UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


WASHINGTON, D.C. 20549





FORM 10-Q





(Mark One)





x
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934





For the quarterly period ended     March 31, 2010





 ̈
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT





For the transition period from _________ to _________





Commission file number    001-34027





FUND.COM INC.


(Exact name of registrant as specified in its charter)





Delaware
30-0284778(State or other jurisdiction of incorporation or organization)
(IRS Employee Identification No.)





14 Wall Street, 20th Floor, New York, New York 10005


(Address of principal executive offices)





(212) 618-1633


(Registrant's telephone number, including area code)





Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days.


Yes  x No  o





Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).


Yes  o No  x





Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.





Large accelerated filer o
Accelerated filer oNon-accelerated filer o
Smaller reporting company x





Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)


Yes  o     No  x





As of May 1, 2010, there were 104,137,905 shares of the registrant’s par value $.001 per share Class A Common Stock, and 5,462,665 shares of the registrant’s par value $.001 per share Class B Common Stock and 400,000 shares of the registrant’s par value $.001 Preferred Stock, issued and outstanding.










Fund.com Inc.


Quarterly Report on Form 10-Q




Table of Contents







PAGEPART I
FINANCIAL INFORMATIONItem 1.
Consolidated Balance Sheets at March 31, 2010 (unaudited) and December 31, 2009 (audited).

F-1Consolidated Statements of Operations (unaudited) for the three months ended March 31, 2010 and 2009, and September 20, 2007 (inception) through March 31, 2010.

F-2Consolidated Statements of Stockholders' Equity (unaudited) for the period September 20, 2007 (inception) through March 31, 2010.Consolidated Statements of Cash Flows (unaudited) for the three months ended March 31, 2010 and 2009, and September 20, 2007 (inception) through March 31, 2010.

F-3Notes to Unaudited Consolidated Financial Statements.

F-4Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.

1Item 3.
Quantitative and Qualitative Disclosures About Market Risk.

12Item 4T.
Controls and Procedures.

12PART II
OTHER INFORMATIONItem 1.
Legal Proceedings.

15Item 1A.
Risk Factors.

15Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds.

15Item 3.
Defaults Upon Senior Securities.

16Item 4.
(Removed and Reserved).

16Item 5.
Other Information.

16Item 6.
Exhibits.

16Signatures

17





i




Cautionary Statement Concerning Forward-Looking Statements


Our representatives and we may from time to time make written or oral statements that are "forward-looking," including statements contained in this Quarterly Report on Form 10-Q and other filings with the Securities and Exchange Commission, reports to our stockholders and news releases. All statements that express expectations, estimates, forecasts or projections are forward-looking statements within the meaning of the Act. In addition, other written or oral statements which constitute forward-looking statements may be made by us or on our behalf. Words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates," "projects," "forecasts," "may," "should," variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions which are difficult to predict. These risks may relate to, without limitation:





·
although we believe our status has changed as a result of our acquisition of Weston Capital Management, LLC (“Weston Capital”) on March 29, 2010, as of December 31, 2009 we were still in the stage of development and have earned limited revenue to date;





·
excluding our Weston Capital subsidiary, we have a limited operating history, which limits the information available to you to evaluate our business, and have a history of operating losses and uncertain future profitability;





·
we will require substantial additional financing;





·
the interests of our controlling shareholders could conflict with those of our other shareholders resulting in the approval of corporate actions that are not in your interests;





·
may be exposed to risks relating to our disclosure controls and our internal controls and may need to incur significant costs to comply with applicable requirements;





·
if we are unable to establish appropriate internal financial reporting controls and procedures, it could cause us to fail to meet our reporting obligations, result in the restatement of our financial statements, harm our operating results, subject us to regulatory scrutiny and sanction, cause investors to lose confidence in our reported financial information and have a negative effect on the market price for shares of our common stock;





·
we may issue additional shares of preferred stock that could defer a change of control or dilute the interests of our common shareholders and our charter documents could defer a takeover effort, which could inhibit your ability to receive an acquisition premium for your shares or your ability to sell your shares of common stock;





·
we depend on the services of our executive officers, and a loss of any of these individuals may harm our business;





·
our future is dependent on the successful development of the Company’s technology, products and services;





·
the market acceptance of a new investment content provider is uncertain;





·
we will need to expand our skilled personnel and retain those personnel that we do hire;





·
we will need to successfully manage our growth, which we expect to be significant for the foreseeable future;





·
we must reach agreements with third parties to supply us with the hardware, software and infrastructure necessary to provide our services, and the loss of access to this hardware, software or infrastructure or any decline or obsolescence in functionality could cause our customers’ businesses to suffer, which, in turn, could decrease our revenues and increase our costs;





·
we may be impacted by general economic conditions, which would negatively affect our business;





·
the rates we charge for our services may decline over time, which would reduce our revenues and adversely affect our profitability;




ii




·
the market for web investment content is competitive;





·
if we are unable to develop our web services and content, our business will suffer;





·
any factors that limit the amount advertisers are willing to spend on advertising on our web sites could have a material adverse effect on our business;





·
if we fail to detect click-through fraud or unscrupulous advertisers, we could lose the confidence of our advertisers, thereby causing our business to suffer;





·
we face government regulation and legal uncertainties, which could increase our costs or limit our business opportunities;





·
risks related to our Exchange Traded Funds;





·
risks related to our Investment Management business;





·
risks related to our Professional Employer Organization business; and





·
risks related to our Educational Content business.





Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in or suggested by such forward-looking statements. We undertake no obligation to publicly revise these forward-looking statements to reflect events or circumstances that arise after the date hereof. Readers should carefully review the factors described herein and in other documents we file from time to time with the Securities and Exchange Commission, including our Quarterly Reports on Form 10-Q, Annual Reports on Form 10-K, and any Current Reports on Form 8-K filed by us.




iii




PART I. FINANCIAL INFORMATION





ITEM 1.  FINANCIAL STATEMENTS





FUND.COM INC.(A Development Stage Company)CONSOLIDATED BALANCE SHEETSFor the three months ended March 31, 2010 and the year ended December 31, 2009March 31, 2010


December 31, 2009(Unaudited)


(Audited)ASSETSCURRENT ASSETSCash

$
1,986,519


$
269,864Accounts receivable


2,039,782



74,128Advances and other receivables


1,751,494



-Prepaid expenses


17,640



89,000Total current assets


5,795,435



432,992Property, plant and equipment, net


106,592



4,555Intangible Assets


8,205,000



8,205,000Goodwill


4,506,671



-Investments


18,246,469



18,216,469Advances from future revenues


3,771,864



3,771,864TOTAL ASSETS

$
40,632,031


$
30,630,881LIABILITIES AND STOCKHOLDERS' EQUITY:CURRENT LIABILITIES:Accounts payable

$
2,822,490


$
1,612,927Accrued payroll


642,202



540,474Accrued expenses


469,009



67,500Current portion of notes payable


2,463,800



-Total current liabilities


6,397,501



2,220,901LONG TERM LIABILITIESNote payable


2,916,073



127,861TOTAL LIABILITIES


9,313,574



2,348,763STOCKHOLDERS' EQUITY:Preferred stock, $.001 par value, 10,000,000 shares authorized,400,000 issued and outstanding at March 31, 2010 andDecember 31, 2009


400



400Class A Common stock, $0.001 par value, 300,000,000 sharesauthorized; 69,465,905 and 46,115,905 shares issued and outstandingat March 31, 2010 and December 31, 2009, respectively


69,465



46,116Class B Common stock, $0.001 par value, 10,000,000 sharesauthorized; 5,462,665 and 6,387,665 shares issued and outstanding atMarch 31, 2010 and December 31, 2009, respectively


5,463



6,388Additional paid-in-capital


41,211,473



37,996,309Common Stock subscribed but not issued


1,756,250



609,250Accumulated deficit during the Development Stage


(11,114,709
)


(9,865,483
)Total stockholders' equity attribtable to Fund.com, Inc.and Subsidiaries


31,928,342



28,792,980NONCONTROLLING INTEREST


(609,886
)


(510,862
)TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$
40,632,031


$
30,630,881


F-1





FUND.COM INC.(A Development Stage Company)CONSOLIDATED STATEMENTS OF OPERATIONSFOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009 ANDFOR THE PERIOD SEPTEMBER 20, 2007 (INCEPTION) THROUGH MARCH 31, 2010September 20, 2007Three Months

Ended


Three Months

Ended


(Inception) throughMarch 31, 2010


March 31, 2009


March 31, 2010Revenue

$
87,467


$
10,000


$
366,472Costs of revenue


-



-



-Gross profit


87,467



10,000



366,472Operating expense


1,451,714



1,202,340



11,900,154Loss from operations before interest income andprovision for (benefit from) income tax


(1,364,247
)


(1,192,340
)


(11,533,681
)Other income










1,754Interest income


100



250,230



1,891,106Impairment charge - intangible asset


-



-



(1,794,500
)Interest expense


15,897



-



(289,081
)Income tax expense


-



-



(193
)(1,348,250
)


250,230



(11,724,595
)Net loss attributable to non-controlling interest


99,024



43,845



609,886Net loss attributable to Fund.com Inc.


(1,249,226
)


(898,265
)


(11,114,709
)Net loss per common share - basic and diluted (Class A & B)

$
(0.01
)

$
(0.01
)

$
(0.09
)Weighted average number of shares outstanding:during the period - basic and diluted (Class A)


63,381,249



43,829,002



63,381,249Weighted average number of shares outstanding:during the period - basic and diluted (Class B)


5,565,643



6,387,665



5,565,643The accompanying notes are an integral part of these consolidated financial statements




F-2




FUND.COM INC.(A Development Stage Company)CONSOLIDATED STATEMENTS OF CASH FLOWSFOR THE THREE MONTHS ENDED MARCH 31, 2010 AND MARCH 2009 ANDFOR THE PERIOD SEPTEMBER 20, 2007 (INCEPTION) THROUGH MARCH 31, 2010September 20, 2007Three Months

Ended


Three Months

Ended


(Inception) throughMarch 31, 2010


March 31, 2009


March 31, 2010CASH FLOWS FROM OPERATING ACTIVITIES:Net loss

$
(1,249,226
)

$
(898,265
)

$
(11,114,709
)Adjustments to reconcile net loss to net cashused in operating activities:Compensation recognized under stock incentive plan


511,698



528,620



4,537,153Issuance of common stock on conversion of IP Global note


10,800



-



10,800Noncontrolling interest


(99,024
)


(43,845
)


(609,886
)Depreciation


4,555



-



4,555Net assets acquired as a result of acquisition of WestonCapital Management, LLC


4,293,329



-



4,293,329Impairment of intangible asset


-



-



1,794,500Changes in assets and liabilities:(Increase) in accounts receivable


(1,965,654
)


-



(2,039,782
)(Increase) decrease in prepaid expenses


71,360



-



(17,640
)(Increase) in advances


(1,751,494
)


-



(1,751,494
)Increase in accounts payable


1,209,562



178,814



2,812,030Increase in accrued payroll


101,728



104,896



642,202Increase in accrued expenses


401,509



-



469,009Increase in accrued interest


-



18,207



(1,138,333
)Accrued interest from certificate of deposit


-



(250,000
)


-Net cash Provided by (used in) operating activities


1,539,143



(361,573
)


(2,108,267
)CASH FLOWS FROM INVESTING ACTIVITIES:Purchase of Property, Plant and Equipment


(106,592
)


(1,242
)


(111,147
)Purchase of Investments


(30,000
)






(18,246,469
)Certificate of deposit


-



-



1,888,333Advances from future revenues


-



-



(3,771,864
)Purchase of Intangible Assets


-



-



(9,999,500
)Payments made on acquisition of Weston Capital Management LLC


(8,800,000
)


-



(8,800,000
)Net cash used in  investing activities


(8,936,592
)


(1,242
)


(39,040,647
)CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from the sale of common stock


3,247,000



-



37,268,329Proceeds from Notes Payable


6,362,704



230,500



6,805,704Repayment/ conversion of Notes Payable


(495,600
)






(938,600
)Advances from shareholders


-



-



77,150Repayment of shareholders advances


-



-



(77,150
)Net cash provided by financing activities


9,114,104



230,500



43,135,433INCREASE (DECREASE) IN CASH


1,716,655



(132,315
)


1,986,519CASH, BEGINNING OF YEAR


269,864



158,083



-CASH, END OF PERIOD

$
1,986,519


$
25,768


$
1,986,519Supplemental DisclosuresCash paid during the year for interest

$
-


$
-


$
-Cash paid during the year for taxes

$
-


$
-


$
-Supplemental disclosure of non-cash financing activitiesAcquisition of investment in entity with exchangein investment in certificate of deposit

$
-


$
-


$
18,216,469Compensation recognized under stock incentive plan

$
511,698


$
528,620


$
4,537,153The accompanying notes are an integral part of these consolidated financial statements




F-3




FUND.COM INC.
 (A Development Stage Company)
 Notes to the Consolidated Financial Statements
 For the three months ended March 31, 2010 and for the period September 20, 2007 (inception)
 through March 31, 2010






NOTE 1 – ORGANIZATION





Fund.com Inc. (the “Company” or “Fund”) was incorporated in the State of Delaware on September 20, 2007.  Although we believe our status has changed as a result of our March 29, 2010 acquisition of Weston Capital Management, LLC (“Weston Capital”), as of December 31, 2009, we were still in the early stage of development and had not begun the process of unifying its business operations.  The Company continues to be in the process of researching and developing its business and raising capital.





History of the Company





On September 27, 2007, the following wholly owned subsidiaries were incorporated:





•
Fund.com Online Technologies Inc. (“FOT”)was incorporated in the State of Delaware. FOT is a wholly owned operating subsidiary of the Company and was established to acquire the domain name “fund.com” and other related intellectual property and assets.  The subsidiary will be responsible for operating the Company’s internet properties.





•
Fund.com Managed Products Inc. (“FMP”) was incorporated in the State of Delaware.  FMP is a wholly owned operating subsidiary of the Company that focuses on asset management advisory services and related products.





•
Fund.com Capital Inc. (“FC”) was incorporated in the State of Delaware.  FC is a wholly owned operating subsidiary of FMP that will serve as an investment vehicle for the purposes of making active (non-passive) investments in other financial institutions, fund management companies or, in certain instances, products offered or managed by either.





On October 12, 2006, AdvisorShares Investments, LLC (“AdvisorShares”) was organized in the State of Delaware.  AdvisorShares is a developer of proprietary exchange traded funds, also known as ETFs, with a focus on “actively managed” ETFs.  On October 31, 2008, the Company purchased a 60% of the outstanding membership interests of AdvisorShares.





On June 1, 2009, Whyte Lyon Socratic Inc. (“WLS”) was incorporated in the State of New York.  WLS is a developer of online education programs for investors, debtors and professionals.  On November 2, 2009, the Company acquired all of the outstanding shares of WLS.





On April 28, 1997, Weston Capital Management LLC (“Weston Capital”) was organized in the State of Delaware. Weston Capital has three lines of business: it originates and markets fund of funds; it originates and markets single-manager hedge funds; and it raises capital to seed new hedge funds.





Overview of Organizations





Fund.com Inc. is aprovider of fund management products and risk management solutions that help financial advisors, wealth managers, institutions, and ultra-high-net-worth families create and manage wealth. We also provide services and investment fund information to the mass-market individual investor over the Internet at www.fund.com.




F-4




FUND.COM INC.


(A Development Stage Company)


Notes to the Consolidated Financial Statements


For the three months ended March 31, 2010 and for the period September 20, 2007 (inception)


through March 31, 2010






NOTE 1 – ORGANIZATION (Continued)





The business of AdvisorShares is to develop a diverse range of "actively managed" exchange traded funds (“ETFs”) together with established third party asset managers, and to list these ETFs on the New York Stock Exchange, or a similar national or international securities exchange. The target clients of AdvisorShares are third party investment advisors who already manage clients' assets, have a favorable track record and desire to package their investment strategy using exchange-traded funds.  Under our business model, the investment manager acts as a “sub-advisor” to the fund and selects and supervises the investments of its individual ETF.  By accessing the AdvisorShares ETF platform, third party investment managers will be able to establish their own branded, or "white-labeled," ETF on a "turn-key" basis, wherein AdvisorShares is responsible, among other things, for the compliance and administration of the fund.  AdvisorShares and the investment manager share in the fee income, subject to a monthly minimum paid to AdvisorShares.





WLS is a development stage online provider of financial literacy video content delivered over the Internet. Sometimes referred to as distance learning, such remote educational content is designed to assist on-line students to:





· Develop the necessary skills to understand financial transactions and financial markets;


· Develop money management skills to help them manage their income and wealth; and


· Reach particular goals, including homeownership, debt reconciliation, or improved credit reports.





Simultaneous with our acquisition of WLS, we purchased an equity interest in Vensure Employer Services, Inc., (“Vensure”) a professional employer organization, or PEO, located in Mesa, Arizona.  Vensure provides a broad range of services to small and medium-sized businesses, consisting of benefits and payroll administration, health and workers’ compensation insurance programs, personnel records management, employer liability management, employee recruiting and selection, employee performance management, employee training and development services and retirement obligations, including a retirement services product line that offers a variety of options to clients like 401(k) plans, profit sharing, and money purchase plans.





