UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
Form
10-Q
x
QUARTERLY
REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
For the
quarterly period ended March 31, 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 000-29929
LIVE
CURRENT MEDIA INC.
(Exact
name of registrant as specified in its charter)
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Nevada
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88-0346310
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(State or
other jurisdiction of
incorporation or
organization)
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(IRS
Employer
Identification
Number)
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375 Water Street, Suite 645,
Vancouver, British Columbia, V6B 5C6
(604)
453-4870
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.
o
Yes
o
No
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
|
Large
accelerated filer
o
|
Accelerated
filer
o
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|
Non-accelerated
filer
o
(Do
not check if a smaller reporting company)
|
Smaller
reporting company
þ
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
o
Yes
þ
No
APPLICABLE
ONLY TO CORPORATE ISSUERS
Indicate
the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date.
|
|
Common
Stock
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23,934,268 shares
outstanding
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|
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$.001 Par
Value
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as of May 15,
2009
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LIVE CURRENT MEDIA
INC.
REPORT
ON FORM 10-Q
QUARTER
ENDED MARCH 31, 2009
TABLE
OF CONTENTS
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Page
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PART
I.
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Financial
Information
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4
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Item
1.
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Unaudited
Financial Statements
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4
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Consolidated
Balance Sheets as of March 31, 2009 and December 31, 2008
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F-2
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Consolidated
Statements of Operations for the periods ended March 31, 2009 and March
31, 2008
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F-3
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Consolidated
Statement of Stockholders’ Equity for the periods ended March 31, 2009 and
December 31, 2008
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F-4
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Consolidated
Statements of Cash Flows for the periods ended March 31, 2009 and March
31, 2008
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F-5
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Notes
to the Consolidated Financial Statements
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F-6
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Item
2.
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Management's
Discussion and Analysis of Financial Condition and Results of
Operations
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4
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Item
3.
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Quantitative
and Qualitative Disclosures About Market Risk
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20
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Item
4T.
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Controls
and Procedures
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20
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PART
II.
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Other
Information
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21
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Item
1.
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Legal
Proceedings
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21
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Item
1A.
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Risk
Factors
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21
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Item
2.
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Unregistered
Sales of Equity Securities and Use of Proceeds
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21
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Item
3.
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Defaults
Upon Senior Securities
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21
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Item
4.
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Submission
of Matters to a Vote of Security Holders
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21
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Item
5.
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Other
Information
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21
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Item
6.
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Exhibits
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22
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Signatures
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23
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Certifications
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PART I
– FINANCIAL INFORMATION
Item 1: Financial
Statements.
The
response to Item 1 has been submitted as a separate section of this Report
beginning on page F-1.
Item 2: Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
(a) Forward
Looking Statements
The
Company makes forward-looking statements in this report and may make such
statements in future filings with the Securities and Exchange Commission. The
Company may also make forward-looking statements in its press releases or other
public shareholder communications. Its forward-looking statements are subject to
risks and uncertainties and include information about its expectations and
possible or assumed future results of operations. When Management uses any of
the words “believes”, “expects”, “anticipates”, “estimates” or similar
expressions, it is making forward-looking statements.
While
Management believes that our forward-looking statements are reasonable, you
should not place undue reliance on any such forward-looking statements, which
speak only as of the date made. Because these forward-looking
statements are based on estimates and assumptions that are subject to
significant business, economic and competitive uncertainties, many of which are
beyond Management’s control or are subject to change, actual results could be
materially different. Factors that might cause such a difference include,
without limitation, the following: the Company’s inability to generate
sufficient cash flows to meet its current liabilities, its potential inability
to retain qualified management, sales and customer service personnel, the
potential for an extended decline in sales, the possible failure of revenues to
offset additional costs associated with any changes in business model, the
potential lack of website acceptance, its potential inability to introduce new
products to the market, the potential loss of customer or supplier
relationships, the extent to which competition may negatively affect prices and
sales volumes or necessitate increased sales or marketing expenses, and the
other risks and uncertainties set forth in this report.
Other
factors not currently anticipated by Management may also materially and
adversely affect our results of operations. Except as required by
applicable law, Management does not undertake any obligation to publicly release
any revisions which may be made to any forward-looking statements to reflect
events or circumstances occurring after the date of this report.
Readers
of this report should not rely solely on the forward-looking statements and
should consider all risks and uncertainties throughout this report, as well as
those discussed under “Item 1A Risk Factors” in our Annual Report on Form 10-K
for the year ended December 31, 2008.
The
following discussion should be read in conjunction with our interim consolidated
financial statements and their explanatory notes, which begin at page
F-1.
(b) Business
Overview
Live
Current Media Inc. was incorporated under the laws of the State of Nevada on
October 10, 1995 under the name “Troyden Corporation”. We changed our
name on August 21, 2000 from Troyden Corporation to “Communicate.com Inc.”, and
again on May 30, 2008 to Live Current Media Inc. Since August 4,
2008, our common stock has been quoted on the OTCBB under the symbol,
“LIVC”.
Our
corporate website is located at www.livecurrent.com. Information
included on the website is not a part of this Quarterly Report.
Subsidiaries
Our
principal operating subsidiary, Domain Holdings Inc. (“DHI”), was incorporated
under the laws of British Columbia on July 4, 1994 under the name “IMEDIAT
Digital Creations Inc.”. On April 14, 1999, IMEDIAT Digital
Creations, Inc. changed its name to “Communicate.com Inc.” and was redomiciled
from British Columbia to the jurisdiction of Alberta. On April 5,
2002, Communicate.com Inc. changed its name to Domain Holdings
Inc. DHI has 62,635,383 shares of common stock currently issued and
outstanding. 61,478,225 shares, or approximately 98.2% of the
outstanding shares, are held by Live Current.
On
December 31, 2005, DHI reorganized by transferring certain domain name assets
into its wholly owned subsidiary, Acadia Management Corp. (“Acadia”), a British
Columbia corporation incorporated on December 1, 2005. In October
2008, the assets and liabilities of Acadia were assigned to DHI and Acadia was
subsequently dissolved in January 2009. On December 31, 2006, DHI
transferred the domain name Importers.com to its wholly owned subsidiary 0778229
B.C. Ltd. (“Importers”), a British Columbia company incorporated on December 27,
2006. DHI also has a dormant wholly owned subsidiary, 612793 B.C.
Ltd. (“612793”), which was incorporated on August 21, 2000.
On March
13, 2008, the Company incorporated a wholly owned subsidiary in the state of
Delaware, Communicate.com Delaware, Inc. (“Delaware”). The new
subsidiary was incorporated to facilitate the merger with
Auctomatic.
On August
8, 2008, the Company formed a wholly-owned subsidiary in Singapore, LCM Cricket
Ventures Pte. Ltd. (“LCM Cricket Ventures”). This company holds
50.05% of Global Cricket Venture Pte. Ltd.
We
presently employ twenty-three full-time and one part-time employee, as well as
one consultant.
Our
principal office is located at #645-375 Water Street, Vancouver, British
Columbia V6B 5C6. We also lease an office at 12201 Tukwila Intl.
Blvd, Suite 200, Tukwila, WA 98168 for a nominal amount per month.
Operations
DHI, our
majority-owned subsidiary, owns more than 800 domain names. Through
DHI, we build consumer internet experiences around our large portfolio of
intuitive, easy to remember domain names. These domain names span
several consumer and business-to-business categories including health and beauty
(such as Perfume.com), sports and recreation (such as Cricket.com and
Boxing.com), travel (such as Brazil.com and Indonesia.com), and global trade
(Importers.com). We believe that we can develop and sustain
businesses based on these intuitive domain names in part because of the
significant amount of search and direct type-in traffic they
receive. We have begun to exploit this traffic through the
construction of consumer experiences online, which we call DestinationHubs
®
, at Perfume.com
and Cricket.com. DestinationHubs® tap into a large, passionate,
pre-existing community of interested users. From a technology and
product standpoint, a DestinationHub® is architected for discovery, meaning it
is built in such a way that it is found easily through search. One of
the best ways to ensure sites are found through search is to have a powerful
domain name asset as a low-cost customer acquisition vehicle that easily enables
ownership of that subject category. Over time, we will build out
additional DestinationHubs
®
at several of our
domain names. We may also choose to sell select domain names to
strategic buyers.
We also
own a number of .cn (China) domain names. We believe that the .cn
domain names could have significant value as the internet market in China
develops. We also have a number of non-core “bound.com” domain names
that we may choose to develop that cover expansive categories of interest such
as shoppingbound.com, pharmacybound.com and vietnambound.com.
We have
organized our operations into two principal segments: (1)
ECommerce Products
, which
currently consists of our “Health and Beauty” websites, and (2)
Advertising.
Our Health and
Beauty websites generate revenue by facilitating the sale of products direct to
consumers (eCommerce). Currently, our eCommerce revenues are
primarily derived from the sale of fragrance products to consumers at our
Perfume.com website. Our sports and recreation, travel, and global
trade websites generate revenues through the sale of online advertising space to
advertisers, derived by offering “pay per click” and display advertising on
various websites in our portfolio.
ECommerce
Revenues
We
currently generate almost all of our eCommerce revenues through product sales on
Perfume.com. We plan to continue to build Perfume.com eCommerce
revenues by expanding to more efficient distribution and fulfillment channels,
creating a more engaging consumer experience, and performing continued technical
improvements to the websites. We will also continue to explore other
product-related revenue streams across our domain name portfolio.
Health
and Beauty Products
Our
Perfume.com website sells discounted brand name fragrances, including women’s
perfume, men’s cologne, and designer hair care and skin care products direct to
consumers in the US and select international markets. Perfume.com
sells 100% authentic products and provides customers with a satisfaction
guarantee. We are not dependent on any single supplier for the
products that we sell. The products are supplied by various wholesale
suppliers located in the United States.
Our
products are described in detail on our website. The products are
offered through an easily navigated website experience within a transaction
secure environment accepting the usual modes of secure credit card payments,
PayPal and Google Checkout. Products can also be ordered using our
toll-free telephone number.
By way of
its intuitive domain name and through ongoing technical optimizations,
Perfume.com consistently ranks highly in organic, unpaid search results across
major search engines. Organic search traffic delivers the majority of
traffic and customers to Perfume.com. The site also realizes traffic
through direct navigation by visitors. Finally, we acquire internet
traffic through paid search, comparison shopping websites, and our robust email
marketing efforts as well as through affiliate sales.
We use affiliate
relationships whereby we pay our affiliates sales commissions if they deliver
traffic to Perfume.com that results in a successful
sale. Affiliates do not represent themselves as Perfume.com, and
through a rigorously enforced policy, are not allowed to use our
name. Affiliates place our advertisements on their
websites. We pay these affiliates a commission when visitors to their
sites click on our advertisements and make purchases on
Perfume.com.
Advertising
Revenues
Over
time, we expect to generate significant revenues by selling advertising either
directly to advertisers or in partnership with third party advertising
networks. During 2007 and early 2008, we had an arrangement with
Overture Services, Inc. (“Overture”) pursuant to which we were paid a fee for
referrals to sites with connections to Overture. We terminated our
relationship with Overture effective February 29, 2008, to give us more
flexibility to deploy advertising across our websites. Currently,
many of our websites are part of Google AdSense's network of publishers which
generates advertising revenues and monetizes our properties. Google
AdSense matches ads to our sites’ content and audiences, and depending on the
type of ad, we earn revenues from clicks or impressions.
The relationship with Google is a non-exclusive agreement and as
we develop our domain websites we may revisit direct relationships or other
third party advertising networks.
Sports
and Recreation
We
currently host one sports-related website, Cricket.com. Cricket.com
is a community website for cricket fans. The site includes
cricket-related news, schedules of games played worldwide, scores, photos and an
active fantasy cricket league. Cricket.com generates revenue through
paid advertisements on the website.
Travel
We
currently host two travel websites; Brazil.com and Indonesia.com, as Vietnam.com
was sold after March 31, 2009. These sites seek to provide much of
the information a traveler to these destinations might need. Aside
from information and access to flights and hotels, the sites provide basic facts
about the countries (history, language, maps and facts), information on tourist
attractions and major cities, weather, blogs from travelers and links to other
sites about the destination. We earn advertising revenues and
affiliate commission revenues for the referred sales of hotels, flights and
travel bookings from these websites.
Global
Trade
Importers.com
is a trade website that connects businesses around the world by providing tools
such as an email service and a searchable, online database which helps
facilitate communication between buyers and sellers. Businesses
register on the website for free. Once registered, buyers and
distributors can access information about manufacturers and wholesalers and vice
versa. The information is grouped in product categories or may be
found via a search bar included on the website. As long as both
parties are members, they may contact each other via e-mail. The
website also provides useful information concerning international trade-related
issues such as customs clearance, transportation providers and trade development
organizations. We earn advertising revenues from this
website.
Sale
and Lease of Domain Names
We own
more than 800 domain names. We believe that there is high value in
building businesses around the domain names we own, however we recognize that
there are opportunities whereby selling or leasing them may be more valuable
than exploiting the ownership value of the names. We also recognize
that selling some non-core domain names is an effective way to raise funds in a
non-dilutive manner, and have successfully sold or leased two domain names in
February 2009 with differing payment schedules, and another domain name
subsequent to our quarter end. We continue to evaluate any offers
received. In the future, we may buy domain names to complement our
existing businesses in the health and beauty, sports, travel and global trade
categories. In 2008, there was one outright sale and another sales-type lease of
domain name assets.
Karate.com
On
September 30, 2008, we signed a letter of intent with Domain Strategies, Inc., a
leading internet development and management company, to jointly establish a new
company (“Newco”) for the purpose of building, managing and monetizing the
Karate.com domain name we own. The partnership with Domain Strategies
will provide management focus and resources to efficiently monetize the domain
name. We will contribute the domain name Karate.com to Newco and will
receive a 50% interest of the new company, plus a distribution and liquidation
preference of $500,000. The Board of Directors of Newco will have
equal representation from both partners with Domain Strategies having primary
responsibility for the management of day-to-day operations including site
design, employment relationships, vendors, customer acquisition and maintenance
and relationships with potential strategic partners. If after three
years from the date of formation, Newco has not achieved the annual financial
goals as set by management and approved by the Board, we have the right to
terminate our participation in Newco and ownership of the domain name
www.karate.com
will
revert back to us. In the event that we are the terminating party, Domain
Strategies will have the right but not the obligation to purchase our interest
in Newco, including the domain name
www.karate.com
for $1
million within 60 days of termination.
Global
Cricket Venture
On April
17, 2008, we signed two Memoranda of Understanding (individually the “BCCI
Memorandum” and the “IPL Memorandum” and, together, the “Memoranda”) with each
of the Board of Control for Cricket in India (“BCCI”) and the DLF Indian Premier
League (“IPL”). The Memoranda, each of which had a term of 10 years,
granted to us the exclusive right to provide the official websites for the BCCI
and the IPL (the “Cricket Websites”). As consideration for the rights
conveyed, we agreed to pay a minimum annual fee to the BCCI of the greater of
50% of all revenues generated from the BCCI website or an average payment of $3
million per year and a minimum annual fee to the IPL of the greater of 50% of
all revenues generated from the IPL website or an average payment of $2 million
per year. In addition to the annual fee, we agreed to pay a total of
5% of the revenues generated by a third website, Cricket.com, to the BCCI and
the IPL. Revenues were defined as all revenues generated by the
Cricket Websites with the exception of revenues earned from the sale of tickets
to the matches. We agreed that the minimum annual fee would be paid
on a quarterly basis during the first 3 years of the term. The
payments, when made, may have been subject to certain withholding or other taxes
which we may have been required to gross up pursuant to the terms of the
Memoranda. The first payment to the BCCI of $625,000 was due on
October 1, 2008, with additional payments of $625,000 due on January 1, 2009,
April 1, 2009 and July 1, 2009. The first payment to the IPL of
$375,000 was due on October 1, 2008, with additional payments of $375,000 due on
January 1, 2009, April 1, 2009 and July 1, 2009. The payment due to
the BCCI was decreased to $125,000 pursuant to an agreement we reached with the
BCCI. We did not make any of the payments called for by the
Memoranda.
In
conjunction with our execution of the Memoranda, we signed an agreement (the
“Venture Agreement”) with Netlinkblue, the owner of the live streaming and
mobile rights to the BCCI and IPL cricket matches. Under the Venture
Agreement, we and Netlinkblue agreed to create a new company into which we would
transfer our rights under the Memoranda and Netlinkblue would transfer the
rights it acquired to live stream the matches. As contemplated by the
Venture Agreement, a company was incorporated in Singapore on June 10, 2008 and
named Global Cricket Venture Pte. Ltd. (“Global Cricket
Venture”). Our wholly-owned subsidiary, LCM Cricket Ventures,
currently owns 50.05% of the shares of Global Cricket
Venture. Pursuant to the Venture Agreement, once we and Netlinkblue
each transfer the rights we received from the BCCI and the IPL into Global
Cricket Venture, certain rights and obligations will arise, including the
obligation that each of us provides funding to Global Cricket
Venture. As described below, on March 31, 2009, we and the BCCI
jointly terminated the BCCI Memorandum and we assigned the IPL Memorandum to
Global Cricket Venture. To our knowledge, Netlinkblue has not
transferred the rights it received from the BCCI and the IPL to Global Cricket
Venture, therefore, as of March 31, 2009, we do not believe that we have an
obligation to provide funding to Global Cricket Venture. The Venture
Agreement also required that we and Netlinkblue negotiate and enter into
definitive agreements with further terms and conditions to govern our
relationship. To date, no definitive agreements have been
prepared.
On March
31, 2009, we and the BCCI entered into a Termination Agreement, pursuant to
which the BCCI Memorandum was terminated. On that same date, we,
Global Cricket Venture and the BCCI, on behalf of the IPL, entered into a
Novation Agreement (the “Novation”) with respect to the IPL
Memorandum. Pursuant to the Novation, Global Cricket Venture was
granted all of our rights, and assumed all of our obligations, under the IPL
Memorandum. Global Cricket Venture also assumed certain payments due
to the BCCI under the BCCI Memorandum.
