ITEM
7.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION
Plan of Operation
eBalance Distribution Business
In the near term, the Company intends to focus most of its
resources on the development of its eBalance distribution business. The
Companys marketing efforts for the eBalance device will initially focus on
directly targeting the 10 million Americans aged 65 and older who have diabetes
with a combination of advertising on internet platforms such as Facebook, active
participation in social media, a dedicated YouTube channel, attendance at major
North American health and wellness expositions and direct marketing to doctors,
corporations and assisted living communities. Management believes that it will
be successful in this endeavor due to the unique aspects of the eBalance device
that differentiate it from the current competition in the wellness medical
device sector. Those aspects include clinically proven results, ease of use,
accessibility, no known harmful side effects, great customer service, and a
limited time guarantee.
Domain Name and Web Development Business
In addition to the Companys eBalance distribution business,
the Company intends to maintain its domain name and website development
business. Some of its portfolio of domain names, continue to generate meaningful
amounts of Internet traffic, which the Company attributes to, among other
things, their generic descriptive nature of a product or services category.
Management believes that it can develop and sustain a business
based on the lease, sale and other exploitation of domain names because, in
part, of its ownership of a number of generic, intuitive domain names which
attract significant numbers of visitors to websites utilizing those names.
Moreover, because there are a limited number of potential domain names, the
Company believes that the value of these names may be significant and may allow
the Company to achieve both strategic relationships with leading participants in
key Internet businesses and businesses that desire to expand using the Internet,
as well as independent operations. Currently the Company owns two websites,
Boxing.com and Number.com, which are operated through a verbal arrangement with
an independent web developer.
The Company acquired a number of .cn domain names through a
lottery-allocation in 2003 which are available to be developed.
Management of the company believe that the Company does not have sufficent cash on hand to manage its product distribution and web development
operations for the next 12 months and that the Company will need to seek additional financing.
Page 13 of 26
Managements Discussion and Analysis
The following selected financial data was derived from the
Companys audited and unaudited financial statements. The information set forth
below should be read in conjunction with the Companys financial statements and
related notes included elsewhere in this registration statement. From June 2014
to May 2017 the Company operated under receivership. During this time, the
Company did not engage in any efforts to develop its business as the receivers
primary responsibilities during this time were to make recommendations to the
court as to whether the Company should be dissolved or otherwise, and to settle
and resolve the Companys ongoing litigation matters. As the Company is no
longer operating under receivership, results for fiscal 2018 and 2017 may not be
reflective of the Companys financial results and capital requirements moving
forward. In addition, the Company expects to focus its resources on the
development of its eBalance distribution business in the near future. This
business is significantly different from the domain name and web development
business that the Company has historically been engaged in. As a result,
historical results and capital requirements are not expected to be reflective of
the Companys financial results and capital requirements moving forward.
Summary of Results
|
|
For the Year
|
|
|
For the year
|
|
|
|
ended
|
|
|
ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(audited)
|
|
|
(audited)
|
|
|
|
|
|
|
|
|
Loss from operations
|
$
|
(782,163
|
)
|
$
|
(114,263
|
)
|
|
|
|
|
|
|
|
Current Taxes Recovered
|
|
11,515
|
|
|
-
|
|
Gain on debt retirement
|
|
-
|
|
|
185,198
|
|
Interest income
|
|
-
|
|
|
-
|
|
Interest expense
|
|
(205
|
)
|
|
(207
|
)
|
Other income
|
|
-
|
|
|
120
|
|
Foreign exchange
|
|
-
|
|
|
192
|
|
Net and comprehensive income
(Loss)
|
$
|
(770,853
|
)
|
$
|
71,040
|
|
Revenue
The Company recognized a gain of $222,265 from the sale of
domain names during the year ended December 31, 2017 (2018 - $nil). The Company
did not recognize recurring revenues during its 2018 or 2017 fiscal years. The
Company does not anticipate recognizing recurring revenues in the short term.
The Company continues to market its domain names in its portfolio and considers
offers received for domain names in its portfolio. The Company believes its
portfolio of domain names will continue to maintain its value over time.
Although the Companys arrangement with the web developer for Boxing.com and
Number.com calls for revenues to be split between the Company and the web
developer, advertising revenues for those sites has been minimal. As such, the
Company has permitted the web developer to retain the advertising revenue to
offset against the developers costs of operating those sites. The Company does
not anticipate earning significant advertising revenue from Boxing.com or
Number.com in the near future.
The e-Balance device is a new entry into the medical and
wellness device market, without any history of commercial sales. Although the
Company intends to devote a significant part of its financial resources towards
developing the market for the eBalance device, there is no assurance that it
will be able to earn revenues from the distribution of those devices in the near
future.
