink Sheets over the 30-day period immediately preceding the applicable date of issuance (the "Conversion Price"). The Conversion Price is subject to adjustment to give effect to dividends, stock splits, recapitalizations and similar events affecting the shares of Company common stock.
     
 
The shares of Series A Convertible Preferred Stock are convertible, at the option of the holders, into shares of Company common stock at the Conversion Price if at any time the closing price of the shares of Company common stock is at the Conversion Price for ten (10) consecutive trading days. The shares of Series A Convertible Preferred Stock are convertible each time for a period of 60-days thereafter.
 
 
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Upon the earlier of: (x) consummation of the Company’s sale (or series of related sales) of its capital stock (or securities convertible into its capital stock) from which the Company generates net proceeds of at least $25 million or (y) the fifth anniversary of the date of their issuance the Series A Convertible Preferred Stock shall automatically convert into the number of shares of Company common stock equal to the then current Stated Value divided by the Conversion Price.
     
 
If at any time the closing price of the shares of Company common stock is at least 10 times the applicable weighted average closing price per share of the Company’s common stock as reported on the Pink Sheets over the 30-day period immediately preceding the applicable date of issuance of a particular share of Series A Convertible Preferred Stock for fifteen (15) consecutive trading days, the Company may redeem such share of Series A Convertible Preferred Stock at the then current Stated Value.  Such shares of Series A Convertible Preferred Stock are redeemable each time in whole or in part for a period of 120-days thereafter.
     
 
The shares of Series A Convertible Preferred Stock are senior in liquidation preference to the shares of Company common stock.
     
 
The shares of Series A Convertible Preferred Stock vote as a class with the outstanding shares of Company common stock on an as-converted basis (except as otherwise required by the Series A Certificate of Designation or applicable law).
     
  The consent of the holders of 51% of the outstanding shares of Series A Convertible Preferred Stock shall be necessary for the Company to: (i) increase the authorized number of shares of Series A Convertible Preferred Stock or alter, amend or change any of the terms, designations, powers, privileges or rights or restrictions provided for the benefit of the Series A Convertible Preferred Stock; (ii) create or issue any Company capital stock (or any securities convertible into any Company capital stock) having rights, preferences or privileges senior to or on parity with the Series A Convertible Preferred Stock; or (iii) amend the Company’s Amended and Restated Certificate of Incorporation or Bylaws in a manner that is materially adverse to the Series A Convertible Preferred Stock.
     
  From the date on which at least 1,000 shares of Series A Convertible Preferred Stock are outstanding (the "Director Commencement Date"), the Company’s board of directors is required (at the request of the holders of a majority of the Series A Convertible Preferred Stock)  to increase its size by one member and cause such resulting vacancy to be filled by a director designated by the holders of a majority of the then outstanding shares of Series A Convertible Preferred Stock (the "Class A Director"). From the Director Commencement Date until the date on which less than 50% of the shares of Series A Convertible Preferred Stock outstanding on the Director Commencement Date are outstanding, the holders of the Series A Convertible Preferred Stock, voting as a separate class, have the right to elect one (1) Class A Director to the Company’s board of directors at each meeting of stockholders or each consent of the Company’s stockholders for the election of directors, and to remove from office such Class A Director and to fill the vacancy caused by the resignation, death or removal of such Class A Director. Each share of Series A Convertible Preferred Stock is entitled to one vote and any election or removal of the Class A Director shall be subject to the affirmative vote of the holders of a majority of the outstanding shares of Series A Convertible Preferred Stock.
 
The foregoing description of the Series A Convertible Preferred Stock is not complete and is qualified in its entirety by reference to the full text of the Series A Certificate of Designation and the form of Warrant, copies of which are listed and incorporated by reference as Exhibit 3.3 to this report in which these consolidated financial statements are included, and are incorporated herein by reference.
 
For the fiscal year ended December 31, 2012, certain executive officers of the Company agreed to surrender accrued and unpaid salary for the Company’s 2008 through 2012 calendar years of $387,000 and the Company reversed an accrual of retention bonuses of $300,000, which had been previously expensed.  These transactions were recognized as contributions to the Company’s Stockholders’ Deficit and classified as additional paid-in capital.

7. Share-Based Payments

Equity Incentive Plan
 
Our 2007 Long-Term Incentive Compensation Plan (the “2007 Plan”) was adopted by the Board of Directors in December 2007 and approved by the Company’s stockholders at the 2008 annual meeting of stockholders, which was held in September 2008. Under the 2007 Plan, the maximum number of shares of common stock that may be subject to stock options, stock awards, deferred shares or performance shares is 3,000,000. No one participant may receive awards for more than 1,000,000 shares of common stock under the plan.
  
Executive Equity Incentive Plan
 
In December 2007, the Company’s 2007 Executive Equity Incentive Plan (the “2007 Executive Plan”) was adopted by the Board of Directors and approved by the Company’s stockholders at the 2008 annual meeting of stockholders, which was held in September 2008. Under the 2007 Executive Plan, the maximum number of shares of common stock that may be subject to stock options, stock awards, deferred shares or performance shares is 12,500,000.
 
 
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Stock Option Grants
 
The weighted average fair value of the options granted on January 10, 2008 and May 19, 2008 to executive-designees and other non-employees was $0.00 per option at December 31, 2014. Fair value at December 31, 2014 was estimated using the Black-Scholes option pricing model based on the weighted average assumptions of:

Risk-free rate
   
2.24
%
Volatility
   
67
%
Weighted average expected life
 
2.6
 
Dividend yield
   
0
%

 The weighted average fair value of the options issued on May 19, 2008 to employees was $1.64 per option. Fair value at the grant date was estimated using the Black-Scholes option pricing model based on the weighted average assumptions of:
 
Risk-free rate
   
2.24
%
Volatility
   
67
%
Weighted average expected life
 
3.0
 
Dividend yield
   
0
%

The Company estimated the original weighted average expected life of its stock option grants at the midpoint between the vesting dates and the end of the contractual term. This methodology is known as the simplified method and was used because the Company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term. The expected volatility is based on an analysis of comparable public companies operating in the Company’s industry.

As of December 31, 2014 and 2013, the Company has a total of 4,766,961 and 5,563,350 options outstanding, respectively, to employees, directors, executive-designees and other non-employees. Compensation expense for stock option grants included in the accompanying statements of operations in selling, general and administrative expenses and loss from incidental operations is being recognized ratably over the vesting periods of the grants and was $0.0 million and $0.0 million for the years ended December 31, 2014 and 2013, respectively.
 
8.  Income Taxes
 
The Company has $173 million of net operating losses as of December 31, 2014, which start expiring in 2027.
 