As a
result of the Novation,
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·
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Global
Cricket Venture, a 50.05% owned subsidiary, rather than Live Current, is
the party to the IPL Memorandum;
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·
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the
term of the IPL Memorandum was modified, so that it began on April 1, 2008
and will end on December 31, 2017;
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·
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the
minimum payment due on October 1, 2008 to the BCCI of $125,000, reduced
from $625,000, and any other payments owed to the BCCI through March 31,
2009 were assumed by Global Cricket Venture and are to be paid on July 1,
2009. We will be fully released from these liabilities once
Global Cricket Venture makes these
payments;
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·
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the
minimum payment due on October 1, 2008 to the IPL of $375,000, and any
other payments owed to the IPL through March 31, 2009 were assumed by
Global Cricket Venture and are to be paid on July 1, 2009. We
have been fully released from these
liabilities;
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·
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a
right to terminate the IPL Memorandum due to a material breach or on the
insolvency of either party was added;
and
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·
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the
“Minimum Annual Fee Payment Schedule” (Schedule 2 to the IPL Memorandum)
was revised. The first payment of $2,250,000 is due on July 1,
2009.
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The $375,000 owing to the
IPL for the October 1, 2008 minimum payment under the IPL Memorandum that was
accrued and expensed in 2008 was reversed on March 31, 2009. The
$625,000 owing to the BCCI for the October 1, 2008 minimum payment under the
BCCI Memorandum that was accrued and expensed in 2008 was renegotiated to
$125,000. Therefore $500,000 was reversed on March 31,
2009. The $625,000 owing to the BCCI for the January 1, 2009 minimum
payment under the BCCI Memorandum was accrued and expensed in the first quarter
of 2009. The two minimum payments of $125,000 and $625,000 owing to
the BCCI as at March 31, 2009 were assumed by Global Cricket Venture, however
the release of the Company's obligation to make the payments is contingent on
Global Cricket Venture making the payments on or before July 1,
2009.
During
the first quarter of 2009, the Company incurred $227,255 of costs relating to
initial performance of its obligations under the Memoranda with each of the BCCI
and the IPL and establishing Global Cricket Venture with
Netlinkblue. These costs relate to, but are not limited to,
expenditures for business development, travel, consulting, and
salaries.
Due to
the reversal of the $375,000 and $500,000 accrued liabilities at December 31,
2008, the recognition of $625,000 owing for the January 1, 2009 BCCI minimum
payment, and the costs incurred of $227,255 as noted above, there was a net
recovery of Global Cricket Venture expenses of $22,745 recorded during the
quarter.
(c) Selected
Financial Data
The
following selected financial data was derived from our unaudited interim
consolidated financial statements for the quarter ended March 31,
2009. The information set forth below should be read in conjunction
with our financial statements and related notes included elsewhere in this
report.
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Three
Months Ended
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March
31, 2009
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March
31, 2008
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(Unaudited)
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(Unaudited)
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SALES
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Health
and beauty eCommerce
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$
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1,720,167
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$
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1,820,188
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Other
eCommerce
|
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|
-
|
|
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455
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Domain
name advertising
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24,453
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27,836
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Miscellaneous
income
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7,762
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-
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Total
Sales
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1,752,382
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1,848,479
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COSTS
OF SALES
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Health
and Beauty eCommerce
|
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1,386,619
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1,485,510
|
|
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Other eCommerce
|
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-
|
|
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552
|
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Total
Costs of Sales
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1,386,619
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1,486,062
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GROSS
PROFIT
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|
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365,763
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362,417
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EXPENSES
|
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|
|
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|
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Amortization
and depreciation
|
|
|
98,166
|
|
|
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15,266
|
|
|
Amortization of website development costs
|
|
|
32,562
|
|
|
|
-
|
|
|
Corporate
general and administrative
|
|
|
118,210
|
|
|
|
447,895
|
|
|
ECommerce
general and administrative
|
|
|
80,220
|
|
|
|
169,813
|
|
|
Management
fees and employee salaries
|
|
|
774,972
|
|
|
|
1,073,546
|
|
|
Corporate
marketing
|
|
|
2,454
|
|
|
|
26,459
|
|
|
ECommerce
marketing
|
|
|
111,422
|
|
|
|
149,187
|
|
|
Other expenses
|
|
|
346,564
|
|
|
|
629,856
|
|
|
Total
Expenses
|
|
|
1,564,570
|
|
|
|
2,512,022
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS
FROM OPERATIONS BEFORE OTHER ITEMS
|
|
|
(1,198,807
|
)
|
|
|
(2,149,605
|
)
|
|
|
|
|
|
|
|
|
-
|
|
|
Global
Cricket Venture recovery (expenses)
|
|
|
22,745
|
|
|
|
(55,317
|
)
|
|
Gain
from sales and sales-type lease of domain names
|
|
|
580,525
|
|
|
|
168,206
|
|
|
Accretion
expense
|
|
|
(40,000
|
)
|
|
|
-
|
|
|
Interest
and investment income
|
|
|
890
|
|
|
|
42,498
|
|
|
NET
LOSS AND COMPREHENSIVE LOSS FOR THE PERIOD
|
|
$
|
(634,647
|
)
|
|
$
|
(1,994,218
|
)
|
|
|
|
|
|
|
|
|
|
|
|
BASIC
AND DILUTED LOSS PER SHARE
|
|
$
|
(0.03
|
)
|
|
$
|
(0.10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED
AVERAGE NUMBER OF COMMON
|
|
|
|
|
|
|
|
|
|
SHARES
OUTSTANDING - BASIC AND DILUTED
|
|
|
22,509,120
|
|
|
|
19,970,334
|
|
|
BALANCE SHEET DATA
|
|
|
|
|
|
|
|
|
|
March
31, 2009
|
|
|
December
31, 2008
|
|
|
|
|
(unaudited)
|
|
|
(audited)
|
|
|
Assets
|
|
|
|
|
|
|
|
Current
Assets
|
|
|
835,612
|
|
|
|
2,133,150
|
|
|
Long-term
portion of investment in sales-type lease
|
|
|
-
|
|
|
|
23,423
|
|
|
Property
& equipment
|
|
|
947,389
|
|
|
|
1,042,851
|
|
|
Website
development costs
|
|
|
348,061
|
|
|
|
392,799
|
|
|
Intangible
assets
|
|
|
1,557,267
|
|
|
|
1,587,463
|
|
|
Goodwill
|
|
|
2,428,602
|
|
|
|
2,428,602
|
|
|
Total
Assets
|
|
$
|
6,116,931
|
|
|
$
|
7,608,288
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
3,932,643
|
|
|
|
5,297,307
|
|
|
Deferred
lease inducements
|
|
|
50,345
|
|
|
|
55,380
|
|
|
Total
Liabilities
|
|
|
3,982,988
|
|
|
|
5,352,687
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
Equity
|
|
|
|
|
|
|
|
|
|
Common
Stock
|
|
|
15,216
|
|
|
|
14,855
|
|
|
Additional
paid-in capital
|
|
|
15,285,508
|
|
|
|
14,772,880
|
|
|
Accumulated
deficit
|
|
|
(13,166,781
|
)
|
|
|
(12,532,134
|
)
|
|
Total
Stockholders' Equity
|
|
|
2,133,943
|
|
|
|
2,255,601
|
|
|
Total
Liabilities and Stockholders' Equity
|
|
$
|
6,116,931
|
|
|
$
|
7,608,288
|
|
(d) Results
of Operations
Sales
and Costs of Sales
Overall,
combined sales in Q1 of 2009 totaled $1,752,382 versus $1,848,479 in Q1 of 2008,
a decrease of 5.2%. Most of this decrease was driven by a decrease in sales on
Perfume.com as noted below. Overall, Health and Beauty eCommerce
product sales, consisting of Perfume.com sales, represented 98.2% of total
revenues in Q1 of 2009, compared to approximately 98.5% of total revenues in Q1
of 2008.
Costs of
sales were $1,386,619 in Q1 of 2009 compared to $1,486,062 during Q1 of 2008, a
decrease of 6.7%. The decrease of costs of sales in Q1 of 2009 over
Q1 of 2008 is in line with the decrease in Perfume.com sales for the
quarter.
Overall
gross margin in Q1 of 2009 was $365,763 or 20.9% compared to a gross margin of
$362,417 or 19.6% in Q1 of 2008. This increase in the overall gross
margin from Q1 of 2008 is due to efficient product merchandising efforts and a
decrease in exposing coupons and discounts.
Health
and Beauty eCommerce Sales
Our
Health and Beauty eCommerce sales result from the sale of fragrances, designer
skin care and hair care products to customers at Perfume.com. Our
results from the first quarter of 2008 include eCommerce monetization of
Body.com which ended in early 2008. Perfume.com accounted for nearly
all of our eCommerce sales in 2008 and 2009 and we expect that this will
continue in the short term.
The most
recent quarters have presented great challenges for all retailers including
eCommerce, due to the worldwide economic downturn. The industry has
seen a decrease in consumer spending on discretionary items. Such a
decrease will likely adversely affect the revenues from Perfume.com over the
short-term.
Perfume.com
revenues decreased 5.5% to $1,720,167 in Q1 of 2009 from $1,820,188 in Q1 of
2008. Daily sales averaged $19,113 per day in Q1 of 2009 compared to
$20,002 per day in Q1 of 2008. In Q4 of 2008, we began reflecting
revenues for orders that were in transit at quarter end as deferred revenues,
where these amounts were not material and therefore not recorded as such in
prior years. At the end of March, 2009, this represented
approximately $63,000 in deferred revenues. Without this effect in Q1
of 2009, the decrease in Perfume.com revenues year over year was only
2.0%. Revenue growth was challenged as a result of continued
softening of consumer discretionary spending in the US
market. Additionally, in Q1 2009 we did not publish as many
promotions with large product discounts that have historically driven top line
revenue and eroded margin. We also eliminated inefficient marketing
programs that drove revenue in 2008 but were not profitable.
Costs of
shipping and purchases totaled $1,386,619 in Q1 of 2009 versus $1,485,510 in Q1
of 2008. This produced a gross margin of $333,548 or 19.4% in Q1 of
2009 compared to $334,678 or 18.4% in Q1 of 2008. Gross profit margin
in Q1 2009 increased compared to Q1 of 2008 primarily due to nominal decreases
in our product discounting during the quarter, as well as a decrease in shipping
costs attributed to a slight decrease in oil prices. Management
anticipates that, subject to any further downturn in general economic
conditions, it will maintain this profit margin through 2008 and into
2009. Over the next several quarters, Management intends to explore
opportunities to introduce and implement more robust supply chain capability
which, if realized, should increase gross margins by the end of
2010.
Other
eCommerce Sales
In Q1 of
2008, we ceased offering goods or services for sale on any of our websites other
than Perfume.com and undertook to re-evaluate the business models around which
these websites were built. As a result, these websites generated no
revenue after the first quarter of the 2008 fiscal year. For the
first half of 2009 we will continue to allocate our resources to the
development of Perfume.com.
Advertising
In Q1 of
2009, we generated advertising revenues of $24,453 compared to $27,836 in Q1 of
2008, a decrease of 12.2%. Management has been able to establish new
advertising relationships that have increased quarterly advertising
revenues. In Q1 of 2009, advertising accounted for 1.4% of total
revenues, compared to 1.5% of total revenues in Q1 of
2008. Advertising revenues are expected to continue to account for a
small percentage of total revenues in the next few quarters as Management
continues to investigate new monetization opportunities with vendors, and
realigns to increase advertising options available on our properties. In the
medium-term, Management expects advertising revenues to be an important part of
overall revenue.
Domain
Name Leases and Sales
In 2008,
we entered into one agreement for a sales-type lease of one of our domain names
for CDN$200,000 and one agreement for an outright sale of another domain name
for CDN$500,000. The net gain on the disposal of these two domain
names was USD$498,829 as disclosed in the 2008 consolidated financial
statements
.
We have
announced our intention to sell six of our non-core but highly valuable dot.com
domain names from our portfolio in order to provide additional working capital
in a non-dilutive manner. We engaged the services of brokers to
assist us with sales of our domain names. As a result of these
relationships, we successfully sold or leased two domain names in February 2009,
as well as one additional domain name subsequent to the first quarter of
2009. We continue to evaluate any interest we receive from domain
name buyers, and continue to consider acquiring certain other domain names that
would complement either our advertising or eCommerce businesses.
General
and Administrative (G&A) Expenses
General
and administrative expenses consist of costs for general and corporate
functions, including facility fees, travel, telecommunications, investor
relations, insurance, merchant charges, and professional fees.
In Q1 of
2009, we incurred total general and administrative expense of $198,430 or 11.3%
of total sales as compared to $617,880 or 33.4% of total sales in Q1 of 2008, a
decrease of $419,450 or 67.9%. This total includes corporate and
eCommerce related general and administrative costs. Management
expected general and administrative expenses to decrease as a percentage of
revenue as the eCommerce business grows, and has been able to successfully
achieve this decrease in the first quarter of 2009.
Corporate
general and administrative costs of $118,210 have decreased over Q1 of 2008 by
$329,685. This was primarily due to a decrease in corporate legal of
approximately $151,000 compared to the same period last year due to the addition
of in-house legal counsel in May 2008. Other significant expenses
included a decrease of approximately $111,000 of corporate travel and
entertainment expenses and $25,000 in decreased rent and overhead due to
cost-cutting procedures implemented in late 2008 and early 2009. The
remainder of the difference is due to the declining value in the Canadian dollar
against the US dollar between the first quarter of 2009 and the first quarter of
2008. In total, these expenses accounted for 6.75% of total revenues
in Q1 of 2009, compared to 24.2% in Q1 of 2009.
We
anticipate that we may incur additional legal expenses to comply with new
disclosure and reporting requirements mandated by the British Columbia
Securities Commission for companies listed on the OTCBB with a presence in
British Columbia. These regulations were effective as of September
15, 2008.
ECommerce
general and administrative costs in Q1 of 2009 decreased by $89,765 over Q1 of
2008 primarily due to the fact that Q1 of 2008 included approximately $105,000
in expenses relating to our search for executive employees and additions to our
Perfume.com business. Some eCommerce general and administrative costs
that increased in Q1 of 2009 over Q1 of 2008 included $10,000 in Perfume.com
related travel. These expenses represented 6.5% of eCommerce sales in
Q1 of 2009, compared to 8.2% of eCommerce sales in Q1 of
2008. Management believes these expense ratios are reasonable given
the increasingly competitive environment for eCommerce sales in the United
States and Management’s continued focus on growing the eCommerce business
throughout 2008 and into 2009. Management expects to maintain
eCommerce general and administrative costs below 10% of eCommerce
sales.
Management
Fees and Employee Salaries
In Q1 of
2009, we incurred total management fees and staff salaries of $774,972 compared
to $1,073,546 in Q1 of 2008. This amount includes stock based
compensation of $386,512 in Q1 of 2009 and $482,144 in Q1 of
2008. Excluding these amounts, management fees and employee salaries
expense in Q1 of 2009 was $388,460 and in Q1 of 2008 was
$591,402. This produced a decrease of 34.3% in Q1 of 2009 over Q1 of
2008. This decrease was primarily due to the layoffs which occurred
in early 2009.
Management
fees and staff salaries, excluding stock-based compensation, represented 22.2%
of total revenues in Q1 of 2009 compared to 32.0% in Q1 of
2008. Since the end of the 2008 fiscal year, our staffing
requirements were restructured and a number of employees were terminated,
including our former President and COO. After severance payments have
been fully paid out, the reduced number of staff will contribute to a decrease
in management fees and salaries as a percentage of revenue. Given the
caliber of current management, employees and consultants, we anticipate
maintaining salary expense at approximately 20% of revenues.
On March
25, 2009, the Board of Directors approved a reduction of the exercise price of
stock option grants made prior to this date. As a result, all grants
issued prior to March 25, 2009 currently have an exercise price of
$0.65. The stock option grants included in the repricing initially
had exercise prices between $0.65 and $3.30. The incremental value of
$92,237 relating to the fair values at the date of the reduction in price has
been included in the stock compensation expense for the period.
Marketing
We
generate internet traffic through paid search, email and affiliate
marketing. We pay marketing costs related to these methods in order
to drive traffic to our various websites. We pay our affiliates sales
commissions if they deliver traffic to Perfume.com that result in a
successful sale. In Q1 of 2009, total marketing expenses were
$113,876 or 6.5% of total revenues, compared to $175,646 or 9.5% of total
revenues in Q1 of 2008. This resulted in a 35.2% decrease for the
period compared to the same period last year.
Expenses
related to corporate activity, which we classify as corporate marketing
expenditures totalled $2,454 in Q1 of 2009, compared to $26,459 in Q1 of
2008. These expenses consisted entirely of costs related to public
relations, which were higher in 2008 due to the repositioning of our business in
early 2008.
ECommerce
marketing expenses relate entirely to advertising costs incurred in our
eCommerce business, particularly email advertising, search engine marketing, and
affiliate marketing programs. ECommerce marketing expenses in Q1 of
2009 were $111,422 or 6.5% of eCommerce sales, compared to $149,187 or 8.2% of
eCommerce sales in Q1 of 2008. These expenses decreased steadily
during 2008 due to management’s decision to move key marketing efforts in-house,
thereby eliminating agency expenses, as well as to take steps to increase the
effectiveness of our search engine and email marketing campaigns for
Perfume.com. We believe that customer acquisition is the key to
accelerated growth, and deploying direct, measurable marketing vehicles like
search, email, and affiliate marketing account for the largest part of these
marketing expenditures.
Organic
search rankings for Perfume.com currently perform
adequately. However, we believe when these results are complemented
with targeted, paid keyword advertising at opportune times, it brings additional
traffic to Perfume.com. We believe that the more strategic and
measurable advertising expenditures implemented during the last fiscal year were
a contributing factor to increased revenues in 2008.
Marketing
costs coincide with revenue growth and are expected to be in the range of 10% of
gross product revenue. We have been able to maintain marketing costs below 10%
of revenues while aggressively marketing our products and services.
Other
Expenses
During Q1
of 2009, we incurred various restructuring costs of $346,564, consisting of
$264,904 in severance payments to the former President and Chief Operating
Officer and to other staff terminated in the first quarter as a result of
restructuring our staffing requirements, as well as $81,660 in signing bonuses
owing to our Chief Corporate Development Officer.