On March 29, 2010, we consummated the acquisition of 100% of the membership interests of Weston Capital.  Founded in 1997 and headquartered in West Palm Beach, FL, Weston Capital has three lines of business: it originates and markets fund of funds; it originates and markets single-manager hedge funds; and it raises capital to seed new hedge funds.  Weston Capital currently earns fees on approximately $1.0 billion of assets under management.  Its founder Albert Hallac continues as CEO of Weston Capital, directing its day-to-day operations and business strategy, and our Chairman Joseph J. Bianco, became Chairman of Weston Capital. Weston Capital also has offices in London and New York City.   Management believes with Weston Capital’s operations, when aligned with our majority interest in AdvisorShares, will enable us to accelerate increases of assets under management since we now have the ability to seed, originate and distribute hedge funds as well as seed, originate, develop and distribute actively traded ETFs for institutional and retail investors.





NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





These consolidated financial statements and related notes are presented in accordance with accounting principles generally accepted in the United States of America. Significant accounting policies are as follows:





Interim Review Reporting





The accompanying unaudited consolidated financial statements of Fund.com, Inc. and Subsidiaries (the "Company") have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC). Certain information and footnote disclosures, normally included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such SEC rules and regulations. Nevertheless, the Company believes that the disclosures are adequate to make the information presented not misleading. These interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company's 2009 Annual Report as filed on Form 10K.




F-5




FUND.COM INC.


(A Development Stage Company)


Notes to the Consolidated Financial Statements


For the three months ended March 31, 2010 and for the period September 20, 2007 (inception)


through March 31, 2010






NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)





In the opinion of management, all adjustments, including normal recurring adjustments necessary to present fairly the consolidated financial position of the Company with respect to the interim consolidated financial statements and the results of its consolidated operations for the interim period ended March 31, 2010, have been included. The results of consolidated operations for interim periods are not necessarily indicative of the results for a full year.





Basis of Presentation





The Company has not produced any significant revenue from its principal business and is a development stage company as defined by the Accounting Standards Codification (ASC) 915 Development Stage Entities.





Going Concern





The consolidated financial statements for the period ended March 31, 2010 have been prepared on a going concern basis which contemplates the realization of assets and settlement of liabilities and commitments in the normal course of business. The Company has a past history of recurring losses from operations and has an accumulated deficit of approximately $11,114,709 and working capital deficiency of approximately $602,065 as of March 31, 2010.  Additionally, the Company will require additional funding to execute its future strategic business plan. Successful business operations and its transition to attaining profitability is dependent upon obtaining additional financing and achieving a level of revenue adequate to support its cost structure. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. This basis of accounting contemplates the recovery of the Company’s assets and the satisfaction of liabilities in the normal course of business. The consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.




Principles of Consolidation





The consolidated financial statements include the accounts of Fund.com Inc. and its subsidiaries.  All material intercompany accounts and transactions are eliminated in consolidation. The year end for the Company and its subsidiaries is December 31.





Use of Estimates





The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements.  These estimates and assumptions also affect the reported amounts of revenues, costs and expenses during the reporting period.  Management evaluates these estimates and assumptions on a regular basis.  Actual results could differ from those estimates.





Revenue Recognition





The Company recognizes revenue in accordance with ASC 605 and SEC staff accounting bulletin, Topic 13,Revenue Recognition which established that revenue can be recognized when persuasive evidence of an arrangement exists, the product has been shipped, services rendered, all significant contractual obligations have been satisfied and collection is reasonably assured.




F-6




FUND.COM INC.
 (A Development Stage Company)
 Notes to the Consolidated Financial Statements
 For the three months ended March 31, 2010 and for the period September 20, 2007 (inception)
 through March 31, 2010
 
  NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)





Cash and Cash Equivalents





The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.  Cash and cash equivalents are defined to include cash on hand and cash in the bank.





Certificate of Deposit





On November 9, 2007, the Company deposited $20,000,000 into a fixed Certificate of Deposit with an interest rate of 5.00% per annum payable at maturity, for a term of three years.  Accrued interest of $750,000 has been recorded for the years ended December 31, 2009.  Pursuant to a securities purchase agreement dated September 24, 2009 which the Company entered into with Vensure Employer Services, Inc., the rights were assigned to receive payments under the Certificate of Deposit to Vensure, effective as of September 29, 2009 for certain consideration.  In October 2009, prior to the closing of the Vensure transaction, Global Bank of Commerce advised the Company of its intention to exercise its contractual rights to exchange the Certificate of Deposit for an annuity contract issued by a third party, and on November 2, 2009 Vensure agreed to accept such annuity contract in lieu of the certificate of deposit. The Company did not have any balance in certificate of deposit as of December 31, 2009.





Investments





The Company’s investment portfolio consists of an investment in exchange traded funds which are held as available for sale and long-term investments in preferred stock of Vensure Employer Services, Inc. (see footnote 10) and in a limited liability company which is recorded at cost and will be evaluated for other than temporary impairment on a quarterly basis in accordance with ASC 820 Fair Value Measurements and Disclosures.





The Company’s policy for the evaluation of temporarily impaired securities to determine whether the impairment is other-than temporary is based on analysis of the following factors: (1) rating downgrade or other credit event (e.g., failure to pay interest when due); (2) financial condition and near-term prospects of the issuer or non-issuer, including any specific events which may influence the operations of the issuer or non-issuer such as changes in technology or discontinuance of a business segment; (3) prospects for the issuer’s or non-issuer’s industry segment; and (4) intent and ability of the Company to retain the investment for a period of time sufficient to allow for anticipated recovery in fair value. The Company evaluates its investments in securities to determine other than temporary impairment, no less than quarterly. Investments that are deemed other than temporarily impaired are written down to their estimated net fair value and the related losses are recognized in operations.





After the Company’s review of its investment portfolio in relation to the above policy, there were no permanently impaired investments noted during the three months ended March 31, 2010 and the year ended December 31, 2009.





Advertising Costs





All advertising costs are charged to expense as incurred. There was no material advertising expense for the three months ended March 31, 2010 and 2009.





Research and Development





The Company does not engage in research and development as defined in ASC Topic 730, “Accounting for Research and Development Costs.”  However, the Company does incur costs including salaries and consulting fees related to its website.  These costs are included in Operating Expense in the Statement of Operations.




F-7




FUND.COM INC.


(A Development Stage Company)


Notes to the Consolidated Financial Statements


For the three months ended March 31, 2010 and for the period September 20, 2007 (inception)


through March 31, 2010




NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)




Property and Equipment





Property and equipment is recorded at cost and depreciated over the estimated useful lives of the assets using principally the straight-line method. When items are retired or otherwise disposed of, income is charged or credited for the difference between net book value and proceeds realized thereon.  Ordinary maintenance and repairs are charged to expense as incurred, and replacements and betterments are capitalized.  The range of estimated useful lives to be used to calculate depreciation for principal items of property and equipment are as follow:





Asset Category

Depreciation/

Amortization

PeriodFurniture and Fixture

3 YearsOffice equipment

3 YearsLeasehold improvements

5 Years





Depreciation expense for the period ended March 31, 2010 was $4,555 (none in 2009).








Income Taxes





Deferred income taxes are recognized based on the provisions of ASC Topic 740 Income Taxes for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.





In July 2006, the Financial Accounting Standards Board (“FASB”) issued guidance codified in Accounting Standards Codification (“ASC”) Topic 740-10-25 “Accounting for Uncertainty in Income Taxes”. ASC Topic 740-10-25 supersedes guidance codified in ASC Topic 450, “Accounting for Contingencies”, as it relates to income tax liabilities and lowers the minimum threshold a tax position is required to meet before being recognized in the financial statements from “probable” to “more likely than not” (i.e., a likelihood of occurrence greater than fifty percent). Under ASC Topic 740-10-25, the recognition threshold is met when an entity concludes that a tax position, based solely on its technical merits, is more likely than not to be sustained upon examination by the relevant taxing authority. Those tax positions failing to qualify for initial recognition are recognized in the first interim period in which they meet the more likely than not standard, or are resolved through negotiation or litigation with the taxing authority, or upon expiration of the statute of limitations. De-recognition of a tax position that was previously recognized occurs when an entity subsequently determines that a tax position no longer meets the more likely than not threshold of being sustained.




The Company is subject to ongoing tax exposures, examinations and assessments in various jurisdictions. Accordingly, the Company may incur additional tax expense based upon the outcomes of such matters. In addition, when applicable, the Company will adjust tax expense to reflect the Company’s ongoing assessments of such matters which require judgment and can materially increase or decrease its effective rate as well as impact operating results.




Under ASC Topic 740-10-25, only the portion of the liability that is expected to be paid within one year is classified as a current liability. As a result, liabilities expected to be resolved without the payment of cash (e.g. resolution due to the expiration of the statute of limitations) or are not expected to be paid within one year are not classified as current. The Company has recently adopted a policy of recording estimated interest and penalties as income tax expense and tax credits as a reduction in income tax expense.




F-8




FUND.COM INC.
 (A Development Stage Company)
 Notes to the Consolidated Financial Statements
 For the three months ended March 31, 2010 and for the period September 20, 2007 (inception)
 through March 31, 2010


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)




Fund and certain of its subsidiaries (FOT, FMP and FC) did not file federal and applicable state income tax returns for the years ended December 31, 2009 and prior. Although the Company is incurring losses since its inception, the Company is obligated to file income tax returns for compliance with IRS regulations and that of applicable state jurisdictions. Management believes that the Company will not incur significant penalty and interest for non-filing of federal and state income tax returns, as well as, federal and state income tax liabilities, as applicable, for the years ended December 31, 2009 and prior considering its loss making history since inception. The Company is still in the process of determining the amount of net taxable operating losses eligible to be carried forward for federal and applicable state income tax purposes for the years ended December 31, 2009 and prior. The Company is still in the process of determining whether to file a consolidated tax return or a separate tax return for a holding company and its subsidiaries. The Company has not made any provision for federal and state income tax liabilities that may result from this uncertainty as of December 31, 2009 and 2008, respectively. Management believes that this will not have a material adverse impact on the Company’s financial position, its results of operations and its cash flows.




AdvisorShares is in compliance with filing of the federal and applicable state income tax returns for the year ended December 31, 2008. The number of years with open tax audits varies depending on the tax jurisdiction. The Company’s major taxing jurisdictions include the United States (including applicable states).




Earnings Per Share





The Company computes basic and diluted earnings per share amounts in accordance with ASC Topic 260, Earnings per Share.Basic earnings per share is computed by dividing net income (loss) available to common shareholders by the weighted average number of common shares outstanding during the reporting period. Diluted earnings per share reflects the potential dilution that could occur if stock options and other commitments to issue common stock were exercised or equity awards vest resulting in the issuance of common stock that could share in the earnings of the Company. Common shareholders include both Class A and Class B as the holders of Class A common stock shall be entitled to receive, on a pari passu basis with the holders of Class B common stock, if, as and when declared from time to time by the Board of Directors out of any assets of the Company legally available therefore, such dividends as may be declared from time to time by the Board of Directors.





Fair Value of Financial Instruments





The fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties other than in a forced sale or liquidation.   The carrying amounts of financial instruments, including cash, accounts payable and accrued expenses approximate fair value because of the relatively short maturity of the instruments.





Goodwill





Goodwill represent the excess of the purchase price of a company acquired over the fair value of the net tangible assets acquired.





Goodwill is subject to impairment tests performed at least annually.  The impairment test uses a fair value approach rather than the undiscounted cash flows approach previously required under guidance for the impairment of long-lived assets and long-lived assets to be disposed of.  The goodwill impairment test requires a two-step approach, which is performed at the reporting unit level.  Step one identifies potential impairments by comparing the fair value of the reporting unit to its carrying amount.  Step two, which is only performed if there is a potential impairment, compares the carrying amount of the reporting unit’s goodwill to its implied value.  If the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of the goodwill, an impairment loss is recognized for an amount equal to that excess.




F-9




FUND.COM INC.
 (A Development Stage Company)
 Notes to the Consolidated Financial Statements
 For the three months ended March 31, 2010 and for the period September 20, 2007 (inception)
 through March 31, 2010
 
  NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)





Valuation of long-lived assets





The Company accounts for the valuation of long-lived assets under authoritative guidance issued by the FASB, which requires that long-lived assets and certain intangible assets be reviewed for impairment whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable.  Recoverability of the long-lived assets is measured by a comparison of the carrying amount of the asset to future undiscounted net cash flows expected to be generated by the assets.  If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the estimated fair value of the assets. Assets to be disposed of are reportable at the lower of the carrying amount or fair value, less costs to sell.





The Company tests annually the carrying value of its intangible assets for impairment in accordance with ASC Topic 350 Intangibles – Goodwill and Other and also ASC Topic 360-10-35 Subsequent Measurement.





Stock-Based Compensation





The Company accounts for stock-based compensation in accordance with ASC 718 Compensation – Stock Compensation. The ASC provides that instruments that were originally issued as employee compensation and then modified, and that modification is made to the terms of the instrument solely to reflect an equity restructuring that occurs when the holders are no longer employees, then no change in the recognition or the measurement (due to a change in classification) of those instruments will result if both of the following conditions are met: (a) there is no increase in fair value of the award (or the ratio of intrinsic value to the exercise price of the award is preserved, that is, the holder is made whole), or the antidilution provision is not added to the terms of the award in contemplation of an equity restructuring; and (b) all holders of the same class of equity instruments (for example, stock options) are treated in the same manner.





Accounting Standards Updates





In September 2009, the FASB has published ASU No. 2009-12, “Fair Value Measurements and Disclosures (Topic 820) - Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent)”. This ASU amends Subtopic 820-10, “Fair Value Measurements and Disclosures – Overall”, to permit a reporting entity to measure the fair value of certain investments on the basis of the net asset value per share of the investment (or its equivalent). This ASU also requires new disclosures, by major category of investments including the attributes of investments within the scope of this amendment to the Codification. The guidance in this Update is effective for interim and annual periods ending after December 15, 2009. Early application is permitted.The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial position and results of operations.


In October 2009, the FASB has published ASU 2009-13, “Revenue Recognition (Topic 605)-Multiple Deliverable Revenue Arrangements”, which addresses the accounting for multiple-deliverable arrangements to enable vendors to account for products or services (deliverables) separately rather than as a combined unit. Specifically, this guidance amends the criteria in Subtopic 605-25, “Revenue Recognition-Multiple-Element Arrangements”, for separating consideration in multiple-deliverable arrangements. This guidance establishes a selling price hierarchy for determining the selling price of a deliverable, which is based on: (a) vendor-specific objective evidence; (b) third-party evidence; or (c) estimates. This guidance also eliminates the residual method of allocation and requires that arrangement consideration be allocated at the inception of the arrangement to all deliverables using the relative selling price method and also requires expanded disclosures. The guidance in this update is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption is permitted. The adoption of this standard is not expected to have any impact on the Company’s consolidated financial position and results of operations.




F-10




FUND.COM INC.


(A Development Stage Company)


Notes to the Consolidated Financial Statements


For the three months ended March 31, 2010 and for the period September 20, 2007 (inception)


through March 31, 2010







NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)





In October 2009, the FASB has published ASU 2009-14, “Software (Topic 985)-Certain Revenue Arrangements that Include Software Elements” and changes the accounting model for revenue arrangements that include both tangible products and software elements. Under this guidance, tangible products containing software components and nonsoftware components that function together to deliver the tangible product's essential functionality are excluded from the software revenue guidance in Subtopic 985-605, “Software-Revenue Recognition”. In addition, hardware components of a tangible product containing software components are always excluded from the software revenue guidance.  The guidance in this ASU is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption is permitted.  The adoption of this standard is not expected to have any impact on the Company’s consolidated financial position and results of operations.





In December 2009, the FASB has published ASU 2009-16 “Transfers and Servicing (Topic 860): Accounting for Transfers of Financial Assets.” ASU No. 2009-16 is a revision to ASC 860, “Transfers and Servicing,” and amends the guidance on accounting for transfers of financial assets, including securitization transactions, where entities have continued exposure to risks related to transferred financial assets. ASU No. 2009-16 also expands the disclosure requirements for such transactions. This ASU


will become effective for us on April 1, 2010.  The adoption of this standard is not expected to have any impact on the Company’s consolidated financial position and results of operations.


In December 2009, the FASB has published ASU 2009-17 “Consolidations (Topic 810): Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities.” ASU No. 2009-17 amends the guidance for consolidation of VIEs primarily related to the determination of the primary beneficiary of the VIE. The adoption of this standard is not expected to have any impact on the Company’s consolidated financial position and results of operations.





In January 2010, the FASB has published ASU 2010-01 “Equity (Topic 505) - Accounting for Distributions to Shareholders with Components of Stock and Cash—a consensus of the FASB Emerging Issues Task Force,”as codified in ASC 505. ASU No. 2010-01 clarifies the treatment of certain distributions to shareholders that have both stock and cash components. The stock portion of such distributions is considered a share issuance that is reflected in earnings per share prospectively and is not a stock dividend. The amendments in this Update are effective for interim and annual periods ending on or after December 15, 2009 and should be applied on a retrospective basis.  Early adoption is permitted.  The adoption of this standard did/did not have an impact on the Company’s (consolidated) financial position and results of operations.





In January 2010, the FASB has published ASU 2010-02 “Consolidation (Topic 810) - Accounting and Reporting for Decreases in Ownership of a Subsidiary—a Scope Clarification,” as codified in ASC 810, “Consolidation.” ASU No. 2010-02 applies retrospectively to April 1, 2009, our adoption date for ASC 810-10-65-1 as previously discussed in this financial note. This ASU clarifies the applicable scope of ASC 810 for a decrease in ownership in a subsidiary or an exchange of a group of assets that is a


business or nonprofit activity. The ASU also requires expanded disclosures. The amendments in this Update are effective for interim and annual periods ending on or after December 15, 2009, and should be applied on a retrospective basis.  The adoption of this standard is not expected to have any impact on the Company’s consolidated financial position and results of operations.