The Company adopted the provisions of Financial Accounting Standards concerning Accounting for Uncertainty in Income Taxes an interpretation of previous Financial Accounting Standards upon the formation of the Company on June 15, 2007. As a result of the implementation of the accounting standards, the Company reviewed its uncertain tax positions in accordance with the recognition of the standards. As a result of this review, the Company concluded that it has no uncertain tax positions. Any potential uncertain tax positions relating to the partnerships that it acquired would accrue to the partnerships’ historic partners and not to the Company. The Company does not expect any reasonably possible material changes to the estimated amount of liability associated with its uncertain tax positions through December 31, 2014.
 
The Company will recognize interest and penalties related to any uncertain tax positions through income tax expense.
 
The Company may in the future become subject to federal, state and city income taxation, though it has not been since its inception. There are no income tax audits currently in process with any taxing jurisdictions.
 
9.  Litigation
 
Huff Litigation
 
As has been previously reported, on July 12, 2012, the Company’s then directors Harvey Silverman, Michael J. Meyer, John D. Miller, Robert Sudack, Paul C. Kanavos and Robert F.X. Sillerman, as defendants, Mitchell J. Nelson, an officer of the Company, as a defendant, Brett Torino, a stockholder and former officer of the Company, as a defendant, and certain entities owned and controlled by Messrs. Sillerman, Kanavos and Torino, as defendants, and The Huff Alternative Fund, L.P. and The Huff Alternative Parallel Fund, L.P., then stockholders of the Company, as plaintiffs (collectively, "Huff"), entered into a Stipulation and Settlement Agreement (the "Settlement Agreement") to settle the derivative lawsuit filed on April 28, 2010 by Huff on behalf of the Company in the Supreme Court of the State of New York, County of New York (Index No. 650338/2010E) subject to final approval by such Court.

 
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Under the terms of the Settlement Agreement:
 
  The Company has agreed to elect to its board of directors an additional independent director, who shall also serve as a member of all committees of the board of directors. The Company is required to elect such additional independent director within sixty (60) days after the Effective Date (as such term is defined in the Settlement Agreement) and is not permitted to decrease the number of independent directors for a period of at least three (3) years from the Effective Date;
     
  The Company and the other defendants have agreed to pay the sum of $950,000 to Huff as payment for part of the costs and expenses (including attorneys’ fees) incurred by Huff in connection with the lawsuit and the results achieved in the lawsuit. Such payment is due and payable in full within fifteen (15) days of the Effective Date; and
     
  The Company and the other defendants and Huff have agreed to release the other (including their respective affiliates) from claims related to the lawsuit or any other lawsuit, provided that Huff has preserved certain claims against Mr. Torino and his affiliates (except the Company and the other defendants).
     
  On September 10, 2012, the Settlement Agreement was preliminarily approved by the Supreme Court of the State of New York, County of New York (the "Preliminary Approval") as being fair, reasonable and adequate.
     
  Under the Court’s order for the Preliminary Approval, the Company was required to publish no later than 10 business days from September 10, 2012, the Notice Of Pendency And Proposed Settlement Of Shareholder Derivative Litigation (i) as an exhibit to a Current Report on Form 8-K and (ii) on its website along with the Settlement Agreement.  The Company satisfied in a timely manner the publication requirements cited in the preceding sentence. The Company was also required to publish no later than 10 business days from September 10, 2012 a Summary Notice of Pendency and Proposed Settlement of Shareholder Derivative Litigation once in each of the national editions of The Wall Street Journal and USA Today.  The Company satisfied in a timely manner the foregoing publications requirements in the national editions of The Wall Street Journal and USA Today.
     
  The Court approved entry of the order on December 13, 2012, and there was a 30-day period to appeal after entry of the order, after which (assuming no appeal was taken) the terms will be effective upon the payment of $950,000 to Huff.  The appeal period was over on January 14, 2013 and the order was final.  Under the Settlement Agreement, January 14, 2013 is deemed to be the “Effective Date” of the Settlement Agreement.  The $950,000 was funded timely, $650,000 by the Company and $300,000 by its insurance carrier.
     
  Effective March 1, 2013, in accordance with the requirements of the Settlement Agreement, the Company’s Board of Directors, upon the recommendation of the Nominating and Corporate Governance Committee, unanimously elected Andrew Perel as a member of the Board of Directors to serve until the next annual meeting of stockholders or the earlier of his resignation, removal and death and appointed Mr. Perel to serve as a member of the Board’s Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee. Immediately prior to Mr. Perel’s election to the Board and his appointment to the Audit Committee, the Compensation Committee and the Nominating and Corporate Governance Committee, the Board increased the size of the Board to seven (7) members from six (6) members and increased the size of each of the Audit Committee, the Compensation Committee and the Nominating and Corporate Governance Committee by one member.  Mr. Perel is an "independent" director (as defined in the Settlement Agreement and also as defined in the Company’s Charters for the Board of Directors’s Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee, and by applicable rules of The NASDAQ Global Market and the Securities and Exchange Commission relating thereto). Mr. Perel was reelected as a member of the Board of Directors at the Company’s 2013 annual meeting of stockholders held on September 9, 2013.

Miscellaneous
 
From time to time the Company may be involved in various claims and legal actions arising in the ordinary course of its business. There were no pending material claims or legal matters as of December 31, 2014.

10.  Related Party Transactions

Shared Services Agreements

Certain employees of Flag, from time to time, provide services for the Company. The Company is required to reimburse Flag for these services provided by such employees and other overhead costs in an amount equal to the fair value of the services as agreed between the parties and approved by the Audit Committee. For the year ended December 31, 2014, Flag incurred and billed Circle $0.5 million. The services provided for the year ended December 31, 2014 were approved by the Audit Committee. For the year ended December 31, 2013, Flag incurred and billed Circle $0.6 million. The services provided for the year ended December 31, 2013 were approved by the Audit Committee and the related fees were paid subsequent to December 31, 2013. The services provided consisted primarily of accounting and legal services provided by Flag on behalf of Circle.  Paul Kanavos, the Company’s President, and Mitchell Nelson, the Company’s General Counsel, under their respective employment agreements, as amended, are required to devote working time required to satisfy the provisions of their employment agreements and perform their functions for the Company, provided that they shall each be entitled to devote additional working time to such business or other affairs as each deems appropriate.  This arrangement was approved by the Company’s independent directors.  To the extent that they use Company employees and/or services for such purposes, they are required to reimburse the Company therefor.  Such arrangement is reviewed by the Company’s Audit Committee quarterly and appropriate adjustments or reimbursements are made under the shared services agreement.
 