During Q1
of 2008, we incurred various restructuring costs of $629,856 relating to
establishing the new management team. These included approximately
$168,400 in severance payments and $25,700 in consulting fees for assistance
with the transition of the new management team, both of which were paid to our
former Chief Financial Officer, $317,100 in signing bonuses which were paid to
our new Chief Corporate Development Officer and our new Vice President Finance,
additional severance of $53,600 paid to one of our full time employees, $39,800
in costs related to changing our name and rebranding, and $25,300 in some final
windup costs related to the disposition of Frequent Traveler in late
2007.
(e) Liquidity
and Capital Resources
We
generate cash inflows from (i) the sale of third-party products over the
Internet; (2) "pay-per-click" advertising; (3) selling advertising on media rich
websites with relevant content; and (4) the sale or lease of domain name
assets. However, during the 2008 fiscal year and the first quarter of
2009, our cash inflows were not adequate to support our
operations. In order to conserve cash, we paid certain service
providers with shares of our common stock during, and subsequent to, the quarter
ended March 31, 2009.
As at
March 31, 2009, current liabilities were in excess of current assets resulting
in a working capital deficiency of $3,097,031, compared to a working capital
deficiency of $3,164,157 at the fiscal year ended December 31,
2008. During the three months ended March 31, 2009, we incurred a net
loss after other items of $634,647, compared to a net loss after other items of
$1,994,218 during the three months ended March 31, 2008. This
quarter’s net loss includes gains from sales and sales-type lease of domain
names of $580,525 compared to $168,206 during the same period last year, as well
as a recovery on the expenses for the Global Cricket Venture of $22,745 this
quarter compared to expenses of $55,317 in the same period last
year. We had a decrease in cash of $1,259,932 during the first
quarter of 2009 compared to a decrease in cash of $2,469,500 during the first
quarter of 2008. From the beginning of the fiscal year to
March 31, 2009, we increased our accumulated deficit to $13,166,781 from
$12,532,134 and have stockholders’ equity of $2,133,943.
The
decrease in cash for the three month period primarily included cash outlays to
pay off some large accounts payable that had been accrued at the December 31,
2008 fiscal year end, especially from our vendors relating to sales volume from
December 2008. Other payments that were either unusual or
non-operational in nature included $161,000 that was paid during the quarter
related to Global Cricket Venture expenses incurred to perform under the
agreements with BCCI, IPL and NLB.
Operating
Activities
Operating
activities in the three months ended March 31, 2009 resulted in cash outflows of
$1,903,550 after adjustments for non-cash items, the most significant of which
were the stock-based compensation expensed during the period of $386,513 and the
gain from the sales and sales-type lease of domain names of
$580,525. Operating activities also included a significant decrease
in accounts payable of $1,444,566. In the three months ended March
31, 2008, cash outflows of $1,959,299 were primarily due to the loss of the
period.
Investing
Activities
Investing
activities during the three months ended March 31, 2009 generated cash inflows
of $643,618, primarily due to proceeds received from the sale and sales-type
lease of domain names. During the three months ended March 31, 2008,
cash from investing activities used $510,201 primarily consisting of accrued
expenses relating to deferred acquisition costs of $111,265 as well as paid
deferred acquisition costs of $121,265, both pursuant to the Auctomatic
merger. Investing activities in the period also included purchases of
$154,069 for property and equipment and $147,025 spent in website development
costs.
Financing
Activities
There
were no financing activities in either the three months ended March 31, 2009 or
the three months ended March 31, 2008.
Future
Operations
At
quarter end, we had a working capital deficiency, and for over the past two
fiscal years we have experienced substantial losses. We expect to
continue to incur losses in the coming quarters even though costs have been
reduced through lay-offs and restructuring. We may also seek to
explore new business opportunities, including the partnering, building or
acquiring of a distribution center or warehouse in the United States to enhance
our fragrance fulfillment capability and improve gross margins. These
acquisitions may require additional cash beyond what is currently available and
such funds may be raised by future equity and/or debt financings, and through
the sale of non-core domain name assets.
We are
pursuing opportunities to increase cash flows, however there is no certainty
that these opportunities will generate sufficient cash flows to support our
activities in the future in view of changing market
conditions. During the 2009 fiscal year, we expect to expend
significant funds toward additional marketing costs, which we believe will
translate into higher revenue growth, as well as to fund costs related to the
Global Cricket Venture. There is no certainty that the profit margins
we may generate going forward, as well as any successful raising of working
capital, will be sufficient to offset the anticipated marketing costs, Global
Cricket Venture costs, and other expenditures and may result in net cash outflow
for the 2009 fiscal year.
We have
actively curtailed some operations and growth activities in an effort to reduce
costs and preserve cash on hand. We are also continuing to seek
opportunities to sell selected domain names in order to address short term
liquidity needs. As a result, we have entered into agreements with
brokers to sell several of our non-core but highly valuable dot-com domain names
from our portfolio of more than 800 domain names. Two domain names
were sold or leased during the first quarter of 2009 for $1.65
million. After the end of the quarter, we sold an additional domain
name for proceeds of $400,000. We anticipate that further strategic
sales of these domain names, if successful, will provide us with the required
cash to meet our working capital needs, to fund cricket related expenditures,
and to provide for general operating capital needs over the next 12 to 18
months. There can be no assurances that any future sales of domain
names on terms acceptable to us will occur.
The
interim consolidated financial statements have been prepared on a going concern
basis which assumes that we will be able to realize assets and discharge
liabilities in the normal course of business for the foreseeable
future. Our ability to continue as a going-concern is in substantial
doubt as it is dependent on continued financial support from our investors, our
ability to sell additional non-core domain names, our ability to raise future
debt or equity financings, and the attainment of profitable operations to meet
our liabilities as they become payable. The outcome of our operations
and fundraising efforts is dependent in part on factors and sources beyond our
direct control that cannot be predicted with certainty. Access to
future debt or equity financing is not assured and we may not be able to enter
into arrangements with financing sources on acceptable terms, if at
all. The financial statements do not include any adjustments relating
to the recoverability or classification of assets or the amounts or
classification of liabilities that might be necessary should we be unable to
continue as a going concern.
The first
payment due from Global Cricket Venture to the BCCI and the IPL is to be paid on
July 1, 2009. The amount of the payment is $2,250,000. If
Global Cricket Venture, a 50.05% owned subsidiary, is unable to make the
required payments to the BCCI or the IPL, and no extension or renegotiation of
the payment terms can be arranged, it may be exposed to a loss of rights and
opportunities, or potential liability for defaulting on its
payment. Such claims could include breach of contract, lack of
performance and other claims for damages. If these events were to
occur, they could have a negative effect on our overall anticipated results of
operations and performance.
We have
no current plans to purchase any significant property and
equipment.
Off-Balance
Sheet Arrangements
As of March 31, 2009, we did not have
any off-balance sheet arrangements, including any outstanding derivative
financial instruments, off-balance sheet guarantees, interest rate swap
transactions or foreign currency contracts. We do have
off-Balance Sheet commitments as disclosed in the notes to the interim
consolidated financial statements, included at page
F-1 to this
Report. We do not engage in trading activities involving non-exchange
traded contracts.
(f) Application
of Critical Accounting Policies
Our
interim consolidated financial statements and accompanying notes are prepared in
accordance with United States generally accepted accounting
principles. Preparing financial statements requires Management to
make estimates and assumptions that affect the reported amounts of assets,
liabilities, revenue, and expenses. These estimates and assumptions are affected
by Management's application of accounting policies. We believe that
understanding the basis and nature of the estimates and assumptions is critical
to an understanding of our operating results and financial
position.
Going
Concern
Our
consolidated financial statements have been prepared on a going concern basis
which assumes that we will be able to realize assets and discharge liabilities
in the normal course of business for the foreseeable future. We have
generated a consolidated net loss for the quarter ended March 31, 2009 of
$634,647 ($10,006,456 for the year ended December 31, 2008) and realized a
negative cash flow from operating activities of $1,903,550 for the quarter ended
March 31, 2009 ($4,854,260 for the year ended December 31,
2008). There is an accumulated deficit of $13,166,781 (December 31,
2008 - $12,532,134) and a working capital deficiency of $3,097,031 at March 31,
2009 ($3,164,157 at December 31, 2008).
Our
ability to continue as a going-concern is in substantial doubt as it is
dependent on continued financial support from our investors, our ability to
raise equity financing and the attainment of profitable operations and further
share issuances to meet our liabilities as they become payable,
including our commitments for Global Cricket Venture, if
any. The outcome of these matters is dependant on factors outside of
our control and cannot be predicted at this time.
The
accompanying consolidated financial statements have been prepared on a going
concern basis which assumes that we will be able to realize assets and discharge
liabilities in the normal course of business for the foreseeable
future. These financial statements do not include any adjustments
relating to the recoverability or classification of assets or the amounts or
classification of liabilities that might be necessary should we be unable to
continue as a going concern.
Principles
of consolidation
The
consolidated financial statements include our accounts, our wholly owned
subsidiary Delaware, our wholly-owned subsidiary LCM Cricket Ventures, our 98.2%
(December 31, 2007 - 94.9%) interest in our subsidiary DHI, DHI’s wholly owned
subsidiaries Importers and 612793, and LCM Cricket Ventures’ 50.05% interest in
Global Cricket Venture. All significant intercompany balances and
transactions are eliminated on consolidation.
Revenue
Recognition
Revenues,
and associated costs of goods sold, from the on-line sales of products,
currently consisting primarily of fragrances and other beauty products, are
recorded upon delivery of products and determination that collection is
reasonably assured. We record inventory as an asset for items in
transit as title does not pass until received by the customer. All
associated shipping and handling costs are recorded as cost of goods sold upon
delivery of products.
Web
advertising revenue consists primarily of commissions earned from the referral
of visitors to our websites from other parties. The amount and
collectibility of these referral commissions is subject to uncertainty;
accordingly, revenues are recognized when the amount can be determined and
collectibility can be reasonably assured. In accordance with Emerging
Issues Task Force (“EITF”) 99-19,
Reporting Revenue Gross as a
Principal versus Net as an Agent
, we record web advertising revenues on a
gross basis.
Revenue
from the sale of domain names, whose carrying values are recorded as intangible
assets, consists primarily of funds earned for the transfer of rights to domain
names that are currently in our control. Revenues have been
recognized when the sale agreement is signed and the collectibility of the
proceeds is reasonably assured. In the first quarter of 2009, there
was a sale of one domain name. Collectibility of the amounts owing on
this sale is reasonably assured and therefore accounted for as a sale in the
period the transaction occurred. In 2008, there was one sale of
a domain name. Collectibility of the amounts owing on this sale is
reasonably assured and therefore accounted for as a sale in the period the
transaction occurred.
Revenue
from the sales-type leases of domain names, whose carrying values are recorded
as intangible assets, consists primarily of funds earned over a period of time
for the transfer of rights to domain names that are currently in our
control. When collectibility of the proceeds on these transactions is
reasonably assured, the gain on sale is accounted for as a sales-type lease in
the period the transaction occurs.
Stock-Based
Compensation
During
the third quarter of 2007, we implemented the following new critical accounting
policy related to stock-based compensation. Beginning July 1, 2007, we began
accounting for stock options under the provisions of Financial Accounting
Standards No. 123 (revised 2004),
Share-Based Payment
(“FAS
123(R)”), which requires the recognition of the fair value of stock-based
compensation. Under the fair value recognition provisions for FAS 123(R),
stock-based compensation cost is estimated at the grant date based on the fair
value of the awards expected to vest and is recognized as expense ratably over
the requisite service period of the award. We have used the Black-Scholes
valuation model to estimate fair value of our stock-based awards which require
various judgmental assumptions including estimating price volatility and
expected life. Our computation of expected volatility is based on a combination
of historic and market-based implied volatility. In addition, we consider many
factors when estimating expected life, including types of awards and historical
experience. If any of these assumptions used in the Black-Scholes valuation
model change significantly, stock-based compensation expense may differ
materially in the future from what is recorded in the current
period.
In August
2007, our board of directors approved a Stock Incentive Plan to make available
5,000,000 shares of common stock to be awarded as restricted stock awards or
stock options, in the form of incentive stock options (“ISO”) or non-qualified
stock options to be granted to our employees, and other stock options to be
granted to our employees, officers, directors, consultants, independent
contractors and advisors, provided such consultants, independent contractors and
advisors render bona-fide services not in connection with the offer and sale of
securities in a capital-raising transaction or promotion of our
securities. Our shareholders approved the Stock Incentive Plan at the
2008 Annual General Meeting.
We
account for equity instruments issued in exchange for the receipt of goods or
services from other than employees in accordance with FAS No. 123(R) and the
conclusions reached by the EITF in Issue No. 96-18. Costs are measured at
the estimated fair market value of the consideration received or the estimated
fair value of the equity instruments issued, whichever is more reliably
measurable. The value of equity instruments issued for consideration other
than employee services is determined on the earliest of a performance commitment
or completion of performance by the provider of goods or services as defined by
EITF 96-18.
On March
25, 2009, our Board of Directors approved a reduction in the exercise price of
stock option grants previously made under the 2007 Incentive Stock Option
Plan. No other terms of the plan or the grants were
modified.
Inventory
Inventory
is recorded at the lower of cost or market using the first-in first-out (FIFO)
method. We maintain little or no inventory of perfume which is
shipped from the supplier directly to the customer. The inventory on
hand as at March 31, 2009 is recorded at cost of $47,421 (December 31, 2008 -
$74,082) and represents inventory in transit from the supplier to the
customer.
Website
Development Costs
We
adopted the provisions of EITF No. 00-2,
Accounting for Web Site Development
Costs
, whereby costs incurred in the preliminary project phase are
expensed as incurred; costs incurred in the application development phase are
capitalized; and costs incurred in the post-implementation operating phase are
expensed as incurred. Website development costs are stated at cost
less accumulated amortization and are amortized using the straight-line method
over its estimated useful life. Upgrades and enhancements are
capitalized if they result in added functionality which enables the software to
perform tasks it was previously incapable of performing.
Intangible
Assets
We
adopted the provision of FAS No. 142,
Goodwill and Intangible
Assets
, which revises the accounting for purchased goodwill and
intangible assets. Under FAS 142, goodwill and intangible assets with indefinite
lives are no longer amortized and are tested for impairment annually. The
determination of any impairment would include a comparison of estimated future
operating cash flows anticipated during the remaining life with the net carrying
value of the asset as well as a comparison of our fair value to book
value.
Our
intangible assets, which consist of its portfolio of generic domain names, have
been determined to have an indefinite life and as a result are not
amortized. Management has determined that there is no impairment of
the carrying value of intangible assets at March 31, 2009.
Goodwill
Goodwill
represents the excess of acquisition cost over the fair value of the net assets
of acquired entities.
In accordance with FAS
No. 142,
Accounting for
Goodwill and Other Intangible Assets,
we are required to assess the
carrying value of goodwill annually or whenever circumstances indicate that a
decline in value may have occurred, utilizing a fair value approach at the
reporting unit level.
A reporting unit is the
operating segment, or a business unit one level below that operating segment,
for which discrete financial information is prepared and regularly reviewed by
segment management.
The
goodwill impairment test is a two-step impairment test.
In the first step, we
compare the fair value of each reporting unit to its carrying value.
We determine the fair
value of our reporting units using a discounted cash flow approach.
If the fair value of the
reporting unit exceeds the carrying value of the net assets assigned to that
reporting unit, goodwill is not impaired and we are not required to perform
further testing.
If the carrying value of
the net assets assigned to the reporting unit exceeds the fair value of the
reporting unit, then we must perform the second step in order to determine the
implied fair value of the reporting unit’s goodwill and compare it to the
carrying value of the reporting unit’s goodwill.
The activities in the
second step include valuing the tangible and intangible assets and liabilities
of the impaired reporting unit based on their fair value and determining the
fair value of the impaired reporting unit’s goodwill based upon the residual of
the summed identified tangible and intangible assets and
liabilities.
We
assessed the carrying value of goodwill at the December 31, 2008 fiscal year
end, and there are no indications that a decline in value may have occurred to
March 31, 2009. At that date, the fair value of the Perfume.com
reporting unit exceeded the carrying value of the assigned net assets, therefore
no further testing was required and an impairment charge was not
required.
(g) Recent
Accounting Pronouncements
FAS
162
In May,
2008, the FASB issued FAS 162,
The Hierarchy of Generally Accepted
Accounting Principles.
The new standard is intended to improve financial
reporting by identifying a consistent framework, or hierarchy, for selecting
accounting principles to be used in preparing financial statements that are
presented in conformity with U.S. generally accepted accounting principles
(GAAP) for nongovernmental entities. This Statement 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
. We do not expect
that this Statement will result in a change in current practice.
Recently
Adopted Accounting Pronouncements
FAS
161
In
March 2008, the FASB issued FAS 161,
Disclosures about Derivative
Instruments and Hedging Activities
,
an amendment of FAS 133
. FAS
161 is intended to improve financial standards for derivative instruments and
hedging activities by requiring enhanced disclosures to enable investors to
better understand their effects on an entity's financial position, financial
performance and cash flows. Entities are required to provide enhanced
disclosures about: how and why an entity uses derivative instruments; how
derivative instruments and related hedged items are accounted for under FAS 133
and its related interpretations; and how derivative instruments and related
hedged items affect an entity's financial position, financial performance and
cash flows. FAS 161 was effective for financial statements issued for
fiscal years and interim periods beginning after November 15, 2008, which for us
was the fiscal year beginning January 1, 2009. We adopted FAS 161 at
January 1, 2009, however the adoption of this statement did not have a material
effect on our financial results.
FSP
FAS 142-3
In April
2008, the FASB issued FASB Staff Position ("FSP") FAS 142-3,
Determination of the Useful Life of
Intangible Assets
. FSP FAS 142-3 amends the factors that
should be considered in developing renewal or extension assumptions used to
determine the useful life of a recognized intangible asset under FAS 142,
Goodwill and Other Intangible
Assets
. The intent of FSP FAS 142-3 is to improve the
consistency between the useful life of a recognized intangible asset under FAS
142 and the period of expected cash flows used to measure the fair value of the
asset under FAS 141(R) and other applicable accounting
literature. FSP FAS 142-3 was effective for financial statements
issued for fiscal years beginning after December 15, 2008, which for us was the
fiscal year beginning January 1, 2009. We adopted FAS 142-3 at
January 1, 2009, however the adoption of this statement did not have a material
effect on our financial results.
