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EX-32.1 - CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 - FUND.COM INC.f10q0609a1ex32i_fund.htm
EX-32.2 - CERTIFICATION OF THE CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 - FUND.COM INC.f10q0609a1ex32ii_fund.htm
EX-31.2 - CERTIFICATION OF THE CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 - FUND.COM INC.f10q0609a1ex31ii_fund.htm
EX-31.1 - CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 - FUND.COM INC.f10q0609a1ex31i_fund.htm
 


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q /A
   (Amendment No. 1)
   
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended June 30, 2009

OR
 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from ___________ to ___________.
  
Commission file 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)
 
(I.R.S. Employer
Identification Number)
 
14 Wall Street, 20th Floor
New York, NY
 
10005
(Address of Principal Executive Offices)
 
(ZIP Code)
 
(212)  618-1633
(Registrant’s telephone number,
including area code)
 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes  x      No  o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes o   No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one)
 
Large accelerated filer o
Accelerated filer o
   
Non-accelerated filer o
Smaller reporting company x
 
 Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes o     No x
 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: On November 20 , 2009, there were  46,115,905 shares of the issuer's Class A common stock, par value $.001 per share, outstanding and 6,387,665 shares of the issuer’s Class B common stock, par value $.001, outstanding.



 
  EXPLANATORY NOTE

Fund.com Inc.  (the “Company”) is filing this Amendment No. 1 to its Quarterly Report on Form 10-Q/A for the three and six months ended June 30, 2009, which was originally filed with the Securities and Exchange Commission (“SEC”) on August 18, 2009 (the “Original Form 10-Q”), to incorporate the Company’s revisions and responses to a letter of comment from the staff of the SEC dated as of November 12, 2009.

This Form 10-Q/A includes new certifications as exhibits 31.1, 31.2, 32.1 and 32.2 by our principal executive officer and principal financial officer as required by Rules 12b-15 and 13a-14 promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Except for the amended disclosures set forth below, the information in this Form 10-Q/A has not been updated to reflect events that occurred after August 18, 2009, the filing date of our Original Form 10-Q. Accordingly, this Form 10-Q/A should be read in conjunction with our filings made with the SEC subsequent to the filing of the Original Form 10-Q, including any amendments to those filings. The following sections have been amended, without limitation:

Part I – Item 1. Financial Statements.
Part I – Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Part II – Item 1. Legal Proceedings.

Except as set forth above, all other information in the Company’s Original Form 10-Q remains unchanged. The Company has re-filed the entire Form 10-Q in order to provide more convenient access to the amended information in context.
 
 
 
 
 
 
 
 

 
FUND.COM INC.

INDEX
  
 
 
       
Page
Number
PART I - FINANCIAL INFORMATION
   
Item 1.
 
Financial Statements
   
   
Consolidated Balance Sheets June 30, 2009 (unaudited) and December 31, 2008 (audited)
 
3
   
Consolidated Statements of Operations (unaudited) Three and six months ended June 30, 2009 and 2008
 
4
   
Consolidated Statements of Cash Flows (unaudited) Six  months  ended June 30, 2009 and 2008
 
5
   
Notes to Condensed Consolidated Financial Statements
 
6
Item 2.
 
Management’s Discussion and Analysis of Financial Condition and Results of Operations  
 
22
Item 3.
 
Quantitative and Qualitative Disclosure About Market Risks 
 
32
Item 4T
 
Controls and Procedures
 
32
         
PART II - OTHER INFORMATION
   
Item 1.
 
Legal Proceedings 
 
35
Item 1.A
 
Risk Factors 
 
35
Item 2.
 
Unregistered Sales of Equity Securities and Use of Proceeds 
 
35
Item 3.
 
Defaults Upon Senior Securities 
 
35
Item 4.
 
Submission of Matters to a Vote of Security Holders 
 
35
Item 5.
 
Other Information 
 
35
Item 6.
 
Exhibits 
 
35
         
 

 
2


 
(A Development Stage Company)
 
CONSOLIDATED BALANCE SHEETS
 
FOR THE PERIOD ENDING JUNE 30, 2009 AND DECEMBER 31, 2008
 
             
             
             
   
June 30, 2009
   
December 31, 2008
 
   
(Unaudited)
   
(Audited)
 
             
ASSETS
           
             
CURRENT ASSETS
           
   Cash
  $ 7,398     $ 158,083  
     Total current assets
    7,398       158,083  
                 
Property, plant and equipment, net
    1,788       122  
                 
Intangible Assets, net
    9,999,500       9,999,500  
                 
Certificate of Deposit
    21,638,333       21,138,333  
                 
Minority Interest
    250,892       106,333  
                 
TOTAL ASSETS
  $ 31,897,911     $ 31,402,371  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY:
               
                 
CURRENT LIABILITIES:
               
   Accounts payable
  $ 1,630,867     $ 1,085,210  
   Accrued payroll
    260,738       -  
   Accrued interest
    33,780       -  
   Advances from shareholders
    23,580       23,580  
   Notes Payable
    723,500       443,000  
    Total current liabilities
    2,672,465       1,551,790  
                 
TOTAL LIABILITIES
    2,672,465       1,551,790  
                 
STOCKHOLDERS' EQUITY:
               
   Preferred stock, 10,000,000 shares authorized, none issued and outstanding
    -       -  
   Class A Common stock, $0.001 par value, 100,000,000 shares
               
     authorized; 44,087,335 shares issued and outstanding
    44,087       44,087  
   Class B Common stock, $0.001 par value, 10,000,000 shares
               
     authorized; 6,387,665 shares issued and outstanding
    6,388       6,388  
   Additional paid-in-capital
    34,510,875       33,492,056  
   Accumulated deficit during the Development Stage
    (5,335,904 )     (3,691,950 )
      Total stockholders' equity
    29,225,446       29,850,581  
                 
    TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
  $ 31,897,911     $ 31,402,371  
                 
 
 
The accompanying notes are an integral part of these consolidated financial statements
3

 
FUND.COM INC.
 
(A Development Stage Company)
 
CONSOLIDATED STATEMENTS OF OPERATIONS
 
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2009 AND 2008 AND
 
FOR THE PERIOD SEPTEMBER 20, 2007 (INCEPTION) THROUGH JUNE 30, 2009
 
                               
   
Three Months
   
Three Months
   
Six Months
   
Six Months
   
September 20, 2007
(Inception)
 
   
Ended
   
Ended
   
Ended
   
Ended
   
through
 
   
June 30, 2009
   
June 30, 2008
   
June 30, 2009
   
June 30, 2008
   
June 30, 2009
 
                               
Revenue
  $ 10,342     $ -     $ 20,342     $ -     $ 20,342  
                                         
Costs of revenue
    -       -       -       -       -  
                                         
  Gross profit
    10,342       -       20,342       -       20,342  
                                         
Operating expense
    1,106,748       1,064,296       2,309,088       1,764,046       7,248,414  
                                         
Loss from operations before interest income and
                                       
  provision for (benefit from) income tax
    (1,096,406 )     (1,064,296 )     (2,288,746 )     (1,764,046 )     (7,228,072 )
                                         
  Other income
    -       -       -       -       1,754  
  Interest income
    250,003       250,288       500,233       500,288       1,639,715  
  Income tax expense
    -       -       -       -       (193 )
      250,003       250,288       500,233       500,288       1,641,276  
                                         
Minority interest
    100,714       10,213       144,559       28,550       250,892  
                                         
Net loss
    (745,689 )     (803,795 )     (1,643,954 )     (1,235,208 )     (5,335,904 )
                                         
Net loss per common share - basic and diluted (Class A & B)
  $ (0.01 )   $ (0.02 )   $ (0.03 )   $ (0.03 )   $ (0.11 )
                                         
Weighted average number of shares outstanding:
                                       
   during the period - basic and diluted (Class A)
    43,829,002       34,050,000       43,829,002       34,050,000       43,829,002  
                                         
Weighted average number of shares outstanding:
                                       
   during the period - basic and diluted (Class B)
    6,387,665       6,387,665       6,387,665       6,387,665       6,387,665  
 
 
The accompanying notes are an integral part of these consolidated financial statements
4

 
FUND.COM INC.
 
(A Development Stage Company)
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
FOR THE SIX MONTHS ENDED JUNE 30, 2009 AND 2008 AND
 
FOR THE PERIOD SEPTEMBER 20, 2007 (INCEPTION) THROUGH JUNE 30, 2009
 
                   
                   
   
Six Months
   
Six Months
   
September 20, 2007
(Inception)
 
   
Ended
   
Ended
   
 through
 
   
June 30, 2009
   
June 30, 2008
   
June 30, 2009
 
                   
CASH FLOWS FROM OPERATING ACTIVITIES:
                 
                   
  Net loss
  $ (1,643,954 )   $ (1,235,208 )   $ (5,335,904 )
  Adjustments to reconcile net loss to net cash
                       
    used in operating activities:
                       
  Compensation recognized under stock incentive plan
    1,018,818       561,005       2,899,785  
  Minority interest
    (144,559 )     (28,550 )     (250,892 )
  Changes in assets and liabilities:
                       
      Increase in accounts payable
    545,657       488,128       1,630,867  
      Increase in accrued payroll
    260,738       -       260,738  
      Increase in accrued interest
    33,780       -       33,780  
      Accrued interest from certificate of deposit
    (500,000 )     (500,000 )     (1,638,333 )
          Net cash used in operating activities
    (429,519 )     (714,625 )     (2,399,959 )
                         
CASH FLOWS FROM INVESTING ACTIVITIES:
                       
      Purchase of Property, Plant and Equipment
    (1,666 )     -       (1,788 )
      Certificate of deposit
    -       -       (20,000,000 )
      Purchase of intangible asset
    -       -       (9,999,500 )
          Net cash used in  investing activities
    (1,666 )     -       (30,001,288 )
                         
CASH FLOWS FROM FINANCING ACTIVITIES:
                       
      Proceeds from the sale of common stock
    -       455,000       31,661,565  
      Proceeds from Notes Payable
    280,500       -       723,500  
      Advances from shareholders
    -       -       77,150  
      Repayment of shareholders advances
    -       (42,420 )     (53,570 )
          Net cash provided by financing activities
    280,500       412,581       32,408,645  
                         
INCREASE (DECREASE) IN CASH
    (150,685 )     (302,045 )     7,398  
                         
CASH, BEGINNING OF YEAR
    158,083       605,348       -  
                         
CASH, END OF PERIOD
  $ 7,398     $ 303,303     $ 7,398  
                         
Supplemental Disclosures
                       
                         
Cash paid during the year for interest
  $ -     $ -     $ -  
Cash paid during the year for taxes
  $ -     $ -     $ -  
                         
Supplemental disclosure of non-cash financing activities
                       
                         
   Compensation recognized under stock incentive plan
  $ 1,018,818     $ 561,005     $ 2,899,785  

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

 
 (A Development Stage Company)
Notes to the Consolidated Financial Statements
For period ended June 30, 2009 and for the period September 20, 2007 (inception)
through December 31, 2008
 
NOTE 1 – ORGANIZATION

The consolidated financial statements of Fund.Com Inc. (the “Company”) include the accounts of its wholly owned subsidiaries, Fund.com Online Technologies Inc. (“FOT”), Fund.com Managed Products Inc. (“FMP”), Fund.com Capital Inc. (“FC”) and its majority owned subsidiary, AdvisorShares Investments, LLC (“AdvisorShares”).  The year end for the Company and its subsidiaries is December 31.