 
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As of February 15, 2011, the Company entered into a shared services agreement with Function (x), now known as Viggle Inc. (“Viggle”) (a company substantially owned and controlled by Robert F.X. Sillerman), pursuant to which it shares costs for legal services and administrative services in support of Mitchell J. Nelson, its General Counsel and Executive Vice President to Viggle.  The shared services agreement provides, in general, for sharing on a 50/50 basis of the applicable support provided by either company to Mr. Nelson in connection with his capacity as General Counsel, and an allocation generally based on the services provided by Mr. Nelson, which were initially estimated to be divided evenly between the companies.  However, during the first quarter of 2013, the Company’s share was reduced to 25%. Viggle will initially be responsible for advancing the salary to Mr. Nelson for both companies and will be reimbursed by Circle for such salary and benefits (but not for any bonus, option or restricted share grant made by either company, which will be the responsibility of the company making such bonus, option or restricted share grant).  The agreement provides for the president of each company to meet periodically to assess whether the services have been satisfactorily performed and to discuss whether the allocation has been fair.  The audit committees of each company’s board of directors will then review and, if appropriate, approve the allocations made and whether payments need to be adjusted or reimbursed, depending on the circumstances.  As of October 31, 2013, the Company has stopped making payments to Viggle for its share of Mr. Nelson’s salary, and Mr. Nelson is not being paid for the 25% of his salary that would be paid by the Company.  For the years ended December 31, 2014 and 2013, Viggle incurred and billed the Company less than $0.1 million and $0.2 million, respectively.  Approximately $0.1 million of the amount for 2013 and less than $0.1 of the amount for 2014 has yet to be paid by the Company.
 
As of January 4, 2013, the Company entered into a shared services agreement with SFX Holding Corporation, now known as SFX Entertainment Inc. (“SFX”) (a company substantially owned and controlled by Robert F.X. Sillerman), pursuant to which it shares costs for legal and administrative services in support of Mitchell J. Nelson, its Senior Legal Advisor and the Company’s General Counsel.  The shared services agreement provides, in general, for sharing generally based on the services provided by Mr. Nelson.    Mr. Nelson will continue to be paid by Viggle, and SFX will reimburse the Company or Viggle directly for its portion of such salary and benefits (but not for any bonus, option or restricted share grant made by either company, which will be the responsibility of the company making such bonus, option or restricted share grant).   For the year ended December 31, 2014, SFX incurred charges for $0.0 million and reimbursed the Company $0.0 million.  For the year ended December 31, 2013, SFX incurred charges for $0.0 million and reimbursed the Company $0.0 million.
 
12.  Subsequent Events
 
None.
 
 
 
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 ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
 
As has been previously reported, on February 11, 2015, the Company was notified by L.L. Bradford & Company, LLC (“Bradford”)  that the firm resigned as the Company’s  independent registered public accounting firm.  Except as noted in the paragraph immediately below, the report of Bradford on the Company’s financial statements for the two years ended December 31, 2013 and for the period then ended did not contain an adverse opinion or disclaimer of opinion, and such reports were not qualified or modified as to uncertainty, audit scope, or accounting principle.

The report of Bradford on the Company’s financial statements for the two years ended December 31, 2013 contained an explanatory paragraph which noted that there was substantial doubt as to the Company’s ability to continue as a going concern because the Company has limited available cash, has a working capital deficiency and will need to rely on a certain funding agreement or secure new financing or additional capital in order to pay its obligations.

During the years ended December 31, 2013 and 2012 and the interim period through February 11, 2015 (the date of resignation), (i) the Company had no disagreements with Braford on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to Bradford’s satisfaction, would have caused Bradford to make reference to the subject matter of the disagreement in connection with its reports and (ii) there were no reportable events as defined in Item 304(a)(1)(v) of Regulation S-K.

As has been previously reported, on February 11, 2015  (the “Engagement Date”), the Audit Committee of the Company’s Board of Directors engaged RBSM LLP (“RBSM ”) as the Company’s  independent registered public accounting firm for the Company’s fiscal year ended December 31, 2014 and the fiscal year ending December 31, 2015.

During the two most recent fiscal years and through the Engagement Date, the Company has not consulted with RBSM regarding either: (i) the application of accounting principles to any specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company’s financial statements, and neither a written report was provided to the Company nor oral advice was provided that RBSM  concluded was an important factor considered by the Company in reaching a decision as to the accounting, auditing or financial reporting issue; or (b) any matter that was either the subject of a disagreement (as defined in paragraph (a)(1)(iv) of Item 304 of Regulation S-K and the related instructions thereto) or a reportable event (as described in paragraph (a)(1)(v) of Item 304 of Regulation S-K).

ITEM 9A.  CONTROLS AND PROCEDURES
 
Evaluation of Disclosure Controls and Procedures
 
Management, with the participation of the Company’s principal executive officer and chief financial officer evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15 or 15d-15 promulgated under the Exchange Act of 1934, as amended (the “Exchange Act”)) as of December 31, 2014.  Based on that evaluation, the Company’s management initially concluded that, as of that date, disclosure controls and procedures required by paragraph (b) of Exchange Act Rules 13a-15 or 15d-15, were not effective.
 
Management’s Annual Report on Internal Control over Financial Reporting
 
Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 (Section 404) and as defined in Rules 13a-15(f) under the U.S. Securities Exchange Act of 1934, management is required to provide the following report on the Company’s internal control over financial reporting:
 
1. The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company.
 
2. The Company’s management has evaluated the system of internal control using the Committee of Sponsoring Organizations of the Treadway Commission (COSO) framework. Management has selected the COSO framework for its evaluation as it is a control framework recognized by the SEC and the Public Company Accounting Oversight Board that is free from bias, permits reasonably consistent qualitative and quantitative measurement of the Company’s internal controls, is sufficiently complete so that relevant controls are not omitted and is relevant to an evaluation of internal controls over financial reporting.
 
3.  Based on management’s evaluation under this framework, the Company determined that there are material weaknesses in its internal control over financial reporting as of December 31, 2014, which are discussed below under “Changes In Internal Control Over Financial Reporting.”   Accordingly, management has concluded that the Company’s internal control over financial reporting as of December 31, 2014 was not effective.
 
 
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Changes in Internal Control over Financial Reporting
 
The loss of certain key accounting and finance personnel, coupled with our limited financial and human resources has materially affected our internal controls over financial reporting, including internal controls over accounting for stock based compensation, accounting for long-lived assets and the financial statement close process.   In addition, during 2013, we restated our audited consolidated financial statements (other than the consolidated statement of operations) as of December 31, 2012 and for the year then ended to reflect the effects of accounting and reporting errors related to the incorrect classification and recording of the funds the Company received prior to December 31, 2012 under the Funding Agreement.  The funds received by the Company prior to and since December 31, 2012 under the Funding Agreement have been classified and recorded as equity contributions.

