2. Business of the Company	9 Months Ended
Sep. 30, 2014
Notes to Financial Statements
2. Business of the Company	As has been previously reported, on December 30, 2013, the independent members of the Board of Directors (the “Board”) of the Company received a letter (the “Letter”) from Paul C. Kanavos, the President and a greater than 10% stockholder of the Company, Robert F. X. Sillerman, a non-independent member of the Board and a greater than 10% stockholder of the Company, and Brett Torino, a greater than 10% stockholder of the Company, in which Kanavos, Sillerman and Torino have proposed to acquire all of the shares of common stock of the Company that they do not beneficially own for a purchase price of $0.03 per share pursuant to a short-form merger and related transactions (the ‘Proposal”). Messrs. Kanavos, Sillerman and Torino beneficially own more than 50% of the outstanding shares of the Company’s common stock. The Letter acknowledges that the Board will establish a special committee composed solely of independent and disinterested members of the Board to negotiate the terms of the transactions contemplated by the Proposal. No binding obligation on the part of Messrs. Kanavos, Sillerman and Torino or the Company will arise with respect to the Letter or Proposal (other than as indicated below) unless and until a definitive agreement with the Company is executed and delivered. Pursuant to the terms of the Letter, Kanavos, Sillerman and Torino have agreed to pay certain of the professional fees of the Company (including those of the special committee of the Board) incurred in connection with the transactions contemplated by the Proposal whether or not completed. The Board will review and evaluate the Letter and the Proposal in due course, consistent with its fiduciary duties. Accordingly, in February 2014, the Board formed a Special Committee of independent directors to evaluate the Proposal. The members of the special committee are Michael J. Meyer and David Ledy, both of whom the Board believes are independent and disinterested in respect of the proposal. The Special Committee has retained independent counsel and a financial advisor to evaluate whether any proposed transaction arising out of the Proposal is fair, from a financial point of view, to the Company’s non-participating and unaffiliated stockholders. The Special Committee, with the assistance of its advisors, is in the process of evaluating the Proposal. In March 2014, Harvey Silverman, a member of our Board, Mitchell J. Nelson, our Executive Vice President and General Counsel, and Maple Hill Companies, LLC or an affiliate thereof, a consultant to the Company, among others, indicated that they intend to participate with Messrs. Kanavos, Sillerman and Torino in the transactions contemplated by the Proposal. While evaluating the Proposal, the Company has ceased pursuing the development and commercialization of its location-based entertainment line of business, which it had been doing since September 10, 2010. In addition to the Proposal, the Board is also evaluating a liquidation or dissolution of the Company because the Company does not currently generate any revenue from its location-based entertainment line of business, which requires significant capital and financing, and the Company does not have any definitive funding commitments in place (or the ability to complete equity and/or debt financings) to fund its short-term or long-term liquidity needs, including making cash capital contributions to the Orlando, Florida project in which the Company has a minority ownership interest to fund the project’s development costs in excess of those budgeted therefor. Thus far, the development costs for the Orlando, Florida project have significantly exceeded the budgeted costs therefor and, as a result, the Company is required to fund its ratable portion of such excess costs in order to maintain its minority ownership interest in the Orlando, Florida project. The Company is not able to fund its ratable portion of these excess costs and unless the Company does so its minority ownership interest in the Orlando, Florida project will be significantly diluted in terms of ownership and value. The Company does not currently generate any revenue from its location-based entertainment line of business and, as described below, its expenses are currently being funded by proceeds from a development loan for the Orlando, Florida project and under a Funding Agreement between the project owner (which is controlled by Messrs. Sillerman, Kanavos and Torino) and the Company. However, the funding by the project owner under the Funding Agreement, which began during the fourth quarter of 2012, has exceeded the Funding Agreement’s limit and is continuing at the project owners’ discretion and, thus, may cease at any time, whereupon the Company’s ability to continue as a going concern will depend on its ability to complete equity and/or debt financings until such time, if ever, as it commercializes and generates significant revenue from its location-based entertainment line of business. During the three months ended September 30, 2014, Messrs. Kanavos, Sillerman and Torino provided the Company with $425,000 of funding to pay certain of its expenses. The Company has classified such funding as capital contributions in its consolidated financial statements included herewith. There is no assurance that Messrs. Kanavos, Sillerman and Torino will provide any additional funding to the Company as capital contributions or otherwise. Messrs. Kanavos, Sillerman and Torino financed substantially all of the Company’s short-term liquidity requirements from 2010 through most of 2012. As has been previously reported, in November 2012, the Company restructured its position in the proposed co-development of an entertainment destination center on International Drive in Orlando, Florida (the “Orlando Project”). As a consequence of the restructuring, the Company now owns an 8.5% membership interest in I Drive Live Parent LLC, the owner of the Orlando Project (the “Project Owner”), pursuant to an operating agreement (the “Operating Agreement”). The Principals (as hereinafter defined), which include certain directors, officers, and greater than 10% stockholders of the Company (the “Company Principals”) and others (with the Company Principals, the “Principals”) own approximately 87.25% of the membership interests in the Project Owner, and a consultant to the Company owns an additional 4.25%. The Principals provided guarantees as a condition of obtaining financing from an institutional investor/lender (the “Financing Source”) that acquired the parcel of land designated for the Orlando Project (the “Square Parcel”) and has leased the Square Parcel to entities owned by the Project Owner. As part of the