On September 20, 2007, the Company was incorporated in the state of Delaware.  The Company is in its development stage and has not begun the process of operating this business.  The Company is still in the process of researching and developing its business and raising capital.

On September 27, 2007, FOT was incorporated in the state of Delaware. FOT is a wholly owned operating subsidiary of the Company and was established to acquire the domain name “fund.com” and other related intellectual property and assets. The subsidiary will be responsible for operating the Company’s internet properties.

On September 27, 2007, FMP was incorporated in the state of Delaware. FMP is a wholly owned operating subsidiary of the Company that focuses on asset management advisory services and related products.

On September 27, 2007, FC was incorporated in the state of Delaware.  FC is a wholly owned operating subsidiary of FMP that will serve as an investment vehicle for the purposes of making active (non-passive) investments in other financial institutions, fund management companies or, in certain instances, products offered or managed by either.

On October 12, 2006, AdvisorShares was incorporated in the state of Delaware.  AdvisorShares is a developer of proprietary exchange traded funds, also known as ETFs, with a focus on “actively managed” ETFs.

Change of name
 
On January 8, 2008, the Company and its subsidiaries changed their names to the following:
 
To:
 
From:
Meade Technology Inc.
 
Fund.com Inc.
Meade Online Technologies Inc.
 
Fund.com Online Technologies Inc.
Meade Managed Products Inc.
 
Fund.com Managed Products Inc.
Meade Capital Inc.
 
Fund.com Capital Inc.

 
6


FUND.COM INC.
 (A Development Stage Company)
Notes to the Consolidated Financial Statements
For period ended June 30, 2009 and for the period September 20, 2007 (inception)
through December 31, 2008

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

Basis of Presentation

The Company has not produced any significant revenue from its principal business and is a development stage company as defined by the Statement of Financial Accounting Standards (SFAS) No. 7 “Accounting and Reporting by Development Stage Enterprises.”

Principles of Consolidation

The consolidated financial statements include the accounts of Fund.com Inc. and its subsidiaries.  All material intercompany accounts and transactions are eliminated in consolidation.

Use of Estimates

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

Revenue Recognition

The Company recognizes revenue in accordance with Staff Accounting Bulletin (SAB) No. 104, “Revenue Recognition in Financial Statements” which established that revenue can be recognized when persuasive evidence of an arrangement exists, the product has been shipped, all significant contractual obligations have been satisfied and collection is reasonably assured.

Cash and Cash Equivalents

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

Certificate of Deposit

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, for a term of three years.  Accrued interest of $500,000 and $500,000 has been recorded for the six months ended June 30, 2009 and 2008, respectively.
 
 
7

 
 
 FUND.COM INC.
 (A Development Stage Company)
Notes to the Consolidated Financial Statements
For period ended June 30, 2009 and for the period September 20, 2007 (inception)
through December 31, 2008
 
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Concentration of Credit Risk

Substantially all of the Company’s capital, $20 million, has been invested in a three year non-cancellable certificate of deposit due and payable on November 8, 2010 with Global Bank of Commerce Limited (Global), which is the parent company of one of our shareholders.  Global is a bank located in Antigua whose issued financial instruments have not been rated by any security rating agency such as Standard and Poor’s, Moody’s or Fitch. We have requested and received audited financial statements for Global Bank of Commerce at December 31, 2008 and the year then ended.  The audit report was issued by PKF Chartered Accountants, an established global accounting firm.  The financial statements were presented in accordance with International Financial Reporting Standards and indicated that the bank has positive equity of approximately $76,500,000.  Further, the financial statements indicate that our $20 million CD represents approximately 20% of the banks’ total deposits. This deposit does not have the benefit of any governmental or third party insurance.

There is a substantial asset concentration with respect to the Global Bank of Commerce, as discussed above. However, there is no material valuation or foreign exchange impairment associated with the deposit. Investors are encouraged to obtain additional information regarding the financial viability of Global Bank of Commerce, that such information, permitted by Antiguan banking law, is available to them.
 
Advertising Costs

All advertising costs are charged to expense as incurred. There was no advertising expense for the six months ended June 30, 2009 and 2008.

Research and Development

Costs are expensed as incurred.  There were no research and development expense for the six months ended June 30, 2009 and 2008.

Property and Equipment

Property and equipment is recorded at cost and depreciated over the estimated useful lives of the assets using principally the straight-line method. When items are retired or otherwise disposed of, income is charged or credited for the difference between net book value and proceeds realized thereon.  Ordinary maintenance and repairs are charged to expense as incurred, and replacements and betterments are capitalized.  The range of estimated useful lives to be used to calculate depreciation for principal items of property and equipment are as follow:
 
Asset Category
 
Depreciation/
Amortization
Period
Furniture and Fixture
 
  3 Years
Office equipment
 
  3 Years
Leasehold improvements
 
  5 Years
 
Income Taxes

Deferred income taxes are recognized based on the provisions of SFAS No. 109, "Accounting for Income Taxes" ("SFAS 109") for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts based on enacted tax laws 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.
 
 
8

 
 FUND.COM INC.
 (A Development Stage Company)
Notes to the Consolidated Financial Statements
For period ended June 30, 2009 and for the period September 20, 2007 (inception)
through December 31, 2008
 
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
.
Earnings Per Share         

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

Fair Value of Financial Instruments

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

Accounting for the Impairment of Long-Lived Assets

The long-lived assets held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of assets may not be recoverable. It is reasonably possible that these assets could become impaired as a result of technology or other industry changes. Determination of recoverability of assets to be held and used is by comparing the carrying amount of an asset to future net undiscounted cash flows to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.

During the fourth quarter of 2008, the Company tested the carrying value of its intangible assets for impairment.  The results of the tests indicated that the carrying value of the intangible assets was not impaired as of December 31, 2008.  The Company will again test the carrying value for impairment as of December 31, 2009.

Stock-Based Compensation

In October 10, 2006 FASB Staff Position (FSP) issued FSP FAS 123(R)-5 “Amendment of FASB Staff Position FAS 123(R)-1 - Classification and Measurement of Freestanding Financial Instruments Originally issued in Exchange of Employee Services under FASB Statement No. 123(R)”.  The FSP  provides  that instruments  that were  originally  issued  as  employee  compensation  and then  modified, and that modification is made to the terms of the instrument solely to reflect an equity  restructuring  that  occurs  when the  holders  are no longer employees, then no change in the recognition or the measurement (due to a change in  classification) of those instruments  will result if both of the following conditions are met: (a) there is no increase in fair value of the award (or the ratio of intrinsic  value to the exercise price of the award is preserved,  that is, the holder is made whole), or the antidilution provision is not added to the terms of the award in  contemplation  of an equity  restructuring; and (b) all holders of the same class of equity instruments (for example, stock options) are treated in the same manner.  The provisions in this FSP shall be applied in the first reporting period beginning January 1, 2007.  The Company does not expect the adoption of FSP FAS 123(R)-5 to have a material impact on its consolidated results of operations and financial condition.

Recent Accounting Pronouncements

Recent accounting pronouncements that the Company has adopted or that will be required to adopt in the future are summarized below.

Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles

In June 2009, the Financial Accounting Standards Board issued Statement “FASB” issued Statement No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles” (“SFAS No. 168”).  SFAS No. 168 will become the single source of authoritative nongovernmental U.S. generally accepted accounting principles
 
 

 
9

 
FUND.COM INC.
 (A Development Stage Company)
Notes to the Consolidated Financial Statements
For period ended June 30, 2009 and for the period September 20, 2007 (inception)
through December 31, 2008

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

(“GAAP”), superseding existing FASB, American Institute of Certified Public Accountants (“AICPA”), Emerging Issues Task Force (“EITF”), and related accounting literature.  SFAS No. 168 reorganizes the thousands of GAAP pronouncements into roughly 90 accounting topics and displays them using a consistent structure.  Also included is relevant Securities and Exchange Commission guidance organized using the same topical structure in separate sections.  SFAS No. 168 will be effective for financial statements issued for reporting periods that end after September 15, 2009.  This statement will have an impact on the Company’s financial statements since all future references to authoritative accounting literature will be references in accordance with SFAS No. 168.
 
Subsequent Events
 
In May 2009, the FASB issued SFAS No. 165, “Subsequent Events”.(“SFAS No. 165”) This Statement establishes general standards of accounting for and disclosures of events that occur after the balance sheet date but before financial statements are issued or are available to be issued.  It requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date and is effective for interim and annual periods ending after June 15, 2009.  The adoption of SFAS No. 165 is not expected to have a material impact on the Company’s financial statements.

Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly

In April 2009, the FASB issued FSP FAS No. 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly". This FSP provides additional guidance for estimating fair value in accordance with FASB Statement No. 157, Fair Value Measurements, when the volume and level of activity for the asset or liability have significantly decreased. This FSP also includes guidance on identifying circumstances that indicate a transaction is not orderly. FSP FAS No. 157-4 is effective for interim and annual reporting periods ending after June 15, 2009, and shall be applied prospectively. The implementation of FSP FAS No. 157-4 did not have a material on the Company’s financial position and results of operations.

Recognition and Presentation of Other-Than-Temporary Impairments

In April 2009, the FASB issued FSP FAS No. 115-2 and FAS No. 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments ". The objective of an other-than-temporary impairment analysis under existing U.S. generally accepted accounting principles (GAAP) is to determine whether the holder of an investment in a debt or equity security for which changes in fair value are not regularly recognized in earnings (such as securities classified as held-to-maturity or available-for-sale) should recognize a loss in earnings when the investment is impaired. An investment is impaired if the fair value of the investment is less than its amortized cost basis. FSP FAS No. 115-2 and FAS No. 124-2 is effective for interim and annual reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. Earlier adoption for periods ending before March 15, 2009, is not permitted.  The implementation of FSP FAS No. 115-2 and FAS No. 124-2 did not have a material impact on the Company’s financial position and results of operations.
 
Interim Disclosures about Fair Value of Financial Instruments
 
In April 2009, the FASB issued FSP FAS No. 107-1 and APB No. 28-1, “Interim Disclosures about Fair Value of Financial Instruments". This FSP amends SFAS No. 107, Disclosures about Fair Value of Financial Instruments, to require disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. This FSP also amends APB Opinion No. 28, Interim Financial Reporting, to require those disclosures in summarized financial information at interim reporting periods. FSP FAS No. 107-1 is effective for interim reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009.  The implementation of FSP FAS No. 107-1 did not have a material impact on the Company’s financial position and results of operations.