As a result, material weaknesses in internal controls over financial reporting, as previously determined since before December 31, 2010, continue to persist.  Although we had initiated a process which would allow our company to remediate the internal control weaknesses, this process has been terminated due to our financial constraints and limited activities.

There is no assurance we will proceed at any time to complete the process, or even if we do that the process will remediate the foregoing internal control weaknesses or prevent the occurrence of additional material weaknesses in our internal control over financial reporting.
 
 ITEM 9B. OTHER INFORMATION
 
None. 
 
 
 
 
42

 
 
PART III
 
ITEM 10.    DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
 
Executive Officers and Directors of Circle Entertainment Inc.
 
The following table lists the names, ages and positions of our directors and executive officers as of February 24, 2015:

Name
 
Age
 
Position
Paul C. Kanavos
 
58
 
President, Director
David M. Ledy
 
65
 
Director
Gary McHenry
 
64
 
Chief Financial Officer
Michael J. Meyer
 
48
 
Director
Mitchell Nelson
 
67
 
Executive Vice President, General Counsel, Secretary
Andrew Perel
 
54
 
Director
Robert F.X. Sillerman
 
66
 
Director
Harvey Silverman
 
72
 
Director
 
Paul C. Kanavos was elected as a director and appointed President of the Company on August 20, 2007. Mr. Kanavos is the Founder, Chairman and Chief Executive Officer of Flag Luxury Properties, LLC. Prior to founding Flag Luxury Properties, he worked for over 20 years at the head of Flag Management. Most recently he has developed Ritz-Carltons in South Beach, Coconut Grove and Jupiter and was involved in developing Temenos Anguilla. Mr. Kanavos is a director, executive officer and controlling stockholder of Atlas Real Estate Funds, Inc., a greater than 5% stockholder of the Company (“Atlas”).  Mr. Kanavos’ early career experience includes a position at Chase Manhattan Bank, where he negotiated, structured and closed over $1 billion in loans.  The Board of Directors selected Mr. Kanavos to serve as a director because it believes his real estate development expertise will benefit the Company.
 
David M. Ledy was elected as a director of the Company in August 2012.  Mr. Ledy previously served as a director of the Company from October 2007 until August 2009.  Mr. Ledy is the Chief Operating Officer of U.S. Realty Advisors, LLC, a privately held firm based in New York that specializes in equity investments in corporate real estate assets and real estate advisory services to public companies, financial institutions and major private developers and investors.  Prior to joining US Realty Advisors in 1991, Mr. Ledy was a partner in the New York law firm Shea & Gould, where he was a member of the real estate department and chairman of the real estate workout group.  Mr. Ledy is a director of the First National Bank of New York.    Mr. Ledy was selected to serve as a director because the Board of Directors believes his wide-ranging real estate experience will benefit the Company.

Michael J. Meyer was elected a director of the Company in May 2008. Mr. Meyer is the founding partner of 17 Broad LLC, a diversified investment vehicle and securities consulting firm. Prior to founding 17 Broad, from 2002 to 2007, Mr. Meyer served as Managing Director and Head of Credit Sales and Trading for Bank of America. Prior to that, Mr. Meyer spent four years as the Head of High Grade Credit Sales and Trading for UBS.  Mr. Meyer has served as a director of Viggle Inc. (formerly known as Function (x) Inc.) since May 2013, a publicly traded company of which Robert F.X. Sillerman is the controlling shareholder.  Mr. Meyer is also a director of SFX Entertainment Inc., a publicly traded company of which Robert F.X. Sillerman is the controlling shareholder.  The Board of Directors selected Mr. Meyer to serve as a director because the Board of Directors believes his experience in financial planning and debt issues will benefit the Company.

Andrew Perel was elected a director of the Company effective March 1, 2013 in accordance with the terms of the Settlement Agreement (as described under Item 3. Legal Proceedings— Huff Litigation).  Mr. Perel was also appointed to serve as a member of the Board of Directors’ standing committees (namely, the Audit Committee, the Compensation Committee and the Nominating and Corporate Governance Committee) in accordance with the terms of the Settlement Agreement.  Mr. Perel is a Partner at the law firm of Troutman Sanders.  He was previously the Executive Vice-President, General Counsel and Secretary of a publicly traded real estate investment trust, and has worked as outside counsel to major financial institutions regarding real estate and capital markets transactions with emphasis on origination, securitization, mergers & acquisitions, corporate finance, litigation and insurance; providing due diligence, loss prevention, risk management and regulatory studies for the purchase, sale and financing of commercial real estate.   Mr. Perel has also served as counsel to insurance and reinsurance companies prosecuting and defending declaratory judgment actions and has extensive experience in all aspects of general liability and environmental insurance coverage, defense and subrogation matters.  He is on the Board of Directors for Trump Plaza, the Advisory Board for Lincoln Land Services (Chair), the Board of Directors for Sports Angels, Inc. and Chairs the Board of Directors for Manhattan Youth Baseball.  The Board of Directors selected Mr. Perel to serve as a director because the Board of Directors believes his finance and real estate legal and other experience will benefit the Company.
 
Gary A. McHenry has served as Chief Financial Officer of the Company since January 21, 2011.  Mr. McHenry served as the Company’s property subsidiary’s (and its predecessors’) Controller since 2007 and as Principal Accounting Officer since July 2009. In connection with the chapter 11 bankruptcy proceeding of the Company's former Las Vegas property subsidiary, Mr. McHenry served as Vice President of such Las Vegas property subsidiary. Mr. McHenry is a CPA with numerous years’ financial experience in the real estate, manufacturing and communications industries.
 
 
43

 
 
Mitchell J. Nelson has served as Executive Vice President, General Counsel and Secretary of the Company since December 31, 2007. On February 11, 2011, Mr. Nelson was appointed as a director and Executive Vice President and General Counsel of Viggle.  On January 4, 2013, Mr. Nelson was appointed as the Senior Legal Adviser of SFX.  In connection with the chapter 11 bankruptcy proceeding of the Company's former Las Vegas property subsidiary, Mr. Nelson served as its President. Mr. Nelson has served as Senior Vice President of Corporate Affairs for Flag Luxury Properties, LLC since February, 2003. He is a minority stockholder of Atlas, and served as its President until December 2008. He has served as counsel to various law firms since 1994. Prior to that, he was a senior real estate partner at the law firm of Wien, Malkin & Bettex, with supervisory responsibility for various commercial properties. Mr. Nelson was a director of The Merchants Bank of New York and its holding company until its merger with, and remains on the Advisory Board of, Valley National Bank. Additionally, he has served on the boards of various not-for-profit organizations, including as a director of the 92nd Street YMHA and a trustee of Collegiate School, both in New York City.