The Company has an accumulated deficit of $17,985,406 to
December 31, 2018. The Company is presently in the development stage of their
business and cannot provide any assurances that they will be able to generate
regular or recurring revenues in the near future.
Results of Operation
Year Ended December 31, 2018 and 2017
Page 14 of 26
The Company recorded a net loss of $770,853 for the year ended
December 31, 2018 and net income of $71,040 for the year ended December 31,
2017. During the year ended December 31, 2018, the Company incurred non-cash
expenses of $113,336 related to the issuance of options to management, directors
and consultants as compared to $nil for the year ended December 31, 2017. Due to
the uncertainty associated with the commercial success of the e-Balance device,
the Company expensed the balance of the $250,000 deposit paid on the execution
of the letter of intent with Cell MedX.
The Company recognized a non-recurring gain of $222,265 from
the sale of domain names during the year ended December 31, 2017 compared to
$nil during the year ended December 31, 2018.
Net income in the year ended December 31, 2017 was also
improved by an extraordinary gain on debt retirement of $185,198 compared to
$nil gain on debt retirement in the year ended December 31, 2018.
Liquidity and Capital Resources
At December 31, 2018, the Company had working capital surplus
of $308,381, a decrease of $533,317 from December 31, 2017 ($841,698). The
Company did not have any significant source of cashflow during the twelve months
ended December 31, 2018. Due to the fact that the Company has incurred recurring
losses and anticipates incurring further losses in the future, the Company has
determined there is substantial doubt as to its ability to continue as a going
concern.
The Company does not believe it has the necessary cash
requirements for the next 12 months without having to raise additional funds.
The Company does not anticipate purchasing any plant or
significant equipment in the immediate future.
Off-Balance Sheet Arrangements
The Company has no significant off-balance sheet arrangements
that have or are reasonably likely to have a current or future effect on its
financial condition, changes in financial condition, revenues or expenses,
results of operations, liquidity, capital expenditures or capital resources that
is material to shareholders.
Critical Accounting Policies
On January 1, 2018, the Company adopted ASU 2014-09, Revenue
from Contracts with Customers (Topic 606) ("ASU 2014-09"), which amended the
existing accounting standards for revenue recognition. ASU 2014-09 establishes
principles for recognizing revenue upon the transfer of promised goods or
services to customers, in an amount that reflects the expected consideration
received in exchange for those goods or services. The Company adopted ASU
2014-09 effective January 1, 2018 and applied the modified retrospective
approach. There was no impact to the Companys recognition of revenue as a
consequence of adopting this new standard.
Other recent accounting pronouncements issued by the FASB
(including its Emerging Issues Task Force), the American Institute of Certified
Public Accountants, and the SEC did not, or are not believed by management to,
have a material impact on the Companys present or future financial position,
results of operations or cash flows.
ITEM
8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Audited financial statements for the fiscal years ended
December 31, 2018, including:
(a)
|
Report of Independent Registered Accounting
Firm;
|
|
|
(b)
|
Consolidated Balance Sheet for the years ended December
31, 2017 and 2018;
|
|
|
(c)
|
Consolidated Statements of Operations for the years ended
December 31, 2017 and 2018;
|
|
|
(d)
|
Consolidated Statements of Cash Flows for the years ended
December 31, 2017 and 2018;
|
|
|
(e)
|
Consolidated Statements of Stockholders Equity;
and
|
|
|
(f)
|
Notes to the Financial
Statements.
|
Page 16 of 26
LIVE CURRENT MEDIA INC.
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018
(Expressed in US Dollars)
Report of Independent Registered Public Accounting Firm
To the shareholders and the board of directors of Live Current
Media Inc.
Opinion on the Consolidated Financial Statements
We
have audited the accompanying consolidated balance sheets of Live Current Media
Inc. (the "Company") as of December 31, 2018 and 2017, the related consolidated
statements of operations, stockholders equity
and cash flows for the
years then ended, and the related notes (collectively referred to as the
"financial statements"). In our opinion, the financial statements present
fairly, in all material respects, the financial position of the Company as of
December 31, 2018 and 2017, and the results of its operations and its cash
flows for the years then ended, in conformity with accounting principles
generally accepted in the United States of America.
Going Concern
The accompanying financial statements
have been prepared assuming that the Company will continue as a going concern.
