December
31, 2009 as compared to December 31, 2008
The
following selected financial data was derived from our audited consolidated
financial statements for the years ended December 31, 2009 and
2008. The information set forth below should be read in conjunction
with our financial statements and related notes included elsewhere in this
prospectus.
Expressed
in US Dollars
|
|
Year
ended
|
|
|
Year
ended
|
|
|
|
December
31, 2009
|
|
|
December
31, 2008
|
|
|
|
|
|
|
(As
Restated)
|
|
SALES
|
|
|
|
|
|
|
Health
and beauty eCommerce
|
|
$
|
7,216,479
|
|
|
$
|
9,271,237
|
|
Other
eCommerce
|
|
|
-
|
|
|
|
455
|
|
Sponsorship
revenues
|
|
|
220,397
|
|
|
|
-
|
|
Domain
name advertising
|
|
|
95,877
|
|
|
|
93,141
|
|
Miscellaneous
income
|
|
|
74,138
|
|
|
|
-
|
|
Total
Sales
|
|
|
7,606,891
|
|
|
|
9,364,833
|
|
|
|
|
|
|
|
|
|
|
COSTS
OF SALES
|
|
|
|
|
|
|
|
|
Health
and Beauty eCommerce
|
|
|
5,677,005
|
|
|
|
7,683,432
|
|
Other
eCommerce
|
|
|
-
|
|
|
|
380
|
|
Total
Costs of Sales (excluding depreciation and amortization as shown
below)
|
|
|
5,677,005
|
|
|
|
7,683,812
|
|
|
|
|
|
|
|
|
|
|
GROSS
PROFIT
|
|
|
1,929,886
|
|
|
|
1,681,021
|
|
|
|
|
|
|
|
|
|
|
OPERATING
EXPENSES
|
|
|
|
|
|
|
|
|
Amortization
and depreciation
|
|
|
241,094
|
|
|
|
253,141
|
|
Amortization
of website development costs
|
|
|
123,395
|
|
|
|
58,640
|
|
Corporate
general and administrative
|
|
|
1,004,051
|
|
|
|
2,911,627
|
|
ECommerce
general and administrative
|
|
|
319,155
|
|
|
|
567,980
|
|
Management
fees and employee salaries
|
|
|
3,583,288
|
|
|
|
5,798,728
|
|
Corporate
marketing
|
|
|
14,036
|
|
|
|
147,842
|
|
ECommerce
marketing
|
|
|
580,331
|
|
|
|
766,393
|
|
Other
expenses
|
|
|
264,904
|
|
|
|
708,804
|
|
Total
Operating Expenses
|
|
|
6,130,254
|
|
|
|
11,213,155
|
|
|
|
|
|
|
|
|
|
|
NON-OPERATING
INCOME (EXPENSES)
|
|
|
|
|
|
|
|
|
Global
Cricket Venture payments
|
|
|
-
|
|
|
|
(1,000,000
|
)
|
Gain
on settlement of amounts due regarding Global Cricket
Venture
|
|
|
750,000
|
|
|
|
-
|
|
Gain
from sales and sales-type lease of domain names
|
|
|
2,452,081
|
|
|
|
461,421
|
|
Accretion
interest expense
|
|
|
(63,300
|
)
|
|
|
(96,700
|
)
|
Interest
expense
|
|
|
(25,845
|
)
|
|
|
-
|
|
Interest
and investment income
|
|
|
1,534
|
|
|
|
67,683
|
|
Foreign
exchange loss
|
|
|
(88,571
|
)
|
|
|
(3,407
|
)
|
Gain
on restructure of severance payable
|
|
|
212,766
|
|
|
|
-
|
|
Gain
on restructure of Auctomatic payable
|
|
|
29,201
|
|
|
|
-
|
|
Impairment
of Auction Software
|
|
|
(590,973
|
)
|
|
|
-
|
|
Impairment
of Goodwill
|
|
|
(2,539,348
|
)
|
|
|
-
|
|
Total
Non-Operating Income (Expenses)
|
|
|
137,545
|
|
|
|
(571,003
|
)
|
|
|
|
|
|
|
|
|
|
NET
LOSS BEFORE TAXES
|
|
|
(4,062,823
|
)
|
|
|
(10,103,137
|
)
|
|
|
|
|
|
|
|
|
|
Deferred
tax recovery
|
|
|
81,163
|
|
|
|
40,389
|
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED
NET LOSS
|
|
|
(3,981,660
|
)
|
|
|
(10,062,748
|
)
|
|
|
|
|
|
|
|
|
|
ADD:
NET INCOME (LOSS) ATTRIBUTABLE TO NON-CONTROLLING INTEREST
|
|
|
(28,353
|
)
|
|
|
75,478
|
|
|
|
|
|
|
|
|
|
|
NET
LOSS AND COMPREHENSIVE LOSS FOR
|
|
|
|
|
|
|
|
|
THE
YEAR ATTRIBUTABLE TO LIVE CURRENT MEDIA INC.
|
|
$
|
(4,010,013
|
)
|
|
$
|
(9,987,270
|
)
|
|
|
|
|
|
|
|
|
|
LOSS
PER SHARE - BASIC AND DILUTED
|
|
|
|
|
|
|
|
|
Net
Loss attributable to Live Current Media Inc. common
stockholders
|
|
$
|
(0.17
|
)
|
|
$
|
(0.46
|
)
|
Weighted
Average Number of Common Shares Outstanding - Basic
|
|
|
23,941,358
|
|
|
|
21,937,179
|
|
|
|
|
|
|
|
|
|
|
Net
Loss attributable to Live Current Media Inc. common
stockholders
|
|
$
|
(0.17
|
)
|
|
$
|
(0.46
|
)
|
Weighted
Average Number of Common Shares Outstanding - Diluted
|
|
|
23,941,358
|
|
|
|
21,937,179
|
|
BALANCE SHEET DATA
|
|
|
|
|
|
|
|
|
December
31, 2009
|
|
|
December
31, 2008
|
|
|
|
|
|
|
(As
Restated)
|
|
Assets
|
|
|
|
|
|
|
Current
Assets
|
|
$
|
1,214,924
|
|
|
$
|
2,133,150
|
|
Long-term
portion of investment in sales-type lease
|
|
|
-
|
|
|
|
23,423
|
|
Property
& equipment
|
|
|
231,327
|
|
|
|
1,042,851
|
|
Website
development costs
|
|
|
217,883
|
|
|
|
355,391
|
|
Intangible
assets
|
|
|
963,133
|
|
|
|
1,587,463
|
|
Goodwill
|
|
|
66,692
|
|
|
|
2,606,040
|
|
Total
Assets
|
|
$
|
2,693,959
|
|
|
$
|
7,748,318
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
$
|
2,431,249
|
|
|
$
|
5,333,081
|
|
Deferred
income tax
|
|
|
125,207
|
|
|
|
206,370
|
|
Deferred
lease inducements
|
|
|
35,241
|
|
|
|
55,380
|
|
Warrants
|
|
|
250,710
|
|
|
|
157,895
|
|
Total
Liabilities
|
|
|
2,842,407
|
|
|
|
5,752,726
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
Equity (Deficit)
|
|
|
|
|
|
|
|
|
Common
Stock
|
|
|
15,335
|
|
|
|
14,855
|
|
Additional
paid-in capital
|
|
|
16,595,072
|
|
|
|
14,757,932
|
|
Accumulated
deficit
|
|
|
(16,787,208
|
)
|
|
|
(12,777,195
|
)
|
Total
Live Current Media Inc. stockholders' equity (deficit)
|
|
|
(176,801
|
)
|
|
|
1,995,592
|
|
Non-controlling
interest
|
|
|
28,353
|
|
|
|
-
|
|
Total
Stockholders' Equity (Deficit)
|
|
|
(148,448
|
)
|
|
|
1,995,592
|
|
Total
Liabilities and Stockholders' Equity
|
|
$
|
2,693,959
|
|
|
$
|
7,748,318
|
|
RESULTS
OF OPERATIONS
Sales
and Costs of Sales
Year
over Year Analysis
Total
sales of $7,606,891 reported during the year ended December 31, 2009 decreased
by $1,757,942, or 18.8%, from sales of $9,364,833 in 2008. The
decrease without consideration of Cricket.com sponsorship revenues of $220,397
was $1,978,339, or 21.1%, due primarily to a decline in Perfume.com revenues as
described below. The decrease in costs of sales year over year of
$2,006,807, or 26.1% is also consistent with the decline in our eCommerce
business. Health and Beauty eCommerce product sales represented 94.9%
of total revenues in 2009 including Cricket.com sponsorship revenues and 97.7%
excluding these revenues, compared to 99.0% of total revenues in
2008.
Overall
gross margin in 2009 was 23.1% excluding sponsorship revenues, compared to 18.0%
in 2008. This increase was due to new revenue generating activities
that were pursued in 2009, as well as a significant increase in gross margins in
our eCommerce business as a result of increased prices, and decreased discounts,
coupons and promotions.
Quarter
over Quarter Analysis
Overall,
combined sales in Q4 of 2009 totalled $2,391,868 as compared to $3,626,217 in Q4
of 2008, a decrease of 34.0%. This decrease was driven by the
decrease in sales at Perfume.com. Overall, Health & Beauty
eCommerce product sales, consisting of Perfume.com sales, represented 97.6% of
total revenues in Q4 of 2009, compared to 99.5% of total revenues in Q4 of
2008. A discussion of the decline in our revenues is included
below.
Costs of
sales were $1,791,160 in Q4 of 2009 compared to $3,016,615 during Q4 of 2008, a
decrease of 40.6%. This resulted in an overall gross margin in Q4 of
2009 of $600,708, or 25.1%. This is compared to a gross margin of
$609,602, or 16.8% in Q4 of 2008. This significant increase in the
overall gross margin in Q4 of 2009 is due to a change in management’s focus from
increasing gross sales through promotions and a reduction in prices, to
increasing gross margins by reducing discounts and increasing prices, as well as
the implementation of other income opportunities that require few costs to
manage and have a 100% gross margin.
Health
and Beauty eCommerce Sales
Our
Perfume.com sales result from the sale of fragrances, designer skin care and
hair care products. Our results for 2008 include immaterial amounts
relating to our eCommerce monetization of Body.com which ended in early
2008. Our health and beauty eCommerce product sales through our
perfume.com website accounted for nearly all of our eCommerce sales in 2008 and
2009 and we expect that this will continue in the short term.
The
following table summarizes our revenues earned on the sale of Health and Beauty
products during each quarter since January 1, 2008.
Quarter Ended
|
|
Total Quarterly Sales
|
|
|
Average Daily Sales
|
|
|
|
|
|
|
|
|
March
31, 2009
|
|
$
|
1,720,167
|
|
|
$
|
19,113
|
|
June
30, 2009
|
|
|
1,663,182
|
|
|
|
18,277
|
|
September
30, 2009
|
|
|
1,498,265
|
|
|
|
16,285
|
|
December 31,
2009
|
|
|
2,334,865
|
|
|
|
25,379
|
|
Fiscal Year 2009
Totals
|
|
$
|
7,216,479
|
|
|
$
|
19,771
|
|
|
|
|
|
|
|
|
|
|
March
31, 2008
|
|
$
|
1,816,007
|
|
|
$
|
19,956
|
|
June
30, 2008
|
|
|
1,912,217
|
|
|
|
21,013
|
|
September
30, 2008
|
|
|
1,934,829
|
|
|
|
21,031
|
|
December 31,
2008
|
|
|
3,608,184
|
|
|
|
39,219
|
|
Fiscal Year 2008
Totals
|
|
$
|
9,271,237
|
|
|
$
|
25,331
|
|
The most
recent quarters have presented great challenges for all retailers, including
eCommerce, due to the worldwide economic downturn. As noted above,
the majority of our revenues come from consumers in the United States, which is
still experiencing a severe recession that has adversely affected consumer
spending on discretionary items. This decline in discretionary
consumer spending has contributed to the decrease in revenues from
Perfume.com.
The
following table summarizes our gross margins and gross margin percentages earned
on the sale of Health and Beauty products during each quarter since January 1,
2008.
Quarter
Ended
|
|
Quarterly
Gross
|
|
|
Quarterly
Gross
|
|
|
|
|
|
|
Margin %
|
|
|
|
|
|
|
|
|
March
31, 2009
|
|
$
|
333,548
|
|
|
|
19.4
|
%
|
June
30,
2009
|
|
|
347,435
|
|
|
|
20.9
|
%
|
September
30, 2009
|
|
|
314,786
|
|
|
|
21.0
|
%
|
December 31,
2009
|
|
|
543,705
|
|
|
|
23.3
|
%
|
Fiscal Year 2009
Totals
|
|
$
|
1,539,474
|
|
|
|
21.3
|
%
|
|
|
|
|
|
|
|
|
|
March
31, 2008
|
|
$
|
334,678
|
|
|
|
18.4
|
%
|
June
30, 2008
|
|
|
329,150
|
|
|
|
17.2
|
%
|
September
30, 2008
|
|
|
332,580
|
|
|
|
17.2
|
%
|
December 31,
2008
|
|
|
591,397
|
|
|
|
16.4
|
%
|
Fiscal Year 2008
Totals
|
|
$
|
1,587,805
|
|
|
|
17.1
|
%
|
Y
ear
over Year Analysis
Perfume.com
revenues decreased 22.2% during the year ended December 31, 2009 compared to
revenues in 2008. Daily sales of $19,771 in 2009 decreased in part
due to the decline in economic conditions; however as management has shifted its
focus to increasing gross margins from increasing gross revenues, we expect this
trend to continue.
Costs of
shipping and purchases decreased 26.1% to $5,677,005 in 2009 from $7,683,432 in
2008. This resulted in an increased gross margin during 2009 of 21.3%
compared to 17.1% in 2008. During the last half of 2009, management
revised the business plan for Perfume.com and is now focused on increasing gross
margins and cutting costs. As a result, although there has been
decline in revenues period over period, this change in strategy has provided the
Company with significantly larger gross margins quarter over quarter in 2009.
The dollar amount of our gross margins has remained consistent year over year,
however we have been able to increase our gross margins by over 4 percentage
points even as our revenues have declined.
Quarter
over Quarter Analysis
Perfume.com
revenues in Q4 of 2009 accounted for 32.4% of our annual eCommerce sales, due to
the seasonal nature of our business. This is compared to sales in Q4
of 2008 that accounted for 38.9% of our 2008 annual
sales. Historically, Perfume.com sales in our 4
th
quarter usually account for 30-40% of our annual sales. Management
believes that this business segment, especially with the new strategy of higher
engagement and higher prices, continues to demonstrate strong
potential. However, it is possible that consumer spending on
discretionary items will continue to decline as the recession in the U.S., from
which we earn the majority of our eCommerce revenues, continues.
Perfume.com
revenues decreased 35.3% to $2,334,865 in Q4 of 2009 from $3,608,184 in Q4 of
2008. Daily sales averaged $25,379 in Q4 of 2009 compared to $39,219
per day in Q4 of 2008. This decrease was due both to the continuing
recessionary factors in the U.S. economy, as well as the significant shift in
management’s selling strategy. Whereas in 2008 we were focusing on
increasing revenues to the detriment of our gross margin ratios, in 2009 the
strategy focused on increasing gross margins by limiting aggressive and
unprofitable SEO practices and discounts, broadening valuable content on the
site, and increasing prices of products for sale.
Costs of
shipping and purchases totalled $1,791,160 in Q4 of 2009 as compared to
$3,016,787 in Q4 of 2008. This produced significantly higher gross margins in
Perfume.com of 23.3% in Q4 of 2009 compared to 16.4% in Q4 of
2008. The continuing increases in gross profit margins in each
quarter of 2009 demonstrates the success of management’s strategy, although
achieving this goal resulted in decreased revenues. Management
continues to research and pursue opportunities that may contribute to higher
gross margin percentages in the future. Management anticipates that
it will maintain a profit margin of approximately 20-23% through
2010. Over the next several quarters, management will continue to
explore opportunities to introduce and implement more robust supply chain
capability which, if realized, should also aid in increasing gross margins in
the future.
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. In 2010,
we will continue to allocate our resources to Perfume.com.
Sponsorship
Revenues
In Q3 and
Q4 of 2009, we collected for revenues earned on sponsorships related to past
cricket tournaments that are receivable based on the Company’s prior agreements
relating to the cricket.com website. All amounts were either received
during or subsequent to year end. There were no similar revenues in
2008 and we will not have similar revenues in the future.
Advertising
and Miscellaneous Income
Year
over Year Analysis
During
2009, our advertising revenues were $95,877, consistent with our advertising
revenues in 2008 of $93,141. These revenues accounted for 1.3% of
total revenues in 2009 both including and excluding sponsorship revenues,
slightly higher than the 1% in 2008. As noted above, management
continues to pursue new opportunities to increase advertising revenues, however
we do not expect them to account for a significant portion of our revenue
stream.
Quarter
over Quarter Analysis
In Q4 of
2009, we generated advertising revenues of $29,162 compared to $18,033 in Q4 of
2008, an increase of 61.7%. Management had terminated its primary
advertising contract in early 2008 because its restrictive conditions limited
monetization in the medium and long term. Advertising revenues had
subsequently decreased throughout every quarter in 2008. However, in
2009 management pursued new monetization opportunities with advertisers and
increased advertising options available on our properties. As a
result, in 2009, advertising revenues began to increase quarter over
quarter. In Q4 of 2009, advertising accounted for 1.2% of total
revenues compared to only 0.5% of total revenues in Q4 of
2008. Advertising revenues are expected to continue to account for
less than 2% of total revenues in 2010.
Miscellaneous
Income
In early
2009, we implemented a new cost sharing arrangement with a related party whereby
we would earn $6,000 per month for providing administrative, technical, and
other services. This income is included in miscellaneous and other
income on our consolidated statements of operations.
Domain
Name Leases and Sales
There was
one outright sale of a domain name in the 2008 fiscal year and sales of ten
domain names in 2009, not including cricket.com. Management has
successfully raised significant funds in order to aid in the Company’s
liquidity, continues to evaluate expressions of interest from domain name
buyers, and continues to search for other domain names that would complement
either the advertising or eCommerce businesses.
General
and Administrative
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. The
following tables summarize our total general and administrative expenses, and
the breakdown of our corporate and eCommerce general and administrative expenses
during each quarter since January 1, 2008.
Quarter
Ended
|
|
Corporate
|
|
|
eCommerce
|
|
|
Total
|
|
|
As
a % of
|
|
|
|
G&A
|
|
|
G&A
|
|
|
G&A*
|
|
|
Total Sales**
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
31, 2009 (as
restated)
|
|
$
|
291,585
|
|
|
$
|
80,220
|
|
|
$
|
371,805
|
|
|
|
21.2
|
%
|
June
30,
2009
|
|
|
250,598
|
|
|
|
73,668
|
|
|
|
324,266
|
|
|
|
19.0
|
%
|
September
30, 2009
|
|
|
138,512
|
|
|
|
63,461
|
|
|
|
201,973
|
|
|
|
13.1
|
%
|
December 31,
2009
|
|
|
323,356
|
|
|
|
101,806
|
|
|
|
425,162
|
|
|
|
17.8
|
%
|
Fiscal Year 2009
Totals
|
|
$
|
1,004,051
|
|
|
$
|
319,155
|
|
|
$
|
1,323,206
|
|
|
|
17.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
31, 2008 (as restated)
|
|
$
|
526,534
|
|
|
$
|
169,813
|
|
|
$
|
696,347
|
|
|
|
37.7
|
%
|
June
30, 2008 (as restated)
|
|
|
571,355
|
|
|
|
100,495
|
|
|
|
671,850
|
|
|
|
34.6
|
%
|
September
30, 2008 (as restated)
|
|
|
1,037,546
|
|
|
|
114,973
|
|
|
|
1,152,519
|
(1)
|
|
|
59.0
|
%
|
December 31, 2008 (as
restated)
|
|
|
776,192
|
|
|
|
182,699
|
|
|
|
958,891
|
|
|
|
26.4
|
%
|
Fiscal Year 2008 Totals (as
restated)
|
|
$
|
2,911,627
|
|
|
$
|
567,980
|
|
|
$
|
3,479,607
|
|
|
|
37.2
|
%
|
_________________________
*
Excluding foreign exchange gain or loss which was reported as part of G&A
expenses until Q4 2009
**Excluding
cricket.com sponsorship revenues
(1)
Cricket related expenses included in corporate general and administrative costs
for the first two quarters of 2008 were capitalized in Q2 of
2008. These costs were expensed in full in Q3 of 2008, resulting in
the larger expense for that quarter.
Year
over Year Analysis
In 2009,
we recorded total general and administrative expense of $1,323,206 or 17.9% of
total sales, not including Cricket.com sponsorship revenues, as compared to
$3,479,607 or 37.2% of total sales in 2008, a decrease of $2,156,401, or
62.0%. This total includes corporate and eCommerce related general
and administrative costs. Management has actively curtailed its
spending since early 2009, and expects this trend to continue throughout 2010
and 2011.
Corporate
general and administrative costs in 2009 of $1,004,051 have decreased by
$1,907,576, or more than 65.5%, compared to $2,911,627 spent in
2008. One of the significant costs we incurred during 2008 which was
not incurred in 2009 was approximately $680,000 in payments made in cash and
common stock for investor relations services as well as $396,600 in M&A
activity. We also significantly reduced expenses during 2009,
including reductions of $38,800 in meals and entertainment, $110,500 in travel,
$46,300 in telephone, and $21,900 in automobile allowance and parking
costs. The decrease in these expenses was due to management’s focus
in 2009 on cutting costs as well as the decrease in the number of employees in
2009. These expenses also decreased by $101,200 in rent benefits and
approximately $165,800 in legal expenses due to our addition in mid-2008 of
in-house legal counsel. Cricket related expenses included in
corporate general and administrative costs in 2009 were $23,697, which
represented a decrease of approximately $373,400 over the $397,133 expensed in
2008. In total, these expenses accounted for 13.6% of total revenues
excluding Cricket.com sponsorships in 2009, compared to 31.1% in
2008.
ECommerce
general and administrative costs, which totaled $319,155 in 2009, decreased by
$248,825, or 43.8% compared to the prior year. During 2008, we spent
$105,300 for recruiting costs. There were no recruiting costs in
2009. Additional reductions included $9,200 in internet hosting and
traffic, $11,800 in internet traffic, $42,200 in decreased consulting fees,
$38,900 in travel and accommodation costs related to our Perfume.com business,
and $49,300 in merchant fees due to decreased sales in 2009. We
believe that these expense ratios are reasonable given the increasingly
competitive environment for eCommerce sales and our continued focus on growing
the eCommerce business. We expect to maintain eCommerce general and
administrative costs below 10% of eCommerce sales. These expenses
represented 4.4% of eCommerce sales in 2009 compared to 6.1% in
2008.
Quarter
over Quarter Analysis
In Q4 of
2009, we recorded total general and administrative expense of $429,794 or 18.0%
of total sales as compared to $977,366 or 27.0% of total sales in Q4 of 2008, a
decrease of $547,572 or over 56.0%. This total includes corporate and
eCommerce related general and administrative costs. Management
expects general and administrative expenses to decrease as a percentage of
revenue as the eCommerce business grows and as continued efforts are made to cut
costs, and expects to maintain general and administrative costs well below 20%
of total sales.
Corporate
general and administrative costs of $323,356 have decreased from the amount of
$776,192 in Q4 of 2008 by $452,836, or 58.3%. The significant costs
we incurred during Q4 of 2008 which were not incurred in Q4 of 2009 were
approximately $151,100 in payments made both in cash and common stock for
investor relations services, and $377,000 in M&A activity. There
were no expenses related to our cricket activities in Q4 of 2009 as we had
disposed of cricket.com in August of 2009, however there were over $26,000 of
such expenses in Q4 of 2008. In total, corporate general and
administrative expenses accounted for 13.5% of total revenues in Q4 of 2009,
compared to 21.4% in Q4 of 2008.
ECommerce
general and administrative costs, which totalled $101,806 in Q4 of 2009,
decreased by $80,893, or 44.3%, over Q4 of 2008 primarily due to a $36,500
decrease in merchant fees and $48,300 decrease in consulting expenses in Q4 of
2009 compared to Q4 of 2008. These expenses represented 4.4% of
eCommerce sales in Q4 of 2009 compared to 5.1% in Q4 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 2010.
Management
Fees and Employee Salaries
The
following table details the breakdown of our management fees and employee
salaries expense during each quarter since January 1, 2008.
Quarter
Ended
|
|
Total
|
|
|
Accrued
|
|
|
Stock-Based
|
|
|
Normalized
|
|
|
|
Expense
|
|
|
Bonuses
|
|
|
Compensation
|
|
|
Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
31, 2009 (as restated)
|
|
$
|
1,193,595
|
|
|
$
|
8,919
|
|
|
$
|
610,342
|
|
|
$
|
574,334
|
|
June
30, 2009
|
|
|
996,661
|
|
|
|
10,427
|
|
|
|
452,487
|
|
|
|
533,747
|
|
September
30, 2009
|
|
|
760,631
|
|
|
|
12,177
|
|
|
|
353,331
|
|
|
|
395,123
|
|
December 31, 2009
|
|
|
632,401
|
|
|
|
7,898
|
|
|
|
286,359
|
|
|
|
338,144
|
|
Fiscal Year 2009
Totals
|
|
$
|
3,583,288
|
|
|
$
|
39,421
|
|
|
$
|
1,702,519
|
|
|
$
|
1,841,348
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
31, 2008 (as restated)
|
|
$
|
1,168,089
|
|
|
$
|
123,602
|
|
|
$
|
443,721
|
|
|
$
|
600,766
|
|
June
30, 2008 (as restated)
|
|
|
1,595,082
|
|
|
|
224,575
|
|
|
|
543,158
|
|
|
|
827,349
|
|
September
30, 2008 (as restated)
|
|
|
2,171,036
|
|
|
|
258,166
|
|
|
|
646,994
|
|
|
|
1,265,876
|
(1)
|
December 31, 2008 (as
restated)
|
|
|
864,521
|
|
|
|
(251,648
|
)
|
|
|
528,653
|
|
|
|
587,516
|
|
Fiscal Year 2008 Totals (as
restated)
|
|
$
|
5,798,728
|
|
|
$
|
354,695
|
|
|
$
|
2,162,526
|
|
|
$
|
3,281,507
|
|
(1)
Cricket related expenses included in corporate general and administrative costs
for the first two quarters of 2008 were capitalized in Q2 of 2008. In
Q3 of 2008, these costs were expensed in full, resulting in the larger expense
for that quarter.
Year
over Year Analysis
During
the year ended December 31, 2009, we have seen a continuing decline in
management fees and employee salaries. In 2009, we incurred total
management fees and staff salaries of $3,583,288 compared to $5,798,728 in 2008,
a decrease of 38.2%. This amount includes stock based compensation of
$1,702,519 and $2,162,526 in 2009 and 2008 respectively. It also
includes accrued amounts for special bonuses payable to our current President
pursuant to his employment agreement. Excluding these amounts,
normalized management fees and employee salaries expense was $1,841,348 in 2009
compared to $3,281,507 in 2008, resulting in a decrease of 43.9% year over
year. This decrease was primarily due to the fact that we terminated
several employees in early 2009, as well as decreased costs related to our
activities in cricket.com. Cricket related expenses, including
management fees and salaries for the year ended December 31, 2009, were
$424,425, while during 2008 these expenses totalled $973,679. In
August 2009, we terminated our activities related to the cricket
venture.
Normalized
management fees and salaries represented 24.9% of total revenues, not including
cricket sponsorship revenues, in 2009 and 35.0% in 2008. In early
2009, our staffing requirements were restructured and a number of employees were
laid off, including our former President and COO. After severance
payments were fully paid out, the reduced number of staff will contribute to a
decrease in management fees and salaries as a percentage of
revenue. We anticipate maintaining salary expense at approximately
20% of revenues.
Executive
compensation in 2009 of $2,104,868 (2008 - $3,125,605) accounted for 58.74%
(2008 – 53.90%) of the total management fees and employee salary
expense. Excluding executive compensation, employee salaries
decreased by 44.7% due to the fact a number of staff were terminated in 2009 in
both the health and beauty business and administrative support.
Quarter
over Quarter Analysis
In Q4 of
2009, we incurred total management fees and staff salaries of $632,401 compared
to $864,521 in Q4 of 2008. These amounts include stock based
compensation of $286,359 in Q4 of 2009 and $528,653 in Q4 of 2008, as well as
accrued amounts for special bonuses payable. Excluding these amounts,
normalized management fees and employee salaries expense in Q4 of 2009 totalling
$338,144 decreased by 42.4% over Q4 of 2008. This decrease was
primarily due to staff terminations in 2009.
Normalized
management fees and staff salaries have decreased steadily since Q4 of
2008. In Q4 of 2009, these expenses represented only 14.1% of total
revenues, not including cricket.com sponsorship revenues. These
decreases are due to the fact that we terminated several employees in late 2008
and early 2009 and ended various consulting agreements that existed in
2008. Management believes that it is reasonable for the Company to
maintain salaries expense below 20% of total revenues.
Marketing
We
generate internet traffic through paid search, email and affiliate
marketing. We pay marketing costs related to search and email in
order to drive traffic to our various websites. We pay our affiliates
sales commissions if they deliver traffic to Perfume.com that results in a
successful sale.
Quarter
Ended
|
|
Corporate
|
|
|
eCommerce
|
|
|
Total
|
|
|
As
a % of
|
|
|
|
Marketing
|
|
|
Marketing
|
|
|
Marketing
|
|
|
Total Sales**
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
31, 2009 (as restated)
|
|
$
|
3,876
|
|
|
$
|
111,422
|
|
|
$
|
115,298
|
|
|
|
6.6
|
%
|
June
30, 2009
|
|
|
6,221
|
|
|
|
114,965
|
|
|
|
121,186
|
|
|
|
7.1
|
%
|
September
30, 2009
|
|
|
3,939
|
|
|
|
107,678
|
|
|
|
111,617
|
|
|
|
7.3
|
%
|
December 31, 2009
|
|
|
-
|
|
|
|
246,266
|
|
|
|
246,266
|
|
|
|
10.3
|
%
|
Fiscal Year 2009 Totals
|
|
$
|
14,036
|
|
|
$
|
580,331
|
|
|
$
|
594,367
|
|
|
|
8.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
31, 2008 (as restated)
|
|
$
|
26,459
|
|
|
$
|
149,187
|
|
|
$
|
175,646
|
|
|
|
10.0
|
%
|
June
30, 2008 (as restated)
|
|
|
20,243
|
|
|
|
129,885
|
|
|
|
150,128
|
|
|
|
7.7
|
%
|
September
30, 2008 (as restated)
|
|
|
14,449
|
|
|
|
99,412
|
|
|
|
113,861
|
|
|
|
5.8
|
%
|
December 31, 2008 (as
restated)
|
|
|
86,691
|
|
|
|
387,909
|
|
|
|
474,600
|
|
|
|
13.1
|
%
|
Fiscal Year 2008 Totals (as
restated)
|
|
$
|
147,842
|
|
|
$
|
766,393
|
|
|
$
|
914,235
|
|
|
|
9.8
|
%
|
**Excluding
cricket.com sponsorship revenues
Year
over Year Analysis
During
2009, we incurred $594,367 in marketing costs, or 8.0% of total revenues
excluding sponsorship revenues, compared to $914,235, or 9.8% of total revenues
in 2008. Our websites’ search rankings currently perform adequately
however management believes targeted keywords advertising at opportune times
will bring additional traffic to Perfume.com.
Included
in this total was $14,036 in corporate marketing expenses in 2009 compared to
$147,842 in 2008, a decrease of $133,806 or 90.5%. In 2008, $42,500
of these costs consisted of public relations services related to rebranding the
Company. Corporate marketing expenses included costs related to our cricket
activities totaling $6,787 in 2009 compared to $105,443 in 2008. We
have been able to maintain corporate marketing costs in both periods to a small
percentage of total revenues.
ECommerce
marketing expenses relate entirely to advertising costs incurred in our
eCommerce business, particularly email advertising, search engine marketing, and
affiliate marketing programs. During 2009, these expenses were
$580,331 compared to $766,393 in 2008. The decrease of $186,062, or
24.3% year over year, was due to a decrease of approximately $271,700 in
pay-per-click advertising campaigns and email advertising campaigns combined,
and a reduction of $18,000 in comparison shopping advertising, offset by
increases of $45,000 to online advertising and $60,800 to affiliate spending
advertising costs during 2009 compared to 2008 as management continues to
explore cost-effective ways to drive revenues and traffic. ECommerce
marketing costs in 2009 accounted for 8.0% of eCommerce sales and were
consistent with 8.3% in 2008. Management believes it is reasonable to
expect eCommerce marketing costs to remain under 10% of eCommerce
sales.
Quarter
over Quarter Analysis
We
acquire internet traffic by pay-per-click, email and affiliate
marketing. In Q4 of 2009, we incurred total marketing expenses of
$246,266, or 10.3% of total revenues, compared to $474,600, or 13.1% of total
revenues in Q4 of 2008.
There
were no corporate marketing expenses included in this total for Q4 of 2009,
however $86,691 of the total in Q4 of 2008 were corporate marketing
expenses. The expenses we incurred during Q4 of 2008 related to
corporate marketing costs for our cricket activities.
ECommerce
marketing expenses in Q4 of 2009 of $246,266, or 10.5% of eCommerce sales,
decreased by $141,643 or 36.5% compared to $387,909 expensed in Q4 of
2008. These expenses have been consistent throughout 2009 due to
increased effective email marketing campaigns for Perfume.com. The
fourth quarter of each year sees an increase in these expenses due to the
seasonal nature of our revenues. Management believes that customer
acquisition is the key to accelerated growth, and direct, measurable marketing
vehicles like search, email, and affiliates account for the largest part of
these marketing expenditures.
Other
Expenses
During
the first quarter of 2008, we incurred various unusual and one-time costs
totaling $629,856. During Q2 of 2008, we incurred similar
restructuring costs including $31,691 in valuation costs relating to the payment
of amounts owed to the Company by its subsidiary, DHI, with shares of DHI common
stock which were issued in Q1 2008, and $2,000 in some final windup costs
related to the FT disposition in late 2007. During Q3 and Q4 of 2008,
we incurred $45,000 in costs related to engaging two firms to pursue capital
financing opportunities that were terminated subsequent to the 2008 year
end. Total other expenses for 2008 were $708,804.
During Q1
of 2009, we incurred various restructuring costs of $264,904 consisting of
severance payments to our former President and Chief Operating Officer and to
other staff terminated in the first quarter as a result of restructuring our
staffing requirements. There were no such expenses during the
remainder of 2009.
Global
Cricket Venture
We
incurred $227,255 in the first quarter of 2009, $155,968 in the second quarter
of 2009, and $69,084 in the third quarter of 2009 relating to Global Cricket
Venture, sometimes referred to in this prospectus as “GCV”. We ceased
incurring such costs after August 2009 when we entered into an agreement to sell
cricket.com, as discussed below. These costs relate to, but are not
limited to, expenditures for business development, travel, marketing consulting,
and salaries. As such, the costs have been reported as $6,787 of
corporate marketing, $424,425 of management fees and employee salaries, and
$21,095 of corporate general and administrative
expenses.
On March
31, 2009, the Company, GCV, the BCCI and the IPL amended the Memoranda of
Understanding (“MOUs”) that had been entered into on April 16,
2008. The Company and the BCCI jointly entered into a Termination
Agreement, pursuant to which the BCCI Memorandum was terminated. On
the same date, the Company, GCV and the BCCI, on behalf of the IPL, entered into
a Novation Agreement with respect to the IPL Memorandum. Under the
Novation Agreement, the combined $1 million owed to the BCCI and the IPL at
December 31, 2008 was reduced to $500,000, consisting of $125,000 owed to the
BCCI and $375,000 owed to the IPL. We accounted for our economic
obligations to the BCCI and IPL based on the schedule of payments included in
the MOUs by accruing individual payments as liabilities based on the payment
schedule, and expensed such payments in the related period as a current expense
as the minimum guaranteed payments owing to the BCCI and IPL had no future
benefit to the Company. The responsibility for this payment was
assumed by, and the benefits associated with the MOU formerly held by the
Company were transferred to, GCV through the Novation
Agreement. During the first quarter of 2009, the Company also accrued
the payment of $625,000 that was due to be paid to the BCCI on January 1,
2009. As a result of the Novation Agreement, the consolidated
financial statements for the year ended December 31, 2009 reflected a gain on
settlement of GCV related payments of $750,000.
Subsequently,
in August 2009, GCV transferred and assigned to an unrelated third party
(“Mauritius”) all of its rights, title, and interest in and to the original MOU
with the IPL, as the original MOU was amended by the Novation Agreement that was
signed on March 31, 2009. Pursuant to this agreement, Mauritius also
agreed to assume and be liable for all past and future obligations and
liabilities of GCV arising from the original MOU, as it was amended by the
Novation. As a result, the $750,000 that was payable to the BCCI and
IPL was assumed and paid by Mauritius during the third quarter of
2009.
We also
agreed to sell the cricket.com domain name, along with the website, content,
copyrights, trademarks, etc., to Mauritius for consideration of four equal
payments of $250,000 each. In order to facilitate the transfer of the
cricket.com website, we agreed to provide Mauritius with support services for a
period of 6 months (the “Transition Period”). In exchange for the
support services, Mauritius agreed to the payment of certain expenses related to
the support services. The cricket.com domain name is to remain the
property of the Company until all payments have been made. As of the
date of filing this prospectus, the first three instalments of $250,000 each
have been received. At December 31, 2009, collectability of the two
instalments receivable in February and May 2010 was not reasonably assured,
therefore we have only recognized the first two $250,000 instalments that
were considered collected or collectible in our calculation of the gain on
sales-type lease of cricket.com in the 2009 fiscal year as discussed
below. At March 31, 2010, collectability of the third instalment was
assured, and therefore the gain on sales-type lease was reported during the
quarter.
We
accounted for these transactions under Accounting Standards Codification 605-25,
Multiple Element
Arrangements.
Using this guidance, the gain on the sales type
lease of cricket.com, the gain on settlement upon assignment and assumption of
amounts due under the Novation Agreement, as well as the support services we are
to provide to Mauritius during the Transition Period, are to be recognized over
the six month transition period, or from September 2009 to February
2010. As a result, the Company recognized four/sixths of the gain on
settlement of the amounts owing under the Novation Agreement, four/sixths of the
gain on sales-type lease of the first instalment received for cricket.com, and
one/third of the gain on sales-type lease of the second
instalment considered collectible at year end for cricket.com during
2009. The Company recognized the remaining two/sixths of the gain on
settlement of the amounts owing under the Novation Agreement, two/sixths of the
gain on sales-type lease of the first instalment received for cricket.com, and
two/thirds of the gain on sales-type lease of the second instalment received for
cricket.com during the first quarter of 2010. The Company also
recognized the third instalment in full as a gain on sales-type lease during the
first quarter of 2010. Refer to Note 6 in our consolidated financial
statements included in this prospectus.
These two
agreements resulted in our full exit from the cricket business, once we provided
the interim support services, which we have agreed to provide for a period of
six months and which we completed on February 20, 2010, the end of the
Transition Period. Subsequent to this date, the Company and Mauritius
verbally agreed to extend the services agreement on a month to month
basis.
Liquidity
and Capital Resources
We
generate revenues from the sale of third-party products over the internet,
“pay-per-click” advertising, and by selling advertising on media rich websites
with relevant content. However, during the 2008 and 2009 fiscal years our
revenues were not adequate to support our operations. In order to conserve cash,
we paid certain service providers with shares of our common stock during those
years, and we continue to explore opportunities to do so in 2010 as
well. We also sold or leased some of our domain name assets in order
to better manage our liquidity and cash resources.
As at
December 31, 2009, current liabilities were in excess of current assets
resulting in a working capital deficiency of $1,216,325 compared to a working
capital deficiency of $3,199,931 at December 31, 2008. During the
year ended December 31, 2009, we incurred a net loss of $4,010,013 and a
decrease in cash of $1,418,820 compared to a net loss of $9,987,270 and a
decrease in cash of $5,542,725 during the year ended December 31,
2008. During 2009, we increased our accumulated deficit to
$16,787,208 from $12,777,195 in 2008 and have a stockholders’ deficit of
$148,448, primarily due to the net loss for the year which includes two
impairment charges during the year. The impairment charges of
$590,973 of Auction Software and $2,539,348 of Goodwill relate to the merger
with Auctomatic in May 2008. Refer to Notes 7 and 8 of our
consolidated financial statements.
The
decrease in cash for the year primarily included cash outlays to pay off some
large accounts payable that had been accrued at the December 31, 2008 fiscal
year end. Other payments that were either unusual or non-operational
in nature included expenses that were paid during the year related to Global
Cricket Venture.
Operating
Activities
Operating
activities during the year ended December 31, 2009 resulted in cash outflows of
$4,210,644 after adjustments for non-cash items. The most significant
adjustments were the stock-based compensation expensed during the period of
$1,702,519, which offset the decrease in accounts payable and accrued
liabilities of $1,757,351 and the gain from the sales and sales-type lease of
domain names of $2,452,081. In the year ended December 31, 2008, cash
outflows of $4,854,260 were primarily due to the net loss offset by stock-based
compensation expensed during the year of $2,162,526, the increase in accounts
payable and accrued liabilities of $1,612,814, and the amounts payable to the
BCCI and IPL of $1,000,000.
Investing
Activities
Investing
activities during the year ended December 31, 2009 generated cash inflows of
$2,791,824, primarily due to $3,446,420 in proceeds received from the sale and
sales-type lease of domain names, less $284,669 in
commissions. During the year ended December 31, 2008, we generated
cash outflows of $1,659,437 primarily due to the cash consideration of
$1,530,047 paid in conjunction with the Auctomatic merger, the investment of
approximately $187,532 in property and equipment, and $451,439 used for website
development.
Financing
Activities
There was
no effect to financing activities for the year ended December 31,
2009. The year ended December 31, 2008 included $970,972 in proceeds
received from the sale of our common stock as a result of our private placement
in November 2008.
Future
Operations
At the
March 31, 2010 quarter end, as well as at the end of 2009 and 2008, we had a
working capital deficiency. In addition, for over the past two fiscal
years we have experienced substantial losses. We expect to continue
to incur losses in the coming quarters, albeit smaller than in previous
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
working toward increasing cash flows through cost cutting measures,
renegotiating or terminating obligations and, when necessary, selling domain
names, however there is no certainty that these actions will generate sufficient
cash flows to support our activities in the future in view of changing market
conditions. We are investing in a new strategy for perfume.com whereby we will
pursue selling our products in the luxury market, instead of in the discount
market. This strategy is predicated on creating a luxury site where
perfume brands are sold at full MSRP. This is very different from the
previous strategy and from the majority of other perfume eCommerce
websites. The expectation is that by cooperating and working with the
brands directly, perfume.com will be able to help launch and sell new releases
as well as the most popular brands of perfume that are not usually available to
discount eCommerce sites. This is a new concept and there is risk
that it will not work. We do not know whether consumers will buy at
full price online, nor do we know for sure that the brands will sell to us. At
the moment, the business is not generating an operating profit and revenues will
have to grow in order for it to do so.
During
the 2010 fiscal year, we expect to continue to expend significant funds towards
marketing costs, which we believe will translate into higher revenue
growth. There is no certainty that the profit margins we may generate
going forward, even if we are also successful in raising working capital, will
be sufficient to offset the anticipated marketing costs and other expenditures
and may result in net cash outflow for the 2010 fiscal year.