F-11




FUND.COM INC.
 (A Development Stage Company)
 Notes to the Consolidated Financial Statements
 For the three months ended March 31, 2010 and for the period September 20, 2007 (inception)
 through March 31, 2010


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)





In January 2010, the FASB has published ASU 2010-06 “Fair Value Measurements and Disclosures (Topic 820): - Improving Disclosures about Fair Value Measurements”. ASU No. 2010-06 clarifies improve disclosure requirement related to fair value measurements and disclosures – Overall Subtopic (Subtopic 820-10) of the FASB Accounting Standards Codification. The new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosure about purchase, sales, issuances, and settlement in the roll forward of activity in Level 3 fair value measurements.  Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. The amendments in this Update are effective for interim and annual periods ending on or after December 15, 2009, and should be applied on a retrospective basis.  The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial position and results of operations.





In February 2010, the FASB issued ASU 2010-09 which requires that an SEC filer, as defined, evaluate subsequent events through the date that the financial statements are issued. The update also removed the requirement for an SEC filer to disclose the date through which subsequent events have been evaluated in originally issued and revised financial statements. The adoption of this guidance on January 1, 2010 did not have a material effect on the Company’s consolidated financial statements.





NOTE 3 – INTANGIBLE ASSETS





Intellectual Property Asset:





During 2007, the Company acquired the domain name “fund.com” and other intangible assets related to intellectual property and trademarks for a total cost of $9,999,950. The Company has determined that the intangible assets have an indefinite live but are subject to periodic impairment assessment as stated in ASC 350 Intangibles – Goodwill and Other.





As of December 31, 2009, the Company tested the intangible assets for impairment under ASC 360-10-35-21 and recognized an impairment charge of $1,794,500. The balance under this asset was $8,205,000 as of March 31, 2010 and December 31, 2009, respectively.





Goodwill:





As described in Note 9; the Company acquired Weston Capital on March 29, 2010. As a result of this acquisition, the Company recognized goodwill in the amount of approximately $4,507,000 as of March 31, 2010 in the accompanying consolidated financial statements. The Company acquired net assets at fair value in the amount of approximately $4,293,000 for a purchase consideration of $8,800,000. As of the acquisition date, the purchase price and accounting for this transaction was recorded based on the December 31, 2009 unaudited consolidated financial position of Weston Capital.  Weston Capital is in the process of finalizing an audit of the consolidated financial statements as of December 31, 2009 and completing their March 31, 2010 consolidated financial statements. Once these consolidated financial statements are finalized, the Company intends to adjust as appropriate the accounting for this purchase transaction.





NOTE 4 - FAIR VALUE




The Company records fair value of monetary and nonmonetary instruments in accordance with ASC 820 Fair Value Measurements and Disclosures  The ASC establishes a framework for measuring fair value, establishes a fair value hierarchy based on inputs used to measure fair value, and expands disclosure about fair value measurements. Adopting this statement has not had an effect on the Company’s financial condition, cash flows, or results of operations.




In accordance with ASC 820, the financial instruments have been categorized, based on the degree of subjectivity inherent in the valuation technique, into a fair value hierarchy of three levels, as follows:




F-12




FUND.COM INC.


(A Development Stage Company)


Notes to the Consolidated Financial Statements


For the three months ended March 31, 2010 and for the period September 20, 2007 (inception)


through March 31, 2010







NOTE 4 - FAIR VALUE (Continued)




•

Level 1:  Inputs are unadjusted, quoted prices in active markets for identical instruments at the measurement date (e.g., U.S. Government securities and active exchange-traded equity securities).




•

Level 2:  Inputs (other than quoted prices included within Level 1) that are observable for the instrument either directly or indirectly (e.g., certain corporate and municipal bonds and certain preferred stocks). This includes: (i) quoted prices for similar instruments in active markets, (ii) quoted prices for identical or similar instruments in markets that are not active, (iii) inputs other than quoted prices that are observable for the instruments, and (iv) inputs that are derived principally from or corroborated by observable market data by correlation or other means.Level 3:  Inputs that are unobservable. Unobservable inputs reflect the reporting entity’s subjective evaluation about the assumptions market participants would use in pricing the financial instrument (e.g., certain structured securities and privately held investments).




The composition of the investment portfolio as of March 31, 2010 was:Level 1


Level 2


Level 3


TotalFair


Fair


Fair


FairInvestment
Value


Value


Value


Value


CostExchange traded funds
$
100,000


$
-


$



$
100,000


$
100,000Investment in limited liability company









30,000



30,000



30,000Preferred stock


-







18,116,469



18,116,469



18,116,469$
100,000



-


$
18,146,469


$
18,246,469


$
18,246,469





Our portfolio investments classified as Level 3 in the above table are priced using subjective evaluation about the assumptions market participants would use in pricing the financial instrument.




Based on the criteria described above, the Company believes that the current level classifications are appropriate based on the valuation techniques used and that our fair values accurately reflect current market assumptions in the aggregate.




F-13





FUND.COM INC.
 (A Development Stage Company)
 Notes to the Consolidated Financial Statements
 For the three months ended March 31, 2010 and for the period September 20, 2007 (inception)
 through March 31, 2010





NOTE 5 – INVESTMENTS





The Company’s investments consisted of the following as of March 31, 2010:





Fair


Original


Realized


UnrealizedInvestment

Value


Cost


Gain (Loss)


Gain (Loss)


TotalExchange traded funds

$
100,000


$
100,000


$
-


$
-


$
100,000Investment in limited liability company


30,000



30,000



-



-



30,000Preferred stock


18,116,469



18,116,469



-



-



18,116,469$
18,246,469


$
18,246,469


$
-


$
-


$
18,246,469




Management believes that the carrying value of the preferred stock approximates fair value at March 31, 2010.





NOTE 6 – EQUITY





Initial Capitalization





During 2007, the issuances of Class A common stock consisted of the follows:





·
18,700,000 shares common stock to its founders totaling $1,564;


·
5,000,000 shares common stock and 2,500,000 shares preferred series A through private placement for $2.00 per unit totaling $10,000,000; and


·
10,350,000 shares common stock through a second private placement for $2.00 per share totaling $20,700,000.





Merger





On January 15, 2008, Fund.com Inc. merged (the “Merger”) with and into Eastern Services Holdings, Inc. (“Eastern”) pursuant to an Agreement and Plan of Merger, dated as of January 15, 2008 (the "Agreement"). In connection with the merger Eastern Services Holdings, Inc. changed its name to Fund.com Inc. (the "Surviving Corporation").  Pursuant to the Agreement, each share of common stock, par value $0.00001 per share of Fund (“Fund Common Stock”) was converted into the right to receive .1278 validly issued, fully paid and non-assessable shares of Class A Common Stock of the Surviving Corporation; provided, however, if a holder of Fund Common Stock also held Series A Preferred Stock, par value $.001 per share, of Fund (“Fund Preferred Stock”) then each share of Fund Common Stock held by such holder was converted into the right to receive .1278 validly issued, fully paid and non-assessable shares of Class B Common Stock (and Fund Preferred Stock held by such holder was cancelled).  Also pursuant to the Agreement, each share of common stock, $0.001 par value per share, of Eastern was converted into the right to receive one validly issued, fully paid and non-assessable share of Class A Common Stock of the Surviving Corporation. Holders of such shares were entitled to receive the previously declared 9-for-1 stock dividend payable to


holders of record as of January 15, 2008.




F-14





FUND.COM INC.
 (A Development Stage Company)
 Notes to the Consolidated Financial Statements
 For the three months ended March 31, 2010 and for the period September 20, 2007 (inception)
 through March 31, 2010


NOTE 6 – EQUITY (Continued)





As a result, at closing (and giving effect to the stock dividend) the Company issued an aggregate of 37,112,345 shares of our Class A Common Stock and 6,387,665 shares of our Class B Common Stock to former shareholders of Fund.com Inc., representing 87% of our outstanding Class A Common Stock and 100% of our Class B Common Stock following the merger. The merger consideration was determined as a result of arm’s-length negotiations between the parties.





Each share of Class A Common stock has one (1) vote per share.  Each share of Class B Common Stock has ten (10) votes per share.  The holders of Class B Common Stock have the right to convert each share of Class B Common Stock into one share of Class A Common Stock (adjusted to reflect subsequent stock splits, combinations, stock dividends and recapitalizations). Subject to the prior rights of holders of all classes of stock at the time outstanding having prior rights as to dividends, the holders of Class A Common Stock shall be entitled to receive, on a pari passu basis with the holders of Class B Common Stock, if, as and when declared from time to time by the Board of Directors out of any assets of the Company legally available therefore, such dividends as may be declared from time to time by the Board of Directors.





Common Shares Issued





In connection with a private placement, the Company issued 475,000 shares of its Class A common stock at $2.00 per share for total proceeds of $950,000 during 2008.  In 2009, 2,028,570 restricted Class A common stock were issued to an officer and related party, the Fabric Group, LLC in exchange for $405,000 of accounts payable.





In addition, on December 31, 2009, $840,000 of principal amount of a note payable to IP Global Investors Ltd. and Equities Media Acquisition Corp., Inc. were exchanged for 400,000 shares of Series A Preferred Stock.





On March 8, 2010, IP Global converted a portion of the principal amount of the then outstanding amount due under a Company Note payable to IP Global into 3,600,000 shares of Class A Common Stock which it sold to an unaffiliated third party for $1,300,000.  Pursuant to its August 29, 2010 line of credit loan agreement with the Company, IP Global advanced an additional $1,300,000 to the Company on March 29, 2010 to assist the Company in financing its acquisition of Weston Capital.





On December 7, 2009, Recovery Capital purchased 476,190 shares of Class A common stock for $100,000.  However, as of March 31, 2010, those shares have not as yet been issued.





On February 10, 2010, COS Capital Partners I, LLC purchased 9,047,619 Class A common stock of the Company for $1,900,000.





On February 15, 2010, Recovery Capital purchased 1,080,952 shares of Class A Common Stock for $227,000.  However, as of March 31, 2010, those shares have not as yet been issued.





On March 1, 2010, LH Capital Partners LLC purchased 952,381 shares of Class A Common Stock for $200,000.





On March 25, 2010, Recovery Capital purchased 2,380,952 shares of Class A Common Stock for $500,000.  However, as of March 31, 2010, those shares have not as yet been issued.





Neither COS Capital Partners, LH Capital Partners nor Recovery Capital is affiliated with either the Company or IP Global.





Stock Subscriptions





In December 2009, the Company received $100,000 in cash in connection with the option portion of the note payable agreement with IP Global.  In December 2009, IP Global converted $509,000 of the note payable to common stock (see also note 11).  In both of those circumstances, the stock certificates had not been issued as of December 31, 2009.




F-15




FUND.COM INC.


(A Development Stage Company)


Notes to the Consolidated Financial Statements


For the three months ended March 31, 2010 and for the period September 20, 2007 (inception)


through March 31, 2010






NOTE 6 – EQUITY (Continued)





Stock Option Plan





On December 27, 2007, the Company adopted the Meade Technologies Inc. 2007 Incentive Compensation Plan.  Under this plan, stock options may be granted to employees, officers, consultants or others who provide services to the Company. The Plan is administered by the Board.  However, the Board may delegate any or all administrative functions under the Plan otherwise exercisable by the Board to one or more Committees.  The aggregate number of Shares authorized for issuance as Awards under the original Plan shall not exceed five million fifty-five thousand (5,055,000) Shares.  However, on April 30, 2009, the Company received majority shareholder approval to increase the amount of shares able to be granted under the Plan to ten million (10,000,000) shares.  The number of shares, exercise price, term and vesting are all determined by the Board at the time of grant.





On December 27, 2007, 2,076,111 stock options with a purchase price of $2.30 per share were granted to officers and employees of the Company.





On March 4, 2008, 2,500,000 stock options with a purchase price of $3.50 were granted to officers, employees and a director of the Company.





On March 28, 2008, 250,000 stock options with a purchase price of $4.00 were granted to a director of the Company.





On May 16, 2008, 250,000 stock options with a purchase price of $4.00 were granted to a director of the Company.





On August 6, 2008, 653,000 stock options with a purchase price of $3.25 were granted to an officer, employee and director of the Company.





On October 26, 2009, 1,600,000 stock options with a purchase price of $.60 were granted to officers, employees and directors of the Company.





The Black-Scholes method option pricing model was used to estimate fair value as of the date of grant using the following assumptions:





Risk-Free

1.66% - 4.23%Expected volatility

50%- 83%Forfeiture rate

10%Expected life

4 YearsExpected dividends

-




F-16




FUND.COM INC.
 (A Development Stage Company)
 Notes to the Consolidated Financial Statements
 For the three months ended March 31, 2010 and for the period September 20, 2007 (inception)
 through March 31, 2010






NOTE 6 – EQUITY (Continued)


The following details stock options for the period ending March 31, 2010:





Weighted


WeightedAverage


AverageWeighted


Remaining


Grant DateAverage


Contractual


FairShares


Exercise Price


Term (Years)


ValueBalance, December 31, 2007


2,076,111


$
2.30



5.0


$
0.78Granted


3,653,000


$
3.52






$
2.04Exercised


-



-







-Canceled


-



-







-Forfeited


-



-







-Balance, December 31, 2008


5,729,111


$
3.08



4.4


$
1.58Granted


1,600,000


$
0.60






$
0.11Exercised


-



-







-Canceled


-



-







-Forfeited


(1,453,565
)

$
2.30Balance, December 31, 2009


5,875,546


$
2.60



4.0


$
1.35Granted


-



-



-



-Exercised


-



-



-



-Canceled


-



-



-



-Forfeited


(484,522
)

$
2.30Balance, March 31, 2010


5,391,024


$
2.62



3.8


$
1.57





The following details stock option vested shares for the three months ending March 31, 2010 and the years ending December 31, 2009, 2008 and 2007:





SharesBalance, December 31, 2007


-Vested


-Balance, December 31, 2008


-Vested


2,968,484Balance, December 31, 2009


2,968,484Vested


(48,195
)Balance, March 31, 2010


2,920,289





Based on the assumptions noted above, the fair market value of the options issued was valued at $8,217,007.For the three months ended March 31, 2010 and 2009, there was $511,698 and $528,620, respectively, in expense recorded in the Consolidated Statements of Operations for stock option grants.





NOTE 7 – RELATED PARTY TRANSACTIONS





On March 4, 2008, Fund.com Inc. (the “Company”) entered into a Consulting Agreement with Fabric Group, LLC (“Fabric”). Fabric is wholly-owned and managed by the chairman, director and former Chief Executive Officer of the Company.  Under the Consulting Agreement, Fabric will receive an annual base fee of $300,000, in return for strategic consulting services provided by both the Chairman and the Chief Marketing Officer of the Company in the areas of business development, product marketing and online strategy and for performance of other duties as requested from time to time by the Board.  In addition, pursuant to the Consulting Agreement, Fabric will receive a onetime fee of $55,000 for services previously rendered to the Company. Included in the operating expenses for the three months ending March 31, 2010 and 2009 are none and $75,000, respectively. This agreement has been mutually terminated and Fabric has agreed to accept in lieu of payment of $405,000, a total of 1,928,570 shares equally distributed to Lucas Mann and Daniel Klaus at 964,285 each.




F-17




FUND.COM INC.


(A Development Stage Company)


Notes to the Consolidated Financial Statements


For the three months ended March 31, 2010 and for the period September 20, 2007 (inception)


through March 31, 2010






NOTE 7 – RELATED PARTY TRANSACTIONS (continued)


On March 4, 2008, the Company entered into a Consulting Agreement with MKL Consulting Ltd. (“MKL”). MKL is wholly-owned and managed by the executive vice president and a director of the Company. Under the Consulting Agreement, MKL will receive an annual base fee of $150,000, in consideration for services provided to the Company as Executive Vice President and for performance of other duties as requested from time to time by the Board.  In addition, pursuant to the Consulting Agreement, MKL received a one-time fee of $25,000 for services previously rendered to the Company. This agreement was not renewed and expired on February 28, 2009 under the terms of the agreement.  Included in the operating expenses for the three months ending March 31, 2010 and 2009 are none and $25,000, respectively.  Included in accounts payable as of March 31, 2010, is $150,000 related to this agreement.





As a further inducement to the IP Global to make available the line of credit, Daniel Klaus and Lucas Mann, two shareholders of the Company and members of the board of directors at the time, also sold to the lenders or their designees (in equal amounts) a total of 2,000,000 of their shares of Class A common stock of the Company at a price of $0.25 per share, payable on the basis of $50,000 in cash and the $450,000 balance evidenced by two notes of $225,000 each payable in equal monthly installments through December 31, 2009.  In addition, Messrs. Klaus and Mann each contributed 500,000 of their Company shares to the lenders, or their designees, for no consideration, and granted the lenders or their designees an option, exercisable at any time up to December 31, 2009, to purchase an additional 2,000,000 of their Class A shares for $0.25 per share. Effective August 28, 2009, Messrs. Daniel Klaus and Lucas Mann terminated their consulting agreements with the Company and resigned as members of the board of directors of the Company and its subsidiaries. There was no disagreement or dispute between Messrs. Klaus and Mann and the Company which led to their resignation as directors. They also agreed not to sell their remaining shares in the Company for a period of at least six months.





On October 14, 2009, the Company entered into an agreement with the stockholders of Whyte Lyon Socratic, Inc., a Delaware corporation, d/b/a “The Institute of Modern Economy” (“Whyte Lyon”), to acquire 100% of the capital stock of such corporation in exchange for 500,000 shares of the Company’s common stock, which the parties valued at $2.00 per share. Closing of the acquisition of the shares of Whyte Lyon occurred on November 2, 2009 following consummation of the transactions contemplated by the Vensure Purchase Agreement; provided, that for all purposes the closing date and delivery of all closing documents and instruments were deemed to have occurred effective on September 29, 2009.  Upon completion of the Company’s acquisition of Whyte Lyon, its principal stockholder, Joseph J. Bianco, became Chairman of the Board of Directors of the Company.