As discussed in Note 1 to the financial statements, the Company has not achieved
profitable operations with further losses anticipated and has an accumulated
deficit of $17,985,406. The Company requires additional funds to meet its
obligations and the costs of its operations. These factors raise substantial
doubt about the Companys ability to continue as a going concern. Managements
plans in this regard are described in Note 1. The financial statements do not
include any adjustments that might result from the outcome of this
uncertainty
Basis for Opinion
These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on the
Company's financial statements based on our audits. We are a public accounting
firm registered with the Public Company Accounting Oversight Board (United
States) ("PCAOB") and are required to be independent with respect to the Company
in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the
PCAOB. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement, whether due to error or fraud. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting in accordance with the standards of the PCAOB. As part of
our audits we are required to obtain an understanding of internal control over
financial reporting 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 in accordance with the standards of the
PCAOB.
Our audits included performing procedures to assess the risks
of material misstatement of the financial statements, whether due to error or
fraud, and performing procedures that respond to those risks. Such procedures
included examining, on a test basis, evidence regarding the amounts and
disclosures in the financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by management, as well
as evaluating the overall presentation of the financial statements. We believe
that our audits provide a reasonable basis for our opinion.
DALE MATHESON CARR-HILTON LABONTE LLP
|
CHARTERED PROFESSIONAL ACCOUNTANTS
|
|
We have served as the Companys auditor since 2017
|
Vancouver, Canada
|
April 1, 2019
|
F-2
LIVE CURRENT MEDIA
INC
.
|
CONSOLIDATED BALANCE SHEETS
|
(expressed in US dollars)
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
ASSETS
|
|
Current assets
|
|
|
|
|
|
|
Cash
|
$
|
388,906
|
|
$
|
956,549
|
|
Receivable
|
|
-
|
|
|
5,435
|
|
Domain proceeds receivable
|
|
22,500
|
|
|
82,500
|
|
|
|
411,406
|
|
|
1,044,484
|
|
Non-current assets
|
|
|
|
|
|
|
Domain proceeds receivable
|
|
-
|
|
|
30,000
|
|
Intangible assets
|
|
111,951
|
|
|
206,150
|
|
|
$
|
523,357
|
|
$
|
1,280,634
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS'
EQUITY
|
|
Current liabilities
|
|
|
|
|
|
|
Accounts payable
|
$
|
85,585
|
|
$
|
185,550
|
|
Other payable
|
|
17,441
|
|
|
17,236
|
|
|
|
103,026
|
|
|
202,786
|
|
Stockholders' equity
|
|
|
|
|
|
|
Capital stock
|
|
|
|
|
|
|
Authorized:
500,000,000 common shares, par value $0.001 per
share
Issued and
outstanding:
34,837,625 common shares (34,837,625 at December 31, 2017)
|
|
34,838
|
|
|
34,838
|
|
Additional paid in capital
|
|
18,370,899
|
|
|
18,257,563
|
|
Deficit
|
|
(17,985,406
|
)
|
|
(17,214,553
|
)
|
|
|
420,331
|
|
|
1,077,848
|
|
|
$
|
523,357
|
|
$
|
1,280,634
|
|
The accompanying notes are an integral part of these
consolidated financial statements
F-3
LIVE CURRENT MEDIA
INC.
|
CONSOLIDATED STATEMENTS OF OPERATIONS
|
(expressed in
US dollars)
|
|
|
For the years ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
General and administrative
expenses
|
|
|
|
|
|
|
Consulting
|
$
|
113,336
|
|
$
|
-
|
|
Domain content
and registration
|
|
16,340
|
|
|
16,160
|
|
Distribution rights
|
|
250,000
|
|
|
-
|
|
General and
administration
|
|
27,881
|
|
|
44,482
|
|
Gain on sale of domain names
|
|
-
|
|
|
(222,265
|
)
|
Impairment of
assets
|
|
94,199
|
|
|
37,500
|
|
Management fees
|
|
140,000
|
|
|
126,774
|
|
Professional
fees
|
|
104,313
|
|
|
52,202
|
|
Transfer agent and regulatory
|
|
31,014
|
|
|
48,204
|
|
Travel
|
|
5,080
|
|
|
11,206
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
(782,163
|
)
|
|
(114,263
|
)
|
|
|
|
|
|
|
|
Gain on debt
retirement
|
|
-
|
|
|
185,198
|
|
Interest expense
|
|
(205
|
)
|
|
(207
|
)
|
Other income
|
|
-
|
|
|
120
|
|
Foreign exchange
|
|
-
|
|
|
192
|
|
|
|
(205
|
)
|
|
185,303
|
|
|
|
|
|
|
|
|
Net income (loss) for the
year before provision for taxes
|
$
|
(782,368
|
)
|
$
|
71,040
|
|
Provision for taxes
|
|
|
|
|
|
|
Current taxes recovered
|
|
11,515
|
|
|
-
|
|
|
|
|
|
|
|
|
Net income (loss) for the year
|
$
|
(770,853
|
)
|
$
|
71,040
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share
|
$
|
(0.02
|
)
|
$
|
0.00
|
|
|
|
|
|
|
|
|
Weighted average number of basic common shares outstanding
|
|
34,837,625
|
|
|
34,837,625
|
|
The accompanying notes are an integral part of these
consolidated financial statements
F-4
LIVE CURRENT MEDIA
INC.