Amendments to the Impairment Guidance of EITF Issue No. 99-20

In January 2009, the FASB issued FSP Emerging Issues Task Force ("EITF") Issue No. 99-20-1, “Amendments to the Impairment Guidance of EITF Issue No. 99-20". This FSP amends the impairment guidance in EITF Issue No. 99-20, “Recognition of Interest Income and Impairment on Purchased Beneficial Interests and Beneficial Interests That Continue to Be Held by a Transferor in Securitized Financial Assets,” to achieve more consistent determination of whether an other-than-temporary impairment has
 
 
10

 
 
FUND.COM INC.
 (A Development Stage Company)
Notes to the Consolidated Financial Statements
For period ended June 30, 2009 and for the period September 20, 2007 (inception)
through December 31, 2008

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

occurred. The FSP also retains and emphasizes the objective of an other than- temporary impairment assessment and the related disclosure requirements in FASB Statement No. 115, Accounting for Certain Investments in Debt and Equity Securities, and other related guidance. This Issue is effective for interim and annual reporting periods ending after December 15, 2008, and shall be applied prospectively. Retrospective application to a prior interim or annual reporting period is not permitted. The adoption of FSP EITF 99-20-1 did not have a material effect on the Company’s consolidated financial statements.
 
Accounting for Own-Share Lending Arrangements in Contemplation of Convertible Debt Issuance or Other Financing

In June 2009, the FASB issued FSP Emerging Issues Task Force ("EITF") Issue No. 09-1, “Accounting for Own-Share Lending Arrangements in Contemplation of Convertible Debt Issuance or Other Financing”. This Issue is effective for fiscal years beginning on or after December 15, 2009, and interim periods within those fiscal years for arrangements outstanding as of the beginning of those fiscal years. Share lending arrangements that have been terminated as a result of counterparty default prior to the effective date of this Issue but for which the entity has not reached a final settlement as of the effective date are within the scope of this Issue. This Issue requires retrospective application for all arrangements outstanding as of the beginning of fiscal years beginning on or after December 15, 2009. This Issue is effective for arrangements entered into on or after the beginning of the first reporting period that begins on or after June 15, 2009. Early adoption is not permitted. The Company is currently assessing the impact of FSP EITF 09-1 on its financial position and results of operations.
 
Determining the Fair Value of a Financial Asset When the Market for That Asset is not Active
 
In October 2008, the FASB issued FSP FAS No. 157-3, “Determining the Fair Value of a Financial Asset When the Market for That Asset is Not Active.”  This FSP clarifies the application of SFAS No. 157, “Fair Value Measurements,” in a market that is not active.  The FSP also provides examples for determining the fair value of a financial asset when the market for that financial asset is not active.  FSP FAS No. 157-3 was effective upon issuance, including prior periods for which financial statements have not been issued.  The impact of adoption was not material to the Company’s consolidated financial condition or results of operations.
 
The Hierarchy of Generally Accepted Accounting Principles

In May 2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted Accounting Principles.”  SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements.  SFAS No. 162 is effective 60 days following the SEC's approval of the Public Company Accounting Oversight Board amendments to AU Section 411, "The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles".  The implementation of this standard will not have a material impact on the Company's consolidated financial position and results of operations.

Determination of the Useful Life of Intangible Assets

In April 2008, the FASB issued FSP FAS No. 142-3, “Determination of the Useful Life of Intangible Assets”, which amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of intangible assets under SFAS No. 142 “Goodwill and Other Intangible Assets”.  The intent of this FSP is to improve the consistency between the useful life of a recognized intangible asset under SFAS No. 142 and the period of the expected cash flows used to measure the fair value of the asset under SFAS No. 141 (revised 2007) “Business Combinations” and other U.S. generally accepted accounting principles.    The implementation of FSP FAS No. 142-3 is not expected to have a material impact on its consolidated financial statements.

Disclosure about Derivative Instruments and Hedging Activities

In March 2008, the FASB issued SFAS No. 161, Disclosure about Derivative Instruments and Hedging Activities, an amendment of SFAS No. 133.” This statement requires that objectives for using derivative instruments be disclosed in terms of underlying risk and accounting designation. The Company was required to adopt SFAS No. 161 on January 1, 2009. The adoption of SFAS No.161 on January 1, 2009 did not have a material effect on the Company’s consolidated financial statements.
 

11

 
FUND.COM INC.
 (A Development Stage Company)
Notes to the Consolidated Financial Statements
For period ended June 30, 2009 and for the period September 20, 2007 (inception)
through December 31, 2008

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Fair Value Option for Financial Assets and Financial Liabilities
 
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities – Including an amendment of SFAS No. 115,” which becomes effective on February 1, 2008, permits companies to choose to measure many financial instruments and certain other items at fair value and report unrealized gains and losses in earnings. Such accounting is optional and is generally to be applied instrument by instrument. The election of this fair-value option did not have a material effect on its consolidated financial condition, results of operations, cash flows or disclosures.
 
Fair Value Measurements
 
In September 2006, the FASB No. 157, “Fair Value Measurements” (“SFAS No. 157”). SFAS No. 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosures about fair value investments. SFAS No. 157 was effective for financial assets and liabilities on January 1, 2008. The statement deferred the implementation of the provisions of SFAS No. 157 relating to certain non-financial assets and liabilities until January 1, 2009. The adoption of SFAS No.157 on January 1, 2009 for financial assets and liabilities did not have a material effect on the Company’s consolidated financial statements.
 
NOTE 3 – INTANGIBLE ASSET

Intellectual Property Asset:

During 2007, the Company acquired 24 domain names including “fund.com” and one trademark for a total cost of $9,999,950. The Company has determined that the intangible assets have an indefinite live but are subject to periodic impairment assessment under SFAS 142.

NOTE 4 – EQUITY

Initial Capitalization

During 2007, the issuances of Class A common stock consisted of the follows:
        
  18,700,000 shares common stock to its founders totaling $1,564;
 
5,000,000 shares common stock and 2,500,000 shares preferred series A through private placement for $2.00 per unit totaling $10,000,000; 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.

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
 
 
12

 
FUND.COM INC.
 (A Development Stage Company)
Notes to the Consolidated Financial Statements
For period ended June 30, 2009 and for the period September 20, 2007 (inception)
through December 31, 2008

NOTE 4 – EQUITY (Continued)

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 therefor, such dividends as may be declared from time to time by the Board of Directors.

Common Shares Issued

In connection with a private placement, the Company issued 475,000 shares of its Class A common stock at $2.00 per share for total proceeds of $950,000 during 2008.  No shares have been issued for the six months ended June 30, 2009.

Stock Option Plan

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

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

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

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

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

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

The Black-Scholes method option pricing model was used to estimate fair value as of the date of grant using the following assumptions:
 
Risk-Free
 
1.66% - 4.23%
Expected volatility
 
50%- 83%
Forfeiture rate
 
10%
Expected life
 
4 Years
Expected dividends
 
-
 
 
 
13

 
FUND.COM INC.
 (A Development Stage Company)
Notes to the Consolidated Financial Statements
For period ended June 30, 2009 and for the period September 20, 2007 (inception)
through December 31, 2008

NOTE 4 – EQUITY (Continued)

The following details stock options for the period ending June 30, 2009 and the year ending December 31, 2008:

               
Weighted
   
Weighted
 
               
Average
   
Average
 
         
Weighted
   
Remaining
   
Grant Date
 
         
Average
   
Contractual
   
Fair
 
   
Shares
   
Exercise Price
   
Term (Years)
   
Value
 
                         
Balance, December 31, 2007
    2,076,111     $ 2.30           $ 0.78  
Granted
    3,653,000     $ 3.52           $ 2.04  
Exercised
    -       -             -  
Canceled
    -       -             -  
Forfeited
    -       -             -  
Balance, December 31, 2008
    5,729,111     $ 3.08     $ 3.06     $ 1.58  
Granted
    -       -               -  
Exercised
    -       -               -  
Canceled
    -       -               -  
Forfeited
    (1,453,565 )   $ 2.30                  
Balance, June 30, 2009
    4,275,546     $ 3.34     $ 2.58     $ 1.86  
Exercisable, June 30, 2009
    1,547,028     $ 3.09     $ 2.58     $ 1.61  
                                 

The following details stock option vested shares for the period ending June 30, 2009 and the years ending December 31, 2008 and 2007:
 
   
Shares
 
Balance, December 31, 2007
    -  
Vested
    -  
Balance, December 31, 2008
    -  
Vested
    1,547,028  
Balance, June 30, 2009
    1,547,028  
 
 Based on the assumptions noted above, the fair market value of the options issued was valued at $8,041,681.

For the six months ended June 30, 2009 and 2008, there was $1,018,819 and $561,005, respectively, in expense recorded in the Statement of Operations for stock option grants.  There was no expense recorded for the year ended December 31, 2007.

NOTE 5 – RELATED PARTY TRANSACTIONS

On March 4, 2008, Fund.com Inc. (the “Company”) entered into a Consulting Agreement with Fabric Group, LLC (“Fabric”). Fabric is wholly-owned and managed by the chairman, director and former Chief Executive Officer of the Company.  Under the Consulting Agreement, Fabric will receive an annual base fee of $300,000, in return for strategic consulting services provided by both the Chairman and the Chief Marketing Officer of the Company in the areas of business development, product marketing and online strategy and for performance of other duties as requested from time to time by the Board.  In addition, pursuant to the Consulting Agreement, Fabric will receive a one time fee of $55,000 for services previously rendered to the Company. Included in the operating expenses for the six months ending June 30, 2009 and 2008 are $150,000 and $130,000, respectively.  Included in accounts payable as of June 30, 2009 is $405,000 related to this agreement.
 
 
14


 
FUND.COM INC.
 (A Development Stage Company)
Notes to the Consolidated Financial Statements
For period ended June 30, 2009 and for the period September 20, 2007 (inception)
through December 31, 2008

NOTE 5 – 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 will receive 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 six months ending June 30, 2009 and 2008 are $25,000 and $75,000, respectively.  Included in accounts payable as of June 30, 2009, is $150,000 related to this agreement.

NOTE 6 – LEASES

The Company presently has no long-term commitments for leases.

NOTE 7 – INVESTMENT IN SUBSIDIARY

On October 31, 2008, the Company entered into a Purchase and Contribution Agreement, dated as of October 31, 2008 (the “Purchase and Contribution Agreement”), with AdvisorShares Investments, LLC (“AdvisorShares”) and the Managing Member and principal officer of AdvisorShares.  Pursuant to the Purchase and Contribution Agreement, the Company purchased 6,000,000 Units of AdvisorShares, (representing 60% of the outstanding membership interests of AdvisorShares) for a purchase price of $4,000,000, with an initial contribution of $275,000 and up to an additional $3,725,000 being contributed to AdvisorShares upon the achievement of certain milestones relating to AdvisorShares’ receiving from the Securities and Exchange Commission (the “SEC”) of its notice (the “SEC Exemptive Order”) regarding the approval of the application for exemptive relief and total assets under management.  In connection with our acquisition of 60% of the equity interests in AdvisorShares, the Company entered into an Amended and Restated Limited Liability Company Agreement of AdvisorShares, dated as of October 31, 2008 (the “LLC Agreement”), and was admitted as a member of AdvisorShares.
 