restructuring, the Company entered into a funding agreement (the “Funding Agreement”), pursuant to which the Company is to receive from the project development loan amounts between $100,000 and $250,000 per month to meet its ongoing overhead expenses as long as the Financing Source continues to fund the project development loan for the Orlando Project. For a more complete description of the restructuring of the Company’s position in the Orlando Project, including changes to the original transaction agreement (the “Transaction Agreement”) pursuant to the related First Amendment and Assignment of Rights Agreement (the “First Amendment”), reference is made to “Item 1. Business—Overview of the Company and its Current Business” of the 2013 Form 10-K. Pursuant to the Operating Agreement, the affairs of Project Owner will be managed by managers selected by the members other than the Company. The Company will be liable for its pro rata share of required additional capital contributions, but the remedies if it is unable to fund all or any portion of required additional capital contributions would be dilution of the Company’s membership interest (dilution of 25% and 50% for the first and second time, respectively, and dilution of 25% for each time thereafter), subordination of the Company's right to receive distributions of net cash flow and the loss of the Company's voting rights. Voting by members is in accordance with percentage interests, so the Company’s vote of 8.5% will, in all likelihood, not be significant in decision-making authority. The Operating Agreement further provides that the transfer of membership interests may only be made with consent of a super-majority of the non-transferring members. There are tag-along rights in the event a member decides to sell its membership interest. Under the Operating Agreement, distributions of cash or property will be made first, to members for a preferred return of 12% per annum on their capital contributions; second, to unreturned additional capital contributions; and third, in accordance with percentage interests. Because of the terms of the loans on the Square Parcel, it is not anticipated that the Company will receive any distributions until the $50,000,000 loan to construct the observation wheel is paid off, as the Financing Source has a cash sweep provision and will apply all excess cash to repayment of the loan and interest earned thereon, estimated to be a minimum of more than 5 years from closing. There is no assurance that there will ever be distributions to the Company under the Operating Agreement or the amount of any such distributions. Under the Funding Agreement, certain proceeds shall be disbursed to the Company from project financing, from time to time, only if, as and when disbursed by the lenders. The Funding Agreement includes a separate commitment to fund between $100,000 and $250,000 a month for ongoing overhead expenses of the Company from the monthly draws for construction and improvements to the property so long as such draws continue, which is anticipated to be approximately 22 to 26 months (from December 2012) during the construction period and if insufficient to meet those expenses, then each of Paul C. Kanavos and Mitchell J. Nelson, executive officers of the Company, have agreed to subordinate his salary to the payment of the other overhead expenses, and the consultant of the Company with the ownership interest in the Project Owner has also agreed to subordinate his consulting fees to the payment of the other overhead expenses. As of September 30, 2014, the Company is in arrears on current year salaries and consulting fees due to its executive officers and consultants. Amounts accrued to Mr. Kanavos are approximately $1,598,782 as of September 30, 2014. Amounts accrued to Mr. Nelson are approximately $768,750 as of September 30, 2014. The Company has amounts accrued to Maple Hill Companies LLC, the consultant referenced above, of approximately $525,000 as of September 30, 2014. Such amounts are included in the item “Accounts payable and accrued expenses” set forth on the Company’s consolidated balance sheets included elsewhere in this report. As of October 31, 2013, the Company has stopped making payments to Viggle for its share of Mr. Nelson’s salary, and Mr. Nelson is not being paid for the 25% of his salary that would be paid by the Company. As has been previously reported, on August 23, 2012, the Company, pursuant to a termination and settlement agreement, terminated (i) the Exclusive License Agreement with William J. Kitchen and US ThrillRides, LLC, pursuant to which the Company was granted a worldwide exclusive license to use and commercially exploit all of these counterparties’ patents and other intellectual property, trade secrets and know-how pertaining to all aspects of the adaptation of an observation wheel legally known as a SkyView™ including, without limitation, its engineering, design, development, construction, operation and maintenance, and (ii) the related Development Agreement with these counterparties (these agreements are collectively referred to as “SkyView Agreements” ). The Company’s obligations with respect to the SkyView Agreements have been satisfied in full. On December 31, 2013, the Transaction Agreement expired as to the other property, known as the “OHI Parcel”, consisting of 10 acres in Orlando, Florida. As has been previously reported, on June 11, 2013, the Company and the other parties to the Transaction Agreement entered into the Second Amendment to Transaction Agreement pursuant to which the closing date for acquisition of the OHI Parcel was extended to December 31, 2013 from June 30, 2013. In addition, pursuant to the Second Amendment to Transaction Agreement, the Company’s required capital contribution to purchase the 65% interest in the OHI Parcel has been increased from $1,000,000 to $2,000,000. As an inducement for Charles Whittall and his affiliated entities (the “Whittall Parties”) to enter into the Second Amendment to Transaction Agreement, certain of the majority owners of the Project Owner, who are also the majority stockholders of the Company, agreed to extend the Whittall Parties a loan of up to $2,000,000 to fund tenant improvements on the OHI Parcel. However, the closing of the acquisition of the OHI Parcel did not occur on December 31, 2013. As a result, the Transaction Agreement, as amended by the Second Amendment, expired. There are no further discussions between the parties relating to the OHI Parcel. For a more detailed description of the Transaction Agreement, its First Amendment, the Operating Agreement, the Funding Agreement and the termination of the SkyView Agreements, reference is made to “Item 1. Business—Overview of the Company and its Current Business” of the 2013 Form 10-K.