|
CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
|
(expressed in
US dollars)
|
|
|
Common Stock
|
|
|
Additional
|
|
|
|
|
|
Total
|
|
|
|
Number
|
|
|
|
|
|
Paid In
|
|
|
Accumulated
|
|
|
Stockholders'
|
|
|
|
of Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Deficit
|
|
Balance, December 31, 2016
|
|
34,837,625
|
|
$
|
34,838
|
|
$
|
18,257,563
|
|
$
|
(17,285,593
|
)
|
$
|
1,006,808
|
|
Net income for the
year
|
|
-
|
|
|
-
|
|
|
-
|
|
|
71,040
|
|
|
71,040
|
|
Balance, December 31, 2017
|
|
34,837,625
|
|
|
34,838
|
|
|
18,257,563
|
|
|
(17,214,553
|
)
|
|
1,077,848
|
|
Stock-based compensation
|
|
-
|
|
|
-
|
|
|
113,336
|
|
|
-
|
|
|
113,336
|
|
Net loss for the year
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(770,853
|
)
|
|
(770,853
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2018
|
|
34,837,625
|
|
$
|
34,838
|
|
$
|
18,370,899
|
|
$
|
(17,985,406
|
)
|
$
|
420,331
|
|
The accompanying notes are an integral part of these consolidated financial statements
F-5
LIVE CURRENT MEDIA
INC.
|
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
(expressed in
US dollars)
|
|
|
For the years ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Cash flows used in operating
activities
|
|
|
|
|
|
|
Net income (loss) for the
year
|
$
|
(770,853
|
)
|
$
|
71,040
|
|
Non-cash items
|
|
|
|
|
|
|
Impairment
of intangible assets
|
|
94,199
|
|
|
37,500
|
|
Gain on sale of domain names
|
|
-
|
|
|
(222,265
|
)
|
Bad debt
expense
|
|
5,435
|
|
|
-
|
|
Stock-based compensation
|
|
113,336
|
|
|
-
|
|
Gain on
debt retirement
|
|
-
|
|
|
(185,198
|
)
|
Accrued interest
|
|
205
|
|
|
207
|
|
Income
taxes recovered
|
|
(11,515
|
)
|
|
-
|
|
Changes in non-cash working
capital item
|
|
|
|
|
|
|
Accounts payable and
accrued liabilities
|
|
(88,450
|
)
|
|
(65,290
|
)
|
Cash used in operating activities
|
|
(657,643
|
)
|
|
(364,006
|
)
|
|
|
|
|
|
|
|
Cash flows used in investing
activities
|
|
|
|
|
|
|
Proceeds received for sale
of domain name
|
|
90,000
|
|
|
171,000
|
|
Cash provided by investing activities
|
|
90,000
|
|
|
171,000
|
|
|
|
|
|
|
|
|
Change in cash
|
|
(567,643
|
)
|
|
(193,006
|
)
|
Cash, beginning of year
|
|
956,549
|
|
|
1,149,555
|
|
Cash, end of year
|
$
|
388,906
|
|
$
|
956,549
|
|
|
|
|
|
|
|
|
Supplemental cash flow
information:
|
|
|
|
|
|
|
Interest paid
|
$
|
-
|
|
$
|
-
|
|
Income taxes paid
|
$
|
-
|
|
$
|
-
|
|
The accompanying notes are an integral part of these
consolidated financial statements
F-6
LIVE CURRENT MEDIA INC.
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
December
31, 2018
|
1. NATURE AND CONTINUANCE OF
OPERATIONS
Live Current Media Inc. (the Company or Live Current) was
incorporated under the laws of the State of Nevada on October 10, 1995. The
Companys wholly owned principal operating subsidiary, Domain Holdings Inc.
(DHI), was incorporated under the laws of British Columbia on July 4,
1994.
On March 13, 2008, the Company incorporated a wholly owned
subsidiary in the state of Delaware, Perfume.com Inc. (Perfume Inc.) which is a
dormant and inactive company.
Through DHI, the Company builds consumer Internet experiences
around its portfolio of domain names. DHIs current business strategy is to
develop, or to seek partners to develop, its domain names to include content,
commerce and community applications. On June 4, 2014, a judge in Reno, Nevada
ordered a receiver to take charge of the Companys business. On May 4, 2017, the
Company was discharged from receivership (Note 8).