FAS
141(R)
In
December 2007, the FASB issued FAS 141 (revised 2007),
Business Combinations
("FAS
141(R)"). FAS 141(R) significantly changes the accounting for business
combinations in a number of areas including the treatment of contingent
consideration, preacquisition contingencies, transaction costs, in-process
research and development and restructuring costs. In addition, under FAS 141(R),
changes in an acquired entity's deferred tax assets and uncertain tax positions
after the measurement period will impact income tax expense. This standard will
change accounting treatment for business combinations on a prospective basis.
FAS 141(R) was effective for financial statements issued for fiscal years and
interim periods beginning after December 15, 2008, which for us was the fiscal
year beginning January 1, 2009. We adopted FAS 141(R) at January 1,
2009, however the adoption of this statement did not have a material effect on
our financial results.
FAS
160
In
December 2007, the FASB issued FAS 160
Noncontrolling Interests in
Consolidated Financial Statements
, and simultaneously revised FAS 141
Business
Combinations
. This Statement applies prospectively to business
combinations for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15, 2008, which for
us was the fiscal year beginning January 1, 2009. An entity may not adopt the
policy before the transitional date. We adopted FAS 160 at January 1,
2009, however the adoption of this statement did not have a material effect on
our financial results.
FAS
157
In
September 2006, the FASB issued FAS 157,
Fair Value
Measurements
. This Statement defines fair value, establishes a
framework for measuring fair value in generally accepted accounting principles
(GAAP), and expands disclosures about fair value measurements. This
standard does not require any new fair value measurements.
In 2008,
we adopted FAS 157 for financial assets and liabilities recognized at fair value
on a recurring basis. The adoption did not have a material effect on our
financial results. The disclosures required by FAS 157 for financial assets and
liabilities measured at fair value on a recurring basis as at December 31, 2008
are included in Note 3.
In
February 2008, the FASB issued FSP FAS 157-2, which delays the
effective date of FAS 157 to fiscal years beginning after November 15, 2008 for
nonfinancial assets and nonfinancial liabilities, except for those items that
are recognized or disclosed at fair value in the financial statements on a
recurring basis, which for us was the fiscal year beginning January 1,
2009.
We
applied the requirements of FAS 157 for fair value measurements of financial and
nonfinancial assets and liabilities not valued on a recurring basis at January
1, 2009. We adopted these requirements of FAS 157 at January 1, 2009,
however the adoption of this statement did not have a material effect on our
financial results.
In
October 2008, the FASB issued FSP FAS 157-3,
Determining the Fair Value of a
Financial Asset When the Market for that Asset is Not Active
, which
clarifies the application of FAS 157 in determining the fair value of a
financial asset when the market for that asset is not active. FSP FAS
157-3 is effective as of the issuance date and has not affected the valuation of
our financial assets.
Item
3:
Quantitative and Qualitative
Disclosures about Market Risk.
Not
required.
Item 4T: Controls and
Procedures.
Disclosure
Controls and Procedures
C.
Geoffrey Hampson, our Chief Executive Officer and Principal Financial Officer
has evaluated the effectiveness of our disclosure controls and procedures (as
such term is defined in Rules 13a-15 and 15d-15 under the Securities Exchange
Act of 1934 (the “Exchange Act”)) as of the end of the period covered by this
quarterly report (the “Evaluation Date”). Based on such evaluation,
he has concluded that, as of the Evaluation Date, our disclosure controls and
procedures are effective to ensure that the information required to be disclosed
by us in the reports that we file or submit under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission's rules and forms.
Changes
in Internal Controls
During
the quarter covered by this report, there was no change in our internal control
over financial reporting that has materially affected, or is reasonably likely
to materially affect, our internal control over financial
reporting.
PART
II - OTHER INFORMATION
Item 1: Legal
Proceedings.
We are
not aware of any pending or threatened material legal proceedings that arose
during the quarter.
Item 1A: Risk
Factors.
Not
required.
Item 2: Unregistered Sales
of Equity Securities and Use of Proceeds.
During
the quarter of the fiscal year covered by this report, (i) we did not modify the
instruments defining the rights of our shareholders, and (ii) no rights of any
shareholders were limited or qualified by any other class of
securities.
During Q1
of 2009, we issued the following securities not registered under the Securities
Act of 1933, as amended (the “Securities Act”):
On
January 2, 2009, we issued 15,000 shares of common stock to Lexington Advisors
LLC, an investor relations firm, as full consideration for services
rendered. The shareholder took the shares for investment purposes
without a view to distribution and had access to information concerning our
business and prospects, as required by the Securities Act. In
addition, there was no general solicitation or advertising for the issuance of
the shares. The shareholder was permitted access to our management
for the purpose of acquiring investment information. Due to the
shareholder’s status as consultants and their dealings with companies similar to
ours, we deem the shareholder sophisticated for the purposes of Section 4(2) of
the Act.
On
January 8, 2009, we issued 345,075 shares of common stock to a law firm,
Richardson & Patel LLC, in payment of services that had been rendered to us
having a value of $120,776. The offer and sale of the
securities were exempt from the registration requirements of the Securities Act
in accordance with Section 4(2). The offer and sale was not effected
through any general solicitation or general advertising and the offeree was an
accredited investor.
Item 3: Defaults Upon Senior
Securities.
During
the quarter of the fiscal year covered by this report, no material default has
occurred with respect to any indebtedness of ours. Also, during this
quarter, no material arrearage in the payment of dividends has
occurred.
Item 4: Submission of
Matters to a Vote of Security Holders.
No matter
was submitted to a vote of security holders, through the solicitation of proxies
or otherwise, during the three months of the fiscal year covered by this
report.
Item 5: Other
Information.
During
the quarter of the fiscal year covered by this report, we reported all
information that was required to be disclosed in a report on Form
8-K.
Item 6:
Exhibits.
(A)
Index to and Description of
Exhibits.
|
EXHIBIT
|
DESCRIPTION
|
|
3.1
|
Articles
of Incorporation (1)
|
|
3.2
|
Bylaws
(1)
|
|
3.3
|
Certificate
of Amendment to Articles of Incorporation (2)
|
|
3.4
|
Amendment
to Bylaws (3)
|
|
10.1
|
Novation
Agreement dated March 31, 2009 among Live Current Media, Inc., Global
Cricket Ventures Pte. Ltd. and Board of Control for Cricket in India
(4)
|
|
10.4
|
Mutual
Termination Agreement dated March 31, 2009 between Live Current Media,
Inc. and Board of Control for Cricket in India (4)
|
|
31.1
|
Section
302 Certification of Chief Executive Officer
|
|
31.2
|
Section
302 Certification of Principal Financial Officer
|
|
32.1
|
Section
906 Certificate of Chief Executive Officer
|
|
32.2
|
Section
906 Certificate of Principal Financial
Officer
|
(1)
Previously filed as an exhibit to Live Current Media Inc.’s Registration
Statement on Form 10-SB as filed on March 10, 2000 and incorporated herein by
this reference.
(2)
Previously filed as an exhibit to Live Current Media Inc.’s Quarterly Report on
Form 10-QSB for period ended September 30, 2007 as filed on November 19, 2007
and incorporated herein by this reference.
(3
Previously filed as an exhibit to Live Current Media Inc.’s Current Report on
Form 8-K as filed on August 22, 2007 and incorporated herein by this
reference.
(4)
Previously filed as an exhibit to Live Current Media Inc.’s Current Report on
Form 8-K filed on April 8, 2009 and incorporated herein by this
reference.
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.
|
|
LIVE CURRENT MEDIA
INC.
|
|
Dated:
May 15, 2009
|
By:
|
/s/ C. Geoffrey
Hampson
|
|
|
Name:
Title
:
|
C.
Geoffrey Hampson
CEO and
Chairman of the Board
(Principal Executive
Officer)
|
|
|
|
|
|
Dated:
May 15, 2009
|
By:
|
/s/ C. Geoffrey
Hampson
|
|
|
Name:
Title
:
|
C.
Geoffrey Hampson
CEO and
Chairman of the Board
(Principal Financial
Officer)
|
LIVE
CURRENT MEDIA INC.
(formerly
COMMUNICATE.COM INC.)
CONSOLIDATED
FINANCIAL STATEMENTS
MARCH
31, 2009
(UNAUDITED)
CONSOLIDATED
BALANCE SHEETS
CONSOLIDATED
STATEMENTS OF OPERATIONS
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY
CONSOLIDATED
STATEMENTS OF CASH FLOWS
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
LIVE
CURRENT MEDIA INC.
|
|
|
(formerly
COMMUNICATE.COM INC.)
|
|
|
CONSOLIDATED
BALANCE SHEETS
|
|
|
Expressed
In U.S. Dollars
|
|
|
(Going
Concern - See Note 1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
31, 2009
|
|
|
December
31, 2008
|
|
|
|
|
(unaudited)
|
|
|
(audited)
|
|
|
ASSETS
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
572,588
|
|
|
$
|
1,832,520
|
|
|
Accounts
receivable (net of allowance for doubtful accounts of nil)
|
|
|
100,035
|
|
|
|
93,582
|
|
|
Prepaid
expenses and deposits
|
|
|
92,145
|
|
|
|
109,543
|
|
|
Inventory
|
|
|
47,421
|
|
|
|
74,082
|
|
|
Current
portion of receivable from sales-type lease
(Note
11)
|
|
|
23,423
|
|
|
|
23,423
|
|
|
Total
current assets
|
|
|
835,612
|
|
|
|
2,133,150
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
portion of receivable from sales-type lease
(Note
11)
|
|
|
-
|
|
|
|
23,423
|
|
|
Property
& equipment
(Note
7)
|
|
|
947,389
|
|
|
|
1,042,851
|
|
|
Website
development costs
(Note
8)
|
|
|
348,061
|
|
|
|
392,799
|
|
|
Intangible
assets
|
|
|
1,557,267
|
|
|
|
1,587,463
|
|
|
Goodwill
(Note
6)
|
|
|
2,428,602
|
|
|
|
2,428,602
|
|
|
Total
Assets
|
|
$
|
6,116,931
|
|
|
$
|
7,608,288
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued liabilities
|
|
$
|
2,922,350
|
|
|
$
|
4,131,264
|
|
|
Bonuses
payable
|
|
|
81,660
|
|
|
|
235,650
|
|
|
Due
to shareholders of Auctomatic
(Note
6)
|
|
|
829,799
|
|
|
|
789,799
|
|
|
Deferred
revenue
|
|
|
78,696
|
|
|
|
120,456
|
|
|
Current
portion of deferred lease inducements
(Note
9)
|
|
|
20,138
|
|
|
|
20,138
|
|
|
Total
current liabilities
|
|
|
3,932,643
|
|
|
|
5,297,307
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
lease inducements
(Note
9)
|
|
|
50,345
|
|
|
|
55,380
|
|
|
Total
Liabilities
|
|
|
3,982,988
|
|
|
|
5,352,687
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS'
EQUITY
|
|
|
|
|
|
|
|
|
|
Common
Stock
(Note
10)
|
|
|
|
|
|
|
|
|
|
Authorized:
50,000,000 common shares, $0.001 par value
|
|
|
|
|
|
|
|
|
|
Issued
and outstanding:
|
|
|
|
|
|
|
|
|
|
23,906,445
common shares (December 31, 2008 - 23,546,370)
|
|
|
15,216
|
|
|
|
14,855
|
|
|
Additional
paid-in capital
|
|
|
15,285,508
|
|
|
|
14,772,880
|
|
|
Accumulated
deficit
|
|
|
(13,166,781
|
)
|
|
|
(12,532,134
|
)
|
|
Total
Stockholders' Equity
|
|
|
2,133,943
|
|
|
|
2,255,601
|
|
|
Total
Liabilities and Stockholders' Equity
|
|
$
|
6,116,931
|
|
|
$
|
7,608,288
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments
and Contingency
(Notes
15 and 16)
|
|
|
|
|
|
|
|
|
|
Subsequent
Events
(Note
18)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to consolidated financial statements
|
|
|
|
|
|
|
|
|
|
LIVE
CURRENT MEDIA INC.
|
|
|
(formerly
COMMUNICATE.COM INC)
|
|
|
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
|
Expressed
In U.S. Dollars
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended
|
|
|
Three
Months Ended
|
|
|
|
|
March
31, 2009
|
|
|
March
31, 2008
|
|
|
SALES
|
|
|
|
|
|
|
|
Health
and beauty eCommerce
|
|
$
|
1,720,167
|
|
|
$
|
1,820,188
|
|
|
Other
eCommerce
|
|
|
-
|
|
|
|
455
|
|
|
Domain
name advertising
|
|
|
24,453
|
|
|
|
27,836
|
|
|
Miscellaneous
and other income
|
|
|
7,762
|
|
|
|
-
|
|
|
Total
Sales
|
|
|
1,752,382
|
|
|
|
1,848,479
|
|
|
|
|
|
|
|
|
|
|
|
|
COSTS
OF SALES
|
|
|
|
|
|
|
|
|
|
Health
and Beauty eCommerce
|
|
|
1,386,619
|
|
|
|
1,485,510
|
|
|
Other
eCommerce
|
|
|
-
|
|
|
|
552
|
|
|
Total
Costs of Sales
|
|
|
1,386,619
|
|
|
|
1,486,062
|
|
|
|
|
|
|
|
|
|
|
|
|
GROSS
PROFIT
|
|
|
365,763
|
|
|
|
362,417
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EXPENSES
|
|
|
|
|
|
|
|
|
|
Amortization
and depreciation
|
|
|
98,166
|
|
|
|
15,266
|
|
|
Amortization
of website development costs
(Note
8)
|
|
|
32,562
|
|
|
|
-
|
|
|
Corporate
general and administrative
|
|
|
118,210
|
|
|
|
447,895
|
|
|
ECommerce
general and administrative
|
|
|
80,220
|
|
|
|
169,813
|
|
|
Management
fees and employee salaries
|
|
|
774,972
|
|
|
|
1,073,546
|
|
|
Corporate
marketing
|
|
|
2,454
|
|
|
|
26,459
|
|
|
ECommerce
marketing
|
|
|
111,422
|
|
|
|
149,187
|
|
|
Other
expenses
(Note
12)
|
|
|
346,564
|
|
|
|
629,856
|
|
|
Total
Expenses
|
|
|
1,564,570
|
|
|
|
2,512,022
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS
FROM OPERATIONS BEFORE OTHER ITEMS
|
|
|
(1,198,807
|
)
|
|
|
(2,149,605
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Global
Cricket Venture recovery (expenses)
(Note
5)
|
|
|
22,745
|
|
|
|
(55,317
|
)
|
|
Gain
from sales and sales-type lease of domain names
(Note
11)
|
|
|
580,525
|
|
|
|
168,206
|
|
|
Accretion
expense
(Note
6)
|
|
|
(40,000
|
)
|
|
|
-
|
|
|
Interest
and investment income
|
|
|
890
|
|
|
|
42,498
|
|
|
NET
LOSS AND COMPREHENSIVE LOSS FOR THE PERIOD
|
|
$
|
(634,647
|
)
|
|
$
|
(1,994,218
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC
AND DILUTED LOSS PER SHARE
|
|
$
|
(0.03
|
)
|
|
$
|
(0.10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED
AVERAGE NUMBER OF COMMON
|
|
|
|
|
|
|
|
|
|
SHARES
OUTSTANDING - BASIC AND DILUTED
|
|
|
22,509,120
|
|
|
|
19,970,334
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to consolidated financial statements
|
|
|
|
|
|
|
|
|
|
LIVE
CURRENT MEDIA INC.
|
|
|
(formerly
COMMUNICATE.COM INC)
|
|
|
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' EQUITY
|
|
|
Expressed
In U.S. Dollars
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of Shares
|
|
|
Amount
|
|
|
Additional
Paid-in Capital
|
|
|
Accumulated
Deficit
|
|
|
Total
|
|
|
Balance,
December 31, 2007 (audited)
|
|
|
21,446,623
|
|
|
$
|
12,456
|
|
|
$
|
10,188,975
|
|
|
$
|
(2,525,678
|
)
|
|
$
|
7,675,753
|
|
|
Stock-based
compensation
(Note
10d)
|
|
|
|
|
|
|
|
|
|
|
2,111,354
|
|
|
|
|
|
|
|
2,111,354
|
|
|
Issuance
of 586,403 common shares per the merger
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
agreement
with Auctomatic
(Note
6)
|
|
|
586,403
|
|
|
|
586
|
|
|
|
1,137,533
|
|
|
|
|
|
|
|
1,138,119
|
|
|
Issuance
of 33,000 common shares to investor relations firm
(Note
10b)
|
|
|
33,000
|
|
|
|
33
|
|
|
|
85,649
|
|
|
|
|
|
|
|
85,682
|
|
|
Issuance
of 120,000 common shares to investor relations firm
(Note
10b)
|
|
|
120,000
|
|
|
|
120
|
|
|
|
218,057
|
|
|
|
|
|
|
|
218,177
|
|
|
Issuance
of 50,000 warrants to investor relations firm
(Note
10e)
|
|
|
|
|
|
|
|
|
|
|
45,500
|
|
|
|
|
|
|
|
45,500
|
|
|
Cancellation
of 300,000 common shares not distributed
(Note
10b)
|
|
|
(300,000
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
Private
Placement of 1,627,344 units at $0.65 per share
(Note
10b)
|
|
|
1,627,344
|
|
|
|
1,627
|
|
|
|
1,056,148
|
|
|
|
|
|
|
|
1,057,775
|
|
|
Share
issue costs
(Note
10b)
|
|
|
|
|
|
|
|
|
|
|
(86,803
|
)
|
|
|
|
|
|
|
(86,803
|
)
|
|
Extinguishment
of accounts payable
(Note 10b)
|
|
|
33,000
|
|
|
|
33
|
|
|
|
16,467
|
|
|
|
|
|
|
|
16,500
|
|
|
Net
loss and comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,006,456
|
)
|
|
|
(10,006,456
|
)
|
|
Balance,
December 31, 2008 (audited)
|
|
|
23,546,370
|
|
|
|
14,855
|
|
|
|
14,772,880
|
|
|
|
(12,532,134
|
)
|
|
|
2,255,601
|
|
|
Stock-based
compensation
(Note
10d)
|
|
|
|
|
|
|
|
|
|
|
386,513
|
|
|
|
|
|
|
|
386,513
|
|
|
Issuance
of 15,000 common shares to investor relations firm
(Note
10b)
|
|
|
15,000
|
|
|
|
15
|
|
|
|
5,685
|
|
|
|
|
|
|
|
5,700
|
|
|
Extinguishment
of accounts payable
(Note 10b)
|
|
|
345,075
|
|
|
|
346
|
|
|
|
120,430
|
|
|
|
|
|
|
|
120,776
|
|
|
Net
loss and comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(634,647
|
)
|
|
|
(634,647
|
)
|
|
Balance,
March 31, 2009 (unaudited)
|
|
|
23,906,445
|
|
|
$
|
15,216
|
|
|
$
|
15,285,508
|
|
|
$
|
(13,166,781
|
)
|
|
$
|
2,133,943
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to consolidated financial statements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIVE
CURRENT MEDIA INC.