The
change in strategy for the Company’s perfume business was precipitated by the
crowded field of on-line discount perfume eCommerce sites. The generic domain
name, Perfume.com, gives the Company a lower cost of customer acquisition than
other non-generic names, but pricing pressure due to the nature of the discount
shopper led management to conclude that an alternative strategy had to be
sought. Recent successes at other luxury websites would indicate that
online shopping behavior is evolving. Luxury and brand conscious
consumers will pay full price for branded goods when the experience and the
content on the website are consistent with a luxury “look and
feel”. Further, luxury brand manufacturers have very large marketing
budgets, most of which is currently spent offline. If, as in some
other luxury product areas, the brand manufacturers can be convinced to partner
on joint online campaigns, the co-marketing resources would be
significant. As a result of this shift in strategy, the experience
and content provided on perfume.com is very different now compared to the site
early last year, and it also differs from most other online perfume
e-tailers. While we have transitioned the website away from the
discount market, we plan to build a new site that incorporates the current
experience and content and adds functionality that we believe will be more
attractive to luxury and brand conscious consumers. The “look and feel” of the
site refers to the quality of the photographs, the style of writing, the
creative look of the site and the other functionality that you would not see on
a discount site. Management believes that fragrance is an ideal
product to market in this way. Since making this transition, revenue
and margins are currently meeting expectations. Management is
optimistic that revenues will begin to grow again but at significantly higher
gross margins than in the past. Our present revenues represent a
small portion of the total fragrance industry and of the perfume eCommerce
market. There is also a chance, however, that the strategy will
not yield the results that management is anticipating. Should the
results not meet expectations, the site can revert to a discount site on very
short notice and discount sales can be rebuilt using tools, strategies and
experience that management has from the website’s historical use as a discount
site.
We have
actively curtailed some operations and growth activities in an effort to reduce
costs and preserve cash on hand. We have sold selected domain names
in order to address short term liquidity needs.
Ten
domain names were sold or leased in
2009 for over $3.2 million, in addition to the agreements that were reached with
Mauritius relating to cricket.com. As of May 19, 2010, we sold one
additional domain name. We believe that these strategic sales of
domain names will provide us with the required cash to meet our working capital
needs and provide for general operating capital over the next 12
months. We also anticipate that we may enter into future sales of
domain names if the selling price exceeds management’s reasonable expectation of
the value that could be realized from building out the domain website, and if we
require further additions to our working capital. There can be no
assurances that any future sales of domain names on terms acceptable to us will
occur or that such sales, if they do occur, will provide us with enough money to
meet our operating expenses.
The
interim March 31, 2010 consolidated financial statements, and the December 31,
2009 and 2008 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
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.
We expect
to achieve an improved financial position and enhanced liquidity by establishing
and carrying out a plan of recovery as discussed in our Annual Report on Form
10-K for 2009 as filed with the Securities and Exchange Commission on March 29,
2010 and in Note 1 of our financial statements for the fiscal year ended
December 31, 2009, which are included in this prospectus.
We have
no current plans to purchase any significant property and
equipment.
SEASONALITY AND QUARTERLY
RESULTS
Our
online business is subject to seasonal influences. Sales volumes in
the fragrance industry typically accelerate during the fourth quarter,
especially in November and December. In 2009 and 2008, fourth quarter
eCommerce product sales accounted for approximately 32% and 39% of total
eCommerce product sales, respectively.
Restated
Quarterly Financial Data (unaudited)
As a
result of the restatement of our financial statements for the fiscal year ended
December 31, 2008, our quarterly results have been adjusted as disclosed in the
tables below. Detailed explanations for the adjusted items in each
table are included following each table.
March
31, 2008
|
Reference
|
|
As
previously
reported
|
|
|
Restatement
adjustment
|
|
|
As
restated
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
|
$
|
4,905,745
|
|
|
$
|
-
|
|
|
$
|
4,905,745
|
|
Accounts
receivable (net of allowance for doubtful accounts of nil)
|
|
|
|
142,220
|
|
|
|
-
|
|
|
|
142,220
|
|
Prepaid
expenses and deposits
|
|
|
|
165,062
|
|
|
|
-
|
|
|
|
165,062
|
|
Current
portion of receivable from sales-type lease
|
|
|
|
140,540
|
|
|
|
-
|
|
|
|
140,540
|
|
Total
current assets
|
|
|
|
5,353,567
|
|
|
|
-
|
|
|
|
5,353,567
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
portion of receivable from sales-type lease
|
|
|
|
23,423
|
|
|
|
-
|
|
|
|
23,423
|
|
Deferred
acquisition costs
|
|
|
|
121,265
|
|
|
|
-
|
|
|
|
121,265
|
|
Property
& equipment
|
|
|
|
314,600
|
|
|
|
-
|
|
|
|
314,600
|
|
Website
development costs
|
|
|
|
147,025
|
|
|
|
-
|
|
|
|
147,025
|
|
Intangible
assets
|
|
|
|
1,625,881
|
|
|
|
-
|
|
|
|
1,625,881
|
|
Goodwill
|
(i)
|
|
|
-
|
|
|
|
66,692
|
|
|
|
66,692
|
|
Total
Assets
|
|
|
$
|
7,585,761
|
|
|
$
|
66,692
|
|
|
$
|
7,652,453
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued liabilities
|
|
|
$
|
1,311,817
|
|
|
$
|
-
|
|
|
$
|
1,311,817
|
|
Bonuses
payable
|
(ii),
(iii)
|
|
|
-
|
|
|
|
215,025
|
|
|
|
215,025
|
|
Deferred
revenue
|
|
|
|
19,644
|
|
|
|
-
|
|
|
|
19,644
|
|
Current
portion of deferred lease inducements
|
|
|
|
20,138
|
|
|
|
-
|
|
|
|
20,138
|
|
Total
current liabilities
|
|
|
|
1,351,599
|
|
|
|
215,025
|
|
|
|
1,566,624
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-controlling
interest
|
(i)
|
|
|
-
|
|
|
|
23,972
|
|
|
|
23,972
|
|
Deferred
income tax
|
(v)
|
|
|
-
|
|
|
|
246,759
|
|
|
|
246,759
|
|
Deferred
lease inducements
|
|
|
|
70,483
|
|
|
|
-
|
|
|
|
70,483
|
|
Total
Liabilities
|
|
|
|
1,422,082
|
|
|
|
485,756
|
|
|
|
1,907,838
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS'
EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock
|
|
|
|
12,456
|
|
|
|
-
|
|
|
|
12,456
|
|
Additional
paid-in capital
|
(iv)
|
|
|
10,671,119
|
|
|
|
(57,394
|
)
|
|
|
10,613,725
|
|
Accumulated
deficit
|
(i)
to (vi)
|
|
|
(4,519,896
|
)
|
|
|
(361,670
|
)
|
|
|
(4,881,566
|
)
|
Total
Stockholders' Equity
|
|
|
|
6,163,679
|
|
|
|
(419,064
|
)
|
|
|
5,744,615
|
|
Total
Liabilities and Stockholders' Equity
|
|
|
$
|
7,585,761
|
|
|
$
|
66,692
|
|
|
$
|
7,652,453
|
|
For
the quarter ended March 31, 2008
|
Reference
|
|
As
previously
reported
|
|
|
Restatement
adjustment
|
|
|
Global
Cricket
Ventur
e
Reclassification
|
|
|
As
restated
|
|
SALES
|
|
|
$
|
1,848,479
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,848,479
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COSTS
OF SALES (excluding depreciation and amortization as shown
below)
|
|
|
|
1,486,062
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,486,062
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GROSS
PROFIT
|
|
|
|
362,417
|
|
|
|
-
|
|
|
|
-
|
|
|
|
362,417
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
and depreciation
|
|
|
|
15,266
|
|
|
|
-
|
|
|
|
-
|
|
|
|
15,266
|
|
Corporate
general and administrative
|
(vi)
|
|
|
447,895
|
|
|
|
63,750
|
|
|
|
38,192
|
|
|
|
549,837
|
|
ECommerce
general and administrative
|
|
|
|
169,813
|
|
|
|
-
|
|
|
|
-
|
|
|
|
169,813
|
|
Management
fees and employee salaries
|
(ii),
(iii), (iv)
|
|
|
1,073,546
|
|
|
|
85,179
|
|
|
|
17,125
|
|
|
|
1,175,850
|
|
Corporate
marketing
|
|
|
|
26,459
|
|
|
|
-
|
|
|
|
-
|
|
|
|
26,459
|
|
ECommerce
marketing
|
|
|
|
149,187
|
|
|
|
-
|
|
|
|
-
|
|
|
|
149,187
|
|
Other
expenses
|
|
|
|
629,856
|
|
|
|
-
|
|
|
|
-
|
|
|
|
629,856
|
|
Total
Operating Expenses
|
|
|
|
2,512,022
|
|
|
|
148,929
|
|
|
|
55,317
|
|
|
|
2,716,268
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NON-OPERATING
INCOME (EXPENSES)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Global
Cricket Venture expenses
|
|
|
|
(55,317
|
)
|
|
|
-
|
|
|
|
55,317
|
|
|
|
-
|
|
Gain
from sales and sales-type lease of domain names
|
|
|
|
168,206
|
|
|
|
-
|
|
|
|
-
|
|
|
|
168,206
|
|
Interest
and investment income
|
|
|
|
42,498
|
|
|
|
-
|
|
|
|
-
|
|
|
|
42,498
|
|
Total
Non-Operating Income (Expenses)
|
|
|
|
155,387
|
|
|
|
-
|
|
|
|
55,317
|
|
|
|
210,704
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED
NET LOSS
|
|
|
|
(1,994,218
|
)
|
|
|
(148,929
|
)
|
|
|
-
|
|
|
|
(2,143,147
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ADD:
NET LOSS ATTRIBUTABLE TO NON-CONTROLLING INTEREST
|
(i)
|
|
|
-
|
|
|
|
51,506
|
|
|
|
-
|
|
|
|
51,506
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
LOSS AND COMPREHENSIVE LOSS FOR THE PERIOD ATTRIBUTABLE TO LIVE CURRENT
MEDIA INC
|
|
|
$
|
(1,994,218
|
)
|
|
$
|
(97,423
|
)
|
|
$
|
-
|
|
|
$
|
(2,091,641
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS
PER SHARE - BASIC AND DILUTED
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss attributable to Live Current Media Inc. common
stockholders
|
|
$
|
(0.10
|
)
|
|
|
(0.00
|
)
|
|
|
-
|
|
|
$
|
(0.10
|
)
|
Weighted
Average Number of Common Shares Outstanding - Basic and
Diluted
|
|
|
19,970,334
|
|
|
|
-
|
|
|
|
-
|
|
|
|
19,970,334
|
|
(i) We
recorded goodwill of $66,692 in relation to the debt conversion between our
subsidiary, Domain Holdings Inc., and our parent company, Live Current Media
Inc. as disclosed in Note 5 to our audited financial statements which are
included in this prospectus. There was an increase to the NCI
liability during the quarter of $15,186 and a credit to the non-controlling
interest included in Other Income and Expenses of $51,506. The carry
forward effect of the NCI liability from December 31, 2007 was an increase of
$8,786.
(ii) We
recorded as an additional liability and compensation expense during the March
31, 2008 quarter $35,315 for bonuses of CDN $100,000 each that are to be paid to
our President and Chief Corporate Development Officer on January 1, 2009 and on
January 1, 2010.
(iii) We
recorded as an additional liability and compensation expense during the March
31, 2008 quarter $88,287 for bonuses of CDN $250,000 each that were to be paid
to our former President on October 1, 2008 and on October 1,
2009. There was also a carry forward effect to bonuses payable of an
increase of $91,423 from December 31, 2007.
(iv) We
revised our assumptions relating to the estimated life of stock options we have
granted. The revised estimated life of 3.375 years resulted in a
decrease to our stock based compensation expense of $38,423 and a corresponding
decrease to Additional Paid-In Capital during the quarter. There was
also a carry forward effect to Additional Paid-In Capital from December 31, 2007
of a decrease of $18,971.
(v) We
accrued and expensed deferred taxes relating to an estimated potential future
tax liability on future gains on sales of our domain name intangible
assets. The carry forward effect to Current Liabilities was an
increase of $246,759, with a corresponding increase in Opening Accumulated
Deficit.
(vi) We
recorded additional Corporate General and Administrative expenses of $63,750
during the quarter for the accrual of audit fees that were reversed out of the
year ended December 31, 2007 and recorded in the first quarter of
2008.
June
30, 2008
|
Reference
|
|
As
previously
reported
|
|
|
Restatement
adjustment
|
|
|
As
restated
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
|
$
|
1,897,940
|
|
|
$
|
-
|
|
|
$
|
1,897,940
|
|
Accounts
receivable (net of allowance for doubtful accounts of nil)
|
|
|
|
131,898
|
|
|
|
-
|
|
|
|
131,898
|
|
AR
from GCV
|
|
|
|
733,539
|
|
|
|
-
|
|
|
|
733,539
|
|
Prepaid
expenses and deposits
|
|
|
|
310,726
|
|
|
|
-
|
|
|
|
310,726
|
|
Current
portion of receivable from sales-type lease
|
|
|
|
98,378
|
|
|
|
-
|
|
|
|
98,378
|
|
Total
current assets
|
|
|
|
3,172,481
|
|
|
|
-
|
|
|
|
3,172,481
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
portion of receivable from sales-type lease
|
|
|
|
23,423
|
|
|
|
-
|
|
|
|
23,423
|
|
Property
& equipment
|
|
|
|
1,225,440
|
|
|
|
-
|
|
|
|
1,225,440
|
|
Website
development costs
|
|
|
|
276,030
|
|
|
|
-
|
|
|
|
276,030
|
|
Intangible
assets
|
|
|
|
1,625,881
|
|
|
|
-
|
|
|
|
1,625,881
|
|
Goodwill
|
(i),
(ii), (iii)
|
|
|
2,417,296
|
|
|
|
177,438
|
|
|
|
2,594,734
|
|
Total
Assets
|
|
|
$
|
8,740,551
|
|
|
$
|
177,438
|
|
|
$
|
8,917,989
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued liabilities
|
|
|
$
|
1,518,222
|
|
|
$
|
-
|
|
|
$
|
1,518,222
|
|
Bonuses
payable
|
(i),
(ii), (v), (vi)
|
|
|
333,442
|
|
|
|
340,276
|
|
|
|
673,718
|
|
Due
to shareholders of Auctomatic
|
|
|
|
781,117
|
|
|
|
-
|
|
|
|
781,117
|
|
Deferred
revenue
|
|
|
|
15,787
|
|
|
|
-
|
|
|
|
15,787
|
|
Current
portion of deferred lease inducements
|
|
|
|
20,138
|
|
|
|
-
|
|
|
|
20,138
|
|
Total
current liabilities
|
|
|
|
2,668,706
|
|
|
|
340,276
|
|
|
|
3,008,982
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-controlling
interest
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Deferred
income tax
|
(i)
|
|
|
-
|
|
|
|
246,759
|
|
|
|
246,759
|
|
Deferred
lease inducements
|
|
|
|
65,449
|
|
|
|
-
|
|
|
|
65,449
|
|
Total
Liabilities
|
|
|
|
2,734,155
|
|
|
|
587,035
|
|
|
|
3,321,190
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS'
EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock
|
|
|
|
13,087
|
|
|
|
-
|
|
|
|
13,087
|
|
Additional
paid-in capital
|
(i),
(iii), (iv), (vii)
|
|
|
12,483,794
|
|
|
|
52,765
|
|
|
|
12,536,559
|
|
Accumulated
deficit
|
(i)
to (vii)
|
|
|
(6,490,485
|
)
|
|
|
(462,362
|
)
|
|
|
(6,952,847
|
)
|
Total
Stockholders' Equity
|
|
|
|
6,006,396
|
|
|
|
(409,597
|
)
|
|
|
5,596,799
|
|
Total
Liabilities and Stockholders' Equity
|
|
|
$
|
8,740,551
|
|
|
$
|
177,438
|
|
|
$
|
8,917,989
|
|
For
the three months ended June 30, 2008
|
Reference
|
|
As
previously
reported
|
|
|
Restatement
adjustment
|
|
|
As
restated
|
|
|
|
|
|
|
|
|
|
|
|
|
SALES
|
|
|
$
|
1,939,635
|
|
|
$
|
-
|
|
|
$
|
1,939,635
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COSTS
OF SALES (excluding depreciation and amortization as shown
below)
|
|
|
|
1,583,067
|
|
|
|
-
|
|
|
|
1,583,067
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GROSS
PROFIT
|
|
|
|
356,568
|
|
|
|
-
|
|
|
|
356,568
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
and depreciation
|
|
|
|
43,888
|
|
|
|
-
|
|
|
|
43,888
|
|
Amortization
of website development costs
|
|
|
|
9,363
|
|
|
|
-
|
|
|
|
9,363
|
|
Corporate
general and administrative
|
|
|
|
591,170
|
|
|
|
-
|
|
|
|
591,170
|
|
ECommerce
general and administrative
|
|
|
|
100,495
|
|
|
|
-
|
|
|
|
100,495
|
|
Management
fees and employee salaries
|
(iv),
(v), (vi), (vii)
|
|
|
1,470,418
|
|
|
|
124,665
|
|
|
|
1,595,083
|
|
Corporate
marketing
|
|
|
|
20,243
|
|
|
|
-
|
|
|
|
20,243
|
|
ECommerce
marketing
|
|
|
|
129,885
|
|
|
|
-
|
|
|
|
129,885
|
|
Other
expenses
|
|
|
|
33,691
|
|
|
|
-
|
|
|
|
33,691
|
|
Total
Operating Expenses
|
|
|
|
2,399,153
|
|
|
|
124,665
|
|
|
|
2,523,818
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NON-OPERATING
INCOME (EXPENSES)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
and investment income
|
|
|
|
16,680
|
|
|
|
-
|
|
|
|
16,680
|
|
Total
Non-Operating Income (Expenses)
|
|
|
|
16,680
|
|
|
|
-
|
|
|
|
16,680
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED
NET LOSS
|
|
|
|
(2,025,905
|
)
|
|
|
(124,665
|
)
|
|
|
(2,150,570
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ADD:
NET LOSS ATTRIBUTABLE TO NON-CONTROLLING INTEREST
|
(i),
(ii)
|
|
|
-
|
|
|
|
23,972
|
|
|
|
23,972
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
LOSS AND COMPREHENSIVE LOSS FOR THE PERIOD ATTRIBUTABLE TO LIVE CURRENT
MEDIA INC.
|
|
|
$
|
(2,025,905
|
)
|
|
$
|
(100,693
|
)
|
|
$
|
(2,126,598
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS
PER SHARE - BASIC AND DILUTED
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss attributable to Live Current Media Inc. common
stockholders
|
|
$
|
(0.10
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.10
|
)
|
Weighted
Average Number of Common Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
- Basic and Diluted
|
|
|
|
20,832,026
|
|
|
|
-
|
|
|
|
20,832,026
|
|
For
the six months ended June 30, 2008
|
Reference
|
|
As
previously
reported
|
|
|
Restatement
a
djustment
|
|
|
As
restated
|
|
|
|
|
|
|
|
|
|
|
|
|
SALES
|
|
|
$
|
3,788,114
|
|
|
$
|
-
|
|
|
$
|
3,788,114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COSTS
OF SALES (excluding depreciation and amortization as shown
below)
|
|
|
|
3,069,129
|
|
|
|
-
|
|
|
|
3,069,129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GROSS
PROFIT
|
|
|
|
718,985
|
|
|
|
-
|
|
|
|
718,985
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
and depreciation
|
|
|
|
59,154
|
|
|
|
-
|
|
|
|
59,154
|
|
Amortization
of website development costs
|
|
|
|
9,363
|
|
|
|
-
|
|
|
|
9,363
|
|
Corporate
general and administrative
|
(i)
|
|
|
1,039,065
|
|
|
|
63,750
|
|
|
|
1,102,815
|
|
ECommerce
general and administrative
|
|
|
|
270,308
|
|
|
|
-
|
|
|
|
270,308
|
|
Management
fees and employee salaries
|
(iv),
(v), (vi), (vii)
|
|
|
2,543,965
|
|
|
|
209,843
|
|
|
|
2,753,808
|
|
Corporate
marketing
|
|
|
|
46,702
|
|
|
|
-
|
|
|
|
46,702
|
|
ECommerce
marketing
|
|
|
|
279,072
|
|
|
|
-
|
|
|
|
279,072
|
|
Other
expenses
|
|
|
|
663,547
|
|
|
|
-
|
|
|
|
663,547
|
|
Total
Operating Expenses
|
|
|
|
4,911,176
|
|
|
|
273,593
|
|
|
|
5,184,769
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NON-OPERATING
INCOME (EXPENSES)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
from sales and sales-type lease of domain names
|
|
|
|
168,206
|
|
|
|
-
|
|
|
|
168,206
|
|
Interest
and investment income
|
|
|
|
59,178
|
|
|
|
-
|
|
|
|
59,178
|
|
Total
Non-Operating Income (Expenses)
|
|
|
|
227,384
|
|
|
|
-
|
|
|
|
227,384
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED
NET LOSS
|
|
|
|
(3,964,807
|
)
|
|
|
(273,593
|
)
|
|
|
(4,238,400
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ADD:
NET LOSS ATTRIBUTABLE TO NON-CONTROLLING INTEREST
|
(i),
(ii)
|
|
|
-
|
|
|
|
75,478
|
|
|
|
75,478
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
LOSS AND COMPREHENSIVE LOSS FOR THE PERIOD ATTRIBUTABLE TO LIVE CURRENT
MEDIA INC.
|
|
$
|
(3,964,807
|
)
|
|
$
|
(198,115
|
)
|
|
$
|
(4,162,922
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS
PER SHARE - BASIC AND DILUTED
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss attributable to Live Current Media Inc. common
stockholders
|
|
$
|
(0.19
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.20
|
)
|
Weighted
Average Number of Common Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
- Basic and Diluted
|
|
|
|
20,832,026
|
|
|
|
-
|
|
|
|
20,832,026
|
|
(i) Refer
to carry forward effects of the prior quarter.
(ii) We
recorded goodwill of $66,692 in relation to the debt conversion between our
subsidiary, Domain Holdings Inc., and our parent company, Live Current Media
Inc., as disclosed in Note 5 to our audited financial statements, which are
included in this prospectus. There was a decrease to the NCI
liability during the quarter of $8,786 resulting in a balance at quarter end of
the NCI liability of NIL. There was also a credit to the
non-controlling interest included in Other Income and Expenses in the quarter of
$23,972.
(iii) Related
to the acquisition of Auctomatic, we adjusted our purchase price allocation to
reflect an additional $110,746 of goodwill acquired in the
acquisition. The corresponding increase was recorded to Additional
Paid-In Capital.
(iv) Also
related to the acquisition of Auctomatic, we recorded as an expense the portion
of the fair value of 413,604 shares of our common stock which were to be issued
to the founders of Entity Inc. (“Auctomatic”) based on the period of service
these individuals provided to us, computed in relation to the period of service
required for the individuals to become entitled to the shares under FASB
Accounting Standards Codification (“ASC”) 718,
Stock
Compensation
. The related stock based compensation expense in
the June 30, 2008 quarter is $45,326, and the corresponding amount increased
Additional Paid-In Capital during the quarter.
(v) We
recorded as an additional liability and compensation expense during the June 30,
2008 quarter $35,786 for bonuses of CDN $100,000 each that are to be paid to our
President and Chief Corporate Development Officer on January 1, 2009 and on
January 1, 2010.
(vi) We
recorded as an additional liability and compensation expense during the June 30,
2008 quarter $89,465 for bonuses of CDN $250,000 each that were to be paid to
our former President on October 1, 2008 and on October 1, 2009.
(vii) We
revised our assumptions relating to the estimated life of stock options that we
have granted. The revised estimated life of 3.375 years resulted in a
decrease to our stock based compensation expense of $45,913 and a corresponding
decrease to Additional Paid-In Capital during the quarter.
September
30, 2008
|
Reference
|
|
As
previously
reported
|
|
|
Restatement
a
djustment
|
|
|
As
restated
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
|
$
|
802,744
|
|
|
$
|
-
|
|
|
$
|
802,744
|
|
Accounts
receivable (net of allowance for doubtful accounts of nil)
|
|
|
|
67,577
|
|
|
|
-
|
|
|
|
67,577
|
|
Prepaid
expenses and deposits
|
|
|
|
101,042
|
|
|
|
-
|
|
|
|
101,042
|
|
Current
portion of receivable from sales-type lease
|
|
|
|
23,423
|
|
|
|
-
|
|
|
|
23,423
|
|
Total
current assets
|
|
|
|
994,786
|
|
|
|
-
|
|
|
|
994,786
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
portion of receivable from sales-type lease
|
|
|
|
23,423
|
|
|
|
-
|
|
|
|
23,423
|
|
Deferred
financing costs
|
|
|
|
106,055
|
|
|
|
-
|
|
|
|
106,055
|
|
Deferred
acquisition costs
|
|
|
|
320,264
|
|
|
|
-
|
|
|
|
320,264
|
|
Property
& equipment
|
|
|
|
1,135,130
|
|
|
|
-
|
|
|
|
1,135,130
|
|
Website
development costs
|
|
|
|
351,199
|
|
|
|
-
|
|
|
|
351,199
|
|
Intangible
assets
|
|
|
|
1,625,881
|
|
|
|
-
|
|
|
|
1,625,881
|
|
Goodwill
|
(i)
|
|
|
2,428,602
|
|
|
|
177,438
|
|
|
|
2,606,040
|
|
Total
Assets
|
|
|
$
|
6,985,340
|
|
|
$
|
177,438
|
|
|
$
|
7,162,778
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued liabilities
|
|
|
$
|
2,004,416
|
|
|
$
|
-
|
|
|
$
|
2,004,416
|
|
Bonuses
payable
|
(i),
(iii), (iv)
|
|
|
489,960
|
|
|
|
449,096
|
|
|
|
939,056
|
|
Due
to shareholders of Auctomatic
|
|
|
|
749,699
|
|
|
|
-
|
|
|
|
749,699
|
|
Deferred
revenue
|
|
|
|
12,371
|
|
|
|
-
|
|
|
|
12,371
|
|
Current
portion of deferred lease inducements
|
|
|
|
20,138
|
|
|
|
-
|
|
|
|
20,138
|
|
Total
current liabilities
|
|
|
|
3,276,584
|
|
|
|
449,096
|
|
|
|
3,725,680
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
income tax
|
(i)
|
|
|
-
|
|
|
|
246,759
|
|
|
|
246,759
|
|
Deferred
lease inducements
|
|
|
|
60,414
|
|
|
|
-
|
|
|
|
60,414
|
|
Total
Liabilities
|
|
|
|
3,336,998
|
|
|
|
695,855
|
|
|
|
4,032,853
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS'
EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock
|
|
|
|
13,150
|
|
|
|
-
|
|
|
|
13,150
|
|
Additional
paid-in capital
|
(i),
(ii), (v)
|
|
|
13,175,885
|
|
|
|
150,502
|
|
|
|
13,326,387
|
|
Accumulated
deficit
|
(i)
to (v)
|
|
|
(9,540,693
|
)
|
|
|
(668,919
|
)
|
|
|
(10,209,612
|
)
|
Total
Stockholders' Equity
|
|
|
|
3,648,342
|
|
|
|
(518,417
|
)
|
|
|
3,129,925
|
|
Total
Liabilities and Stockholders' Equity
|
|
|
$
|
6,985,340
|
|
|
$
|
177,438
|
|
|
$
|
7,162,778
|
|
For
the quarter ended September 30, 2008
|
Reference
|
|
As
previously
reported
|
|
|
Restatement
adjustment
|
|
|
Global
Cricket
Venture
Reclassification
|
|
|
As
restated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SALES
|
|
|
$
|
1,954,684
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,954,684
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COSTS
OF SALES (excluding depreciation and amortization as shown
below)
|
|
|
|
1,602,249
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,602,249
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GROSS
PROFIT
|
|
|
|
352,435
|
|
|
|
-
|
|
|
|
-
|
|
|
|
352,435
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
and depreciation
|
|
|
|
96,707
|
|
|
|
-
|
|
|
|
-
|
|
|
|
96,707
|
|
Amortization
of website development costs
|
|
|
|
29,143
|
|
|
|
-
|
|
|
|
-
|
|
|
|
29,143
|
|
Corporate
general and administrative
|
|
|
|
643,674
|
|
|
|
-
|
|
|
|
370,471
|
|
|
|
1,014,145
|
|
ECommerce
general and administrative
|
|
|
|
114,973
|
|
|
|
-
|
|
|
|
-
|
|
|
|
114,973
|
|
Management
fees and employee salaries
|
(ii),
(iii), (iv), (v)
|
|
|
1,334,414
|
|
|
|
206,557
|
|
|
|
630,065
|
|
|
|
2,171,036
|
|
Corporate
marketing
|
|
|
|
4,962
|
|
|
|
-
|
|
|
|
9,487
|
|
|
|
14,449
|
|
ECommerce
marketing
|
|
|
|
99,412
|
|
|
|
-
|
|
|
|
-
|
|
|
|
99,412
|
|
Other
expenses
|
|
|
|
20,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
20,000
|
|
Total
Operating Expenses
|
|
|
|
2,343,285
|
|
|
|
206,557
|
|
|
|
1,010,023
|
|
|
|
3,559,865
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NON-OPERATING
INCOME (EXPENSES)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Global
Cricket Venture expenses
|
|
|
|
(1,010,023
|
)
|
|
|
-
|
|
|
|
1,010,023
|
|
|
|
-
|
|
Accretion
expense
|
|
|
|
(56,600
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(56,600
|
)
|
Interest
and investment income
|
|
|
|
7,266
|
|
|
|
-
|
|
|
|
-
|
|
|
|
7,266
|
|
Total
Non-Operating Income (Expenses)
|
|
|
|
(1,059,357
|
)
|
|
|
-
|
|
|
|
1,010,023
|
|
|
|
(49,334
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED
NET LOSS
|
|
|
|
(3,050,207
|
)
|
|
|
(206,557
|
)
|
|
|
-
|
|
|
|
(3,256,764
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ADD:
NET LOSS ATTRIBUTABLE TO NON-CONTROLLING INTEREST
|
(i)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
LOSS AND COMPREHENSIVE LOSS FOR THE PERIOD ATTRIBUTABLE TO LIVE CURRENT
MEDIA INC.
|
|
|
$
|
(3,050,207
|
)
|
|
$
|
(206,557
|
)
|
|
$
|
-
|
|
|
$
|
(3,256,764
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS
PER SHARE - BASIC AND DILUTED
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss attributable to Live Current Media Inc. common
stockholders
|
|
$
|
(0.14
|
)
|
|
|
(0.01
|
)
|
|
|
-
|
|
|
$
|
(0.15
|
)
|
Weighted
Average Number of Common Shares Outstanding - Basic and
Diluted
|
|
|
21,625,005
|
|
|
|
-
|
|
|
|
-
|
|
|
|
21,625,005
|
|
For
the nine months ended September 30, 2008
|
Reference
|
|
As
previously
reported
|
|
|
Restatement
adjustment
|
|
|
Global
Cricket
Venture
R
eclassification
|
|
|
As
restated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SALES
|
|
|
$
|
5,738,616
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
5,738,616
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COSTS
OF SALES (excluding depreciation and amortization as shown
below)
|
|
|
|
4,667,197
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,667,197
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GROSS
PROFIT
|
|
|
|
1,071,419
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,071,419
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
and depreciation
|
|
|
|
155,861
|
|
|
|
-
|
|
|
|
-
|
|
|
|
155,861
|
|
Amortization
of website development costs
|
|
|
|
29,143
|
|
|
|
-
|
|
|
|
-
|
|
|
|
29,143
|
|
Corporate
general and administrative
|
(i)
|
|
|
1,682,739
|
|
|
|
63,750
|
|
|
|
370,471
|
|
|
|
2,116,960
|
|
ECommerce
general and administrative
|
|
|
|
385,281
|
|
|
|
-
|
|
|
|
-
|
|
|
|
385,281
|
|
Management
fees and employee salaries
|
(ii),
(iii), (iv), (v)
|
|
|
3,887,742
|
|
|
|
416,400
|
|
|
|
630,065
|
|
|
|
4,934,207
|
|
Corporate
marketing
|
|
|
|
51,664
|
|
|
|
-
|
|
|
|
9,487
|
|
|
|
61,151
|
|
ECommerce
marketing
|
|
|
|
378,484
|
|
|
|
-
|
|
|
|
-
|
|
|
|
378,484
|
|
Other
expenses
|
|
|
|
683,547
|
|
|
|
-
|
|
|
|
-
|
|
|
|
683,547
|
|
Total
Operating Expenses
|
|
|
|
7,254,461
|
|
|
|
480,150
|
|
|
|
1,010,023
|
|
|
|
8,744,634
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NON-OPERATING
INCOME (EXPENSES)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Global
Cricket Venture expenses
|
|
|
|
(1,010,023
|
)
|
|
|
-
|
|
|
|
1,010,023
|
|
|
|
-
|
|
Gain
from sales and sales-type lease of domain names
|
|
|
|
168,206
|
|
|
|
-
|
|
|
|
-
|
|
|
|
168,206
|
|
Accretion
expense
|
|
|
|
(56,600
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(56,600
|
)
|
Interest
and investment income
|
|
|
|
66,444
|
|
|
|
-
|
|
|
|
-
|
|
|
|
66,444
|
|
Total
Non-Operating Income (Expenses)
|
|
|
|
(831,973
|
)
|
|
|
-
|
|
|
|
1,010,023
|
|
|
|
178,050
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED
NET LOSS
|
|
|
|
(7,015,015
|
)
|
|
|
(480,150
|
)
|
|
|
-
|
|
|
|
(7,495,165
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ADD:
NET LOSS ATTRIBUTABLE TO NON-CONTROLLING INTEREST
|
(i)
|
|
|
-
|
|
|
|
75,478
|
|
|
|
-
|
|
|
|
75,478
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
LOSS AND COMPREHENSIVE LOSS FOR THE PERIOD ATTRIBUTABLE TO LIVE CURRENT
MEDIA INC.
|
|
|
$
|
(7,015,015
|
)
|
|
$
|
(404,672
|
)
|
|
$
|
-
|
|
|
$
|
(7,419,687
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS
PER SHARE - BASIC AND DILUTED
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss attributable to Live Current Media Inc. common
stockholders
|
|
$
|
(0.32
|
)
|
|
|
(0.02
|
)
|
|
|
-
|
|
|
$
|
(0.34
|
)
|
Weighted
Average Number of Common Shares Outstanding - Basic and
Diluted
|
|
|
21,625,005
|
|
|
|
-
|
|
|
|
-
|
|
|
|
21,625,005
|
|
(i)
|
Refer
to carry forward effects of the prior
quarter.
|
(ii)
|
Also
related to the acquisition of Auctomatic, the Company recorded as an
expense the portion of the fair value of 413,604 shares of its common
stock which were to be issued to the founders of Entity Inc.
(“Auctomatic”) based on the period of service these founders provided to
the Company, computed in relation to the period of service required for
the founders to become entitled to the shares under ASC
718. The related stock based compensation expense in the
September 30, 2008 quarter is $104,251, and the corresponding amount
increased Additional Paid-In Capital during the
quarter.
|
(iii)
|
The
Company recorded as an additional liability and compensation expense
$31,091 for bonuses of CDN $100,000 each that are to be paid to its
President and Chief Corporate Development Officer on January 1, 2009 and
on January 1, 2010.
|
(iv)
|
The
Company recorded as an additional liability and compensation expense
$77,729 for bonuses of CDN $250,000 each that were to be paid to its
former President on October 1, 2008 and on October 1,
2009.
|
(v)
|
The
Company revised its estimates relating to the estimated life of its
granted stock options. The revised estimated life of 3.375
years resulted in a decrease to its stock based compensation expense of
$6,514 and a corresponding decrease to Additional Paid-In
Capital.
|
OFF
BALANCE SHEET ARRANGEMENTS
As of
March 31, 2010, December 31, 2009 and December 31, 2008, 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 our consolidated financial
statements. We do not engage in trading activities involving
non-exchange traded contracts.
APPLICATION
OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Basis
of presentation
Our
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
involved with the following aspects of our consolidated financial statements is
critical to an understanding of our operating results and financial position.
There were no changes to accounting policies and estimates in the period ended
March 31, 2010 compared to the year ended December 31, 2009.
Going
Concern
Our consolidated financial statements
have been prepared on a going concern basis which assumes that we will be able
to realize our assets and discharge our liabilities in the normal course of
business for the foreseeable future.
During
the quarter ended March 31, 2010, we generated a consolidated net income of
$74,345 (Q1 of 2009 – consolidated net loss of $916,408) and realized a negative
cash flow from operating activities of $335,164 (Q1 of 2009 -
$1,903,550). At March 31, 2010, there is an accumulated deficit of
$16,703,130 and a working capital deficiency of $938,772.
During
the year ended December 31, 2009, we generated a consolidated net loss of
$4,010,013 and realized a negative cash flow from operating activities of
$4,210,644 for the year ended December 31, 2009. At this date, we had
a working capital deficiency of $1,216,325, compared to $3,199,931 at December
31, 2008. At December 31, 2009 we had an accumulated deficit of
$16,787,208, as compared to an accumulated deficit of $12,777,195 at December
31, 2008. Stockholders’ deficit was $148,448 at December 31, 2009, as
compared to stockholders’ equity of $1,995,592 at December 31, 2008, primarily
due to the net loss in 2009 which includes two impairment charges during the
year.
Our
ability to continue as a going-concern is in substantial doubt as it is
dependent on a number of factors including, but not limited to, the receipt of
continued financial support from our investors, our ability to sell additional
non-core domain names, our ability to raise equity or debt financing as we need
it, and whether we will be able to use our securities to meet certain of our
liabilities as they become payable. The outcome of these matters is
dependent on factors outside of our control and cannot be predicted at this
time.
Our
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 if we were unable to continue as a going
concern.
Principles
of Consolidation
Our
consolidated financial statements include our accounts, our wholly owned
subsidiary Delaware, our wholly-owned subsidiary LCM Cricket Ventures, our 98.2%
(December 31, 2008 – 98.2%) 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.
Business
Combinations
On the
acquisition of a subsidiary, the purchase method of accounting is used whereby
the purchase consideration is allocated to the identifiable assets and
liabilities on the basis of fair value at the date of acquisition. We
consider critical estimates involved in determining any amount of goodwill, and
test for impairment of such goodwill as disclosed in our Goodwill accounting
policy below.
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 from our sites to other parties. The amount and
collectability of these referral commissions is subject to uncertainty;
accordingly, revenues are recognized when the amount can be determined and
collectability can be reasonably assured. In accordance with ASC
605-45-45,
Revenue Recognition
- Principal Agent Considerations
, we record web advertising revenues on a
gross basis.
Sponsorship
revenues consist of sponsorships related to past cricket tournaments that are
receivable based on our prior agreements relating to the cricket.com website.
Revenues are recognized once collectability is reasonably assured
Gains
from the sale of domain names, whose carrying values are recorded as intangible
assets, consist primarily of funds earned for the transfer of rights to domain
names that are currently in our control. Gains have been recognized
when the sale agreement is signed and the collectability of the proceeds is
reasonably assured. In 2009, there were ten sales of domain names,
not including cricket.com. Collectability of the amounts owing on
these sales is reasonably assured and therefore they have been accounted for as
a sale in the period the transaction occurred. In 2008, there was a
sale of one domain name. Collectability of the amounts owing on this sale was
reasonably assured and therefore accounted for as a sale in the period the
transaction occurred.
Gains
from the sales-type leases of domain names, whose carrying values are recorded
as intangible assets, consist primarily of funds earned over a period of time
for the transfer of rights to domain names that are currently in our
control. When collectability of these proceeds is reasonably assured,
the gain on sale is accounted for as a sales-type lease in the period in which
the transaction occurs. In 2009, there was one sales-type lease of a
domain name where collectability of future payments owing on this sale were not
reasonably assured. Therefore, the gains were recorded based only on
the amounts that were reasonably assured. The contract for the
sales-type lease was breached in Q2 of 2009, however there was no effect to the
financial statements. In 2008, there was one sales-type lease of a
domain name. See also Note 12 to our consolidated financial
statements, which are included in this prospectus.
Stock-Based
Compensation
Beginning
July 1, 2007, we began accounting for stock options under the provisions of ASC
718,
Stock
Compensation
, which requires the recognition of the fair value of
stock-based compensation. Under the fair value recognition provisions
for ASC 718, 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 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”s) to be granted to
our employees, and non-qualified 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 ASC 718 and the
conclusions reached by ASC 505-50. 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 ASC 505-50.
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, 2010 was recorded at cost of $28,179 compared to inventory
at December 31, 2009 of $28,714 and at December 31, 2008 of $74,082, and
represents inventory in transit from the supplier to the
customer.
Website
development costs
We have
adopted the provisions of ASC 350-50-25,
Website 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 have
adopted the provision of ASC 350
, Intangibles – Goodwill and
Other,
which revises the accounting for purchased goodwill and intangible
assets. Under ASC 350, 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 the fair value to its book value.
Our
intangible assets, which consist of our 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, 2010 or December 31,
2009.
Goodwill
Goodwill
represents the excess of acquisition cost over the fair value of the net assets
of acquired entities.
In accordance with ASC
350-20,
Goodwill,
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.
In
accordance with ASC 350-20 and our policy to assess the carrying value of
goodwill annually as noted above, we performed this assessment at the December
31, 2009 fiscal year end. At that date, we determined that the
business acquired was never effectively integrated into the reporting unit it
was assigned to, Perfume.com. Since the benefits of the acquired
goodwill were never realized by the rest of the reporting unit, and the use of
the other aspects of the business acquired have ended, we have determined that
an impairment charge of $2,539,348 relating to the goodwill acquired pursuant to
the merger with Auctomatic was required. The balance of $66,692 of
goodwill relates to the issuance of shares of DHI in exchange for intercompany
debt in early 2008. See also Notes 5 and 7 to
our consolidated financial statements included in this
prospectus.
Income
Taxes
On
January 1, 2007, the Company adopted the following new accounting policy related
to income tax. The Company began accounting for income tax under the
provisions of Financial Accounting Standards Board (“FASB”) ASC
740-10. ASC 740-10 clarifies the accounting for uncertainty in income
taxes recognized in an enterprise’s financial statements in accordance with ASC
740-10 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. ASC 740-10 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, 2003, 2004, 2005, 2006, 2007, 2008 and 2009, the tax years
which remain subject to examination by major tax jurisdictions as of December
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
Recently
Adopted Accounting Pronouncements
ASC
105
In June,
2009, the FASB issued Update No. 2009-01,
The FASB Accounting Standards
Codification
TM
(“ASC”)
as the source of authoritative U.S. generally accepted accounting principles
(GAAP) recognized by the FASB to be applied by nongovernmental
entities. This guidance is set forth in Topic 105 (“ASC
105”). Rules and interpretive releases of the Securities and Exchange
Commission (SEC) under authority of federal securities laws are also sources of
authoritative GAAP for SEC registrants. On the effective date of this Statement,
the Codification will supersede all then-existing non-SEC accounting and
reporting standards. All other nongrandfathered non-SEC accounting literature
not included in the Codification will become nonauthoritative. This
statement is effective for financial statements issued for fiscal years and
interim periods ending after September 15, 2009, which, for the Company, is
the interim period ending September 30, 2009. The Company adopted ASC
105 at September 30, 2009, however the adoption of this statement did not have a
material effect on its financial results. Further to the adoption of
ASC 105, the Company has updated its references to GAAP.