Effective December 28, 2009, IP Global sold and assigned $91,476 principal amount of its original $2.5 million convertible Note from the Company to Bleecker Holdings Corp., an entity wholly-owned by Joseph J. Bianco, our Chairman of the Board.  In connection with the Debt Restructuring Agreement, Bleecker Holdings exchanged such Note for 43,560 shares of the Company’s Series A Preferred Stock.  Such shares were subsequently sold by Bleecker to an unaffiliated third party.





On April 15, 2010, in consideration for Mr. Bianco serving as Chairman of Weston Capital, the Company assigned to Bleecker Holdings the right to receive a management fee from Weston Capital in the amount of $100,000 per annum, payable monthly.





NOTE 8 – LEASES





Certain of the Company’s subsidiaries presently lease office space and have a one year lease commitment that terminates February 28, 2011.  The minimum lease payments under this agreement for the period April 1, 2010 until it terminates is approximately $57,500.




F-18




FUND.COM INC.
 (A Development Stage Company)
 Notes to the Consolidated Financial Statements
 For the three months ended March 31, 2010 and for the period September 20, 2007 (inception)
 through March 31, 2010




NOTE 9 – INVESTMENT IN SUBSIDIARIES





AdvisorShares Investments, LLC





On October 31, 2008, the Company entered into a Purchase and Contribution Agreement, dated as of October 31, 2008 (the “Purchase and Contribution Agreement”), with AdvisorShares Investments, LLC (“AdvisorShares”), Wilson Lane Group, LLC, and Noah Hamman, the managing member and principal officer of AdvisorShares. Pursuant to the Purchase and Contribution Agreement, the Company purchased 6,000,000 units of AdvisorShares, (representing 60% of the outstanding membership interests of AdvisorShares) for a purchase price of $4,000,000, with an initial contribution of $275,000 and up to an additional $3,725,000 being contributed to AdvisorShares in accordance with the achievement of specific milestones as defined in the Purchase and Contribution Agreement, including (i) $1,000,000 within 30 days of the issuance by the SEC of its notice regarding approval of the application of AdvisorShares for exemptive relief under the Investment Company Act of 1940; (ii) $725,000 within 30 days of receipt by the Company from AdvisorShares’ independent auditors verifying total assets under management equal to $150,000,000; (iii) $1,000,000 within 30 days of receipt by the Company from AdvisorShares’ independent auditors verifying total assets under management equal to $250,000,000; and (iv) $1,000,000 within 30 days of receipt by the Company from AdvisorShares’ independent auditors verifying total assets under management equal to $450,000,000.  In connection with our acquisition of 60% of the equity interests in AdvisorShares, we entered into an Amended and Restated Limited Liability Company Agreement of AdvisorShares, dated as of October 31, 2008 (the “LLC Agreement”), and was admitted as a member of AdvisorShares.





AdvisorShares and AdvisorShares Trust, a Delaware open-end investment management company (the “Trust”) that was recently formed by AdvisorShares for the purpose of offering a series of exchange traded funds (the “Funds”), filed an application with the SEC under the Investment Company Act of 1940 (the “Investment Company Act”) on January 31, 2008, as amended on October 17, 2008. The application requests an order from the SEC, exempting AdvisorShares and the Trust from the provisions of the Investment Company Act and permitting (a) the issuance of series of open-ended management investment companies to issue shares redeemable in large aggregations only, (b) engaging in secondary market transactions in Shares at negotiated market prices; and (c) certain affiliated persons of the series to deposit securities into, and receive securities from, the series in connection with the purchase and redemption of the creation units (the “Exemption Order”).





On December 23, 2008, the SEC issued a notice advising that it would issue a final order granting the requested relief unless it orders a hearing on the application based on requests for a hearing given by third parties by not later than January 15, 2009.  A third party timely filed a hearing request involving an intellectual property dispute which AdvisorShares believes is unrelated to the merits of the application.  On July 20, 2009, the SEC agreed with AdvisorShares’ position and issued the final Exemptive Order approving the application.  AdvisorShares received a copy of the final Exemptive Order on July 21, 2009.





On August 18, 2009, the Company consummated payment in full of the $1,000,000 due to AdvisorShares for achieving the first milestone under the Agreement.  The funding was provided to the Company by IP Global and Equities Media, a principal stockholder of the Company, under the amended and restated $2.5 million line of credit facility described herein. The Company currently owns 60% of the outstanding units of AdvisorShares after the initial contributions of $1,275,000 by the Company. The Company will maintain its ownership of 60% of the outstanding units of AdvisorShares irrespective of AdvisorShares achieving any additional milestones.




F-19




FUND.COM INC.
 (A Development Stage Company)
 Notes to the Consolidated Financial Statements
 For the three months ended March 31, 2010 and for the period September 20, 2007 (inception)
 through March 31, 2010




NOTE 9 – INVESTMENT IN SUBSIDIARIES (Continued)





Whyte Lyon Socratic Inc.





On October 14, 2009, the Company entered into an agreement with the stockholders of Whyte Lyon Socratic, Inc., a Delaware corporation, d/b/a “The Institute of Modern Economy” (“Whyte Lyon”) to acquire 100% of the capital stock of such corporation in exchange for 500,000 shares of the Company’s common stock, which the parties valued at $2.00 per share.  Closing of the acquisition of the shares of Whyte Lyon occurred on November 2, 2009 following consummation of the transactions contemplated by the Vensure Purchase Agreement.  However, for all purposes the closing date and delivery of all closing documents and instruments in connection with the Whyte Lyon acquisition and the Vensure investment were deemed to have occurred effective on September 29, 2009.  Upon completion of the Company’s acquisition of Whyte Lyon, its principal stockholder, Joseph J. Bianco, became Chairman of the Board of Directors of the Company.





Weston Capital Management LLC





On March 29, 2010, the Company consummated the acquisition (the “Acquisition”) of Weston Capital, pursuant to a Securities Purchase and Restructuring Agreement dated as of March 26, 2010 (the “Purchase Agreement”) by and among the Company, Weston Capital, PBC-Weston Capital Holdings, LLC (“PBC”), Albert Hallac (“A. Hallac”) and the other persons who are parties signatory thereto (together with PBC and A. Hallac, the “Members”).





Pursuant to a newly executed long-term Employment Agreement, Weston Capital founder Albert Hallac continues as CEO of Weston Capital and a member of its board of managers and will direct Weston Capital’s day-to-day operations and business strategy.  In addition, Fund.com Chairman Joseph J. Bianco joined as Chairman of the Board of Weston Capital.





Under the Purchase Agreement:





·
The Company acquired from all of the Members, an aggregate of 100% of the membership interests in Weston Capital (the “Membership Interests”) for total consideration of $8,800,000 plus $1,500,000 in warrants described below, including:





·
25% of the issued and outstanding Membership Interests purchased by PBC on or about June 5, 2006 (the “PBC Member Interests”), in consideration for the payment of $2,500,000 in cash and delivery of the “Warrant” described below; and





·
The remaining 75% of the issued and outstanding Membership Interests (the “Hallac Interests”) owned by Albert. Hallac, certain members of his family, and Victor Elmaleh (collectively, the “Hallac Members”), in consideration for the payment of $5,500,000, consisting of $500,000 in cash and delivery of the Company’s 4% $5,000,000 senior secured adjustable principal amount note due March 31, 2015 (the “Reset Note”);





·
In addition to its purchase of 100% of the Membership Interests, the Company made an additional cash capital contribution to Weston Capital in the aggregate amount of $800,000 in order to fund the integration of Weston Capital and the AdvisorShares ETF business and for general working capital. The contribution was made in exchange for 9.1% of all issued and outstanding Membership Interests in Weston Capital (the “Additional Purchased Membership Interests”); and





·
The Company acquired the right and option, following the satisfaction of applicable regulatory approvals, to purchase 100% of the membership interests of Weston Capital’s broker-dealer subsidiary, Weston Capital Financial Services, LLC (the “Broker Subsidiary”) for nominal additional consideration.




F-20




FUND.COM INC.
 (A Development Stage Company)
 Notes to the Consolidated Financial Statements
 For the three months ended March 31, 2010 and for the period September 20, 2007 (inception)
 through March 31, 2010






NOTE 9 – INVESTMENT IN SUBSIDIARIES (Continued)




-
In exchange for all of the Membership Interests in Weston Capital, the Company provided the following consideration to the Members:





·
Cash payments equal to (i) $2,500,000 to PBC in exchange for the PBC Member Interests; (ii) $800,000 as a capital contribution to Weston Capital; and (iii) $500,000 to Albert Hallac;





·
A Class A common stock purchase warrant (the “Warrant”) to PBC entitling PBC to purchase, beginning September 29, 2010 (the “Six Month Anniversary Date”) through September 30, 2014, such number of shares of Class A common stock of the Company as shall be determined by dividing (A) $1,500,000, by (B) the volume weighted average price of the common stock for the 20 trading days immediately prior to the Six Month Anniversary Date; and





·
The Reset Note to Albert Hallac and the other Hallac Members.





The Company is required to make an installment payment to the holders of the Reset Note in the amount of $2,450,000 on or before May 31, 2010 (the “Installment Payment”).





The remaining principal amount of the Reset Note is subject to adjustment on each of March 31, 2013, 2014 and 2015 (each, a “Reset Date”) in such greater or lesser amount equal to the holders’ aggregate percentage interests in the then fair market value of Weston Capital. Such fair market value is to be determined based upon an independent business appraisal.  In addition, commencing on the first Reset Date and at any time on each subsequent Reset Date, the majority of the holders aggregate percentage interest in the Reset Note shall have the right to require that all or a portion of the then outstanding principal amount of the Reset Note (as adjusted based upon such fair market value appraisal) be prepaid by the Company (a “Mandatory Prepayment”), in an amount equal to the product of multiplying (i) the then applicable holders aggregate percentage interest being prepaid and converted, by (ii) the fair market value of 100% of the membership interests in Weston Capital as at the applicable Reset Date (the “Prepayment and Conversion Amount”).  Such Prepayment and Conversion Amount shall be paid by the Company no later than 20 business days following the date of calculation of the applicable Prepayment and Conversion Amount as follows (A) 25% in cash; and (B) 75% (the “Prepayment Balance”) in such number of shares of Class A common stock as shall be equal to the quotient resulting from dividing the Prepayment Balance, by 90% of the volume weighted average price of the Class A common stock for the 20 trading days prior to the applicable Reset Date.  In the event that Albert Hallac is no longer employed by Weston Capital due to his death, resignation or termination for cause, the Company shall have the right, at the Company’s Option exercised within 90 days thereafter, to prepay and convert all of the Reset Note as set forth above (an “Optional Prepayment”).





The Company’s obligation to pay the Installment Payment, when due, and comply with its other obligations under the Reset Note is secured by a pledge by the Company of 50.9% of the Membership Interests in Weston Capital owned by the Hallac Members immediately prior to the closing date pursuant to a certain pledge agreement (the “Pledge Agreement”).





Under the terms of the Reset Note, for so long as the Company’s obligations under the Reset Note remain outstanding, the approval or consent of the holders of a majority in interest of the Reset Note or Albert Hallac is required to effect certain major transactions, including:





·
Changes to Weston Capital’s Operating Agreement;


·
Any change in the fundamental nature of the business of Weston Capital;


·
Any material deviation from any permitted fund investments of Weston Capital;


·
The dissolution, merger or consolidation of Weston Capital or a sale of control of Weston Capital;


·
The issuance of any new Members Interests or the admission of new members in Weston Capital;


·
The making of any cash distributions from Weston Capital to the Company unless 50.9% of each such distribution is paid in cash to the Hallac Members;


·
The termination of the management and employment agreements with Jeffrey Hallac, Keith Wellner and Marcel Herbst for any reason other than their death, permanent disability or for Cause, as defined therein; and


·
Entering into any related party transaction with the Company or any of its affiliates.




F-21




FUND.COM INC.
 (A Development Stage Company)
 Notes to the Consolidated Financial Statements
 For the three months ended March 31, 2010 and for the period September 20, 2007 (inception)
 through March 31, 2010


NOTE 9 – INVESTMENT IN SUBSIDIARIES (Continued)





The Company financed its cash payments for the Weston Capital acquisition through a series of private placements of its shares and from an advance under its August 2009 loan agreement with IP Global Investors Ltd.





NOTE 10 – INVESTMENT IN VENSURE EMPLOYER SERVICES, INC.





On September 24, 2009, we and Vensure Employer Services, Inc. (“Vensure”) entered into a securities purchase agreement (the “Vensure Purchase Agreement”). Consummation of the transactions contemplated by the Vensure Purchase Agreement occurred on November 2, 2009; provided, that for all purposes the closing date and delivery of all closing documents and instruments were deemed to have occurred effective at 5:00 p.m. on September 29, 2009.





Under the terms of the Vensure Purchase Agreement, we agreed to sell and assign to Vensure, our right to receive payments under the original $20.0 million certificate of deposit issued in November 2007 by Global Bank in exchange for consideration consisting of (a) 218,883.33 shares of Series A participating convertible preferred stock of Vensure (the “Series A Preferred Stock”), and (b) a seven year content agreement (the “Content Agreement”) among Vensure, Vensure Retirement Administration, Inc., a whole owned subsidiary of Vensure, our company and Whyte Lyon. In October 2009, we were orally advised by Global Bank of its intention to elect to exercise its contractual rights to exchange and swap its obligations under the certificate of deposit for a ten year 5.0% annuity contract issued by a third party.  We notified Vensure of the banks election (which was subsequently confirmed in writing), and on November 2, 2009 Vensure agreed to accept such annuity contract in lieu of the certificate of deposit.





The Vensure Series A Preferred Stock:





·
Has a liquidation value of $100 per share or $21,888,333 as to all 218,883.33 shares;


·
Is senior to all other capital stock of Vensure;


·
Pays dividends as and when declared by the board of directors of Vensure on its common stock;


·
On a “sale of control” (as defined) of Vensure to any unaffiliated third party, in addition to receipt of the first $21,888,333 of consideration payable in respect of Vensure capital stock, participates with the holders of the common stock to the extent of 25% of all additional consideration paid or payable in excess of the maximum $21,888,333 liquidation value of the Series A Preferred; and


·
Is convertible at any time after September 30, 2012 upon 61 days prior notice to Vensure into either 25% of the common stock of Vensure; provided, that the board of directors of Vensure may (subject to the Series A Preferred stockholder’s right to rescind its conversion notice) require that the shares of Series A Preferred Stock convert into a maximum of 49.5% of the capital stock of Vensure Retirement Administration, a wholly-owned subsidiary of Vensure.





F-22




FUND.COM INC.
 (A Development Stage Company)
 Notes to the Consolidated Financial Statements
 For the three months ended March 31, 2010 and for the period September 20, 2007 (inception)
 through March 31, 2010


NOTE 10 – INVESTMENT IN VENSURE EMPLOYER SERVICES, INC. (Continued)





Under the terms of a related stockholders agreement among the Company, Vensure and the Vensure stockholders, the Company is entitled to designate two members of the board of directors of Vensure. The stockholders agreement also contains customary buy/sell and related provisions in the event of sales of any shares of Vensure.  The Series A Preferred Stock also contains certain protective provisions that require the approval of the Company or its designees on the board of directors of Vensure before Vensure may implement or commit to certain actions, including:




·
The issuance of securities senior to or on a par with the Series A Preferred Stock;


·
The issuance of any additional capital stock of Vensure;


·
Any change it’s the fundamental nature of its business;


·
The acquisition of the assets or securities of other parties; or


·
The sale or pledge of substantial assets; or


·
Any material changes in compensation of senior executive officers.





In addition to its receipt of the Series A Preferred Stock, the Company has received the benefits of the Content Agreement.  Under the terms of the Content Agreement, the Company and Whyte Lyon will provide all existing and future employees, co-employees and other associates (collectively, the “End Users”) of Vensure, its subsidiaries and affiliates, as well as Vensure clients (collectively, the “Vensure Group”) with access to on-line educational content to be streamed to such End-Users from the website(s) of the Vensure Group.  Such Content, to be designated and branded as “Vensure University,” “The Money School” or other brand name acceptable to the parties to the Content Agreement, will include up to 84 five to seven minute educational course segments on personal finance management, financial products and other related financial topics as are approved by Vensure and the Company.  Course segments may also include safety training, health care and other topics of interest to workers and the work place.





In consideration for providing the Content, the Vensure Group is required to pay the Company and its Whyte Lyon subsidiary an access fee of $19.95 per month (the “Monthly Access Fee”) for each End-User who has access to the Content from the website(s) of the Vensure Group, whether or not such End-User actually clicks on such website and views the Content.  Based on the current Vensure employment complement of approximately 4,000 employees or co-employees, this represents approximately $80,000 a month in anticipated revenues to the Company from such Monthly Access Fee as soon as the initial Content is provided.  The Company and its subsidiary have agreed to deliver approximately three course segments during each calendar quarter commencing with the quarter ending March 31, 2010 and ending December 31, 2016. Following October 2012, the $19.95 Monthly Access Fee is subject to renegotiation at the option of Vensure.





Our board of directors considered a number of factors in exercising its business judgment to consummate the investment in Vensure, including, among other things, the likelihood that the Global Bank certificate of deposit would not be paid on its November 2010 maturity date as was disclosed as a potential risk in the Company’s Current Report on Form 8-K filed with the SEC on January 17, 2008. In addition, the Company considered the potential lack of liquidity arising from the proposed exchange for a long-term investment instrument.