The accompanying financial statements have been prepared
assuming the Company will continue as a going concern. As of December 31, 2018,
the Company has not achieved profitable operations, has incurred recurring
operating losses and further losses are possible. The Company has an accumulated
deficit of $17,985,406. The Companys ability to continue as a going concern is
dependent upon its ability to obtain the necessary financing to further develop
its business. To date, the Company has funded operations through the issuance of
capital stock and debt. Management plans to continue raising additional funds
through equity or debt financings and loans from directors. There is no
certainty that further funding will be available as needed. These factors raise
substantial doubt about the ability of the Company to continue operating as a
going concern. The ability of the Company to continue its operations as a going
concern is dependent upon its ability to raise sufficient new capital to fund
its operating commitments and ongoing losses and ultimately on generating
profitable operations. The financial statements do not include any adjustments
to be recorded to assets or liabilities that might be necessary should the
Company be unable to continue as a going concern.
2. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
These consolidated financial statements and related notes are
presented in accordance with accounting principles generally accepted in the
United States (US GAAP), and are expressed in United States dollars.
Basis of Presentation
These consolidated financial statements include the accounts of
the Company and its subsidiaries. All significant intercompany balances have
been eliminated on consolidation.
Use of Estimates
The preparation of financial statements in conformity with US
GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. The Company regularly
evaluates estimates and assumptions. The Company bases its estimates and
assumptions on current facts, historical experience and various other factors it
believes to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities
and the accrual of costs and expenses that are not readily apparent from other
sources. The actual results experienced by the Company may differ materially and
adversely from the Companys estimates. To the extent there are material
differences between the estimates and the actual results, future results of
operations will be affected.
F-7
LIVE CURRENT MEDIA INC.
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
December
31, 2018
|
2. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)
Cash and cash equivalents
All highly liquid investments, with an original term to
maturity of three months or less are classified as cash and cash equivalents.
Cash and cash equivalents are stated at cost which approximates market value.
Intangible Assets not subject to amortization
Intangible assets not subject to amortization consist of direct
navigation domain names. While the domain names are renewed annually, through
payment of a renewal fee to the applicable registry, the Company has the
exclusive right to renew these names at its option. The Company has determined
that there are currently no legal, regulatory, contractual, economic or other
factors that limit the useful life of these domain names on an aggregate basis
and accordingly treat the portfolio of domain names as indefinite life
intangible assets.
The Company reviews individual domain names in the portfolio
for potential impairment throughout the fiscal year in determining whether a
particular URL should be renewed. Impairment is recognized for names that are
not renewed. The Company performs an annual assessment of individual domain
names in its portfolio to determine whether it is more likely than not that the
fair market value of a domain name is less than its carrying amount. When it is
determined that the fair value of a domain name is less than its carrying
amount, impairment is recognized.
As at December 31, 2018, the weighted remaining average period
before the next renewal with the applicable registry is 1.11 years (December 31,
2017: 3.06 years).
Foreign Currency Translation
The Companys functional currency is the US dollar and
reporting currency is the United States dollar. The Company translates assets
and liabilities to US dollars using year-end exchange rates, stockholders
deficit accounts are translated at historical exchange rates, and translates
revenues and expenses using average exchange rates during the period. Gains and
losses arising on settlement of foreign currency denominated transactions or
balances are included in the Statement of Operations.
Income taxes
The Company follows the liability method of accounting for
income taxes. Under this method, current income taxes are recognized for the
estimated income taxes payable for the current year. Deferred income tax assets
and liabilities are recognized in the current year for temporary differences
between the tax and accounting basis of assets and liabilities as well as for
the benefit of losses available to be carried forward to future years for tax
purposes. Deferred income tax assets and liabilities are measured using tax
rates and laws expected to apply in the years in which those temporary
differences are expected to be recovered or settled. The effect of a change in
tax rates on deferred income tax assets and liabilities is recognized in
operations in the year of change. A valuation allowance is recorded when it is
more likely-than-not that a deferred tax asset will not be realized. Deferred
tax assets and deferred tax liabilities, along with any associated valuation
allowance, are offset and shown in the financial statements as a single
noncurrent amount when these items arise within the same tax jurisdiction.
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 Companys evaluation, the Company has
concluded that there are no significant uncertain tax positions requiring
recognition in the Companys financial statements.
F-8
LIVE CURRENT MEDIA INC.