2. Business of the Company

9 Months Ended

Sep. 30, 2014

As has been previously reported, on December 30, 2013, the independent members of the Board of Directors (the “Board”) of the Company received a letter (the “Letter”) from Paul C. Kanavos, the President and a greater than 10% stockholder of the Company, Robert F. X. Sillerman, a non-independent member of the Board and a greater than 10% stockholder of the Company, and Brett Torino, a greater than 10% stockholder of the Company, in which Kanavos, Sillerman and Torino have proposed to acquire all of the shares of common stock of the Company that they do not beneficially own for a purchase price of $0.03 per share pursuant to a short-form merger and related transactions (the ‘Proposal”).

Messrs. Kanavos, Sillerman and Torino beneficially own more than 50% of the outstanding shares of the Company’s common stock.

The Letter acknowledges that the Board will establish a special committee composed solely of independent and disinterested members of the Board to negotiate the terms of the transactions contemplated by the Proposal.

No binding obligation on the part of Messrs. Kanavos, Sillerman and Torino or the Company will arise with respect to the Letter or Proposal (other than as indicated below) unless and until a definitive agreement with the Company is executed and delivered.

Pursuant to the terms of the Letter, Kanavos, Sillerman and Torino have agreed to pay certain of the professional fees of the Company (including those of the special committee of the Board) incurred in connection with the transactions contemplated by the Proposal whether or not completed.

The Board will review and evaluate the Letter and the Proposal in due course, consistent with its fiduciary duties. Accordingly, in February 2014, the Board formed a Special Committee of independent directors to evaluate the Proposal. The members of the special committee are Michael J. Meyer and David Ledy, both of whom the Board believes are independent and disinterested in respect of the proposal. The Special Committee has retained independent counsel and a financial advisor to evaluate whether any proposed transaction arising out of the Proposal is fair, from a financial point of view, to the Company’s non-participating and unaffiliated stockholders. The Special Committee, with the assistance of its advisors, is in the process of evaluating the Proposal.

In March 2014, Harvey Silverman, a member of our Board, Mitchell J. Nelson, our Executive Vice President and General Counsel, and Maple Hill Companies, LLC or an affiliate thereof, a consultant to the Company, among others, indicated that they intend to participate with Messrs. Kanavos, Sillerman and Torino in the transactions contemplated by the Proposal.

While evaluating the Proposal, the Company has ceased pursuing the development and commercialization of its location-based entertainment line of business, which it had been doing since September 10, 2010.