Robert F.X. Sillerman served as Chairman of the Board of Directors and Chief Executive Officer of the Company from January 10, 2008 until January 13, 2013.  On February 11, 2011, Mr. Sillerman became the Executive Chairman of Viggle.  Mr. Sillerman is also Executive Chairman and Chief Executive Officer of SFX. Mr. Sillerman previously served as the Chief Executive Officer and Chairman of CKX (from February 2005 until May 2010). From August 2000 to February 2005, Mr. Sillerman was Chairman of FXM, Inc., a private investment firm. Mr. Sillerman is a director, executive officer and controlling stockholder of Atlas.   Mr. Sillerman is the founder and has served as managing member of FXM Asset Management LLC, the managing member of MJX Asset Management, a company principally engaged in the management of collateralized loan obligation funds, from November 2003 through April 2010. Prior to that, Mr. Sillerman served as the Executive Chairman, a Member of the Office of the Chairman and a director of SFX Entertainment, Inc., from its formation in December 1997 through its sale to Clear Channel Communications in August 2000.  The Board of Directors selected Mr. Sillerman to serve as a director because it believes his significant entertainment and financial expertise will benefit the Company.

Harvey Silverman was elected a director of the Company in October 2007. Mr. Silverman was a principal of Spear, Leeds & Kellogg, a major specialist firm on the New York Stock Exchange, for 39 years until its acquisition by Goldman Sachs & Co. in October of 2000. Since then, Mr. Silverman has been a private investor.  Mr. Silverman was selected to serve as a director because the Board of Directors believes his experience in capital markets will benefit the Company.
 
Former Director

On September 30, 2013, Huff, the then holder of the Company’s single share of outstanding Non-Voting Designated Preferred Stock (the "Designated Preferred Stock"), sold its equity interests in the Company, including the share of Designated Preferred Stock, to TS2013 LLC, an affiliate of Brett Torino, a greater than 10% stockholder of the Company, as reported in the Schedule 13D/Amendment No. 22 filed by, among others, Mr. Torino with the Securities and Exchange Commission on October 3, 2013.

As a result of the foregoing sale, in accordance with the Certificate of Designation of the Designated Preferred Stock, the Company exercised its right to convert the share of Designated Preferred Stock into one share of Company common stock effective September 30, 2013.

The right of the holder of the Designated Preferred Stock to appoint one member to the Company’s Board of Directors terminated upon its conversion into one share of Company common stock.

Therefore, effective September 30, 2013, Bryan Bloom, who was serving as a member of the Company’s Board of Directors as the designee of the holder of the Designated Preferred Stock, resigned as a member of the Company Board of Directors.
 
Voting Class A Preferred Stock Director

From the date on which at least 1,000 shares of Series A Convertible Preferred Stock are outstanding (the "Director Commencement Date"), the Company’s board of directors is required (at the request of the holders of a majority of the Series A Convertible Preferred Stock) to increase its size by one member and cause such resulting vacancy to be filled by a director designated by the holders of a majority of the then outstanding shares of Series A Convertible Preferred Stock (the "Class A Director"). From the Director Commencement Date until the date on which less than 50% of the shares of Series A Convertible Preferred Stock outstanding on the Director Commencement Date are outstanding, a majority of the holders of the Series A Convertible Preferred Stock, voting as a separate class, have the right to elect one (1) Class A Director to the Company’s board of directors at each meeting of stockholders or each consent of the Company’s stockholders for the election of directors, and to remove from office such Class A Director and to fill the vacancy caused by the resignation, death or removal of such Class A Director. Each share of Series A Convertible Preferred Stock is entitled to one vote and any election or removal of the Class A Director shall be subject to the affirmative vote of the holders of a majority of the outstanding shares of Series A Convertible Preferred Stock.  The holders of the Class A Convertible Preferred Shares also vote on an as-converted basis into common stock with the holders of the Common Stock as a single class for the election of directors.  No Class A Director has been appointed.

 
44

 

Voting Class B Preferred Stock Director

From the date on which at least 1,667 shares of Series B Convertible Preferred Stock are outstanding (the "Class B Director Commencement Date"), the Company’s board of directors is required (at the request of the holders of a majority of the Series B Convertible Preferred Stock) to increase its size by one member and cause such resulting vacancy to be filled by a director designated by the holders of a majority of the then outstanding shares of Series B Convertible Preferred Stock (the "Class B Director"). From the Class B Director Commencement Date until the date on which less than 50% of the shares of Series B Convertible Preferred Stock outstanding on the Class B Director Commencement Date are outstanding, a majority of the holders of the Series B Convertible Preferred Stock, voting as a separate class, have the right to elect one (1) Class B Director to the Company’s board of directors at each meeting of stockholders or each consent of the Company’s stockholders for the election of directors, and to remove from office such Class B Director and to fill the vacancy caused by the resignation, death or removal of such Class B Director. Each share of Series B Convertible Preferred Stock is entitled to one vote and any election or removal of the Class B Director shall be subject to the affirmative vote of the holders of a majority of the outstanding shares of Series B Convertible Preferred Stock.  The holders of the Series B Convertible Preferred Shares also vote on an as-converted basis into common stock with the holders of the Common Stock as a single class for the election of directors.  No Class B Director has been appointed.

Independent Director Appointment Pursuant to Huff Derivative Litigation Settlement

Effective March 1, 2013, in accordance with the requirements of the Settlement Agreement (as described under Item 3. Legal Proceedings— Huff Litigation), the Company’s Board of Directors, upon the recommendation of the Nominating and Corporate Governance Committee, unanimously elected Andrew Perel as a member of the Board of Directors to serve until the next annual meeting of stockholders or the earlier of his resignation, removal and death and appointed Mr. Perel to serve as a member of the Board’s Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee. Immediately prior to Mr. Perel’s election to the Board and his appointment to the Audit Committee, the Compensation Committee and the Nominating and Corporate Governance Committee, the Board increased the size of the Board to seven (7) members from six (6) members and increased the size of each of the Audit Committee, the Compensation Committee and the Nominating and Corporate Governance Committee by one member.  Mr. Perel is an "independent" director (as defined in the Settlement Agreement and also as defined in the Company’s Charters for the Board of Directors’s Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee, and by applicable rules of The NASDAQ Global Market and the Securities and Exchange Commission relating thereto).  Mr. Perel was reelected as a member of the Board of Directors at the Company’s 2013 annual meeting of stockholders held on September 9, 2013.
 
Section 16(a) Beneficial Ownership Reporting Compliance
 
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our directors and officers, and persons who own more than 10% of our outstanding Common Stock to file with the SEC initial reports of ownership and changes in ownership of our Common Stock. Such individuals are also required to furnish us with copies of all such ownership reports they file.
 