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
December
31, 2018
|
2. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)
Share Based Payments
The Company accounts for all stock-based payments and awards
under the fair value based method. The Company accounts for the granting of
stock options to employees using the fair value method whereby all awards to
employees will be measured at fair value on the date of the grant. The fair
value of all stock options are expensed over their vesting period with a
corresponding increase to additional paid-in capital. Upon exercise of stock
options, the consideration paid by the option holder, together with the amount
previously recognized in additional paid-in capital is recorded as an increase
to share capital. Stock options granted to employees are accounted for as
liabilities when they contain conditions or other features that are indexed to
other than a market, performance or service condition. Stock-based payments to
non-employees are measured at the fair value of the consideration received, or
the fair value of the equity instruments issued, or liabilities incurred,
whichever is more reliably measurable. The fair value of stock-based payments to
non-employees is periodically re-measured until the counterparty performance is
complete, and any change therein is recognized over the vesting period of the
award and in the same manner as if the Company had paid cash instead of paying
with or using equity based instruments. The fair value of the stock-based
payments to non-employees that are fully vested and non-forfeitable as at the
grant date are measured and recognized at that date.
The Company uses the Black-Scholes option pricing model to
calculate the fair value of stock options. The use of the Black-Scholes option
pricing model requires management to make assumptions with respect to the
expected term of the option, the expected volatility of the common stock
consistent with the expected term of the option, risk-free interest rates, the
value of the common stock and expected dividend yield of the common stock.
Changes in these assumptions can materially affect the fair value estimate.
Fair Value of Financial Instruments
The estimated fair values for financial instruments are
determined based on relevant market information. These estimates involve
uncertainties and cannot be determined with precision. The estimated fair value
of cash, receivable, accounts payable and amounts due to shareholders of
Auctomatic approximate their carrying value due to the short-term nature of
those instruments.
ASC 820 establishes a fair value hierarchy based on the level
of independent, objective evidence surrounding the inputs used to measure fair
value. A financial instruments categorization within the fair value hierarchy
is based upon the lowest level of input that is significant to the fair value
measurement. ASC 820 prioritizes the inputs into three levels that may be used
to measure fair value:
Level 1 Quoted prices in active markets for identical assets
or liabilities;
Level 2 Inputs other than quoted prices included within Level
1 that are either directly or indirectly observable; and
Level 3 Unobservable inputs that are supported by little or
no market activity, there for requiring an entity to develop its own assumptions
about the assumption that market participants would use in pricing.
The Company had no Level 3 assets or liabilities required to be
recorded at fair value on a recurring basis in accordance with US GAAP as at
December 31, 2018 and 2017.
F-9
LIVE CURRENT MEDIA INC.
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
December
31, 2018
|
2. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)
Basic and Diluted Income (Loss) per Share
Earnings or loss per share (EPS) is computed by dividing net
income (loss) available to common stockholders by the weighted average number of
common shares outstanding for the period. Diluted EPS is computed by dividing
net income (loss) by the weighted-average of all potentially dilutive shares of
the common stock that were outstanding during the years presented. The treasury
stock method is used in calculating diluted EPS for potentially dilutive stock
options and share purchase warrants, which assumes that any proceeds received
from the exercise of in-the-money stock options and share purchase warrants,
would be used to purchase common shares at the average market price for the
period.
Adoption of New Accounting Pronouncement
On January 1, 2018, the Company adopted ASU 2014-09, Revenue
from Contracts with Customers (Topic 606) ("ASU 2014-09"), which amended the
existing accounting standards for revenue recognition. ASU 2014-09 establishes
principles for recognizing revenue upon the transfer of promised goods or
services to customers, in an amount that reflects the expected consideration
received in exchange for those goods or services. The Company adopted ASU
2014-09 effective January 1, 2018 and applied the modified retrospective
approach. There was no impact to the Companys recognition of revenue as a
consequence of adopting this new standard.
3. SHARE CAPITAL
Authorized
The authorized capital of the Company consists of 500,000,000
shares of common stock with a par value of $0.001 per share. No other shares
have been authorized
4. STOCK OPTIONS
The Companys 2018 Stock Option Plan (the Plan) was approved
by the Board of Directors on November 28, 2018. The Plan will provide for the
grant of 5,000,000 shares of common stock of the Corporation, subject to
increase after March 31, 2019, upon approval by the Corporations directors,
provided that the total number of shares that may be optioned and sold under the
Plan shall at no time be greater than 15% of total number of shares of common
stock outstanding, less any options still outstanding under any previous stock
option plan.
The Company uses the Black-Scholes option pricing model to
calculate the fair value of stock options. The use of the Black-Scholes option
pricing model requires management to make assumptions with respect to the
expected term of the option, the expected volatility of the common stock
consistent with the expected term of the option, risk-free interest rates, the
value of the common stock and expected dividend yield of the common stock.