|
|
|
(formerly
COMMUNICATE.COM INC)
|
|
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
Expressed
In U.S. Dollars
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended
|
|
|
Three
Months Ended
|
|
|
|
|
March
31, 2009
|
|
|
March
31, 2008
|
|
|
OPERATING
ACTIVITIES
|
|
|
|
|
|
|
|
Net
loss for the period
|
|
$
|
(634,647
|
)
|
|
$
|
(1,994,218
|
)
|
|
Non-cash
items included in net loss:
|
|
|
|
|
|
|
|
|
|
Gain
from sales and sales-type lease of domain names
|
|
|
(580,525
|
)
|
|
|
(168,206
|
)
|
|
Accretion
expense
|
|
|
40,000
|
|
|
|
-
|
|
|
Stock-based
compensation
|
|
|
386,513
|
|
|
|
482,144
|
|
|
Accrued
and unpaid bonuses payable
|
|
|
81,660
|
|
|
|
-
|
|
|
Issuance
of common stock
(Note
10b)
|
|
|
5,700
|
|
|
|
-
|
|
|
Extinguishment
of accounts payable by issuance of common stock
(Note
10b)
|
|
|
120,776
|
|
|
|
-
|
|
|
Amortization
and depreciation
|
|
|
130,728
|
|
|
|
15,266
|
|
|
Amortization
of deferred lease inducements
|
|
|
(5,035
|
)
|
|
|
(5,035
|
)
|
|
Change
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(6,453
|
)
|
|
|
(3,290
|
)
|
|
Prepaid
expenses and deposits
|
|
|
17,398
|
|
|
|
81,112
|
|
|
Inventory
|
|
|
26,661
|
|
|
|
-
|
|
|
Accounts
payable and accrued liabilities
|
|
|
(1,444,566
|
)
|
|
|
(333,637
|
)
|
|
Deferred
revenue
|
|
|
(41,760
|
)
|
|
|
(33,435
|
)
|
|
Cash
flows used in operating activities
|
|
|
(1,903,550
|
)
|
|
|
(1,959,299
|
)
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING
ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Accrued
expenses relating to deferred acquisition costs
|
|
|
-
|
|
|
|
(111,265
|
)
|
|
Deferred
acquisition costs
|
|
|
-
|
|
|
|
(121,265
|
)
|
|
Net
proceeds from sale of domain name
|
|
|
358,130
|
|
|
|
-
|
|
|
Net
proceeds from sales-type lease of domain name
|
|
|
313,423
|
|
|
|
23,423
|
|
|
Purchases
of property & equipment
|
|
|
(2,704
|
)
|
|
|
(154,069
|
)
|
|
Website
development costs
(Note
8)
|
|
|
(25,231
|
)
|
|
|
(147,025
|
)
|
|
Cash
flows from (used in) investing activities
|
|
|
643,618
|
|
|
|
(510,201
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
decrease in cash and cash equivalents
|
|
|
(1,259,932
|
)
|
|
|
(2,469,500
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, beginning of period
|
|
|
1,832,520
|
|
|
|
7,375,245
|
|
|
Cash
and cash equivalents, end of period
|
|
$
|
572,588
|
|
|
$
|
4,905,745
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to consolidated financial statements
|
|
|
|
|
|
|
|
|
|
Live Current
Media Inc.
|
Form
10-Q – March 31, 2009
|
|
(formerly
Communicate.com Inc.)
Notes
to the Consolidated Financial Statements
For
the three months ended March 31, 2009
(Unaudited)
|
|
NOTE
1 – NATURE OF BUSINESS AND BASIS OF PRESENTATION
Nature
of business
Live
Current Media Inc. (the “Company”) was incorporated under the laws of the State
of Nevada on October 10, 1995 under the name “Troyden Corporation” and changed
its name on August 21, 2000 from Troyden Corporation to “Communicate.com
Inc.”. On May 30, 2008, the Company changed its name from
Communicate.com Inc. to Live Current Media Inc. after obtaining formal
shareholder approval to do so at the Annual General Meeting in May
2008.
Our
principal operating subsidiary, Domain Holdings Inc. (“DHI”), was incorporated
under the laws of British Columbia on July 4, 1994 under the name “IMEDIAT
Digital Creations Inc.”. On April 14, 1999, IMEDIAT Digital
Creations, Inc. changed its name to “Communicate.com Inc.” and was redomiciled
from British Columbia to the jurisdiction of Alberta. On April 5,
2002, Communicate.com Inc. changed its name to Domain Holdings
Inc. DHI has 62,635,383 shares of common stock currently issued and
outstanding. 61,478,225 shares, or approximately 98.2% of the
outstanding shares, are held by Live Current.
Through
its majority-owned subsidiary, Domain Holdings, Inc. (“DHI”), the Company builds
consumer Internet experiences around its large portfolio of domain
names. DHI’s current business strategy is to develop or to seek
partners to develop its domain names to include content, commerce and community
applications. DHI is currently actively developing websites on two
domain names; one that provides e-commerce for fragrance
and
other health and beauty products, and another that will be a media rich consumer
experience on a sports related website where the revenue model is based on paid
advertising and sales of digital content and merchandise. DHI
develops
content and sells advertising services on other domains held for
future
development.
On March
13, 2008, the Company incorporated a wholly owned subsidiary in the state of
Delaware, Communicate.com Delaware, Inc. (“Delaware”). This
subsidiary was incorporated in relation to the Auctomatic transaction. Refer to
Note 6.
The
Company’s other subsidiary, DHI, owns 100% of 0778229 B.C. Ltd. (“Importers”),
Acadia Management Corp. (“Acadia”), and a dormant company 612793 B.C. Ltd.
(“612793”). Acadia’s assets and liabilities were assigned to DHI in
October 2008, and that company was dissolved and removed from the registrar of
companies of British Columbia on January 21, 2009.
On August
8, 2008, the Company also formed a wholly-owned subsidiary in Singapore, LCM
Cricket Ventures Pte. Ltd. (“LCM Cricket Ventures”). This company
holds 50.05% of Global Cricket Venture Pte. Ltd. (“Global Cricket Venture” or
“GCV”).
Basis
of presentation
The
consolidated financial statements are presented in United States dollars and are
prepared in accordance with accounting principles generally accepted in the
United States.
Going
Concern
The
consolidated financial statements have been prepared on a going concern basis
which assumes that the Company will be able to realize assets and discharge
liabilities in the normal course of business for the foreseeable future. The
Company has generated a consolidated net loss for the quarter ended March 31,
2009 of $634,647 ($10,006,456 for the year ended December 31, 2008) and realized
a negative cash flow from operating activities of $1,903,550 for the quarter
ended March 31, 2009 ($4,854,260 for the year ended December 31,
2008). There is an accumulated deficit of $13,166,781 (December 31,
2008 - $12,532,134) and a working capital deficiency of $3,097,031 at March 31,
2009 ($3,164,157 at December 31, 2008).
The
Company's ability to continue as a going-concern is in substantial doubt as it
is dependent on the continued financial support from its investors, the ability
of the Company to raise equity financing and the attainment of profitable
operations and further share issuances to meet the Company's liabilities as they
become payable, including its commitments for the Global Cricket Venture as
disclosed in Note 5 and Note 15. The outcome of these matters
is dependant on factors outside of the Company’s control and cannot be predicted
at this time.
The
accompanying consolidated financial statements have been prepared on a going
concern basis which assumes that the Company will be able to realize assets and
discharge liabilities in the normal course of business for the foreseeable
future. These financial statements do not include any adjustments
relating to the recoverability or classification of assets or the amounts or
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern.
|
Live Current
Media Inc.
|
Form
10-Q – March 31, 2009
|
|
(formerly
Communicate.com Inc.)
Notes
to the Consolidated Financial Statements
For
the three months ended March 31, 2009
(Unaudited)
|
|
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The
following is a summary of significant accounting policies used in preparation of
these consolidated financial statements:
Principles
of consolidation
The
consolidated financial statements include the accounts of the Company, its
wholly owned subsidiary Delaware, its wholly-owned subsidiary LCM Cricket
Ventures, its 98.2% (December 31, 2007 - 94.9%) interest in its subsidiary DHI,
DHI’s wholly owned subsidiaries Importers and 612793, and LCM Cricket Ventures’
50.05% interest in Global Cricket Venture. All significant
intercompany balances and transactions are eliminated on
consolidation.
Use
of estimates
The
preparation of consolidated financial statements in conformity with U.S.
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of intangible assets, fair
value measurement, related party transactions, stock based compensation,
determination and disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and for the periods that the consolidated
financial statements are prepared. Actual results could differ from these
estimates.
Revenue
recognition
Revenues
and associated costs of goods sold from the on-line sales of products, currently
consisting primarily of fragrances and other beauty products, are recorded upon
delivery of products and determination that collection is reasonably
assured. The Company records inventory as an asset for items in
transit as title does not pass until received by the customer. All
associated shipping and handling costs are recorded as cost of goods sold upon
delivery of products.
Web
advertising revenue consists primarily of commissions earned from the referral
of visitors to the Company’s websites from other parties. The amount
and collectibility of these referral commissions is subject to uncertainty;
accordingly, revenues are recognized when the amount can be determined and
collectibility can be reasonably assured. In accordance with Emerging
Issues Task Force (“EITF”) 99-19,
Reporting Revenue Gross as a
Principal versus Net as an Agent,
the Company records web advertising
revenues on a gross basis.
Revenue
from the sale of domain names, whose carrying values are recorded as intangible
assets, consists primarily of funds earned for the transfer of rights to domain
names that are currently in the Company’s control. Revenues have been
recognized when the sale agreement is signed, the price is fixed and agreed upon
by all parties, and the collectibility of the proceeds is reasonably
assured. In the first quarter of 2009, there was one sale of a
domain name. Collectibility of the amounts owing on this sale is
reasonably assured and therefore accounted for as a sale in the period the
transaction occurred. In 2008, there was one sale of a domain
name. Collectibility of the amounts owing on this sale is reasonably
assured and therefore accounted for as a sale in the period the transaction
occurred.
Revenue
from the sales-type leases of domain names, whose carrying values are recorded
as intangible assets, consists primarily of funds earned over a period of time
for the transfer of rights to domain names that are currently in the Company’s
control. When collectibility of the proceeds on these transactions is
reasonably assured, the gain on sale is accounted for as a sales-type lease in
the period the transaction occurs. In the first quarter of 2009,
there was one sales-type lease of a domain name. In 2008, there was one
sales-type lease of a domain name. See also Note 11.
|
Live Current
Media Inc.
|
Form
10-Q – March 31, 2009
|
|
(formerly
Communicate.com Inc.)
Notes
to the Consolidated Financial Statements
For
the three months ended March 31, 2009
(Unaudited)
|
|
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Foreign
currency transactions
The
consolidated financial statements are presented in United States
dollars. The functional currency of the Company is United States
dollars. In accordance with FAS 52,
Foreign Currency Translation
,
the foreign currency financial statements of the Company’s subsidiaries are
translated into U.S. dollars. Monetary assets and liabilities are
translated using the foreign exchange rate that prevailed at the balance sheet
date. Revenue and expenses are translated at weighted average rates
of exchange during the year and stockholders’ equity accounts and certain other
historical cost balances are translated by using historical exchange
rates. Any resulting exchange gains and losses are presented as
cumulative foreign currency translation gains (losses) within other accumulated
comprehensive loss. There was no effect to comprehensive loss related
to the share conversion with DHI.
Transactions
denominated in foreign currencies are remeasured at the exchange rate in effect
on the respective transaction dates and gains and losses are reflected in the
consolidated statements of operations.
Comprehensive
loss
Comprehensive
loss includes all changes in equity of the Company during a period except those
resulting from investments by shareholders and distributions to
shareholders. Comprehensive loss includes net loss and other
comprehensive loss (“OCL”). The major components included in OCL are
cumulative translation adjustments arising on the translation of the financial
statements of self-sustaining foreign operations and unrealized gains and losses
on financial assets classified as available-for-sale, of which the Company has
none.
Loss
per share
Basic
loss per share is computed by dividing losses for the period by the weighted
average number of common shares outstanding for the period. Diluted
loss per share reflects the potential dilution of securities by including other
potential common stock in the weighted average number of common shares
outstanding for a period and is not presented where the effect is
anti-dilutive.
Cash
and cash equivalents
The
Company considers all highly liquid instruments, with original maturity dates of
three months or less at the time of issuance, to be cash
equivalents.
Accounts
receivable and allowance for doubtful accounts
The
Company’s accounts receivable balance consists primarily of goods and services
taxes (GST) receivable and advertising revenues receivable. Per the
Company’s review of open accounts and collection history, the accounts
receivable balances are reasonably collectible and therefore no allowance for
doubtful accounts has been reflected at quarter end.
Inventory
Inventory
is recorded at the lower of cost or market using the first-in first-out (FIFO)
method. The Company maintains little or no inventory of perfume which
is shipped from the supplier directly to the customer. The inventory
on hand as at March 31, 2009 is recorded at cost of $47,421 (December 31, 2008 -
$74,082) and represents inventory in transit from the supplier to the
customer.
Property &
Equipment
These
assets are stated at cost. Minor additions and improvements are charged to
operations, and major additions are capitalized. Upon retirement, sale or other
disposition, the cost and accumulated depreciation are eliminated from the
accounts, and a gain or loss is included in operations.
Amortization
for equipment is computed using declining balance method at the following annual
rates:
|
Office Furniture and
Equipment
|
20%
|
|
|
Computer
Equipment
|
30%
|
|
|
Computer
Software
|
100%
|
|
|
Auction
Software
|
3 years
straight-line
|
|
Amortization
for leasehold improvements is based on a straight-line method calculated over
the term of the lease. Auction software is amortized straight line
over the life of the asset. Other additions are amortized on a
half-year basis in the year of acquisition.
|
Live Current
Media Inc.
|
Form
10-Q – March 31, 2009
|
|
(formerly
Communicate.com Inc.)
Notes
to the Consolidated Financial Statements
For
the three months ended March 31, 2009
(Unaudited)
|
|
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Website
development costs
The
Company has adopted the provisions of EITF No. 00-2,
Accounting for Web Site Development
Costs
, whereby costs incurred in the preliminary project phase are
expensed as incurred; costs incurred in the application development phase are
capitalized; and costs incurred in the post-implementation operating phase are
expensed as incurred. Website development costs are stated at cost
less accumulated amortization and are amortized using the straight-line method
over its estimated useful life. Upgrades and enhancements are
capitalized if they result in added functionality which enables the software to
perform tasks it was previously incapable of performing. See also
Note 8.
Intangible
assets
The
Company has adopted the provisions of FAS No. 142,
Goodwill and Intangible
Assets
, which revises the accounting for purchased goodwill and
intangible assets. Under FAS 142, intangible assets with indefinite lives are no
longer amortized and are tested for impairment annually. The
determination of any impairment would include a comparison of estimated future
operating cash flows anticipated during the remaining life with the net carrying
value of the asset as well as a comparison of the fair value to book value of
the Company.
The
Company’s intangible assets, which consist of its portfolio of generic domain
names, have been determined to have an indefinite life and as a result are not
amortized. Management has determined that there is no impairment of
the carrying value of intangible assets at March 31, 2009.
Goodwill
Goodwill
represents the excess of acquisition cost over the fair value of the net assets
of acquired entities.
In accordance with FAS
No. 142,
Accounting for
Goodwill and Other Intangible Assets,
the Company is required to assess
the carrying value of goodwill annually or whenever circumstances indicate that
a decline in value may have occurred, utilizing a fair value approach at the
reporting unit level.
A reporting unit is the
operating segment, or a business unit one level below that operating segment,
for which discrete financial information is prepared and regularly reviewed by
segment management.
The
goodwill impairment test is a two-step impairment test.
In the first step, the
Company compares the fair value of each reporting unit to its carrying value.
The Company
determines the fair value of its reporting units using a discounted cash flow
approach.
If the
fair value of the reporting unit exceeds the carrying value of the net assets
assigned to that reporting unit, goodwill is not impaired and the Company is not
required to perform further testing.
If the carrying value of
the net assets assigned to the reporting unit exceeds the fair value of the
reporting unit, then the Company must perform the second step in order to
determine the implied fair value of the reporting unit’s goodwill and compare it
to the carrying value of the reporting unit’s goodwill.
The activities in the
second step include valuing the tangible and intangible assets and liabilities
of the impaired reporting unit based on their fair value and determining the
fair value of the impaired reporting unit’s goodwill based upon the residual of
the summed identified tangible and intangible assets and
liabilities.
The
Company assessed the carrying value of goodwill at the December 31, 2008 fiscal
year end, and there are no indications that a decline in value may have occurred
to March 31, 2009. At that date, the fair value of the Perfume.com
reporting unit exceeded the carrying value of the assigned net assets, therefore
no further testing was required and an impairment charge was not
required.
Deferred
Revenue
Revenue
that has been received but does not yet qualify for recognition under the
Company's policies is reflected as either deferred revenue or long-term deferred
revenue.
Deferred
Lease Inducements
Lease
inducements, including rent free periods, are deferred and accounted for as a
reduction of rent expense over the term of the related lease on a straight-line
basis.
|
Live Current
Media Inc.
|
Form
10-Q – March 31, 2009
|
|
(formerly
Communicate.com Inc.)