ASC
855
In May,
2009, the FASB issued ASC 855,
Subsequent Events.
The new
standard is intended to establish general standards of accounting for, and
disclosure of, events that occur after the balance sheet date but before
financial statements are issued or are available to be issued. This
statement is effective for financial statements issued for interim or annual
financial periods ending after June 15, 2009, which, for the Company, was the
interim period ending June 30, 2009. The Company adopted ASC 855 in
the second quarter of 2009, however it did not have a material effect to the
Company’s current practice.
ASC
815-10-65
In
March 2008, the FASB issued ASC 815,
Derivatives and
Hedging
. ASC 815 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 ASC 815; and how derivative instruments and related hedged
items affect an entity's financial position, financial performance and cash
flows. ASC 815 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 ASC 815-10-65 at January 1, 2009, however the adoption of this
statement did not have a material effect on its financial results.
ASC
260-10-45
The FASB
issued ASC 260-10-45,
Earnings
Per Share,
which clarifies that all outstanding unvested share-based
payment awards that contain rights to nonforfeitable dividends participate in
undistributed earnings with common shareholders. Awards of this
nature are considered participating securities and the two-class method of
computing basic and diluted earnings per share must be applied. The
restricted stock awards the Company has granted to employees and directors are
considered participating securities as they receive nonforfeitable
dividends. The Company adopted AC 260-10-45 effective January 1,
2009, however, there has been no material effect on its financial
results.
ASC
350-30
In April
2008, the FASB issued ASC 350-30,
General Intangibles Other Than
Goodwill
. ASC 350-30 amends the factors that should be
considered in developing renewal or extension assumptions used to determine the
useful life of a recognized intangible asset. The intent of ASC
350-30 is to improve the consistency between the useful life of a recognized
intangible asset and the period of expected cash flows used to measure the fair
value of the asset. ASC 350-30 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
ASC 350-30 at January 1, 2009, however the adoption of this statement did not
have a material effect on its financial results.
ASC
805
In
December 2007, the FASB issued revised authoritative guidance in ASC 805,
Business
Combinations
. ASC 805 establishes principles and requirements
for how the acquirer in a business combination: (i) recognizes and measures in
its financial statements the identifiable assets acquired, the liabilities
assumed, and any noncontrolling interest in the acquiree, (ii) recognizes and
measures the goodwill acquired in the business combination or a gain from a
bargain purchase, and (iii) determines what information to disclose to enable
users of the financial statements to evaluate the nature and financial effects
of the business combination. ASC 805 is 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 ASC 805 at January 1, 2009, however the
adoption of this statement did not have a material effect on its financial
results. ASC 805 will be applied to any future business
combinations.
ASC
810
In
December 2007, the FASB issued authoritative guidance related to noncontrolling
interests in consolidated financial statements, which was an amendment of ARB
No. 51. This guidance is set forth in ASC 810,
Consolidation
. ASC
810 establishes accounting and reporting standards for the noncontrolling
interest in a subsidiary and for the deconsolidation of a
subsidiary. This accounting standard is effective for fiscal years
beginning on or after December 15, 2008, which for the Company was the fiscal
year beginning January 1, 2009. The Company adopted ASC 810 at January 1, 2009,
however the adoption of this statement did not have a material effect on its
financial results.
ASC
820
In
September 2006, the FASB issued ASC 820,
Fair Value Measurements and
Disclosures
. This Statement defines fair value, establishes a
framework for measuring fair value in GAAP, and expands disclosures about fair
value measurements. This standard does not require any new fair value
measurements.
In 2008,
the Company adopted ASC 820 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 ASC 820 for financial assets
and liabilities measured at fair value on a recurring basis as at December 31,
2008 are included in Note 4 to the financial statements included in this
prospectus.
In
February 2008, the FASB issued authoritative guidance which deferred the
effective date of ASC 820 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 ASC 820 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 reporting and
disclosures.
Recently
Issued Accounting Pronouncements
Accounting
Standards Update (“ASU”) 2010-09
In
February 2010, the FASB issued ASU 2010-09,
Subsequent Events (Topic 855),
amending ASC 855. ASU 2010-09 removes the requirement for an SEC filer to
disclose a date relating to its subsequent events in both issued and revised
financial statements. ASU 2010-09 also eliminates potential conflicts
with the SEC’s literature. Most of ASU 2010-09 is effective upon
issuance of the update. The Company adopted ASU 2010-09 in February 2010, and
its adoption did not have a material impact on the Company’s financial reporting
and disclosures.
Accounting
Standards Update (“ASU”) 2010-06
In
January 2010, the FASB issued ASU 2010-06,
Fair Value Measurements and
Disclosures (Topic 820), Improving Disclosures about Fair Value Measurements,
amending ASC 820. ASU 2010-06 requires entities to provide new
disclosures and clarify existing disclosures relating to fair value
measurements. The new disclosures and clarifications of existing
disclosures are effective for interim and annual reporting periods beginning
after December 15, 2009, except for the disclosures about purchases, sales,
issuances, and settlements in Level 3 fair value measurements, which are
effective for fiscal years beginning after December 15, 2010 and for interim
periods within those fiscal years. The Company is currently evaluating the
impact of ASU 2010-06, but does not expect its adoption to have a material
impact on the Company’s financial position or results of
operations.
Accounting
Standards Update (“ASU”) 2009 -13
In
October 2009, the FASB issued ASU 2009-13,
Revenue Recognition (Topic 605),
Multiple-Deliverable Revenue Arrangements
amending ASC 605. ASU 2009-13
requires entities to allocate revenue in an arrangement using estimated selling
prices of the delivered goods and services based on a selling price hierarchy.
ASU 2009-13 eliminates the residual method of revenue allocation and requires
revenue to be allocated using the relative selling price method. ASU 2009-13 is
effective prospectively for revenue arrangements entered into or materially
modified in fiscal years beginning on or after June 15, 2010. The Company
is currently evaluating the impact of ASU 2009-13, but does not expect its
adoption to have a material impact on the Company’s financial position or
results of operations.
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON
ACCOUNTING AND FINANCIAL DISCLOSURE
On
December 16, 2009, Ernst & Young LLP (“E&Y”) was dismissed as our
independent registered public accounting firm. This action was
approved by the Audit Committee of the Board of Directors.
The
reports of E&Y on the Company's consolidated financial statements for the
fiscal years ended December 31, 2008 and December 31, 2007 did not contain any
adverse opinion or a disclaimer of opinion, however the report issued on the
financial statements for the year ended December 31, 2008 was modified as to our
ability to continue as a going concern.
During
the Company's fiscal years ended December 31, 2008 and December 31, 2007 and
through December 16, 2009, there were no disagreements with E&Y on any
matter of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure, which disagreements, if not resolved to the
satisfaction of E&Y, would have caused it to make reference thereto in its
reports on the Company's financial statements for such fiscal
years.
During
the Company’s fiscal years ended December 2008 and 2007 and through December 16,
2009, there were two “reportable events” as described in Item 304(a)(1)(v) of
Regulation S-K promulgated under the Securities Exchange Act of 1934, as amended
(the “Exchange Act”) (the “Reportable Events”).The Reportable Events were as
follows:
(1) As
disclosed in our 2008 Form 10-K, as amended and filed with the Securities and
Exchange Commission on September 14, 2009, our control environment did not
sufficiently promote effective internal control over financial reporting
throughout the organization because we did not have an appropriate level of
technical knowledge, experience and training in the accounting for business
combinations, stock based compensation, deferred income taxes and financial
statement disclosure.
(2) As
we disclosed in the Current Report on Form 8-K which we filed with the
Securities and Exchange Commission on June 24, 2009 and amended on July 20,
2009, on June 18, 2009 the Company was advised by E&Y that the audit opinion
dated March 24, 2009 on the Company’s December 31, 2008 and 2007 consolidated
financial statements could no longer be relied upon because of errors in our
financial statements for the periods ended September 30, 2008, December 31, 2008
and March 31, 2009. These errors included errors in valuing and
classifying warrants issued in connection with a financing, recording the
appropriate expense related to the issuance of common stock made in exchange for
services, and appropriately accruing as a liability and recording bonus
compensation.
On
December 18, 2009, Davidson & Company LLP (“Davidson”) was engaged as our
independent registered public accounting firm. The engagement of
Davidson was approved by the Audit Committee of the Board of
Directors. During the Company’s fiscal years ended December 31, 2008
and December 31, 2007 and through December 18, 2009, we did not consult with
Davidson regarding any of the matters or events set forth in Item 304(a)(2)(i)
or Item 304(a)(2)(ii) of Regulation S-K.
Effective
January 24, 2008, Dale Matheson Carr-Hilton LaBonte LLP (“Dale Matheson”) was
dismissed as our certifying independent public accountant engaged to audit our
consolidated financial statements. Dale Matheson audited our
financial statements for the fiscal years ended December 31, 2006 and 2005, and
it reviewed our unaudited financial statements for the fiscal quarters ended
March 31, 2007, June 30, 2007, and September 30, 2007. The report of
Dale Matheson on our consolidated financial statements for the fiscal years
ended December 31, 2006 and 2005 did not contain an adverse opinion, or a
disclaimer of opinion, and was not qualified or modified as to uncertainty,
audit scope, or accounting principles, except for an explanatory paragraph in
our Form 10-KSB for the year ended December 31, 2006 as filed with the
Securities and Exchange Commission on April 2, 2007, which provides that
subsequent to the issuance of our 2005 consolidated financial statements and
Dale Matheson’s initial report dated March 24, 2006, management discovered facts
that existed at the date of the report, related to certain equity transactions,
which resulted in a restatement of certain information in the 2005 consolidated
financial statements.
During
the 2005 and 2006 fiscal years and the subsequent interim period through the
date of dismissal of Dale Matheson, there were no disagreements with Dale
Matheson on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure, which disagreements if not
resolved to the satisfaction of Dale Matheson would have caused Dale Matheson to
make reference to the subject matter of the disagreement in connection with
their report, nor were there any “reportable events” as described in regulations
promulgated under the Securities Exchange Act of 1934, as
amended.
Effective
January 24, 2008, we engaged Ernst & Young LLP (“EY”) to serve as our new
independent certifying public accountant to audit our financial statements
beginning with the fiscal year ended December 31, 2007.
Prior to
engaging EY, we had not consulted EY regarding the application of accounting
principles to a specified transaction, completed or proposed, the type of audit
opinion that might be rendered on our financial statements or a reportable
event, nor did we consult with EY regarding any disagreements with our prior
auditors on any matter, scope or procedure, which disagreements, if not resolved
to the satisfaction of the prior auditor, would have caused it to make a
reference to the subject matter of the disagreements in connection with its
reports.
The
dismissal of Dale Matheson as our certifying independent public accountant and
the engagement of EY as our new certifying independent public accountant were
both approved by our board of directors on January 24, 2008.
BUSINESS
We were
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.
Our
corporate website is located at www.livecurrent.com. Information
included on the website is not a part of this prospectus.
We have 6
subsidiaries, but only one is currently significant to our
business. Our principal operating subsidiary is Domain Holdings Inc.
(“Domain Holdings” or “DHI”). We own approximately 98.2% of Domain
Holdings’ outstanding capital stock. Domain Holdings owns our domain
names, including Perfume.com.
OUR
BUSINESS
Through
our subsidiary, Domain Holdings, we own more than 900 domain
names. We intend to build consumer internet experiences based on
generic domains within our portfolio of domain names by developing a portfolio
of operating businesses either by ourselves or by entering into arrangements
with businesses that operate in the product or service categories that are
described by the domain name assets we own. Our domain names span
several consumer and business-to-business categories including health and beauty
(such as Perfume.com), and sports and recreation (such as Karate.com and
Boxing.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. One of the best
ways to ensure sites are found through search is to have a powerful domain name
asset that creates value through low-cost customer
acquisition.
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 we
refer to in this discussion as “health and beauty”, and (2)
Advertising.
Currently, almost all of the revenues we earn are generated
from our main health and beauty website, perfume.com. Through this
website, we sell brand name fragrances and skin care products directly to
consumers (eCommerce). Our sports and recreation 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, as well as through partnerships with
third-party advertising networks.
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.
Perfume.com
sells 100% authentic products and provides customers with a satisfaction
guarantee. While we are currently using a single supplier to ship
customer orders, we are not dependent on that supplier for the products that we
sell. The products are supplied by various wholesale suppliers
located in the United States and new suppliers can be utilized by simply turning
on their electronic inventory feeds. In 2008, we began shipping our
Pefume.com products to selected international markets. Until then, we
shipped only to delivery addresses located in the United
States. However, sales of products shipped to non-U.S. locations,
with the greatest portion of these sales being made in Canada and the
United Kingdom, were immaterial for the 2008 and 2009 fiscal years and therefore
are not disclosed separately.
Our
Perfume.com website has historically sold brand name fragrances, including
women’s perfume, men’s cologne, and skin care products, direct to consumers at
discounted prices well below their MSRP. Recently, the website
underwent a transition to a luxury brand site where product is sold at full
price. The website has been re-targeted to appeal to the luxury brand
conscious consumer who is seeking original and targeted content and
products. The new targeted customer is very different from those that
frequent the many discount perfume websites available. We are now targeting
customers which we believe are likely to revisit a site that provides them with
quality and value throughout their entire online experience. As a
result of this change in strategy and new target market, the old perfume.com
email list that consists of mostly price sensitive buyers is now largely
ineffective. We are building a new list with current customers,
however this process will take time. Meanwhile, we believe that mail
marketing is the most effective sales strategy. This change in
strategy, together with the recession in the U.S. which we believe has adversely
affected consumer discretionary spending, has resulted in a 48% decrease in
revenue and a 24% decrease in dollar value of gross margin compared to the same
period last year. The gross margin percentage, however, has increased
from 20.8% to 30.5% in the same period. Since the implementation of
the new pricing model occurred in the middle of the quarter, management expects
that this percentage will increase further over time. Management
believes that any drop in sales relating to the new pricing model is temporary
as the customer base is re-built. Management also believes that the
new targeted customer will be one to whom other luxury products can be
sold. We believe this may prove valuable to us in the future, if we
decide to expand our product offerings on this website or develop other
businesses around other luxury products.
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.
Advertising
Revenues
We
currently generate a small portion of revenues by selling advertising either
directly to advertisers or in partnership with third party advertising
networks. Until 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, in order to have more flexibility to
deploy advertising across our websites. Currently, many of our
websites are part of the Google AdSense 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.
Sale
and Lease of Domain Names
We own
more than 900 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. Therefore, we sold one name in December 2008,
ten more names in 2009, not including our cricket.com domain name, and one
additional name as of May 19, 2010. 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, and sports
categories.
COMPETITIVE
CONDITIONS
Currently
almost all of our revenues are earned through our Perfume.com
website. The fragrance eCommerce business is intensely
competitive. Perfume.com’s current and potential competitors include
eCommerce sites specializing in fragrance products, other eCommerce sites
offering a wide variety of products including fragrances,
and traditional brick and mortar retailers with a high degree of
brand awareness among consumers that have expanded into online sales, including
various department stores and specialty health and beauty stores. We
believe that the principal competitive factors in our Perfume.com business
include price, selection, ease of website use, fast and reliable fulfillment,
strong customer service and development of a trusted brand. Many of
our current competitors have greater resources, more customers, longer operating
histories and greater brand recognition. They may secure better terms
from suppliers, have more efficient distribution capability, and devote more
resources to technology, fulfillment and marketing.
In
addition, the Internet Corporation for Assigned Names and Numbers (“ICANN”) has
introduced, and has proposed the introduction of, additional new domain name
suffixes, which may be as or more attractive than the “.com” domain name
suffix. New root domain names may have the effect of allowing the
entrance of new competitors at limited cost, which may further reduce the value
of our domain name assets. We do not presently intend to acquire
domain names using newly authorized root domain names to match our existing
domain names, although we acquired certain .cn (China) root domain names to
complement our growth strategy. ICANN regularly develops new domain
name suffixes that will have the result of making a number of domain names
available in different formats, many of which may be more attractive than the
formats held by us.
DEPENDENCE
ON ONE OR A FEW MAJOR CUSTOMERS
We do not
depend on one or a few customers for a significant portion of our
business.
PATENTS,
TRADEMARKS AND PROPRIETARY RIGHTS
On
November 16, 2007, we filed a trademark application with the US Patent &
Trademark Office (“USPTO”) for the mark “LIVE CURRENT”. A certificate
of registration was issued on October 14, 2008 and the mark was assigned
registration number 3,517,876.
On March
11, 2008, we filed a trademark application with the USPTO for the mark
“DESTINATIONHUB”. A certificate of registration was issued on
December 9, 2008 and the mark was assigned registration number
3,544,934.
We
currently do not own any patents and we are not a party to any license or
franchise agreements, concessions, or labor contracts arising from our
intellectual property.
All of
our online business websites are copyrighted upon
loading. “Livecurrent.com”, has been registered with
ICANN. While we will consider seeking further protections for our
intellectual property, we may be unable to avail ourselves of protections under
United States laws because, among other things, our domain names are generic and
intuitive. Consequently, we will seek protection of our intellectual
property only where we have determined that the cost of obtaining protection,
and the scope of protection provided, results in a meaningful benefit to
us.
EFFECT
OF EXISTING GOVERNMENTAL REGULATION
Our
business is subject to regulation at the federal, state and local
levels. To date, we have not found it burdensome to comply with
regulatory requirements. The enactment of new adverse regulation or
regulatory requirements, however, may have a negative impact upon us and our
business
Licensing
Other
than business and operations licenses applicable to most commercial ventures, we
are not required to obtain any governmental approval for our business
operations. There can be no assurance, however, that governmental
institutions will not, in the future, impose licensing or other requirements to
which we will be subject. Additionally, as noted below, there are a
variety of laws and regulations that may, directly or indirectly, have an impact
on our business.
Privacy
Legislation and Regulations
Entities
engaged in operations over the internet, particularly relating to the collection
of user information, are subject to limitations on their ability to utilize such
information under federal and state legislation and regulation. In
2000, the Gramm-Leach-Bliley Act required that the collection of identifiable
information regarding users of financial services be subject to stringent
disclosure and “opt-out” provisions. While this law and the
regulations enacted by the Federal Trade Commission and others relates primarily
to information relating to financial transactions and financial institutions,
the broad definitions of those terms may make the businesses we enter into
subject to the provisions of the Act. This may increase the cost of
doing business which may, in turn, reduce our revenues. Similarly,
the Children On-line Privacy and Protection Act (“COPPA”) imposes strict
limitations on the ability of internet ventures to collect information from
minors. The impact of COPPA may be to increase the cost of doing
business on the internet and reduce potential revenue sources. We may
also be impacted by the USA Patriot Act, which requires certain companies to
collect and provide information to United States governmental
authorities. A number of state governments have also proposed or
enacted privacy legislation that reflects or, in some cases, extends the
limitations imposed by the Gramm-Leach-Bliley Act and COPPA. These
laws may further impact the cost of doing business on the internet and the
attractiveness of our inventory of domain names.
Advertising
Regulations
In
response to concerns regarding “spam” (unsolicited electronic messages),
“pop-up” web pages and other internet advertising, the federal government and a
number of states have adopted or proposed laws and regulations which would limit
the use of unsolicited internet advertisements. The cumulative effect
of these laws may be to limit the attractiveness of effecting sales on the
internet, thus reducing the value of our inventory of domain names.
Taxation
Currently,
the sale of goods and services on the internet is not subject to a uniform
system of taxation. A number of states, as well as the federal
government, have considered enacting legislation that would subject internet
transactions to sales, use or other taxes. Because there are a
variety of jurisdictions considering such actions, any attempt to tax internet
transactions could create uncertainty in the ability of internet-based companies
to comply with varying, and potentially contradictory,
requirements. We cannot predict whether any of the presently proposed
schemes will be adopted, or the effect any of them would have on our
operations.
EMPLOYEES
We
presently employ 13 full-time and 4 part-time employees, as well as 1
consultant.
Our
principal office is currently located at #645-375 Water Street, Vancouver,
British Columbia V6B5C6, Canada. We have leased this office space,
which consists of approximately 5,400 square feet. The lease has a
term of 5 years, beginning on October 1, 2007 and ending on September 30,
2012. Pursuant to the terms of the lease agreement, we committed to
basic rent costs for the remaining 3 fiscal years commencing January 1, 2010 as
follows: (a) year 1 - $121,531; (b) year 2 - $126,873; (c) year 3 (which will be
comprised of nine months only) - $98,159. We are also responsible for
common area costs which are currently estimated to be equal to approximately 73%
of basic rent.
On May
14, 2010, we signed a Counteroffer to Sub-lease with an unrelated third party
(the “Sub-Tenant”) for the premises in which our corporate headquarters are
located. If all of the conditions of the proposed sub-lease are met,
it will be effective July 1, 2010 for 2 years and 3 months, terminating on
September 29, 2012. As a result of this sub-lease, the Sub-Tenant
would be required to reimburse us for basic rent costs commencing
July 1, 2010 as follows: (a) year 1 (which will be comprised of six months) -
$50,749; (b) year 2 - $101,498; (c) year 3 (which will be comprised of nine
months) - $76,123. The Sub-Tenant would also be responsible for
paying all common area costs which are currently estimated to be equal to
approximately 73% of basic rent. This agreement is subject to
approval conditions, including a condition requiring approval from our landlord,
that must be satisfied or waived by May 21, 2010 by the Sub-Tenant and by May
28, 2010 by us. Assuming the conditions are satisfied or waived byMay
21, 2010 and May 28, 2010, respectively, effective June 15, 2010, we will move
to a smaller office, likely in the Vancouver area.
We also
lease an office located at 12201 Tukwila Intl. Blvd, Suite 200, Tukwila,
Washington 98168 for a nominal amount per month.
LEGAL
MATTERS
In the
normal course of business, we may become involved in various legal
proceedings. Except as stated below, we know of no pending or
threatened legal proceeding to which we are or will be a party which, if
successful, might result in a material adverse change in our business,
properties or financial condition.
In
December 1999, Domain Holdings commenced a lawsuit in the Supreme Court of
British Columbia (No. C996417) against Paul Green for breach of fiduciary duty
for wrongfully attempting to appropriate Domain Holdings’ business
opportunities. Mr. Green was Domain Holdings’ former Chief Executive
Officer. Domain Holdings is seeking an undetermined amount of damages
and a declaration that it had just cause to terminate Mr. Green’s employment in
or about June 1999. No decision has been rendered in this case and Domain
Holdings cannot predict whether it will prevail, and if it does, what the terms
of any judgment may be.
On March
9, 2000, Paul Green commenced a separate action in the Supreme Court of British
Columbia (No. S001317) against Domain Holdings. In that action, Mr.
Green claimed wrongful dismissal and breach of contract on the part of Domain
Holdings. Mr. Green is seeking an undetermined amount of damages and,
among other things, an order of specific performance for the issuance of a
number of shares in Domain Holdings’ capital stock equal to 18.9% or more of its
outstanding shares. On June 1, 2000, Domain Holdings filed a
statement of defense and counterclaim. We intend to vigorously defend
this action.
On May 14, 2010, a complaint was filed in the Circuit Court
of Cook County, Illinois County Department, Chancery Division. None
of the defendants or Live Current Media Inc. has been formally served with the
complaint. The case is titled “David Jeffs and Richard Jeffs, derivatively on
behalf of Live Current Media, Inc. (plaintiffs) vs. C. Geoffrey Hampson, James
Taylor, Mark Benham and Boris Wertz (defendants) and Live Current Media, Inc.
(nominal defendant)”. The plaintiffs allege, among other matters,
that the members of the current board of directors breached their fiduciary
duties of loyalty, trust, good faith and due care by failing to properly
supervise Mr. Hampson and that Mr. Hampson breached his fiduciary duties and his
employment agreement by failing to devote the time necessary to manage the
Company’s business and failing to disclose to the members of the former board of
directors his activities relating to other businesses. The plaintiffs have asked
the Court for compensatory damages of no less than $50 million, punitive damages
and attorney’s fees and costs of bringing the action. We intend to
vigorously defend this action.
DIRECTORS
AND EXECUTIVE OFFICERS
The
following table identifies our executive officers and directors, their ages,
their respective offices and positions, and their respective dates of election
or appointment.
|
Name
|
Age
|
Position
|
Officer/Director
Since
|
|
|
|
|
|
|
|
|
C.
Geoffrey Hampson
|
53
|
Chief
Executive Officer, Principal Accounting Officer and Chairman of the
Board
|
June
1, 2007
|
|
|
|
|
|
|
|
|
Mark
Melville (1)
|
41
|
President
and Chief Corporate Development Officer
|
January
1, 2008 (Chief Corporate Development Officer)/February 4, 2009
(President)
|
|
|
|
|
|
|
|
|
Chantal
Iorio
|
32
|
Vice
President, Finance
|
January
7, 2008
|
|
|
|
|
|
|
|
|
James
P. Taylor
|
54
|
Director
|
July
23, 2007
|
|
|
|
|
|
|
|
|
Mark
Benham
|
59
|
Director
|
September
12, 2007
|
|
|
|
|
|
|
|
|
Boris
Wertz
|
36
|
Director
|
March
14, 2008
|
|
(1)
We
expect Mauritius or another entity connected with the cricket.com website to
continue Mr. Melville’s employment. Mr. Melville has indicated to us
that he intends to tender his resignation if Mauritius offers him employment
although, at the date of this prospectus, his resignation has not been
received. If Mr. Melville tenders his resignation, Mr. Hampson will
temporarily assume the office of President and the office of Chief Corporate
Development Officer will remain vacant.
The
directors named above will serve until the next annual meeting of our
stockholders or until their successors are duly elected and have
qualified. Officers will hold their positions at the pleasure of the
board of directors, absent any employment agreement. There is no
arrangement or understanding between any of our directors or officers and any
other person pursuant to which any director or officer was or is to be selected
as a director or officer.
BUSINESS
EXPERIENCE DESCRIPTIONS
C. Geoffrey Hampson
has been
our Chief Executive Officer (“CEO”) and a director since June 1, 2007 and has
been our Principal Financial Officer since January 31, 2008. Mr.
Hampson has been the founder, president, and CEO of many successful start-up and
operating companies over the last 25 years. He was CEO, President and
a director of Peer 1 Network Enterprises, Inc., an internet infrastructure
company from September 2000 to January 2006. He has been the CEO of
Corelink Data Centers, LLC since November 2007 and the CEO and a co-owner of
Techvibes Media Inc., a local market technology resource website and blog, since
March 2007. Mr. Hampson is Chairman and CEO of Fibrox Technology
Ltd., a manufacturer of high quality mineral fibre for the automatic, acoustical
and insulation markets since 1995. Mr. Hampson sits on the boards of
directors of several companies including Corelink Data Centers, LLC, a private
company, since November 2007, Cricket Capital Corp., a company listed on the TSX
Venture market, since March 2008, Techvibes Media Inc., a private company, since
March 2007, Carat Exploration Inc., a company listed on the TSX Venture market,
since January 2006, and Pacific Rodera Energy Inc., a company listed on the TSX
Venture market, since May 2002. Mr. Hampson devotes between 120 and
150 hours to our business per month. Mr. Hampson has extensive
experience with technology-based companies, both as a founder and
operator. He has an in-depth knowledge of the Company’s business,
strategy and management team, all of which qualify him to be a
director.
James P. Taylor
has been our
director since July 23, 2007, and is the Chair of the Audit
Committee. From April 2008 to February 2010, he served as the Chief
Financial Officer of Corelink Data Centers, LLC. From April 2007 to
December 2007, he was the Chief Financial Officer of Lakewood Engineering and
Manufacturing. From May 2006 to April 2007, he was engaged as a
financing and management consultant for various companies. From
February 2002 to April 2006, Mr. Taylor served as the Chief Financial Officer
for Peer 1 Network Enterprises, Inc., a publicly traded company and North
American provider of Internet infrastructure services. While at Peer
1, he was responsible for financial and administrative operations and led the
development of annual and strategic business plans and financial
models. From 2001 to 2002, Mr. Taylor served as Chief Operating
Officer and Chief Financial Officer of Chicago Aerosol, LLC. Mr.
Taylor is a member of the Society of Competitive Intelligence. Mr.
Taylor is a graduate of Indiana University where he obtained a Bachelor of
Science degree in Finance and Accounting. He earned his MBA from
DePaul University where he focused his studies on International Business and
Corporate Finance. Mr. Taylor has over 20 years of experience in corporate
management, finance and planning, as well as an in-depth knowledge of the
Company’s business, strategy and management team, all of which qualify him to be
a director.
Mark Benham
has been our
director since September 12, 2007. He is Chair of the Compensation
Committee and is also a member of the Audit Committee. Mr. Benham has
fifteen years of experience in private equity and investment
banking. Since 1994, Mr. Benham has been a partner at Celerity
Partners, a private equity fund based in California. Mr. Benham
currently sits on the boards of directors of several companies including Oncore
Manufacturing Services, a private company, Pinnacle Treatment Centers, Inc., a
private company, Trigemina, Inc., a private company, and Ascension Insurance, a
private company. Until resigning in 2009, he also previously sat on
the boards of directors of O Premium Waters, a private company, Portal Group
Holdings, Inc., a private company, Verari Systems, Inc., a private company, and
Peer 1 Network Enterprises, Inc., a publicly traded company and North American
provider of Internet infrastructure services. Mr. Benham holds a B.A. in
English from the University of California, Berkeley, and an M.A. and M.B.A. from
the University of Chicago. Mr. Benham has extensive experience with
technology-based companies in the context of his investment banking
experience. He has an in-depth knowledge of the Company’s business,
strategy and management team, all of which qualify him to be a
director.
Mark Melville
has been our
Chief Corporate Development Officer since January 1, 2008. On
February 4, 2009, he was also named our President. From July 2005 to
November 2007, Mr. Melville was Global Account Manager at Monitor Group L.P.,
one of the world’s premier strategic consulting and investment
firms. While at Monitor, he worked directly with senior
executives of Fortune 500 companies on
a range of strategic initiatives and co-led Monitor’s West Coast technology
practice. From August 2002 to July 2005, Mr. Melville was Chief
Executive Officer of SteelTrace Ltd., a leading provider of business process and
requirements management software. Mr. Melville sold SteelTrace to
Compuware Corporation in 2006. Prior to SteelTrace, from 1999 to
2001, he was the Vice President of Corporate Development at MobShop, a pioneer
in online commerce. Prior to MobShop from 1998 to 1999, he was a
senior member of Exchange.com, which was sold to Amazon.com in 1999. Mr.
Melville holds a Masters in Business Administration degree from the Harvard
Graduate School of Business, a Masters in Public Administration degree from
Harvard's JFK School of Government, and an Honors Bachelor degree in Finance
from the University of British Columbia.
Chantal Iorio
has served as
our Vice President, Finance since January 7, 2008. From 2000 to
November 2007, Ms. Iorio was employed at HLB Cinnamon Jang Willoughby &
Company, Chartered Accountants. Most recently, she was a manager
responsible for the supervision and training of staff, managing, delegating and
reviewing files, completing and supervising audit, non-audit and tax procedures,
as well as administering client relations. Since September 2004, Ms. Iorio
has been Treasurer, board of directors (volunteer) for the Vancouver Community
Network, a not-for-profit organization focused on providing low-cost access to
the internet to communities in Vancouver. Ms. Iorio is a Chartered
Accountant in British Columbia, Canada and a Certified Public Accountant in the
state of Illinois. She also holds a Bachelor of Commerce in International
Business with a focus in Accounting from the University of British
Columbia.
Boris Wertz
was appointed as a
director effective March 14, 2008. Dr. Wertz was also appointed to serve
as Chair of the Governance Committee of the board. Dr. Wertz has an
established career of strategic management and operational experience in the
area of consumer internet use. From February 2008 to the present, he has
served as CEO of Nexopia, the most popular social networking utility for
Canadian youth. From November 2007 to the present, he has served as
CEO of W Media Ventures, a Vancouver-based venture capital firm that focuses on
consumer internet investments. From 2002 to 2007, Dr. Wertz was the Chief
Operating Officer of AbeBooks.com, the world's largest online marketplace for
books, which was recently sold to Amazon.com. He also served as a
Director of AbeBooks.com from November 2003 to November 2008. He
currently serves on the Board of Directors for Yapta Inc., Suite 101, Inc.,
Indochino.com, TeamPages, Techvibes Media Inc. and Nexopia.com. Dr.
Wertz completed his Ph. D. as well as his graduate studies at the Graduate
School of Management (WHU), Koblenz, majoring in Business Economics and Business
Management. He has an in-depth knowledge of the Company’s business, strategy and
management team, all of which qualify him to be a director.
FAMILY
RELATIONSHIPS
There are
no family relationships among our directors and executive officers.
INVOLVEMENT
IN CERTAIN LEGAL PROCEEDINGS
To the
best of our knowledge, none of our directors or executive officers has, during
the past ten years, been involved in any legal proceedings described in
subparagraph (f) of Item 401 of Regulation S-K.
EXECUTIVE
COMPENSATION
The
following table summarizes all compensation for the 2008 and 2009 fiscal years
received by our Chief Executive Officer and our two most highly compensated
executive officers who earned more than $100,000. All annual totals
have been converted from Canadian dollars to U.S. dollars at the average 2009
foreign exchange rate of 0.8760 and a 2008 foreign exchange rate of
0.9371. The 2008 amounts have been updated to reflect the 2008
restated amounts.
Summary
Compensation Table
|
Name
and principal
position
|
Year
|
Salary
($)(1)
|
Bonus
($)(1)
|
Stock
Awards
($)
|
Option
Awards
($)
|
Non-Equity
Incentive Plan
($)
|
Non-qualified
Deferred Compen-
sation
Earnings ($)
|
All
Other Compensation
($)
|
Total
($)
|
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
(f)
|
(g)
|
(h)
|
(i)
|
(j)
|
Cameron
Pan
Former
Chief Financial Officer
Aug
2000 – Feb 2002, July 2002 – Jan 31, 2008
|
2009
2008
|
None
206,487
|
None
None
|
None
None
|
None
None
|
None
None
|
None
None
|
None
35,750
|
None
242,237
|
C.
Geoffrey Hampson
Chief
Executive Officer, Chairman of the Board
June
1, 2007 – present; Principal Financial Officer, Principal Accounting
Officer Jan 31 2008 – present (1)
|
2009
2008
|
112,232
285,320
|
None
None
|
None
None
|
568,906
515,255
|
None
None
|
None
None
|
None
None
|
681,138
800,575
|
Mark
Melville,
Chief
Corporate Development Officer Jan 1, 2008 to Present; President Feb 4,
2009 to Present (2)
|
2009
2008
|
220,549
230,276
|
87,601
281,130
|
None
None
|
439,511
398,023
|
None
None
|
None
None
|
None
35,844
|
747,661
945,273
|
Jonathan
Ehrlich,
Chief
Operating Officer and President
Oct
2007 – Jan 31, 2009 (3)
|
2009
2008
|
282,052
258,612
|
17,520
None
|
None
None
|
135,359
615,871
|
None
None
|
None
None
|
45,553
49,198
|
480,484
923,681
|
(1) Mr.
Hampson did not receive any compensation for services as a director of the
Company. We valued Mr. Hampson’s options using the Black Scholes
option pricing model using the following assumptions: no dividend yield;
expected volatility rate of 118.02%; a risk free interest rate of 3.97% and an
expected life of 3.375 years resulting in a value of $1.61 per option
granted.
(2) We
valued Mr. Melville’s options using the Black Scholes option pricing model using
the following assumptions: no dividend yield; expected volatility rate of
75.66%; risk free interest rate of 3.07% and an expected life of 3.375 years
resulting in a value of $1.26 per option granted.
(3) We
valued Mr. Ehrlich’s options using the Black Scholes option pricing model using
the following assumptions: no dividend yield; expected volatility rate of
118.02%; risk free interest rate of 4.05% and an expected life of 3.375 years
resulting in a value of $1.45 per option granted.
There are
no plans that provide for the payment of retirement benefits, or benefits that
will be paid primarily following retirement, including but not limited to
tax-qualified defined benefit plans, supplemental executive retirement plans,
tax-qualified defined contribution plans and nonqualified defined contribution
plans.
Other
than as discussed below in “Employment Agreements,” there are no contracts,
agreements, plans or arrangements, written or unwritten, that provide for
payment to a named executive officer at, following, or in connection with the
resignation, retirement or other termination of a named executive officer, or a
change in control of our company or a change in the named executive officer's
responsibilities following a change in control.
On
January 31, 2008, Cameron Pan resigned as our Chief Financial Officer and
employee. Pursuant to the terms and conditions of an employment
severance agreement dated January 17, 2008 between us and Mr. Pan, we agreed to
pay Mr. Pan on February 1, 2008 CDN$248,000 represented by CDN$158,400 of
severance allowance, CDN$79,200 of accrued bonus and CDN$10,400 for other
benefits, less any and all applicable government withholdings and
deductions. Furthermore, pursuant to the severance agreement, for a
period starting on February 1, 2008 until April 30, 2008, we agreed to retain
Mr. Pan as a consultant for a daily fee of CDN$750 or at an hourly rate of
CDN$120, to assist in the day to day operations of Live Current and the
transition of duties from Mr. Pan to others designated by Live
Current.
On
February 4, 2009, Jonathan Ehrlich resigned as our President and Chief Operating
Officer, effective January 31, 2009. Pursuant to the terms and
conditions of an employment severance agreement dated February 4, 2009 between
us and Mr. Ehrlich, the Company agreed to pay CDN$600,000 to Mr. Ehrlich, which
consists of a severance allowance in the amount of CDN$298,000 and an accrued
special bonus in the amount of CDN$250,000, less any and all applicable
government withholdings and deductions, as well as other benefits in the amount
of CDN$52,000. The severance allowance and other benefits were to be
paid over a period of 12 months. The accrued special bonus had become
due on October 1, 2008 and has been expensed in the fourth quarter of the 2008
fiscal year. The other benefits were owing to Mr. Ehrlich before his
resignation. The payment of the net amount of the accrued special
bonus was to be converted to equity and paid in restricted shares of the
Company’s common stock over a period of 12 months. The number of
shares of common stock to be issued for each payment was to be computed using
the closing price of the common stock on the 15
th
day
of each month or, in the event that the 15
th
day
is not a trading day, on the trading day immediately before the 15
th
day
of the month.
On June
2, 2009 the employment severance agreement with Mr. Ehrlich was amended.
As a result of this amendment, we were permitted to pay the remaining severance
amounts owed to Mr. Ehrlich over a period of 10 months rather than 5 months, Mr.
Ehrlich agreed to defer until December 31, 2009 the payment of the accrued
special bonus, as of September 1, 2009 we were relieved from the payment of
certain expenses that we had agreed to make on Mr. Ehrlich’s behalf and from the
obligation to pay relocation expenses to Mr. Ehrlich.
On
November 13, 2009 we entered into a second amendment to the employment severance
agreement with Mr. Ehrlich. Pursuant to the second amendment, the
severance allowance remaining to be paid and all additional benefits owed to Mr.
Ehrlich as of November 16, 2009 in the gross amount of CDN$109,375 were paid in
a lump sum payment less all applicable withholdings rather than over a period of
10 months. Furthermore, Mr. Ehrlich agreed to waive all of the net monthly
equity payments that we are obliged to pay him under the initial employment
severance agreement and accepted CDN$20,000 cash, less all applicable
withholdings, in lieu thereof.
On August
21, 2007, our Board of Directors adopted the Live Current Media Inc. 2007 Stock
Incentive Plan (the “Plan”) and granted incentive stock options from the Plan to
certain key personnel, as further described below.
EMPLOYMENT
AGREEMENTS
C.
Geoffrey Hampson, Chief Executive Officer, Principal Accounting Officer and
Chairman
We
entered into an employment agreement with C. Geoffrey Hampson on May 31,
2007. Pursuant to the employment agreement, Mr. Hampson is to serve
as our Chief Executive Officer for a term of five years effective June 1, 2007
and subject to certain termination rights on the part of Live Current and Mr.
Hampson. The employment agreement provides that Mr. Hampson will
receive an annual base salary of CDN$300,000, subject to annual review as well
as a bonus of up to 60% of base salary as determined by the board
of directors. The employment
agreement also entitles him to participate in the health, dental and other
benefits or policies available to personnel with commensurate
duties. In connection with the employment agreement, on September 11,
2007 we granted to Mr. Hampson a stock option to purchase up to 1,000,000 shares
of our common stock at an exercise price of $2.50 per share. The
option to purchase shares of our common stock vests over the term of the
employment agreement as follows: (i) 333,333 shares were exercisable on
September 11, 2008 and (ii) thereafter the right to purchase 83,333 shares vests
after each successive three-month period until the entire option has
vested. Unless earlier terminated, the option will expire on
September 11, 2012. The stock option was granted pursuant to our 2007
Stock Incentive Plan. As part of the reduction in the exercise price
of all options granted from the 2007 Stock Incentive Plan, the exercise price of
the option granted to Mr. Hampson was reduced to $0.65 on March 25,
2009.
On June
1, 2007, the Board of Directors appointed Mr. Hampson as a director and Chairman
of the Board.
On
November 10, 2009 we entered into an amendment (the “Amendment”) with Mr.
Hampson to the employment agreement. The Amendment has an effective
date of October 1, 2009.
Pursuant
to the Amendment, Mr. Hampson’s annual salary has been reduced from CDN$300,000
to CDN$120,000 as of February 1, 2009. The portion of Mr. Hampson’s
salary that was deferred during the period beginning on February 1, 2009 and
ending on September 30, 2009 in the amount of CDN$80,000, less any amounts as
are required by law to be withheld, was to be converted to equity and paid in
restricted shares of our common stock. The number of shares of common
stock to be issued was to be computed using the closing price of the common
stock on December 1, 2009.
The
Amendment added the following language to the definition of “change of control
of the company”: (a) if the incumbent Board of Directors (the “Incumbent Board”)
ceases to constitute a majority of the Company’s Board of Directors for any
reason(s) other than (i) the voluntary resignation of one or more Board members;
(ii) the refusal by one or more Board members to stand for election to the
Board; and/or (iii) the removal of one or more Board members for good cause;
provided, however, (1)
that if the nomination
or election of any new director of the Company was approved by a vote of at
least a majority of the Incumbent Board, such new director shall be deemed a
member of the Incumbent Board; and (2) that no individual shall be considered a
member of the Incumbent Board if such individual initially assumed office (A) as
a result of either an actual or threatened director election contest wherein a
person or group of persons opposed a solicitation made by the Company with
respect to the election or removal of directors at any annual or special meeting
of the Company’s shareholders, or (B) as a result of a solicitation of proxies
or consents by or on behalf of any person other than the Company or its
designated representatives (a “
Proxy Contest
”), or (C) as a
result of any agreement intended to avoid or settle any director election
contest or Proxy Contest; (b) any cancellation or nonrenewal of the Company’s
directors and officers insurance coverage without the approval of the Executive
or the majority of the Incumbent Board; or (c) as a result of a successful
tender offer.
The
Amendment also includes a provision that allows any bonus paid to Mr. Hampson to
be paid in common stock, in cash or in a combination of cash and common
stock. The entitlement to, amount and form of bonus remuneration must
be determined and approved by the board of directors in its sole
discretion.
On
December 28, 2009 we entered into a second amendment to Mr. Hampson’s employment
agreement. Pursuant to the second amendment, the salary that had been
deferred was, instead, reduced by CDN$8,000 and the balance was paid in cash to
Mr. Hampson.