NOTE 8 – RESTATEMENTS

The Company has restated its financial statements for the period ending December 31, 2008.   The nature of these restatements and presentation as originally filed and as restated are presented below:

Consolidated Balance Sheets for the years ended December 31, 2008 and December 31, 2007

The assets included an item “Minority Interest” which has been revised to “Advances on behalf of minority shareholder” to more properly reflect the item.  No changes to financial information were made.

Consolidated Statement of Operations for the year ended December 31, 2008 and for the period September 20, 2007 (inception) through December 31, 2007.

The consolidated statement of operations was revised to in two areas.  The first was to include a column for September 20, 2007 (inception) through December 31, 2008 which had been omitted in the original filing.  Below is the presentation including the additional column:

 
15


 
FUND.COM INC.
                 
(A Development Stage Company)
                 
CONSOLIDATED STATEMENTS OF OPERATIONS
                 
FOR THE YEAR ENDED DECEMBER 31, 2008,
                 
SEPTEMBER 20, 2007 (INCEPTION) THROUGH DECEMBER 31, 2007 AND
             
SEPTEMBER 20, 2007 (INCEPTION) THROUGH DECEMBER 31, 2008
             
                   
         
September 20, 2007
   
September 20, 2007
 
   
Year Ended
   
(Inception) through
   
(Inception) through
 
   
December 31, 2008
   
December 31, 2007
   
December 31, 2008
 
                   
Revenue
  $ -     $ -     $ -  
 
                       
Costs of revenue
    -       -       -  
                         
  Gross profit
    -       -       -  
                         
Operating expense
    4,551,545       387,781       4,939,326  
                         
Loss from operations before interest income and
                       
  provision for (benefit from) income tax
    (4,551,545 )     (387,781 )     (4,939,326 )
                         
  Other income
    1,754       -       1,754  
  Interest income
    1,001,021       138,461       1,139,482  
  Income tax expense
    -       (193 )     (193 )
      1,002,775       138,268       1,141,043  
                         
Minority interest
    76,520       29,813       106,333  
                         
Net loss
    (3,472,250 )     (219,700 )     (3,691,950 )
                         
Net loss per common share - basic and diluted (Class A & B)
  $ (0.07 )   $ (0.01 )     (0.07 )
                         
Weighted average number of shares outstanding:
                       
   during the year - basic and diluted (Class A)
    43,829,002       34,050,000       43,829,002  
                         
Weighted average number of shares outstanding:
                       
   during the year - basic and diluted (Class B)
    6,387,665       -       6,387,665  


The second was to combine both the Class A and B common shares into one category as the rights of the classes are identical.  Below is presented as originally filed and the revised information:


16



As originally filed:

FUND.COM INC.
           
(A Development Stage Company)
           
CONSOLIDATED STATEMENTS OF OPERATIONS
           
FOR THE YEAR ENDED DECEMBER 31, 2008 AND
           
FOR THE PERIOD SEPTEMBER 20, 2007 (INCEPTION) THROUGH DECEMBER 31, 2007
       
             
         
September 20, 2007
 
   
Year Ended
   
(Inception) through
 
   
December 31, 2008
   
December 31, 2007
 
             
Net loss
    (3,472,250 )     (219,700 )
                 
Net loss per share - basic and diluted (Class A)
  $ (0.08 )   $ (0.01 )
                 
Net loss per share - basic and diluted (Class B)
  $ (0.54 )   $ (0.03 )
                 
Weighted average number of shares outstanding:
               
   during the year - basic and diluted (Class A)
    43,829,002       34,050,000  
                 
Weighted average number of shares outstanding:
               
   during the year - basic and diluted (Class B)
    6,387,665       6,387,665  

 
 
 
 
 
17


 
FUND.COM INC.
 (A Development Stage Company)
Notes to the Consolidated Financial Statements
For period ended June 30, 2009 and for the period September 20, 2007 (inception)
through December 31, 2008

As revised:

FUND.COM INC.
                 
(A Development Stage Company)
                 
CONSOLIDATED STATEMENTS OF OPERATIONS
                 
FOR THE YEAR ENDED DECEMBER 31, 2008,
                 
SEPTEMBER 20, 2007 (INCEPTION) THROUGH DECEMBER 31, 2007 AND
             
SEPTEMBER 20, 2007 (INCEPTION) THROUGH DECEMBER 31, 2008
             
                   
         
September 20, 2007
   
September 20, 2007
 
   
Year Ended
   
(Inception) through
   
(Inception) through
 
   
December 31, 2008
   
December 31, 2007
   
December 31, 2008
 
                   
Net loss
    (3,472,250 )     (219,700 )     (3,691,950 )
                         
Net loss per common share - basic and diluted (Class A & B)
  $ (0.07 )   $ (0.01 )     (0.07 )
                         
Weighted average number of shares outstanding:
                       
   during the year - basic and diluted (Class A)
    43,829,002       34,050,000       43,829,002  
                         
Weighted average number of shares outstanding:
                       
   during the year - basic and diluted (Class B)
    6,387,665       -       6,387,665  

 
 
 
 
 

 
18

 
FUND.COM INC.
 (A Development Stage Company)
Notes to the Consolidated Financial Statements
For period ended June 30, 2009 and for the period September 20, 2007 (inception)
through December 31, 2008

Consolidated Statements of Cash Flows for the years ended December 31, 2008 and December 31, 2007

The consolidated statement of cash flows was revised to include a column for September 20, 2007 (inception) through December 31, 2008 which had been omitted in the original filing.  Below is the presentation including the additional column:

FUND.COM INC.
                 
(A Development Stage Company)
                 
CONSOLIDATED STATEMENTS OF CASH FLOWS
                 
FOR THE YEAR ENDED DECEMBER 31, 2008,
                 
SEPTEMBER 20, 2007 (INCEPTION) THROUGH DECEMBER 31, 2007 AND
             
SEPTEMBER 20, 2007 (INCEPTION) THROUGH DECEMBER 31, 2008
             
                   
         
September 20, 2007
   
September 20, 2007
 
   
Year Ended
   
(Inception) through
   
(Inception) through
 
   
December 31, 2008
   
December 31, 2007
   
December 31, 2008
 
                   
CASH FLOWS FROM OPERATING ACTIVITIES:
                 
                   
  Net loss
  $ (3,472,250 )   $ (219,700 )   $ (3,691,950 )
  Adjustments to reconcile net loss to net cash
                       
    used in operating activities:
                       
  Compensation recognized under stock incentive plan
    1,880,967       -       1,880,967  
  Minority interest
    (76,520 )     (29,813 )     (106,333 )
  Changes in assets and liabilities:
                       
      Increase in accounts payable
    876,108       209,102       1,085,210  
      Accrued interest from certificate of deposit
    (1,000,000 )     (138,333 )     (1,138,333 )
          Net cash used in operating activities
    (1,791,695 )     (178,744 )     (1,970,439 )
                         
CASH FLOWS FROM INVESTING ACTIVITIES:
                       
      Purchase of Property, Plant and Equipment
    -       (122 )     (122 )
      Certificate of deposit
    -       (20,000,000 )     (20,000,000 )
      Purchase of intangible asset
    -       (9,999,500 )     (9,999,500 )
          Net cash used in  investing activities
    -       (29,999,622 )     (29,999,622 )
                         
CASH FLOWS FROM FINANCING ACTIVITIES:
                       
      Proceeds from the sale of common stock
    955,000       30,706,564       31,661,564  
      Proceeds from Notes Payable
    443,000               443,000  
      Advances from shareholders
    -       77,150       77,150  
      Repayment of shareholders advances
    (53,570 )     -       (53,570 )
          Net cash provided by financing activities
    1,344,430       30,783,714       32,128,144  
                         
INCREASE (DECREASE) IN CASH
    (447,265 )     605,348       158,083  
                         
CASH, BEGINNING OF YEAR
    605,348       -       -  
                         
CASH, END OF YEAR
  $ 158,083     $ 605,348     $ 158,083  
                         
Supplemental Disclosures
                       
                         
Cash paid during the year for interest
  $ -     $ -     $ -  
Cash paid during the year for taxes
  $ -     $ -     $ -  
                         
Supplemental disclosure of non-cash financing activities
                       
                         
   Compensation recognized under stock incentive plan
  $ 1,880,967     $ -     $ 1,880,967  
 
 
19

FUND.COM INC.
 (A Development Stage Company)
Notes to the Consolidated Financial Statements
For period ended June 30, 2009 and for the period September 20, 2007 (inception)
through December 31, 2008

NOTE 9 – SUBSEQUENT EVENTS
 
Purchase and Contribution Agreement with AdvisorShares – SEC Grant of Exemptive Relief

As reported in its Form 8-K filed with the SEC on November 6, 2008, on October 31, 2008, the Company entered into a purchase and contribution agreement (the “Purchase Agreement”), with AdvisorShares Investments, LLC (“AdvisorShares”) and Noah Hamman, the Managing Member and principal officer of AdvisorShares. Pursuant to the Purchase and Contribution Agreement, the Company purchased 6,000,000 Units of AdvisorShares, (representing 60% of the outstanding membership interests of AdvisorShares) for a purchase price of $4,000,000, with an initial contribution of $275,000 and up to an additional $3,725,000 being contributed to AdvisorShares upon the achievement of certain milestones relating to AdvisorShares’ receiving from the Securities and Exchange Commission (the “SEC”) of its notice (the “SEC Exemptive Order”) regarding the approval of AdvisorShares’ application for exemptive relief and total assets under management.  In connection with its acquisition of 60% of the equity interests in AdvisorShares, the Company entered into an Amended and Restated Limited Liability Company Agreement of AdvisorShares, dated as of October 31, 2008 (the “LLC Agreement”), and was admitted as a member of AdvisorShares.

On January 31, 2008, AdvisorShares and AdvisorShares Trust, a Delaware open-end investment management company (the “Trust”) that was recently formed by AdvisorShares for the purpose of publicly 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”).  The application was amended on October 17, 2008.  The application requested an order from the SEC (the “Exemptive Order”), exempting AdvisorShares and the Trust from the provisions of the Investment Company Act and permitting AdvisorShares and the Trust to: (a) issue a series of open-ended management investment companies to issue shares (“Shares”) redeemable in large aggregations only (“Creation Units”), (b) engage in secondary market transactions in Shares at negotiated market prices; and (c) allow certain affiliated persons of the Funds to deposit securities into, and receive securities from, the Funds in connection with the purchase and redemption of the Creation Units.