Changes in these assumptions can materially affect the fair value estimates
On November 30, 2018, the board of directors of the Company
granted option to purchase up to 1,000,000 shares of the Company to it CEO, up
to 400,000 shares of the Company to its directors and up to 400,000 shares of
the Company to its Consultants.
The total fair value of the options granted to the CEO,
directors and consultants was calculated to be $107,482.
F-10
LIVE CURRENT MEDIA INC.
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
December
31, 2018
|
4. STOCK OPTIONS continued
|
At November 30, 2018
|
Expected Life of Options
|
2 years
|
Risk-Free Interest Rate
|
1.63%
|
Expected Dividend Yield
|
Nil
|
Expected Stock Price Volatility
|
409%
|
On November 39, 2018, the board of directors of the Company
granted a Non-Plan option to purchase up to 100,000 shares of the Company to a
non-related party.
|
At November 30, 2018
|
Expected Life of Options
|
1 ½ years
|
Risk-Free Interest Rate
|
1.63%
|
Expected Dividend Yield
|
Nil
|
Expected Stock Price Volatility
|
382%
|
The fair value of the options granted to the non-related party
were $5,854.
5. DOMAIN PROCEEDS RECEIVABLE
On October 6, 2017, the Company sold a domain name for total
consideration of $150,000 less a brokerage fee of $15,000. The domain purchase
and transfer agreement included terms that allowed the purchaser to make monthly
instalment payments of $7,500, net of the brokerage fee, over a period of 18
months. The domain is being held by an independent escrow agent during the
period the remaining balance in respect of this sale is outstanding. The
purchaser is entitled to control the domain name while being held in escrow but,
in the event of a default that is not successfully remedied, all rights to the
domain name will be transferred back to the Company and all payments made by the
purchaser will be forfeited. As at December 31, 2018, the balance remaining on
this receivable totaled $22,500. .
6. DEPOSIT
On September 10, 2018, Live Current entered into a non-binding
letter of intent (the LOI) with Cell MedX Corp. (Cell MedX) for worldwide
distribution rights of the e-Balance device for home-based usage. The e-Balance
device is a micro-current therapy device designed to target complications
arising from diabetes but has yet to receive approval from the Food and Drug
Administration (FDA). Pursuant to the LOI, the Company agreed to enter into
negotiations aimed at obtaining a definitive agreement within a 90-day period
(Note 10). The Company advanced US$250,000 as a deposit for exclusive worldwide
distribution rights. The probability of success and length of time to obtain
Federal Drug Administration approval of the e-Balance device is difficult to
determine and there are uncertainties associated with the timely completion of
the devices commercial success. Due to the uncertainties associated with the
successful commercialization of the e-Balance device, it has been determined
that the payment of this deposit does not meet the definition of an asset and is
thus expensed within general and administrative expenses.
7. INTANGIBLE ASSETS
|
|
December 31,
|
|
|
December
31,
|
|
|
|
2018
|
|
|
2017
|
|
Domain names
|
$
|
111,951
|
|
$
|
201,496
|
|
Trademarks
|
|
-
|
|
|
4,654
|
|
|
$
|
111,951
|
|
$
|
206,150
|
|
F-11
LIVE CURRENT MEDIA INC.
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
December
31, 2018
|
The Companys portfolio of domain names are considered by
management to be indefinite life intangible assets not subject to amortization.
Management performs an annual impairment assessment of its domain names; during
the year ended December 31, 2018, the Company recorded an impairment charge of
$89,545 (2017: $37,500).
The Company recorded an impairment charge in 2018 of $4,654 for
Trademarks (2017 $nil)
8. DEBT RETIREMENT
On May 4, 2017, in conjunction with the termination of the
Company’s receivership, the Company realized a gain on debt retirement of
$185,198.