Jonathan
Ehrlich, former Chief Operating Officer and President
We
entered into an employment agreement with Jonathan Ehrlich on September 11,
2007. Pursuant to the employment agreement, Mr. Ehrlich was to serve
as the Chief Operating Officer and President of Live Current for a term of five
years effective October 1, 2007, subject to certain early termination rights on
the part of Live Current and Mr. Ehrlich. The employment agreement
provided that Mr. Ehrlich was to receive an annual base salary of CDN$275,000,
subject to annual review by the Chief Executive Officer and the board of
directors as well as a bonus of up to 50% of his base salary, to be determined
by the board of directors in its sole discretion. He also was paid a
signing bonus of CDN$200,000 upon his start date and was to be paid two special
bonuses of CDN$250,000 each on each of October 1, 2009 and October 1, 2010
unless earlier terminated. The employment agreement also entitled Mr.
Ehrlich to participate in the health and dental and other benefits or policies
available to personnel with commensurate duties. In connection with
the employment agreement, on September 8, 2007, Live Current granted a stock
option to Mr. Ehrlich to purchase up to 1,500,000 shares of common stock at an
exercise price of $2.04 per share. The option was to vest over the
term of the employment agreement as follows: (i) 500,000 shares were exercisable
on October 1, 2008 and (ii) the right to purchase 125,000 shares vested on the
last day of each successive three-month period thereafter until the entire
option vested. Unless earlier terminated, the option would expire on
October 1, 2012. The stock option was granted pursuant to our 2007
Stock Incentive Plan. Mr. Ehrlich resigned as our Chief Operating
Officer and President on February 4, 2009.
Mark
Melville, Chief Corporate Development Officer
We
entered into an employment agreement with Mark Melville on November 9,
2007. Pursuant to the employment agreement, Mr. Melville serves as
our Chief Corporate Development Officer for a term of five years effective
January 1, 2008, subject to certain early termination rights on the part of Live
Current and Mr. Melville. The employment agreement provides that Mr.
Melville will receive an annual base salary of CDN$250,000, beginning January 1,
2008, subject to annual review by the Chief Executive Officer and the board of
directors, as well as a bonus of up to 50% of his base salary, to be determined
by the board of directors in its sole discretion. He also was paid a
signing bonus of CDN$300,000 on his start date and is to be paid two special
bonuses of CDN$100,000 each on each of January 1, 2009 and January 1,
2010. We have not yet paid the bonus that was due on January 1,
2009. The employment agreement also entitles Mr. Melville to
participate in the health and dental and other benefits or policies available to
personnel with commensurate duties. In connection with the employment
agreement, on January 1, 2008, we granted a stock option to Mr. Melville to
purchase up to 1,000,000 shares of our common stock at an exercise price of
$2.05 per share. The option vests over the term of the employment
agreement as follows: (i) the right to purchase 333,333 shares vested on January
1, 2009 and (ii) the right to purchase an additional 83,333 shares vests on the
last day of each successive three month period thereafter, until the entire
option has vested. Unless earlier terminated, the option will expire
on January 1, 2013. The stock option was granted pursuant to our 2007
Stock Incentive Plan. On February 4, 2009, Mr. Melville assumed the
duties of the office of President.
OUTSTANDING
EQUITY AWARDS AT DECEMBER 31, 2009
The
following table sets forth certain information concerning unexercised stock
options for each named executive officer above. There were no stock
awards outstanding as of end of fiscal year 2009.
OUTSTANDING EQUITY AWARDS AT FISCAL
YEAR-END
|
|
OPTION
AWARDS
|
|
STOCK
AWARDS
|
Name
|
|
Number
of securities underlying unexercised options (#)
Exercisable
|
|
|
Number
of
securities
underlying
unexercised
options
(#)
Unexercisable
|
|
Equity
Incentive
Plan Awards:
Number
of Securities underlying unexercised unearned options (#)
|
|
Option
exercise
price
($)
|
|
Option
expiration
date
|
|
Number
of
shares
or
units
of
stock
that
have
not
vested
(#)
|
Market
value
of shares or units of
stock
that have not vested
($)
|
Equity
incentive
plan
awards:
number of unearned shares,
units
or
other
rights
that have not vested
(#)
|
Equity
incentive
plan
awards:
Market or payout
value
of unearned shares,
units
or
other
rights that have
not
vested
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
C.
Geoffrey Hampson
|
|
|
750,000
|
(2)
|
|
|
250,000
|
(2)
|
|
|
$
|
0.65
|
|
09/11/2012
|
|
|
|
|
|
Jonathan
Ehrlich
|
|
|
--
|
(3)
|
|
|
--
|
(3)
|
|
|
$
|
0.65
|
|
N/A
|
|
|
|
|
|
Mark
Melville
|
|
|
583,333
|
(4)
|
|
|
416,667
|
(4)
|
|
|
$
|
0.65
|
|
01/01/2013
|
|
|
|
|
|
(1)
|
|
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.
|
|
|
|
(2)
|
|
The
option became exercisable as to 333,333 shares on September 11, 2008 and
an additional 83,333 shares on the last day of each successive three-month
period thereafter, until all such shares have vested.
|
|
|
|
(3)
|
|
The
option was terminated upon Mr. Ehrlich’s resignation on February 4,
2009.
|
|
|
|
(4)
|
|
The
option will become exercisable as to 333,333 shares on January 1, 2009 and
an additional 83,333 shares on the last day of each successive three-month
period thereafter, until all such shares have
vested.
|
DIRECTOR
COMPENSATION
On March
14, 2008, we granted to Dr. Boris Wertz a stock option to purchase up to 100,000
shares of our common stock at the exercise price of $2.49 per
share. The term of the option is 5 years. The option is
subject to vesting as follows: (i) the right to purchase 33,333 shares vests on
the first anniversary of the stock option agreement and (ii) thereafter the
right to purchase 8,333 shares vests after each successive three-month period.
The stock option was granted under our 2007 Stock Incentive
Plan. As part of the reduction in the exercise price of all options
granted from the 2007 Stock Incentive Plan, the exercise price of the option
granted to Mr. Wertz was reduced to $0.65 on March 25, 2009. The
Company valued these options using the Black Scholes option price model using
the following assumptions: no dividend yield; expected volatility rate of
73.39%; risk free interest rate of 1.65% and an expected life of 3.375 years
resulting in a value of $1.40 per option.
The
following chart reflects all compensation awarded to, earned by or paid to the
directors below for the fiscal year ended December 31, 2009.
DIRECTOR
COMPENSATION
Name
|
|
Fees
Earned
or
Paid in Cash
($)
|
|
|
Stock
Awards
($)
|
|
|
Option
Awards
($)
|
|
|
Non-Equity
Incentive Plan Compensation
($)
|
|
|
Change
in Pension Value and Nonqualified Deferred Compensation
Earnings
($)
|
|
|
All
Other
Compensation
($)
|
|
|
Total
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James
P. Taylor (2)
|
|
|
--
|
|
|
|
--
|
|
|
$
|
56,890
|
|
|
|
--
|
|
|
|
--
|
|
|
$
|
|
|
|
$
|
56,890
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark
Benham (3)
|
|
|
--
|
|
|
|
--
|
|
|
$
|
55,821
|
|
|
|
--
|
|
|
|
--
|
|
|
$
|
|
|
|
$
|
55,821
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Boris
Wertz (4)
|
|
|
--
|
|
|
|
--
|
|
|
$
|
49,079
|
|
|
|
--
|
|
|
|
--
|
|
|
$
|
|
|
|
$
|
49,079
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
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.
|
|
|
|
(2)
|
|
The
aggregate number of stock awards and option awards issued to Mr. Taylor
and outstanding as of December 31, 2009 is 0 and 100,000,
respectively.
|
|
|
(3)
|
|
The
aggregate number of stock awards and option awards granted to Mr. Benham
and outstanding as of December 31, 2009 is 0 and 100,000
respectively.
|
|
|
|
(4)
|
|
The
aggregate number of stock awards and option awards granted to Dr. Wertz
and outstanding as of December 31, 2009 is 0 and 100,000
respectively.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions
with Related Persons
The
following describes all transactions since January 1, 2007 and all proposed
transactions in which we are, or we will be, a participant and the amount
involved exceeds the lesser of $120,000 or 1% of the average of our total assets
at year-end for the last two completed fiscal years, and in which any related
person had or will have a direct or indirect material interest.
On June
11, 2007, our board of directors issued 1,000,000 shares of common stock and
warrants to purchase up to 1,000,000 additional shares of restricted common
stock at the price of $1.25 effective until June 10, 2009 to Hampson Equities
Ltd., a company owned and controlled by C. Geoffrey Hampson, our Chief Executive
Officer, pursuant to a subscription agreement dated June 1, 2007. The
amount of the subscription was $1,000,000.
On
September 24, 2007 we closed a $5,100,000 private placement financing in which
Mr. Hampson invested $110,000. Mr. Hampson received 55,000 restricted
shares of our common stock.
On
November 19, 2008, we closed a private placement financing in which Mr. Hampson
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 March
1, 2009, a company controlled by C. Geoffrey Hampson, our Chief Executive
Officer and a director, began paying us $6,000 a month for IT, administrative,
and marketing support. Effective January 1, 2010, we no longer
provided marketing support and therefore the arrangement was modified to $3,500
per month. This arrangement allows us to share our resources while
earning revenues for support services.
On March
25, 2009, our Board of Directors reduced the exercise price of all outstanding
stock options granted pursuant to the Live Current Media Inc. 2007 Stock
Incentive Plan to $0.65. These options are held by our officers,
directors, employees, consultants and agents. The original exercise
prices ranged from a high of $3.30 to a low of $0.65. As a result of
this reduction, the exercise price of the outstanding stock option granted to
Mr. Hampson was reduced from $2.50 per share and the exercise price of the
outstanding stock options granted to Mr. Melville were reduced from $2.06 per
share. No other terms or conditions of the stock option grants were
modified.
Certain
of our current officers and directors have employment agreements with us and we
entered into employment severance agreements with certain of our former
officers. See the section of this prospectus titled “Executive
Compensation” for a discussion of these agreements.
Director
Independence
We
currently have three directors, Mr. Mark Benham, Mr. James P. Taylor, and Dr.
Boris Wertz, who are independent directors as that term is defined under the
rules of the NASDAQ Capital Market. Mr. Benham serves as the chairman
of the Compensation Committee and as a director of the Audit
Committee. Mr. Taylor serves as the chairman of the Audit
Committee. Dr. Wertz serves as the chairman of the Nominating and
Governance Committee. Both Mr. Benham and Mr. Taylor meet the
independence requirements for Audit Committee members.
SELLING
STOCKHOLDERS
We are
registering shares of common stock owned by the selling stockholders and shares
of common stock that may be acquired by them upon exercise of warrants they own.
The common stock and warrants were acquired in a private placement which
closed on November 19, 2008. The private placement was conducted under
Regulation D of the Securities Act with a limited number of accredited
investors. A more complete description of this offering is included
at the section of this prospectus titled “Prospectus Summary” at page
5.
With the
exception of Geoffrey Hampson, our Chief Executive Officer, Chief Financial
Officer, and a director, Mark Melville, our President and Chief Corporate
Development Officer and Jonathan Ehrlich, our former President, no selling
stockholder has, or within the past three years has had, any position, office or
other material relationship with us or any of our predecessors or affiliates
other than as a result of the ownership of our securities.
The
following table also provides certain information with respect to the selling
stockholders’ ownership of our securities as of May 19, 2010, the total number
of securities they may sell under this prospectus from time to time, and the
number of securities they will own thereafter assuming no other acquisitions or
dispositions of our securities. The selling stockholders can offer
all, some or none of their securities, thus we have no way of determining the
number they will hold after this offering. Therefore, we have
prepared the table below on the assumption that the selling stockholders will
sell all shares covered by this prospectus.
Some of
the selling stockholders may distribute their shares, from time to time, to
their limited and/or general partners or managers, who may sell shares pursuant
to this prospectus. Each selling stockholder may also transfer shares
owned by him or her by gift, and upon any such transfer the donee would have the
same right of sale as the selling stockholder.
We may
amend or supplement this prospectus from time to time to update the disclosure
set forth herein, however, if a selling stockholder transfers his or her
interest in the common stock or the common stock purchase warrants prior to the
effective date of the registration statement of which this prospectus is a part,
we will be required to file a post-effective amendment to the registration
statement to provide the information concerning the
transferee. Alternatively, if a selling stockholder transfers his or
her interest in the common stock or the common stock purchase warrants after the
effective date of the registration statement of which this prospectus is a part,
we may use a supplement to update this prospectus. With the exception
of Mr. Scott Lamacraft, who is an affiliate of a broker-dealer, none of the
selling stockholders are or were affiliated with registered
broker-dealers. Mr. Lamacraft purchased the securities in the
ordinary course of business and at the time of the purchase he had no
arrangements or understandings, directly or indirectly, with any person to
distribute the securities. See our discussion titled “Plan of
Distribution” for further information regarding the selling stockholders’ method
of distribution of these shares.
Selling
Stockholder
|
Shares
held
before the
Offering
|
Shares
being
Offered
|
Shares
held
after the
Offering
|
Percentage
Owned
after
the
Offering(1)
|
|
|
|
|
|
Ehrlich
Real Estate Advisors(2)(12)
|
187,845
|
153,845
|
34,000
|
*
|
|
|
|
|
|
Mark
Ernst(3)(14)
|
307,692
|
307,692
|
0
|
0
|
|
|
|
|
|
Rick
Meslin(3)
|
307,692
|
307,692
|
0
|
0
|
|
|
|
|
|
Carl
H. Jackson and Jodi Sansone(4)
|
1,374,545
|
553,845
|
820,700
|
3.42%
|
|
|
|
|
|
Scott
E. Lamacraft(5)
|
1,008,129
|
719,229
|
288,900
|
1.20%
|
|
|
|
|
|
Jonathan
Ehrlich(6)
|
306,621
|
76,921
|
229,700
|
1.00%
|
|
|
|
|
|
Mark
Melville(7)
|
941,025
|
107,692
|
833,333
|
3.47%
|
|
|
|
|
|
Penson
Financial Services Canada Inc. ITF Michael Bernstein A/C
6YA413F(8)
|
157,000
|
157,000
|
0
|
0
|
|
|
|
|
|
Mark
L. Casey(9)
|
576,921
|
326,921
|
250,000
|
1.04%
|
|
|
|
|
|
Mark
L. Casey and Carrie G. Casey, TR, UA 08-19-2008 The Casey Family
Trust(10)
|
(15)
|
(15)
|
(15)
|
(15)
|
|
|
|
|
|
Geoffrey
Hampson(11)
|
3,093,717
|
1,390,000
|
1,703,717
|
7.09%
|
|
|
|
|
|
Benham
Trust(2)(13)
|
153,845
|
153,845
|
0
|
0
|
|
|
|
|
|
TOTAL
|
8,415,032
|
4,254,682
|
4,160,350
|
16.97%
|
*
Indicates less than 1%.
(1) Based
on 24,026,180 shares outstanding on May 19, 2010.
(2) The
number of shares being offered includes 76,923 shares of common stock, 38,461
shares of common stock which may be acquired upon exercise of a warrant having
an exercise price of $0.78 per share and 38,461 shares of common stock which may
be acquired upon exercise of a warrant having an exercise price of $0.91 per
share.
(3) The
number of shares being offered includes 153,846 shares of common stock, 76,923
shares of common stock which may be acquired upon exercise of a warrant having
an exercise price of $0.78 per share and 76,923 shares of common stock which may
be acquired upon exercise of a warrant having an exercise price of $0.91 per
share.
(4) The
number of shares being offered includes 276,923 shares of common stock, 138,461
shares of common stock which may be acquired upon exercise of a warrant having
an exercise price of $0.78 per share and 138,461 shares of common stock which
may be acquired upon exercise of a warrant having an exercise price of $0.91 per
share.
(5) The
number of shares being offered includes 359,615 shares of common stock, 179,807
shares of common stock which may be acquired upon exercise of a warrant having
an exercise price of $0.78 per share and 179,807 shares of common stock which
may be acquired upon exercise of a warrant having an exercise price of $0.91 per
share.
(6) The
number of shares being offered includes 38,461 shares of common stock, 19,230
shares of common stock which may be acquired upon exercise of a warrant having
an exercise price of $0.78 per share and 19,230 shares of common stock which may
be acquired upon exercise of a warrant having an exercise price of $0.91 per
share.
(7)
Please refer to the beneficial ownership table on page 72 of this prospectus for
a description of Mr. Melville’s beneficial ownership of our
securities. The number of shares being offered includes 53,846 shares
of common stock, 26,923 shares of common stock which may be acquired upon
exercise of a warrant having an exercise price of $0.78 per share and 26,923
shares of common stock which may be acquired upon exercise of a warrant having
an exercise price of $0.91 per share.
(8) The
number of shares being offered includes 78,500 shares of common stock, 39,250
shares of common stock which may be acquired upon exercise of a warrant having
an exercise price of $0.78 per share and 39,250 shares of common stock which may
be acquired upon exercise of a warrant having an exercise price of $0.91 per
share. The person having voting and investment control over the securities owned
by Penson Financial Services Canada Inc. is Michael Bernstein.
(9) Mr.
Casey directly owns 163,460 shares of common stock, which includes 81,730 shares
of common stock which may be acquired upon exercise of a warrant having an
exercise price of $0.78 per share and 81,730 shares of common stock which may be
acquired upon exercise of a warrant having an exercise price of $0.91 per
share. Also included in the total shares owned by Mr. Casey are
413,461 shares of common stock owned by the Casey Family Trust, which is also a
selling shareholder in this offering. Mr. Casey is both a trustee and
a beneficiary of the Casey Family Trust and as such is both the legal and the
beneficial owner of the common stock owned by the Casey Family
Trust.
(10) The
persons having voting and investment control over the securities owned by the
Casey Family Trust are Mark L. Casey and Carrie G. Casey.
(11)
Please refer to the beneficial ownership table on page 72 of this prospectus for
a description of Mr. Hampson’s beneficial ownership of our
securities. The number of shares being offered includes 1,195,000
shares of common stock, 97,500 shares of common stock which may be acquired upon
exercise of a warrant having an exercise price of $0.78 per share and 97,500
shares of common stock which may be acquired upon exercise of a warrant having
an exercise price of $0.91 per share.
(12) The
person having voting and investment control over the securities owned by Ehrlich
Real Estate Advisors is Tom Ehrlich. Tom Ehrlich is the brother of
our former Chief Operating Officer and President, Jonathan
Ehrlich. Jonathan Ehrlich has no interest in Ehrlich Real Estate
Advisors.
(13) The
person having voting and investment control over the securities owned by the
Benham Trust is Derek Benham. Derek Benham is the brother of our
director, Mark Benham.
(14) This
information has been taken from the records of our stock transfer agent and has
not been independently verified by Mr. Ernst.
(15)
Shares held by the Casey Family Trust are included in the number of shares held
by Mark L. Casey. See footnote 9.
PLAN
OF DISTRIBUTION
We are
registering the shares of common stock on behalf of the selling
stockholders. Sales of shares may be made by selling stockholders,
including their respective donees, transferees, pledgees or other
successors-in-interest directly to purchasers or to or through underwriters,
broker-dealers or through agents. Sales may be made from time to time
on the OTC Bulletin Board or any exchange upon which our shares may trade in the
future, in the over-the-counter market or otherwise, at market prices prevailing
at the time of sale, at prices related to market prices, or at negotiated or
fixed prices. The shares may be sold by one or more of, or a
combination of, the following:
·
|
a
block trade in which the broker-dealer so engaged will attempt to sell the
shares as agent but may position and resell a portion of the block as
principal to facilitate the transaction (including crosses in which the
same broker acts as agent for both sides of the
transaction);
|
·
|
purchases
by a broker-dealer as principal and resale by such broker-dealer,
including resales for its account, pursuant to this
prospectus;
|
·
|
ordinary
brokerage transactions and transactions in which the broker solicits
purchases;
|
·
|
through
options, swaps or derivatives;
|
·
|
in
privately negotiated transactions;
|
·
|
in
making short sales or in transactions to cover short
sales;
|
·
|
put
or call option transactions relating to the shares;
and
|
·
|
any
other method permitted under applicable
law.
|
The
selling stockholders may effect these transactions by selling shares directly to
purchasers or to or through broker-dealers, which may act as agents or
principals. These broker-dealers may receive compensation in the form
of discounts, concessions or commissions from the selling stockholders and/or
the purchasers of shares for whom such broker-dealers may act as agents or to
whom they sell as principals, or both (which compensation as to a particular
broker-dealer might be in excess of customary commissions). The
selling stockholders have advised us that they have not entered into any
agreements, understandings or arrangements with any underwriters or
broker-dealers regarding the sale of their securities.
The
selling stockholders may enter into hedging transactions with broker-dealers or
other financial institutions. In connection with those transactions,
the broker-dealers or other financial institutions may engage in short sales of
the shares or of securities convertible into or exchangeable for the shares in
the course of hedging positions they assume with the selling
stockholders. The selling stockholders may also enter into options or
other transactions with broker-dealers or other financial institutions which
require the delivery of shares offered by this prospectus to those
broker-dealers or other financial institutions. The broker-dealer or
other financial institution may then resell the shares pursuant to this
prospectus (as amended or supplemented, if required by applicable law, to
reflect those transactions).
The
selling stockholders and any broker-dealers that act in connection with the sale
of shares may be deemed to be “underwriters” within the meaning of Section 2(11)
of the Securities Act of 1933, and any commissions received by broker-dealers or
any profit on the resale of the shares sold by them while acting as principals
may be deemed to be underwriting discounts or commissions under the Securities
Act. The selling stockholders may agree to indemnify any agent,
dealer or broker-dealer that participates in transactions involving sales of the
shares against liabilities, including liabilities arising under the Securities
Act. We have agreed to indemnify each of the selling stockholders and
each selling stockholder has agreed, severally and not jointly, to indemnify us
against some liabilities in connection with the offering of the shares,
including liabilities arising under the Securities Act.
The
selling stockholders will be subject to the prospectus delivery requirements of
the Securities Act. We have informed the selling stockholders that
the anti-manipulative provisions of Regulation M promulgated under the
Securities Exchange Act of 1934 may apply to their sales in the
market.
Selling
stockholders also may resell all or a portion of the shares in open market
transactions in reliance upon Rule 144 under the Securities Act, provided they
meet the criteria and conform to the requirements of Rule 144.
Upon
being notified by a selling stockholder that a material arrangement has been
entered into with a broker-dealer for the sale of shares through a block trade,
special offering, exchange distribution or secondary distribution or a purchase
by a broker or dealer, we will file a supplement to this prospectus, if required
pursuant to Rule 424(b) under the Securities Act, disclosing:
·
|
the
name of each such selling stockholder and of the participating
broker-dealer(s);
|
·
|
the
number of shares involved;
|
·
|
the
initial price at which the shares were
sold;
|
·
|
the
commissions paid or discounts or concessions allowed to the
broker-dealer(s), where applicable;
|
·
|
that
such broker-dealer(s) did not conduct any investigation to verify the
information set out or incorporated by reference in this prospectus;
and
|
·
|
other
facts material to the transactions.
|
In
addition, if required under applicable law or the rules or regulations of the
Commission, we will file a supplement to this prospectus when a selling
stockholder notifies us that a donee or pledgee intends to sell more than 500
shares of common stock.
We are
paying all expenses and fees in connection with the registration of the
shares. The selling stockholders will bear all brokerage or
underwriting discounts or commissions paid to broker-dealers in connection with
the sale of the shares.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
Security
Ownership of Certain Beneficial Owners (more than 5%)
The
following table sets forth certain information, as of May 19, 2010, with respect
to the holdings of (1) each person who is the beneficial owner of more than 5%
of our common stock, (2) each of our directors, (3) each named executive
officer, and (4) all of our directors and executive officers as a
group.
Beneficial
ownership of the common stock is determined in accordance with the rules of the
Securities and Exchange Commission and includes any shares of common stock over
which a person exercises sole or shared voting or investment powers, or of which
a person has a right to acquire ownership at any time within 60 days of May 19,
2010. Except as otherwise indicated, and subject to applicable
community property laws, we believe that the persons named in this table have
sole voting and investment power with respect to all shares of common stock held
by them. Applicable percentage ownership in the following table is
based on 24,026,180 shares of common stock outstanding as of May 19, 2010 plus,
for each individual, any securities that individual has the right to acquire
within 60 days of May 19, 2010.
Title
of Class
|
Name
and Address (1)
|
Shares
Beneficially
Owned
(2)
|
Percentage
of
Class
|
|
Beneficial
Owners of
More
than 5%:
|
|
|
Common
Stock
|
Carl
H. Jackson and Jodi Sansone (3)
22
Clinton Avenue
Westport,
CT 06880
|
1,374,545
|
5.66%
|
Common
Stock
|
Odyssey
Value Advisors, LLC (4)
601
Montgomery Street, Suite 1112
San
Francisco, CA 94111
|
1,335,520
|
5.56%
|
|
Current
Directors and Named Executive Officers:
|
|
|
Common
Stock
|
C.
Geoffrey Hampson, Chief Executive Officer, Principal Financial Officer,
Director (5)
|
3,093,717
|
12.31%
|
Common
Stock
|
Mark
Melville, President, Chief Corporate Development Officer
(6)
|
941,025
|
3.78%
|
Common
Stock
|
Jonathan
Ehrlich, former Chief Operations Officer, former President
(7)
|
306,621
|
1.27%
|
Common
Stock
|
Mark
Benham, Director (8)
|
116,667
|
0.48%*
|
Common
Stock
|
James
P. Taylor, Director (9)
|
101,667
|
0.42%*
|
Common
Stock
|
Boris
Wertz, Director (10)
|
75,000
|
0.31%*
|
|
All Directors and
Executive Officers as a
group (6
persons)
|
4,634,697
|
18.57%
|
* Less
than 1%.
(1)
Unless otherwise indicated, the address of the beneficial owner is c/o Live
Current Media Inc., 375 Water Street, Suite 645, Vancouver, BC, V6B5C6,
Canada.
(2) The
information included in this table regarding shareholders who are not affiliated
with the Company has been derived from the records of our stock transfer agent
and public filings.
(3)
Includes a warrant to purchase 138,461 shares of our common stock with an
exercise price of $0.78 effective November 19, 2008, exercisable at any time,
and expiring November 19, 2010 and a warrant to purchase 138,461 shares of our
common stock with an exercise price of $0.91 effective November 19, 2008,
exercisable at any time, and expiring November 19, 2011. Both these
warrants were issued as part of our private placement on November 19,
2008.
(4) The
person having voting and investment control over the securities owned by Odyssey
Value Advisors, LLC is William Vlahos.
(5)
Includes 1,982,050 shares of common stock, and an option to purchase 916,667
shares of our common stock granted on September 11, 2007 pursuant to an
employment agreement that will have vested within 60 days of May 19,
2010. This does not include an option to purchase 83,333 shares of
our common stock under the same grant, as Mr. Hampson will not have the right to
acquire shares pursuant to this option until September 11, 2010. Mr.
Hampson’s holdings also include a warrant to purchase 97,500 shares of our
common stock with an exercise price of $0.78 effective November 19, 2008,
exercisable at any time, and expiring November 19, 2010 and a warrant to
purchase 97,500 shares of our common stock with an exercise price of $0.91
effective November 19, 2008, exercisable at any time, and expiring November 19,
2011. Both these warrants were issued as part of our private
placement on November 19, 2008.
(6)
Includes 53,846 shares of common stock, and an option to purchase 833,333 shares
of our common stock granted on January 1, 2008 pursuant to an employment
agreement that will have vested within 60 days of May 19, 2010. This
does not include an option to purchase 166,667 shares of our common stock under
the same grant, as Mr. Melville will not have the right to acquire shares
pursuant to this option until October 1, 2010. Also includes a
warrant to purchase 26,923 shares of our common stock with an exercise price of
$0.78 effective November 19, 2008, exercisable at any time, and expiring
November 19, 2010 and a warrant to purchase 26,923 shares of our common stock
with an exercise price of $0.91 effective November 19, 2008, exercisable at any
time, and expiring November 19, 2011. Both these warrants were issued
as part of our private placement on November 19, 2008.
(7)
Includes 268,161 shares of common stock, a warrant to purchase 19,230 shares of
our common stock with an exercise price of $0.78 effective November 19, 2008,
exercisable at any time, and expiring November 19, 2010 and a warrant to
purchase 19,230 shares of our common stock with an exercise price of $0.91
effective November 19, 2008, exercisable at any time, and expiring November 19,
2011. Both these warrants were issued as part of our private
placement on November 19, 2008.
(8)
Includes 25,000 shares of common stock, an option to purchase 91,667 shares of
our common stock granted on September 11, 2007 for services as a member of our
Board of Directors that will have vested within 60 days of May 19,
2010. This does not include an option to purchase 8,333 shares of our
common stock under the same grant, as Mr. Benham will not have the right to
acquire shares pursuant to this option until September 12,
2010.
(9)
Includes 10,000 shares of common stock, an option to purchase 91,667 shares of
our common stock granted on September 11, 2007 for services as a member of our
Board of Directors that will have vested within 60 days of May 19,
2010. This does not include an option to purchase 8,333 shares of our
common stock under the same grant, as Mr. Taylor will not have the right to
acquire shares pursuant to this option until September 12,
2010.
(10)
Includes an option to purchase 75,000 shares of our common stock granted on
March 14, 2008 for services as a member of our Board of Directors that will have
vested within 60 days of May 19, 2010. This does not include an
option to purchase 25,000 shares of our common stock under the same grant, as
Dr. Wertz will not have the right to acquire shares pursuant to this option
until September 14, 2010.
CHANGE
OF CONTROL
To our
knowledge, there are no present arrangements or pledges of securities of our
company that may result in a change in control.
DESCRIPTION
OF SECURITIES
GENERAL
We are
presently authorized under our Articles of Incorporation to issue 50,000,000
shares of common stock $.001 par value per share. The following
description of our capital stock is only a summary and is subject to and
qualified by our Articles of Incorporation, as amended, copies of which will be
provided by us upon request, and by the provisions of applicable corporate laws
of the State of Nevada.
Article
I, section 2 of our bylaws states in pertinent part, “Special meetings of the
stockholders may be held at the office of the Company in the State Of Nevada, or
elsewhere, whenever called by the President, or by the Board of Directors, or by
vote of, or by an instrument in writing signed by the holders of 51% of the
issued and outstanding capital stock of the Company.” This provision
could have an effect of delaying, deferring or preventing a change in control
because ownership of our common stock is widely disbursed. The costs
to an individual stockholder or to a group of stockholders wishing to call a
special meeting of stockholders to, for example, remove the board, may be
prohibitive or it may not be possible to obtain the approval of at least 51% of
the outstanding shares to call the meeting.
COMMON
STOCK
The
holders of our common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. The
presence, in person or by proxy, of holders of 51% of the common stock is
necessary to constitute a quorum at any meeting of our stockholders. An
affirmative vote of a majority in interest is required for the election of
directors. We may pay dividends at such time and to the extent declared by
the board of directors in accordance with Nevada corporate law. Our common
stock has no preemptive or other subscription rights, and there are no
conversion rights or redemption or sinking fund provisions with respect to such
shares. All outstanding shares of common stock are fully paid and
non-assessable. To the extent that additional shares of common stock may
be issued in the future, the relative interests of the then existing
stockholders may be diluted.
WARRANTS
We are
registering 1,627,338 shares of common stock underlying warrants issued to the
investors in the private offering we closed on November 19,
2008. Warrants with an exercise price of $0.78 per share and
conveying the right to purchase a total of 813,669 shares of common stock have a
term of 2 years from the date of issuance. Warrants with an exercise
price of $0.91 per share and converying the right to purchase a total of 813,669
shares of common stock have a term of 3 years from the date of
issuance.
To the
extent there is no effective registration statement registering the resale of
the shares underlying the warrants, the warrant holders may, at their option,
elect to exercise the warrants on a cashless basis, by canceling a portion of
the warrants in payment of the purchase price payable in respect of the number
of warrant shares purchased upon such exercise. In the event of a
cashless exercise, the number of warrant shares issued to the holder shall be
determined according to the following formula:
X =
Y(A-B)
A
Where:
|
X
=
|
the
number of warrant shares that are to be issued to the
holder;
|
|
|
|
|
Y
=
|
the
number of warrant shares for which the warrant is being exercised (which
includes both the number of warrant shares issued to the holder and the
number of warrant shares subject to the portion of the warrant being
cancelled in payment of the purchase
price);
|
|
A
=
|
the
fair market value of one share of common stock; and
|
|
|
|
|
B =
|
the
purchase price then in effect.
|
The
warrants have standard provisions for adjustment in the event of a stock split,
reverse stock split, stock dividend or reclassification. In the event
we reorganize our capital, reclassify our capital stock, consolidate or merge
with or into another corporation, or sell, transfer or otherwise dispose of our
property, assets or business to another corporation and, pursuant to the terms
of such reorganization, reclassification, merger, consolidation or disposition
of assets, shares of common stock of the successor or acquiring corporation, or
any cash, shares of stock or other securities or property are to be received by
or distributed to the holders of our common stock, then the holder shall have
the right to receive, at the option of the holder, (a) upon exercise of the
warrant, the number of shares of common stock of the successor or acquiring
corporation and other property receivable upon or as a result of such
reorganization, reclassification, merger, consolidation or disposition of assets
or (b) cash equal to the value of this warrant as determined in accordance with
the Black Scholes option pricing formula. In case of any such
reorganization, reclassification, merger, consolidation or disposition of
assets, the successor or acquiring corporation must expressly assume the
performance of the warrants, subject to such modifications as may be deemed
appropriate by resolution of our board of directors.
DISCLOSURE
OF COMMISSION POSITION OF INDEMNIFICATION FOR
SECURITIES
ACT LIABILITIES
Our
Articles of Incorporation provides the following with respect to
liability:
“No
director or officer of the corporation shall be personally liable to the
corporation of any of its stockholders for damages for breach of fiduciary duty
as a director or officer involving any act or omission of any such director or
officer provided, however, that the foregoing provision shall not eliminate or
limit the liability of a director or officer for acts or omissions which involve
intentional misconduct, fraud or a knowing violation of law, or the payment of
dividends in violation of Section 78.300 of the Nevada Revised Statutes.
Any repeal or modification of this Article of the Stockholders of the
Corporation shall be prospective only, and shall not adversely affect any
limitation on the personal liability of a director of officer of the Corporation
for acts or omissions prior to such repeal or modification.”
Section
78.7502 of the Nevada Revised Statutes provides that we may indemnify any person
who was or is a party, or is threatened to be made a party, to any action, suit
or proceeding brought by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation or other entity. The expenses that are subject to this indemnity
include attorneys’ fees, judgments, fines and amounts paid in settlement
actually and reasonably incurred by the indemnified party in connection with the
action, suit or proceeding. In order for us to provide this statutory indemnity,
the indemnified party must not be liable under Nevada Revised Statutes section
78.138 or must have acted in good faith and in a manner he reasonably believed
to be in, or not opposed to, the best interests of the corporation. With respect
to a criminal action or proceeding, the indemnified party must have had no
reasonable cause to believe his conduct was unlawful.
Section
78.7502 also provides that we may indemnify any person who was or is a party, or
is threatened to be made a party, to any action or suit brought by or on behalf
of the corporation by reason of the fact that he is or was serving at the
request of the corporation as a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation or other entity
against expenses actually or reasonably incurred by him in connection with the
defense or settlement of such action or suit if he is not liable under Nevada
Revised Statutes section 78.138 of if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation. We may not indemnify a person if the person is adjudged by a court
of competent jurisdiction, after exhaustion of all appeals therefrom, to be
liable to the corporation, or for amounts paid in settlement to the corporation,
unless and only to the extent that the court in which such action or suit was
brought or another court of competent jurisdiction shall determine upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, the person is fairly and reasonably entitled to
indemnity.
Section
78.7502 requires us to indemnify our directors or officers against expenses,
including attorneys’ fees, actually and reasonably incurred by him in connection
with his defense, if he has been successful on the merits or otherwise in
defense of any action, suit or proceeding, or in defense of any claim, issue or
matter.
These
indemnification provisions may be sufficiently broad to permit indemnification
of the Company’s executive officers and directors for liabilities (including
reimbursement of expenses incurred) arising under the Securities
Act.
Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to our directors, officers and controlling persons pursuant to the
foregoing provisions, or otherwise, we have been advised that in the opinion of
the Securities and Exchange Commission such indemnification is
against public policy as expressed in
the Securities Act and is, therefore, unenforceable. No pending material
litigation or proceeding involving our directors, executive officers, employees
or other agents as to which indemnification is being sought exists, and we are
not aware of any pending or threatened material litigation that may result in
claims for indemnification by any of our directors or executive
officers.
TRANSFER
AGENT AND REGISTRAR
The
transfer agent and registrar for our common stock Computershare Trust Company.
Computershare’s address is 350 Indiana Street, Suite 800, Golden,
Colorado, 80401.
INTERESTS
OF NAMED EXPERTS AND COUNSEL
We did
not hire any expert or counsel on a contingent basis who will receive a direct
or indirect interest in the Company or who was a promoter, underwriter, voting
trustee, director, officer, or employee of the Company. Richardson
& Patel LLP, our legal counsel, has given an opinion regarding certain legal
matters in connection with this offering of our securities. Both
Richardson & Patel LLP and its principals have accepted our common stock in
exchange for services rendered to us in the past and, although they are under no
obligation to do so, they may continue to accept our common stock for services
rendered to us. As of the date of this prospectus, Richardson &
Patel LLP and its principals no longer own any shares of our common
stock.
EXPERTS
The
financial statements included in this prospectus have been audited by Davidson
& Company, LLP, independent certified public accountants, and Ernst &
Young, LLP, independent certified public accountants, to the extent and for the
periods set forth in their report appearing elsewhere herein and are included in
reliance upon such report given upon the authority of that firm as experts in
auditing and accounting.
WHERE
YOU CAN FIND MORE INFORMATION
We have
filed with the Securities and Exchange Commission a registration statement on
Form S-1 under the Securities Act with respect to the shares of common stock
being offered by this prospectus. This prospectus does not contain
all of the information included in the registration statement. For
further information pertaining to us and our common stock, you should refer to
the registration statement and its exhibits. Statements contained in
this prospectus concerning any of our contracts, agreements or other documents
are not necessarily complete. If a contract or document has been
filed as an exhibit to the registration statement, we refer you to the copy of
the contract or document that has been filed. Each statement in this
prospectus relating to a contract or document filed as an exhibit is qualified
in all respects by the filed exhibit.
We are
subject to the informational requirements of the Securities Exchange Act of 1934
and file annual, quarterly and current reports, proxy statements and other
information with the Securities and Exchange Commission. You can read
our filings, including the registration statement, over the internet at the
Security and Exchange Commission’s website at www.sec.gov. You may
also read and copy any document we file with the Securities and Exchange
Commission at its public reference facility at 100 F Street, N.E., Washington,
D.C., 20549, on official business days during the hours of 10:00 a.m. to 3:00
p.m. Eastern time. You may also obtain copies of the documents at
prescribed rates by writing to the Public Reference Section of the Securities
and Exchange Commission at 100 F Street, N.E., Washington, D.C.,
20549. Please call the Securities and Exchange Commission at
1-800-SEC-0330 for further information on the operation of the public reference
facility.
LIVE CURRENT MEDIA
INC.