In accordance with the guidance in ASC 845, the Company valued the transaction at the fair value of the asset relinquished, in this case the certificate of deposit.  That value was deemed to be $21,888,333 and the Company allocated that value to the preferred shares.  Upon further review, the Company now believes that it is more appropriate to also recognize the content agreement as a component of the exchange, since the Company received both assets in the exchange. Accordingly, the Company will modify its presentation and allocate the $21,888,333 to both assets acquired based on their relative fair values.  Fair value for the preferred shares was based on a fairness opinion from an independent investment banking firm.  Fair value of the content agreement was based on the net present value of the future cash flows relating to the content agreement.  Based on that evaluation, the Company has recorded its investment in preferred stock of Vensure at $18,116,469 and the content agreement at $3,771,864.  The content agreement will be reported in balance sheet as a long-lived asset titled, Advances from Future Revenues.





F-23




FUND.COM INC.
 (A Development Stage Company)
 Notes to the Consolidated Financial Statements
 For the three months ended March 31, 2010 and for the period September 20, 2007 (inception)
 through March 31, 2010





NOTE 11 – NOTES PAYABLE





Working Capital Loan with IP Global Investors LTD





In the past, we have relied on loans and advances from IP Global Investors Ltd., a privately owned intellectual property finance company, to provide us with working capital to pay our operating expenses.





Effective as of August 28, 2009, the Company, and IP Global consummated transactions under a line of credit agreement pursuant to which IP Global provided the Company with a $2,500,000 line of credit facility which superseded and restated in its entirety a prior $1.343 million credit agreement with IP Global entered into as of May 1, 2009.  Under the terms of the restated line of credit agreement (which was negotiated and agreed upon in early July 2009), the Company was entitled to receive a maximum of$2,500,000 of advances, less an aggregate of $723,000 of advances made through May 1, 2009 (including the $1,275,000 paid to AdvisorShares on behalf of the Company through August 18, 2009 and an additional $150,000 of advances funded through August 28, 2009).  As of December 31, 2009, the Company had borrowed an aggregate of approximately $2,466,444 under the line of credit, including $1,275,000 paid to AdvisorShares on behalf of the Company.  All obligations under the line of credit agreement have been guaranteed by Fund.com Capital Inc., Fund.com Technologies Inc. and Fund.com Managed Products Inc., all wholly-owned subsidiaries of the Company.





The advances made under the line of credit agreement are evidenced by the Company’s 9% convertible note were originallydue August 28, 2010, but are now due on December 31, 2011. The note is convertible at any time prior to its maturity date, at a conversion price of $0.21 per share into shares of Class B common stock of the Company. The conversion price was established based on the public price of Fund.com at the time the parties reached agreement, the price being based on a quantitative formula equal to 90% of the volume weighted average price (VWAP) of the Fund.com stock price as quoted on the OTC Bulletin Board for the thirty days prior to July 6, 2009.





As a further inducement to the lender to make available the line of credit, Daniel Klaus and Lucas Mann, two shareholders of the Company and members of the board of directors at the time, also sold to the lenders or their designees (in equal amounts) a total of 2,000,000 of  their shares  of Class A common stock  of  the Company at a price of $0.25 per share,  payable  on the  basis of $50,000 in cash and the $450,000 balance evidenced by two notes of $225,000 each payable in equal monthly installments through December 31, 2009.  In addition, Messrs. Klaus and Mann each contributed 500,000 of their Company shares to the lender, or its designees, for no consideration, and granted the lender or its designees an option, exercisable at any time up to December 31, 2009, to purchase an additional 2,000,000 of their Class A shares for $0.25 per share. Effective August 28, 2009, Messrs. Daniel Klaus and Lucas Mann terminated their consulting agreements with the Company and resigned as members of the board of directors of the Company and its subsidiaries. There was no disagreement or dispute between Messrs. Klaus and Mann and the Company which led to their resignation as directors. They also agreed not to sell their remaining shares in the Company for a period of at least six months.





On January 18, 2010, the board of directors of the Company approved the terms of an agreement (the “Debt Restructuring Agreement”) with IP Global and other third party assignees of a portion of a portion of the Note, dated as of December 28, 2009.  Under the terms of the Debt Restructuring Agreement, (a) the lender agreed to waive all prior defaults under the Note and Loan Agreement, (b) the lender and certain third party assignees who purchased from IP Global $184,800 principal amount of the Note agreed to convert an aggregate of $840,000 or 33.6% of the Note into 400,000 shares of the Company’s newly authorized Series A preferred stock; (c) the lender sold an additional $509,250 principal amount of the Note to third parties who have agreed to convert such assigned notes into shares of the Company’s Class A Common Stock, (d) the lender agreed (i) to extend the final maturity date of the remaining $1,150,750 outstanding balance of the Note to December 31, 2011, and (ii) not convert more than 25% of such Note balance into Class A Common Stock prior to December 31, 2011.




F-24




FUND.COM INC.
 (A Development Stage Company)
 Notes to the Consolidated Financial Statements
 For the three months ended March 31, 2010 and for the period September 20, 2007 (inception)
 through March 31, 2010


NOTE 11 – NOTES PAYABLE (Continued)


The Company’s Series A Preferred Stock does not pay a dividend, has a stated value of $100 per share, and is convertible, upon not less than 90 days prior written notice to the Company, into Class A Common Stock of the Company at a conversion price of $1.50 per share.  At the December 28, 2009 effective date of the Debt Restructuring Agreement, the average closing market prices of the Company’s Class A Common Stock, as traded on the FINRA over-the-counter Bulletin Board was approximately $0.91 per share.





On March 8, 2010, IP Global converted a portion of the principal amount of the then outstanding amount due under a Company Note payable to IP Global into 3,600,000 shares of Class A Common Stock which it sold to an unaffiliated third party for $1,300,000.  Pursuant to its August 29, 2010 line of credit loan agreement with the Company, IP Global advanced an additional $1,300,000 to the Company on March 29, 2010 to assist the Company in financing its acquisition of Weston Capital.  Such additional advance increased the then outstanding amount due to IP Global under the Company’s line of credit loan agreement from $730,750 to $2,030,750.  Such loan is due and payable on December 31, 2011. However, to date, the Company has been unable to pay accrued interest and fees to the lenders under the Loan Agreement.





As at March 31, 2010, an aggregate of $2,033,558 of indebtedness is outstanding under the line of credit loan agreement.





Option





As part of the transactions contemplated by the line of credit agreement, the lender or its designees received an option (originally expiring on December 31, 2009) to purchase up to $5,000,000 of additional shares of Class A common stock of the Company at a price of $0.21 per share, or approximately 23.8 million shares of Class A common stock if such purchase option is fully exercised. The price was also established on the same VWAP calculation. The Company is not obligated to register the option shares for resale with the SEC. In addition, the Company issued to IP Global a warrant, expiring July 31, 2012, entitling the holder(s) to purchase an aggregate of 50% of the number of shares of Class A common stock that are purchased upon full or partial exercise of the above purchase option, at an exercise price of $0.315 per share.  The exercise prices of the purchase option and the warrant are both subject to certain adjustments, including weighted average anti-dilution adjustments.





IP Global subsequently assigned the option to Recovery Capital, Inc. or its designees (“Recovery Capital”), and Recovery Capital thereafter assigned all or a portion of the option to Huntley Family Investments, LLC or is designees (the “Huntley Group”). The Huntley Group is affiliated with Mars Hill Partners, LLC, the sub-advisor to the Mars Hill Global Relative Value AdvisorShares ETF, an actively managed exchange traded fund sponsored by AdvisorShares.  Neither Recovery Capital nor the Huntley Group is affiliated with either the Company or IP Global.





The Company agreed, through extensions executed at various dates, to extend the option period to April 30, 2010, and the Huntley Group exercised the option and agreed to purchase all or a portion of the option shares.  To the extent not fully exercised by the Huntley Group, Recovery Capital retained the right to exercise the remaining portion of the option.  Principally all of the proceeds received by the Company from the Huntley Group were to be used exclusively to provide financing to enable the Company to consummate its proposed equity investment in Weston Capital.





The following options have been exercised:





On December 7, 2009, Recovery Capital purchased 476,190 shares of Class A common stock for $100,000.  However, as of March 31, 2010, those shares have not as yet been issued.





On February 10, 2010, COS Capital Partners I, LLC purchased 9,047,619 Class A common stock of the Company for $1,900,000.




F-25




FUND.COM INC.
 (A Development Stage Company)
 Notes to the Consolidated Financial Statements
 For the three months ended March 31, 2010 and for the period September 20, 2007 (inception)
 through March 31, 2010


NOTE 11 – NOTES PAYABLE (Continued)




On February 15, 2010, Recovery Capital purchased 1,080,952 shares of Class A Common Stock for $227,000.  However, as of March 31, 2010, those shares have not as yet been issued.





On March 1, 2010, LH Capital Partners LLC purchased 952,381 shares of Class A Common Stock for $200,000.





On March 25, 2010, Recovery Capital purchased 2,380,952 shares of Class A Common Stock for $500,000.  However, as of March 31, 2010, those shares have not as yet been issued.





Neither COS Capital Partners, LH Capital Partners nor Recovery Capital is affiliated with either the Company or IP Global.





NOTE 12 – INCOME TAXES




The Company has not made provision for income taxes in the years ended December 31, 2009 and 2008, respectively, since the Company has the benefit of net operating losses carried forward in these periods.




Due to uncertainties surrounding the Company’s ability to generate future taxable income to realize deferred income tax assets arising as a result of net operating losses carried forward, the Company has not recorded any deferred income tax asset as of December 31, 2009 and 2008, respectively (see note 2). The net operating losses carry forwards will begin to expire in varying amounts from year 2027 to 2029 subject to its eligibility as determined by respective tax regulating authorities.




The Company is subject to taxation in the United States and certain state jurisdictions. The Company’s tax years for 2007 and forward are subject to examination by the United States and applicable state tax authorities due to the carry forward of unutilized net operating losses.




NOTE 13 – SUBSEQUENT EVENTS





Subsequent to March 31, 2010, Recovery Capital converted a portion of the $315,000 principal amount IP Global Note payable which was assigned to Recovery Capital by IP Global pursuant to a Note and Stock Purchase Agreement.  Recovery Capital converted such assigned note into 10,372,000 shares of Class A Common Stock which it sold to certain unaffiliated third parties for approximately $217,760.





On April 27, 2010, IP Global converted a portion of the principal amount of the then outstanding amount due under a Company Note payable to IP Global into 29,000,000 shares of Class A Common Stock which it sold to certain unaffiliated third parties for $609,000.





NOTE 14 – CONTINGENCIES





The Company has certain lawsuits and claims arising in the ordinary course of its business. In the opinion of the Company, although final disposition of some or all of these suits and claims may impact the Company’s consolidated financial statements in a particular period, they should not, in the aggregate, have a material adverse effect on the Company’s consolidated financial position.




F-26


ITEM 2.      MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.





WE URGE YOU TO READ THE FOLLOWING DISCUSSION IN CONJUNCTION WITH OUR CONSOLIDATED FINANCIAL STATEMENTS AND THE NOTES THERETO BEGINNING ON PAGE F-1. THIS DISCUSSION MAY CONTAIN FORWARD-LOOKING STATEMENTS THAT INVOLVE SUBSTANTIAL RISKS AND UNCERTAINTIES. OUR ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS COULD DIFFER MATERIALLY FROM THOSE EXPRESSED OR IMPLIED BY THE FORWARD-LOOKING STATEMENTS AS A RESULT OF A NUMBER OF FACTORS, INCLUDING BUT NOT LIMITED TO THE RISKS AND UNCERTAINTIES DISCUSSED UNDER THE HEADING “RISK FACTORS” IN OUR FORM 10-K FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 23, 2010 AND IN OUR OTHER FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION. IN ADDITION, SEE “CAUTIONARYSTATEMENT REGARDING FORWARD-LOOKING STATEMENTS” SET FORTH IN THIS REPORT.




Overview





Fund.com Inc. (the “Company,” “we”, “us” or “our”) is a provider of fund management products and risk management solutions that help financial advisors, wealth managers, institutions, and ultra-high-net-worth families create and manage wealth. We also provide investment fund information to the mass-market individual investor over the Internet at www.fund.com. As of May 19, 2010, through our subsidiaries, we manage and earn fees on approximately $1.0 billion in client assets.





Our wealth management business solutions include:





●
ETF Platform. An outsourced platform for launching actively managed exchange traded funds (ETFs) for banks, trust companies, independent wealth advisers, and investment managers who desire to issue and manage ETFs on a white-label basis;


●
Regulatory Authority. Outsourced administration and compliance for ETFs, including the use of specialized regulatory authority granted to us by the Securities and Exchange Commission (the “SEC”) permitting the discretionary active management of assets within an ETF to meet the investment objectives of the ETF and ETF manager;


●
Investment Products. A wealth management business catering to institutional and ultra-high-net-worth clients seeking investment in hedge funds offering a family of hedge fund and fund of funds investment products;


●
Fund Distribution. A 17-year-old established fund distribution business that sells and markets various fund products;and


●
Online Lead Generation. A user friendly website accessible on the Internet through a unique and recognizable top-level domain name that is intended to engage individual investors as an online educational resource and then to match their investment needs with providers of retirement solutions and investment funds, including ETFs.





Through our AdvisorShares Investments LLC subsidiary (“AdvisorShares”), we have developed an investment platform that originates and sells a new investment product known as actively managed exchange traded funds (“ETFs”).  We believe that AdvisorShares is one of a limited number of companies that have received an exemption from the SEC to originate, market and sell actively managed ETFs.  AdvisorShares sells such ETF products in conjunction with leading investment managers who are responsible for managing the assets within the ETFs we create.





As reported by the Investment Company Institute, the combined assets of the nation’s exchange-traded funds (ETFs) were $805.36 billion in March 2010.  Accordingly, we believe that the ETF market continues to experience rapid growth and represents a widely accepted financial innovation.





The business of AdvisorShares is to develop a diverse range of "actively managed" ETFs together with established third party asset managers, and to list these ETFs on the New York Stock Exchange, or a similar national or international securities exchange. The target clients of AdvisorShares are third party investment advisors who already manage clients' assets, have a favorable track record and desire to package their investment strategy using exchange-traded funds.  Under our business model, the investment manager acts as a “sub-advisor” to the fund and selects and supervises the investments of its individual ETF.  By accessing the AdvisorShares ETF platform, third party investment managers will be able to establish their own branded, or "white-labeled," ETF on a "turn-key" basis, wherein AdvisorShares is responsible, among other things, for the compliance and administration of the fund.  AdvisorShares and the investment manager share in the fee income, subject to a monthly minimum paid to AdvisorShares.





1




An “actively managed” ETF is not an index fund that seeks to replicate the performance of a specified index. An actively managed ETF uses an active investment strategy to meet its investment objectives. As a result, each of the investment sub-advisors to AdvisorShares ETFs has discretion on a daily basis to manage the fund’s portfolio in accordance with its stated investment objectives.





On March 29, 2010, we consummated the acquisition of 100% of the membership interests of Weston Capital Management, LLC (“Weston Capital”).  Founded in 1993 and headquartered in West Palm Beach, FL, Weston Capital has three lines of business: it originates and markets fund of funds; it originates and markets single-manager hedge funds; and it raises capital to seed new hedge funds.  Weston Capital currently earns fees on assets exceeding $1.0 billion under management.  Its founder Albert Hallac continues as CEO of Weston Capital, directing its day-to-day operations and business strategy, and our Chairman Joseph J. Bianco, became Chairman of Weston Capital. Weston Capital also has offices in London and New York City.   Management believes with Weston Capital’s operations, when aligned with our majority interest in AdvisorShares, will enable us to accelerate increases of assets under management since we now have the ability to seed, originate and distribute hedge funds as well as seed, originate, develop and distribute actively traded ETFs to institutional and retail investors.





Consistent with our focus of providing financial content, the Company also recently consummated two strategic investments.  They consisted of the acquisition of 100% of the capital stock of Whyte Lyon Socratic Inc., d/b/a “The Institute of Modern Economy”, a Delaware corporation (“Whyte Lyon”) and an investment in the equity of Vensure Employer Services, Inc., an Arizona corporation (“Vensure”).  Both transactions were consummated on November 2, 2009, but were deemed to be effective as of September 29, 2009.





Whyte Lyon is a development stage online provider of financial literacy video content delivered over the Internet. Sometimes referred to as distance learning, such remote educational content is designed to assist on-line students to:





·
develop the necessary skills to understand financial transactions and financial markets;


·
develop money management skills to help them manage their income and wealth; and


·
reach particular goals, including homeownership, debt reconciliation, or improved credit reports.





Simultaneous with our acquisition of Whyte Lyon, we purchased an equity interest in Vensure Employer Services, Inc., a professional employer organization, or PEO, located in Mesa, Arizona.  Vensure provides a broad range of services to small and medium-sized businesses, consisting of benefits and payroll administration, health and workers’ compensation insurance programs, personnel records management, employer liability management, employee recruiting and selection, employee performance management, employee training and development services and retirement obligations, including a retirement services product line that offers a variety of options to clients like 401(k) plans, profit sharing, and money purchase plans.





We also publish information online about investment funds at www.fund.com. Our objective is to engage individual investors as an online educational and research resource and then to match their investment needs with fund product providers, including ETFs offered by investment managers that use our ETF platform as well as investment products managed by Weston Capital. We earn investment management fees as both (i) a percentage of assets in our ETFs, which we share with the investment managers, and (ii) a percentage of assets managed by Weston Capital.  We, therefore, have an economic incentive to assist in increasing assets under management through client referrals derived from our online businesses.