Notes
to the Consolidated Financial Statements
For
the three months ended March 31, 2009
(Unaudited)
|
|
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Advertising Costs
The
Company recognizes advertising expenses in accordance with SOP 93-7,
Reporting on Advertising
Costs
. As such, the Company expenses the costs of producing
advertisements at the time production occurs or the first time the advertising
takes place and expenses the cost of communicating advertising in the period
during which the advertising space or airtime is used. Internet
advertising expenses are recognized as incurred based on the terms of the
individual agreements, which are generally: 1) a commission for traffic
driven to the Website that generates a sale or 2) a referral fee based on
the number of clicks on keywords or links to our Website generated during a
given period. Total advertising expense for the quarter ended March
31, 2009 of $113,876 (quarter ended March 31, 2008 - $175,646) is included in
the “Corporate Marketing” and “eCommerce Marketing” categories on the Company’s
consolidated statements of operations.
Stock-based
compensation
During
the third quarter of 2007, the Company implemented the following new critical
accounting policy related to our stock-based compensation. Beginning on
July 1, 2007, the Company began accounting for stock options under the
provisions of Financial Accounting Standards No. 123 (revised 2004),
Share-Based Payment
(FAS 123(R)), which requires the recognition of the fair value of
stock-based compensation. Under the fair value recognition provisions for
FAS 123(R), stock-based compensation cost is estimated at the grant date
based on the fair value of the awards expected to vest and recognized as expense
ratably over the requisite service period of the award. The Company has used the
Black-Scholes valuation model to estimate fair value of its stock-based awards
which requires various judgmental assumptions including estimating stock price
volatility and expected life. The Company’s computation of expected volatility
is based on a combination of historical and market-based volatility. In
addition, the Company considers many factors when estimating expected life,
including types of awards and historical experience. If any of the assumptions
used in the Black-Scholes valuation model change significantly, stock-based
compensation expense may differ materially in the future from that recorded in
the current period.
In August
2007, the Company’s Board of Directors approved an Incentive Stock Option Plan
to make available 5,000,000 shares of common stock for the grant of stock
options, including incentive stock options. Incentive stock options
may be granted to employees of the Company, while non-qualified stock options
may be granted to employees, officers, directors, consultants, independent
contractors and advisors of the Company, provided such consultants, independent
contractors and advisors render bona-fide services not in connection with the
offer and sale of securities in a capital-raising transaction or promotion of
the Company’s securities. See also Note 10.
The
Company accounts for equity instruments issued in exchange for the receipt of
goods or services from other than employees in accordance with FAS 123(R) and
the conclusions reached by the EITF in Issue No. 96-18. Costs are measured
at the estimated fair market value of the consideration received or the
estimated fair value of the equity instruments issued, whichever is more
reliably measurable. The value of equity instruments issued for
consideration other than employee services is determined on the earliest of a
performance commitment or completion of performance by the provider of goods or
services as defined by EITF 96-18.
On March
25, 2009, the Board of Directors approved a reduction in the exercise price of
Stock Option grants previously made under the 2007 Incentive Stock Option
Plan. No other terms of the plan or the grants were
modified. See also Note 10(d).
|
Live Current
Media Inc.
|
Form
10-Q – March 31, 2009
|
|
(formerly
Communicate.com Inc.)
Notes
to the Consolidated Financial Statements
For
the three months ended March 31, 2009
(Unaudited)
|
|
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Income
taxes
On
January 1, 2007, the Company adopted the following new critical accounting
policy related to income tax. The Company began accounting for income
tax under the provisions of Financial Accounting Standards Board (“FASB”)
Interpretation No. 48,
Accounting for Uncertainty in Income
Taxes-an interpretation of FASB Statement No. 109
(“FIN
48”). FIN 48 clarifies the accounting for uncertainty in income taxes
recognized in an enterprise’s financial statements in accordance with FASB
Statement 109,
Accounting for
Income Taxes
, and prescribes a recognition threshold and measurement
process for financial statement recognition and measurement of a tax position
taken or expected to be taken in a tax return. FIN 48 also provides
guidance on derecognition, classification, interest and penalties, accounting in
interim periods, disclosure and transition. The Company and its
subsidiaries are subject to U.S. federal income tax and Canadian
income tax, as well as income tax of multiple state and local jurisdictions.
Based on the Company’s evaluation, the Company has concluded that there are no
significant uncertain tax positions requiring recognition in the Company’s
financial statements. The Company’s evaluation was performed for the tax years
ended December 31, 2002, 2003, 2004, 2005, 2006, 2007 and 2008, the tax years
which remain subject to examination by major tax jurisdictions as of December
31, 2008. The Company also evaluated the quarter ended March 31,
2009. The Company may from time to time be assessed interest or
penalties by major tax jurisdictions, although any such assessments historically
have been minimal and immaterial to the Company’s financial
results. In the event the Company has received an assessment for
interest and/or penalties, it has been classified in the financial statements as
selling, general and administrative expense.
Recent
Accounting Pronouncements
FAS
162
In May,
2008, the FASB issued FAS 162,
The Hierarchy of Generally Accepted
Accounting Principles.
The new standard is intended to improve financial
reporting by identifying a consistent framework, or hierarchy, for selecting
accounting principles to be used in preparing financial statements that are
presented in conformity with U.S. generally accepted accounting principles
(GAAP) for non-governmental entities. This Statement is effective 60 days
following the SEC’s approval of the Public Company Accounting Oversight Board
amendments to AU Section 411,
The Meaning of
Present Fairly in Conformity With
Generally Accepted Accounting Principles
. The Company does not
expect that this Statement will result in a change in current
practice.
Recently
Adopted Accounting Pronouncements
FAS
161
In
March 2008, the FASB issued FAS 161,
Disclosures about Derivative
Instruments and Hedging Activities
,
an amendment of
FAS 133
. FAS 161 is intended to improve financial
standards for derivative instruments and hedging activities by requiring
enhanced disclosures to enable investors to better understand their effects on
an entity's financial position, financial performance and cash flows. Entities
are required to provide enhanced disclosures about: how and why an entity uses
derivative instruments; how derivative instruments and related hedged items are
accounted for under FAS 133 and its related interpretations; and how derivative
instruments and related hedged items affect an entity's financial position,
financial performance and cash flows. FAS 161 was effective for financial
statements issued for fiscal years and interim periods beginning after November
15, 2008, which for the Company was the fiscal year beginning January 1,
2009. The Company adopted FAS 161 at January 1, 2009, however the
adoption of this statement did not have a material effect on its financial
results.
FSP
FAS 142-3
In April
2008, the FASB issued FASB Staff Position ("FSP") FAS 142-3,
Determination of the Useful Life of
Intangible Assets
. FSP FAS 142-3 amends the factors that
should be considered in developing renewal or extension assumptions used to
determine the useful life of a recognized intangible asset under FAS 142,
Goodwill and Other Intangible
Assets
. The intent of FSP FAS 142-3 is to improve the
consistency between the useful life of a recognized intangible asset under FAS
142 and the period of expected cash flows used to measure the fair value of the
asset under FAS 141(R) and other applicable accounting
literature. FSP FAS 142-3 was effective for financial statements
issued for fiscal years beginning after December 15, 2008, which for the Company
was the fiscal year beginning January 1, 2009. The Company adopted
FAS 142-3 at January 1, 2009, however the adoption of this statement did not
have a material effect on its financial results.
|
Live Current
Media Inc.
|
Form
10-Q – March 31, 2009
|
|
(formerly
Communicate.com Inc.)
Notes
to the Consolidated Financial Statements
For
the three months ended March 31, 2009
(Unaudited)
|
|
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Recently
Adopted Accounting Pronouncements (continued)
FAS
141(R)
In
December 2007, the FASB issued FAS 141 (revised 2007),
Business Combinations
("FAS
141(R)"). FAS 141(R) significantly changes the accounting for business
combinations in a number of areas including the treatment of contingent
consideration, preacquisition contingencies, transaction costs, in-process
research and development and restructuring costs. In addition, under FAS 141(R),
changes in an acquired entity's deferred tax assets and uncertain tax positions
after the measurement period will impact income tax expense. This standard will
change accounting treatment for business combinations on a prospective basis.
FAS 141(R) was effective for financial statements issued for fiscal years and
interim periods beginning after December 15, 2008, which for the Company was the
fiscal year beginning January 1, 2009. The Company adopted FAS 141(R)
at January 1, 2009, however the adoption of this statement did not have a
material effect on its financial results.
FAS
160
In
December 2007, the FASB issued FAS 160
Noncontrolling Interests in
Consolidated Financial Statements
, and simultaneously revised FAS 141
Business
Combinations
. This Statement applies prospectively to business
combinations for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15, 2008, which for
the Company was the fiscal year beginning January 1, 2009. An entity may not
adopt the policy before the transitional date. The Company adopted FAS 160
at January 1, 2009, however the adoption of this statement did not have a
material effect on its financial results.
FAS
157
In
September 2006, the FASB issued FAS 157,
Fair Value
Measurements
. This Statement defines fair value, establishes a
framework for measuring fair value in generally accepted accounting principles
(GAAP), and expands disclosures about fair value measurements. This
standard does not require any new fair value measurements.
In 2008,
the Company adopted FAS 157 for financial assets and liabilities recognized at
fair value on a recurring basis. The adoption did not have a material effect on
its financial results. The disclosures required by FAS 157 for financial assets
and liabilities measured at fair value on a recurring basis as at December 31,
2008 are included in Note 3.
In
February 2008, the FASB issued FSP FAS 157-2, which delays the effective date of
FAS 157 to fiscal years beginning after November 15, 2008 for nonfinancial
assets and nonfinancial liabilities, except for those items that are recognized
or disclosed at fair value in the financial statements on a recurring basis,
which for the Company was the fiscal year beginning January 1,
2009.
The
Company applied the requirements of FAS 157 for fair value measurements of
financial and nonfinancial assets and liabilities not valued on a recurring
basis at January 1, 2009. The adoption of this statement did not have
a material effect on its financial results.
In
October 2008, the FASB issued FSP FAS 157-3,
Determining the Fair Value of a
Financial Asset When the Market for that Asset is Not Active
, which
clarifies the application of FAS 157 in determining the fair value of a
financial asset when the market for that asset is not active. FSP FAS
157-3 is effective as of the issuance date and has not affected the valuation of
our financial assets.
|
Live Current
Media Inc.
|
Form
10-Q – March 31, 2009
|
|
(formerly
Communicate.com Inc.)
Notes
to the Consolidated Financial Statements
For
the three months ended March 31, 2009
(Unaudited)
|
|
NOTE
3 – FINANCIAL INSTRUMENTS
Interest
rate risk exposure
The
Company currently has limited exposure to any fluctuation in interest
rates.
Foreign
exchange risk
The
Company is subject to foreign exchange risk for sales and purchases denominated
in foreign currencies. Foreign currency risk arises from the fluctuation of
foreign exchange rates and the degree of volatility of these rates relative to
the United States dollar. The Company does not actively manage this
risk.
Concentration
of credit risk
Financial
instruments, which potentially subject the Company to concentrations of credit
risk, consist primarily of cash and cash equivalents, trade accounts receivable
and receivable from sales-type lease. The Company limits its exposure
to credit loss by placing its cash and cash equivalents on deposit with high
credit quality financial institutions. Receivables arising from sales to
customers are generally immaterial and are not collateralized. Management
regularly monitors the financial condition of its customers to reduce the risk
of loss.
Fair
values of Financial Instruments
As
described in Note 2, the Company adopted all provisions of FAS 157 as of January
1, 2009. FAS 157 defines fair value, establishes a consistent
framework for measuring fair value, and expands disclosures for each major asset
and liability category measured at fair value on either a recurring or
nonrecurring basis. FAS 157 clarifies that fair value is an exit price,
representing the amount that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants. As
such, fair value is a market-based measurement that should be determined based
on assumptions that market participants would use in pricing an asset or
liability. As a basis for considering such assumptions, FAS 157 establishes a
three-tier fair value hierarchy which prioritizes the inputs used in measuring
fair value as follows:
Level 1 -
observable inputs such as quoted prices in active markets for identical assets
and liabilities;
Level 2 -
observable inputs such as quoted prices for similar assets or liabilities in
active markets, quoted prices for identical or similar assets or liabilities in
markets that are not active, other inputs that are observable, or can be
corroborated by observable market data; and
Level 3 -
unobservable inputs for which there are little or no market data, which require
the reporting entity to develop its own assumptions.
The
Company’s financial instruments consist of cash and cash equivalents, accounts
receivable, receivable from sales-type lease, accounts payable, bonuses payable
and due to shareholders of Auctomatic. The Company did not elect to
value its financial assets or liabilities in accordance with FAS 159. The
Company believes that the recorded values of all of its financial instruments
approximate their fair values because of their nature and respective
durations.
NOTE
4 – NON-CONTROLLING INTEREST
The
Company currently holds 98.2% (December 31, 2008 – 98.2%) of the issued and
outstanding shares of its principal operating subsidiary, DHI. During
Q1 2008, DHI issued 40,086,645 shares to Live Current Media Inc. at fair value
in exchange for a conversion of intercompany debt of $3,000,000, therefore
diluting the non-controlling interest by 3.3%. This conversion was accounted for
using the purchase method. There was no effect to the consolidated
financial statements in the quarter ended March 31, 2009 to the non-controlling
interest of DHI.
|
Live Current
Media Inc.
|
Form
10-Q – March 31, 2009
|
|
(formerly
Communicate.com Inc.)
Notes
to the Consolidated Financial Statements
For
the three months ended March 31, 2009
(Unaudited)
|
|
NOTE
5 – GLOBAL CRICKET VENTURE
On April
17, 2008, the Company signed 2 Memoranda of Understanding (individually the
“BCCI Memorandum” and the “IPL Memorandum” and, together, the “Memoranda”) with
each of the Board of Control for Cricket in India (“BCCI”) and the DLF Indian
Premier League (“IPL”). The Memoranda, each of which had a term of 10
years, granted to the Company the exclusive right to provide the official
websites for the BCCI and the IPL (the “Cricket Websites”). As
consideration for the rights conveyed, the Company agreed to pay a minimum
annual fee to the BCCI of the greater of 50% of all revenues generated from the
BCCI website or an average payment of $3 million per year and a minimum annual
fee to the IPL of the greater of 50% of all revenues generated from the IPL
website or an average payment of $2 million per year. In addition to
the annual fee, the Company agreed to pay a total of 5% of the revenues
generated by a third website, Cricket.com, to the BCCI and the
IPL. Revenues were defined as all revenues generated by the Cricket
Websites with the exception of revenues earned from the sale of tickets to the
matches. The Company agreed that the minimum annual fee would be paid
on a quarterly basis during the first 3 years of the term. The
payments, when made, may have been subject to certain withholding or other taxes
which the Company may have been required to gross up pursuant to the terms of
the Memoranda. The first payment to the BCCI of $625,000 was due on
October 1, 2008, with additional payments of $625,000 due on January 1, 2009,
April 1, 2009 and July 1, 2009. The first payment to the IPL of
$375,000 was due on October 1, 2008, with additional payments of $375,000 due on
January 1, 2009, April 1, 2009 and July 1, 2009. The Company did not
make any of the payments called for by the Memoranda.
In
conjunction with its execution of the Memoranda, the Company signed an agreement
(the “Venture Agreement”) with Netlinkblue, the owner of the live streaming and
mobile rights to the BCCI and IPL cricket matches. Under the Venture
Agreement, the Company and Netlinkblue agreed to create a new company into which
the Company would transfer its rights under the Memoranda and Netlinkblue would
transfer the rights it acquired to live stream the matches. As
contemplated by the Venture Agreement, a company was incorporated in Singapore
on June 10, 2008 and named Global Cricket Venture Pte. Ltd. (“Global Cricket
Venture”). The Company’s wholly-owned subsidiary, LCM Cricket
Ventures, currently owns 50.05% of the shares of Global Cricket
Venture. Pursuant to the Venture Agreement, once the Company and
Netlinkblue each transfer the rights received from the BCCI and the IPL into
Global Cricket Venture, certain rights and obligations will arise, including the
obligation that each provides funding to Global Cricket Venture. As
described below, on March 31, 2009, the Company and the BCCI jointly terminated
the BCCI Memorandum and the Company assigned the IPL Memorandum to Global
Cricket Venture.
On March
31, 2009, the Company and the BCCI entered into a Termination Agreement,
pursuant to which the BCCI Memorandum was terminated. On that same
date, the Company, Global Cricket Venture and the BCCI, on behalf of the IPL,
entered into a Novation Agreement (the “Novation”) with respect to the IPL
Memorandum. Pursuant to the Novation, Global Cricket Venture was
granted all of the Company’s rights, and assumed all of its obligations, under
the IPL Memorandum. Global Cricket Venture also assumed certain
payments due to the BCCI under the BCCI Memorandum.
As a
result of the Novation,
|
·
|
Global
Cricket Venture, a 50.05% owned subsidiary, rather than the Company, is
the party to the IPL Memorandum;
|
|
·
|
the
term of the IPL Memorandum has been modified, so that it began on April 1,
2008 and will end on December 31,
2017;
|
|
·
|
the
minimum payment due on October 1, 2008 to the BCCI of $125,000, previously
renegotiated from $625,000, and any other payments owed to the BCCI
through March 31, 2009 were assumed by Global Cricket Venture and are to
be paid on July 1, 2009. The Company will be fully released
from these liabilities once Global Cricket Venture makes these
payments;
|
|
·
|
the
minimum payment due on October 1, 2008 to the IPL of $375,000, and any
other payments owed to the IPL through March 31, 2009 were assumed by
Global Cricket Venture and are to be paid on July 1, 2009. Live
Current has been fully released from these
liabilities;
|
|
·
|
a
right to terminate the IPL Memorandum due to a material breach or on the
insolvency of either party has been added;
and
|
|
·
|
the
“Minimum Annual Fee Payment Schedule” (Schedule 2 to the IPL Memorandum)
has been revised. The first payment of $2,250,000 is due on
July 1, 2009.
|
|
Live Current
Media Inc.
|
Form
10-Q – March 31, 2009
|
|
(formerly
Communicate.com Inc.)