CONSOLIDATED
FINANCIAL STATEMENTS
MARCH
31, 2010
CONSOLIDATED BALANCE
SHEETS
|
F-2
|
|
|
CONSOLIDATED STATEMENTS OF
OPERATIONS
|
F-3
|
|
|
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS’ EQUITY (DEFICIT)
|
F-4
|
|
|
CONSOLIDATED STATEMENTS OF CASH
FLOWS
|
F-5
|
|
|
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
|
F-6
|
LIVE
CURRENT MEDIA INC.
|
|
CONSOLIDATED
BALANCE SHEETS
|
|
Expressed
In U.S. Dollars
|
|
(Going
Concern - See Note 1)
|
|
|
|
|
|
|
|
|
|
|
March
31, 2010
|
|
|
December
31, 2009
|
|
ASSETS
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
390,217
|
|
|
$
|
413,700
|
|
Accounts
receivable (net of allowance for doubtful accounts of
$Nil)
|
|
|
187,575
|
|
|
|
600,390
|
|
Prepaid
expenses and deposits
|
|
|
176,369
|
|
|
|
148,697
|
|
Inventory
|
|
|
28,179
|
|
|
|
28,714
|
|
Current
portion of receivable from sales-type lease
(Note
12)
|
|
|
-
|
|
|
|
23,423
|
|
Total
current assets
|
|
|
782,340
|
|
|
|
1,214,924
|
|
|
|
|
|
|
|
|
|
|
Property
& equipment
(Note
8)
|
|
|
216,699
|
|
|
|
231,327
|
|
Website
development costs
(Note
9)
|
|
|
191,759
|
|
|
|
217,883
|
|
Intangible
assets
|
|
|
963,133
|
|
|
|
963,133
|
|
Goodwill
(Notes 5 and
7)
|
|
|
66,692
|
|
|
|
66,692
|
|
Total
Assets
|
|
$
|
2,220,623
|
|
|
$
|
2,693,959
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued liabilities
|
|
$
|
963,254
|
|
|
$
|
1,161,241
|
|
Deferred
gains of amounts regarding Global Cricket Venture
(Note
6)
|
|
|
-
|
|
|
|
500,000
|
|
Bonuses
payable
|
|
|
196,880
|
|
|
|
158,466
|
|
Due
to shareholders of Auctomatic
(Note
7)
|
|
|
58,664
|
|
|
|
118,664
|
|
Convertible
notes to shareholders of Auctomatic
(Note
7)
|
|
|
429,500
|
|
|
|
429,500
|
|
Deferred
revenue
|
|
|
52,676
|
|
|
|
43,240
|
|
Current
portion of deferred lease inducements
(Note
10)
|
|
|
20,138
|
|
|
|
20,138
|
|
Total
current liabilities
|
|
|
1,721,112
|
|
|
|
2,431,249
|
|
|
|
|
|
|
|
|
|
|
Deferred
income tax
(Note
14)
|
|
|
125,207
|
|
|
|
125,207
|
|
Deferred
lease inducements
(Note
10)
|
|
|
30,207
|
|
|
|
35,241
|
|
Warrants
(Note
11e)
|
|
|
94,398
|
|
|
|
250,710
|
|
Total
Liabilities
|
|
|
1,970,924
|
|
|
|
2,842,407
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS'
EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
Common
stock
(Note
11)
|
|
|
|
|
|
|
|
|
Authorized:
50,000,000 common shares, $0.001 par value
|
|
|
|
|
|
|
|
|
Issued
and outstanding:
|
|
|
|
|
|
|
|
|
24,026,180
common shares (December 31, 2009 - 24,026,180)
|
|
|
15,335
|
|
|
|
15,335
|
|
Additional
paid-in capital
|
|
|
16,918,874
|
|
|
|
16,595,072
|
|
Accumulated
deficit
|
|
|
(16,703,130
|
)
|
|
|
(16,787,208
|
)
|
Total
Live Current Media Inc. stockholders' equity (deficit)
|
|
|
231,079
|
|
|
|
(176,801
|
)
|
Non-controlling
interest
|
|
|
18,620
|
|
|
|
28,353
|
|
Total
Stockholders' Equity (Deficit)
|
|
|
249,699
|
|
|
|
(148,448
|
)
|
Total
Liabilities and Stockholders' Equity
|
|
$
|
2,220,623
|
|
|
$
|
2,693,959
|
|
Commitments
and Contingency
(Notes 16 and
17)
Subsequent
Events
(Note
19)
See
accompanying notes to consolidated financial statements
LIVE
CURRENT MEDIA INC.
|
|
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
Expressed
In U.S. Dollars
|
|
|
|
|
|
Three
Months
Ended
|
|
|
Three
Months
Ended
|
|
|
|
March
31, 2010
|
|
|
March
31, 2009
|
|
|
|
|
|
|
(As
Restated -
See
Note 2)
|
|
SALES
|
|
|
|
|
|
|
Health
and beauty eCommerce
|
|
$
|
873,959
|
|
|
$
|
1,720,167
|
|
Domain
name advertising
|
|
|
17,197
|
|
|
|
24,453
|
|
Miscellaneous
and other income
|
|
|
17,078
|
|
|
|
7,762
|
|
Total
Sales
|
|
|
908,234
|
|
|
|
1,752,382
|
|
|
|
|
|
|
|
|
|
|
COSTS
OF SALES
|
|
|
|
|
|
|
|
|
Health
and beauty eCommerce
|
|
|
630,846
|
|
|
|
1,386,619
|
|
Total
Costs of Sales (excluding depreciation and amortization as shown
below)
|
|
|
630,846
|
|
|
|
1,386,619
|
|
|
|
|
|
|
|
|
|
|
GROSS
PROFIT
|
|
|
277,388
|
|
|
|
365,763
|
|
|
|
|
|
|
|
|
|
|
OPERATING
EXPENSES
|
|
|
|
|
|
|
|
|
Amortization
and depreciation
|
|
|
16,370
|
|
|
|
98,166
|
|
Amortization
of website development costs
(Note
9)
|
|
|
26,124
|
|
|
|
32,562
|
|
Corporate
general and administrative
|
|
|
109,882
|
|
|
|
361,123
|
|
ECommerce
general and administrative
|
|
|
76,661
|
|
|
|
80,220
|
|
Management
fees and employee salaries
|
|
|
698,351
|
|
|
|
1,193,595
|
|
Corporate
marketing
|
|
|
84
|
|
|
|
3,771
|
|
ECommerce
marketing
|
|
|
79,799
|
|
|
|
111,422
|
|
Other
expenses
(Note
13)
|
|
|
-
|
|
|
|
264,904
|
|
Total
Operating Expenses
|
|
|
1,007,271
|
|
|
|
2,145,763
|
|
|
|
|
|
|
|
|
|
|
NON-OPERATING
INCOME (EXPENSES)
|
|
|
|
|
|
|
|
|
Gain
on settlement of amounts due regarding Global Cricket Venture
(Note
6)
|
|
|
250,000
|
|
|
|
250,000
|
|
Gain
from sales and sales-type lease of domain names
(Note
12)
|
|
|
600,000
|
|
|
|
617,933
|
|
Accretion
interest expense
(Note
7)
|
|
|
-
|
|
|
|
(40,000
|
)
|
Interest
expense
|
|
|
(10,594
|
)
|
|
|
-
|
|
Interest
and investment income
|
|
|
297
|
|
|
|
890
|
|
Foreign
exchange gain (loss)
|
|
|
(35,475
|
)
|
|
|
34,769
|
|
Total
Non-Operating Income
|
|
|
804,228
|
|
|
|
863,592
|
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED
NET INCOME (LOSS)
|
|
|
74,345
|
|
|
|
(916,408
|
)
|
|
|
|
|
|
|
|
|
|
ADD:
NET (INCOME) LOSS ATTRIBUTABLE TO
|
|
|
|
|
|
|
|
|
NON-CONTROLLING
INTEREST
|
|
|
9,733
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
NET
INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS) FOR THE
|
|
|
|
|
|
PERIOD
ATTRIBUTABLE TO LIVE CURRENT MEDIA INC.
|
|
$
|
84,078
|
|
|
$
|
(916,408
|
)
|
|
|
|
|
|
|
|
|
|
INCOME
(LOSS) PER SHARE - BASIC AND DILUTED
|
|
|
|
|
|
|
|
|
Basic
Net Income (Loss) attributable to Live Current Media Inc. common
stockholders
|
|
$
|
0.00
|
|
|
$
|
(0.04
|
)
|
Weighted
Average Number of Common Shares Outstanding - Basic
|
|
|
24,005,471
|
|
|
|
22,509,120
|
|
|
|
|
|
|
|
|
|
|
Diluted
Net Income (Loss) attributable to Live Current Media Inc. common
stockholders
|
|
$
|
0.00
|
|
|
$
|
(0.04
|
)
|
Weighted
Average Number of Common Shares Outstanding - Diluted
|
|
|
30,155,159
|
|
|
|
22,509,120
|
|
See
accompanying notes to consolidated financial statements
LIVE
CURRENT MEDIA INC.
|
|
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
|
|
Expressed
In U.S. Dollars
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Live
Current Media Inc. Stockholders
|
|
|
|
|
|
|
|
|
|
Common
stock
|
|
|
Additional
Paid-in Capital
|
|
|
Accumulated
Deficit
|
|
|
Total
Stockholders' Equity (Deficit)
|
|
|
Non-Controlling
Interest
|
|
|
Total
Equity
(Deficit)
|
|
|
|
Number
of Shares
|
|
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2008 (As Restated - See Note 2)
|
|
|
23,546,370
|
|
|
$
|
14,855
|
|
|
$
|
14,757,932
|
|
|
$
|
(12,777,195
|
)
|
|
$
|
1,995,592
|
|
|
$
|
-
|
|
|
$
|
1,995,592
|
|
Stock-based
compensation
(Note
11d)
|
|
|
-
|
|
|
|
-
|
|
|
|
1,702,519
|
|
|
|
-
|
|
|
|
1,702,519
|
|
|
|
-
|
|
|
|
1,702,519
|
|
Issuance
of 15,000 common shares to investor relations firm
(Note
11b)
|
|
|
15,000
|
|
|
|
15
|
|
|
|
5,685
|
|
|
|
-
|
|
|
|
5,700
|
|
|
|
-
|
|
|
|
5,700
|
|
Extinguishment
of accounts payable
(Note 11b)
|
|
|
372,898
|
|
|
|
373
|
|
|
|
129,028
|
|
|
|
-
|
|
|
|
129,401
|
|
|
|
-
|
|
|
|
129,401
|
|
Issuance
of 91,912 common shares per the merger
agreement with
Auctomatic
(Note
7)
|
|
|
91,912
|
|
|
|
92
|
|
|
|
(92
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Net
loss and comprehensive loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,010,013
|
)
|
|
|
(4,010,013
|
)
|
|
|
28,353
|
|
|
|
(3,981,660
|
)
|
Balance,
December 31, 2009
|
|
|
24,026,180
|
|
|
|
15,335
|
|
|
|
16,595,072
|
|
|
|
(16,787,208
|
)
|
|
|
(176,801
|
)
|
|
|
28,353
|
|
|
|
(148,448
|
)
|
Stock-based
compensation
(Note
11d)
|
|
|
-
|
|
|
|
-
|
|
|
|
323,802
|
|
|
|
-
|
|
|
|
323,802
|
|
|
|
-
|
|
|
|
323,802
|
|
Net
income and comprehensive income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
84,078
|
|
|
|
84,078
|
|
|
|
(9,733
|
)
|
|
|
74,345
|
|
Balance,
March 31, 2010
|
|
|
24,026,180
|
|
|
$
|
15,335
|
|
|
$
|
16,918,874
|
|
|
$
|
(16,703,130
|
)
|
|
$
|
231,079
|
|
|
$
|
18,620
|
|
|
$
|
249,699
|
|
See
accompanying notes to consolidated financial statements
LIVE
CURRENT MEDIA INC.
|
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
Expressed
In U.S. Dollars
|
|
|
|
|
|
Three
Months
Ended
|
|
|
Three
Months
Ended
|
|
|
|
March
31, 2010
|
|
|
March
31, 2009
|
|
|
|
|
|
|
(As
Restated -
See
Note 2)
|
|
OPERATING
ACTIVITIES
|
|
|
|
|
|
|
Net
income (loss) for the period
|
|
$
|
74,345
|
|
|
$
|
(916,408
|
)
|
Non-cash
items included in net income (loss):
|
|
|
|
|
|
|
|
|
Gain
on settlement of amounts due to Global Cricket Venture
(Note
6)
|
|
|
(250,000
|
)
|
|
|
(250,000
|
)
|
Gain
from sales and sales-type lease of domain names
|
|
|
(600,000
|
)
|
|
|
(617,933
|
)
|
Accretion
interest expense
|
|
|
-
|
|
|
|
40,000
|
|
Stock-based
compensation
|
|
|
323,802
|
|
|
|
610,343
|
|
Warrants
|
|
|
(156,312
|
)
|
|
|
84,809
|
|
Issuance
of common stock for services
(Note
11b)
|
|
|
-
|
|
|
|
5,700
|
|
Amortization
and depreciation
|
|
|
37,460
|
|
|
|
125,693
|
|
Change
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
412,815
|
|
|
|
(6,453
|
)
|
Prepaid
expenses and deposits
|
|
|
(27,672
|
)
|
|
|
17,398
|
|
Inventory
|
|
|
535
|
|
|
|
26,661
|
|
Accounts
payable and accrued liabilities
|
|
|
(197,987
|
)
|
|
|
(990,519
|
)
|
Bonuses
payable
|
|
|
38,414
|
|
|
|
8,919
|
|
Deferred
revenue
|
|
|
9,436
|
|
|
|
(41,760
|
)
|
Cash
flows used in operating activities
|
|
|
(335,164
|
)
|
|
|
(1,903,550
|
)
|
|
|
|
|
|
|
|
|
|
INVESTING
ACTIVITIES
|
|
|
|
|
|
|
|
|
Proceeds
from sale of domain names
|
|
|
-
|
|
|
|
400,000
|
|
Commissions
on sale of domain names
|
|
|
-
|
|
|
|
(41,870
|
)
|
Proceeds
from sales-type lease of domain names
|
|
|
393,423
|
|
|
|
313,423
|
|
Commissions
on sales-type lease of domain names
|
|
|
(20,000
|
)
|
|
|
-
|
|
Cash
consideration for Auctomatic
(Note
7)
|
|
|
(60,000
|
)
|
|
|
-
|
|
Purchases
of property & equipment
|
|
|
(3,963
|
)
|
|
|
(2,704
|
)
|
Proceeds
on disposals of property & equipment
|
|
|
2,221
|
|
|
|
-
|
|
Website
development costs
(Note
9)
|
|
|
-
|
|
|
|
(25,231
|
)
|
Cash
flows from investing activities
|
|
|
311,681
|
|
|
|
643,618
|
|
|
|
|
|
|
|
|
|
|
Net
decrease in cash and cash equivalents
|
|
|
(23,483
|
)
|
|
|
(1,259,932
|
)
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, beginning of period
|
|
|
413,700
|
|
|
|
1,832,520
|
|
Cash
and cash equivalents, end of period
|
|
$
|
390,217
|
|
|
$
|
572,588
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to consolidated financial statements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
INFORMATION
|
|
|
|
|
|
|
|
|
Cash
paid during the period for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
10,594
|
|
|
$
|
-
|
|
Income
taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
Live
Current Media Inc.
Notes
to the Consolidated Financial Statements
For
the three months ended March 31, 2010
NOTE
1 – NATURE OF BUSINESS AND BASIS OF PRESENTATION
Nature
of business
Live
Current Media Inc. (the “Company” or “Live Current”) 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.
The
Company’s 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
DHI, the Company builds consumer Internet experiences around its 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. During 2009 and the first quarter of 2010,
DHI has been actively developing the Perfume.com website, providing eCommerce
for fragrance
and
other health and beauty products. DHI
develops
content and sells advertising services on other domains held for
future
development. Before August 2009, the Company was also developing
Cricket.com, a media-rich consumer sports experience. On August 25,
2009, the Company sold the domain name and assigned to an unrelated third party
all of the rights, title, and interest in and to the original Memorandum of
Understanding (“MOU”) with the Indian Premier League (“IPL”). Refer
to Note 6.
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 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 7. In April, 2010, the Company changed the name of
Communicate.com Delaware Inc. to Perfume.com Inc.
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.
The
accompanying unaudited condensed consolidated financial statements of Live
Current Media Inc. have been prepared in accordance with the rules and
regulations of the Securities and Exchange Commission (“SEC”) for interim
reporting including the instructions to Form 10-Q and Rule 8-03 of Regulation
S-X. These statements do not include all disclosures for annual audited
financial statements required by accounting principles generally accepted in the
United States of America (“U.S. GAAP”) and should be read in conjunction with
the Company’s audited consolidated financial statements and related notes
included in the Company’s Annual Report on Form 10-K for the year ended December
31, 2009.
The
Company believes these consolidated financial statements reflect all adjustments
(consisting only of normal, recurring adjustments) that are necessary for a fair
presentation of the financial position and results of operations for the periods
presented. Results of operations for the interim periods presented are not
necessarily indicative of results to be expected for the year. Certain prior
period amounts have been reclassified to conform to the current period
presentation.
Live
Current Media Inc.
Notes
to the Consolidated Financial Statements
For
the three months ended March 31, 2010
NOTE
1 – NATURE OF BUSINESS AND BASIS OF PRESENTATION (continued)
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. During
the quarter ended March 31, 2010, the Company generated a consolidated net
income of $74,345 (Q1 of 2009 – consolidated net loss of $916,408) and realized
a negative cash flow from operating activities of $335,164 (Q1 of 2009 -
$1,903,550). At March 31, 2010, there is an accumulated deficit of
$16,703,130 (December 31, 2009 - $16,787,208) and a working capital deficiency
of $938,772 (December 31, 2009 - $1,216,325).
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 obtain financing (whether through debt or equity), the ability
of the Company to use its common stock to pay for liabilities as it has in
certain instances in the past, and the attainment of profitable
operations. The outcome of these matters is dependant on
factors outside of the Company’s control and cannot be predicted at this
time.
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.
The
Company has established a plan to continue its current business operations and
overcome its financial difficulties. The Company expects to achieve
an improved financial position and enhanced liquidity by establishing and
carrying out a plan of recovery as discussed in Note 1 of the Company’s audited
financial statements for the year ended December 31, 2009 as filed in the
Company’s Annual Report on Form 10-K.
NOTE
2 – RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS
Correction of an error in
comparative periods:
The
Company determined that its original consolidated financial statements as at and
for the three month period ended March 31, 2009, and as at and for the years
ended December 31, 2008 and 2007 (the “Original Financial Statements”) contained
errors. These errors, which are described below, affected the
financial position, results of operations and cash flows for the comparative
period ended March 31, 2009.
A.
Deferred income tax liability related to indefinite life intangible
assets:
The
Company’s intangible assets, comprised of its domain names, have book values in
excess of their tax values. The Original Financial Statements
considered the taxable temporary differences associated with these indefinite
life intangible assets in reducing the valuation allowance associated with its
loss carryforwards. This was an incorrect application of
GAAP. A deferred tax liability should have been recognized for these
taxable temporary differences. Correction of this error resulted in
the recognition of a deferred tax liability of $206,370 as at March 31,
2009. There was an immaterial effect to the consolidated statements
of operations for the quarter ended March 31, 2009.
B.
Non-Controlling Interest:
The
Company determined that it should have recorded $66,692 of goodwill and an
increase to non-controlling interest liability associated with the exchange of
$3,000,000 of amounts due from a subsidiary for additional common stock in
2008. See Note 5. Prior to recognizing the non-controlling
interest liabilities, the non-controlling interest’s share of subsidiary losses
in 2008 and 2007 was limited to the non-controlling interest
liability. There was no effect to the non-controlling interest at
March 31, 2009 or for the three month period then ended.
C.
Management Compensation:
The
financial statements for the quarter ended March 31, 2009 had an overaccrual of
$72,741 in bonuses payable and expensed during the quarter for two CDN$100,000
special bonuses to be paid on January 1, 2009 and January 1, 2010 to the
Company’s current President and Chief Corporate Development Officer pursuant to
his employment agreement. These special bonuses are not discretionary, but will
only be paid if he remains employed as an officer of the Company on the dates
payable.
Live
Current Media Inc.
Notes
to the Consolidated Financial Statements
For
the three months ended March 31, 2010
NOTE
2 – RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS
(continued)
D.
Estimated life of stock options:
The
Company originally estimated the life of its stock options as equal to the
vesting period for these options, 3 years. The estimated life should
have been 3.375 years, resulting in an increase of $155,500 to the Company’s
stock-based compensation expense in the quarter ended March 31,
2009.
E.
Other:
The
Company discovered an accrual and cutoff error in its recorded accounting fees,
resulting in an underaccrual of accounts payable and accounting expense
(included in Corporate General and Administrative expenses) of $83,271 in the
quarter ended March 31, 2009.
(ii)
|
Gain
on sale of domain name
|
The
Company failed to record website development costs attributable to a domain name
sold in 2008. As a result, the gain on sale of domain names in the
quarter ended March 31, 2009 was understated by $37,408 and was adjusted
accordingly.
F.
Classification of warrants issued in November 2008 private
placement:
In
November 2008, the Company raised $1,057,775 of cash by selling 1,627,344
units consisting of one share of the Company’s common stock and two warrants,
each for the purchase of a half share of common stock. The offering
price was $0.65 per unit. The estimated fair value of the warrants
was presented as equity in the Original Financial Statements. The
warrants contained provisions which could require their redemption in cash in
certain circumstances which may not all be within the Company’s
control. The fair value of the warrants therefore should have been
recorded as a liability, with future changes to fair value reported as either
income or expense in the period in which the change in fair value
occurs. At March 31, 2009, the fair value of the warrants was
$242,704. The Company recorded an increase to the liability of
$84,809 at March 31, 2009 and the corresponding expense was recorded as an
increase to corporate general and administrative expense.
G.
Shares issued in connection with the merger with Auctomatic:
(i)
|
Valuation
of shares issued as purchase
consideration
|
The
Auctomatic merger closed on May 22, 2008. The original estimate of
the fair value of the share purchase consideration attributable to the
acquisition was based on the trading value of the shares around March 25,
2008. However, the Merger Agreement had an adjustment provision
regarding the number of shares to be issued, such that the shares should have
been valued with reference to the May 22, 2008 closing date as opposed to the
announcement date of March 25, 2008. Using the average share price
around the closing date, an additional $110,746 should have been recorded as
additional paid-in capital and goodwill at March 31, 2009.
(ii)
|
Shares
issued to Auctomatic founders
|
As part
of the merger, the Company agreed to distribute 413,604 shares of its common
stock payable on the first, second, and third anniversaries of the Closing Date
(the “Distribution Date”) to the Auctomatic founders subject to their continuing
employment with the Company or a subsidiary on each Distribution
Date. These shares, which were not accounted for in the Auctomatic
purchase, were not properly accounted for as compensation to the Auctomatic
founders for their continued employment with the Company. The Company
should have recorded $68,330 in related stock-based compensation expense during
the quarter ended March 31, 2009.
H.
Financial Statement Classification of Amounts Payable to the BCCI and
IPL:
In order
to provide clarity, the Company also classified separately on its consolidated
balance sheets and consolidated statements of operations the $750,000 of amounts
payable at March 31, 2009 to the Board of Control for Cricket in India (“BCCI”)
and the DLF Indian Premier League (“IPL”).
Live
Current Media Inc.
Notes
to the Consolidated Financial Statements
For
the three months ended March 31, 2010
NOTE
2 – RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS
(continued)
I.
Tax Impact:
Exclusive
of Item A, none of the above adjustments gave rise to an increase or decrease in
the Company’s tax position.
The
effect of the adjustments by financial statement line item to the December 31,
2008 consolidated financial statements are disclosed in detail within the
amended and restated consolidated financial statements for the year ended
December 31, 2008, which are included in the Company’s Annual Report on Form
10-K as filed with the Securities & Exchange Commission on March 31, 2009,
and subsequently amended on September 14, 2009 and on October 26,
2009.
NOTE
3 – 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% interest in its subsidiary DHI, DHI’s wholly owned
subsidiaries Importers and 612793, and LCM Cricket Ventures’ 50.05% interest in
Global Cricket Venture (“GCV”). All 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, and
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.
Business
combinations
On the
acquisition of a subsidiary, the purchase method of accounting is used whereby
the purchase consideration is allocated to the identifiable assets and
liabilities on the basis of fair value at the date of
acquisition. The Company considers critical estimates involved in
determining any amount of goodwill, and tests for impairment of such goodwill,
as disclosed in its goodwill accounting policy below.
Foreign
currency transactions
The
consolidated financial statements are presented in United States
dollars. The functional currency of the Company is the United States
dollar. In accordance with ASC 830,
Foreign Currency Matters
, 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 period and stockholders’ equity accounts and certain
other historical cost balances are translated by using historical exchange
rates. There are no resulting exchange gains and losses that are
required to be presented as cumulative foreign currency translation gains
(losses) within other accumulated comprehensive income (loss). There
was no effect to comprehensive income (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.
Income
(loss) per share
Basic
income (loss) per share is computed by dividing income (loss) for the period by
the weighted average number of common shares outstanding for the
period. Diluted income (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. The other potential common stock
includes 2,845,000 options and 3,304,688 warrants as disclosed in Note
11.
Live
Current Media Inc.
Notes
to the Consolidated Financial Statements
For
the three months ended March 31, 2010
NOTE
3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Comprehensive income
(loss
)
Comprehensive
income (loss) includes all changes in equity of the Company during a period
except those resulting from investments by shareholders and distributions to
shareholders. Comprehensive income (loss) includes net income (loss)
and other comprehensive income (loss) (“OCI”). The major components
included in OCI 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. The Company has no self-sustaining foreign operations or
unrealized gains or losses on financial assets classified as
available-for-sale.
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 from the Company’s websites to other parties. The amount
and collectability of these referral commissions is subject to uncertainty;
accordingly, revenues are recognized when the amount can be determined and
collectability can be reasonably assured. In accordance with FASB
Accounting Standards Codification (“ASC”) 605-45-45,
Revenue Recognition - Principal
Agent Considerations,
the Company records web advertising revenues on a
gross basis.
Gains
from the sale of domain names, whose carrying values are recorded as intangible
assets, consist 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 collectability of the proceeds is reasonably
assured. In the three months ended March 31, 2010, there were no
outright sales of domain names. In the year ended December 31, 2009,
there were eight sales of domain names. Collectability of the amounts
owing on these sales is reasonably assured and therefore accounted for as sales
in the period the transactions occurred.
Gains
from the sales-type leases of domain names, whose carrying values are recorded
as intangible assets, consist 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 collectability 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 year ended December 31,
2009, there were sales-type leases for three domain names where collectability
of future payments owing on sale were not reasonably
assured. Therefore, the gains were recorded based only on the amounts
that were reasonably assured. One of these contracts was breached
during the year, however there was no effect to the financial
statements. See also Note 12.
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 amounts receivable
on a sales-type lease of domain names, goods and services taxes (GST)
receivable, advertising revenues receivable and support service revenues
receivable. Per the Company’s review of open accounts and collection
history, the accounts receivable balances are reasonably considered to be
collectible and therefore no allowance for doubtful accounts has been reflected
at March 31, 2010 or the 2009 year 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, 2010 is recorded at cost of $28,179 (December 31, 2009 -
$28,714) and represents inventory in transit from the supplier to the
customer.
Live
Current Media Inc.
Notes
to the Consolidated Financial Statements
For
the three months ended March 31, 2010
NOTE
3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Property &
e
quipment
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 the declining balance method at the following
annual rates:
Office Furniture and
Equipment
|
20%
|
Computer
Equipment
|
30%
|
Computer
Software
|
100%
|
Amortization
for leasehold improvements is based on a straight-line method calculated over
the term of the lease. Auction software was amortized straight line
over the life of the asset and was written off at June 30,
2009. Other additions are amortized on a half-year basis in the year
of acquisition.
Website
development costs
The
Company has adopted the provisions of ASC 350-50-25,
Website 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
9.
Intangible
assets
The
Company has adopted the provisions of ASC 350,
Intangibles – Goodwill and
Other
, which revises the accounting for purchased goodwill and intangible
assets. Under ASC 350, 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, 2010.
Goodwill
Goodwill
represents the excess of acquisition cost over the fair value of the net assets
of acquired entities.
In accordance with ASC
350-20,
Goodwill,
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.
Live
Current Media Inc.
Notes
to the Consolidated Financial Statements
For
the three months ended March 31, 2010
NOTE
3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Goodwill
(continued)
In
accordance with ASC 350-20 and the Company’s policy to assess the carrying value
of goodwill annually as noted above, the Company performed this assessment at
the December 31, 2009 fiscal year end. At that date, the Company
determined that the business acquired was never effectively integrated into the
reporting unit it was assigned to, Perfume.com. Since the benefits of
the acquired goodwill were never realized by the rest of the reporting unit, and
the use of the other aspects of the business acquired have ended, the Company
has determined that an impairment charge of $2,539,348 relating to the goodwill
acquired pursuant to the merger with Auctomatic was required. See
also Note 7. The balance of $66,692 of goodwill relates to the
issuance of shares of DHI in exchange for intercompany debt in early
2008. See also Note 5.
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.
Advertising
Costs
The
Company recognizes advertising expenses in accordance with ASC 720-35,
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 individual agreements, and are
generally either a commission for traffic driven to the Website that
generates a sale, or a referral fee based on the number of clicks on keywords or
links to its Website generated during a given period. Total
advertising expense of $79,883 for the quarter ended March 31, 2010 (quarter
ended March 31, 2009 - $115,193) is included in “Corporate Marketing” and
“eCommerce Marketing” on the Company’s consolidated statements of
operations.
Stock-based
compensation
Beginning
on July 1, 2007, the Company began accounting for stock options under the
provisions of ASC 718,
Stock
Compensation
, which requires the recognition of the fair value of
stock-based compensation. Under the fair value recognition provisions for ASC
718, 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 the 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. 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
11(d).
The
Company accounts for equity instruments issued in exchange for the receipt of
goods or services from other than employees in accordance with ASC 718 and the
conclusions reached by ASC 505-50. 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 ASC
505-50.
Live
Current Media Inc.
Notes
to the Consolidated Financial Statements
For
the three months ended March 31, 2010
NOTE
3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Non-Controlling
Interest
The
consolidated financial statements include the accounts of DHI (and its
subsidiaries). All intercompany accounts and transactions have been
eliminated upon consolidation. The Company records non-controlling interest
which reflects the 1.8% portion of the earnings of DHI and its subsidiaries
allocable to the holders of the minority interest.
Income
taxes
On
January 1, 2007, the Company adopted the following new accounting policy related
to income tax. The Company began accounting for income tax under the
provisions of ASC 740-10. ASC 740-10 clarifies the accounting for
uncertainty in income taxes recognized in an enterprise’s financial statements
in accordance with ASC 740-10 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. ASC 740-10
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, 2003 to 2009, the tax years which remain subject to
examination by major tax jurisdictions as of December 31, 2009, as well as the
quarter ended March 31, 2010. 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.
Recently
Issued Accounting Pronouncements
Accounting
Standards Update (“ASU”) 2010-09
In
February 2010, the FASB issued ASU 2010-09,
Subsequent Events (Topic 855),
amending ASC 855. ASU 2010-09 removes the requirement for an SEC filer to
disclose a date relating to its subsequent events in both issued and revised
financial statements. ASU 2010-09 also eliminates potential conflicts
with the SEC’s literature. Most of ASU 2010-09 is effective upon
issuance of the update. The Company adopted ASU 2010-09 in February 2010, and
its adoption did not have a material impact on the Company’s financial reporting
and disclosures.
Accounting
Standards Update (“ASU”) 2010-06
In
January 2010, the FASB issued ASU 2010-06,
Fair Value Measurements and
Disclosures (Topic 820), Improving Disclosures about Fair Value Measurements,
amending ASC 820. ASU 2010-06 requires entities to provide new
disclosures and clarify existing disclosures relating to fair value
measurements. The new disclosures and clarifications of existing
disclosures are effective for interim and annual reporting periods beginning
after December 15, 2009, except for the disclosures about purchases, sales,
issuances, and settlements in Level 3 fair value measurements, which are
effective for fiscal years beginning after December 15, 2010 and for interim
periods within those fiscal years. The Company is currently evaluating the
impact of ASU 2010-06, but does not expect its adoption to have a material
impact on the Company’s financial position or results of
operations.
Accounting
Standards Update (“ASU”) 2009-13
In
October 2009, the FASB issued ASU 2009-13,
Revenue Recognition (Topic 605),
Multiple-Deliverable Revenue Arrangements
amending ASC 605. ASU 2009-13
requires entities to allocate revenue in an arrangement using estimated selling
prices of the delivered goods and services based on a selling price hierarchy.
ASU 2009-13 eliminates the residual method of revenue allocation and requires
revenue to be allocated using the relative selling price method. ASU 2009-13 is
effective prospectively for revenue arrangements entered into or materially
modified in fiscal years beginning on or after June 15, 2010. The Company
is currently evaluating the impact of ASU 2009-13, but does not expect its
adoption to have a material impact on the Company’s financial position or
results of operations.
Live
Current Media Inc.
Notes
to the Consolidated Financial Statements
For
the three months ended March 31, 2010
NOTE
4 – 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 3, the Company adopted all provisions of ASC 820 as of January
1, 2009. ASC 820 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. ASC 820 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, ASC 820 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.
This
hierarchy requires the Company to minimize the use of unobservable inputs and to
use observable market data, if available, when estimating fair value. The fair
value of warrants using the following inputs at March 31, 2010
is:
Fair Value Measurements at
Reporting Date Using
|
|
Total
|
|
|
Quoted
Prices in Active
Markets
for Identical Assets
(Level
1)
|
|
|
Significant
Other
Observable
Inputs
(Level
2)
|
|
|
Significant
Unobservable
Inputs
(Level
3)
|
|
|
|
|
|
|
|
|
|
|
|
|
$
94,398
|
|
|
-
|
|
|
$
94,398
|
|
|
-
|
|
The
Company’s financial instruments consist of cash and cash equivalents, accounts
receivable, receivable from sales-type lease, accounts payable, bonuses payable,
amounts due to shareholders of Auctomatic, and warrants. The Company
believes that the recorded values of all of its financial instruments
approximate their fair values because of their nature and respective
durations.
Live
Current Media Inc.
Notes
to the Consolidated Financial Statements
For
the three months ended March 31, 2010
NOTE
5 – NON-CONTROLLING INTEREST
The
Company currently holds 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 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 resulting
in an increase to goodwill of $66,692.
The 2009
income of DHI has resulted in a balance of $28,353 in the Non-Controlling
Interest (“NCI”) at December 31, 2009. The loss for the first quarter
of 2010 of DHI has resulted in a balance of $18,620 in the NCI at March 31,
2010.
NOTE
6 – GLOBAL CRICKET VENTURE
On April
17, 2008, the Company signed a Memorandum of Understanding (“MOU” or “Original
MOU”) with each of the Board of Control for Cricket in India (“BCCI”) and the
DLF Indian Premier League (“IPL”). The MOUs, which would have been
preliminary to a final agreement, started the Company’s planned exploitation of
its cricket.com domain name. Certain other subsidiaries and ventures
were incorporated or formed to further this business
opportunity. However, none of these companies were used for that
purpose or had significant assets or operations.
In 2009
up to the date of transfer of the original MOU on August 20, 2009 as disclosed
below, the Company incurred $452,307 in furtherance of this plan which were
included in corporate marketing, management fees and employee salaries, and
corporate general and administrative expenses. As the plan to exploit
cricket.com was in its early stages, all expenditures were charged to
operations.
On August
20, 2009, GCV transferred and assigned to an unrelated third party, Mauritius,
all of the rights, title, and interest in and to the Original MOU with the IPL,
as the Original MOU was amended by the Novation Agreement that was signed on
March 31, 2009. Pursuant to this agreement, Mauritius also agreed to
assume and be liable for all past and future obligations and liabilities of GCV
arising from the original MOU, as it was amended by the
Novation. Mauritius made the $750,000 payment as required under the
Novation Agreement during Q3 of 2009, therefore Live Current was released from
all accrued liabilities under the BCCI MOU.
The
Company also agreed to sell the domain name cricket.com, along with the
associated website, content, copyrights, trademarks, etc, to Mauritius, for
consideration of four equal payments of $250,000. The first three instalments of
$250,000 were received by March 31, 2010. The cricket.com domain name remains
the property of the Company until all payments have been made. In order to
facilitate the transfer of the cricket.com website, the Company agreed to
provide Mauritius with support services (including the services of Mark
Melville) for six months (the “Transition Period”). In exchange for the
support services, Mauritius agreed to the payment of certain expenses related to
the support services. The Transition Period ended February 20, 2010. Subsequent
to the end of the Transition Period, the Company and Mauritius verbally agreed
to extend the services agreement and to continue paying Mr. Melville’s salary on
a month to month basis.
The
Company has accounted for this transaction under ASC 605-25,
Multiple Element
Arrangements.
As a result, the gain on the sales type lease of
cricket.com, the gain on settlement upon assignment and assumption of amounts
due under the Novation Agreement, as well as the support services to be provided
by the Company to Mauritius during the Transition Period, are to be recognized
over the six month Transition Period, or from September 2009 to February
2010. At the year end, the Company recorded the first and second
$250,000 instalments in its analysis under ASC 605-25. As a result,
during the year ended December 31, 2009, the Company recognized four months’
gain on settlement of the amounts owing under the Novation
Agreement. During the quarter ended March 31, 2010, the Company
recognized the remaining two month’s gain on settlement as summarized
below.
Settlement
of amounts due regarding Global Cricket
Venture
|
|
$
|
750,000
|
|
|
|
|
Less:
2009 Recognized gain on settlement
|
|
|
(500,000
|
)
|
|
|
|
|
|
|
|
|
|
$
|
250,000
|
|
2009
Gain on sales-type lease of
cricket.com
|
|
$
|
500,000
|
|
|
|
|
|
Less:
2009 Recognized gain on sales-type lease of cricket.com
|
|
|
(250,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
250,000
|
|
Deferred
gains of amounts regarding Global Cricket Venture at December 31,
2009
|
|
|
|
|
|
$
|
500,000
|
|
Less:
2009 Recognized gain on sales-type lease of
cricket.com
|
|
|
|
|
|
|
(500,000
|
)
|
|
|
|
|
|
|
|
|
|
Deferred gains of amounts
regarding Global Cricket Venture at March 31, 2010
|
|
|
|
|
|
$
|
0
|
|
Live
Current Media Inc.
Notes
to the Consolidated Financial Statements
For
the three months ended March 31, 2010
NOTE
6 – GLOBAL CRICKET VENTURE (continued)
During
the year ended December 31, 2009, the Company recognized four months’ gain on
the first instalment and one month’s gain on the second instalment received for
the sales-type lease of cricket.com. During the first quarter of 2010, the
Company reported the remaining two months’ gain on the first instalment and the
remaining two months’ gain on the second instalment. During this
period, the Company also reported the third instalment of $250,000 in full as a
gain on domain sale, as the term of the multiple elements services agreement had
ended. As a result, the Company reported $500,000 in gains relating
to the sale of cricket.com during the first quarter of 2010. Since
the collectability of the remaining instalment is not reasonably assured, it has
not been reflected in the consolidated financial statements.
NOTE
7 – MERGER AGREEMENT
On March
25, 2008, the Company through its wholly owned subsidiary, Delaware, entered
into an Agreement and Plan of Merger (the “Merger Agreement”) with Entity, Inc.,
a Delaware corporation (“Auctomatic”). The Merger Agreement was
consummated on May 22, 2008 (the “Closing Date”). 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 were to be distributed in equal
amounts to the Auctomatic shareholders on each of the first, second and third
anniversaries of the Closing Date. The remaining $800,000 of the total cash
consideration was to be distributed on the first anniversary of the Closing
Date. All amounts of cash and common stock were to 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 was subject to their continuing employment with the Company on each
Distribution Date. As these shares were contingent on future
employment, they were considered contingent consideration and were accounted for
under ASC 718 as stock-based compensation.
During
the first quarter of 2009, one of the founders resigned from Live Current, and
therefore the distribution of 137,868 shares of the common stock on the
anniversary dates was no longer payable. During the second quarter of
2009, 91,912 of the remaining 275,736 shares were issued to the two founders who
remained with the Company. The Company negotiated a termination of
the employment of these two founders in August 2009. The remaining
183,824 shares of common stock payable under the Merger Agreement on the second
and third anniversaries to these two Auctomatic founders contingent on
employment were forgone pursuant to the separation agreements with these two
individuals. See also Note 11(d).
At May
22, 2008, the fair value of the amounts payable in cash to shareholders of
Auctomatic on the first anniversary of the closing date was
$640,000. The fair value discount was accreted in full by the first
anniversary date, May 22, 2009. As a result, the $800,000 of the
amounts payable in cash to the shareholders of Auctomatic due on the first
anniversary of the closing date had been accrued by the Company. The
funds due to the Auctomatic shareholders at this date were not paid by the
Company as required.
In August
2009, the Company issued convertible notes to twelve of the eighteen Auctomatic
shareholders covering $424,934 of the total $800,000. These
convertible notes are interest bearing at 10% per annum, with such interest
accruing as of May 22, 2009 and payable quarterly in arrears. The
convertible notes mature on May 22, 2010.
Convertible
Notes to Shareholders of Auctomatic
|
|
|
|
Convertible
notes issued August 21, 2009
|
|
$
|
424,934
|
|
Interest
accrued May 22, 2009 – December 31, 2009
|
|
|
25,845
|
|
Interest
paid up to December 31, 2009
|
|
|
(21,279
|
)
|
|
|
|
|
|
Balance,
December 31, 2009
|
|
$
|
429,500
|
|
Interest
accrued January 1 – March 31, 2010
|
|
|
10,594
|
|
Interest
paid up to March 31, 2010
|
|
|
(10,594
|
)
|
|
|
|
|
|
Balance,
March 31, 2010
|
|
$
|
429,500
|
|
Live
Current Media Inc.
Notes
to the Consolidated Financial Statements
For
the three months ended March 31, 2010
NOTE
7 – MERGER AGREEMENT (continued)
Also in
August 2009, as noted above, the Company reached an agreement with the remaining
two founders of Auctomatic to terminate their employment. Under their
separation agreements, the Company repaid the amounts owed to them under the
Merger Agreement at a 10% discount to face value as discussed
below. The Company also recorded $60,000 of severance costs in Q3 of
2009 due to them under their employment agreements. The severance
costs were reimbursed pursuant to the Cricket agreements as discussed in Note
6. In consideration of these payments, these individuals have each
agreed to forfeit their rights to 91,912 shares of Live Current common stock
that were due to be issued to each of them in May 2010 and May 2011 under the
Merger Agreement.
The
amounts owing to the two founders of Auctomatic pursuant to the Merger Agreement
totalled $334,224 prior to their separation agreement. These amounts
were discounted at 10% to face value in August 2009 and a gain on restructure of
the Auctomatic payable of $29,201 was recorded in the statements of operations
during the third quarter of 2009. Payments of $75,200 were made
against the amounts owing to the founders upon execution of the separation
agreements. The agreements provided for the balance of the payments
to be made on October 1, 2009, with simple interest accruing on unpaid amounts
after October 1, 2009 at 10% per annum. Amounts owing to the other
four of the eighteen shareholders of Auctomatic who did not take part in the
convertible note offering total $40,841.
Due
to Shareholders of Auctomatic
|
|
|
|
Amounts
payable to Auctomatic founders
|
|
$
|
334,224
|
|
Amounts
paid to Auctomatic founders
|
|
|
(227,200
|
)
|
Amounts
payable to other Auctomatic shareholders
|
|
|
40,841
|
|
Gain
on restructure of Auctomatic payable
|
|
|
(29,201
|
)
|
|
|
|
|
|
Balance,
December 31, 2009
|
|
$
|
118,664
|
|
Amounts
paid to Auctomatic founders
|
|
|
(60,000
|
)
|
|
|
|
|
|
Balance,
March 31, 2010
|
|
$
|
58,664
|
|
At
December 31, 2009, the Company recognized an impairment charge of the goodwill
acquired pursuant to the merger of $2,539,348 as noted
above.
NOTE
8 – PROPERTY & EQUIPMENT
March
31, 2010
|
|
Cost
|
|
|
Accumulated
Amortization
|
|
|
Net
Book Value
|
|
Office
Furniture and Equipment
|
|
$
|
167,464
|
|
|
$
|
63,431
|
|
|
$
|
104,033
|
|
Computer
Equipment
|
|
|
118,483
|
|
|
|
71,374
|
|
|
|
47,109
|
|
Computer
Software
|
|
|
27,276
|
|
|
|
27,276
|
|
|
|
-
|
|
Leasehold
Improvements
|
|
|
143,981
|
|
|
|
78,424
|
|
|
|
65,557
|
|
|
|
$
|
457,204
|
|
|
$
|
240,505
|
|
|
$
|
216,699
|
|
December
31, 2009
|
|
Cost
|
|
|
Accumulated
Amortization
|
|
|
Net
Book Value
|
|
Office
Furniture and Equipment
|
|
$
|
167,464
|
|
|
$
|
57,956
|
|
|
$
|
109,508
|
|
Computer
Equipment
|
|
|
119,737
|
|
|
|
69,167
|
|
|
|
50,570
|
|
Computer
Software
|
|
|
27,276
|
|
|
|
27,276
|
|
|
|
-
|
|
Leasehold
Improvements
|
|
|
142,498
|
|
|
|
71,249
|
|
|
|
71,249
|
|
|
|
$
|
456,975
|
|
|
$
|
225,648
|
|
|
$
|
231,327
|
|
At June
30, 2009, the Company analyzed the potential for impairment of the auction
software that was acquired pursuant to the Merger Agreement. At this
date, the Company considered the significant changes that were made to the
direction and to staffing within the Company. The lack of a strategy,
plans, or use for the Auction software a year subsequent to the acquisition of
the software indicated impairment of the asset at the end of the second quarter
of 2009. Therefore, the Company believed that the auction software
was impaired and has written off the net book value of the asset of $590,973 at
that date.
Live
Current Media Inc.
Notes
to the Consolidated Financial Statements
For
the three months ended March 31, 2010
NOTE
9 – WEBSITE DEVELOPMENT COSTS
Website
development costs are related to infrastructure development of various websites
that the Company operates. 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,
2010
|
|
|
December
31,
2009
|
|
Website
Development Costs
|
|
$
|
359,929
|
|
|
$
|
359,929
|
|
Less:
Accumulated Amortization
|
|
|
(168,170
|
)
|
|
|
(142,046
|
)
|
|
|
$
|
191,759
|
|
|
$
|
217,883
|
|
The
Company did not capitalize any website development costs in the first quarter of
2010 (year ended December 31, 2009 - $47,804) and recorded $26,124 in
accumulated amortization during the quarter (year ended December 31, 2009 -
$123,395).
NOTE
10 – DEFERRED LEASE INDUCEMENTS
|
|
March
31,
2010
|
|
|
December
31, 2009
|
|
Deferred
Lease Inducements
|
|
$
|
50,345
|
|
|
$
|
55,379
|
|
Less:
Current Portion
|
|
|
(20,138
|
)
|
|
|
(20,138
|
)
|
|
|
$
|
30,207
|
|
|
$
|
35,241
|
|
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.
At March
31, 2010, there were 24,026,180 (December 31, 2009 – 24,026,180) shares issued
and outstanding.
2010
There
have been no share issuances to date in 2010.
2009
On
January 2, 2009, the Company issued 15,000 shares with a value of $5,700 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 was 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.
On April
9, 2009, the Company entered into an agreement whereby $8,625 of its accounts
payable was extinguished in exchange for the issuance of 27,823 shares of its
common stock. These shares were issued on April 14,
2009.