Our plan of operation is to continue the further development of our website. This may include certain capital expenditures for technology, content and database management, including certain online advertising systems and affiliate marketing systems that management believes will assist in executing our customer acquisition business plan. Our website is anticipated to evolve over time as we introduce new content and features and generally seek to improve the customer experience. Our website was launched in March 2009 with the full planned feature set accessible at www.fund.com. We continue to seek strategic relationships that will further enhance the website development and usage.





Our principal executive office is located at 14 Wall Street, 20th Floor, New York, New York 10005.  Our telephone number is (212) 618-1633.  We maintain a website at www.fund.com and AdvisorShares maintains a website atwww.advisorshares.com.  These websites, and the information contained therein, are not part of this quaterly report.




2




Terms of Acquisition of AdvisorShares





On October 31, 2008, the Company entered into a Purchase and Contribution Agreement, dated as of October 31, 2008 (the “Purchase and Contribution Agreement”), with AdvisorShares Investments, LLC (“AdvisorShares”), Wilson Lane Group, LLC, and Noah Hamman, the managing member and principal officer of AdvisorShares. Pursuant to the Purchase and Contribution Agreement, the Company purchased 6,000,000 units of AdvisorShares, (representing 60% of the outstanding membership interests of AdvisorShares) for a purchase price of $4,000,000, with an initial contribution of $275,000 and up to an additional $3,725,000 being contributed to AdvisorShares in accordance with the achievement of specific milestones as defined in the Purchase and Contribution Agreement, including (i) $1,000,000 within 30 days of the issuance by the SEC of its notice regarding approval of the application of AdvisorShares for exemptive relief under the Investment Company Act of 1940; (ii) $725,000 within 30 days of receipt by the Company from AdvisorShares’ independent auditors verifying total assets under management equal to $150,000,000; (iii) $1,000,000 within 30 days of receipt by the Company from AdvisorShares’ independent auditors verifying total assets under management equal to $250,000,000; and (iv) $1,000,000 within 30 days of receipt by the Company from AdvisorShares’ independent auditors verifying total assets under management equal to $450,000,000.  In connection with our acquisition of 60% of the equity interests in AdvisorShares, we entered into an Amended and Restated Limited Liability Company Agreement of AdvisorShares, dated as of October 31, 2008 (the “LLC Agreement”), and was admitted as a member of AdvisorShares.





AdvisorShares and AdvisorShares Trust, a Delaware open-end investment management company (the “Trust”) that was recently formed by AdvisorShares for the purpose of offering a series of exchange traded funds (the “Funds”), filed an application with the SEC under the Investment Company Act of 1940 (the “Investment Company Act”) on January 31, 2008, as amended on October 17, 2008. The application requests an order from the SEC, exempting AdvisorShares and the Trust from the provisions of the Investment Company Act and permitting (a) the issuance of series of open-ended management investment companies to issue shares redeemable in large aggregations only, (b) engaging in secondary market transactions in Shares at negotiated market prices; and (c) certain affiliated persons of the series to deposit securities into, and receive securities from, the series in connection with the purchase and redemption of the creation units (the “Exemption Order”).





On December 23, 2008, the SEC issued a notice advising that it would issue a final order granting the requested relief unless it orders a hearing on the application based on requests for a hearing given by third parties by not later than January 15, 2009.  A third party timely filed a hearing request involving an intellectual property dispute which AdvisorShares believes is unrelated to the merits of the application.  On July 20, 2009, the SEC agreed with AdvisorShares’ position and issued the final Exemptive Order approving the application.  AdvisorShares received a copy of the final Exemptive Order on July 21, 2009.





On August 18, 2009, the Company consummated payment in full of the $1,000,000 due to AdvisorShares for achieving the first milestone under the Agreement. The funding was provided to the Company by IP Global and Equities Media, a principal stockholder of the Company, under the amended and restated $2.5 million line of credit facility described herein. The Company currently owns 60% of the outstanding units of AdvisorShares after the initial contributions of $1,275,000 by the Company. The Company will maintain its ownership of 60% of the outstanding units of AdvisorShares irrespective of AdvisorShares achieving any additional milestones




The Company does not currently have the capital or resources to make the additional $2,725,000 in payments to AdvisorShares following AdvisorShares’ achievement of the remaining milestones.  In order to obtain funds to satisfy the remaining payment obligations to AdvisorShares (assuming the remaining milestones are achieved), we may utilize any of several potential options, including cash on hand from operating results, the issuance of debt or equity securities, or a combination thereof.  No assurance can be given that we will have available cash on hand from operating results or be able to obtain additional financing on favorable terms, if at all.  Moreover, the Company cannot predict with certainty if and when the remaining milestones for total assets under management will be met by AdvisorShares.





Terms of Acquisition of Weston Capital Management, LLC





On March 29, 2010, the Company consummated the acquisition (the “Acquisition”) of Weston Capital Management, LLC (“Weston Capital”), pursuant to a Securities Purchase and Restructuring Agreement dated as of March 26, 2010 (the “Purchase Agreement”) by and among the Company, Weston Capital, PBC-Weston Capital Holdings, LLC (“PBC”), Albert Hallac (“A. Hallac”) and the other persons who are parties signatory thereto (together with PBC and A. Hallac, the “Members”).





Pursuant to a newly executed long-term Employment Agreement, Weston Capital founder Albert Hallac continues as CEO of Weston Capital and a member of its board of managers and will direct Weston Capital’s day-to-day operations and business strategy.  In addition, Fund.com Chairman Joseph J. Bianco joined as Chairman of the Board of Weston Capital.




3




Under the Purchase Agreement:





·  the Company acquired from all of the Members, an aggregate of 100% of the membership interests in Weston Capital (the “Membership Interests”) for total consideration of $8,800,000 plus $1,500,000 in warrants described below, including:





(i)           25% of the issued and outstanding Membership Interests purchased by PBC on or about June 5, 2006 (the “PBC Member Interests”), in consideration for the payment of $2,500,000 in cash and delivery of the “Warrant” described below; and





(ii)           the remaining 75% of the issued and outstanding Membership Interests (the “Hallac Interests”) owned by Albert. Hallac, certain members of his family, and Victor Elmaleh (collectively, the “Hallac Members”), in consideration for the payment of $5,500,000, consisting of $500,000 in cash and delivery of the Company’s 4% $5,000,000 senior secured adjustable principal amount note due March 31, 2015 (the “Reset Note”).





·  in addition to its purchase of 100% of the Membership Interests, the Company made an additional cash capital contribution to Weston Capital in the aggregate amount of $800,000 in order to fund the integration of Weston Capital and the AdvisorShares ETF business and for general working capital. The contribution was made in exchange for 9.1% of all issued and outstanding Membership Interests in Weston Capital (the “Additional Purchased Membership Interests”); and





·  the Company acquired the right and option, following the satisfaction of applicable regulatory approvals, to purchase 100% of the membership interests of Weston Capital’s broker-dealer subsidiary, Weston Capital Financial Services, LLC (the “Broker Subsidiary”) for nominal additional consideration.





In exchange for all of the Membership Interests in Weston Capital, the Company provided the following consideration to the Members:





·  cash payments equal to (i) $2,500,000 to PBC in exchange for the PBC Member Interests; (ii) $800,000 as a capital contribution to Weston Capital; and (iii) $500,000 to Albert Hallac;





·  a Class A common stock purchase warrant (the “Warrant”) to PBC entitling PBC to purchase, beginning September 29, 2010 (the “Six Month Anniversary Date”) through September 30, 2014, such number of shares of Class A common stock of the Company as shall be determined by dividing (A) $1,500,000, by (B) the volume weighted average price of the common stock for the 20 trading days immediately prior to the Six Month Anniversary Date; and





·  the Reset Note to Albert Hallac and the other Hallac Members.





The Company is required to make an installment payment to the holders of the Reset Note in the amount of $2,450,000 on or before May 31, 2010 (the “Installment Payment”).





The remaining principal amount of the Reset Note is subject to adjustment on each of March 31, 2013, 2014 and 2015 (each, a “Reset Date”) in such greater or lesser amount equal to the holders’ aggregate percentage interests in the then fair market value of Weston Capital. Such fair market value is to be determined based upon an independent business appraisal.  In addition, commencing on the first Reset Date and at any time on each subsequent Reset Date, the majority of the holders aggregate percentage interest in the Reset Note shall have the right to require that all or a portion of the then outstanding principal amount of the Reset Note (as adjusted based upon such fair market value appraisal) be prepaid by the Company (a “Mandatory Prepayment”), in an amount equal to the product of multiplying (i) the then applicable holders aggregate percentage interest being prepaid and converted, by (ii) the fair market value of 100% of the membership interests in Weston Capital as at the applicable Reset Date (the “Prepayment and Conversion Amount”).  Such Prepayment and Conversion Amount shall be paid by the Company no later than 20 business days following the date of calculation of the applicable Prepayment and Conversion Amount as follows (A) 25% in cash; and (B) 75% (the “Prepayment Balance”) in such number of shares of Class A common stock as shall be equal to the quotient resulting from dividing the Prepayment Balance, by 90% of the volume weighted average price of the Class A common stock for the 20 trading days prior to the applicable Reset Date.  In the event that Albert Hallac is no longer employed by Weston Capital due to his death, resignation or termination for cause, the Company shall have the right, at the Company’s Option exercised within 90 days thereafter, to prepay and convert all of the Reset Note as set forth above (an “Optional Prepayment”).




4




The Company’s obligation to pay the Installment Payment, when due, and comply with its other obligations under the Reset Note is secured by a pledge by the Company of 50.9% of the Membership Interests in Weston Capital owned by the Hallac Members immediately prior to the closing date pursuant to a certain pledge agreement (the “Pledge Agreement”).





Under the terms of the Reset Note, for so long as the Company’s obligations under the Reset Note remain outstanding, the approval or consent of the holders of a majority in interest of the Reset Note or Albert Hallac is required to effect certain major transactions, including:





·
changes to Weston Capital’s Operating Agreement;


·
any change in the fundamental nature of the business of Weston Capital;


·
any material deviation from any permitted fund investments of Weston Capital;


·
the dissolution, merger or consolidation of Weston Capital or a sale of control of Weston Capital;


·
the issuance of any new Members Interests or the admission of new members in Weston Capital;


·
the making of any cash distributions from Weston Capital to the Company unless 50.9% of each such distribution is paid in cash to the Hallac Members;


·
the termination of the management and employment agreements with Jeffrey Hallac, Keith Wellner and Marcel Herbst for any reason other than their death, permanent disability or for Cause, as defined therein; and


·
entering into any related party transaction with the Company or any of its affiliates.




The Company financed its cash payments for the Weston Capital acquisition through a series of private placements of its shares and from an advance under its August 2009 loan agreement with IP Global Investors Ltd.




On February 10, 2010, COS Capital Partners I, LLC purchased 9,047,619 Class A common stock of the Company for $1,900,000.  On March 1, 2010, LH Capital Partners LLC purchased 952,381 shares of Class A Common Stock for $200,000.  In March 2010, Recovery Capital purchased 1,080,952 shares of Class A Common Stock for $227,000.  Neither COS Capital Partners, LH Capital Partners nor Recovery Capital are affiliated with the Company or IP Global.





On March 8, 2010, IP Global converted a portion of the principal amount of the then outstanding amount due under a Company Note payable to IP Global into 3,600,000 shares of Class A Common Stock which it sold to an unaffiliated third party for $1,300,000.  Pursuant to its existing August 28, 2009 loan agreement with the Company, effective as of March 29, 2010, IP Global advanced an additional $1,300,000 to the Company to assist the Company in financing its acquisition of Weston Capital.  Such additional advance increased the outstanding amount due to IP Global under the Company’s August 2009 loan Agreement from $730,750 to $2,030,750.  Such loan is due and payable on December 31, 2011.





Terms of Investment in Vensure Employer Services, Inc.





On September 24, 2009, we and Vensure Employer Services, Inc. (“Vensure”) entered into a securities purchase agreement (the “Vensure Purchase Agreement”). Consummation of the transactions contemplated by the Vensure Purchase Agreement occurred on November 2, 2009; provided, that for all purposes the closing date and delivery of all closing documents and instruments were deemed to have occurred effective at 5:00 p.m. on September 29, 2009.





Under the terms of the Vensure Purchase Agreement, we agreed to sell and assign to Vensure, our right to receive payments under the original $20.0 million certificate of deposit issued in November 2007 by Global Bank in exchange for consideration consisting of (a) 218,883.33 shares of Series A participating convertible preferred stock of Vensure (the “Series A Preferred Stock”), and (b) a seven year content agreement (the “Content Agreement”) among Vensure, Vensure Retirement Administration, Inc., a whole owned subsidiary of Vensure, our company and Whyte Lyon. In October 2009, we were orally advised by Global Bank of its intention to elect to exercise its contractual rights to exchange and swap its obligations under the certificate of deposit for a ten year 5.0% annuity contract issued by a third party.  We notified Vensure of the banks election (which was subsequently confirmed in writing), and on November 2, 2009 Vensure agreed to accept such annuity contract in lieu of the certificate of deposit.




5




The Vensure Series A Preferred Stock:





·
has a liquidation value of $100 per share or $21,888,333 as to all 218,883.33 shares;


·
is senior to all other capital stock of Vensure;


·
pays dividends as and when declared by the board of directors of Vensure on its common stock;


·
on a “sale of control” (as defined) of Vensure to any unaffiliated third party, in addition to receipt of the first $21,888,333 of consideration payable in respect of Vensure capital stock, participates with the holders of the common stock to the extent of 25% of all additional consideration paid or payable in excess of the maximum $21,888,333 liquidation value of the Series A Preferred; and


·
is convertible at any time after September 30, 2012 upon 61 days prior notice to Vensure into either 25% of the common stock of Vensure; provided, that the board of directors of Vensure may (subject to the Series A Preferred stockholder’s right to rescind its conversion notice) require that the shares of Series A Preferred Stock convert into a maximum of 49.5% of the capital stock of Vensure Retirement Administration, a wholly-owned subsidiary of Vensure.





Under the terms of a related stockholders agreement among the Company, Vensure and the Vensure stockholders, the Company is entitled to designate two members of the board of directors of Vensure. The stockholders agreement also contains customary buy/sell and related provisions in the event of sales of any shares of Vensure.  The Series A Preferred Stock also contains certain protective provisions that requires the approval of the Company or its designees on the board of directors of Vensure before Vensure may implement or commit to certain actions, including:





·
the issuance of securities senior to or on a par with the Series A Preferred Stock;


·
the issuance of any additional capital stock of Vensure;


·
any change it’s the fundamental nature of its business;


·
the acquisition of the assets or securities of other parties;


·
the sale or pledge of substantial assets; and


·
any material changes in compensation of senior executive officers.





In addition to its receipt of the Series A Preferred Stock, the Company has received the benefits of the Content Agreement.  Under the terms of the Content Agreement, the Company and Whyte Lyon will provide all existing and future employees, co-employees and other associates (collectively, the “End Users”) of Vensure, its subsidiaries and affiliates, as well as Vensure clients (collectively, the “Vensure Group”) with access to on-line educational content to be streamed to such End-Users from the website(s) of the Vensure Group.  Such Content, to be designated and branded as “Vensure University,” “The Money School” or other brand name acceptable to the parties to the Content Agreement, will include up to 84 five to seven minute educational course segments on personal finance management, financial products and other related financial topics as are approved by Vensure and the Company.  Course segments may also include safety training, health care and other topics of interest to workers and the work place.




In consideration for providing the Content, the Vensure Group is required to pay the Company and its Whyte Lyon subsidiary an access fee of $19.95 per month (the “Monthly Access Fee”) for each End-User who has access to the Content from the website(s) of the Vensure Group, whether or not such End-User actually clicks on such website and views the Content.  Based on the current Vensure employment complement of approximately 4,000 employees or co-employees, this represents approximately $80,000 a month in anticipated revenues to the Company from such Monthly Access Fee as soon as the initial Content is provided.  The Company and its subsidiary have agreed to deliver approximately three course segments during each calendar quarter commencing with the quarter ending March 31, 2010 and ending December 31, 2016. Following October 2012, the $19.95 Monthly Access Fee is subject to renegotiation at the option of Vensure.





Our board of directors considered a number of factors in exercising its business judgment to consummate the investment in Vensure, including, among other things, the likelihood that the Global Bank certificate of deposit would not be paid on its November 2010 maturity date as was disclosed as a potential risk in the Company’s Current Report on Form 8-K filed with the SEC on January 17, 2008. In addition, the Company considered the potential lack of liquidity arising from the proposed exchange for a long-term investment instrument.




6


Terms of Acquisition of Whyte Lyon Socratic, Inc.





On October 14, 2009, the Company entered into an agreement with the stockholders of Whyte Lyon Socratic, Inc., a Delaware corporation, d/b/a “The Institute of Modern Economy” (“Whyte Lyon”) to acquire 100% of the capital stock of such corporation in exchange for 500,000 shares of the Company’s common stock, which the parties valued at $2.00 per share.  Closing of the acquisition of the shares of Whyte Lyon occurred on November 2, 2009 following consummation of the transactions contemplated by the Vensure Purchase Agreement.  However, for all purposes the closing date and delivery of all closing documents and instruments in connection with the Whyte Lyon acquisition and the Vensure investment were deemed to have occurred effective on September 29, 2009.  Upon completion of the Company’s acquisition of Whyte Lyon, its principal stockholder, Joseph J. Bianco, became Chairman of the Board of Directors of the Company.