9. INCOME TAXES
Effective January 1, 2018, the enacted statutory tax rate is
21%. The reconciliation of the provision for income taxes at the United States
federal statutory rate compared to the Company’s income tax expense as reported
is as follows:
|
|
December 31,
|
|
|
December
31,
|
|
|
|
2018
|
|
|
2017
|
|
Net income (loss) for the
year
|
$
|
(770,853
|
)
|
$
|
71,040
|
|
Statutory rate
|
|
21%
|
|
|
35%
|
|
Expected income tax expense
(recovery)
|
|
(162,000
|
)
|
|
25,000
|
|
Impact of statutory tax rate on earnings of
subsidiary
|
|
(26,000
|
)
|
|
(8,000
|
)
|
Non-taxable earnings
|
|
24,000
|
|
|
(23,000
|
)
|
Effect of change of future enacted tax rate
|
|
-
|
|
|
998,000
|
|
Effect of foreign exchange on
tax assets
|
|
-
|
|
|
13,000
|
|
Adjustment to prior year tax provision
|
|
1,000
|
|
|
(59,000
|
)
|
Change in valuation allowance
|
|
151,000
|
|
|
(946,000
|
)
|
|
$
|
(12,000
|
)
|
$
|
-
|
|
The significant components of deferred income tax assets at
December 31, 2018 and December 31, 2017 are as follows:
|
|
December 31,
|
|
|
December
31,
|
|
|
|
2018
|
|
|
2017
|
|
Net operating losses
|
$
|
1,706,000
|
|
$
|
1,567,000
|
|
Intangible assets
|
|
67,000
|
|
|
55,000
|
|
|
|
1,773,000
|
|
|
1,622,000
|
|
Valuation allowance
|
|
(1,773,000
|
)
|
|
(1,622,000
|
)
|
|
$
|
-
|
|
$
|
-
|
|
At December 31, 2018, the Company had accumulated non-capital
loss carry-forwards of approximately $7,400,000 that expire from 2025 through
2037. The potential future tax benefits of these expenses and losses
carried-forward have not been reflected in these financial statements due to the
uncertainty regarding their ultimate realization. Tax attributes are subject to
review, and potential adjustment by tax authorities.
F-12
LIVE CURRENT MEDIA INC.
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
December
31, 2018
|
10. SUBSEQUENT EVENTS
On March 21, 2019, the Company executed the Distribution
Agreement with Cell MedX, pursuant to which Cell MedX has granted to the Company
an exclusive worldwide license to distribute its e-Balance microcurrent device
to households and individual users. To acquire these rights, the Company paid to
Cell MedX the sum of $250,000, the full amount of which was paid to Cell MedX
upon signing of the letter of intent between the Company and Cell MedX in
September 2018. Under the terms of the Distribution Agreement, the Company has
agreed to pay to Cell MedX a fee (the License Fee) for each e-Balance device
sold. In addition, the users of the e-Balance device will be charged a periodic
user fee (the User Fee) that will be split between the Company and Cell MedX.
To maintain its exclusive distribution rights, the Company is subject to minimum
sales and, after a period of time, minimum User Fee, requirements. If the
Company fails to meet the minimum sales requirements, the Company will maintain
its distribution rights, however those rights will cease to be exclusive. (Note
6)
F-13
ITEM
9A. CONTROLS
AND PROCEDURES
Disclosure Controls and Procedures
We carried out an evaluation of the effectiveness of our
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
of the Exchange Act) as of December 31, 2018 (the Evaluation Date). This
evaluation was carried out under the supervision and with the participation of
our principal executive officer and principal financial officer. Based upon that
evaluation, our principal executive officer and principal financial officer
concluded that our disclosure controls and procedures were effective as of the
Evaluation Date.
Management's Annual Report on Internal Control Over
Financial Reporting
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting, as such term is defined in
Rules 13a-15(f) and 15d-15(f) under the Exchange Act, for the Company.
Our internal control over financial reporting includes those
policies and procedures that: (1) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and
dispositions of our assets; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial statements in
accordance with United States generally accepted accounting principles, and that
our receipts and expenditures are being made only in accordance with
authorizations of our management and directors; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition,
use or disposition of our assets that could have a material effect on the
financial statements.
Under the supervision and with the participation of our
principal executive officer and principal financial officer, management
conducted an evaluation of the effectiveness of our internal control over
financial reporting, as of the Evaluation Date, based on the framework set forth
in Internal Control-Integrated Framework 2013 issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). Based on its
evaluation under this framework, management concluded that our internal control
over financial reporting was effective as of the Evaluation Date.
This annual report does not include an attestation report of
our registered public accounting firm regarding internal control over financial
reporting. Management's report was not subject to attestation by our registered
public accounting firm pursuant to rules of the Securities and Exchange
Commission that permit us to provide only management's report in this annual
report.
Changes in Internal Control Over Financial Reporting
As of the Evaluation Date, there were no changes in our
internal control over financial reporting that occurred during the fiscal year
ended December 31, 2018 that have materially affected, or that are reasonably
likely to materially affect, our internal control over financial reporting.
Limitations on the Effectiveness of Controls and Procedures
Our management, including our principal executive officer and
principal financial officer, do not expect that our controls and procedures will
prevent all potential error and fraud. A control system, no matter how well
conceived and operated, can provide only reasonable, not absolute, assurance
that the objectives of the control system are met