On June
19, 2009, the Company issued 45,956 shares of its common stock to each of the
two remaining Auctomatic founders for a total of 91,912 shares pursuant to the
Merger Agreement as discussed in Note 7.
Live
Current Media Inc.
Notes
to the Consolidated Financial Statements
For
the three months ended March 31, 2010
NOTE
11 – COMMON STOCK (continued)
Auctomatic
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 three anniversary dates of the consummation 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. In the second quarter of 2009, the Company
issued 91,912 shares to the remaining two Auctomatic founders pursuant to the
Merger Agreement as noted above.
In August
2009, the Company reached an agreement with the remaining two founders of
Auctomatic to terminate their employment. The shares of common stock
contingent on their continued employment with the Company were forgone pursuant
to separation agreements signed with the two individuals. Therefore,
at December 31, 2009, there are no further reserved shares for future issuance
and distribution to the Auctomatic founders. See also Note 7 and Note
11(d).
Former
President
Effective
January 31, 2009, the Company’s former President and Chief Operating Officer
resigned. Pursuant to his separation agreement, the Company was
required to pay an accrued special bonus in the amount of CDN$250,000 less any
statutory deductions. This amount was included in accounts payable
and accrued liabilities at that time. The net payment of this bonus
was to be converted to equity and paid as restricted shares of the Company’s
common stock.
On
November 13, 2009 the Company entered into a second amendment to the separation
agreement noted above. Pursuant to the second amendment, the
severance allowance remaining to be paid and all additional benefits owed to Mr.
Ehrlich as of November 16, 2009 in the gross amount of $109,375 were to be paid
in a lump sum payment less all applicable withholdings, rather than over a
period of 10 remaining months. Furthermore, Mr. Ehrlich waived the
CDN$250,000 in net monthly equity payments that the Company was obligated to pay
him under the initial separation agreement, and accepted $20,000 cash, less all
applicable withholdings, in lieu thereof.
The Board
of Directors and stockholders approved the 2007 Stock Incentive Plan and adopted
it on 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 ASC 718 for non-employees
using the Black Scholes option pricing model. The assumptions used in
the pricing model include:
|
2010
|
2009
|
Dividend
yield
|
0%
|
0%
|
Expected
volatility
|
97.02%-124.52%
|
97.02%-124.52%
|
Risk
free interest rate
|
1.29%-1.70%
|
1.29%-1.70%
|
Expected
lives
|
3.375
years
|
3.375
years
|
Live
Current Media Inc.
Notes
to the Consolidated Financial Statements
For
the three months ended March 31, 2010
NOTE
11 – COMMON STOCK (continued)
d)
|
Stock
Options (continued)
|
|
(i)
|
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 $213,895 relating to
the fair values at the date of the reduction in price has been included in
the first quarter of 2009
expense.
|
|
(ii)
|
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. In 2009,
100,000 options were
forfeited.
|
|
(iii)
|
On
April 8, 2009, the Company granted to one of its full-time employees a
total of 5,000 options at an exercise price of $0.35 per
share. These options have a fair value of $0.23 per option
granted.
|
|
(iv)
|
On
May 28, 2009, the Company granted to one of its full-time employees a
total of 5,000 options at an exercise price of $0.30 per
share. These options have a fair value of $0.21 per option
granted.
|
|
(v)
|
On
September 1, 2009, the Company granted to two of its full-time corporate
directors a total of 75,000 stock options at an exercise price of $0.22
per share. These options have a fair value of $0.16 per option
granted.
|
|
(vi)
|
On
November 30, 2009, the Company granted to one of its full-time employees a
total of 15,000 options at an exercise price of $0.16 per
share. These options have a fair value of $0.12 per option
granted.
|
The
Company recognizes stock-based compensation expense over the requisite service
period of the individual grants. ASC 718 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, 2010 of $5,045,969 (year ended December 31,
2009 - $5,013,896) will be recognized on a straight-line basis over a vesting
term of 3.375 years and an expense has been recognized in the quarter ended
March 31, 2010 of $323,802 (year ended December 31, 2009 - $1,596,847) and
included in management fees and employee salaries expense.
On May
22, 2008, the Company reserved 413,604 shares of common stock for future
issuance and distribution in relation to the merger with
Auctomatic. These shares were to be issued to the Auctomatic founders
in equal instalments on the three subsequent anniversary dates of the merger
contingent on their continued employment with the Company pursuant to the terms
of the Merger Agreement. As these shares were contingent on future
employment, they were considered contingent consideration and are required to be
accounted for under ASC 718 as stock-based compensation. During the
first quarter of 2009, 137,868 of these shares were forfeited. During
the second quarter of 2009, 91,912 of these shares were issued out of
treasury. During the third quarter of 2009, the remaining 183,824
shares were forfeited. See also Note 7 and Note
11(c). Before August 2009, the shares were valued using the Black
Scholes option pricing model at the date of grant using a 3 year term and a 33%
forfeiture rate. Beginning in August 2009, the shares were valued
using a 100% forfeiture rate as all of the founders had forfeited their
shares.
The fair
value of these shares at the time of forfeiture, July 31, 2009, of $1,077,773
was recognized on a straight-line basis over a vesting term of 3 years at date
of grant and accordingly, an expense was recognized in the year ended December
31, 2009 of $160,955 and included in management fees and employee salaries
expense. In August 2009, the forfeiture rate changed to 100% and
therefore at December 31, 2009, the fair value was $0. As a result,
there was no related expense in the quarter ended March 31,
2010.
Live
Current Media Inc.
Notes
to the Consolidated Financial Statements
For
the three months ended March 31, 2010
NOTE
11 – COMMON STOCK (continued)
d)
|
Stock
Options (continued)
|
A summary
of the option activity under the 2007 Plan during 2009 and 2010 to date is
presented below:
Options
|
Shares
|
Weighted
Average
Exercise
Price
$
|
Weighted
Average Fair Value
$
|
Options
outstanding, December 31, 2009
|
2,845,000
|
0.63
|
1.38
|
Granted
|
-
|
-
|
-
|
Exercised
|
-
|
-
|
-
|
Forfeited
or expired
|
-
|
-
|
-
|
Options
outstanding, March 31, 2010
|
2,845,000
|
0.63
|
1.38
|
|
|
|
|
Options
vested at March 31, 2010
|
2,776,110
|
0.64
|
1.39
|
|
|
|
|
Aggregate
Intrinsic Value
|
$0
|
|
|
Weighted
average remaining life
|
2.70
Years
|
|
|
e)
|
Common
Stock Purchase Warrants
|
On June
11, 2007, the Company issued 1,000,000 shares of common stock and 1,000,000
common stock share purchase warrants to a company owned and controlled by the
Company’s Chief Executive Officer in exchange for $1,000,000
cash. The warrants expired June 10, 2009.
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 warrants 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 warrant 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, each 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, each for the purchase of one-half share of the Company’s
common stock, with an exercise price of $0.91 expiring November 19,
2011. The Company valued the warrants expiring November 19, 2010
using the Black Scholes option pricing model using the following assumptions: no
dividend yield; expected volatility rate of 75.24%; risk free interest rate of
1.09% and an expected life of 1 year. This resulted in a fair value
of $0.09 per warrant. The Company valued the warrants expiring
November 19, 2011 also using the Black Scholes option pricing model using the
following assumptions: no dividend yield; expected volatility rate of 70.53%,
risk free interest rate of 1.36% and an expected life of 2
years. This resulted in a fair value of $0.10 per
warrant. The total fair value of both warrants at March 31, 2010 was
$94,398 (December 31, 2009 - $250,710). The warrants issued are
contingently redeemable in cash in certain circumstances which may not all be
within the Company’s control. As a result, the accounting treatment
for the warrants falls under ASC 815-40-25, and their fair value upon issue of
$157,895 was recorded as a liability. Any future changes to the fair
value of the warrants will be adjusted to the statement of operations in the
period in which the change in fair value occurs. During the year
ended December 31, 2009, the increase to the fair value of the warrants was
$92,815 which was charged against corporate general and administrative expenses
during the year. During the quarter ended March 31, 2010, the
decrease to the fair value of the warrants was $156,312 which was charged to
corporate general and administrative expenses during the
period.
Live
Current Media Inc.
Notes
to the Consolidated Financial Statements
For
the three months ended March 31, 2010
NOTE
11 – COMMON STOCK (continued)
e)
|
Common
Stock Purchase Warrants (continued)
|
As of
December 31, 2009 and March 31, 2010, 3,304,688 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
|
Warrants
outstanding and exercisable
December
31, 2008
|
4,304,688
|
0.96
|
|
Granted
|
-
|
-
|
|
Cancelled
or expired
|
(1,000,000)
|
1.25
|
|
Warrants
outstanding and exercisable
December
31, 2009 and March 31, 2010
|
3,304,688
|
0.89
|
|
|
|
|
|
Weighted
average remaining life
|
1.11
Years
|
|
|
NOTE 12 – DOMAIN NAME LEASES AND SALES
2010
The
Company did not enter into any agreements to sell or lease any of its domain
names during the first quarter of 2010.
2009
In
December 2009, the Company sold two domain names for $152,700 net of commission
and the purchase prices were paid in full upon the execution of the
agreement. The resulting $122,327 in net gain was reported in the
fourth quarter of 2009.
In
December 2009 (the “Effective Date”), the Company entered into an agreement to
lease two domain names to an unrelated third party for $400,000 less 10%
commission. The terms of the agreement provided for the receipt of
this amount in irregular lease payments to be received by May
2010. The first payment of $40,000 less half of the commission was
due upon execution of the agreement, and three instalments of $120,000 each
(less commission) are due on March 31, 2010, April 30, 2010, and May 31,
2010. The Company will lease the domain name to the purchaser
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 purchaser defaults on
any payments, the agreement would terminate, funds received to date would be
forfeited by the purchaser, and rights to the domain name would return to the
Company. Due to the uncertainty regarding the collectability of the
funds in the future, only the first payment received was recorded as a gain on
sale of a domain name during the fourth quarter of 2009. The second
payment due on March 31, 2010 was collectible and therefore recorded as a gain
on sale of a domain name during the first quarter of 2010.
In August
2009, the Company sold the domain name
www.cricket.com
. Due
to the uncertainty regarding the collectability of the funds receivable under
the sale agreement in the future, the Company recognized the first instalment of
$250,000 received during the third quarter of 2009 and recognized the second
instalment of $250,000 during the fourth quarter of 2009. This second instalment was not received by year end, however
collectibility of the funds was reasonably assured and therefore reported in the
calculation of the gain at year end. These amounts were included in the
Company’s analysis under ASC 605-25 as disclosed in Note 6. Therefore
four/sixths of the first instalment of $250,000, or $166,667, and one/third of
the second instalment of $250,000, or $83,333, were recorded as a gain on
sales-type lease of a domain name during the 2009 year. The Company
reported the remaining two/sixths of the first instalment of $250,000, or
$83,333, and the remaining two/thirds of the second instalment of $250,000, or
$166,667, during the first quarter of 2010. During this period, the
Company also reported the third instalment of $250,000 in full as a gain on
domain sale, as the term of the multiple elements services agreement had
ended. As a result, the Company reported $500,000 in gains relating
to the sale of cricket.com during the first quarter of 2010.
Live
Current Media Inc.
Notes
to the Consolidated Financial Statements
For
the three months ended March 31, 2010
NOTE 12 – DOMAIN NAME LEASES AND SALES
(continued)
2009
(continued)
In July
2009, the Company sold three domain names for $725,000 less 10% commission and
the purchase prices were paid in full upon the execution of each
agreement. The resulting $374,887 in net gain was reported in the
third quarter of 2009.
On April
15, 2009, the Company sold one domain name to an unrelated third party for
$400,000 less 10% commission, resulting in a $261,934 net gain in the second
quarter of 2009.
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 provided 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
was due on each of the first to the fifth monthly anniversaries of the Effective
Date, $100,000 was due on each of the sixth to the ninth monthly anniversaries
of the Effective Date, and $300,000 was due on the first year anniversary of the
Effective Date. The Company was to lease the domain name to the
purchaser exclusively during the term of the agreement. Title and
rights to the domain name would be transferred to the purchaser only when full
payment was received at the end of the lease term. If the purchaser
defaulted on any payments, the agreement would terminate, funds received to date
would be forfeited by the purchaser, and rights to the domain name would return
to the Company. Due to the uncertainty regarding the collectability
of the funds in the future, only the amounts received were recorded as a gain on
sale of a domain name. During Q1 of 2009, a resulting gain of
$290,000 was recorded based on the payments received. During Q2 of
2009, a resulting gain of $65,000 was recorded based on the payment received in
April 2009. In May 2009, the purchaser breached the
agreement. As a result, the purchaser forfeited the total of $355,000
that had already been paid to the Company as of that date and that was recorded
as a gain on sales-type lease of domain name. Under the terms of the
agreement, the Company retained the funds and the domain name. In
August 2009, the Company subsequently sold this domain name to an unrelated
third party for $1,100,000 less $110,000 in commission and the purchase price
was paid in full upon the execution of the agreement. The resulting gain of
$740,000 was reported as a gain on sale of domain name in the third quarter of
2009.
On
February 24, 2009, the Company sold one domain name to an unrelated third party
for $400,000, resulting in a gain of $327,933 in the first quarter of
2009.
During Q1
of 2009, the Company incurred various restructuring costs of $264,904 consisting
of 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. There were no such charges in Q1 of
2010.
The
Company’s subsidiaries, DHI, 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, 2010 and December 31 2009, the Company and its US subsidiaries have
net operating loss carryforwards from previous tax years of approximately
$4,320,900 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 $7,552,600 that result in deferred tax
assets. These loss carryforwards will expire, if not utilized,
through 2029. The Company’s subsidiary DHI also has approximately
$417,500 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.
The
Company has a deferred tax liability related to potential taxes owing on
potential gains on disposal of our domain name intangible
assets. GAAP does not permit taxable temporary differences associated
with indefinite life intangible assets to be considered as evidence to otherwise
reduce a valuation allowance associated with deductible timing differences in
the same entity. The Company has recorded a related deferred tax
liability in its consolidated financial statements of $125,207 at March 31, 2010
and December 31, 2009. The deferred tax recovery during the year
ended December 31, 2009 was $81,163. There was no deferred tax
recovery during the quarter ended March 31, 2010.
Live
Current Media Inc.
Notes
to the Consolidated Financial Statements
For
the three months ended March 31, 2010
NOTE
15 – SEGMENTED INFORMATION
In 2009
and to date in 2010, 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 of 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, 2010
as well as during the year ended December 31, 2009, and therefore no geographic
segment reporting is required.
Revenues,
operating profits and net identifiable assets by business segments are as
follows:
For
the quarter ended March 31, 2010
|
|
Advertising
|
|
|
eCommerce
|
|
|
Total
|
|
|
|
& Other
|
|
|
Products
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
Revenue
|
|
34,275
|
|
|
|
873,959
|
|
|
|
908,234
|
|
Segment
Loss
|
|
(195,804
|
)
|
|
|
(534,079
|
)
|
|
|
(729,883
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
As
at March 31, 2010
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
Total
Assets
|
|
1,577,002
|
|
|
|
643,621
|
|
|
|
2,220,623
|
|
Intangible
Assets
|
|
804,284
|
|
|
|
158,849
|
|
|
|
963,133
|
|
For
the quarter ended March 31, 2009 (as restated)
|
|
Advertising
|
|
|
eCommerce
|
|
|
Total
|
|
|
|
& Other
|
|
|
Products
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
Revenue
|
|
32,215
|
|
|
|
1,720,167
|
|
|
|
1,752,382
|
|
Segment
Loss
|
|
(790,977
|
)
|
|
|
(989,023
|
)
|
|
|
(1,780,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
As
at March 31, 2009
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
Total
Assets
|
|
2,023,457
|
|
|
|
4,270,912
|
|
|
|
6,294,369
|
|
Intangible
Assets
|
|
1,398,418
|
|
|
|
158,849
|
|
|
|
1,557,267
|
|
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, 2010
|
|
|
For
the quarter
ended
March
31, 2009
(As
Restated)
|
|
Segment
Loss
|
|
$
|
(729,883
|
)
|
|
$
|
(1,780,000
|
)
|
Non-Operating
Income (Expenses)
|
|
|
|
|
|
|
|
|
Gain
on settlement of amounts due regarding Global Cricket
Venture
|
|
|
250,000
|
|
|
|
250,000
|
|
Gains
from sales and sales-type lease of domain names
|
|
|
600,000
|
|
|
|
617,933
|
|
Accretion
expense
|
|
|
-
|
|
|
|
(40,000
|
)
|
Interest
expense
|
|
|
(10,594
|
)
|
|
|
-
|
|
Interest
and investment income
|
|
|
297
|
|
|
|
890
|
|
Foreign
exchange loss
|
|
|
(35,475
|
)
|
|
|
34,769
|
|
Net
income (loss) before taxes for the period
|
|
$
|
74,345
|
|
|
$
|
(916,408
|
)
|
Substantially
all property and equipment and intangible assets are located in Canada at March
31, 2010.
Live Current
Media Inc.
Notes
to the Consolidated Financial Statements
For
the three months ended March 31, 2010
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
$
|
|
Remainder
of 2010
|
|
|
91,482
|
|
2011
|
|
|
126,873
|
|
2012
|
|
|
98,159
|
|
The
Company will also be responsible for common costs currently estimated to be
equal to approximately 71% of basic rent.
Global Cricket
Venture
On March
31, 2009, the Company, its subsidiary GCV, the BCCI and the IPL amended the
MOUs. The Company and the BCCI jointly entered into a Termination
Agreement, pursuant to which the MOU with the BCCI (“BCCI MOU”) was
terminated. The agreement constitutes full and final settlement of
any and all historic and future outstanding obligations due from Live Current
under the BCCI MOU. Per the Termination Agreement, Live Current was
to be released from all accrued liabilities under the BCCI MOU after the
$750,000 payment was made under the Novation Agreement described
below.
The
Company, GCV and the BCCI, on behalf of the IPL, entered into a Novation
Agreement with respect to the MOU with the IPL (“IPL MOU”). The
responsibility for this payment was assumed by, and the benefits associated with
the MOU formerly held by the Company were transferred to, GCV. The
IPL MOU’s payment schedule was also amended.
These
terms were further renegotiated in August 2009 whereby GCV transferred and
assigned to an unrelated third party, Mauritius, all of the rights, title, and
interest in and to the IPL MOU, as amended by the Novation
Agreement. Mauritius made the $750,000 payment as required under the
Novation Agreement during Q3 of 2009, therefore Live Current was released from
all accrued liabilities under the BCCI MOU. In order to facilitate
the transfer of the Cricket.com website, the Company agreed to provide Mauritius
with support services for a period of no more than 6 months, although this
period has been extended on a month-to-month basis. In exchange for
the support services, Mauritius has agreed to the payment of certain expenses
related to the support services. Refer to Note 6.
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.
NOTE
18– RELATED PARTY TRANSACTIONS
2010
The
Company has not entered into any new related party transactions during the first
quarter of 2010.
Live Current Media Inc.
Notes
to the Consolidated Financial Statements
For
the three months ended March 31, 2010
NOTE
18– RELATED PARTY TRANSACTIONS (continued)
2009
On March
1, 2009, the Company began charging $6,000 per month to a company controlled by
its Chief Executive Officer, who is Chief Executive Officer of both
companies. Live Current was providing this company with IT,
administrative, and marketing support. Effective January 1, 2010, the
Company no longer provided marketing support and therefore the arrangement was
modified to $3,500 per month. This arrangement allows Live Current to share
its resources while earning revenues for support services.
On
November 10, 2009, the Company’s Board of Directors approved an Amendment to the
Employment Agreement (the “Amendment”) of the Company’s Chief Executive Officer
(“CEO”). The Amendment modified the CEO’s base salary in that
effective as of February 1, 2009, his base salary decreased to
$120,000. The Amendment recognizes that the salary related to $80,000
owing for his services from February 1, 2009 to September 30, 2009 had remained
unpaid, and this amount was to be converted to shares of the Company’s common
stock. The effect of the decrease in salary for the period of
February 1 to September 30, 2009 was reflected in the Company’s interim
financial statements ended September 30, 2009.
On
December 28, 2009, the Company’s Board of Directors approved a Second Amendment
to the Employment Agreement (the “Second Amendment”) of the CEO. The
Second Amendment decreased the unpaid salary that had been deferred for the
period of February 1, 2009 to September 30, 2009 to $72,000. It also
modified the method of payment of the deferred salary, and approved this amount
to be paid in cash, less any and all statutory deductions, instead of by way of
shares of the Company’s common stock. The effects of the decrease of
the salary payable, as well as the subsequent payment, were reflected in the
Company’s financial statements for the year ended December 31,
2009.
NOTE
19 – SUBSEQUENT EVENTS
Subsequent
to quarter end, the Company entered into an agreement to lease one of its domain
names to an unrelated third party for $165,000 less $15,000 in
commission. The terms of the agreement provided for the receipt of
the net amount of $150,000 to be paid in equal instalments due April 15, 2010,
May 15, 2010 and June 15, 2010. The Company will lease the domain
name to the purchaser 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 purchaser defaults on any payments, the agreement would
terminate, funds received to date would be forfeited by the purchaser, and
rights to the domain name would return to the Company.
NOTE
20 – COMPARATIVE FIGURES
Certain
comparative figures have been reclassified to conform to the basis of
presentation adopted in the current period.
LIVE
CURRENT MEDIA INC.
CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER
31, 2009 AND 2008
REPORTS OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRMS
|
F-28
|
|
|
CONSOLIDATED BALANCE
SHEETS
|
F-30
|
|
|
CONSOLIDATED STATEMENTS OF
OPERATIONS
|
F-31
|
|
|
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS’ EQUITY (DEFICIT)
|
F-32
|
|
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
F-33
|
|
|
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
|
F-32
- F-60
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Stockholders and Board of Directors of
Live
Current Media, Inc.
We
have audited the accompanying consolidated balance sheet of Live Current Media,
Inc. as of December 31, 2009, and the related consolidated statements of
operations, stockholders' equity, and cash flows for the year ended December 31,
2009. These consolidated financial statements are the responsibility of the
Company’s management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In
our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company as of
December 31, 2009, and the results of its operations and its cash flows for the
year ended December 31, 2009 in conformity with accounting principles generally
accepted in the United States of America.
/s/
DAVIDSON & COMPANY LLP
Vancouver,
Canada
|
Chartered
Accountants
|
|
|
March
26, 2010
|
|
Report
of Independent Registered Accounting Firm
We have
audited the accompanying consolidated balance sheet of Live Current Media Inc.
as of December 31, 2008, and the related consolidated statement of operations,
stockholders’ equity, and cash flows for the year then ended. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We
conducted our audit in accordance with standards of the Public Company
Accounting Oversight Board (United States).
Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. We were not engaged
to perform an audit of the Company's internal control over financial
reporting. Our audit includes consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides
a reasonable basis for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Live Current Media
Inc. at December 31, 2008, and the consolidated results of its operations and
its cash flows of the year then ended in conformity with U.S. generally accepted
accounting principles.
As
discussed in Note 1 to the financial statements, the Company's recurring net
losses raise substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 1.
These financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
As
discussed in Note 2 to the consolidated financial statements, the December 31,
2008 consolidated financial statements have been restated to correct errors in
accounting for business combinations and consolidations, compensation, warrants
issued, deferred taxes and accrued expenses.
Vancouver,
Canada
|
/s/
Ernst & Young LLP
|
September
10, 2009
|
Chartered
Accountants
|
LIVE
CURRENT MEDIA INC.
CONSOLIDATED
BALANCE SHEETS
Expressed
In U.S. Dollars
(Going
Concern - See Note 1)
|
|
December
31, 2009
|
|
|
December
31, 2008
|
|
|
|
|
|
|
(As
Restated -
See
Note 2)
|
|
ASSETS
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
413,700
|
|
|
$
|
1,832,520
|
|
Accounts
receivable (net of allowance for doubtful accounts of nil)
|
|
|
600,390
|
|
|
|
93,582
|
|
Prepaid
expenses and deposits
|
|
|
148,697
|
|
|
|
109,543
|
|
Inventory
|
|
|
28,714
|
|
|
|
74,082
|
|
Current
portion of receivable from sales-type lease
(Note
12)
|
|
|
23,423
|
|
|
|
23,423
|
|
Total
current assets
|
|
|
1,214,924
|
|
|
|
2,133,150
|
|
|
|
|
|
|
|
|
|
|
Long-term
portion of receivable from sales-type lease
(Note
12)
|
|
|
-
|
|
|
|
23,423
|
|
Property
& equipment
(Note
8)
|
|
|
231,327
|
|
|
|
1,042,851
|
|
Website
development costs
(Note
9)
|
|
|
217,883
|
|
|
|
355,391
|
|
Intangible
assets
|
|
|
963,133
|
|
|
|
1,587,463
|
|
Goodwill
(Notes 5 and
7)
|
|
|
66,692
|
|
|
|
2,606,040
|
|
Total
Assets
|
|
$
|
2,693,959
|
|
|
$
|
7,748,318
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued liabilities
|
|
$
|
1,161,241
|
|
|
$
|
3,047,993
|
|
Amounts
payable to the BCCI and IPL
(Note
6)
|
|
|
-
|
|
|
|
1,000,000
|
|
Deferred
gains of amounts regarding Global Cricket Venture
(Note
6)
|
|
|
500,000
|
|
|
|
-
|
|
Bonuses
payable
|
|
|
158,466
|
|
|
|
354,695
|
|
Due
to shareholders of Auctomatic
(Note
7)
|
|
|
118,664
|
|
|
|
789,799
|
|
Convertible
notes to shareholders of Auctomatic
(Note
7)
|
|
|
429,500
|
|
|
|
-
|
|
Deferred
revenue
|
|
|
43,240
|
|
|
|
120,456
|
|
Current
portion of deferred lease inducements
(Note
10)
|
|
|
20,138
|
|
|
|
20,138
|
|
Total
current liabilities
|
|
|
2,431,249
|
|
|
|
5,333,081
|
|
|
|
|
|
|
|
|
|
|
Deferred
income tax
(Note
14)
|
|
|
125,207
|
|
|
|
206,370
|
|
Deferred
lease inducements
(Note
10)
|
|
|
35,241
|
|
|
|
55,380
|
|
Warrants
(Note
11(e))
|
|
|
250,710
|
|
|
|
157,895
|
|
Total
Liabilities
|
|
|
2,842,407
|
|
|
|
5,752,726
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS'
EQUITY
|
|
|
|
|
|
|
|
|
Common
Stock
(Note
11)
|
|
|
|
|
|
|
|
|
Authorized:
50,000,000 common shares, $0.001 par value
|
|
|
|
|
|
|
|
|
Issued
and outstanding:
|
|
|
|
|
|
|
|
|
24,026,180
common shares (December 31, 2008 - 23,546,370)
|
|
|
15,335
|
|
|
|
14,855
|
|
Additional
paid-in capital
|
|
|
16,595,072
|
|
|
|
14,757,932
|
|
Accumulated
deficit
|
|
|
(16,787,208
|
)
|
|
|
(12,777,195
|
)
|
Total
Live Current Media Inc. stockholders' equity (deficit)
|
|
|
(176,801
|
)
|
|
|
1,995,592
|
|
Non-controlling
interest
|
|
|
28,353
|
|
|
|
-
|
|
Total
Stockholders' Equity (Deficit)
|
|
|
(148,448
|
)
|
|
|
1,995,592
|
|
Total
Liabilities and Stockholders' Equity
|
|
$
|
2,693,959
|
|
|
$
|
7,748,318
|
|
Commitments
and Contingency
(Notes 16 and
17)
Subsequent
Events
(Note
19)
See
accompanying notes to consolidated financial statements
/s/ James P.
Taylor
|
|
|
/s/ Mark
Benham
|
James P. Taylor,
Director
|
|
|
Mark Benham,
Director
|
LIVE
CURRENT MEDIA INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
Expressed
In U.S. Dollars
|
|
Year
ended
|
|
|
Year
ended
|
|
|
|
December
31, 2009
|
|
|
December
31, 2008
|
|
|
|
|
|
|
(As
Restated -
See
Note 2)
|
|
SALES
|
|
|
|
|
|
|
Health
and beauty eCommerce
|
|
$
|
7,216,479
|
|
|
$
|
9,271,237
|
|
Other
eCommerce
|
|
|
-
|
|
|
|
455
|
|
Sponsorship
revenues
|
|
|
220,397
|
|
|
|
-
|
|
Domain
name advertising
|
|
|
95,877
|
|
|
|
93,141
|
|
Miscellaneous
and other income
|
|
|
74,138
|
|
|
|
-
|
|
Total
Sales
|
|
|
7,606,891
|
|
|
|
9,364,833
|
|
|
|
|
|
|
|
|
|
|
COSTS
OF SALES
|
|
|
|
|
|
|
|
|
Health
and Beauty eCommerce
|
|
|
5,677,005
|
|
|
|
7,683,432
|
|
Other
eCommerce
|
|
|
-
|
|
|
|
380
|
|
Total
Costs of Sales (excluding depreciation and amortization as shown
below)
|
|
|
5,677,005
|
|
|
|
7,683,812
|
|
|
|
|
|
|
|
|
|
|
GROSS
PROFIT
|
|
|
1,929,886
|
|
|
|
1,681,021
|
|
|
|
|
|
|
|
|
|
|
OPERATING
EXPENSES
|
|
|
|
|
|
|
|
|
Amortization
and depreciation
|
|
|
241,094
|
|
|
|
253,141
|
|
Amortization
of website development costs
(Note
9)
|
|
|
123,395
|
|
|
|
58,640
|
|
Corporate
general and administrative
|
|
|
1,004,051
|
|
|
|
2,911,627
|
|
ECommerce
general and administrative
|
|
|
319,155
|
|
|
|
567,980
|
|
Management
fees and employee salaries
|
|
|
3,583,288
|
|
|
|
5,798,728
|
|
Corporate
marketing
|
|
|
14,036
|
|
|
|
147,842
|
|
ECommerce
marketing
|
|
|
580,331
|
|
|
|
766,393
|
|
Other
expenses
(Note
13)
|
|
|
264,904
|
|
|
|
708,804
|
|
Total
Operating Expenses
|
|
|
6,130,254
|
|
|
|
11,213,155
|
|
|
|
|
|
|
|
|
|
|
NON-OPERATING
INCOME (EXPENSES)
|
|
|
|
|
|
|
|
|
Global
Cricket Venture payments
(Note 6)
|
|
|
-
|
|
|
|
(1,000,000
|
)
|
Gain
on settlement of amounts due regarding Global Cricket Venture
(Note
6)
|
|
|
750,000
|
|
|
|
-
|
|
Gain
from sales and sales-type lease of domain names
(Note
12)
|
|
|
2,452,081
|
|
|
|
461,421
|
|
Accretion
interest expense
(Note
7)
|
|
|
(63,300
|
)
|
|
|
(96,700
|
)
|
Interest
expense
|
|
|
(25,845
|
)
|
|
|
-
|
|
Interest
and investment income
|
|
|
1,534
|
|
|
|
67,683
|
|
Foreign
exchange loss
|
|
|
(88,571
|
)
|
|
|
(3,407
|
)
|
Gain
on restructure of severance payable
|
|
|
212,766
|
|
|
|
-
|
|
Gain
on restructure of Auctomatic payable
|
|
|
29,201
|
|
|
|
-
|
|
Impairment
of Auction Software
(Note 8)
|
|
|
(590,973
|
)
|
|
|
-
|
|
Impairment
of Goodwill
(Note
7)
|
|
|
(2,539,348
|
)
|
|
|
-
|
|
Total
Non-Operating Income (Expenses)
|
|
|
137,545
|
|
|
|
(571,003
|
)
|
|
|
|
|
|
|
|
|
|
NET
LOSS BEFORE TAXES
|
|
|
(4,062,823
|
)
|
|
|
(10,103,137
|
)
|
|
|
|
|
|
|
|
|
|
Deferred
tax recovery
(Note
14)
|
|
|
81,163
|
|
|
|
40,389
|
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED
NET LOSS
|
|
|
(3,981,660
|
)
|
|
|
(10,062,748
|
)
|
|
|
|
|
|
|
|
|
|
ADD:
NET (INCOME) LOSS ATTRIBUTABLE TO
|
|
|
|
|
|
|
|
|
NON-CONTROLLING
INTEREST
|
|
|
(28,353
|
)
|
|
|
75,478
|
|
|
|
|
|
|
|
|
|
|
NET
LOSS AND COMPREHENSIVE LOSS FOR THE
|
|
|
|
|
|
|
|
|
YEAR
ATTRIBUTABLE TO LIVE CURRENT MEDIA INC.
|
|
$
|
(4,010,013
|
)
|
|
$
|
(9,987,270
|
)
|
|
|
|
|
|
|
|
|
|
LOSS
PER SHARE - BASIC AND DILUTED
|
|
|
|
|
|
|
|
|
Net
Loss attributable to Live Current Media Inc. common
stockholders
|
|
$
|
(0.17
|
)
|
|
$
|
(0.46
|
)
|
Weighted
Average Number of Common Shares Outstanding - Basic
|
|
|
23,941,358
|
|
|
|
21,937,179
|
|
|
|
|
|
|
|
|
|
|
Net
Loss attributable to Live Current Media Inc. common
stockholders
|
|
$
|
(0.17
|
)
|
|
$
|
(0.46
|
)
|
Weighted
Average Number of Common Shares Outstanding - Diluted
|
|
|
23,941,358
|
|
|
|
21,937,179
|
|
See
accompanying notes to consolidated financial statements
LIVE
CURRENT MEDIA INC.
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
Expressed
In U.S. Dollars
|
|
|
|
|
|
|
|
Live
Current Media Inc. Stockholders
|
|
|
|
|
|
|
|
|
|
Common
stock
|
|
|
Additional
Paid-in
Capital
|
|
|
Accumulated
Deficit
|
|
|
Total
Stockholders'
Equity
(Deficit)
|
|
|
Non-Controlling
Interest
|
|
|
Total
Equity (Deficit)
|
|
|
|
Number
of Shares
|
|
|
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2007 (As Restated - See Note 2)
|
|
|
21,446,623
|
|
|
$
|
12,456
|
|
|
$
|
10,170,004
|
|
|
$
|
(2,789,925
|
)
|
|
$
|
7,392,535
|
|
|
$
|
8,786
|
|
|
$
|
7,401,321
|
|
Stock-based
compensation
(Note
11d)
|
|
|
-
|
|
|
|
-
|
|
|
|
2,162,526
|
|
|
|
-
|
|
|
|
2,162,526
|
|
|
|
-
|
|
|
|
2,162,526
|
|
Issuance
of Common Stock
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
66,692
|
|
|
|
66,692
|
|
Issuance
of 586,403 common shares per the merger
agreement with
Auctomatic
(Note
7)
|
|
|
586,403
|
|
|
|
586
|
|
|
|
1,248,279
|
|
|
|
-
|
|
|
|
1,248,865
|
|
|
|
-
|
|
|
|
1,248,865
|
|
Issuance
of 33,000 common shares to investor relations firm
(Note
11b)
|
|
|
33,000
|
|
|
|
33
|
|
|
|
85,649
|
|
|
|
-
|
|
|
|
85,682
|
|
|
|
-
|
|
|
|
85,682
|
|
Issuance
of 120,000 common shares to investor relations firm
(Note
11b)
|
|
|
120,000
|
|
|
|
120
|
|
|
|
218,057
|
|
|
|
-
|
|
|
|
218,177
|
|
|
|
-
|
|
|
|
218,177
|
|
Issuance
of 50,000 warrants to investor relations firm
(Note
11e)
|
|
|
-
|
|
|
|
-
|
|
|
|
45,500
|
|
|
|
-
|
|
|
|
45,500
|
|
|
|
-
|
|
|
|
45,500
|
|
Cancellation
of 300,000 common shares not distributed
(Note
11b)
|
|
|
(300,000
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Private
Placement of 1,627,344 units at $0.65 per share
(Note
11b)
|
|
|
1,627,344
|
|
|
|
1,627
|
|
|
|
898,253
|
|
|
|
-
|
|
|
|
899,880
|
|
|
|
-
|
|
|
|
899,880
|
|
Share
issue costs
(Note
11b)
|
|
|
-
|
|
|
|
-
|
|
|
|
(86,803
|
)
|
|
|
-
|
|
|
|
(86,803
|
)
|
|
|
-
|
|
|
|
(86,803
|
)
|
Extinguishment
of accounts payable
(Note 11b)
|
|
|
33,000
|
|
|
|
33
|
|
|
|
16,467
|
|
|
|
-
|
|
|
|
16,500
|
|
|
|
-
|
|
|
|
16,500
|
|
Net
loss and comprehensive loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(9,987,270
|
)
|
|
|
(9,987,270
|
)
|
|
|
(75,478
|
)
|
|
|
(10,062,748
|
)
|
Balance,
December 31, 2008 (As Restated - See Note 2)
|
|
|
23,546,370
|
|
|
|
14,855
|
|
|
|
14,757,932
|
|
|
|
(12,777,195
|
)
|
|
|
1,995,592
|
|
|
|
-
|
|
|
|
1,995,592
|
|
Stock-based
compensation
(Note
11d)
|
|
|
-
|
|
|
|
-
|
|
|
|
1,702,519
|
|
|
|
-
|
|
|
|
1,702,519
|
|
|
|
-
|
|
|
|
1,702,519
|
|
Issuance
of 15,000 common shares to investor relations firm
(Note
11b)
|
|
|
15,000
|
|
|
|
15
|
|
|
|
5,685
|
|
|
|
-
|
|
|
|
5,700
|
|
|
|
-
|
|
|
|
5,700
|
|
Extinguishment
of accounts payable
(Note 11b)
|
|
|
372,898
|
|
|
|
373
|
|
|
|
129,028
|
|
|
|
-
|
|
|
|
129,401
|
|
|
|
-
|
|
|
|
129,401
|
|
Issuance
of 91,912 common shares per the merger
agreement with
Auctomatic
(Note
7)
|
|
|
91,912
|
|
|
|
92
|
|
|
|
(92
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Net
loss and comprehensive loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,010,013
|
)
|
|
|
(4,010,013
|
)
|
|
|
28,353
|
|
|
|
(3,981,660
|
)
|
Balance,
December 31, 2009
|
|
|
24,026,180
|
|
|
$
|
15,335
|
|
|
$
|
16,595,072
|
|
|
$
|
(16,787,208
|
)
|
|
$
|
(176,801
|
)
|
|
$
|
28,353
|
|
|
$
|
(148,448
|
)
|
See
accompanying notes to consolidated financial statements
LIVE
CURRENT MEDIA INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
Expressed
In U.S. Dollars
|
|
Year
ended
|
|
|
Year
ended
|
|
|
|
December
31, 2009
|
|
|
December
31, 2008
|
|
|
|
|
|
|
(As
Restated -
See
Note 2)
|
|
OPERATING
ACTIVITIES
|
|
|
|
|
|
|
Net
loss for the year
|
|
$
|
(3,981,660
|
)
|
|
$
|
(10,062,748
|
)
|
Non-cash
items included in net loss:
|
|
|
|
|
|
|
|
|
Deferred
tax recovery
(Note
14)
|
|
|
(81,163
|
)
|
|
|
(40,389
|
)
|
Gain
on settlement of amounts due to Global Cricket Venture
(Note
6)
|
|
|
(750,000
|
)
|
|
|
-
|
|
Gain
on restructure of severance payable
|
|
|
(212,766
|
)
|
|
|
-
|
|
Gain
on restructure of Auctomatic payable
|
|
|
(29,201
|
)
|
|
|
-
|
|
Impairment
of Goodwill
(Note
7)
|
|
|
2,539,348
|
|
|
|
-
|
|
Impairment
of Auction Software
(Note 8)
|
|
|
590,973
|
|
|
|
-
|
|
Gain
from sales and sales-type lease of domain names
|
|
|
(2,452,081
|
)
|
|
|
(461,421
|
)
|
Accretion
interest expense
|
|
|
63,300
|
|
|
|
96,700
|
|
Interest
expense
|
|
|
25,845
|
|
|
|
-
|
|
Stock-based
compensation
|
|
|
1,702,519
|
|
|
|
2,162,526
|
|
Warrants
|
|
|
92,815
|
|
|
|
45,500
|
|
Issuance
of common stock for services
(Note
11b)
|
|
|
5,700
|
|
|
|
303,859
|
|
Amortization
and depreciation
|
|
|
344,351
|
|
|
|
291,643
|
|
Change
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(256,808
|
)
|
|
|
45,348
|
|
Prepaid
expenses and deposits
|
|
|
(39,154
|
)
|
|
|
136,631
|
|
Inventory
|
|
|
45,368
|
|
|
|
(74,082
|
)
|
Accounts
payable and accrued liabilities
|
|
|
(1,757,351
|
)
|
|
|
1,612,814
|
|
Amounts
payable to the BCCI and IPL
|
|
|
-
|
|
|
|
1,000,000
|
|
Bonuses
payable
|
|
|
16,537
|
|
|
|
21,982
|
|
Deferred
revenue
|
|
|
(77,216
|
)
|
|
|
67,377
|
|
Cash
flows used in operating activities
|
|
|
(4,210,644
|
)
|
|
|
(4,854,260
|
)
|
|
|
|
|
|
|
|
|
|
INVESTING
ACTIVITIES
|
|
|
|
|
|
|
|
|
Proceeds
from sale of domain names
|
|
|
2,801,420
|
|
|
|
408,302
|
|
Commissions
on sale of domain names
|
|
|
(264,669
|
)
|
|
|
(39,261
|
)
|
Proceeds
from sales-type lease of domain names
|
|
|
645,000
|
|
|
|
140,540
|
|
Commissions
on sales-type lease of domain names
|
|
|
(20,000
|
)
|
|
|
-
|
|
Cash
consideration for Auctomatic
(Note
7)
|
|
|
(301,579
|
)
|
|
|
(1,530,047
|
)
|
Purchases
of property & equipment
|
|
|
(20,544
|
)
|
|
|
(187,532
|
)
|
Website
development costs
(Note
9)
|
|
|
(47,804
|
)
|
|
|
(451,439
|
)
|
Cash
flows from (used in) investing activities
|
|
|
2,791,824
|
|
|
|
(1,659,437
|
)
|
|
|
|
|
|
|
|
|
|
FINANCING
ACTIVITIES
|
|
|
|
|
|
|
|
|
Proceeds
from sale of common stock (net of share issue costs)
|
|
|
-
|
|
|
|
970,972
|
|
Cash
flows from financing activities
|
|
|
-
|
|
|
|
970,972
|
|
|
|
|
|
|
|
|
|
|
Net
decrease in cash and cash equivalents
|
|
|
(1,418,820
|
)
|
|
|
(5,542,725
|
)
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, beginning of year
|
|
|
1,832,520
|
|
|
|
7,375,245
|
|
Cash
and cash equivalents, end of year
|
|
$
|
413,700
|
|
|
$
|
1,832,520
|
|
See
accompanying notes to consolidated financial statements
SUPPLEMENTAL
INFORMATION
|
|
2009
|
|
|
2008
|
|
Cash
paid during the year for:
|
|
|
|
|
|
|
Interest
|
|
$
|
21,279
|
|
|
$
|
-
|
|
Income
taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
Live
Current Media Inc.
Notes
to the Consolidated Financial Statements
For
the year ended December 31, 2009
NOTE
1 – NATURE OF BUSINESS AND BASIS OF PRESENTATION
Nature
of business
Live
Current Media Inc. (the “Company” or “Live Current”) 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.