Critical Accounting Policies




Our discussion and analysis of results of operations and financial condition are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.





The Company considered the quality and variability of information regarding the financial condition and operating performance that may have changed in the past and future that may have a material effect and has quantified them where possible. Specifically, the Company considers risk of variability with changes in contract which may affect the recognition of income and also the possibility of changes in the tax code which may affect the long term rates of return.





Our significant accounting policies are described in footnotes to the consolidated financial statements in Part I, Item  1.


Results of Operations





The following tables show the results of operations of our business.





Comparison of the three months ended March 31, 2010 as compared to the three months ended March 31, 2009





Three Months Ended March 31,

2010


2009Sales

$
87,467


$
10,000Cost of Sales

$
-0-


$
-0-Total Expenses

$
1,451,714


$
1,202,340Other income (expense)

$
15,997


$
250,230Income taxes

$
-0-


$
-0-Net income (loss)

$
(1,249,226)


$
(898,265)





Results of Operations for the three months ended March 31, 2010 and 2009





We reported a net loss of $1,249,226 and $898,265 for the three months ending March 31, 2010 and 2009, respectively.  Until we implement our business plan, we will not have material operating revenues.





For the three months ending March 31, 2010, we incurred $1,451,714 inoperating costs.  This amount primarily includes $511,698 related to compensation expense for stock options, $101,646 related to legal and professional fees, $297,892 related to payroll and benefits for the officers of the Company, $216,726 for consulting expenses, and the remaining $323,752 represents other selling, general and administrative expenses.





For the three months ending March 31, 2009, we incurred $1,202,340 inoperating costs.  This amount includes $528,620 related to compensation expense for stock options, $93,143 related to legal and professional fees, $331,219 related to payroll and benefits for the officers of the Company, $104,087 for consulting expenses, and the remaining $145,271 represents other selling, general and administrative expenses.





The Company periodically tests the intangible assets for impairment and determined that as of March 31, 2010 no impairment charge was necessary.  As of December 31, 2009, the Company recorded an impairment charge of $1,794,500.




7


Liquidity and Capital Resources





On March 31, 2010, the Company had cash of $1,986,519 and a working capital deficit of approximately $602,065.  We will require additional funding in order to meet operating expenses and our development plan.





We were originally incorporated as Eastern Services Holdings, Inc.  In January 15, 2008 we merged with Meade Technologies Inc., following which we changed our corporate name to Fund.com Inc.  In each case, before giving effect to the 9-for-1 dividend on our Class A Common Stock and Class B Common Stock, in November 2007, we sold an aggregate of 10,350,000 shares of our common stock to eight accredited investors in a private placement at a price of $2.00 per share and received gross proceeds of $20,700,000, and we sold 5,000,000 shares of our common stock and 2,500,000 shares of our Series A Preferred Stock to an accredited investor and received gross proceeds of $10,000,000.  Substantially all of the proceeds from the sale of the Series A Preferred Stock transaction were used to acquire the domain name www.fund.com.





Following the merger, we had authorized a total of 110,000,000 shares of common stock, par value $0.001 per share, of which 100,000,000 shares were authorized as Class A Common Stock, 10,000,000 shares were authorized as Class B Common Stock.  In addition, 10,000,000 shares were authorized as Preferred Stock.





On September 2, 2009, the Company amended and restated its certificate of incorporation to increase its authorized capital stock from 120,000,000 shares to 320,000,000 shares, of which 300,000,000 shares are designated as Class A common stock, 10,000,000 shares are designated as Class B common stock and 10,000,000 shares are designated as preferred stock.  Each share of Class A common stock has one vote.  Each share of Class B common stock has 10 votes, votes together with the Class A common stock, and is convertible by the holder at any time upon 61 days prior written notice, which notice may be waived by the Company, into ten shares of Class A common stock.  The authorized shares of preferred stock may be issued by the board of directors from time to time in one or more series and the board of directors has the authority to fix the powers, designations rights, preferences and limitations of any class or series of such preferred stock.





As at March 31, 2010, 69,465,905 shares of Class A Common Stock were outstanding, 5,462,665 shares of Class B Common Stock were outstanding and 400,000 shares of Preferred Stock were outstanding.  As of May 1, 2010, 104,137,905 shares of Class A Common Stock were outstanding, 5,462,665 shares of Class B Common Stock were outstanding and 400,000 shares of Preferred Stock were outstanding.





Working Capital Loan





For the past twelve months we have relied on loans and advances from IP Global Investors Ltd., a privately owned intellectual property finance company, to provide us with working capital to pay our operating expenses.





Effective as of August 28, 2009, the Company, and IP Global consummated transactions under a line of credit agreement pursuant to which IP Global provided the Company with a $2,500,000 line of credit facility which superseded and restated in its entirety a prior $1.343 million credit agreement with IP Global entered into as of May 1, 2009.  Under the terms of the restated line of credit agreement (which was negotiated and agreed upon in early July 2009), the Company was entitled to receive a maximum of $2,500,000 of advances, less an aggregate of $723,000 of advances made through May 1, 2009 (including the $1,275,000 paid to AdvisorShares on behalf of the Company through August 18, 2009 and an additional $150,000 of advances funded through August 28, 2009).  As of December 31, 2009, the Company has borrowed an aggregate of approximately $2,466,444 under the line of credit, including $1,275,000 paid to AdvisorShares on behalf of the Company.  All obligations under the line of credit agreement have been guaranteed by Fund.com Capital Inc., Fund.com Technologies Inc. and Fund.com Managed Products Inc., all wholly-owned subsidiaries of the Company.





The advances made under the line of credit agreement are evidenced by the Company’s 9% convertible note due August 28, 2010 (one year from the Closing Date).   The note is convertible at any time prior to its maturity date, at a conversion price of $0.21 per share into shares of Class B common stock of the Company. The conversion price was established based on the public price of Fund.com at the time the parties reached agreement, the price being based on a quantitative formula equal to 90% of the volume weighted average price (VWAP) of the Fund.com stock price as quoted on the OTC Bulletin Board for the thirty days prior to July 6, 2009.





8




As a further inducement to the lender to make available the line of credit, Daniel Klaus and Lucas Mann, two shareholders of the Company and members of the board of directors at the time, also sold to the lenders or their designees (in equal amounts) a total of 2,000,000 of their shares of Class A common stock of the Company at a price of $0.25 per share, payable on the basis of $50,000 in cash and the $450,000 balance evidenced by two notes of $225,000 each payable in equal monthly installments through December 31, 2009.  In addition, Messrs. Klaus and Mann each contributed 500,000 of their Company shares to the lender, or its designees, for no consideration, and granted the lender or its designees an option, exercisable at any time up to December 31, 2009, to purchase an additional 2,000,000 of their Class A shares for $0.25 per share. Effective August 28, 2009, Messrs. Daniel Klaus and Lucas Mann terminated their consulting agreements with the Company and resigned as members of the board of directors of the Company and its subsidiaries. There was no disagreement or dispute between Messrs. Klaus and Mann and the Company which led to their resignation as directors. They also agreed not to sell their remaining shares in the Company for a period of at least six months.





On January 18, 2010, the board of directors of the Company approved the terms of an agreement (the “Debt Restructuring Agreement”) with IP Global and other third party assignees of a portion of a portion of the Note, dated as of December 28, 2009. Under the terms of the Debt Restructuring Agreement, (a) the lender agreed to waive all prior defaults under the Note and Loan Agreement, (b) the lender and certain third party assignees who purchased from IP Global $184,800 principal amount of the Note agreed to convert an aggregate of $840,000 or 33.6% of the Note into 400,000 shares of the Company’s newly authorized Series A preferred stock; (c) the lender sold an additional $509,250 principal amount of the Note to third parties who have agreed to convert such assigned notes into shares of the Company’s Class A Common Stock, (d) the lender agreed (i) to extend the final maturity date of the remaining $1,150,750 outstanding balance of the Note to December 31, 2011, and (ii) not convert more than 25% of such Note balance into Class A Common Stock prior to December 31, 2011.





The Company’s Series A Preferred Stock does not pay a dividend, has a stated value of $100 per share, and is convertible, upon not less than 90 days prior written notice to the Company, into Class A Common Stock of the Company at a conversion price of $1.50 per share. At the December 28, 2009 effective date of the Debt Restructuring Agreement, the average closing market prices of the Company’s Class A Common Stock, as traded on the FINRA over-the-counter Bulletin Board was approximately $0.91 per share.





As part of the transactions contemplated by the line of credit agreement, the lender or its designees received an option (expiring December 31, 2009) to purchase up to $5,000,000 of additional shares of Class A common stock of the Company at a price of $0.21 per share, or approximately 23.8 million shares of Class A common stock if such purchase option is fully exercised. The price was also established on the same VWAP calculation. The Company is not obligated to register the option shares for resale with the SEC. In addition, the Company issued to IP Global a warrant, expiring July 31, 2012, entitling the holder(s) to purchase an aggregate of 50% of the number of shares of Class A common stock that are purchased upon full or partial exercise of the above purchase option, at an exercise price of $0.315 per share.  The exercise prices of the purchase option and the warrant are both subject to certain adjustments, including weighted average anti-dilution adjustments.





IP Global subsequently assigned the option to Recovery Capital, Inc. or its designees (“Recovery Capital”), and Recovery Capital thereafter assigned all or a portion of the option to Huntley Family Investments, LLC or is designees (the “Huntley Group”). The Huntley Group is affiliated with Mars Hill Partners, LLC, the sub-advisor to the Mars Hill Global Relative Value Advisorshare ETF, an actively managed exchange traded fund sponsored by AdvisorShares.  Neither Recovery Capital nor the Huntley Group is affiliated with either the Company or IP Global.




On January 25, 2010, the Company agreed to extend the option period to February 15, 2010, and the Huntley Group exercised the option and agreed to purchase all or a portion of the option shares.  To the extent not fully exercised by the Huntley Group, Recovery Capital retained the right to exercise the remaining portion of the option.  All proceeds received by the Company from the Huntley Group were to be used exclusively to provide financing to enable the Company to consummate its equity investment in Weston Capital Management LLC.




On February 10, 2010, COS Capital Partners I, LLC purchased 9,047,619 Class A common stock of the Company for $1,900,000.  On March 1, 2010, LH Capital Partners LLC purchased 952,381 shares of Class A Common Stock for $200,000.  In March 2010, Recovery Capital purchased 1,080,952 shares of Class A Common Stock for $227,000.  Neither COS Capital Partners, LH Capital Partners nor Recovery Capital is affiliated with either the Company or IP Global.





On February 12, 2010, the Company agreed to further extend the Option Period to February 28, 2010.  In addition, on February 22, 2010, the Company agreed to extend the option period to March 26, 2010 and on March 26 2010, the Company agreed to extend the option to April 30, 2010.





On March 8, 2010, IP Global converted a portion of the principal amount of the then outstanding amount due under a Company Note payable to IP Global into 3,600,000 shares of Class A Common Stock which it sold to an unaffiliated third party for $1,300,000.  Pursuant to its August 29, 2010 line of credit loan agreement with the Company, IP Global advanced an additional $1,300,000 to the Company on March 29, 2010 to assist the Company in financing its acquisition of Weston Capital.  Such additional advance increased the then outstanding amount due to IP Global under the Company’s line of credit loan agreement from $730,750 to $2,030,750.  Such loan is due and payable on December 31, 2011. However, to date, the Company has been unable to pay accrued interest and fees to the lenders under the Loan Agreement.





As at March 31, 2010, an aggregate of $2,033,558 of indebtedness is outstanding under the line of credit loan agreement.





9




Certificate of Deposit from Global Bank of Commerce





On November 9, 2007, Meade Capital, Inc., a wholly owned subsidiary of Meade Technologies Inc. (both privately owned companies not affiliated with our Company at that time), invested in a $20,000,000 three-year Certificate of Deposit issued by an Antigua bank, the Global Bank of Commerce (“Global Bank”). Global Bank is an affiliate of one of our stockholders (GBC Wealth Management Limited).  This investment was made prior to completing the merger of Meade Technologies with Eastern Services Holdings, Inc. which occurred on January 15, 2008 and prior to current management’s employment with our Company.  As part of the merger, the Company’s name was changed to Fund.com Inc, and its subsidiary’s name to Fund.com Capital.





The certificate of deposit accrues earned interest at 5% per annum for the term of three years and is due and payable, together with accrued interest, on November 9, 2010.  With accrued interest, the amount of the certificate of deposit was $21,888,333 as of September 30, 2009.  As disclosed in our Form 8-K filed with the SEC on January 17, 2008, Global Bank had the right, pursuant to its November 2007 agreement with our Company to exchange the certificate of deposit at any time prior to its maturity for a long-term annuity contract to be issued by a third party acceptable to Global Bank.





Fund.com Capital Inc. (then known as Meade Capital, Inc.) was originally established by Meade Technologies, Inc., the Company’s predecessor, to invest in financial entities and structure unregistered financial products and instruments, including fund management companies, and structured products offered or managed by such entities. As a result, at the time of the merger with Meade Technologies in January 2008, the Company believed that the certificate of deposit investment would provide the Company with a material asset base, would serve as the basis for unregistered structure products and would provide capital for one or more potential acquisitions within its then business model as set forth in its business plan disclosed in a Current Report on Form 8-K filed with the Commission on January 17, 2008.  However, in view of the Company’s need for additional working capital, its decision to abandon the issuance of unregistered structured products in favor of pursuing exclusively investment products registered under the Securities Act and Global Bank’s right to exchange and swap the three year certificate of deposit for a long-term annuity instrument that would not provide the Company with liquidity, our management determined that it would need to seek additional financing for the Company in order to support our other strategic initiatives, and could no longer place undue reliance on the investment in the certificate of deposit.





Consistent with the above strategy, pursuant to the Company’s investment in and transaction with Vensure Employer Services, Inc. (as described below), as payment for the Series A preferred stock of Vensure, the Company transferred and assigned its rights under the certificate of deposit to Vensure, effective as of September 29, 2009.  In October 2009, Global Bank advised the Company of its intention to exercise its contractual rights to exchange the certificate of deposit for a ten year 5.0% annuity contract in the amount of the certificate of deposit plus accrued interest issued by a third party. On November 2, 2009 Vensure agreed to accept such annuity contract in lieu of the certificate of deposit. As of March 31, 2010 and December 31, 2009, there was no balance outstanding under this certificate of deposit.





Accounting Standards Updates





In September 2009, the FASB has published ASU No. 2009-12, “Fair Value Measurements and Disclosures (Topic 820) - Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent)”. This ASU amends Subtopic 820-10, “Fair Value Measurements and Disclosures – Overall”, to permit a reporting entity to measure the fair value of certain investments on the basis of the net asset value per share of the investment (or its equivalent). This ASU also requires new disclosures, by major category of investments including the attributes of investments within the scope of this amendment to the Codification. The guidance in this Update is effective for interim and annual periods ending after December 15, 2009. Early application is permitted.The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial position and results of operations.


In October 2009, the FASB has published ASU 2009-13, “Revenue Recognition (Topic 605)-Multiple Deliverable Revenue Arrangements”, which addresses the accounting for multiple-deliverable arrangements to enable vendors to account for products or services (deliverables) separately rather than as a combined unit. Specifically, this guidance amends the criteria in Subtopic 605-25, “Revenue Recognition-Multiple-Element Arrangements”, for separating consideration in multiple-deliverable arrangements. This guidance establishes a selling price hierarchy for determining the selling price of a deliverable, which is based on: (a) vendor-specific objective evidence; (b) third-party evidence; or (c) estimates. This guidance also eliminates the residual method of allocation and requires that arrangement consideration be allocated at the inception of the arrangement to all deliverables using the relative selling price method and also requires expanded disclosures. The guidance in this update is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption is permitted. The adoption of this standard is not expected to have any impact on the Company’s consolidated financial position and results of operations.




10


In October 2009, the FASB has published ASU 2009-14, “Software (Topic 985)-Certain Revenue Arrangements that Include Software Elements” and changes the accounting model for revenue arrangements that include both tangible products and software elements. Under this guidance, tangible products containing software components and nonsoftware components that function together to deliver the tangible product's essential functionality are excluded from the software revenue guidance in Subtopic 985-605, “Software-Revenue Recognition”. In addition, hardware components of a tangible product containing software components are always excluded from the software revenue guidance.  The guidance in this ASU is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption is permitted.  The adoption of this standard is not expected to have any impact on the Company’s consolidated financial position and results of operations.





In December 2009, the FASB has published ASU 2009-16 “Transfers and Servicing (Topic 860): Accounting for Transfers of Financial Assets.” ASU No. 2009-16 is a revision to ASC 860, “Transfers and Servicing,” and amends the guidance on accounting for transfers of financial assets, including securitization transactions, where entities have continued exposure to risks related to transferred financial assets. ASU No. 2009-16 also expands the disclosure requirements for such transactions. This ASU will become effective for us on April 1, 2010.  The adoption of this standard is not expected to have any impact on the Company’s consolidated financial position and results of operations.


In December 2009, the FASB has published ASU 2009-17 “Consolidations (Topic 810): Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities.” ASU No. 2009-17 amends the guidance for consolidation of VIEs primarily related to the determination of the primary beneficiary of the VIE. The adoption of this standard is not expected to have any impact on the Company’s consolidated financial position and results of operations.





In January 2010, the FASB has published ASU 2010-01 “Equity (Topic 505) - Accounting for Distributions to Shareholders with Components of Stock and Cash—a consensus of the FASB Emerging Issues Task Force,”as codified in ASC 505. ASU No. 2010-01 clarifies the treatment of certain distributions to shareholders that have both stock and cash components. The stock portion of such distributions is considered a share issuance that is reflected in earnings per share prospectively and is not a stock dividend. The amendments in this Update are effective for interim and annual periods ending on or after December 15, 2009 and should be applied on a retrospective basis.  Early adoption is permitted.  The adoption of this standard did/did not have an impact on the Company’s (consolidated) financial position and results of operations.