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

The Company does not currently generate any revenue from its location-based entertainment line of business and, as described below, its expenses are currently being funded by proceeds from a development loan for the Orlando, Florida project and under a Funding Agreement between the project owner (which is controlled by Messrs. Sillerman, Kanavos and Torino) and the Company. However, the funding by the project owner under the Funding Agreement, which began during the fourth quarter of 2012, has exceeded the Funding Agreement’s limit and is continuing at the project owners’ discretion and, thus, may cease at any time, whereupon the Company’s ability to continue as a going concern will depend on its ability to complete equity and/or debt financings until such time, if ever, as it commercializes and generates significant revenue from its location-based entertainment line of business. During the three months ended September 30, 2014, Messrs. Kanavos, Sillerman and Torino provided the Company with $425,000 of funding to pay certain of its expenses. The Company has classified such funding as capital contributions in its consolidated financial statements included herewith. There is no assurance that Messrs. Kanavos, Sillerman and Torino will provide any additional funding to the Company as capital contributions or otherwise. Messrs. Kanavos, Sillerman and Torino financed substantially all of the Company’s short-term liquidity requirements from 2010 through most of 2012.

As has been previously reported, in November 2012, the Company restructured its position in the proposed co-development of an entertainment destination center on International Drive in Orlando, Florida (the “Orlando Project”). As a consequence of the restructuring, the Company now owns an 8.5% membership interest in I Drive Live Parent LLC, the owner of the Orlando Project (the “Project Owner”), pursuant to an operating agreement (the “Operating Agreement”). The Principals (as hereinafter defined), which include certain directors, officers, and greater than 10% stockholders of the Company (the “Company Principals”) and others (with the Company Principals, the “Principals”) own approximately 87.25% of the membership interests in the Project Owner, and a consultant to the Company owns an additional 4.25%. The Principals provided guarantees as a condition of obtaining financing from an institutional investor/lender (the “Financing Source”) that acquired the parcel of land designated for the Orlando Project (the “Square Parcel”) and has leased the Square Parcel to entities owned by the Project Owner. As part of the restructuring, the Company entered into a funding agreement (the “Funding Agreement”), pursuant to which the Company is to receive from the project development loan amounts between $100,000 and $250,000 per month to meet its ongoing overhead expenses as long as the Financing Source continues to fund the project development loan for the Orlando Project. For a more complete description of the restructuring of the Company’s position in the Orlando Project, including changes to the original transaction agreement (the “Transaction Agreement”) pursuant to the related First Amendment and Assignment of Rights Agreement (the “First Amendment”), reference is made to “Item 1. Business—Overview of the Company and its Current Business” of the 2013 Form 10-K.

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

Under the Funding Agreement, certain proceeds shall be disbursed to the Company from project financing, from time to time, only if, as and when disbursed by the lenders. The Funding Agreement includes a separate commitment to fund between $100,000 and $250,000 a month for ongoing overhead expenses of the Company from the monthly draws for construction and improvements to the property so long as such draws continue, which is anticipated to be approximately 22 to 26 months (from December 2012) during the construction period and if insufficient to meet those expenses, then each of Paul C. Kanavos and Mitchell J. Nelson, executive officers of the Company, have agreed to subordinate his salary to the payment of the other overhead expenses, and the consultant of the Company with the ownership interest in the Project Owner has also agreed to subordinate his consulting fees to the payment of the other overhead expenses. As of September 30, 2014, the Company is in arrears on current year salaries and consulting fees due to its executive officers and consultants. Amounts accrued to Mr. Kanavos are approximately $1,598,782 as of September 30, 2014. Amounts accrued to Mr. Nelson are approximately $768,750 as of September 30, 2014. The Company has amounts accrued to Maple Hill Companies LLC, the consultant referenced above, of approximately $525,000 as of September 30, 2014. Such amounts are included in the item “Accounts payable and accrued expenses” set forth on the Company’s consolidated balance sheets included elsewhere in this report.

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

As has been previously reported, on August 23, 2012, the Company, pursuant to a termination and settlement agreement, terminated (i) the Exclusive License Agreement with William J. Kitchen and US ThrillRides, LLC, pursuant to which the Company was granted a worldwide exclusive license to use and commercially exploit all of these counterparties’ patents and other intellectual property, trade secrets and know-how pertaining to all aspects of the adaptation of an observation wheel legally known as a SkyView™ including, without limitation, its engineering, design, development, construction, operation and maintenance, and (ii) the related Development Agreement with these counterparties (these agreements are collectively referred to as “SkyView Agreements” ). The Company’s obligations with respect to the SkyView Agreements have been satisfied in full.

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

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

For a more detailed description of the Transaction Agreement, its First Amendment, the Operating Agreement, the Funding Agreement and the termination of the SkyView Agreements, reference is made to “Item 1. Business—Overview of the Company and its Current Business” of the 2013 Form 10-K.

Circle Entertainment, Inc. 10-Q