The
Company’s 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
DHI, the Company builds consumer Internet experiences around its 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 the
Perfume.com website, providing eCommerce for fragrance
and
other health and beauty products. DHI
develops
content and sells advertising services on other domains held for
future
development. Before August 2009, the Company was also developing
Cricket.com, a media-rich consumer sports experience. On August 25,
2009, the Company sold the domain name and assigned to an unrelated third party
all of the rights, title, and interest in and to the original Memorandum of
Understanding (“MOU”) with the Indian Premier League (“IPL”). Refer
to Note 6.
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 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 7.
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. During
the year ended December 31, 2009, the Company generated a consolidated net loss
of $4,010,013 (2008 - $9,987,270) and realized a negative cash flow from
operating activities of $4,210,644 (2008 - $4,854,260). At the end of
2009, there is an accumulated deficit of $16,787,208 (2008 - $12,777,195) and a
working capital deficiency of $1,216,325 (2008 - $3,199,931).
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 obtain financing (whether through debt or equity), the ability
of the Company to use its common stock to pay for liabilities as it has in
certain instances in the past, and the attainment of profitable
operations. The outcome of these matters is dependant on
factors outside of the Company’s control and cannot be predicted at this
time.
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.
Notes
to the Consolidated Financial Statements
For
the year ended December 31, 2009
NOTE
1 – NATURE OF BUSINESS AND BASIS OF PRESENTATION (continued)
Going
Concern (continued)
The
Company has established a plan to continue its current business operations and
overcome its financial difficulties. The Company expects to achieve
an improved financial position and enhanced liquidity by establishing and
carrying out a plan of recovery as follows:
1.
|
Auctomatic payment deferrals:
Under the terms of the acquisition agreement to purchase Entity
Inc. (also referred to as Auctomatic), the Company was obligated to make
$800,000 in cash payments in May 2009. Refer to Note
7. The Company negotiated an agreement with the majority of the
Entity shareholders to convert more than half of this payable into a
convertible interest bearing note with a nine month term. The payment due
date is May 2010.
|
|
|
2.
|
Payment of Obligations with
Common Stock:
The Company intends to continue to ask
certain vendors if they will agree to accept the Company’s common stock in
lieu of cash as payment for outstanding obligations. During
2009, the Company succeeded in reaching three such agreements as payment
of approximately $129,401 in obligations.
|
|
|
3.
|
Global Cricket Venture:
In August 2009, the Company reached an agreement with an unrelated
third party (“Mauritius”), whereby Mauritius agreed to assume and be
liable for all past and future obligations and liabilities of GCV arising
from the original Memorandum of Understanding (“MOU”), as it was amended
by the Novation Agreement discussed in Note 6. The Company has
also agreed to sell the domain name cricket.com to Mauritius, along with
the associated website, content, copyrights, trademarks, etc., for
consideration of four equal payments of $250,000 each. The
cricket.com domain name shall remain the property of the Company until all
payments have been made. Refer to Note 6.
|
|
|
4.
|
Reduction in employees and
reduction of CEO salary:
Since December 31, 2008, the Company has
reduced the number of its full-time employees and consultants by
27%. This included termination of the Company’s former
President. All severance payments have been paid by the end of
2009. The special bonus owing to the Company’s former President
of $250,000CAD that was to be paid in stock was waived in exchange for
$20,000 cash, which was also paid by the end of 2009.
|
|
|
|
In
addition, members of senior management agreed to forgo 2008 and 2009
bonuses, staff bonuses were not granted for 2008 and 2009, and effective
February 1, 2009, the Company’s CEO decreased his salary from $300,000CAD
to $120,000CAD. Salary earned from February 1, 2009 to
September 30, 2009 was deferred and settled for
$72,000CAD.
|
|
|
5.
|
Management Focus:
Management will focus on the perfume business that is currently
producing divisional profits. Management is developing a
business plan to exploit this business as it believes that the perfume
business has the potential to grow dramatically and will continue to
produce modest profits in the short term with minimal
investment.
|
|
|
6.
|
Supply Chain Management:
The Company is continuing to explore opportunities to transition
from the legacy third party drop shippers which produces gross margins of
19-21% to a Third Party Logistics (“3PL”) option whereby the Company
purchases the inventory and has a 3PL provider store, and “pick and pack”
perfume orders. This change in supply chain methodology will require a
minimal investment in inventory but should result in much healthier net
margins.
|
|
|
7.
|
Domain Name sales:
Management entered into arrangements in 2009 to sell or lease
eleven of the Company’s non-core domain name assets, including
Cricket.com, as a non-dilutive way to raise working
capital. These transactions have raised nearly $4.2 million
this year. See Note 12.
|
NOTE
2 – RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS
Correction of an error in
comparative periods:
The
Company determined that its original consolidated financial statements as at and
for the three month period ended March 31, 2009, and as at and for the years
ended December 31, 2008 and 2007 (the “Original Financial Statements”) contained
errors. These errors, which are described below, affected opening
balances as at December 31, 2007 and the financial position, results of
operations and cash flows for the comparative periods ended December 31,
2008.
Live
Current Media Inc.
Notes
to the Consolidated Financial Statements
For
the year ended December 31, 2009
NOTE
2 – RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS
A.
Deferred income tax liability related to indefinite life intangible
assets:
The
Company’s intangible assets, comprised of its domain names, have book values in
excess of their tax values. The Original Financial Statements
considered the taxable temporary differences associated with these indefinite
life intangible assets in reducing the valuation allowance associated with its
loss carryforwards. This was an incorrect application of
GAAP. A deferred tax liability should have been recognized for these
taxable temporary differences. Correction of this error resulted in
the recognition of a deferred tax liability of $206,370 as at December 31, 2007
and a deferred tax recovery of $40,389 for the year ended December 31,
2008.
B.
Non-Controlling Interest:
The
Company determined that it should have recorded $66,692 of goodwill and an
increase to non-controlling interest liability associated with the exchange of
$3,000,000 of amounts due from a subsidiary for additional common stock in
2008. See Note 5.
Prior to
recognizing the non-controlling interest liabilities, the non-controlling
interest’s share of subsidiary losses in 2008 and 2007 was limited to the
non-controlling interest liability. As a consequence of the above
increases to non-controlling interest liabilities, the non-controlling
interest’s share in subsidiary losses was increased by $75,478 in the year ended
December 31, 2008.
C.
Management Compensation:
The
financial statements for the year ended December 31, 2008 did not accrue or
expense $119,045 for two CDN$100,000 special bonuses to be paid on January 1,
2009 and January 1, 2010 to the Company’s current President and Chief Corporate
Development Officer pursuant to his employment agreement. These special bonuses
are not discretionary, but will only be paid if he remains employed as an
officer of the Company on the dates payable.
D.
Estimated life of stock options:
The
Company originally estimated the life of its stock options as equal to the
vesting period for these options, 3 years. The estimated life should
have been 3.375 years, resulting in a decrease of $118,893 to the Company’s
stock-based compensation expense in the year ended December 31,
2008.
E.
Other
The
Company discovered an accrual and cutoff error in its recorded accounting fees,
resulting in an overaccrual of accounts payable and accounting expense (included
in Corporate General and Administrative expenses) of $19,521 in the year ended
December 31, 2008.
(ii)
|
Gain
on sale of domain name
|
The
Company failed to record website development costs attributable to a domain name
sold in 2008, reducing website development costs and gain on sale of domain
names by $37,408 in the year ended December 31, 2008.
F.
Classification of warrants issued in November 2008 private
placement:
In
November 2008, the Company raised $1,057,775 of cash by selling 1,627,344
units consisting of one share of the Company’s common stock and two warrants,
each for the purchase of a half share of common stock. The offering
price was $0.65 per unit. The estimated fair value of the warrants
was $157,895 and was presented as equity in the Original Financial
Statements. The warrants contained provisions which could require
their redemption in cash in certain circumstances which may not all be within
the Company’s control. The fair value of the warrants therefore
should have been recorded as a liability, with future changes to fair value
reported as either income or expense in the period in which the change in fair
value occurs. There were no changes to the fair value of the warrants
between the November 2008 issue date and December 31, 2008.
Live
Current Media Inc.
Notes
to the Consolidated Financial Statements
For
the year ended December 31, 2009
NOTE
2 – RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS
(continued)
G.
Shares issued in connection with the merger with Auctomatic:
(i)
|
Valuation
of shares issued as purchase
consideration
|
The
Auctomatic merger closed on May 22, 2008. The original estimate of
the fair value of the share purchase consideration attributable to the
acquisition was based on the trading value of the shares around March 25,
2008. However, the Merger Agreement had an adjustment provision
regarding the number of shares to be issued, such that the shares should have
been valued with reference to the May 22, 2008 closing date as opposed to the
announcement date on March 25, 2008. Using the average share price
around the closing date, an additional $110,746 should have been recorded as
additional paid-in capital and goodwill during the year ended December 31,
2008.
(ii)
|
Shares
issued to Auctomatic founders
|
As part
of the merger, the Company agreed to distribute 413,604 shares of its common
stock payable on the first, second, and third anniversaries of the Closing Date
(the “Distribution Date”) to the Auctomatic founders subject to their continuing
employment with the Company or a subsidiary on each Distribution
Date. These shares, which were not accounted for in the Auctomatic
purchase, also were not properly accounted for as compensation to the Auctomatic
founders for their continued employment with the Company. The related
stock-based compensation expense that should have been recorded in 2008 was
$170,065.
H.
Financial Statement Classification of Amounts Payable to the BCCI and
IPL:
In order
to provide clarity, the Company also classified separately on its consolidated
balance sheets and consolidated statements of operations the $1,000,000 of
amounts payable as at December 31, 2008 to the Board of Control for Cricket in
India (“BCCI”) and the DLF Indian Premier League (“IPL”).
I.
Tax Impact:
Exclusive
of Item A, none of the above adjustments gave rise to an increase or decrease in
the Company’s tax position.
The
effect of the adjustments by financial statement line item to the December 31,
2008 consolidated financial statements are disclosed in detail within the
amended and restated consolidated financial statements for the year ended
December 31, 2008, which are included in the Company’s Annual Report on Form
10-K as filed with the Securities & Exchange Commission on March 31, 2009,
and subsequently amended on September 14, 2009 and on October 26,
2009.
NOTE
3 – 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% interest in its subsidiary DHI, DHI’s wholly owned
subsidiaries Importers and 612793, and LCM Cricket Ventures’ 50.05% interest in
Global Cricket Venture (“GCV”). All 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, and
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.
Live
Current Media Inc.
Notes
to the Consolidated Financial Statements
For
the year ended December 31, 2009
NOTE
3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
Combinations
On the
acquisition of a subsidiary, the purchase method of accounting is used whereby
the purchase consideration is allocated to the identifiable assets and
liabilities on the basis of fair value at the date of
acquisition. The Company considers critical estimates involved in
determining any amount of goodwill, and tests for impairment of such goodwill as
disclosed in its Goodwill accounting policy below.
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 from the Company’s websites to other parties. The amount
and collectability of these referral commissions is subject to uncertainty;
accordingly, revenues are recognized when the amount can be determined and
collectability can be reasonably assured. In accordance with FASB
Accounting Standards Codification (“ASC”) 605-45-45,
Revenue Recognition - Principal
Agent Considerations,
the Company records web advertising revenues on a
gross basis.
Sponsorship
revenues consist of sponsorships related to past cricket tournaments that are
receivable based on the Company’s prior agreements relating to the Cricket.com
website. Revenues are recognized once collectability is reasonably
assured.
Gains
from the sale of domain names, whose carrying values are recorded as intangible
assets, consist 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 collectability of the proceeds is reasonably
assured. In the year ended December 31, 2009, there were eight sales
of domain names. Collectability of the amounts owing on these sales
is reasonably assured and therefore accounted for as sales in the period the
transactions occurred. In 2008, there was one sale of a domain
name. Collectability of the amounts owing on this sale is reasonably
assured and therefore accounted for as a sale in the period the transaction
occurred.
Gains
from the sales-type leases of domain names, whose carrying values are recorded
as intangible assets, consist 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 collectability 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 year ended December 31,
2009, there were sales-type leases for three domain names where collectability
of future payments owing on sale were not reasonably
assured. Therefore, the gains were recorded based only on the amounts
that were reasonably assured. One of these contracts was breached
during the year, however there was no effect to the financial
statements. In 2008, there was one sales-type lease of a domain
name. See also Note 12.
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 ASC 830,
Foreign Currency Matters
, 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. There are no resulting exchange gains and losses that are
required to be presented as cumulative foreign currency translation gains
(losses) within other accumulated comprehensive income (loss). There
was no effect to comprehensive income (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.
Live
Current Media Inc.
Notes
to the Consolidated Financial Statements
For
the year ended December 31, 2009
NOTE
3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Comprehensive income
(loss
)
Comprehensive
income (loss) includes all changes in equity of the Company during a period
except those resulting from investments by shareholders and distributions to
shareholders. Comprehensive income (loss) includes net income (loss)
and other comprehensive income (loss) (“OCI”). The major components
included in OCI 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. The Company has no self-sustaining foreign operations or
unrealized gains or losses on financial assets classified as
available-for-sale.
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. The other potential common stock includes 2,845,000
options and 3,304,688 warrants as disclosed in Note 11.
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 amounts receivable
on sales and sales-type leases of domain names, goods and services taxes (GST)
receivable, advertising revenues receivable and sponsorship
revenues. Per the Company’s review of open accounts and collection
history, the accounts receivable balances are reasonably considered to be
collectible and therefore no allowance for doubtful accounts has been reflected
at the 2009 or 2008 year ends.
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 December 31, 2009 is recorded at cost of $28,714 (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 the declining balance method at the following
annual rates:
|
Office Furniture and
Equipment
|
20%
|
|
|
Computer
Equipment
|
30%
|
|
|
Computer
Software
|
100%
|
|
Amortization
for leasehold improvements is based on a straight-line method calculated over
the term of the lease. Auction software was amortized straight line
over the life of the asset and was written off at June 30,
2009. Other additions are amortized on a half-year basis in the year
of acquisition.
Website
development costs
The
Company has adopted the provisions of ASC 350-50-25,
Website 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
9.
Live
Current Media Inc.
Notes
to the Consolidated Financial Statements
For
the year ended December 31, 2009
NOTE
3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Intangible
assets
The
Company has adopted the provisions of ASC 350,
Intangibles – Goodwill and
Other
, which revises the accounting for purchased goodwill and intangible
assets. Under ASC 350, 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 December 31, 2009.
Goodwill
Goodwill
represents the excess of acquisition cost over the fair value of the net assets
of acquired entities.
In accordance with ASC
350-20,
Goodwill,
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.
In
accordance with ASC 350-20 and the Company’s policy to assess the carrying value
of goodwill annually as noted above, the Company performed this assessment at
the December 31, 2009 fiscal year end. At that date, the Company
determined that the business acquired was never effectively integrated into the
reporting unit it was assigned to, Perfume.com. Since the benefits of
the acquired goodwill were never realized by the rest of the reporting unit, and
the use of the other aspects of the business acquired have ended, the Company
has determined that an impairment charge of $2,539,348 relating to the goodwill
acquired pursuant to the merger with Auctomatic was required. See
also Note 7. The balance of $66,692 of goodwill relates to the
issuance of shares of DHI in exchange for intercompany debt in early
2008. See also Note 5.
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.
Advertising Costs
The
Company recognizes advertising expenses in accordance with ASC 720-35,
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 its Website generated during a given
period. Total advertising expense of $594,367 for the year ended
December 31, 2009 (2008 - $914,235) is included in the “Corporate Marketing” and
“eCommerce Marketing” categories on the Company’s consolidated statements of
operations.
Live
Current Media Inc.
Notes
to the Consolidated Financial Statements
For
the year ended December 31, 2009
NOTE
3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Stock-based
compensation
Beginning
on July 1, 2007, the Company began accounting for stock options under the
provisions of ASC 718,
Stock
Compensation
, which requires the recognition of the fair value of
stock-based compensation. Under the fair value recognition provisions for ASC
718, 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 11.
The
Company accounts for equity instruments issued in exchange for the receipt of
goods or services from other than employees in accordance with ASC 718 and the
conclusions reached by ASC 505-50. 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 ASC
505-50.
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 11(d).
Non-Controlling
Interest
The
consolidated financial statements include the accounts of DHI (and its
subsidiaries). All intercompany accounts and transactions have been
eliminated upon consolidation. The Company records non-controlling
interest which reflects the 1.8% portion of the earnings of DHI and its
subsidiaries allocable to the holders of the minority
interest.
Income
taxes
On
January 1, 2007, the Company adopted the following new accounting policy related
to income tax. The Company began accounting for income tax under the
provisions of Financial Accounting Standards Board (“FASB”) ASC
740-10. ASC 740-10 clarifies the accounting for uncertainty in income
taxes recognized in an enterprise’s financial statements in accordance with ASC
740-10 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. ASC 740-10 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, 2003, 2004, 2005, 2006, 2007, 2008 and 2009, the tax years
which remain subject to examination by major tax jurisdictions as of December
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.
Live
Current Media Inc.
Notes
to the Consolidated Financial Statements
For
the year ended December 31, 2009
NOTE
3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Recently
Adopted Accounting Pronouncements
ASC
105
In June,
2009, the FASB issued Update No. 2009-01,
The FASB Accounting Standards
Codification
TM
(“ASC”) as the source of authoritative U.S. generally accepted accounting
principles (GAAP) recognized by the FASB to be applied by nongovernmental
entities. This guidance is set forth in Topic 105 (“ASC
105”). Rules and interpretive releases of the Securities and Exchange
Commission (SEC) under authority of federal securities laws are also sources of
authoritative GAAP for SEC registrants. On the effective date of this Statement,
the Codification will supersede all then-existing non-SEC accounting and
reporting standards. All other nongrandfathered non-SEC accounting literature
not included in the Codification will become nonauthoritative. This
statement is effective for financial statements issued for fiscal years and
interim periods ending after September 15, 2009, which, for the Company, is
the interim period ending September 30, 2009. The Company adopted ASC
105 at September 30, 2009, however the adoption of this statement did not have a
material effect on its financial results. Further to the adoption of
ASC 105, the Company has updated its references to GAAP.
ASC
855
In May,
2009, the FASB issued ASC 855,
Subsequent Events.
The new
standard is intended to establish general standards of accounting for and
disclosure of events that occur after the balance sheet date but before
financial statements are issued or are available to be issued. This
statement is effective for financial statements issued for interim or annual
financial periods ending after June 15, 2009, which, for the Company, was the
interim period ending June 30, 2009. The Company adopted ASC 855 in
the second quarter of 2009 however it did not have a material effect to the
Company’s current practice.
ASC
815-10-65
In
March 2008, the FASB issued ASC 815,
Derivatives and
Hedging
. ASC 815 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 ASC 815; and how derivative instruments and related hedged
items affect an entity's financial position, financial performance and cash
flows. ASC 815 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 ASC 815-10-65 at January 1, 2009 however the adoption of this
statement did not have a material effect on its financial results.
ASC
260-10-45
The FASB
issued ASC 260-10-45,
Earnings
Per Share,
which clarifies that all outstanding unvested share-based
payment awards that contain rights to nonforfeitable dividends participate in
undistributed earnings with common shareholders. Awards of this
nature are considered participating securities and the two-class method of
computing basic and diluted earnings per share must be applied. The
restricted stock awards the Company has granted to employees and directors are
considered participating securities as they receive nonforfeitable
dividends. The Company adopted AC 260-10-45 effective January 1, 2009
however there has been no material effect on its financial results.
ASC
350-30
In April
2008, the FASB issued ASC 350-30,
General Intangibles Other Than
Goodwill
. ASC 350-30 amends the factors that should be
considered in developing renewal or extension assumptions used to determine the
useful life of a recognized intangible asset. The intent of ASC
350-30 is to improve the consistency between the useful life of a recognized
intangible asset and the period of expected cash flows used to measure the fair
value of the asset. ASC 350-30 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
ASC 350-30 at January 1, 2009 however the adoption of this statement did not
have a material effect on its financial results.
Live
Current Media Inc.
Notes
to the Consolidated Financial Statements
For
the year ended December 31, 2009
NOTE
3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Recently
Adopted Accounting Pronouncements (continued)
ASC
805
In
December 2007, the FASB issued revised authoritative guidance in ASC 805,
Business
Combinations
. ASC 805 establishes principles and requirements
for how the acquirer in a business combination: (i) recognizes and measures in
its financial statements the identifiable assets acquired, the liabilities
assumed, and any noncontrolling interest in the acquiree, (ii) recognizes and
measures the goodwill acquired in the business combination or a gain from a
bargain purchase, and (iii) determines what information to disclose to enable
users of the financial statements to evaluate the nature and financial effects
of the business combination. ASC 805 is 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 ASC 805 at January 1, 2009, however the
adoption of this statement did not have a material effect on its financial
results. ASC 805 will be applied to any future business
combinations.
ASC
810
In
December 2007, the FASB issued authoritative guidance related to noncontrolling
interests in consolidated financial statements, which was an amendment of ARB
No. 51. This guidance is set forth in ASC 810,
Consolidation
. ASC
810 establishes accounting and reporting standards for the noncontrolling
interest in a subsidiary and for the deconsolidation of a
subsidiary. This accounting standard is effective for fiscal years
beginning on or after December 15, 2008, which for the Company was the fiscal
year beginning January 1, 2009. The Company adopted ASC 810 at January 1, 2009,
however the adoption of this statement did not have a material effect on its
financial results.
ASC
820
In
September 2006, the FASB issued ASC 820,
Fair Value Measurements and
Disclosures
. This Statement defines fair value, establishes a
framework for measuring fair value in GAAP, and expands disclosures about fair
value measurements. This standard does not require any new fair value
measurements.
In 2008,
the Company adopted ASC 820 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 ASC 820 for financial assets
and liabilities measured at fair value on a recurring basis as at December 31,
2009 are included in Note 4.
In
February 2008, the FASB issued authoritative guidance which deferred the
effective date of ASC 820 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 ASC 820 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 reporting and
disclosures.
Recently
Issued Accounting Pronouncements
Accounting
Standards Update (“ASU”) 2010-06
In
January 2010, the FASB issued ASU 2010-06,
Fair Value Measurements and
Disclosures (Topic 820), Improving Disclosures about Fair Value Measurements,
amending ASC 820. ASU 2010-06 requires entities to provide new
disclosures and clarify existing disclosures relating to fair value
measurements. The new disclosures and clarifications of existing
disclosures are effective for interim and annual reporting periods beginning
after December 15, 2009, except for the disclosures about purchases, sales,
issuances, and settlements in Level 3 fair value measurements, which are
effective for fiscal years beginning after December 15, 2010 and for interim
periods within those fiscal years. The Company is currently evaluating the
impact of ASU 2010-06, but does not expect its adoption to have a material
impact on the Company’s financial position or results of
operations.
Live
Current Media Inc.
Notes
to the Consolidated Financial Statements
For
the year ended December 31, 2009
NOTE
3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Recently
Issued Accounting Pronouncements (continued)
Accounting
Standards Update (“ASU”) 2009-13
In
October 2009, the FASB issued ASU 2009-13,
Revenue Recognition (Topic 605),
Multiple-Deliverable Revenue Arrangements
amending ASC 605. ASU 2009-13
requires entities to allocate revenue in an arrangement using estimated selling
prices of the delivered goods and services based on a selling price hierarchy.
ASU 2009-13 eliminates the residual method of revenue allocation and requires
revenue to be allocated using the relative selling price method. ASU 2009-13 is
effective prospectively for revenue arrangements entered into or materially
modified in fiscal years beginning on or after June 15, 2010. The Company
is currently evaluating the impact of ASU 2009-13, but does not expect its
adoption to have a material impact on the Company’s financial position or
results of operations.
NOTE
4 – 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 3, the Company adopted all provisions of ASC 820 as of January
1, 2009. ASC 820 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. ASC 820 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, ASC 820 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.
Live
Current Media Inc.
Notes
to the Consolidated Financial Statements
For
the year ended December 31, 2009
NOTE
4 – FINANCIAL INSTRUMENTS (continued)
Fair
values of Financial Instruments (continued)
This
hierarchy requires the Company to minimize the use of unobservable inputs and to
use observable market data, if available, when estimating fair value. The fair
value of warrants using the following inputs at December 31, 2009
is:
Fair
Value Measurements at Reporting Date Using
Total
|
Quoted Prices in
Active
Markets for Identical Assets
(Level 1)
|
Significant
Other
Observable Inputs
(Level 2)
|
Significant
Unobservable Inputs
(Level 3)
|
|
|
|
|
$125,207
|
-
|
$125,207
|
-
|
The
Company’s financial instruments consist of cash and cash equivalents, accounts
receivable, receivable from sales-type lease, accounts payable, bonuses payable,
amounts due to shareholders of Auctomatic, and warrants. 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
5 – NON-CONTROLLING INTEREST
The
Company currently holds 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 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 resulting
in an increase to goodwill of $66,692, and a credit against the non-controlling
interest of $75,478 charged to income during the year ended December 31,
2008.
The 2009
income of DHI has resulted in a balance of $28,353 in the Non-Controlling
Interest (“NCI”) at December 31, 2009.
NOTE
6 – GLOBAL CRICKET VENTURE
Memoranda
of Understanding
On April
17, 2008, the Company signed a Memorandum of Understanding (“MOU” or “Original
MOU”) with each of the Board of Control for Cricket in India (“BCCI”) and the
DLF Indian Premier League (“IPL”). The MOUs, which would have been
preliminary to a final agreement, started the Company’s planned exploitation of
its cricket.com domain name.
Certain
other subsidiaries and ventures were incorporated or formed to further this
business opportunity. However, none of these companies were used for
that purpose or had significant assets or operations, nor were any material
binding contracts signed.
During
the year ended December 31, 2009 and up to the date of transfer of the original
MOU as disclosed below, the Company incurred $452,307 (2008 - $1.47 million) in
furtherance of this plan which have been included in corporate marketing,
management fees and employee salaries, and corporate general and administrative
expenses. As the plan to exploit cricket.com was in its early stages,
all expenditures were charged to operations.
On August
20, 2009, GCV transferred and assigned to an unrelated third party, Mauritius,
all of the rights, title, and interest in and to the Original MOU with the IPL,
as the Original MOU was amended by the Novation Agreement that was signed on
March 31, 2009. Pursuant to this agreement, Mauritius also agreed to
assume and be liable for all past and future obligations and liabilities of GCV
arising from the original MOU, as it was amended by the
Novation. Mauritius made the $750,000 payment as required under the
Novation Agreement during Q3 of 2009, therefore Live Current was released from
all accrued liabilities under the BCCI MOU.
Live
Current Media Inc.
Notes
to the Consolidated Financial Statements
For
the year ended December 31, 2009
NOTE
6 – GLOBAL CRICKET VENTURE (continued)
The
Company also agreed to sell the domain name cricket.com, along with the
associated website, content, copyrights, trademarks, etc, to Mauritius, for
consideration of four equal payments of $250,000 each. The first
instalment of $250,000 was received in September 2009 and the second instalment
was received subsequent to year end. However,
collectibility of this instalment was reasonably assured at year end, therefore
it was included in the calculation of the gain below. The cricket.com
domain name shall remain the property of the Company until all payments have
been made. In order to facilitate the transfer of the cricket.com
website, the Company has agreed to provide Mauritius with support services for a
period of no more than 6 months (the “Transition Period”). In
exchange for the support services, Mauritius has agreed to the payment of
certain expenses related to the support services.
The
Company has accounted for this transaction under ASC 605-25,
Multiple Element
Arrangements.
As a result, the gain on the sales type lease of
cricket.com, the gain on settlement upon assignment and assumption of amounts
due under the Novation Agreement, as well as the support services to be provided
by the Company to Mauritius during the Transition Period, are to be recognized
over the six month Transition Period, or from September 2009 to February
2010. Since the collectability of the two remaining future payments
relating to the sales-type lease of cricket.com is not reasonably assured, the
Company has only recorded the first and second $250,000 instalments in its
analysis under ASC 605-25. As a result, during the year ended
December 31, 2009, the Company recognized four month’s gain on settlement of the
amounts owing under the Novation Agreement, four month’s gain on the first
instalment and one month’s gain on the second instalment received for the
sales-type lease of cricket.com.
|
Settlement of
amounts due regarding Global Cricket Venture
|
|
$
|
750,000
|
|
|
|
|
|
Less: Recognized
gain on settlement during 2009
|
|
|
(500,000
|
)
|
|
|
|
|
|
|
|
|
|
|
$
|
250,000
|
|
|
Q3 Gain on
sales-type lease of cricket.com
|
|
|
250,000
|
|
|
|
|
|
|
Less: Recognized
gain on sales-type lease of cricket.com
|
|
|
(166,667
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
83,333
|
|
|
Q4 Gain on
sales-type lease of cricket.com
|
|
|
250,000
|
|
|
|
|
|
|
Less: Recognized
gain on sales-type lease of cricket.com
|
|
|
(83,333
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
166,667
|
|
|
Deferred gains of
amounts regarding Global Cricket Venture at December 31, 2009
|
|
|
|
|
|
$
|
500,000
|
|
NOTE
7 – 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 was consummated 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
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 were to be distributed
in equal amounts to the Auctomatic shareholders on each of the first, second and
third anniversaries of the Closing Date. The remaining $800,000 of the total
Cash Consideration was to be distributed on the first anniversary of the Closing
Date. All amounts of cash and common stock are to 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 was subject to their continuing employment with the Company or a
subsidiary on each Distribution Date. As these shares were contingent
on future employment, they were considered contingent consideration and were
required to be accounted for under ASC 718 as stock-based
compensation. During the first quarter of 2009, 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 anniversaries was no longer
payable. At that date, the remaining 275,736 shares of the common
stock owing to the other founders remained payable on the anniversary dates as
noted above. During the second quarter of 2009, 91,912 of these
shares were issued to the two founders who remained with the
Company. In August 2009, these two founders were
terminated. The remaining 183,824 shares of common stock payable
under the Merger Agreement on the second and third anniversaries to these two
Auctomatic founders contingent on employment were forgone pursuant to the
separation agreements with these two individuals. See also Note
11.
Live
Current Media Inc.
Notes
to the Consolidated Financial Statements
For
the year ended December 31, 2009
NOTE
7 – 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
|
|
|
1,248,865
|
|
Present
value of amounts payable to shareholders of Auctomatic
|
|
|
640,000
|
|
|
|
|
|
|
Total
|
|
$
|
3,322,918
|
|
Net
Assets Acquired
|
|
|
|
|
|
|
|
Assets
|
|
|
|
Cash
|
|
$
|
3,066
|
|
Share
subscriptions receivable
|
|
|
780
|
|
Computer
hardware
|
|
|
7,663
|
|
Auction
software
(Note
8)
|
|
|
925,000
|
|
Goodwill
|
|
|
2,539,348
|
|
Less
Liabilities
|
|
|
|
|
Accounts
payable and accrued liabilities
|
|
|
(85,622
|
)
|
Loan
payable
|
|
|
(67,317
|
)
|
|
|
|
|
|
Net
Assets Acquired
|
|
$
|
3,322,918
|
|
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 year 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.
At May
22, 2008, the fair value of the amounts payable in cash to shareholders of
Auctomatic on the first anniversary of the closing date was
$640,000. The fair value discount was accreted in full by $63,300 by
the first anniversary date, May 22, 2009 (2008 accretion -
$96,700). As a result, the full $800,000 of the amounts payable in
cash to the shareholders of Auctomatic due on the first anniversary of the
closing date had been accrued by the Company. The funds due to the
Auctomatic shareholders at the first anniversary date were not paid by the
Company as required.
In August
2009, the Company issued convertible notes to twelve of the eighteen
shareholders covering $424,934 of the total $800,000. These
convertible notes are interest bearing at 10% per annum, with such interest
accruing as of May 22, 2009 and payable quarterly in arrears. The
convertible notes mature on May 22, 2010.
Convertible
Notes to Shareholders of Auctomatic
|
|
|
|
Convertible
notes issued August 21, 2009
|
|
$
|
424,934
|
|
Interest
accrued May 22, 2009 – December 31, 2009
|
|
|
25,845
|
|
Interest
paid up to December 31, 2009
|
|
|
(21,279
|
)
|
Balance,
December 31, 2009
|
|
$
|
429,500
|
|
Live
Current Media Inc.
Notes
to the Consolidated Financial Statements
For
the year ended December 31, 2009
NOTE
7 – MERGER AGREEMENT (continued)
Also in
August 2009, the Company reached an agreement with the remaining two founders of
Auctomatic to terminate their employment. Under their separation
agreements, the Company will repay the amounts owed to them under the Merger
Agreement at a 10% discount to face value as discussed below. The
Company also recorded $60,000 of severance costs in Q3 of 2009 due to them under
their employment agreements. The severance costs were reimbursed
pursuant to the Cricket agreements as discussed in Note 6. In
consideration of these payments, these individuals have each agreed to forfeit
their rights to 91,912 shares of Live Current common stock that were due to be
issued to each of them in May 2010 and May 2011 under the Merger
Agreement.
The
amounts owing to the two founders of Auctomatic pursuant to the Merger Agreement
totalled $334,224 prior to their separation agreement. These amounts
were discounted at 10% to face value in August 2009 and a gain on restructure of
the Auctomatic payable of $29,201 was recorded in the statements of operations
during the third quarter of 2009. Payments of $75,200 were made
against the amounts owing to the founders upon execution of the separation
agreements. The agreements provided for the balance of the payments
to be made on October 1, 2009, with simple interest accruing on unpaid amounts
after October 1, 2009 at 10% per annum. Amounts owing to the other
four of the eighteen shareholders of Auctomatic who did not take part in the
convertible note offering total $40,841.
Due
to Shareholders of Auctomatic
|
|
|
|
Amounts
payable to Auctomatic founders
|
|
$
|
334,224
|
|
Amounts
paid to Auctomatic founders
|
|
|
(227,200
|
)
|
Amounts
payable to other Auctomatic shareholders
|
|
|
40,841
|
|
Gain
on restructure of Auctomatic payable
|
|
|
(29,201
|
)
|
Balance,
December 31, 2009
|
|
$
|
118,664
|
|
At
December 31, 2009, the Company recognized an impairment charge of the goodwill
acquired pursuant to the merger of $2,539,348 as noted above.
NOTE
8 – PROPERTY & EQUIPMENT
December
31, 2009
|
|
Cost
|
|
|
Accumulated
Amortization
|
|
|
Net
Book Value
|
|
Office
Furniture and Equipment
|
|
$
|
167,464
|
|
|
$
|
57,956
|
|
|
$
|
109,508
|
|
Computer
Equipment
|
|
|
119,737
|
|
|
|
69,167
|
|
|
|
50,570
|
|
Computer
Software
|
|
|
27,276
|
|
|
|
27,276
|
|
|
|
-
|
|
Leasehold
Improvements
|
|
|
142,498
|
|
|
|
71,249
|
|
|
|
71,249
|
|
|
|
$
|
456,975
|
|
|
$
|
225,648
|
|
|
$
|
231,327
|
|
December
31, 2008 (as restated)
|
|
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
|
|
At June
30, 2009, the Company analyzed the potential for impairment of the auction
software that was acquired pursuant to the Merger Agreement. At this
date, the Company considered the significant changes that were made to the
direction and to staffing within the Company. The lack of a strategy,
plans, or use of the Auction software a year subsequent to the acquisition of
the software indicated impairment of the asset at the end of the second quarter
of 2009. Therefore, the Company believed that the auction software
was impaired and has written off the net book value of the asset of $590,973 at
that date.
Live
Current Media Inc.
Notes
to the Consolidated Financial Statements
For
the year ended December 31, 2009
NOTE
9 – 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.
|
|
December
31,
2009
|
|
|
December
31, 2008
(as
restated)
|
|
Website
Development Costs
|
|
$
|
359,929
|
|
|
$
|
405,001
|
|
Less:
Accumulated Amortization
|
|
|
(142,046
|
)
|
|
|
(49,610
|
)
|
|
|
$
|
217,883
|
|
|
$
|
355,391
|
|
The
Company capitalized website development costs of $47,804 during the year ended
December 31, 2009 and recorded $123,395 in accumulated
amortization. The Company expensed website development costs of
$92,876 and corresponding accumulated amortization of $30,959 related to domain
names that were sold during the year. The net effect of these amounts
was offset against the gain from sales of domain names.
NOTE
10 – DEFERRED LEASE INDUCEMENTS
|
|
December
31,
2009
|
|
|
December
31, 2008
(as
restated)
|
|
Deferred
Lease Inducements
|
|
$
|
55,379
|
|
|
$
|
75,518
|
|
Less:
Current Portion
|
|
|
(20,138
|
)
|
|
|
(20,138
|
)
|
|
|
$
|
35,241
|
|
|
$
|
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
December 31, 2009, there were 24,026,180 (December 31, 2008 – 23,546,370) shares
issued and outstanding.
2009
On
January 2, 2009, the Company issued 15,000 shares with a value of $5,700 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 was 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.
On April
9, 2009, the Company entered into an agreement whereby $8,625 of its accounts
payable was extinguished in exchange for the issuance of 27,823 shares of its
common stock. These shares were issued on April 14,
2009.
On June
19, 2009, the Company issued 45,956 shares of its common stock to each of the
two remaining Auctomatic founders for a total of 91,912 shares pursuant to the
Merger Agreement as discussed in Note 7.
Live
Current Media Inc.
Notes
to the Consolidated Financial Statements
For
the year ended December 31, 2009
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 11(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 were being held for future distribution in three equal installments on
the three anniversary dates following the merger pursuant to the terms of the
Merger Agreement. The value of the stock consideration was added to
the cash consideration in the Company’s determination of the purchase
price. See also Note 7. The remaining 413,604 shares of
common stock were reserved for future issuance to the Auctomatic founders and
are accounted for as stock-based compensation pursuant to ASC 718. See also Note
11(c) and Note 11(d).
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 Offering 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 Offering. 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. Refer to Note 11(e).
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.
Notes
to the Consolidated Financial Statements
For
the year ended December 31, 2009
NOTE
11 – COMMON STOCK (continued)
c)
Reserved
Auctomatic
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. In the second quarter of 2009, the Company
issued 91,912 shares to the remaining two Auctomatic founders pursuant to the
Merger Agreement as noted above.
In August
2009, the remaining two Auctomatic founders were terminated. The
shares of common stock contingent on their continued employment with the Company
were forgone pursuant to separation agreements signed with the two
individuals. Therefore, at December 31, 2009, there are no further
reserved shares for future issuance and distribution to the Auctomatic founders.
See also Note 7 and Note 11(d).
Former
President
Effective
January 31, 2009, the Company’s former President and Chief Operating Officer
resigned. Pursuant to his separation agreement, the Company was
required to pay an accrued special bonus in the amount of CDN$250,000 less any
statutory deductions. This amount was included in accounts payable
and accrued liabilities at that time. The net payment of this bonus
was to be converted to equity and paid as restricted shares of the Company’s
common stock.
On
November 13, 2009 the Company entered into a second amendment to the separation
agreement noted above. Pursuant to the second amendment, the
severance allowance remaining to be paid and all additional benefits owed to Mr.
Ehrlich as of November 16, 2009 in the gross amount of $109,375 was to be paid
in a lump sum payment less all applicable withholdings, rather than over a
period of 10 remaining months. Furthermore, Mr. Ehrlich waived the
CDN$250,000 in net monthly equity payments that the Company was obligated to pay
him under the initial separation agreement, and accepted $20,000 cash, less all
applicable withholdings, in lieu thereof.
d)
Stock Options
The Board
of Directors and stockholders approved the 2007 Stock Incentive Plan and adopted
it on 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 ASC 718 for non-employees
using the Black Scholes option pricing model. The assumptions used in
the pricing model include:
|
2009
|
2008
(as
restated)
|
Dividend
yield
|
0%
|
0%
|
Expected
volatility
|
97.02%-124.52%
|
64.86%-75.68%
|
Risk
free interest rate
|
1.29%-1.70%
|
1.62%
- 3.07%
|
Expected
lives
|
3.375
years
|
3.375
years
|
Live
Current Media Inc.
Notes
to the Consolidated Financial Statements
For
the year ended December 31, 2009
NOTE
11 – COMMON STOCK (continued)
d) Stock
Options (continued)
|
(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 $1.26 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 $1.20 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 $1.40 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 $1.71 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 $1.26 and $1.92 per option
granted. 25,000 of these options were forfeited during 2008 and
the remaining 400,000 options were forfeited in 2009.
|
|
|
|
|
(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 $1.71 per option
granted. 17,500 of these options have been forfeited during
2008 and 167,500 options were forfeited in 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 $213,895 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. In 2009,
100,000 options were forfeited.
|
|
|
|
|
(x)
|
On
April 8, 2009, the Company granted to one of its full-time employees a
total of 5,000 options at an exercise price of $0.35 per
share. These options have a fair value of $0.23 per option
granted.
|
|
|
|
|
(xi)
|
On
May 28, 2009, the Company granted to one of its full-time employees a
total of 5,000 options at an exercise price of $0.30 per
share. These options have a fair value of $0.21 per option
granted.
|
|
|
|
|
(xii)
|
On
September 1, 2009, the Company granted to two of its full-time corporate
directors a total of 75,000 stock options at an exercise price of $0.22
per share. These options have a fair value of $0.16 per option
granted.
|
|
|
|
|
(xiii)
|
On
November 30, 2009, the Company granted to one of its full-time employees a
total of 15,000 options at an exercise price of $0.16 per
share. These options have a fair value of $0.12 per option
granted.
|
Live
Current Media Inc.
Notes
to the Consolidated Financial Statements
For
the year ended December 31, 2009
NOTE
11 – COMMON STOCK (continued)
d)
Stock
Options (continued)
The
Company recognizes stock-based compensation expense over the requisite service
period of the individual grants. ASC 718 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 December 31, 2009 of $5,013,896 (2008 - $5,824,833)
will be recognized on a straight-line basis over a vesting term of 3.375 years
and an expense has been recognized in the year ended December 31, 2009 of
$1,596,847 (2008 - $1,992,461) and included in management fees and employee
salaries expense.
On May
22, 2008, the Company reserved 413,604 shares of common stock for future
issuance and distribution in relation to the merger with
Auctomatic. These shares were to be issued to the Auctomatic founders
in equal instalments on the three subsequent anniversary dates of the merger
contingent on their continued employment with the Company pursuant to the terms
of the Merger Agreement. As these shares were contingent on future
employment, they were considered contingent consideration and are required to be
accounted for under ASC 718 as stock-based compensation. During the
first quarter of 2009, 137,868 of these shares were forfeited. During
the second quarter of 2009, 91,912 of these shares were issued out of
treasury. During the third quarter of 2009, the remaining 183,824
shares were forfeited. See also Note 7 and Note
11(c). Before August 2009, the shares were valued using the Black
Scholes option pricing model at the date of grant using a 3 year term and a 33%
forfeiture rate. Beginning in August 2009, the shares were valued
using a 100% forfeiture rate as all of the founders had forfeited their
shares.
The fair
value of these shares at July 31, 2009 of $1,077,773 (December 31, 2008 -
$1,157,049) was recognized on a straight-line basis over a vesting term of 3
years at date of grant and accordingly, an expense had been recognized in the
year ended December 31, 2009 of $160,955 (2008 - $170,065) and included in
management fees and employee salaries expense. In August 2009, the
forfeiture rate changed to 100% and therefore at December 31, 2009, the fair
value was $0.