20




FUND.COM INC.
 (A Development Stage Company)
Notes to the Consolidated Financial Statements
For period ended June 30, 2009 and for the period September 20, 2007 (inception)
through December 31, 2008

NOTE  9 – SUBSEQUENT EVENTS (Continued)

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 July 21, 2009, AdvisorShares notified the Company that it had received the final Exemptive Order and therefore had achieved one of the milestones set forth in the Purchase Agreement.  Such notice also advised the Company that pursuant to Section 1.2(d) of the Purchase Agreement, within 30 days following the date of such notice, the Company is obligated to pay AdvisorShares the sum of $1,000,000.

Line of Credit with IP Global Investors Ltd.

Effective May 1, 2009, the Company entered into a $1.343 million line of credit agreement with IP Global under which the Company is permitted to receive loans of up to $1,343,000, less $723,000 of prior advances that the Company received from IP Global through April 30, 2009; provided that such additional advances are for approved corporate purposes.  In consideration for these advances, the Company: (i) agreed to pay 9% interest on all advances (including the prior advances), (ii) granted the lender the right to convert the note into our Class A Common Stock at $0.60 per share (subject to certain adjustments) and (iii) are obligated to pay certain fees to the lender.  

The Company and IP Global have negotiated, but have yet to finalize and execute, an amended and restated revolving line of credit loan agreement with IP Global for a $2.5 million line of credit under which the Company is permitted to receive loans of up to $2,500,000, less $1,263,000 of prior advances that the Company received from IP Global as of the date of filing of this report. Such prior advances include $100,000 remitted to AdvisorShares on behalf of the Company as partial satisfaction of the Company’s $1,000,000 contribution to AdvisorShares for satisfying the first milestone under that certain Purchase and Contribution Agreement described above.

 
21

 
 
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
FORWARD-LOOKING INFORMATION

This report contains forward-looking statements regarding our plans, expectations, estimates and beliefs. Actual results could differ materially from those discussed in, or implied by, these forward-looking statements. Forward-looking statements are identified by words such as “believe,” “anticipate,” “expect,” “intend,” “plan,” “will,” “may,” and other similar expressions. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances are forward-looking statements. We have based these forward-looking statements largely on our expectations. Forward-looking statements are subject to risks and uncertainties, certain of which are beyond our control. Actual results could differ materially from those anticipated as a result of the factors described in the “Risk Factors” and detailed in our other Securities and Exchange Commission filings.

Because of these risks and uncertainties, the forward-looking events and circumstances discussed in this report or incorporated by reference might not transpire.  Factors that cause actual results or conditions to differ from those anticipated by these and other forward-looking statements include those more fully described in the “Risk Factors” section in our annual report on Form 10-K/A filed with the Securities and Exchange Commission on November 30 , 2009. Actual results may differ materially from those contained in any forward-looking statements.

The following discussion and analysis of financial condition and results of operations relates to the operations and financial condition reported in our financial statements for the three and six months ended June 30, 2009.   

The following discussion should be read in conjunction with our financial statements and the notes thereto which appear elsewhere in this report.  The results shown herein are not necessarily indicative of the results to be expected in any future periods.  

Overview

Fund.com Inc. (the “Company,” “we”, “us” or “our”) is an online content provider and lead generation platform for the financial services community, including investment funds and the savings and retirement markets. Our objective is to engage individual investors and to match their needs with interested fund product providers. Our www.fund.com website is intended to be approachable by everyday investors and to serve as an educational and research resource.
 
In the quarter ending December 31, 2007, we completed the sale of equity securities totaling aggregate gross proceeds of $30,700,000. The proceeds were used to execute the initial phase of our business plan, which included the acquisition of certain intellectual property consisting primarily of our domain names and also funding our wholly-owned subsidiary, Fund.com Capital Inc.
 
We capitalized Fund.com Capital Inc. with $20,000,000 from proceeds generated from our equity placements.  On November 9, 2007, Fund.com Capital entered into a $20,000,000 certificate of deposit with an Antigua bank, the Global Bank of Commerce, which is an affiliate of one of our stockholders (GBC Wealth Management Limited).  The deposit is credited with earned interest at 5% per annum for the term of three years and is all due and payable at the end of the term.   Subject to receipt of any necessary approvals (including the approval of Global Bank of Commerce, which approval could be withheld in its sole discretion), we may seek to use all or a portion of this $20,000,000 to fund one or more control investments.
 
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. 

Through our recently acquired 60%-owned subsidiary AdvisorShares Investments, LLC (“AdvisorShares”), we are seeking to establish a series of proprietary exchange traded funds (“ETF”) that would be actively managed by select registered investment advisors (“RIA(s)”). With a view to expanding our platform in the financial services community, we recently made a strategic investment in National Holdings Corporation, the public parent corporation of National Securities Corporation, vFinance Investments Inc.and EquityStation, Inc., recognized investment bankers with over 700 FINRA registered representatives.  On April 29, 2009, our $500,000 NHC limited recourse note was converted into 666,667 shares of NHC common stock. This relationship will further position certain ETF solutions introduced through AdvisorShares, LLC to gain additional Private Client channel exposure.

AdvisorShares is expected to be a developer of proprietary exchange traded funds, also known as ETFs, with a focus on “actively managed” ETFs upon the successful achievement of exemptive relief and effectiveness of the AdvisorShares Trust initial registration statement. AdvisorShares will seek to partner with SEC registered Investment Advisers (“SubAdvisor”) to create individual actively managed ETFs that are customized for specific investments such as bonds, equities, currencies and commodities, and allow the SubAdvisor to actively manage the portfolio within each ETF. The AdvisorShares ETFs will enable its SubAdvisor partners to create individual actively managed ETFs that are customized for specific investments such as bonds, equities, currencies and commodities, and allow the SubAdvisor to actively manage the portfolio within each ETF. The AdvisorShares ETFs will enable its SubAdvisor partners to customize investments for their clients, may actively rebalance (unlike index funds) and may be bought and sold as easily as any listed security. According to Tiburon Strategic Advisors, there are currently 10,466 RIAs in the United States that manage $37.5 trillion in professionally managed assets. Many of these RIAs are potential partners for AdvisorShares.
 
 
22


 
The AdvisorShares acquisition enhances our strategic goal of connecting individual investors with appropriate diversified fund products and to also assist asset fund managers in building client assets under management. We believe that ETFs are one of the most significant products developed since money market funds in the 1970’s with ETF asset growth approaching $800 billion. We also believe that economic conditions for ETFs continue to be highly favorable in the United States inasmuch as ETFs are the mutual fund industry's fastest-growing marketplace. According to the National Stock Exchange, ETF’s attracted nearly $178.4 billion in net inflows in 2008, and now represent approximately 31% of all trading volume in the United States equities market.

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

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

As a result of its receipt of the final Exemptive Order, we believe that AdvisorShares and the Trust may now form Funds to issue exchange traded products that invest primarily in commodities or currency, but otherwise operate in a manner similar to exchange traded products registered under the Investment Company Act. In addition, the Funds may also invest in equity securities or fixed income securities traded in a U.S. or non-U.S. markets, as well as futures contracts, options on such futures contracts, swaps, forward contracts or other derivatives, and shares of money market mutual funds or other investment companies, all in accordance with their investment objectives. The Funds may also invest in equity securities or fixed income securities traded in international markets or in a combination of equity, fixed income and U.S. money market securities and/or non-U.S. money market securities.
 
In addition to our fund product development and publishing business, our plan of operation is to invest in the further development of our websites. This will include certain capital expenditures for technology, content and database management, including certain online advertising systems and affiliate marketing systems that management believes will assist in executing our customer acquisition business plan. Our websites are anticipated to evolve over time as we introduce new content and features and generally seek to improve the customer experience and to improve the lead generating efficiency of the websites, consistent with our business plan. In addition to databases created from parties registering at our websites, we also intend to expand our access to targeted databases of investors that may be interested in our services or our advertising clients’ services. This is anticipated to include certain joint ventures currently in negotiations and certain database acquisitions. Our website was launched in March 2009 with the full planned feature set accessible at www.fund.com. On August 20, 2008 we negotiated an advertising arrangement with a third-party vendor, Investor Channel, which sells our advertising inventory to potential clients for content and sponsorship deals. We anticipate that it will cost approximately $200,000 to continue the development and enhancement of www.fund.com with new quarterly releases. Marketing costs will be approximately $250,000.
 
Our other website, www.accreditedinvestor.com is in the planning phase and it is expected to cost $500,000 in development and license fees.  No release date has been established.
 
We have outsourced our technology to operate our online network and supporting systems on servers at a secure third-party co-location facility in the Colorado area. This third-party facility is manned, and our infrastructure and network connectivity monitored continuously, on a 24 hour a day, 365 day a year basis. This facility is powered continuously from multiple sources, including uninterruptible power supplies and emergency power generators. The vast majority of the information presented on www.fund.com, including backend databases that serve and store information, will be stored in and delivered from server farms. 
  
 
23

 
Our operating and capital requirements in connection with operations have been and will continue to be significant. Based on our current plans, we anticipate that revenues earned from lead generation will be the primary source of funds for operating activities. In addition to existing cash and cash equivalents, we may rely on bank borrowing, if available, or sales of securities to meet the basic capital and liquidity needs for the next 12 months. Additional capital may be sought to fund the development of www.fund.com and marketing efforts, which may also include bank borrowing, or a private placement of securities. However, other than our agreement with IP Global, Investors LTD., discussed below, we have no agreements for funding at this time and there can be no assurance that funding will be available if we require it.

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.

Significant accounting policies are as follows:

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 Statement of Financial Accounting Standards (SFAS) No. 7 “Accounting and Reporting by Development Stage Enterprises.”

Principles of Consolidation

The consolidated financial statements include the accounts of Fund.com Inc. and its subsidiaries.  All material intercompany accounts and transactions are eliminated in consolidation.

Use of Estimates

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

Revenue Recognition

The Company recognizes revenue in accordance with Staff Accounting Bulletin (SAB) No. 104, “Revenue Recognition in Financial Statements” which established that revenue can be recognized when persuasive evidence of an arrangement exists, the product has been shipped, all significant contractual obligations have been satisfied and collection is reasonably assured.

Cash and Cash Equivalents

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

Certificate of Deposit

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, for a term of three years.  Accrued interest of $500,000 and $500,000 has been recorded for the six months ended June 30, 2009 and 2008, respectively.
 
 
24


 
Concentration of Credit Risk

Substantially all of the Company’s capital, $20 million, has been invested in a three year non-cancellable certificate of deposit due and payable on November 8, 2010 with Global Bank of Commerce Limited (Global), which is the parent company of one of our shareholders.  Global is a bank located in Antigua whose issued financial instruments have not been rated by any security rating agency such as Standard and Poor’s, Moody’s or Fitch. We have requested and received audited financial statements for Global Bank of Commerce at December 31, 2008 and the year then ended.  The audit report was issued by PKF Chartered Accountants, an established global accounting firm.  The financial statements were presented in accordance with International Financial Reporting Standards and indicated that the bank has positive equity of approximately $76,500,000.  Further, the financial statements indicate that our $20 million CD represents approximately 20% of the banks’ total deposits. This deposit does not have the benefit of any governmental or third party insurance.