To our knowledge, based solely on information furnished to us and contained in Section 16 reports filed with the Securities and Exchange Commission, as well as any written representations that no other reports were required, we believe that during 2014, all required Section 16 reports of our directors and executive officers and persons who own more than 10% of our outstanding common stock were timely filed.

Code of Business Conduct and Ethics
 
The Company has adopted a Code of Business Conduct and Ethics, which is applicable to all our employees and directors, including our principal executive officer, principal financial officer, principal accounting officer or controller or persons performing similar functions. The Code is posted on our website located at http://fxle.client.shareholder.com .
 
We intend to satisfy the disclosure requirements under Item 5.05 of Form 8-K regarding an amendment to, or waiver from, a provision of our Code of Business Conduct and Ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions by posting such information on our website at http://fxle.client.shareholder.com .
 
Corporate Governance Guidelines
 
The Company has Corporate Governance Guidelines which provide, among other things, that a majority of the Company’s board of directors must meet the criteria for independence required by The NASDAQ Stock Market ® (even though the Company’s stock is no longer traded on such market) and that the Company shall at all times have a standing Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee, which committees will be made up entirely of independent directors. The Corporate Governance Guidelines also outline director responsibilities, provide that the board of directors shall have full and free access to officers and employees of the Company and require the board of directors to conduct an annual self-evaluation to determine whether it and its committees are functioning effectively. The Corporate Governance Guidelines and the charters for these committees can be found on the Company’s website at http://fxle.client.shareholder.com .

 
45

 
 
   Board Committees
 
The following chart sets forth the membership of each board committee as of February 24, 2015.
 
Committee
 
Members
     
Audit Committee
 
Michael Meyer (Chairman)
    David M. Ledy
    Andrew Perel
    Harvey Silverman
     
Compensation Committee
 
Michael Meyer
    Andrew Perel
    Harvey Silverman
     
Nominating and Corporate Governance Committee
 
Harvey Silverman (Chairman)
    Michael Meyer
    Andrew Perel
     
Special Committee
 
Michael J. Meyer
    David Ledy

Audit Committee
 
The Audit Committee is comprised of Messrs. Ledy, Meyer, Perel and Silverman. Mr. Meyer is the Chairman of the Audit Committee. The Audit Committee assists our board of directors in fulfilling its responsibility to oversee management’s conduct of our financial reporting process, including the selection of our outside auditors, review of the financial reports and other financial information we provide to the public, our systems of internal accounting, financial and disclosure controls and the annual independent audit of our financial statements.
 
All members of the Audit Committee are independent within the meaning of the rules and regulations of the SEC, and our Corporate Governance Guidelines. In addition, Mr. Meyer is qualified as an audit committee financial expert under the regulations of the SEC and has the accounting and related financial management expertise required thereby.
 
Compensation Committee
 
The Compensation Committee is comprised of Messrs. Ledy, Meyer, Perel and Silverman. Mr. Ledy is the Chairman of the Compensation Committee . The Compensation Committee represents our Company in reviewing and approving the executive compensation of our Chief Executive Officer, President, Chief Financial Officer and General Counsel. The Compensation Committee also reviews management’s recommendations with respect to executive compensation and employee benefits and is authorized to act on behalf of the board of directors with respect thereto. The Compensation Committee also administers the Company’s stock option and incentive plans, including our 2007 Long-Term Incentive Compensation Plan and our 2007 Executive Equity Incentive Plan. All members of the Compensation Committee are independent within the meaning of the rules and regulations of the SEC and our Corporate Governance Guidelines. The Compensation Committee’s charter can be found on the Company’s website at www.fxree.com .

Nominating and Corporate Governance Committee
 
The Nominating and Corporate Governance Committee is currently comprised of Messrs. Ledy, Meyer, Perel and Silverman. Mr. Silverman is the Chairman of the Nominating and Corporate Governance Committee. The Nominating and Corporate Governance Committee is responsible for recommending qualified candidates to the board for election as directors of our Company, including the slate of directors proposed by our board of directors for election by stockholders at our annual meetings of stockholders. The Nominating and Corporate Governance Committee also advises and makes recommendations to the board of directors on all matters concerning directorship practices and recommendations concerning the functions and duties of the committees of the board of directors. To assist in formulating such recommendations, the Nominating and Corporate Governance Committee utilizes feedback that it receives from the board of directors’ annual self-evaluation process, which it oversees and which includes a committee and director self-evaluation component. The Nominating and Corporate Governance Committee developed and recommended to the board of directors Corporate Governance Guidelines and will review, on a regular basis, the overall corporate governance of our Company.
 
 
46

 
 
All members of the Nominating and Corporate Governance Committee are independent within the meaning of our Corporate Governance Guidelines.  The Nominating and Corporate Governance Committee’s charter can be found on the Company’s website at www.fxree.com .
 
When considering the nomination of directors for election at an annual meeting of stockholders or, if applicable, a special meeting of stockholders, the Nominating and Corporate Governance Committee takes into account all factors it considers appropriate, which may include strength of character, mature judgment, career specialization, relevant technical skills and the extent to which the candidate would fill a present need on the board of directors. The Nominating and Corporate Governance Committee may engage, as appropriate, a third party search firm to assist in identifying qualified candidates. The process may also include interviews and all necessary and appropriate inquiries into the background and qualifications of possible candidates. The Nominating and Corporate Governance Committee does not currently have a policy whereby it will consider recommendations from stockholders for its director nominees.

Special Committee

 The Special Committee is comprised of Messrs. Meyer and Ledy.  The Special Committee was formed in February 2014 to evaluate (until withdrawn on December 31, 2014) the Proposal from Messrs. Kanavos, Sillerman and Torino as described under “ Item 1. Business-Recent Developments” of this report.
 
ITEM 11.    EXECUTIVE COMPENSATION
 
2014 Summary Compensation Table
 
The table below summarizes the compensation earned for services rendered to the Company for the fiscal years ended December 31, 2014 and December 31, 2013 by our Chief Executive Officer and the two other most highly compensated executive officers of the Company (the “named executive officers”) who served in such capacities at the end of the fiscal year ended December 31, 2014. Except as provided below, none of our named executive officers received any other compensation required to be disclosed by law or in excess of $10,000 annually.
 