Notes
to the Consolidated Financial Statements
For
the three months ended March 31, 2009
(Unaudited)
|
|
NOTE
5 – GLOBAL CRICKET VENTURE (continued)
The
$375,000 owing to the IPL for the October 1, 2008 minimum payment under the IPL
Memorandum that was accrued and expensed in 2008 has been reversed on March 31,
2009. The $625,000 owing to the BCCI for the October 1, 2008 minimum
payment under the initial MOU that was accrued and expensed in 2008 was
renegotiated to $125,000. Therefore $500,000 has been reversed on
March 31, 2009. The $625,000 owing to the BCCI for the January 1,
2009 minimum payment under the initial MOU was accrued and expensed in the first
quarter of 2009. The two minimum payments of $125,000 and $625,000
owing to the BCCI as at March 31, 2009 were assumed by Global Cricket Venture,
however the release of such payments owing by the Company is contingent on
Global Cricket Venture making these two payments on or before July 1,
2009.
During
the first quarter of 2009, the Company incurred $227,255 of costs relating to
initial performance of its obligations under the Memoranda with each of the BCCI
and the IPL and establishing Global Cricket Venture with
Netlinkblue. These costs relate to, but are not limited to,
expenditures for business development, travel, consulting, and
salaries.
Due to
the reversal of the $375,000 and $500,000 accrued liabilities at December 31,
2008, the recognition of $625,000 owing for the January 1, 2009 BCCI minimum
payment, and the costs incurred of $227,255 as noted above, there was a net
recovery of Global Cricket Venture expenses of $22,745 recorded during the
quarter.
NOTE
6 – MERGER AGREEMENT
On March
25, 2008, the Company and its wholly owned subsidiary, Communicate.com Delaware,
Inc. (“Delaware”) entered into an Agreement and Plan of Merger (the “Merger
Agreement”) with Entity, Inc., a Delaware corporation,
(“Auctomatic”).
The
Merger Agreement closed on May 22, 2008 (the “Closing Date”). In
connection with the Merger Agreement, the stockholders of Auctomatic received in
total (i) $2,000,000 cash minus $152,939 in certain assumed liabilities and (ii)
1,000,007 shares of common stock of the Company (equal to $3,000,000 divided by
$3.00 per share, the closing price of one share of the Company’s common stock on
the business day immediately preceding the Closing Date) in exchange for all the
issued and outstanding shares of Auctomatic.
The
consideration was payable as follows: (i) 340,001 shares, or 34%, of the common
stock and (ii) $1,200,000 less $152,939 in assumed liabilities. An
additional 246,402 shares of common stock were issued and shall be distributed
in equal amounts to the Auctomatic shareholders on each of the first, second and
third anniversary of the Closing Date. The remaining $800,000 of the total Cash
Consideration shall be distributed on the first anniversary of the Closing
Date. All amounts of cash and common stock shall be distributed pro
rata among the Auctomatic Stockholders.
The
distribution of the remaining 413,604 shares of the common stock payable on the
first, second and third anniversary of the Closing Date to the Auctomatic
founders is subject to their continuing employment with the Company or a
subsidiary on each Distribution Date. Subsequent to year end, one of
the founders resigned from Live Current, and therefore the distribution of
137,868 shares of the common stock on the first, second and third anniversary
will no longer be payable. The remaining 275,736 shares of the common
stock owing to the other founders remain payable on the anniversary dates as
noted above. See also Note 10.
At May
22, 2008, the present value of the amounts payable in cash to shareholders of
Auctomatic on the first anniversary of the closing date was
$640,000. In the first quarter of 2009, the present value discount
was accreted by $40,000 (2008 - $96,700), leaving a present value remaining at
March 31, 2009 of $776,700.
At March
31, 2009, $53,099 of cash owing at closing has yet to be paid to one of the
Auctomatic shareholders. This payment was made subsequent to quarter
end. As a result, amounts payable to shareholders of Auctomatic
totaled $829,799.
|
Live Current
Media Inc.
|
Form
10-Q – March 31, 2009
|
|
(formerly
Communicate.com Inc.)
Notes
to the Consolidated Financial Statements
For
the three months ended March 31, 2009
(Unaudited)
|
|
NOTE
6 – MERGER AGREEMENT (continued)
The
purchase price to affect the merger was allocated as following on the Closing
Date:
|
Purchase
Price Paid
|
|
|
|
|
|
|
|
|
|
Cash
(net of assumed liabilities)
|
|
$
|
1,046,695
|
|
|
Transaction
Costs
|
|
|
387,358
|
|
|
|
|
|
|
|
|
Cash
consideration for Auctomatic
|
|
|
1,434,053
|
|
|
|
|
|
|
|
|
Present
value of shares of common stock paid and payable to shareholders of
Auctomatic
|
|
|
1,138,119
|
|
|
Present
value of amounts payable to shareholders of Auctomatic
|
|
|
640,000
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,212,172
|
|
|
Net
Assets Acquired
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
Cash
|
|
$
|
3,066
|
|
|
Share
subscriptions receivable
|
|
|
780
|
|
|
Computer
hardware
|
|
|
7,663
|
|
|
Auction
software
|
|
|
925,000
|
|
|
Goodwill
|
|
|
2,428,602
|
|
|
Less
Liabilities
|
|
|
|
|
|
Accounts
payable and accrued liabilities
|
|
|
(85,622
|
)
|
|
Loan
payable
|
|
|
(67,317
|
)
|
|
|
|
|
|
|
|
Net
Assets Acquired
|
|
$
|
3,212,172
|
|
To show
effect to the merger of Auctomatic and Delaware as if the merger had occurred on
January 1, 2008, the pro forma information for the nine months ended December
31, 2008 would have resulted in revenues that remain unchanged from those
reported in the consolidated financial statements, no cumulative effect of
accounting changes, and income before extraordinary items and net income which
both would have decreased by $106,035.
NOTE
7 – PROPERTY & EQUIPMENT
|
March
31, 2009
|
|
Cost
|
|
|
Accumulated
Amortization
|
|
|
Net
Book
Value
|
|
|
Office
Furniture and Equipment
|
|
$
|
165,868
|
|
|
$
|
37,532
|
|
|
$
|
128,336
|
|
|
Computer
Equipment
|
|
|
103,493
|
|
|
|
55,348
|
|
|
|
48,145
|
|
|
Computer
Software
|
|
|
27,276
|
|
|
|
17,048
|
|
|
|
10,228
|
|
|
Auction
Software
|
|
|
925,000
|
|
|
|
256,944
|
|
|
|
668,056
|
|
|
Leasehold
Improvements
|
|
|
142,498
|
|
|
|
49,874
|
|
|
|
92,624
|
|
|
|
|
$
|
1,364,135
|
|
|
$
|
416,746
|
|
|
$
|
947,389
|
|
|
December
31, 2008
|
|
Cost
|
|
|
Accumulated
Amortization
|
|
|
Net
Book
Value
|
|
|
Office
Furniture and Equipment
|
|
$
|
165,868
|
|
|
$
|
30,778
|
|
|
$
|
135,090
|
|
|
Computer
Equipment
|
|
|
100,789
|
|
|
|
51,554
|
|
|
|
49,235
|
|
|
Computer
Software
|
|
|
27,276
|
|
|
|
13,638
|
|
|
|
13,638
|
|
|
Auction
Software
|
|
|
925,000
|
|
|
|
179,861
|
|
|
|
745,139
|
|
|
Leasehold
Improvements
|
|
|
142,498
|
|
|
|
42,749
|
|
|
|
99,749
|
|
|
|
|
$
|
1,361,431
|
|
|
$
|
318,580
|
|
|
$
|
1,042,851
|
|
|
Live Current
Media Inc.
|
Form
10-Q – March 31, 2009
|
|
(formerly
Communicate.com Inc.)
Notes
to the Consolidated Financial Statements
For
the three months ended March 31, 2009
(Unaudited)
|
|
NOTE
8 – WEBSITE DEVELOPMENT COSTS
Website
development costs are related to infrastructure development of various websites
that the Company operates. In previous years, costs qualifying for
capitalization were immaterial and therefore were expensed as
incurred. Website maintenance, training, data conversion and business
process reengineering costs are expensed in the period in which they are
incurred. Costs incurred in the application development phase are
capitalized, and when the related websites reach the post-implementation
operating phase, the Company begins amortizing these costs on a straight-line
basis over 36 months beginning in the month following the implementation of the
related websites.
|
|
|
March
31,
2009
|
|
|
December
31, 2008
|
|
|
Website
Development Costs
|
|
$
|
430,233
|
|
|
$
|
451,439
|
|
|
Less:
Accumulated Amortization
|
|
|
(82,172
|
)
|
|
|
(58,640
|
)
|
|
|
|
$
|
348,061
|
|
|
$
|
392,799
|
|
During
the quarter, the Company capitalized website development costs of
$25,231. The Company expensed website development costs of $46,438
and corresponding accumulated amortization of $9,030 related to domain names
that have been sold during the period. The net effect of these
amounts was offset against the gain from sales of domain names.
NOTE
9 – DEFERRED LEASE INDUCEMENTS
|
|
|
March
31,
2009
|
|
|
December
31, 2008
|
|
|
Deferred
Lease Inducements
|
|
$
|
70,483
|
|
|
$
|
75,518
|
|
|
Less:
Current Portion
|
|
|
(20,138
|
)
|
|
|
(20,138
|
)
|
|
|
|
$
|
50,345
|
|
|
$
|
55,380
|
|
a) Authorized
The
authorized capital of the Company consists of 50,000,000 common shares with a
par value of $0.001 per share. No other shares have been
authorized.
b) Issued
At March
31, 2009, there were 23,906,445 (December 31, 2008 – 23,546,370) shares issued
and outstanding.
2009
On
January 2, 2009, the Company issued 15,000 shares to the investor relations firm
that was engaged to provide investor relations services to the
Company. This was the Company’s final share issuance to this investor
relations firm. The agreement has since been terminated.
On
January 8, 2009, the Company entered into an agreement whereby $120,776 of its
accounts payable were extinguished in exchange for the issuance of 345,075
shares of its common stock. As a result of this agreement, 172,538
shares were issued on January 22, 2009 and 172,537 shares were issued on
February 20, 2009.
|
Live Current
Media Inc.
|
Form
10-Q – March 31, 2009
|
|
(formerly
Communicate.com Inc.)
Notes
to the Consolidated Financial Statements
For
the three months ended March 31, 2009
(Unaudited)
|
|
NOTE
10 – COMMON STOCK (continued)
b)
Issued (continued)
2008
The
Company issued 50,000 warrants to an investor relations firm in May 2008, and
expensed $45,500 in relation to the value of the warrants. See also
Note 10(e).
In June
2008, the Company issued 586,403 shares of common stock in relation to the May
22, 2008 merger with Auctomatic. Of those total issued shares,
340,001 shares were distributed to the shareholders and an additional 246,402
shares are being held for future distribution in three equal installments on the
next three anniversary dates of the merger pursuant to the terms of the merger
agreement. The value of the stock consideration was added to the cash
consideration in our determination of the purchase price. See also
Note 6. The remaining 413,604 shares of common stock are reserved for
future issuance to the Auctomatic founders. See also Note
10(c).
In May
and June 2008, the Company issued 45,000 shares to an investor relations firm
that had been engaged to provide investor relations services to the
Company. Of the 45,000 shares, 30,000 shares with a value of $85,350
were issued as partial consideration for services rendered, while the remaining
15,000 shares with an estimated value of $42,300 were recorded as a prepaid
expense in June 2008 for services to be rendered in July 2008. In
July 2008, this amount was revalued to $36,573 based on the July average stock
price and expensed with the difference between the estimated and actual values
adjusted to Additional Paid-In Capital.
In August
2008, the Company issued 33,000 shares to an investor relations firm that had
previously been engaged to provide investor relations services to the
Company. The contract with this former investor relations firm
terminated August 1, 2008. The 33,000 shares owing to the firm had a
value of $85,682 and were issued as full consideration for services
rendered.
In August
and September 2008, the Company issued 30,000 shares to an investor relations
firm that had been engaged to provide investor relations services to the
Company. These shares, which were valued at $57,254, were issued as
partial consideration for services rendered during the year.
In
October 2008, the Company cancelled 300,000 shares of common stock that had been
pre-maturely issued in a prior year in anticipation of a transaction that was
never consummated.
During
November 2008, the Company accepted subscriptions from 11 accredited investors
pursuant to which the Company issued and sold 1,627,344 units consisting of one
share of the Company’s common stock and two warrants, each for the purchase of
one-half a share of common stock. The price per unit was
$0.65. The Company raised gross proceeds of $1,057,775 (the
“Offering”). The private placement closed on November 19, 2008. One
warrant is exercisable at $0.78 (a 20% premium) and expires November 19,
2010. The other warrant is exercisable at $0.91 (a 40% premium) and
expires November 19, 2011. The Company incurred $86,803 in share
issuance costs related to the private placement. The Company filed an
S-1 Registration Statement with the SEC on May 1, 2009 to register for resale
the common stock and the common stock underlying the warrants. The
securities were offered and sold by the Company to accredited investors in
reliance on Section 506 of Regulation D of the Securities Act of 1933, as
amended.
In
December 2008, the Company extinguished $16,500 of accounts payable by issuing
33,000 shares to the investor relations firm that had previously been engaged to
provide investor relations services to the Company.
In
October, November and December 2008, the Company issued 45,000 shares to an
investor relations firm that had been engaged to provide investor relations
services to the Company. These shares, which were valued at $39,000,
were issued as partial consideration for services rendered.
|
Live Current
Media Inc.
|
Form
10-Q – March 31, 2009
|
|
(formerly
Communicate.com Inc.)
Notes
to the Consolidated Financial Statements
For
the three months ended March 31, 2009
(Unaudited)
|
|
NOTE
10 – SHARE CAPITAL (continued)
c)
Reserved
At
December 31, 2008, the Company had reserved 413,604 shares of common stock for
future issuance and distribution in relation to the May 22, 2008 merger with
Auctomatic. These shares were to be issued to the Auctomatic founders in three
equal instalments on the next three anniversary dates of the merger contingent
on their continued employment with the Company pursuant to the terms of the
merger agreement. In the first quarter of 2009, one of the Auctomatic founders
resigned from the Company. As a result, 137,868 shares reserved for distribution
to this individual were released and are no longer payable. Pursuant
to the release, the balance of reserved shares of common stock for future
issuance and distribution is 275,736. See also Note 6.
d)
Stock Options
The Board
of Directors and stockholders approved the 2007 Stock Incentive Plan and adopted
it August 21, 2007 (the “Plan”). The Company has reserved
5,000,000 shares of its common stock for issuance to directors, employees
and consultants under the Plan. The Plan is administered by the Board of
Directors. Vesting terms of the options range from immediately to
five years and no options will be exercisable for a period of more than ten
years.
All stock
options noted herein vest over three years and are exercisable for a period of
five years based on the date of grant. The Company historically
valued the options granted to employees and directors using the Black Scholes
option pricing model at the date of grant. The Company values the
options to consultants at each reporting period under FAS 123(R) for
non-employees using the Black Scholes option pricing model. The
assumptions used in the pricing model include:
|
|
2009
|
2008
|
|
Dividend
yield
|
0%
|
0%
|
|
Expected
volatility
|
100.76%
|
64.86%-75.68%
|
|
Risk
free interest rate
|
1.35%
|
1.62%
- 3.07%
|
|
Expected
lives
|
3
years
|
3
years
|
|
|
(i)
|
On
January 1, 2008, the Company granted to its Chief Corporate Development
Officer (“CCDO”) 1,000,000 options at an exercise price of $2.06 per
share. These options have a fair value of $1.05 per option
granted.
|
|
|
(ii)
|
On
January 7, 2008, the Company granted to its Vice President, Finance (“VP
Finance”) 150,000 options at an exercise price of $1.98 per
share. These options have a fair value of $1.01 per option
granted.
|
|
|
(iii)
|
On
March 14, 2008, the Company granted to a director 100,000 options at an
exercise price of $2.49 per share. These options have a fair
value of $1.21 per option granted.
|
|
|
(iv)
|
On
May 27, 2008, the Company granted to its Vice President, General Counsel
(“VP GC”) 125,000 options at an exercise price of $3.10 per
share. These options have a fair value of $1.45 per option
granted.
|
|
|
(v)
|
Between
January 1, 2008 and December 31, 2008, the Company granted to its
full-time corporate directors a total of 425,000 options at a range of
exercise prices between $2.06 and $3.30 per share. These
options have a fair value of between $1.05 and $1.66 per option
granted. 25,000 of these options were forfeited during 2008,
and an additional 100,000 options were forfeited in the first quarter of
2009.
|
|
Live Current
Media Inc.
|
Form
10-Q – March 31, 2009
|
|
(formerly
Communicate.com Inc.)
Notes
to the Consolidated Financial Statements
For
the three months ended March 31, 2009
(Unaudited)
|
|
NOTE
10 – SHARE CAPITAL (continued)
d) Stock
Options (continued)
|
|
(vi)
|
Between
January 1, 2008 and December 31, 2008, the Company granted to its
full-time employees a total of 290,000 options at a range of exercise
prices between $0.65 and $3.10 per share. These options have a
fair value of between $0.30 and $1.45 per option
granted. 17,500 of these options have been forfeited during
2008, and an additional 92,500 options were forfeited in the first quarter
of 2009.
|
|
|
(vii)
|
Between
January 1, 2008 and December 31, 2008, the Company granted to consultants
a total of 70,000 options at exercise prices ranging from $2.06 to $2.49
per share. All of these options were forfeited during
2008.
|
|
|
(viii)
|
On
March 25, 2009, the Board of Directors approved a reduction of the
exercise price of stock option grants made prior to this
date. As a result, all grants issued prior to March 25, 2009
currently have an exercise price of $0.65. The stock option
grants included in the repricing initially had exercise prices between
$0.65 and $3.30. The incremental value of $92,237 relating to
the fair values at the date of the reduction in price has been included in
the period expense.
|
|
|
(ix)
|
On
March 25, 2009, the Company granted to its full-time employees a total of
115,000 options at an exercise price of $0.30 per share. These
options have a fair value of $0.19 per option
granted.
|
The
Company recognizes stock-based compensation expense over the requisite service
period of the individual grants, which generally equals the vesting period. FAS
123(R) requires forfeitures to be estimated at the time of grant and revised, if
necessary, in subsequent periods if actual forfeitures differ from those
estimates. Due to recent economic developments, the Company has experienced
a high level of forfeitures during late 2008 and early 2009. The Company
assesses forfeiture rates for each class of grantees; executive management and
directors, corporate directors, and general staff members. Executive
management and directors are relatively few in number and turnover is considered
remote, therefore the Company estimates forfeitures for this class of grantees
to be 10%. Corporate directors are high level senior staff members with a
forfeiture rate of 25% and general staff members have a higher forfeiture rate
due to higher average turnover rates at 35%. Estimate of forfeitures is reviewed
on an annual basis. Stock-based compensation is expensed on a straight-line
basis over the requisite service period. The fair value of these options at
March 31, 2009 of $5,134,158 (December 31, 2008 - $6,142,660) will be recognized
on a straight-line basis over a vesting term of 3 years at date of grant and
accordingly, an expense has been recognized in the first quarter of 2009 of
$386,513 (year ended December 31, 2008 - $2,111,354) and included in management
fees and employee salaries expense.