There is a substantial asset concentration with respect to the Global Bank of Commerce, as discussed above. However, there is no material valuation or foreign exchange impairment associated with the deposit. Investors are encouraged to obtain additional information regarding the financial viability of Global Bank of Commerce, that such information, permitted by Antiguan banking law, is available to them.
 
Advertising Costs

All advertising costs are charged to expense as incurred. There was no advertising expense for the six months ended June 30, 2009 and 2008.

Research and Development

Costs are expensed as incurred.  There were no research and development expense for the six months ended June 30, 2009 and 2008.

Property and Equipment

Property and equipment is recorded at cost and depreciated over the estimated useful lives of the assets using principally the straight-line method. When items are retired or otherwise disposed of, income is charged or credited for the difference between net book value and proceeds realized thereon.  Ordinary maintenance and repairs are charged to expense as incurred, and replacements and betterments are capitalized.  The range of estimated useful lives to be used to calculate depreciation for principal items of property and equipment are as follow:
 
Asset Category
 
Depreciation/
Amortization
Period
Furniture and Fixture
 
  3 Years
Office equipment
 
  3 Years
Leasehold improvements
 
  5 Years
 
Income Taxes

Deferred income taxes are recognized based on the provisions of SFAS No. 109, "Accounting for Income Taxes" ("SFAS 109") for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.
 
Earnings Per Share

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

Fair Value of Financial Instruments

The fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties other than in a forced sale or liquidation.   The carrying amounts of financial instruments, including cash, accounts payable and accrued expenses approximate fair value because of the relatively short maturity of the instruments.
 
 
25

 

 
Accounting for the Impairment of Long-Lived Assets

The long-lived assets held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of assets may not be recoverable. It is reasonably possible that these assets could become impaired as a result of technology or other industry changes. Determination of recoverability of assets to be held and used is by comparing the carrying amount of an asset to future net undiscounted cash flows to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.

During the fourth quarter of 2008, the Company tested the carrying value of its intangible assets for impairment.  The results of the tests indicated that the carrying value of the intangible assets was not impaired as of December 31, 2008.  The Company will again test the carrying value for impairment as of December 31, 2009.

Stock-Based Compensation

In October 10, 2006 FASB Staff Position (FSP) issued FSP FAS 123(R)-5 “Amendment of FASB Staff Position FAS 123(R)-1 - Classification and Measurement of Freestanding Financial Instruments Originally issued in Exchange of Employee Services under FASB Statement No. 123(R)”. The FSP provides that instruments that were originally issued as employee compensation and then modified, and that modification is made to the terms of the instrument solely to reflect an equity restructuring that occurs when the holders are no longer employees, then no change in the recognition or the measurement (due to a change in classification) of those instruments will result if both of the following conditions are met: (a) there is no increase in fair value of the award (or the ratio of intrinsic value to the exercise price of the award is preserved, that is, the holder is made whole), or the antidilution provision is not added to the terms of the award in contemplation of an equity restructuring; and (b) all holders of the same class of equity instruments (for example, stock options) are treated in the same manner. The provisions in this FSP shall be applied in the first reporting period beginning January 1, 2007. The Company does not expect the adoption of FSP FAS 123(R)-5 to have a material impact on its consolidated results of operations and financial condition.
 
Results from Operations
  
The following tables show the results of operations of our business.
 
Comparison of the three months ended June 30, 2009 and 2008
 
Three Months Ended June 31
 
2009
   
2008
 
Sales
 
$
10,342
   
$
-0-
 
Cost of sales
 
$
-0-
   
$
-0-
 
Total expenses
 
$
1,106,748
   
$
1.064,296
 
Other income (expense)
 
$
250,003
   
$
250,288
 
Income taxes
 
$
-0-
   
$
-0-
 
Net income (loss)
 
$
(745,689
)
 
$
(803,795
)
Foreign currency translation adjustment
 
$
-0-
   
$
-0-
 
Comprehensive income (loss)
 
$
(745,689
)
 
$
(803,795
)
                 

Results of Operations for the Three Month Periods ended June 30, 2009 and 2008
 
We reported a net loss of $745,689 and $803,795 for the three-month periods ending June 30, 2009 and 2008, respectively.  Until we implement our business plan, we will not have material operating revenues.
 
For the three-month period ending June 30, 2009, we incurred $1,106,748 in operating costs.  This amount includes $490,199 related to compensation expense for stock options, $141,075 related to legal and professional fees, $215,311 related to payroll and benefits for the officers of the Company, and $110,300 for consulting expenses.
 
For the three-month period ending June 30, 2008, we incurred $1,064,296 in operating costs.  This amount includes $345,800 related to compensation expense for stock options, $153,547 related to legal and professional fees, $206,300 related to payroll and benefits for the officers of the Company, $179,000 for consulting expenses and $100,000 related to promotional and public relations expense.
 
The $20 million certificate of deposit with the Global Bank of Commerce (an Antiguan bank), held by our wholly-owed subsidiary Fund.com Capital Inc., earned interest of $250,000  for each three-month period ended June 30, 2009 and 2008, respectively.
 
 
26


 
Comparison of the six months ended June 30, 2009 and 2008
 
Six Months Ended June 31
 
2009
   
2008
 
Sales
 
$
20,342
   
$
-0-
 
Cost of sales
 
$
-0-
   
$
-0-
 
Total expenses
 
$
2,309,088
   
$
1,764,046
 
Other income (expense)
 
$
500,233
   
$
500,288
 
Income taxes
 
$
-0-
   
$
-0-
 
Net income (loss)
 
$
(1,643,954
)
 
$
(1,235,208
)
Foreign currency translation adjustment
 
$
-0-
   
$
-0-
 
Comprehensive income (loss)
 
$
(1,643,954
)
 
$
(1,235,208
)
                 

Results of Operations for the Six Month Periods ended June 30, 2009 and 2008
 
We reported a net loss of $1,643,954 and $1,235,208 for the six-month periods ending June 30, 2009 and 2008, respectively.  Until we implement our business plan, we will not have material operating revenues.
 
For the six-month period ending June 30, 2009, we incurred $2,309,088 in operating costs.  This amount includes $1,018,819 related to compensation expense for stock options, $235,645 related to legal and professional fees, $615,834 related to payroll and benefits for the officers of the Company, and $229,632 for consulting expenses.
 
For the six-month period ending June 30, 2008, we incurred $1,764,046 in operating costs.  This amount includes $561,005 related to compensation expense for stock options, $325,550 related to legal and professional fees, $331,504 related to payroll and benefits for the officers of the Company, $323,739 for consulting expenses and $128,967 related to promotional and public relations expense.
 
The $20 million certificate of deposit with the Global Bank of Commerce (an Antiguan bank), held by our wholly-owed subsidiary Fund.com Capital Inc., earned interest of $500,000  for each six-month period ended June 30, 2009 and 2008, respectively.

Liquidity and Capital Resources

On June 30, 2009, the Company had cash of $7,400 and a working capital deficit of approximately $2,665,000.  We will require additional funding in order to meet operating expenses and our development plan.

Upon our inception we issued an aggregate of 18,700,000 (not giving effect to the 9-for-1 dividend on the Surviving Corporation’s Class A Common Stock and Class B Common Stock) shares of our common stock, par value $0.0001 per share, to seven investors, three of whom were co-founders of the Company.  The shares were valued at $0.0001 per share.  These shares were issued pursuant to the exemption provided by Section 4(2) of the Securities Act of 1933 for transactions by an issuer not involving a public offering.  In November 2007, we issued an aggregate of 10,350,000 (not giving effect to the 9-for-1 dividend on the Surviving Corporation’s Class A Common Stock and Class B Common Stock) shares of our common stock to eight accredited investors in a private placement.  The shares were valued at $2.00 per share and received gross proceeds of $20,700,000.  On November 5, 2007, we sold 5,000,000 (not giving effect to the 9-for-1 dividend on the Surviving Corporation’s Class A Common Stock and Class B Common Stock) shares of our common stock and 2,500,000 (not giving effect to the 9-for-1 dividend on the Surviving Corporation’s Class A Common Stock and Class B Common Stock) shares of our Series A Preferred Stock to an accredited investor and received gross proceeds of $10,000,000.  Substantially all of the proceeds of the Series A Preferred Stock transaction were used to acquire the domain name www.fund.com.

Prior to the Merger and not giving effect to the 9-for-1 dividend on the Surviving Corporation’s Class A Common Stock and Class B Common Stock, Fund.com had authorized a total 110,000,000 shares, of which 105,000,000 were authorized as common stock and 5,000,000 shares were authorized as Preferred Stock and 2,500,000 shares of the Preferred Stock were designated as Series A Preferred Stock.  Following the Merger, we had authorized a total of 110,000,000 shares of common stock, par value $0.001 per share, of which 100,000,000 shares were authorized as Class A Common Stock, 10,000,000 shares were authorized as Class B Common Stock.  In addition, 10,000,000 shares were authorized as Preferred Stock.  Following the Merger, 43,612,335 shares of Class A Common Stock were outstanding, 6,387,665 shares of Class B Common Stock were outstanding and no shares of Preferred Stock were outstanding.
 
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Securities Purchase Agreement with National Holdings Corporation

On April 8, 2009, the Company entered into a definitive Securities Purchase Agreement (the “Purchase Agreement”), with National Holdings Corporation, a Delaware corporation (“NHC”) whereby the Company has agreed to provide a minimum $5 million financing to NHC (the “Financing”) after the satisfaction or waiver of a number of closing conditions set forth in the Purchase Agreement, in exchange for an aggregate of 5,000 shares of NHC to be created Series C Convertible Preferred Stock, par value $0.01 per share (the “Series C Preferred Stock”) at a purchase price of $1,000.00 per share, and warrants, exercisable at any time, and entitling the holder to purchase up to an aggregate of 25,333,333 shares of common stock of NHC (on an as-exercised basis) with an exercise price of $0.75 per share. Until such time as the Series C Convertible Preferred Stock is created and authorized, the Warrants would entitle us to purchase up to an aggregate of 17,500 shares of Series C Convertible Preferred Stock at an exercise price of $1,000 per share and 2,000,000 shares of NHC common stock (on an as-exercised basis) with an exercise price of $0.75 per share. In connection with the Financing, the Company provided NHC with an initial investment tranche of $500,000, as evidenced by NHC’s limited recourse promissory note, dated April 8, 2009, which note shall automatically convert into shares of Series C Preferred Stock upon consummation of the Financing or, if the Company is unable to close the balance of the Financing by April 30, 2009, into 666,666 shares of NHC common stock also based on a $0.75 per common share price. The closing of the Financing is subject to various and customary closing conditions and was expected to close on or prior to April 30, 2009. We borrowed the $500,000 initial tranche from Global Asset Fund Limited, (“GAF”), through a loan, which is secured by a pledge of NHC’s limited recourse note and all of our rights and interests in the Purchase Agreement. On May 4, 2009, we entered into an extension agreement with NHC, pursuant to which the parties agreed to extend the outside date to close the Financing to May 29, 2009. In consideration for obtaining the extension, we agreed that if we are unable to obtain the funding to consummate the Financing by May 29, 2009, we would pay up to $200,000 in professional fees incurred by NHC in connection with the proposed transaction. We further agreed to place such amount in escrow by May 11, 2009; failing which NHC could terminate the proposed transaction at that time. On April 29, 2009, our $500,000 NHC limited recourse note was converted into 666,667 shares of NHC common stock, which are pledged as collateral to secure our $500,000 loan from GAF. The $500,000 note to GAF is now due and payable. However, GAF has not made a demand for payment. If GAF does demand payment, we expect that they will foreclose on the 666,667 shares of NHC common stock we received pursuant to the conversion of the Limited Recourse Note.
 