In January 2010, the FASB has published ASU 2010-02 “Consolidation (Topic 810) - Accounting and Reporting for Decreases in Ownership of a Subsidiary—a Scope Clarification,” as codified in ASC 810, “Consolidation.” ASU No. 2010-02 applies retrospectively to April 1, 2009, our adoption date for ASC 810-10-65-1 as previously discussed in this financial note. This ASU clarifies the applicable scope of ASC 810 for a decrease in ownership in a subsidiary or an exchange of a group of assets that is a


business or nonprofit activity. The ASU also requires expanded disclosures. The amendments in this Update are effective for interim and annual periods ending on or after December 15, 2009, and should be applied on a retrospective basis.  The adoption of this standard is not expected to have any impact on the Company’s consolidated financial position and results of operations.





In January 2010, the FASB has published ASU 2010-06 “Fair Value Measurements and Disclosures (Topic 820): - Improving Disclosures about Fair Value Measurements”. ASU No. 2010-06 clarifies improve disclosure requirement related to fair value measurements and disclosures – Overall Subtopic (Subtopic 820-10) of the FASB Accounting Standards Codification. The new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosure about purchase, sales, issuances, and settlement in the roll forward of activity in Level 3 fair value measurements.  Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. The amendments in this Update are effective for interim and annual periods ending on or after December 15, 2009, and should be applied on a retrospective basis.  The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial position and results of operations.





In February 2010, the FASB issued ASU 2010-09 which requires that an SEC filer, as defined, evaluate subsequent events through the date that the financial statements are issued. The update also removed the requirement for an SEC filer to disclose the date through which subsequent events have been evaluated in originally issued and revised financial statements. The adoption of this guidance on January 1, 2010 did not have a material effect on the Company’s consolidated financial statements.




11


Off-Balance Sheet Arrangements





We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial conditions, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources.





ITEM 3.            QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.





Not applicable.





ITEM 4T.         CONTROLS AND PROCEDURES.





Evaluation of Disclosure Controls and Procedures





As of the end of the period covered by this quarterly report on Form 10-Q, we evaluated the effectiveness of the design and operation of (i) our disclosure controls and procedures, and (ii) our internal control over financial reporting. The evaluators who performed this evaluation were our Chief Executive Officer and Chief Financial Officer; their conclusions, based on and as of the date of the evaluation (i) with respect to the effectiveness of our disclosure controls and (ii) with respect to any change in our internal controls that occurred during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect our internal controls are presented below.





CEO and CFO Certifications





Attached to this annual report, as Exhibits 31.1 and 31.2, are certain certifications of the CEO and CFO, which are required in accordance with the Exchange Act and the Commission’s rules implementing such section (the "Rule 13a-14(a)/15d-14(a) Certifications"). This section of the annual report contains the information concerning the evaluation referred to in the Rule 13a-14(a)/15d-14(a) Certifications. This information should be read in conjunction with the Rule 13a-14(a)/15d-14(a) Certifications for a more complete understanding of the topic presented.





Disclosure Controls and Internal Controls





Disclosure controls are procedures designed with the objective of ensuring that information required to be disclosed in the Company's reports filed with the Securities and Exchange Commission under the Securities Exchange Act, such as this annual report, is recorded, processed, summarized and reported within the time period specified in the Commission’s rules and forms. Disclosure controls are also designed with the objective of ensuring that material information relating to the Company is made known to the CEO and the CFO by others, particularly during the period in which the applicable report is being prepared. Internal controls, on the other hand, are procedures which are designed with the objective of providing reasonable assurance that (i) the Company's transactions are properly authorized, (ii) the Company’s assets are safeguarded against unauthorized or improper use, and (iii) the Company's transactions are properly recorded and reported, all to permit the preparation of complete and accurate financial statements in conformity with accounting principles generally accepted in the United States.





Limitations on the Effectiveness of Controls





The Company's management does not expect that their disclosure controls or their internal controls will prevent all error and all fraud. A control system, no matter how well developed and operated, can provide only reasonable, but not absolute assurance that the objectives of the control system are met. Further, the design of the control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of a system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated objectives under all potential future conditions. Over time, control may become inadequate because of changes in conditions, or because the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.





12




Scope of the Evaluation





The CEO and CFO’s evaluation of our disclosure controls included a review of the controls’ (i) objectives, (ii) design, (iii) implementation, and (iv) the effect of the controls on the information generated for use in this annual report. In the course of the evaluation, the CEO and CFO sought to identify data errors, control problems and acts of fraud, and they sought to confirm that appropriate corrective action, including process improvements, was being undertaken. This type of evaluation is done on a quarterly basis so that the conclusions concerning the effectiveness of our controls can be reported in our quarterly reports on Form 10-Q and annual reports on Form 10-K. The overall goals of these various evaluation activities are to monitor our disclosure controls and internal controls, and to make modifications if and as necessary. Our external auditors also review internal controls in connection with their audit and review activities. Our intent in this regard is that the disclosure controls and the internal controls will be maintained as dynamic systems that change (including improvements and corrections) as conditions warrant.





Among other matters, the evaluation was to determine whether there were any significant deficiencies or material weaknesses in our internal controls, which are reasonably likely to adversely affect our ability to record, process, summarize and report financial information, or whether the evaluators identified any acts of fraud, whether or not material, involving management or other employees who have a significant role in our internal controls. This information was important for both the evaluation, generally, and because the Rule 13a-14(a)/15d-14(a) Certifications, Item 5, require that the CEO and CFO disclose that information to our Board (audit committee), and our independent auditors, and to report on related matters in this section of the annual report. In the professional auditing literature, "significant deficiencies" are referred to as "reportable conditions". These are control issues that could have significant adverse affect on the ability to record, process, summarize and report financial data in the financial statements. A "material weakness" is defined in the auditing literature as a particularly serious reportable condition where the internal control does not reduce, to a relatively low level, the risk that misstatement caused by error or fraud may occur in amounts that would be material in relation to the financial statements and not be detected within a timely period by employees in the normal course of performing their assigned functions. The evaluators also sought to deal with other controls matters in the evaluation, and in each case, if a problem was identified, they considered what revisions, improvements and/or corrections to make in accordance with our ongoing procedures.





Conclusions





Based upon the evaluation, our CEO and CFO concluded that our disclosure controls and procedures as of March 31, 2010 were not effective such that the information required to be disclosed by us in reports filed under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding disclosure. They concluded that the Company’s disclosure controls were ineffective due to the inability to timely file the 2009 and 2008 annual reports on Form 10-K and the occurrence of issues that necessitated a restatement of interim period filings in 2009 and the material weaknesses in its internal controls over financial reportingas described below, which led us to file the 2009 and 2008 10-Ks late.  The actions being taken to address these ineffective disclosure controls and procedures are set forth below. Based upon the Evaluation, our CEO and CFO also concluded that our internal controls are not effective at that assurance level to provide reasonable assurance that our financial statements are fairly presented in conformity with accounting principles generally accepted in the United States, as more fully described below.




Management determined that, as of March 31, 2010, the Company did not maintain effective internal control over financial reporting.  Management identified the following specific material weaknesses in the Company’s internal controls over its financial reporting processes (a material weakness is a deficiency, or a combination of control deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis):





•
Policies and Procedures for the Financial Close and Reporting Process — Currently there are no written policies or procedures that clearly define the roles in the financial close and reporting process.  The various roles and responsibilities related to this process should be defined, documented, updated and communicated.  Failure to have such policies and procedures in place amounts to a material weakness to the Company’s internal controls over its financial reporting processes.





•
Inability to close our books and generate required disclosure – Due to timing constraints related to the finalization of material agreements, we recognize a material weakness regarding our inability to simultaneously close the books on a timely basis each month and quarter and to generate all the necessary disclosure for inclusion in our filings with the Securities and Exchange Commission. This material weakness caused us to be late in filing our 2008 and 2009 Form 10-K with the Securities and Exchange Commission.




13




•
Accounting and Finance Personnel Weaknesses – Our current accounting staff is relatively small and we do not have the required infrastructure of meeting the higher demands of being a U.S. public company. Due to the size of our accounting staff, we have limitations in the segregation of duties throughout the financial reporting processes.  Due to the pervasive nature of this issue, the lack of segregation of duties amounts to a material weakness to the Company’s internal controls over its financial reporting processes.•
Restatement of Interim Reporting – The occurrence of certain issues necessitated a restatement of our interim reporting.  These items included EPS calculations, disclosure of cumulative information required for development stage companies, recording the investment in Vensure and recording the funding received from IP Global.




In light of the foregoing, once we have the adequate funds, management plans to develop the following additional procedures to help address these material weaknesses.  We believe that these additional steps will further enhance and strengthen the remediation steps we implemented in fiscal 2008 and 2009 to address the material weaknesses we discovered in our 2007 evaluation, which we believed were sufficient to cure such material weakness.  We recognize now that these must be expanded and developed to help ensure we achieve and maintain effective controls and procedures.  The Company will create and refine a structure in which critical accounting policies and estimates are identified, and together with other complex areas, are subject to review by other members of management as well as the Company’s independent accountant.  We also plan to enhance and test our quarter-end and year-end financial close process.  Additionally, our board of directors will increase its review of our disclosure controls and procedures.  We also intend to develop and implement policies and procedures for the financial close and reporting process, such as identifying the roles, responsibilities, methodologies, and review/approval process; we also hope to implement a detailed financial close plan and enhanced and timelier review of manual journal entries, account reconciliations, estimates and judgments.





Finally, it is our intention to engage professionals on an as needed basis to assist the Company in the financial reporting process.  We believe these actions will remediate the material weaknesses by focusing additional attention and resources in our internal accounting functions.  However, the material weaknesses will not be considered remediated until the applicable remedial controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively and even then, we cannot assure you that this will be sufficient. We may be required to expend additional resources to identify, assess and correct any additional weaknesses in disclosure or internal control. The Company cannot make assurances that it will not identify additional material weaknesses in its internal control over financial reporting in the future.





As of the date of the of this report, we have taken the following steps to address the above-referenced material weakness in our internal control over financial reporting to ensure that all information will be recorded, processed, summarized and reported accurately:





1.
On August 7, 2009, we filed an amended the 10-K to include the Management’s Report on Internal Controls Over Financial Reporting;2.
We will continue to educate our management personnel on compliance with the disclosure requirements of the Securities Exchange Act  of 1934 and Regulation S-K; and





3.
We have increased management oversight of accounting and reporting functions.




The presence of these material weaknesses does not mean that any misstatement has occurred in our consolidated financial statements, but only that our present controls might not be adequate to detect or prevent a material misstatement in a timely manner.





Changes in Internal Control over Financial Reporting





There have been no changes in our internal controls over financial reporting that occurred during our fiscal quarter to which this Quarterly Report on Form 10-Q relates that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.





14




PART II - OTHER INFORMATION





ITEM 1.            LEGAL PROCEEDINGS.





As of March 31, 2010, there were no legal actions pending against us, or any subsidiaries, or of which our property, or the property of any subsidiaries, was subject nor to our knowledge are any such proceedings contemplated.





Our subsidiaries, AdvisorShares Investments, LLC, Whyte Lyon Socratic, Inc., and Weston Capital Management, LLC are currently not involved in any legal proceedings that would have material adverse impact on the consolidated financial statements.





Notwithstanding the foregoing, an arbitration proceeding was commenced on November 7, 2008 against Mr. Noah Hamman, the Chief Executive Officer of AdvisorShares, the Company’s majority owned subsidiary, and part owner (“Member”) of Arrow Investment Advisors, LLC (“Arrow”), by Arrow.  The arbitration was commenced pursuant to the provisions of the LLC Operating Agreement of Arrow and brought under the auspices of the International Institute for Conflict Prevention and Resolution in New York, as required under the LLC Operating Agreement. The arbitration involved the other Members of Arrow who asserted an ownership claim regarding Mr. Hamman's ownership interest in AdvisorShares.  Such Members claimed that AdvisorShares’ business is based on the improper usurpation and conversion by Mr. Hamman of Arrow’s corporate opportunities and assets, including the business of AdvisorShares.





If the other Members of Arrow prevailed on their claims, this would have impacted the amount of ownership Mr. Hamman indirectly holds in AdvisorShares in that Mr. Hamman could have lost his 40% interest in AdvisorShares to Arrow. In addition, if Arrow prevailed, Arrow could have asserted other claims including that the Purchase and Contribution Agreement (to which the Company a party) was inappropriately executed and sought to nullify the obligations associated with such agreement.





On March 1, 2010, Mr. Hamman, Arrow and the Members agreed to settle the Arbitration. In addition, on March 1, 2010, AdvisorShares exchanged general releases with Arrow and the Members pursuant to which Arrow and the Members released AdvisorShares from any claim or contention regarding any right, title, equity, ownership or interest in or to AdvisorShares, its business activities, products or intellectual property.





From time to time, we are a party to litigation or other legal proceedings that we consider to be a part of the ordinary course of our business. We are not involved currently in legal proceedings that could reasonably be expected to have a material adverse effect on our business, prospects, financial condition or results of operations. We may become involved in material legal proceedings in the future.








ITEM 1A.         RISK FACTORS.





There have been no material changes to the risks to our business described in our Annual Report on Form-10-K for the year ended December 31, 2009 filed with the Securities and Exchange Commission on April 23, 2010.





ITEM 2.            UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.




On February 10, 2010, COS Capital Partners I, LLC purchased 9,047,619 Class A common stock of the Company for $1,900,000.  On March 1, 2010, LH Capital Partners LLC purchased 952,381 shares of Class A Common Stock for $200,000.  In March 2010, Recovery Capital purchased 1,080,952 shares of Class A Common Stock for $227,000.  Neither COS Capital Partners, LH Capital Partners nor Recovery Capital are affiliated with the Company or IP Global.





On March 8, 2010, IP Global converted a portion of the principal amount of the then outstanding amount due under a Company Note payable to IP Global into 3,600,000 shares of Class A Common Stock which it sold to an unaffiliated third party for $1,300,000.  Pursuant to its existing August 28, 2009 loan agreement with the Company, effective as of March 29, 2010, IP Global advanced an additional $1,300,000 to the Company to assist the Company in financing its acquisition of Weston Capital.  Such additional advance increased the outstanding amount due to IP Global under the Company’s August 2009 loan Agreement from $730,750 to $2,030,750.  Such loan is due and payable on December 31, 2011.




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On March 29, 2010, the Company consummated the acquisition (the “Acquisition”) of Weston Capital Management, LLC (“Weston Capital”), pursuant to a Securities Purchase and Restructuring Agreement dated as of March 26, 2010 (the “Purchase Agreement”) by and among the Company, Weston Capital, PBC-Weston Capital Holdings, LLC (“PBC”), Albert Hallac (“A. Hallac”) and the other persons who are parties signatory thereto (together with PBC and A. Hallac, the “Members”).  In exchange for all of the Membership Interests in Weston Capital, the Company provided the following consideration to the Members, without limitation: a Class A common stock purchase warrant (the “Warrant”) to PBC entitling PBC to purchase, beginning September 29, 2010 (the “Six Month Anniversary Date”) through September 30, 2014, such number of shares of Class A common stock of the Company as shall be determined by dividing (A) $1,500,000, by (B) the volume weighted average price of the common stock for the 20 trading days immediately prior to the Six Month Anniversary Date.




We believe that all of the above offerings and sales were deemed to be exempt under Rule 506 of Regulation D and Section 4(2) of the Securities Act of 1933, as amended. No advertising or general solicitation was employed in offering the securities. The offerings and sales were made to a limited number of persons, all of whom were accredited investors, business associates of the Company or executive officers of the Company, and transfer was restricted by the Company in accordance with the requirements of the Securities Act of 1933. In addition to representations by the above-referenced persons, we have made independent determinations that all of the above-referenced persons were accredited or sophisticated investors, and that they were capable of analyzing the merits and risks of their investment, and that they understood the speculative nature of their investment. Furthermore, all of the above-referenced persons were provided with access to our Securities and Exchange Commission filings.





ITEM 3.            DEFAULTS UPON SENIOR SECURITIES.





None.





ITEM 4.            (REMOVED AND RESERVED).





ITEM 5.            OTHER INFORMATION.





None.





ITEM 6.            EXHIBITS.





The exhibits listed below are required by Item 601 of Regulation S-K.  Each management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-Q has been identified.





Exhibit No.

Exhibit Name31.1

Certification of Chief Executive Officer, pursuant to Rule 13a-14(a) of the Exchange Act, as enacted by Section 302 of the Sarbanes-Oxley Act of 2002.31.2

Certification of Chief Financial Officer, pursuant to Rule 13a-14(a) of the Exchange Act, as enacted by Section 302 of the Sarbanes-Oxley Act of 2002.32.1

Certification of Chief Executive Officer pursuant to 18 United States Code Section 1350,  as enacted by Section 906 of the Sarbanes-Oxley Act of 2002.32.2

Certification of Chief Financial Officer pursuant to 18 United States Code Section 1350, as enacted by Section 906 of the Sarbanes-Oxley Act of 2002.


16





SIGNATURES





Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.





FUND.COM INC.





Date: May 24, 2010
/s/ Gregory WebsterGregory WebsterChief Executive Officer (Principal Executive Officer)/s/ Michael HlavsaMichael HlavsaChief Financial Officer (Principal Accounting and Financial Officer)