Name and Principal Position(1)
 
Fiscal Year
 
Salary
($)
   
Bonus
($)
   
Option Awards
($)
   
All Other
Compensation
   
Total
 
                                             
Paul Kanavos
 
2014
 
$
600,000
     
---
     
---
     
---
     
600,000
 
  President
 
2013
   
600,000
   
$
 ---
   
$
---
   
$
 ---
   
$
600,000 
 
                                             
Mitchell Nelson
 
2014
   
150,000
     
---
     
---
     
---
     
150,000
 
  General Counsel
 
2013
   
150,000
     
 ---
     
---
   
$
 ---
   
$
150,000
 
 
 
(1)
 
The Company has not had a Chief Executive Officer since Mr. Sillerman resigned from such position effective January 12, 2013.
 
(2)
 
In connection with the modification of Mr. Kanavos’ employment agreement in June 2009, he is entitled to a retention bonus of $95,000, which has not been paid as of March 25, 2014. As of December 31, 2014, Mr. Kanavos’ accrued but unpaid salary was $143,554 for 2014, $171,946 for 2013, $375,000 for 2012, $400,000 for 2011 and $600,000 for 2010 as well as $245,000 for 2009.  As of December 31, 2014, Mr. Nelson’s accrued but unpaid salary was $150,000 for 2014, $93,750 for 2013, $47,500 for 2011 and $365,000 for 2010 as well as $150,000 for 2009.
  
Outstanding Equity Awards at December 31, 2014
 
   
Option Awards
 
Name
 
Number of Securities
Underlying Unexercised Options (#) Exercisable
   
Number of Securities Underlying Unexercised Options (#) Unexercisable
   
Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options ($)
   
Option Exercise Price ($)
 
Option Expiration
Robert F.X. Sillerman
    250,000 (1)     -       -       5.00  
5/19/18
      250,000 (1)                     6.00  
5/19/18
                                   
Paul Kanavos
    125,000 (1)                     5.00  
5/19/18
      125,000 (1)                     6.00  
5/19/18
                                   
Mitchell Nelson
    100,000 (1)                     5.00  
5/19/18
      100,000 (1)                     6.00  
5/19/18
___________________
 
(1)
 
With respect to options granted by the Company on May 19, 2008, one half of the options have an exercise price of $5.00 per share and the other half have an exercise price of $6.00 per share. The options vest over a five year period, with 40% of the $5.00 options vesting after one year, 40% of the $5.00 options vesting after year two, 20% of the $5.00 and 20% of the $6.00 options vesting after year three, 40% of the $6.00 options vesting after year four and 40% of the $6.00 options vesting after year five.
 
 
47

 

Potential Payments upon Death or Disability

The following disclosure is for our continuing named executive officers, Messrs. Kanavos and Nelson.
 
The employment agreements of each of Messrs. Kanavos and Nelson provide for the following benefits in the event of their death: (a) all earned but unpaid Base Salary at the time of the Executive’s death; the full costs relating to the continuation of any group health, medical, dental and life insurance program or plan provided through the Employer for a period of ninety (90) days after the termination of Employment; and all reimbursable business expenses incurred by the Executive through time of his death.  The approximate amount that would be due to the estates of Messrs. Kanavos and Nelson in the event of their death as of December 31, 2014 would be $1,849,634 and $656,250, respectively, because of accrued but unpaid Base Salary owed to Messrs. Kanavos and Nelson.
 
Compensation of Non-Employee Directors
 
Employee directors do not receive any separate compensation for their board service. Non-employee directors receive the compensation described below.
 
For 2014, non-employee directors accrued an annual fee of $80,000 plus $1,000 for attendance at each meeting of our board of directors and $750 for attending each meeting of a committee of which he is a member. The chairperson of the Audit Committee accrued an additional annual fee of $20,000 and each of the other members of the Audit Committee accrued an additional fee of $10,000 for serving on the Audit Committee.  The chairpersons of each other committee accrued an additional annual fee of $10,000 and each of the other members of such committees accrued an additional annual fee of $5,000. All fees described above are payable half in cash and half in equity awards or options under the Company’s 2007 Long-Term Incentive Compensation Plan, though each non-employee director will have the option to elect, on an annual basis, to receive 100% of his compensation in equity awards or stock options.

The Company pays non-employee directors on a quarterly basis and prices all grants of Common Stock at the closing price on the last day of the quarter for which such fees relate or options therefore on the date granted.  During 2014 and 2013 (as well as 2012, 2011 and 2010), fees earned were accrued and not paid.
 
The total compensation accrued by our non-employee directors during fiscal year 2014 is shown in the following table (1):

   
Fees
   
Option
       
   
Accrued
   
Awards
   
Total
 
Name  
 
($) (1)
   
($) (2)
   
($)
 
David M. Ledy
 
$
109,000
     
--- 
   
$
109,000
 
Michael Meyer
 
$
119,000
     
--- 
   
$
119,000
 
Andrew Perel
 
$
105,000
     
--- 
   
$
105,000
 
Harvey Silverman
 
$
115,000
     
--- 
   
$
115,000
 
 
(1)
For 2014 (as well as 2013), fees have been accrued and not paid due to the Company’s cash position.  Directors are entitled to be paid half in cash and half in equity, unless they elect to receive a greater percentage of their compensation in equity.   The manner and timing of satisfying this obligation is under consideration and may be satisfied using cash, equity, or any combination thereof.
(2)
The amounts shown represent the aggregate grant date fair value of stock options computed in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 718 "Compensation-Stock Compensation" (“FASB ASC Topic 718”).  The value ultimately realized by the director upon the actual exercise of the stock options may or may not be equal to the FASB ASC Topic 718 computed value.  The discussion of the assumptions used for purposes of the valuation of the stock options appears in Note 7 of our consolidated financial statements included elsewhere herein. 

Compensation Committee Interlocks and Insider Participation
 
No member of our Compensation Committee was at any time during the past fiscal year an officer or employee of us, was formerly an officer of us or any of our subsidiaries or has an immediate family member that was an officer or employee of us or had any relationship requiring disclosure under “Item 13. Certain Relationships, Related Transactions, and Director Independence” of this report.
 
During the last fiscal year, none of our executive officers served as:
 
  a member of the compensation committee (or other committee of the board of directors performing equivalent functions or, in the absence of any such committee, the entire board of directors) or another entity, one of whose executive officers served on our compensation committee;
     
  a director of another entity, one of whose executive officers served on our compensation committee; and
     
  a member of the compensation committee (or other committee of the board of directors performing equivalent functions or, in the absence of any such committee, the entire board of directors) of another entity, one of whose executive officers served as a director of us.
 
 
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ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
 
Securities Authorized for Issuance under Equity Compensation Plans
 
The table below shows information with respect to our equity compensation plans, our 2007 Executive Equity Incentive Plan and our 2007 Long-Term Incentive Compensation Plan.  For a description of our 2007 Executive Equity Incentive Plan and 2007 Long-Term Incentive Compensation Plan, see Note 7 to our audited consolidated financial statements included elsewhere in this report.
 