The Company was unable to obtain the requisite funding to make the $5.0 million investment in NHC and consummate the Financing.  Accordingly, the Purchase Agreement has been terminated. However, the Company may enter into negotiations with NHC for purposes of entering into another securities purchase or other agreements to consummate a financing transaction with NHC.  There can be no assurance that the Company will enter into another securities purchase or other agreements with NHC to consummate a financing transaction and if such agreements are entered into, whether they will be on the terms set forth above or terms acceptable to us.  In addition, if such agreements are entered into, there is no assurance prospective investors will provide funding to consummate a financing transaction with NHC on terms acceptable to us, if at all.  

Working Capital Loan with IP Global Investors LTD

For the past six months we have relied on loans and advances from IP Global Investors LTD., a privately owned intellectual property financing company, to provide us with working capital to pay our operating expenses.  Through June 30, 2009, we have borrowed an aggregate of $723,500 from this lending source.  Effective May 1, 2009, the Company entered into a $1.343 million line of credit agreement with IP Global under which the Company is permitted to receive loans of up to $1,343,000, less $723,000 of prior advances that the Company received from IP Global through April 30, 2009; provided that such additional advances are for approved corporate purposes.  In consideration for these advances, the Company: (i) agreed to pay 9% interest on all advances (including the prior advances), (ii) granted the lender the right to convert the note into our Class A Common Stock at $0.60 per share (subject to certain adjustments) and (iii) are obligated to pay certain fees to the lender.  Such fees include a $16,500 per month loan servicing fee which accrues and is payable on the maturity date of the note, and a CD release fee (to be paid if the lender arranges for an early payment on our CD with Global Bank of Commerce that matures November 2010 on terms satisfactory to us), payable in shares of our class A common stock determined by dividing $1,343,000 by the Conversion Price then in effect. All of the Company’s subsidiaries guaranteed payment of the note and the Company issued IP Global a lien on most of our accounts and our domain name to secure payment of the Note.  Additionally, the Company agreed to issue IP Global a warrant to purchase that number of shares of our Class A common stock equal to $1,343,000, divided by an exercise price of $0.60 per shares (subject to certain adjustments, including weighted average anti-dilution adjustments).

The Company and IP Global have negotiated, but have yet to finalize and execute, an amended and restated revolving line of credit loan agreement with IP Global for a $2.5 million line of credit under which the Company is permitted to receive loans of up to $2,500,000, less $1,263,000 of prior advances that the Company received from IP Global as of the date of filing of this report. Such prior advances include $100,000 remitted to AdvisorShares on behalf of the Company as partial satisfaction of the Company’s $1,000,000 contribution to AdvisorShares for satisfying the first milestone under that certain Purchase and Contribution Agreement described above.

Certificate of Deposit from Global Bank of Commerce

The structuring and initiation of the investment in the Certificate of Deposit was an investment strategy was developed by the private entity (Meade Technologies Inc.) which merged (the “Merger”) with and into Eastern Services Holdings, Inc. pursuant to an Agreement and Plan of Merger dated as of January 15, 2008 (the “Merger Agreement”). On November 9, 2007, Meade Capital, a wholly owned subsidiary of Meade Technologies Inc. (both privately owned companies), invested in a $20,000,000 three-year Certificate of Deposit with the Global Bank of Commerce (the “CD”) as part of its business strategy. This investment was made prior to completing the merger with Eastern Services Holdings, Inc. which occurred on January 15, 2008 and prior to current management’s engagement by Meade. As part of the Merger, the Company’s name was changed to Fund.com Inc, and its subsidiary’s name to Fund.com Capital.
 
 
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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. 
 
Purchase and Contribution Agreement with AdvisorShares

There have been discussions with Global Bank of Commerce in order to attempt to alter the terms and conditions under which the CD was issued, which if successful, would enhance our liquidity.  However, there can be no assurance that those negotiations will be successful or will result in sufficient liquidity to finance the Company’s plans and similar attempts in the past were unsuccessful.  Therefore, the Company entered into an agreement to finance its acquisition of 60% of the equity of AdvisorShares, the Company issued, and IP Global Investors Ltd. purchased, a promissory note in the aggregate principal amount of $325,000 (the “IP Global Note”).  The principal and unpaid interest on the IP Global Note is payable upon demand at any time following 30 business days notice, and carries a 9% interest rate.

The funding requirement for the additional $3,725,000 to AdvisorShares will be made in accordance with the achievement of specific milestones as defined in the Purchase and Contribution Agreement (the “Agreement”) dated October 31, 2008, including (i) $1,000,000 within 30 days of the issuance by the SEC of its notice regarding approval of the application of AdvisorShares for exemptive relief under the Investment Company Act of 1940; (ii) $725,000 within 30 days of receipt by the Company from AdvisorShares’ independent auditors verifying total assets under management equal to $150,000,000; (iii) $1,000,000 within 30 days of receipt by the Company from AdvisorShares’ independent auditors verifying total assets under management equal to $250,000,000; and (iv) $1,000,000 within 30 days of receipt by the Company from AdvisorShares’ independent auditors verifying total assets under management equal to $450,000,000.

The Company does not currently have the capital or resources to make the $1,000,000 payment to AdvisorShares following AdvisorShares’ receipt of the final Exemptive Order from the SEC, or to make the additional $2,725,000 in payments to AdvisorShares following AdvisorShares’ achievement of the remaining milestones.  However, the Company is currently negotiating with IP Global and Equities Media Acquisition Corp. Inc., a principal stockholder of the Company, for a line of credit facility that will provide the Company with additional working capital and the funds necessary to meet its obligations to AdvisorShares under the Purchase Agreement.  Although it believes that such credit facility will be entered into in the near future, there is no assurance that this will be the case, or that, if obtained, such credit facility will be on terms that are beneficial to the Company or its shareholders.  In addition, in order to obtain funds to satisfy the remaining payment obligations to AdvisorShares (assuming the remaining milestones are achieved), we may utilize any of several potential options, including cash on hand from operating results, the issuance of debt or equity securities, or a combination thereof.  No assurance can be given that we will have available cash on hand from operating results or be able to obtain additional financing on favorable terms, if at all.  Moreover, the Company cannot predict with certainty if and when the remaining milestones for total assets under management will be met by AdvisorShares.  The $20,000,000 Certificate of Deposit we purchased from the Global Bank of Commerce will become liquid in November 2010 and if the remaining milestones are achieved at such time, we intend to use such funds to satisfy any remaining payments owed to AdvisorShares.

     We anticipate that our cash requirements for the next 12 months for expenses related to infrastructure, business development and accounts payable should be approximately $ 2,000,000 .  We believe proceeds from the sale of both equity and debt instruments will be sufficient to meet presently anticipated working capital and capital expenditure requirements over the next few months.  However, there can be no assurance that the sale of equity or notes will take place.  To the extent that we do not generate sufficient revenues, we will be forced to reduce our expenses and/or seek additional financing.  As of August 13, 2009 there were no commitments for long-term capital expenditures.
 
Recent Accounting Pronouncements
 
Recent accounting pronouncements that the Company has adopted or that will be required to adopt in the future are summarized below.

Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles

In June 2009, the Financial Accounting Standards Board issued Statement “FASB” issued Statement No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles” (“SFAS No. 168”).  SFAS No. 168 will become the single source of authoritative nongovernmental U.S. generally accepted accounting principles (“GAAP”), superseding existing FASB, American Institute of Certified Public Accountants (“AICPA”), Emerging Issues Task Force (“EITF”), and related accounting literature.  SFAS No. 168 reorganizes the thousands of GAAP pronouncements into roughly 90 accounting topics and displays them using a consistent structure.  Also included is relevant Securities and Exchange Commission guidance organized using the same topical structure in separate sections.  SFAS No. 168 will be effective for financial statements issued for reporting periods that end after September 15, 2009.  This statement will have an impact on the Company’s financial statements since all future references to authoritative accounting literature will be references in accordance with SFAS No. 168.

 
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Subsequent Events
 
In May 2009, the FASB issued SFAS No. 165, “Subsequent Events”.(“SFAS No. 165”) This Statement establishes general standards of accounting for and disclosures of events that occur after the balance sheet date but before financial statements are issued or are available to be issued.  It requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date and is effective for interim and annual periods ending after June 15, 2009.  The adoption of SFAS No. 165 is not expected to have a material impact on the Company’s financial statements.

Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly

In April 2009, the FASB issued FSP FAS No. 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly". This FSP provides additional guidance for estimating fair value in accordance with FASB Statement No. 157, Fair Value Measurements, when the volume and level of activity for the asset or liability have significantly decreased. This FSP also includes guidance on identifying circumstances that indicate a transaction is not orderly. FSP FAS No. 157-4 is effective for interim and annual reporting periods ending after June 15, 2009, and shall be applied prospectively. The implementation of FSP FAS No. 157-4 did not have a material on the Company’s financial position and results of operations.

Recognition and Presentation of Other-Than-Temporary Impairments

In April 2009, the FASB issued FSP FAS No. 115-2 and FAS No. 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments ". The objective of an other-than-temporary impairment analysis under existing U.S. generally accepted accounting principles (GAAP) is to determine whether the holder of an investment in a debt or equity security for which changes in fair value are not regularly recognized in earnings (such as securities classified as held-to-maturity or available-for-sale) should recognize a loss in earnings when the investment is impaired. An investment is impaired if the fair value of the investment is less than its amortized cost basis. FSP FAS No. 115-2 and FAS No. 124-2 is effective for interim and annual reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. Earlier adoption for periods ending before March 15, 2009, is not permitted.  The implementation of FSP FAS No. 115-2 and FAS No. 124-2 did not have a material impact on the Company’s financial position and results of operations.
 
Interim Disclosures about Fair Value of Financial Instruments
 
In April 2009, the FASB issued FSP FAS No. 107-1 and APB No. 28-1, “Interim Disclosures about Fair Value of Financial Instruments". This FSP amends SFAS No. 107, Disclosures about Fair Value of Financial Instruments, to require disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. This FSP also amends APB Opinion No. 28, Interim Financial Reporting, to require those disclosures in summarized financial information at interim reporting periods. FSP FAS No. 107-1 is effective for interim reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009.  The implementation of FSP FAS No. 107-1 did not have a material impact on the Company’s financial position and results of operations.