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
|
|
|
|
1.50
|
|
Granted
|
|
|
2,160,000
|
|
|
|
0.81
|
|
|
|
1.36
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited
or expired
|
|
|
(112,500
|
)
|
|
|
2.29
|
|
|
|
0.47
|
|
Options
outstanding, December 31, 2008
|
|
|
4,797,500
|
|
|
|
1.12
|
|
|
|
1.46
|
|
Granted
|
|
|
215,000
|
|
|
|
0.26
|
|
|
|
0.18
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited
or expired
|
|
|
(2,167,500
|
)
|
|
|
1.67
|
|
|
|
1.44
|
|
Options
outstanding, December 31,2009
|
|
|
2,845,000
|
|
|
|
0.63
|
|
|
|
1.38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
vested at December 31, 2009
|
|
|
1,783,334
|
|
|
|
0.65
|
|
|
|
1.45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate
Intrinsic Value
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
Weighted
average remaining life
|
|
2.97
Years
|
|
|
|
|
|
|
|
|
|
Live
Current Media Inc.
Notes
to the Consolidated Financial Statements
For
the year ended December 31, 2009
NOTE
11 – COMMON STOCK (continued)
e) Common
Stock Purchase Warrants
On June
11, 2007, the Company issued 1,000,000 shares of common stock and 1,000,000
common stock share purchase warrants to a company owned and controlled by the
Company’s Chief Executive Officer in exchange for $1,000,000
cash. The warrants expired June 10, 2009.
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 warrants 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 warrant 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, each 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, each for the purchase of one-half share of the Company’s
common stock, with an exercise price of $0.91 expiring November 19,
2011. The Company valued the warrants expiring November 19, 2010
using the Black Scholes option pricing model using the following assumptions: no
dividend yield; expected volatility rate of 75.24%; risk free interest rate of
1.09% and an expected life of 1 year. This resulted in a fair value
of $0.09 per warrant. The Company valued the warrants expiring
November 19, 2011 also using the Black Scholes option pricing model using the
following assumptions: no dividend yield; expected volatility rate of 70.53%,
risk free interest rate of 1.36% and an expected life of 2
years. This resulted in a fair value of $0.10 per
warrant. The total fair value of both warrants at December 31, 2009
was $250,710 (2008 - $157,895). The warrants issued are contingently
redeemable in cash in certain circumstances which may not all be within the
Company’s control. As a result, the accounting treatment for the
warrants falls under ASC 815-40-25, and their fair value of $157,895 at December
31, 2008 was recorded as a liability. Any future changes to the fair
value of the warrants will be adjusted to the statement of operations in the
period in which the change in fair value occurs. During the year
ended December 31, 2009, the increase to the fair value of the warrants was
$92,815 which was charged against corporate general and administrative expenses
during the year.
As of
December 31, 2009, 3,304,688 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
|
|
Warrants
outstanding and exercisable
December
31, 2008
|
|
|
4,304,688
|
|
|
|
0.96
|
|
|
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Cancelled
or expired
|
|
|
(1,000,000
|
)
|
|
|
1.25
|
|
|
|
|
|
Warrants
outstanding and exercisable
December
31, 2009
|
|
|
3,304,688
|
|
|
|
0.89
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average remaining life
|
|
1.35
Years
|
|
|
|
|
|
|
|
|
|
Live
Current Media Inc.
Notes
to the Consolidated Financial Statements
For
the year ended December 31, 2009
NOTE 12 – DOMAIN NAME LEASES AND SALES
2009
In
December 2009, the Company sold two domain names for $152,700 net of commission
and the purchase prices were paid in full upon the execution of the
agreement. The resulting $122,327 in net gain was reported in the
fourth quarter of 2009.
In
December 2009 (the “Effective Date”), the Company entered into an agreement to
lease two domain names to an unrelated third party for $400,000 less 10%
commission. The terms of the agreement provided for the receipt of
this amount in irregular lease payments to be received by May
2010. The first payment of $40,000 less half of the commission was
due upon execution of the agreement, and three instalments of $120,000 each
(less commission) are due on March 31, 2010, April 30, 2010, and May 31,
2010. The Company will lease the domain name to the purchaser
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 purchaser defaults on
any payments, the agreement would terminate, funds received to date would be
forfeited by the purchaser, and rights to the domain name would return to the
Company. Due to the uncertainty regarding the collectability of the
funds in the future, only the first payment received has been recorded as a gain
on sale of a domain name.
In August
2009, the Company sold the domain name
www.cricket.com
. Due
to the uncertainty regarding the collectability of the funds receivable under
the sale agreement in the future, the Company recognized the first instalment of
$250,000 received during the third quarter of 2009 and recognized the second
instalment of $250,000 during the fourth quarter of 2009. These
amounts were included in the Company’s analysis under ASC 605-25 as disclosed in
Note 6. Therefore four/sixths of the first instalment of $250,000, or
$166,667, and one/third of the second instalment of $250,000, or $83,333, were
recorded as a gain on sales-type lease of a domain name during the
year.
In July
2009, the Company sold three domain names for $725,000 less 10% commission and
the purchase prices were paid in full upon the execution of each
agreement. The resulting $374,887 in net gain was reported in the
third quarter of 2009.
On April
15, 2009, the Company sold one domain name to an unrelated third party for
$400,000 less 10% commission, resulting in a $261,934 net gain in the second
quarter of 2009.
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 provided 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
was due on each of the first to the fifth monthly anniversaries of the Effective
Date, $100,000 was due on each of the sixth to the ninth monthly anniversaries
of the Effective Date, and $300,000 was due on the first year anniversary of the
Effective Date. The Company was to lease the domain name to the
purchaser exclusively during the term of the agreement. Title and
rights to the domain name would be transferred to the purchaser only when full
payment was received at the end of the lease term. If the purchaser
defaulted on any payments, the agreement would terminate, funds received to date
would be forfeited by the purchaser, and rights to the domain name would return
to the Company. Due to the uncertainty regarding the collectability
of the funds in the future, only the amounts received were recorded as a gain on
sale of a domain name. During Q1 of 2009, a resulting gain of
$290,000 was recorded based on the payments received. During Q2 of
2009, a resulting gain of $65,000 was recorded based on the payment received in
April 2009. In May 2009, the purchaser breached the
agreement. As a result, the purchaser forfeited the total of $355,000
that had already been paid to the Company as of that date and that was recorded
as a gain on sales-type lease of domain name. Under the terms of the
agreement, the Company retained the funds and the domain name. In
August 2009, the Company subsequently sold this domain name to an unrelated
third party for $1,100,000 less $110,000 in commission and the purchase price
was paid in full upon the execution of the agreement. The resulting gain of
$740,000 was reported as a gain on sale of domain name in the third quarter of
2009.
On
February 24, 2009, the Company sold one domain name to an unrelated third party
for $400,000, resulting in a gain of $327,933 in the first quarter of
2009.
Live
Current Media Inc.
Notes
to the Consolidated Financial Statements
For
the year ended December 31, 2009
NOTE 12 – DOMAIN NAME LEASES AND SALES
(continued)
2008
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 $293,215 was
recorded on December 31, 2008. Both payments were received in
accordance with the terms of the agreement.
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 $264,904 consisting
of 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. There were no such expenses in Q2 or
Q3 of 2009.
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. During Q2 of 2008,
the Company incurred similar restructuring costs including $31,691 in valuation
costs relating to the issuance of DHI shares to its parent company, which
occurred in Q1 of 2008, and $2,000 in some final windup costs related to the
FrequentTraveller disposition in late 2007. During Q3 of 2008,
the Company incurred $20,000 in costs related to engaging a firm to pursue
capital financing opportunities that were terminated subsequent to the 2008 year
end.
NOTE
14 – INCOME TAXES
The
Company’s subsidiaries, DHI, 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
December 31 2009, the Company and its US subsidiaries have net operating loss
carryforwards from previous tax years of approximately $4,320,900 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 $7,552,600 that result in deferred tax
assets. These loss carryforwards will expire, if not utilized,
through 2029. The Company’s subsidiary DHI also has approximately
$417,500 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.
Live
Current Media Inc.
Notes
to the Consolidated Financial Statements
For
the year ended December 31, 2009
NOTE
14 – INCOME TAXES (continued)
The
Company’s actual income tax provisions differ from the expected amounts
determined by applying the appropriate combined effective tax rate to the
Company’s net income before taxes. The significant components of these
differences are as follows:
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
(As
Restated)
|
|
Income
(Loss) before income taxes
|
|
$
|
(4,091,076
|
)
|
|
$
|
(10,027,659
|
)
|
Combined
corporate tax rate
|
|
|
35.0%
|
|
|
|
35.0%
|
|
Expected
corporate tax recovery (expense)
|
|
|
1,431,877
|
|
|
|
3,509,681
|
|
|
|
|
|
|
|
|
|
|
Effective
foreign tax rate adjustment
|
|
|
27,301
|
|
|
|
(158,651
|
)
|
|
|
|
|
|
|
|
|
|
Increase
(decrease) resulting from:
|
|
|
|
|
|
|
|
|
Effect
of tax rate changes
|
|
|
-
|
|
|
|
(129,720
|
)
|
Reduction
in future tax benefits related to Auctomatic
|
|
|
(103,875
|
)
|
|
|
(219,980
|
)
|
Reduction
in future tax benefits related to intangible assets
|
|
|
46,735
|
|
|
|
(91,309
|
)
|
Non-taxable
portion of domain name sales
|
|
|
760,145
|
|
|
|
143,041
|
|
Stock
based compensation
|
|
|
(548,806
|
)
|
|
|
(701,983
|
)
|
Non-deductible
items and other
|
|
|
(141,140
|
)
|
|
|
(176,776
|
)
|
Exchange
adjustment to foreign denominated future tax assets
|
|
|
(111,076
|
)
|
|
|
(71,806
|
)
|
Non-deductible
impairment charges
|
|
|
(888,772
|
)
|
|
|
-
|
|
Change
in valuation allowance
|
|
|
(472,389
|
)
|
|
|
(2,102,497
|
)
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
The tax
effects of temporary differences that give rise to significant components of
future income tax assets and liabilities are as follows:
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
(As
Restated)
|
|
Deferred
income tax assets:
|
|
|
|
|
|
|
Operating
losses available for future periods
|
|
$
|
3,350,224
|
|
|
$
|
3,056,863
|
|
Property
and equipment in excess of net book value
|
|
|
108,663
|
|
|
|
-
|
|
Other
differences
|
|
|
66,174
|
|
|
|
24,134
|
|
|
|
|
3,525,061
|
|
|
|
2,846,302
|
|
Deferred
income tax liabilities
|
|
|
|
|
|
|
|
|
Property
and equipment in excess of net book value
|
|
|
-
|
|
|
|
(28,325
|
)
|
Indefinite
life intangible assets
|
|
|
(125,207
|
)
|
|
|
(206,370
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
3,399,854
|
|
|
|
2,846,302
|
|
Valuation
allowance
|
|
|
(3,525,061
|
)
|
|
|
(3,052,672
|
)
|
|
|
|
|
|
|
|
|
|
Net
deferred income tax liability
|
|
$
|
(125,207
|
)
|
|
$
|
(206,370
|
)
|
The
Company has a deferred tax liability related to potential taxes owing on
potential gains on disposal of our domain name intangible
assets. GAAP does not permit taxable temporary differences associated
with indefinite life intangible assets to be considered as evidence to otherwise
reduce a valuation allowance associated with deductible timing differences in
the same entity. The Company has recorded a related deferred tax
liability in its consolidated financial statements of $125,207 at December 31,
2009 (2008 - $206,370). There was a deferred tax recovery during the
year ended December 31, 2009 of $81,163 (2008 - $40,389).
Live
Current Media Inc.
Notes
to the Consolidated Financial Statements
For
the year ended December 31, 2009
NOTE
15 – 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 of Perfume.com are included as the eCommerce
Products business segment. The sales generated from regions other
than North America have been immaterial during the years ended December 31, 2009
and 2008, and therefore no geographic segment reporting is
required.
Revenues,
operating profits and net identifiable assets by business segments are as
follows:
For the year ended December 31,
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising
|
|
|
eCommerce
|
|
|
eCommerce
|
|
|
Total
|
|
|
|
|
|
|
Products
|
|
|
Services
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
Revenue
|
|
|
390,412
|
|
|
|
7,216,479
|
|
|
|
-
|
|
|
|
7,606,891
|
|
Segment
Loss
|
|
|
(1,326,812
|
)
|
|
|
(2,873,556
|
)
|
|
|
-
|
|
|
|
(4,200,368
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
at December 31, 2009
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
Total
Assets
|
|
|
1,772,290
|
|
|
|
921,669
|
|
|
|
-
|
|
|
|
2,693,959
|
|
Intangible
Assets
|
|
|
804,284
|
|
|
|
158,849
|
|
|
|
-
|
|
|
|
963,133
|
|
For the year ended December 31, 2008 (as
restated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising
|
|
|
eCommerce
|
|
|
eCommerce
|
|
|
Total
|
|
|
|
&
Other
|
|
|
Products
|
|
|
Services
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
Revenue
|
|
|
93,140
|
|
|
|
9,271,693
|
|
|
|
-
|
|
|
|
9,364,833
|
|
Segment
Loss
|
|
|
(4,312,730
|
)
|
|
|
(5,219,404
|
)
|
|
|
-
|
|
|
|
(9,532,134
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
at December 31, 2008
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
Total
Assets
|
|
|
1,665,723
|
|
|
|
6,082,595
|
|
|
|
-
|
|
|
|
7,748,318
|
|
Intangible
Assets
|
|
|
1,398,417
|
|
|
|
189,046
|
|
|
|
-
|
|
|
|
1,587,463
|
|
The
reconciliation of the segment loss from operations to net loss as reported in
the consolidated financial statements is as
follows:
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Segment
Loss
|
|
$
|
(4,200,368
|
)
|
|
$
|
(2,414,328
|
)
|
Non-Operating
(Income) and Expenses
|
|
|
|
|
|
|
|
|
Global
Cricket Venture payments
|
|
|
-
|
|
|
|
(1,000,000
|
)
|
Gain on
settlement of amounts due regarding Global Cricket Venture
|
|
|
750,000
|
|
|
|
-
|
|
Gains
from sales and sales-type lease of domain names
|
|
|
2,452,081
|
|
|
|
461,421
|
|
Accretion
expense
|
|
|
(63,000
|
)
|
|
|
(96,700
|
)
|
Interest
expense
|
|
|
(25,845
|
)
|
|
|
-
|
|
Interest and
investment income
|
|
|
1,534
|
|
|
|
67,683
|
|
Foreign
exchange loss
|
|
|
(88,571
|
)
|
|
|
(3,407
|
)
|
Gain on
restructure of severance payable
|
|
|
212,766
|
|
|
|
-
|
|
Gain on
restructure of Auctomatic payable
|
|
|
29,201
|
|
|
|
-
|
|
Impairment of
Auction Software
|
|
|
(590,973
|
)
|
|
|
-
|
|
Impairment of
Goodwill
|
|
|
(2,539,348
|
)
|
|
|
-
|
|
Net
loss before taxes for the year
|
|
$
|
(4,062,823
|
)
|
|
$
|
(10,103,137
|
)
|
Substantially
all property and equipment and intangible assets are located in
Canada.
Live
Current Media Inc.
Notes
to the Consolidated Financial Statements
For
the year ended December 31, 2009
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
$
|
|
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 74% of basic rent.
Global Cricket
Venture
On March
31, 2009, the Company, its subsidiary GCV, the BCCI and the IPL amended the
MOUs. The Company and the BCCI jointly entered into a Termination
Agreement, pursuant to which the MOU with the BCCI (“BCCI MOU”) was
terminated. The agreement constitutes full and final settlement of
any and all historic and future outstanding obligations due from Live Current
under the BCCI MOU. Per the Termination Agreement, Live Current would
be released from all accrued liabilities under the BCCI MOU after the $750,000
payment was made under the Novation Agreement described below.
The
Company, GCV and the BCCI, on behalf of the IPL, entered into a Novation
Agreement with respect to the MOU with the IPL (“IPL MOU”). The
responsibility for this payment was assumed by, and the benefits associated with
the MOU formerly held by the Company were transferred to, GCV. The
IPL MOU’s payment schedule was also amended.
These
terms were further renegotiated in August 2009 whereby GCV transferred and
assigned to an unrelated third party, Mauritius, all of the rights, title, and
interest in and to the IPL MOU, as amended by the Novation
Agreement. Mauritius made the $750,000 payment as required under the
Novation Agreement during Q3 of 2009, therefore Live Current was released from
all accrued liabilities under the BCCI MOU. In order to facilitate
the transfer of the Cricket.com website, the Company has agreed to provide
Mauritius with support services for a period of no more than 6 months (the
“Transition Period”). In exchange for the support services, Mauritius
has agreed to the payment of certain expenses related to the support
services. Refer to Note 6.
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.
Notes
to the Consolidated Financial Statements
For
the year ended December 31, 2009
NOTE
18– RELATED PARTY TRANSACTIONS
2009
On March
1, 2009, the Company began charging $6,000 per month to a company controlled by
its Chief Executive Officer. Live Current is providing this company
with IT, administrative, and marketing support. This arrangement
allows Live Current to share its resources while earning revenues for support
services.
On
November 10, 2009, the Company’s Board of Directors approved an Amendment to the
Employment Agreement (the “Amendment”) of the Company’s Chief Executive Officer
(“CEO”). The Amendment modified the CEO’s base salary in that
effective as of February 1, 2009, his base salary decreased to
$120,000. The Amendment recognizes that the salary related to $80,000
owing for his services from February 1, 2009 to September 30, 2009 had remained
unpaid, and this amount was to be converted to shares of the Company’s common
stock. The effect of the decrease in salary for the period of
February 1 to September 30, 2009 was reflected in the Company’s interim
financial statements ended September 30, 2009.
On
December 28, 2009, the Company’s Board of Directors approved a Second Amendment
to the Employment Agreement (the “Second Amendment”) of the CEO. The
Second Amendment decreased the unpaid salary that had been deferred for the
period of February 1, 2009 to September 30, 2009 to $72,000. It also
modified the method of payment of the deferred salary, and approved this amount
to be paid in cash, less any and all statutory deductions, instead of by way of
shares of the Company’s common stock. The effects of the decrease of
the salary payable, as well as the subsequent payment, were reflected in the
Company’s financial statements ended December 31, 2009.
2008
The
Company issued shares of common stock to related parties pursuant to private
placements in 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
19 – SUBSEQUENT EVENTS
Subsequent
to year end, the Company is transferring its domain names related to its
Perfume.com business, along with brand-related assets, from its 98.2% owned
subsidiary DHI, to its wholly-owned subsidiary Delaware. Since it is
an intercompany transfer of assets, the Company is determining the fair market
value of the assets to be transferred as well as what effect, if any, this
transaction will have on its consolidated financial statements.
NOTE
20 – COMPARATIVE FIGURES
Certain
comparative figures have been reclassified to conform to the basis of
presentation adopted in the current period.
PART II
INFORMATION
NOT REQUIRED IN PROSPECTUS
ITEM
13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The
following table sets forth the costs and expenses payable by us in connection
with the sale of common stock being registered. All amounts are estimated,
except the registration fee:
Securities
and Exchange Commission registration fee
|
|
$
|
115.55
|
|
Printing
fees and expense
|
|
$
|
7,500.00
|
|
Legal
fees and expenses
|
|
$
|
30,000.00
|
|
Accounting
fees and expenses
|
|
$
|
30,000.00
|
|
Transfer
agent and registrar fees and expenses
|
|
$
|
0
|
|
Miscellaneous
|
|
$
|
1,000.00
|
|
Total
|
|
$
|
68,615.55
|
|
ITEM
14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The
Company’s Articles of Incorporation provides the following with respect to
liability:
“No
director or officer of the corporation shall be personally liable to the
corporation of any of its stockholders for damages for breach of fiduciary duty
as a director or officer involving any act or omission of any such director or
officer provided, however, that the foregoing provision shall not eliminate or
limit the liability of a director or officer for act or omissions which involve
intentional misconduct, fraud or a knowing violation of law, or the payment of
dividends in violation of Section 78.300 of the Nevada Revised Statutes. Any
repeal or modification of this Article of the Stockholders of the Corporation
shall be prospective only, and shall not adversely affect any limitation on the
personal liability of a director of officer of the Corporation for acts or
omissions prior to such repeal or modification.”
Section
78.7502 of the Nevada Revised Statutes provides that the Company may indemnify
any person who was or is a party, or is threatened to be made a party, to any
action, suit or proceeding brought by reason of the fact that he is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation or other entity. The expenses that are subject to this
indemnity include attorneys’ fees, judgments, fines and amounts paid in
settlement actually and reasonably incurred by the indemnified party in
connection with the action, suit or proceeding. In order for us to provide this
statutory indemnity, the indemnified party must not be liable under Nevada
Revised Statutes section 78.138 or must have acted in good faith and in a manner
he reasonably believed to be in, or not opposed to, the best interests of the
corporation. With respect to a criminal action or proceeding, the indemnified
party must have had no reasonable cause to believe his conduct was
unlawful.
Section
78.7502 also provides that the Company may indemnify any person who was or is a
party, or is threatened to be made a party, to any action or suit brought by or
on behalf of the corporation by reason of the fact that he is or was serving at
the request of the corporation as a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation or other entity
against expenses actually or reasonably incurred by him in connection with the
defense or settlement of such action or suit if he is not liable under Nevada
Revised Statutes section 78.138 of if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation. We may not indemnify a person if the person is adjudged by a court
of competent jurisdiction, after exhaustion of all appeals therefrom, to be
liable to the corporation, or for amounts paid in settlement to the corporation,
unless and only to the extent that the court in which such action or suit was
brought or another court of competent jurisdiction shall determine upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, the person is fairly and reasonably entitled to
indemnity.
Section
78.7502 requires the Company to indemnify our directors or officers against
expenses, including attorneys’ fees, actually and reasonably incurred by him in
connection with his defense, if he has been successful on the merits or
otherwise in defense of any action, suit or proceeding, or in defense of any
claim, issue or matter.
The
Company has been advised that it is the position of the Commission that insofar
as the provision in the Company's Articles of Incorporation, as amended, may be
invoked for liabilities arising under the Securities Act, the provision is
against public policy and is therefore unenforceable.
ITEM
15. RECENT SALES OF UNREGISTERED SECURITIES
We have
sold or issued the following securities not registered under the Securities Act
of 1933, as amended (the “Securities Act”) by reason of the exemption afforded
under Section 4(2) of the Securities Act within the past three years.
Except as stated below, no underwriting discounts or commissions were
payable with respect to any of the following transactions. Unless
otherwise indicated below, the offers and sales of the following securities were
exempt from the registration requirements of the Securities Act under Rule 506
insofar as (1) except as stated below, each of the investors was accredited
within the meaning of Rule 501(a); (2) the transfer of the securities was
restricted by the Company in accordance with Rule 502(d); (3) there were no more
than 35 non-accredited investors in any transaction within the meaning of Rule
506(b); and (4) none of the offers and sales were effected through any general
solicitation or general advertising within the meaning of Rule
502(c).
On May
25, 2007, we issued 30,100 restricted shares of common stock to David Jeffs, our
former Chief Executive Officer, and 30,184 restricted shares of common stock to
Cameron Pan, our former Chief Financial Officer, in settlement of bonuses earned
by each officer in 2006. Our common stock had a value of $1.09 per
share on May 25, 2007. We relied on section 4(2) of the Securities
Act of 1933 to issue the securities inasmuch as the securities were offered and
sold without any form of general solicitation or general advertising and the
offerees had access to the kind of information which registration would
disclose.
On June
11, 2007, our Board of Directors issued 1,000,000 shares of common stock and
warrants to purchase up to 1,000,000 additional shares of restricted common
stock at the price of $1.25 effective until June 10, 2009 to Hampson Equities
Ltd. (a company owned and controlled by C. Geoffrey Hampson) pursuant to a
subscription agreement dated June 1, 2007. We relied on section 4(2)
of the Securities Act of 1933 to issue the securities inasmuch as the securities
were offered and sold without any form of general solicitation or general
advertising and the offeree had access to the kind of information which
registration would disclose.
On
September 24, 2007, we issued 2,550,000 restricted shares of common stock to
accredited investors for aggregate consideration of $5,100,000.
On March
25, 2008, we entered into an Agreement and Plan of Merger (the “Merger
Agreement”) with Delaware (a wholly-owned subsidiary), Entity, Inc., a Delaware
corporation, (“Auctomatic”), Harjeet Taggar, Kulveer Taggar and Patrick
Collison, the founding members of Auctomatic (each a “Founder” and collectively,
the “Founders”) and Harjeet Taggar as representative of the stockholders of
Auctomatic (the “Stockholder Representative”). 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 (the “Cash
Consideration”) and (ii) 1,000,007 shares of our common stock (equal to
$3,000,000 divided by $3.00 per share, the last price of a single share of our
common stock as reported by the OTC Bulletin Board on the business day
immediately preceding the Closing Date) in exchange for all the issued and
outstanding shares of Auctomatic. On June 17, 2008, we issued 340,001
shares of our common stock and an additional 246,402 shares of the common stock
were issued and are to be distributed in equal amounts to the Auctomatic
stockholders on each of the first, second and third anniversaries of the Closing
Date. The distribution of the remaining 413,604 shares of the common
stock payable on the first, second and third anniversaries of the Closing Date
to the Auctomatic Founders is subject to their continuing employment with us or
a subsidiary on each Distribution Date. In 2009, one of the Founders
resigned from his employment, and therefore the distribution of 137,868 shares
of the common stock on the first, second and third anniversaries of the Closing
Date is no longer payable to him. The remaining 275,736 shares of
common stock owed to the Founders continuing in our employ remain payable on the
anniversary dates as noted above.
On May 1,
2008, we issued a warrant for the purchase of 50,000 of common stock with an
exercise price of $2.33 to Lexington Advisors LLC, an investor relations firm,
in connection with a services agreement. The warrants expired May 1,
2010. We relied on section 4(2) of the Securities Act of 1933 to
issue the securities inasmuch as the securities were offered and sold without
any form of general solicitation or general advertising and the offerees had
access to the kind of information which registration would
disclose.
On June
6, 2008, we issued 30,000 shares of common stock to Lexington Advisors LLC, an
investor relations firm, as partial consideration for services rendered having a
value of $85,350. We relied on section 4(2) of the Securities Act of
1933 to issue the securities inasmuch as the securities were offered and sold
without any form of general solicitation or general advertising and the offerees
had access to the kind of information which registration would
disclose.
On June
30, 2008, we issued 15,000 shares of common stock to Lexington Advisors LLC, an
investor relations firm, as partial consideration for services rendered having a
value of $36,573. We relied on section 4(2) of the Securities Act of
1933 to issue the securities inasmuch as the securities were offered and sold
without any form of general solicitation or general advertising and the offerees
had access to the kind of information which registration would
disclose.
On August
6, 2008, we issued 15,000 shares of common stock to Lexington Advisors LLC, an
investor relations firm, as partial consideration for services rendered having a
value of $31,071. We relied on section 4(2) of the Securities Act of
1933 to issue the securities inasmuch as the securities were offered and sold
without any form of general solicitation or general advertising and the offerees
had access to the kind of information which registration would
disclose.
On August
25, 2008, we issued 33,000 shares of common stock to Alliance Advisors LLC, our
former investor relations firm, as full consideration for services rendered
having a value of $85,682. We relied on section 4(2) of the
Securities Act of 1933 to issue the securities inasmuch as the securities were
offered and sold without any form of general solicitation or general advertising
and the offerees had access to the kind of information which registration would
disclose.
On August
28, 2008, we issued 15,000 shares of common stock to Lexington Advisors LLC, an
investor relations firm, as partial consideration for services rendered having a
value of $26,183. We relied on section 4(2) of the Securities Act of
1933 to issue the securities inasmuch as the securities were offered and sold
without any form of general solicitation or general advertising and the offerees
had access to the kind of information which registration would
disclose.
On
October 1, 2008, we issued 15,000 shares of common stock to Lexington Advisors
LLC, an investor relations firm, as partial consideration for services rendered
having a value of $20,250. We relied on section 4(2) of the
Securities Act of 1933 to issue the securities inasmuch as the securities were
offered and sold without any form of general solicitation or general advertising
and the offerees had access to the kind of information which registration would
disclose.
On October
31, 2008, we issued 15,000 shares of common stock to Lexington Advisors LLC, an
investor relations firm, as partial consideration for services rendered having a
value of $11,250. We relied on section 4(2) of the Securities Act of
1933 to issue the securities inasmuch as the securities were offered and sold
without any form of general solicitation or general advertising and the offerees
had access to the kind of information which registration would
disclose.
On
November 19, 2008, we completed a private offering of securities. We
accepted subscriptions from 11 accredited investors pursuant to which we issued
and sold 1,627,344 equity units at a price of $0.65 per unit for total gross
proceeds of $1,057,775. Each unit consisted of (i) one share of
common stock, (ii) a two-year warrant to purchase one-half share of common stock
at an exercise price of $0.78 and (iii) a three-year warrant to purchase
one-half share of common stock at an exercise price of
$0.91. Accordingly, we issued an aggregate of 1,627,344 shares of
common stock, 1,627,344 warrants with an exercise price of $0.78, and 1,627,344
warrants with an exercise price of $0.91.
On
December 16, 2008, we issued 33,000 shares of common stock to an investor
relations firm, Alliance Advisors LLC, in payment of services that had been
rendered to us having a value of $16,500. We relied on section 4(2)
of the Securities Act of 1933 to issue the securities inasmuch as the securities
were offered and sold without any form of general solicitation or general
advertising and the offerees had access to the kind of information which
registration would disclose.
In
December 2008, we issued 15,000 shares to Lexington Advisors LLC, an investor
relations firm, which provided investor relations services to us. These shares
had a value of $7,500 and were issued as partial consideration for services
rendered during the month. 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.
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
having a value of $5,700. 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.
On
January 8, 2009, we issued 345,075 shares of common stock to a law firm,
Richardson & Patel LLC, in payment of services rendered 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.
On April
9, 2009, we issued 27,823 shares of common stock to a law firm, McCormick Legal
Advisors LLC, in payment of services that had been rendered to us having a value
of $8,625. 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.
On June
19, 2009, we issued 45,956 shares of our common stock to each of the two
remaining Auctomatic founders pursuant to the Merger Agreement. 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 offerees occupied an insider status relative to us that afforded them
effective access to the information registration would otherwise
provide.
ITEM
16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
EXHIBIT
INDEX
Number
|
Description
|
|
|
3.1
|
Articles
of Incorporation
(1)
|
|
|
3.2
|
Bylaws
(2)
|
|
|
3.3
|
Certificate
of Amendment to the Articles of Incorporation
(3)
|
|
|
3.4
|
Text
of Amendment to the Bylaws
(4)
|
|
|
5
|
Legal
Opinion of Richardson & Patel LLP **
|
|
|
10.1
|
Live
Current Media Inc. 2007 Stock Incentive Plan
(6)
|
|
|
10.2
|
Employment
agreement between Live Current Media Inc. and C. Geoffrey Hampson dated
May 31, 2007
(7)
|
10.3
|
Real
Property Lease Agreement between Live Current Media Inc. and Landing
Holdings Limited and Landing Properties Limited dated July 16, 2007
(8)
|
|
|
10.4
|
Incentive
Stock Option Agreement between Live Current Media Inc. and C. Geoffrey
Hampson dated September 11, 2007
(9)+
|
|
|
10.5
|
Incentive
Stock Option Agreement between Live Current Media Inc. and James P. Taylor
dated September 11, 2007
(10)+
|
|
|
10.6
|
Incentive
Stock Option Agreement between Live Current Media Inc. and Mark Benham
dated September 12, 2007
(11)+
|
|
|
10.7
|
Employment
Agreement between Live Current Media Inc. and Mark Melville dated November
9, 2007
(12)+
|
|
|
10.8
|
Incentive
Stock Option Agreement between Live Current Media Inc. and Mark Melville
dated November 9, 2007
(13)+
|
|
|
10.9
|
Form
of Subscription Agreement
(5)
|
|
|
10.10
|
Employment
Agreement between Live Current Media Inc. and Chantal Iorio dated December
12, 2007
(14)+
|
10.11
|
Subscription
Agreement
(15)
|
|
|
|
|
10.12
|
Common
Stock Purchase Warrant dated November 19, 2008
(16)
|
|
|
|
|
10.13
|
Common
Stock Purchase Warrant dated November 19, 2008
(17)
|
|
|
|
|
10.14
|
Employment Severance Agreement
dated February 4, 2009 between Live Current Media Inc. and Jonathan
Ehrlich
(18)+
|
|
|
|
|
10.15
|
Amendment
dated June 2, 2009 to Employment Severance Agreement between Live Current
Media Inc. and Jonathan Ehrlich
(19)+
|
|
|
|
|
10.16
|
Amendment
dated November 13, 2009 to Employment Severance Agreement between Live
Current Media Inc. and Jonathan Ehrlich
(20)+
|
|
|
|
|
10.17
|
Memorandum
of Understanding between Live Current Media Inc. and Board of Control for
Cricket in India dated April 16, 2008
(21)
|
|
|
|
|
10.18
|
Memorandum
of Understanding between Live Current Media Inc. and Board of Control for
Cricket in India for and on behalf of Indian Premier League dated April
16, 2008
(22)
|
|
|
|
10.19
|
Novation
Agreement dated March 31, 2009 among Live Current Media Inc., Global
Cricket Ventures Pte. Ltd. and Board of Control for Cricket in India
(23)
|
|
|
|
|
10.20
|
Mutual
Termination Agreement dated March 31, 2009 between Live Current Media Inc.
and Board of Control for Cricket in India
(24)
|
|
|
|
|
10.21
|
Assignment
and Assumption Agreement dated August 20, 2009 between Global Cricket
Venture Pte., Ltd. and Global Cricket Ventures Limited
(25)
|
|
|
10.22
|
Cricket.com
Lease and Transfer Agreement dated August 20, 2009 between Domain Holdings
Inc. and Global Cricket Ventures Limited
(26)
|
|
|
|
|
10.23
|
Settlement
Agreement dated August 27, 2009 between Live Current Media Inc. and
Harjeet Taggar
(27)
|
|
|
|
|
10.24
|
Settlement
Agreement dated August 27, 2009 between Live Current Media Inc. and
Kulveer Taggar
(28)
|
|
10.25
|
Form
of Convertible Promissory Note issued to certain shareholders of
Auctomatic, Inc.
(29)
|
|
|
|
|
10.26
|
Amendment
to Employment Agreement dated November 10, 2009 between Live Current Media
Inc. and
C.
Geoffrey Hampson
(30)+
|
|
|
|
|
10.27
|
Second
Amendment to Employment Agreement dated December 28, 2009 between Live
Current Media Inc. and C. Geoffrey Hampson
(31)+
|
|
16
|
Letter
re: change in certifying accountant
(32)
|
|
|
21
|
List
of Subsidiaries **
|
|
|
23.1
|
Consent
of Current Independent Registered Public Accounting Firm
*
|
|
|
23.2
|
Consent
of Previous Independent Registered Public Accounting Firm
*
|
|
|
23.3
|
Consent
of Richardson & Patel LLP, included in Exhibit 5
**
|
*Filed
herewith.
** Filed
previously.
(1)
|
Previously
filed as Exhibit 2(a) 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 Exhibit 2(b) to Live Current Media Inc.’s Registration Statement
on Form 10-SB as filed on March 10, 2000 and incorporated herein by this
reference.
|
|
|
(3)
|
Previously
filed as Exhibit 3.3 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.
|
|
|
(4)
|
Previously
filed as Exhibit 3.4 to Live Current Media Inc.’s Current Report on Form
8-K as filed on August 22, 2007 and incorporated herein by this
reference.
|
|
|
(5)
|
Previously
filed as Exhibit 10.1 to Live Current Media Inc.’s Current Report on Form
8-K as filed on September 25, 2007 and incorporated herein by this
reference.
|
|
|
(6)
|
Previously
filed as Exhibit 4.1 to Live Current Media Inc.’s Registration Statement
Form S-8 as filed on August 22, 2007 and incorporated herein by this
reference.
|
|
|
(7)
|
Previously
filed as Exhibit 10.7 to Live Current Media Inc.’s Current Report on Form
8-K as filed on June 5, 2007 and incorporated herein by this
reference.
|
|
|
(8)
|
Previously
filed as Exhibit 10.8 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.
|
|
|
(9)
|
Previously
filed as Exhibit 10.6 to Live Current Media Inc.’s Registration Statement
on Form SB-2 as filed on November 28, 2007 and incorporated herein by this
reference.
|
|
|
(10)
|
Previously
filed as Exhibit 10.7 to Live Current Media Inc.’s Registration Statement
on Form SB-2 as filed on November 28, 2007 and incorporated herein by this
reference.
|
|
|
(11)
|
Previously
filed as Exhibit 10.8 to Live Current Media Inc.’s Registration Statement
on Form SB-2 as filed on November 28, 2007 and incorporated herein by this
reference.
|
(12)
|
Previously
filed as Exhibit 10.1 to Live Current Media Inc.’s Current Report on Form
8-K as filed November 16, 2007 and incorporated herein by this
reference.
|
(13)
|
Previously
filed as Exhibit 10.2 to Live Current Media Inc.’s Current Report on Form
8-K as filed November 16, 2007 and incorporated herein by this
reference.
|
|
|
(14)
|
Previously
filed as Exhibit 10.1 to Live Current Media Inc.’s Current Report on Form
8-K as filed December 18, 2007 and incorporated herein by this
reference.
|
|
|
(15)
|
Previously
filed as Exhibit 10.1 to Live Current Media Inc.’s Current Report on Form
8-K as filed November 20, 2008 and incorporated herein by this
reference.
|
|
|
(16)
|
Previously
filed as Exhibit 4.1.1 to Live Current Media Inc.’s Current Report on Form
8-K as filed November 20, 2008 and incorporated herein by this
reference.
|
|
|
(17)
|
Previously
filed as Exhibit 4.1.2 to Live Current Media Inc.’s Current Report on Form
8-K as filed November 20, 2008 and incorporated herein by this
reference.
|
|
|
|
Previously
filed as Exhibit 10.1 to Live Current Media Inc.’s Current Report on Form
8-K as filed February 5, 2009 and incorporated herein by this
reference.
|
|
|
(19)
|
Previously
filed as Exhibit 10.40 to Live Current Media Inc.’s registration statement
on Form S-1, as amended and filed on February 1, 2010 and incorporated
herein by this reference.
|
|
|
(20)
|
Previously
filed as Exhibit 10.47 to Live Current Media Inc.’s registration statement
on Form S-1, as amended and filed on February 1, 2010 and incorporated
herein by this reference.
|
|
|
(21)
|
Previously filed as Exhibit 10.1
to Live Current Media Inc.’s Current Report on Form 8-K as filed April 8,
2009 and incorporated herein by this reference.
|
|
|
(22)
|
Previously filed as Exhibit 10.2
to Live Current Media Inc.’s Current Report on Form 8-K as filed April 8,
2009 and incorporated herein by this reference.
|
|
|
(23)
|
Previously filed as Exhibit 10.3
to Live Current Media Inc.’s Current Report on Form 8-K as filed April 8,
2009 and incorporated herein by this reference.
|
|
|
(24)
|
Previously filed as Exhibit 10.4
to Live Current Media Inc.’s Current Report on Form 8-K as filed April 8,
2009 and incorporated herein by this reference.
|
|
|
(25)
|
Previously
filed as Exhibit 10.1 to Live Current Media Inc.’s Current Report on Form
8-K filed August 31, 2009 and incorporated herein by this
reference.
|
|
|
(26)
|
Previously
filed as Exhibit 10.2 to Live Current Media Inc.’s Current Report on Form
8-K filed August 31, 2009 and incorporated herein by this
reference.
|
|
|
(27)
|
Previously
filed as Exhibit 10.3 to Live Current Media Inc.’s Current Report on Form
8-K filed August 31, 2009 and incorporated herein by this
reference.
|
|
|
(28)
|
Previously
filed as Exhibit 10.4 to Live Current Media Inc.’s Current Report on Form
8-K filed August 31, 2009 and incorporated herein by this
reference.
|
(29)
|
Previously
filed as Exhibit 10.1 to Live Current Media Inc.’s Current Report on Form
8-K as filed August 21, 2009 and incorporated herein by this
reference.
|
(30)
|
Previously
filed as Exhibit 10.46 to Live Current Media Inc.’s registration statement
on Form S-1, as amended and filed on February 1, 2010 and incorporated
herein by this reference.
|
(31)
|
Previously
filed as Exhibit 10.1 to Live Current Media Inc.’s Current Report on Form
8-K as filed January 4, 2010 and incorporated herein by this
reference.
|
(32)
|
Previously
filed as Exhibit 16.1 to Live Current Media Inc.’s Current Report on Form
8-K as filed December 22, 2009 and incorporated herein by this
reference.
|
ITEM
17. UNDERTAKINGS
The
undersigned registrant hereby undertakes:
1. To
file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
i.
To include any propectus required by section
10(a)(3) of the Securities Act of 1933;
ii.
To reflect in the prospectus any facts or
events arising after the effective date of the registration statement (or the
most recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any deviation
from the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price represent no more
than 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement.
iii.
To include any material information with
respect to the plan of distribution not previously disclosed in the registration
statement or any material change to such information in the registration
statement;
2. That,
for the purpose of determining any liability under the Securities Act of 1933,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
3.
To remove from registration by means of a
post-effective amendment any of the securities being registered which remain
unsold at the termination of the offering.
4. That,
for the purpose of determining liability under the Securities Act of 1933 to any
purchaser:
A.
Each prospectus filed by the registrant
pursuant to Rule 424(b)(3)shall be deemed to be part of the registration
statement as of the date the filed prospectus was deemed part of and included in
the registration statement; and
B.
If the registrant is subject to Rule 430C,
each prospectus filed pursuant to Rule 424(b) as part of a registration
statement relating to an offering, other than registration statements relying on
Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be
deemed to be part of and included in the registration statement as of the date
it is first used after effectiveness. Provided, however, that no statement made
in a registration statement or prospectus that is part of the registration
statement or made in a document incorporated or deemed incorporated by reference
into the registration statement or prospectus that is part of the registration
statement will, as to a purchaser with a time of contract of sale prior to such
first use, supersede or modify any statement that was made in the registration
statement or prospectus that was part of the registration statement or made in
any such document immediately prior to such date of first use.
5.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Vancouver, British
Columbia, on May 21, 2010.
|
LIVE
CURRENT MEDIA INC.
|
|
|
|
|
|
|
By:
|
/s/ C.
Geoffrey Hampson
|
|
|
|
C.
Geoffrey Hampson
|
|
|
|
Chief
Executive Officer, Principal Financial Officer, Principal Accounting
Officer and Chairman
|
|
|
|
|
|
Pursuant
to the requirements of the Securities Act of 1933, this registration statement
has been signed by the following persons in the capacities and on the dates
indicated.
/s/
C. Geoffrey Hampson
|
|
|
|
|
C.
Geoffrey Hampson
|
|
Chief
Executive Officer,
Principal
Financial Officer, Principal Accounting Officer and
Director
|
|
May
21, 2010
|
|
|
|
|
|
/s/
Mark Benham
|
|
|
|
|
Mark
Benham
|
|
Director
|
|
May
21, 2010
|
|
|
|
|
|
/s/
James P. Taylor
|
|
|
|
|
James
P. Taylor
|
|
Director
|
|
May
21, 2010
|
|
|
|
|
|
/s/
Boris Wertz
|
|
|
|
|
Boris
Wertz
|
|
Director
|
|
May
21, 2010
|