 
Plan Category
 
(a)
Number of
Securities to
be Issued Upon
Exercise of
Outstanding
Options, Warrants
and Rights
   
(b)
Weighted
Average
Exercise
Price of
Outstanding
Options,
Warrants and
Rights
   
(c)
Number of Securities
Remaining Available
for Future
Issuance Under
 Equity Compensation  Plans
(Excluding Securities
Reflected in Column (a) )
 
    (#)    
($)
    (#)  
                       
Equity compensation plans approved by security holders
   
4,766,961
    $
2.15
     
9,976,389
 
                         
Equity compensation plans not approved by security holders
   
-
     
-
     
-
 

Security Ownership of Certain Beneficial Owners and Management
 
The following table sets forth certain information regarding the beneficial ownership of shares of our common stock as of February 24, 2015 by:
 
 
each person or entity known by us to beneficially own more than 5% of the outstanding shares of our common stock,
     
 
each of our named executive officers;
     
 
each of our directors; and
     
  all of our directors and executive officers, named as a group.
 
Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to the securities. Unless otherwise noted, each beneficial owner has sole voting and investing power over the shares shown as beneficially owned except to the extent authority is shared by spouses under applicable law. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, any shares of common stock subject to common stock purchase warrants or stock options held by that person that are exercisable as of February 24, 2015 or will become exercisable within 60 days thereafter are deemed to be outstanding, while such shares are not deemed outstanding for purposes of computing percentage ownership of any other person.
 
As of February 24, 2015, there were 65,076,162 shares of the registrant’s common stock outstanding.
 
Name and Address of Beneficial Owner(1)
 
Shares
Beneficially
Owned
   
Percentage of
Common
Stock
 
Beneficial Owners of 5% or More
           
Robert F.X. Sillerman (2)
   
29,665,631
     
24.4
%
Paul C. Kanavos (3) (5)
   
36,278,465
     
29.8
%
Brett Torino (4) (5)
   
35,316,163
     
29.0
%
                 
Directors and Named Executive Officers (not otherwise included above):
               
Gary McHenry
   
0
     
0
 
David M. Ledy (6)
   
1,101,942
     
*
%
Michael J. Meyer (7)
   
481,306
     
*
 
Mitchell J. Nelson (8)
   
482,330
     
*
 
Andrew Perel
   
0
     
0
 
Harvey Silverman (9)
   
4,348,027
     
3.6
%
All directors and executive officers as a group (8 individuals) (10)
   
107,673,864
     
88.5
%
 
*      Represents less than 1%.
 
 
49

 
 
(1)  Except as otherwise set forth below, the business address and telephone number of each of the persons listed above is c/o Circle Entertainment Inc., 70 East 55th Street, New York, New York 10022, telephone (212) 796-8199.

(2)  Sillerman beneficially owns (i) directly 12,705,756 shares of Common Stock (consisting of: (A) 8,850,263 shares of Common Stock owned by Sillerman; (B) 250,000 shares of Common Stock issuable upon the exercise of stock options held by Sillerman that are presently exercisable at $5.00 per share; (C) 250,000 shares of Common Stock issuable upon the exercise of stock options held by Sillerman that are presently exercisable at $6.00 per share; (D) 2,055,498 shares of Common Stock issuable upon the exercise of warrants held by Sillerman and his spouse that are presently exercisable at $0.2919 per share; (E) 888,011 shares of Common Stock issuable upon the exercise of warrants held by Sillerman and his spouse that are presently exercisable at $0.3041 per share; (F) 411,984 shares of Common Stock issuable upon the exercise of warrants held by Sillerman and his spouse that are presently exercisable at $0.2403 per share); and (ii) indirectly 16,959,875 shares of Common Stock (consisting of:  (A) 4,423,264 shares of Common Stock owned of record by Laura Baudo Sillerman, Sillerman’s spouse; (B) 390,626 shares of Common Stock issuable upon the exercise of warrants held by Sillerman’s spouse that are presently exercisable at $0.08 per share; (C) 2,777,778 shares of Common Stock issuable upon the exercise of warrants held by Sillerman’s spouse, half of which are presently exercisable at $0.10 per share and the other half of which are presently exercisable at $0.11 per shares; (D) 362,637 shares of Common Stock issuable upon the exercise of warrants held by Sillerman’s spouse that are presently exercisable at $0.273 per share; (E) 618,557 shares of Common Stock issuable upon the exercise of warrants held by Sillerman’s spouse that are presently exercisable at $0.291 per share; (F) 572,410 shares of Common Stock issuable upon the exercise of warrants held by Sillerman’s spouse that are presently exercisable at $0.2621 per share; (G) 505,575 shares of Common Stock issuable upon the exercise of warrants held by Sillerman’s spouse that are presently exercisable at $0.2018 per share; (H) 625,390 shares of Common Stock issuable upon the exercise of warrants held by Sillerman’s spouse that are presently exercisable at $0.2399 per share; (I) 1,138,952 shares of Common Stock issuable upon the exercise of warrants held by Sillerman’s spouse that are presently exercisable at $0.2634 per share; (J) 43,250 shares of Common Stock issuable upon the exercise of warrants held by Sillerman’s spouse that are presently exercisable at $0.5778 per share; and (K) 5,501,436 shares of Common Stock owned of record by Atlas).  Excludes shares issuable upon conversion of Series A Convertible Preferred Shares and Series B Convertible Preferred Shares (not giving effect to any accrued but unpaid dividends) as follows: (A) 849,351 shares of Common Stock issuable upon the conversion of Series A Convertible Preferred Shares held by Sillerman and his spouse, as joint tenants, that are convertible at $0.2355 per share; (B) 377,465 shares issuable upon the conversion of the Series A Convertible Preferred Shares held by Sillerman and his spouse that are convertible at $0.2384 per share; (C) 146,432 shares of Common Stock issuable upon the conversion of the Series A Convertible Preferred Shares held by Sillerman’s spouse that are convertible at $0.2254 per share; (D) 254,804 shares of Common Stock issuable upon the conversion of Series A Convertible Preferred Shares held by Sillerman’s spouse that are convertible at $0.2355 per share; (E) 248,880 shares of Common Stock issuable upon the conversion of Series A Convertible Preferred Shares held by Sillerman’s spouse that are convertible at $0.2009 per share; (F) 188,548 shares of Common Stock issuable upon the conversion of Series A Convertible Preferred Shares held by Sillerman’s spouse that are convertible at $0.1750 per share; (G) 175,437 shares of common stock issuable upon the conversion of Series A Convertible Preferred Shares held by Sillerman’s spouse that are convertible at $0.1938 per share; (H) 254,717 shares of Common Stock issuable upon the conversion of Series B Convertible Preferred