Amendments to the Impairment Guidance of EITF Issue No. 99-20

In January 2009, the FASB issued FSP Emerging Issues Task Force ("EITF") Issue No. 99-20-1, “Amendments to the Impairment Guidance of EITF Issue No. 99-20". This FSP amends the impairment guidance in EITF Issue No. 99-20, “Recognition of Interest Income and Impairment on Purchased Beneficial Interests and Beneficial Interests That Continue to Be Held by a Transferor in Securitized Financial Assets,” to achieve more consistent determination of whether an other-than-temporary impairment has occurred. The FSP also retains and emphasizes the objective of an other than- temporary impairment assessment and the related disclosure requirements in FASB Statement No. 115, Accounting for Certain Investments in Debt and Equity Securities, and other related guidance. This Issue is effective for interim and annual reporting periods ending after December 15, 2008, and shall be applied prospectively. Retrospective application to a prior interim or annual reporting period is not permitted. The adoption of FSP EITF 99-20-1 did not have a material effect on the Company’s consolidated financial statements.
 
 
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Accounting for Own-Share Lending Arrangements in Contemplation of Convertible Debt Issuance or Other Financing

In June 2009, the FASB issued FSP Emerging Issues Task Force ("EITF") Issue No. 09-1, “Accounting for Own-Share Lending Arrangements in Contemplation of Convertible Debt Issuance or Other Financing”. This Issue is effective for fiscal years beginning on or after December 15, 2009, and interim periods within those fiscal years for arrangements outstanding as of the beginning of those fiscal years. Share lending arrangements that have been terminated as a result of counterparty default prior to the effective date of this Issue but for which the entity has not reached a final settlement as of the effective date are within the scope of this Issue. This Issue requires retrospective application for all arrangements outstanding as of the beginning of fiscal years beginning on or after December 15, 2009. This Issue is effective for arrangements entered into on or after the beginning of the first reporting period that begins on or after June 15, 2009. Early adoption is not permitted. The Company is currently assessing the impact of FSP EITF 09-1 on its financial position and results of operations.

Determining the Fair Value of a Financial Asset When the Market for That Asset is not Active

In October 2008, the FASB issued FSP FAS No. 157-3, “Determining the Fair Value of a Financial Asset When the Market for That Asset is Not Active.”  This FSP clarifies the application of SFAS No. 157, “Fair Value Measurements,” in a market that is not active.  The FSP also provides examples for determining the fair value of a financial asset when the market for that financial asset is not active.  FSP FAS No. 157-3 was effective upon issuance, including prior periods for which financial statements have not been issued.  The impact of adoption was not material to the Company’s consolidated financial condition or results of operations.

The Hierarchy of Generally Accepted Accounting Principles

In May 2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted Accounting Principles.”  SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements.  SFAS No. 162 is effective 60 days following the SEC's approval of the Public Company Accounting Oversight Board amendments to AU Section 411, "The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles".  The implementation of this standard will not have a material impact on the Company's consolidated financial position and results of operations.

Determination of the Useful Life of Intangible Assets

In April 2008, the FASB issued FSP FAS No. 142-3, “Determination of the Useful Life of Intangible Assets”, which amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of intangible assets under SFAS No. 142 “Goodwill and Other Intangible Assets”.  The intent of this FSP is to improve the consistency between the useful life of a recognized intangible asset under SFAS No. 142 and the period of the expected cash flows used to measure the fair value of the asset under SFAS No. 141 (revised 2007) “Business Combinations” and other U.S. generally accepted accounting principles.    The implementation of FSP FAS No. 142-3 is not expected to have a material impact on its consolidated financial statements.

Disclosure about Derivative Instruments and Hedging Activities

In March 2008, the FASB issued SFAS No. 161, Disclosure about Derivative Instruments and Hedging Activities, an amendment of SFAS No. 133.” This statement requires that objectives for using derivative instruments be disclosed in terms of underlying risk and accounting designation. The Company was required to adopt SFAS No. 161 on January 1, 2009. The adoption of SFAS No.161 on January 1, 2009 did not have a material effect on the Company’s consolidated financial statements.

Fair Value Option for Financial Assets and Financial Liabilities

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities – Including an amendment of SFAS No. 115,” which becomes effective on February 1, 2008, permits companies to choose to measure many financial instruments and certain other items at fair value and report unrealized gains and losses in earnings. Such accounting is optional and is generally to be applied instrument by instrument. The election of this fair-value option did not have a material effect on its consolidated financial condition, results of operations, cash flows or disclosures.

Fair Value Measurements

In September 2006, the FASB No. 157, “Fair Value Measurements” (“SFAS No. 157”). SFAS No. 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosures about fair value investments. SFAS No. 157 was effective for financial assets and liabilities on January 1, 2008. The statement deferred the implementation of the provisions of SFAS No. 157 relating to certain non-financial assets and liabilities until January 1, 2009. The adoption of SFAS No.157 on January 1, 2009 for financial assets and liabilities did not have a material effect on the Company’s consolidated financial statements.
 
 
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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 Disclosure 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 quarterly 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 quarterly 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 quarterly 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.
 
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 quarterly 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.
 
 
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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 quarterly 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 June 30, 2009 were not effective such that the information required to be disclosed by us in reports filed under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding disclosure. They concluded that the Company’s disclosure controls were ineffective due to the inability to timely file the annual report on Form 10-K and the material weaknesses in its internal controls over financial reporting as described below, which led us to file our 10-K late.  The actions being taken to address these ineffective disclosure controls and procedures are set forth below. 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 June 30, 2009, Fund.Com Inc. 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 our filing.

•  
Accounting and Finance Personnel Weaknesses – Our current accounting staff is relatively small and we do not have the required infrastructure of meeting the higher demands of being a U.S. public company. Due to the size of our accounting staff, we have limitations in the segregation of duties throughout the financial reporting processes.  Due to the pervasive nature of this issue, the lack of segregation of duties amounts to a material weakness to the Company’s internal controls over its financial reporting processes.
 
 In light of the foregoing, once we have the adequate funds, management plans to develop the following additional procedures to help address these material weaknesses.  We believe that these additional steps will further enhance and strengthen the remediation steps we implemented in fiscal 2008 to address the material weaknesses we discovered in our 2007 evaluation, which we believed were sufficient to cure such material weakness.  We recognize now that these must be expanded and developed to help ensure we achieve and maintain effective controls and procedures.  The Company will create and refine a structure in which critical accounting policies and estimates are identified, and together with other complex areas, are subject to review by other members of management as well as the Company’s independent accountant.  We also plan to enhance and test our quarter-end and year-end financial close process.  Additionally, our board of directors will increase its review of our disclosure controls and procedures.  We also intend to develop and implement policies and procedures for the financial close and reporting process, such as identifying the roles, responsibilities, methodologies, and review/approval process; we also hope to implement a detailed financial close plan and enhanced and timelier review of manual journal entries, account reconciliations, estimates and judgments.  
 
 
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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 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. 
 

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PART II - OTHER INFORMATION
 
 
Item 1. Legal Proceedings

As of June 30, 2009, there were no legal actions pending against us, or any subsidiary, or of which our property, or the property of any subsidiary, was subject nor to our knowledge are any such proceedings contemplated.

Our subsidiary, AdvisorShares Investments, LLC is currently not involved in any legal proceedings. 

Notwithstanding the foregoing, an arbitration proceeding was commenced on November 7, 2008 against Mr. Noah Hamman, AdvisorShares' CEO and part owner ("Member") of Arrow Investment Advisors, LLC ("Arrow"), by Arrow.  The arbitration was commenced pursuant to the provisions of the LLC Operating Agreement of Arrow and brought under the auspices of the International Institute for Conflict Prevention and Resolution in New York, as required under the LLC Operating Agreement. The arbitration involves the other Members of Arrow who have asserted an ownership claim regarding Mr. Hamman's ownership interest in AdvisorShares.   Such Members claim that AdvisorShares’ business is based on the improper usurpation and conversion by Mr. Hamman of Arrow’s corporate opportunities and assets, including the business of AdvisorShares.  The arbitration hearing is currently scheduled for December 14, 2009 and a decision is expected approximately 30 days thereafter.

If the other Members of Arrow prevail on their claims, this could impact the amount of ownership Mr. Hamman indirectly holds in AdvisorShares in that Mr. Hamman could lose his 40% interest in AdvisorShares to Arrow.   In addition, if Arrow prevails, Arrow could assert other claims including that the Purchase and Contribution Agreement (to which we are a party) was inappropriately executed and seek to nullify the obligations associated with that agreement. In such event, we could lose our investment in AdvisorShares and have to undergo the process of seeking another acquisition that could provide us with the results we hope to receive from acquiring our membership interest in AdvisorShares. Although we would vigorously defend against any award in the arbitration that would cause us to lose our investment in AdvisorShares, there is no assurance that we would be successful in such defense, or if required, in locating or consummating an appropriate alternative acquisition transaction.

Other than as set forth herein, we are not a party to any material legal proceeding and to our knowledge no such proceeding is currently contemplated or pending.

Item 1A. Risk Factors

Not applicable.

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

Not applicable.
 
Item 3. Defaults Upon Senior Securities

Not applicable.
 
Item 4. Submission of Matters to a Vote of Security Holders

No matters were submitted to our security holders during the period covered by this Report.  However, on April 30, 2009, a majority of our shareholders approved, via written consent to increase the number of shares authorized to be issued under our 2007 Stock Incentive Plan by approximately 5,000,000 shares to 10,000,000 shares.

Item 5. Other Information

None.

Item 6. Exhibits

Exhibit No.
 
Description
3.1
 
Amended and Restated Certificate of Incorporation of Eastern Services Holdings, Inc. (Filed as Exhibit 3.1 to  Form 8-K, filed on January 17, 2008, incorporated by reference)
     
3.2
 
Bylaws of Fund.com. (Filed as Exhibit 3.2 to Form 8-K, filed on January17, 2008, incorporated by reference)
     
10.1
 
Amendment No. 2 to Securities Purchase Agreement dated as of May 14, 2009. (Filed as Exhibit 10.1 to Form 10-Q, filed on May 15, 2009, incorporated by reference)
     
31.1
 
Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
31.2
 
Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
32.1
 
Certification of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     
32.2
 
Certification of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

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SIGNATURES
 
 
Pursuant to the requirements 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.
 
         
   
By:
 /s/ Gregory Webster
 
     
Gregory Webster
Chief Executive Officer
 
     
(Principal Executive Officer) 
 
         
   
By:
 /s/ Michael Hlavsa
 
     
Michael Hlavsa
Chief Financial Officer
(Principal Accounting and Financial Officer)
 
 
Date:  November 30 , 2009

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