A summary
of the option activity under the 2007 Plan during 2008 and 2009 is presented
below:
|
Options
|
|
Shares
|
|
|
Weighted
Average
Exercise
Price
$
|
|
|
Weighted
Average
Fair
Value
$
|
|
|
Options
outstanding, December 31, 2007
|
|
|
2,750,000
|
|
|
|
1.41
|
|
|
|
1.60
|
|
|
Granted
|
|
|
2,160,000
|
|
|
|
0.81
|
|
|
|
1.21
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Cancelled
or expired
|
|
|
112,500
|
|
|
|
2.29
|
|
|
|
0.40
|
|
|
Options
outstanding, December 31, 2008
|
|
|
4,797,500
|
|
|
|
1.12
|
|
|
|
1.45
|
|
|
Granted
|
|
|
115,000
|
|
|
|
0.30
|
|
|
|
0.19
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Cancelled
or expired
|
|
|
1,692,500
|
|
|
|
1.98
|
|
|
|
1.44
|
|
|
Options
outstanding, March 31,2009
|
|
|
3,220,000
|
|
|
|
0.64
|
|
|
|
1.42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
vested or expected to vest at March 31, 2009
|
|
|
1,093,333
|
|
|
|
0.65
|
|
|
|
1.52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate
Intrinsic Value
|
|
$
|
5,750
|
|
|
|
|
|
|
|
|
|
|
Weighted
average remaining life
|
|
3.75
Years
|
|
|
|
|
|
|
|
|
|
|
Live Current
Media Inc.
|
Form
10-Q – March 31, 2009
|
|
(formerly
Communicate.com Inc.)
Notes
to the Consolidated Financial Statements
For
the three months ended March 31, 2009
(Unaudited)
|
|
NOTE
10 – SHARE CAPITAL (continued)
e) Common
Stock Purchase Warrants
On May 1,
2008, the Company issued 50,000 common stock share purchase warrants with an
exercise price of $2.33 to its investor relations firm in connection with a
services agreement. The warrants expire May 1, 2010. The
Company valued these options using the Black Scholes option pricing model using
the following assumptions: no dividend yield; expected volatility rate of
69.27%; risk free interest rate of 2.37% and an expected life of 2 years
resulting in a fair value of $0.91 per option granted, and a total fair value of
$45,500.
In
connection with the private placement in November 2008, the Company issued
1,627,344 warrants for the purchase of one-half share of the Company’s common
stock with an exercise price of $0.78 expiring November 19, 2010 and 1,627,344
warrants for the purchase of one-half share of the Company’s common stock with
an exercise price of $0.91 expiring November 19, 2011.
As of
March 31, 2009, 4,304,688 warrants to purchase the Company’s common stock remain
outstanding as follows:
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Warrants
|
|
Outstanding
|
|
|
Average
|
|
|
Date
of
|
|
|
|
|
|
|
|
Exercise
Price
|
|
|
Expiry
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
Warrants
outstanding, December 31, 2007
|
|
|
1,000,000
|
|
|
|
1.25
|
|
|
June
10, 2009
|
|
|
Granted
May 1, 2008
|
|
|
50,000
|
|
|
|
2.33
|
|
|
May
1, 2010
|
|
|
Granted
November 19, 2008
|
|
|
1,627,344
|
|
|
|
0.78
|
|
|
November
19, 2010
|
|
|
Granted
November 19, 2008
|
|
|
1,627,344
|
|
|
|
0.91
|
|
|
November
19, 2011
|
|
|
Cancelled
or expired
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
Warrants
exercisable December 31, 2008
and
March 31, 2009
|
|
|
4,304,688
|
|
|
|
0.96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average remaining life
|
|
1.67
Years
|
|
|
|
|
|
|
|
|
|
NOTE 11 – DOMAIN NAME LEASES AND SALES
On
February 27, 2009 (the “Effective Date”), the Company entered into an agreement
to lease one domain name to an unrelated third party for
$1,250,000. The terms of the agreement provide for the receipt of
this amount in irregular lease payments over a one-year term. The
first payment of $225,000 was due within 7 days of the Effective Date, $65,000
is due on each of the first to the fifth monthly anniversaries of the Effective
Date, $100,000 is due on each of the sixth to the ninth monthly anniversaries of
the Effective Date, and $300,000 is due on the first year anniversary of the
Effective Date. The Company will lease the domain name to the third
party exclusively during the term of the agreement. Title and rights
to the domain name will be transferred to the purchaser only when full payment
is received at the end of the lease term. If the third party defaults
on any payments, the agreement terminates, funds received to date are forfeited
by the lessee, and rights to the domain name return to the
Company. Due to the uncertainty regarding the collectibility of the
funds in the future, only the amounts received to date have been recorded as a
gain on sale of a domain name at quarter end. When collectibility is
reasonably assured, the full gain on sale will be reflected in the Company’s
operations. During the quarter, a resulting gain of $290,000 was
recorded.
On
February 24, 2009, the Company entered into an agreement to sell one domain name
to an unrelated third party for $400,000. The title of the domain
name transferred to the buyer in March 2009 and the funds were received,
therefore the disposal and resulting gain of $327,993 was recorded during the
quarter. In addition, net website development costs of $39,408 have been
adjusted against the gains relating to domain names that have been
sold.
On
December 31, 2008, the Company entered into an agreement to sell one domain name
to an unrelated third party for CDN$500,000. The terms of the
agreement provided for the receipt of CDN$476,190 on December 31, 2008 and the
balance of CDN$23,810 by March 31, 2009. The title of the domain name
transferred to the buyer at December 31, 2008 as collection of the balance was
reasonably assured, therefore the disposal and resulting gain of $330,623 was
recorded on December 31, 2008. Both payments were received in
accordance with the terms of the agreement.
|
Live Current
Media Inc.
|
Form
10-Q – March 31, 2009
|
|
(formerly
Communicate.com Inc.)
Notes
to the Consolidated Financial Statements
For
the three months ended March 31, 2009
(Unaudited)
|
|
NOTE 11 – DOMAIN NAME LEASES AND SALES
(continued)
On
January 17, 2008, the Company entered into an agreement to lease one domain name
to an unrelated third party for CDN$200,000. The terms of the
agreement provide for the receipt of this amount in five irregular lease
payments over a two-year term. The first payment of CDN$25,000 was
due on January 17, 2008 (the “Effective Date”), CDN$45,000 was due 3 months
after the Effective Date, CDN$80,000 was due 6 months after the Effective Date,
CDN$25,000 is due 1 year after the Effective Date, and CDN$25,000 is due 2 years
after the Effective Date. The Company will lease the domain name to
the third party exclusively during the term of the agreement. Title
and rights to the domain name will be transferred to the purchaser only when
full payment is received at the end of the lease term. If the third
party defaults on any payments, the agreement terminates, funds received to date
are forfeited by the lessee, and rights to the domain name return to the
Company. This transaction was recorded as a sales-type lease in
2008. The investment in a sales-type lease of $163,963 was recorded
on the balance sheet on a net basis after the lease payments received to
date. The gain of $168,206 was recorded at the present value of the
lease payments over the term, net of the cost of the domain name, at an implicit
rate of 6%. Payments have been collected to date in accordance with
the terms of the agreement.
During Q1
of 2009, the Company incurred various restructuring costs of $346,564 consisting
of $264,904 in severance payments to the former President and Chief Operating
Officer and to other staff terminated in the first quarter as a result of
restructuring the Company’s staffing requirements, as well as $81,660 in signing
bonuses owing to our Chief Corporate Development Officer.
During Q1
of 2008, the Company incurred various restructuring costs totaling $629,856
relating to establishing the new management team. During the period,
such costs included severance payments to the Company’s former Chief Financial
Officer of $168,429, $25,657 in consulting fees to the former Chief
Financial Officer, $317,109 in signing bonuses to the Company’s new Chief
Corporate Development Officer and new Vice President Finance, a severance
payment of $53,582 to one full time employee, $39,778 in costs related to
changing the Company name and rebranding, and $25,301 in some final windup costs
related to the FrequentTraveller disposition in late 2007.
The
Company’s subsidiaries, DHI, Acadia, Importers, and 612793 are subject to
federal and provincial taxes in Canada. The Company and its
subsidiary, Delaware, are subject to United States federal and state
taxes.
As at
March 31, 2009, the Company and its US subsidiaries have net operating loss
carryforwards from previous tax years of approximately $4,138,000 and capital
loss carryforwards of $120,000 that result in deferred tax
assets. The Company’s Canadian subsidiaries have non capital loss
carryforwards of approximately $6,353,000 that result in deferred tax
assets. These loss carryforwards will expire, if not utilized,
through 2028. The Company’s subsidiary DHI also has approximately
$896,300 in undepreciated capital costs relating to property and equipment that
have not been amortized for tax purposes. The costs may be amortized
in future years as necessary to reduce taxable income. Management
believes that the realization of the benefits from these deferred tax assets is
uncertain and accordingly, a full deferred tax asset valuation allowance has
been provided and no deferred tax asset benefit has been recorded.
There has
been no substantial change in the effective tax rate since December 31,
2008.
|
Live Current
Media Inc.
|
Form
10-Q – March 31, 2009
|
|
(formerly
Communicate.com Inc.)
Notes
to the Consolidated Financial Statements
For
the three months ended March 31, 2009
(Unaudited)
|
|
NOTE
14 – SEGMENTED INFORMATION
In 2008
and 2009, the Company’s operations were conducted in two business segments;
eCommerce Products, and Advertising and Other.
During
2008, the Company began offering international shipping on its Perfume.com
website. The operations from Perfume.com are included as the
eCommerce Products business segment. The sales generated from regions
other than North America have been immaterial during the quarter ended March 31,
2009 as well as the year ended December 31, 2008, and therefore no geographic
segment reporting is required.
Revenues,
operating profits and net identifiable assets by business segments are as
follows:
|
|
|
eCommerce
|
|
|
Advertising
|
|
|
Total
|
|
|
|
|
Products
|
|
|
and
Other
|
|
|
|
|
|
For
the quarter ended March 31, 2009
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Revenue
|
|
|
1,720,167
|
|
|
|
32,215
|
|
|
|
1,752,382
|
|
|
Segment
Loss From Operations
|
|
|
(753,867
|
)
|
|
|
(444,940
|
)
|
|
|
(1,198,807
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
at March 31, 2009
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Total
Assets
|
|
|
4,160,166
|
|
|
|
1,956,765
|
|
|
|
6,116,931
|
|
|
Intangible
Assets
|
|
|
158,849
|
|
|
|
1,398,418
|
|
|
|
1,557,267
|
|
|
|
|
eCommerce
|
|
|
Advertising
|
|
|
Total
|
|
|
|
|
Products
|
|
|
and
Other
|
|
|
|
|
|
For
the quarter ended March 31, 2008
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Revenue
|
|
|
1,820,643
|
|
|
|
27,836
|
|
|
|
1,848,479
|
|
|
Segment
Loss From Operations
|
|
|
(1,671,656
|
)
|
|
|
(477,949
|
)
|
|
|
(2,149,605
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
at March 31, 2008
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Total
Assets
|
|
|
5,840,263
|
|
|
|
1,745,498
|
|
|
|
7,585,761
|
|
|
Intangible
Assets
|
|
|
189,047
|
|
|
|
1,436,834
|
|
|
|
1,625,881
|
|
The
reconciliation of the segment loss from operations to net loss as reported in
the consolidated financial statements is as follows:
|
|
|
For
the quarter ended
March
31, 2009
|
|
|
For
the quarter ended
March
31, 2008
|
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
Segment
Loss From Operations
|
|
$
|
(1,198,807
|
)
|
|
$
|
(2,149,605
|
)
|
|
Other
Items
|
|
|
|
|
|
|
|
|
|
Global
Cricket Venture recovery (expenses)
|
|
|
22,745
|
|
|
|
(55,317
|
)
|
|
Net
proceeds from sales-type lease of domain names
|
|
|
580,525
|
|
|
|
168,206
|
|
|
Accretion
expense
|
|
|
(40,000
|
)
|
|
|
-
|
|
|
Interest
and investment income
|
|
|
890
|
|
|
|
42,498
|
|
|
Net
loss for the period
|
|
$
|
(634,647
|
)
|
|
$
|
(1,994,218
|
)
|
Substantially
all property and equipment and intangible assets are located in
Canada.
|
Live Current
Media Inc.
|
Form
10-Q – March 31, 2009
|
|
(formerly
Communicate.com Inc.)
Notes
to the Consolidated Financial Statements
For
the three months ended March 31, 2009
(Unaudited)
|
|
Premise
Lease
Effective
October 1, 2007 the Company leased its office in Vancouver, Canada from an
unrelated party for a 5-year period from October 1, 2007 to September 30,
2012. Pursuant to the terms of the lease agreement, the Company is
committed to basic rent payments expiring September 30, 2012 as
follows.
|
|
CDN
$
|
|
2009
|
87,475
|
|
2010
|
121,531
|
|
2011
|
126,873
|
|
2012
|
98,159
|
The
Company will also be responsible for common costs currently estimated to be
equal to approximately 43% of basic rent.
Cricket
Venture
The
initial Memoranda with the BCCI and the IPL required the Company to pay both the
BCCI and the IPL minimum payments over the next ten years, beginning on October
1, 2008. See Note 5. On March 31, 2009, the Company was
released and discharged from all past and future minimum payments owing to the
IPL.
The
Company signed the Mutual Termination Agreement with the BCCI effective March
31, 2009. This agreement returns control of the BCCI website back to
the BCCI in exchange for the termination of the BCCI Memorandum signed in April
2008. As a result, all rights, licenses, and benefits granted to Live
Current under that Memorandum revert to BCCI. The agreement
constitutes full and final settlement of any and all historic and future
outstanding obligations due from Live Current under the BCCI
Memorandum. Per the Mutual Termination Agreement, Live Current is
released from all accrued liabilities under the BCCI Memorandum, conditional on
a $750,000 payment to be made by July 1, 2009 by GCV under the Novation
Agreement explained below.
The
Company signed the Novation Agreement with the BCCI and the GCV effective March
31, 2009. This agreement releases and discharges Live Current from
the IPL Memorandum in full, including the amounts originally accrued for
payments owing on October 1, 2008 and January 1, 2009. In addition,
the IPL Memorandum’s payment schedule has been amended as well. There
are now no payments due on October 1, 2008, January 1, 2009 or April 1,
2009. The first payment owing under the IPL Memorandum by the GCV are
$2,250,000 on July 1, 2009. The Company no longer owes any amounts
relating to the IPL Memorandum.
A former
Chief Executive Officer of DHI commenced a legal action against DHI on March 9,
2000 for wrongful dismissal and breach of contract. He is seeking, at
a minimum, 18.39% of the outstanding shares of DHI, specific performance of his
contract, special damages in an approximate amount of $30,000, aggravated and
punitive damages, interest and costs. On June 1, 2000, DHI filed a Defense and
Counterclaim against this individual claiming damages and special damages for
breach of fiduciary duty and breach of his employment contract. The outcome of
these legal actions is currently not determinable and as such the amount of
loss, if any, resulting from this litigation is presently not
determinable. To date, there has been no further action taken by the
plaintiff since the filing of the initial legal action on March 9,
2000.
|
Live Current
Media Inc.
|
Form
10-Q – March 31, 2009
|
|
(formerly
Communicate.com Inc.)
Notes
to the Consolidated Financial Statements
For
the three months ended March 31, 2009
(Unaudited)
|
|
NOTE
17 – RELATED PARTY TRANSACTIONS
2009
There
were no related party transactions in the first quarter of 2009.
2008
The
Company issued shares of common stock to related parties pursuant to private
placements 2008 as follows:
On
November 19, 2008, the Company closed a private placement financing in which C.
Geoffrey Hampson, the Company’s Chief Executive Officer, invested
$126,750. Mr. Hampson received 195,000 restricted shares of common
stock, two-year warrants to purchase 97,500 common shares at an exercise price
of $0.78, and three-year warrants to purchase 97,500 common shares at an
exercise price of $0.91.
On
November 19, 2008, the Company closed a private placement financing in which
Jonathan Ehrlich, the Company’s then President and Chief Operating Officer,
invested $25,000. Mr. Ehrlich received 38,461 restricted shares of
common stock, two-year warrants to purchase 19,230 common shares at an exercise
price of $0.78, and three-year warrants to purchase 19,230 common shares at an
exercise price of $0.91.
On
November 19, 2008, the Company closed a private placement financing in which
Mark Melville, the Company’s Chief Corporate Development Officer, invested
$35,000. Mr. Melville received 53,846 restricted shares of common
stock, two-year warrants to purchase 26,923 common shares at an exercise price
of $0.78, and three-year warrants to purchase 26,923 common shares at an
exercise price of $0.91.
NOTE
18 – SUBSEQUENT EVENTS
On April
9, 2009, the Company entered into an agreement whereby $8,625 of its accounts
payable were extinguished in exchange for the issuance of 27,823 shares of its
common stock, which were issued on April 14, 2009.
On April
15, 2009, the Company sold one domain name to a third party purchaser for
$400,000, paid in full by April 29, 2009.
NOTE
19 – COMPARATIVE FIGURES
Certain
comparative figures have been reclassified to conform to the basis of
presentation adopted in the current period.
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