Quarterly Report — Form 10-Q Filing Table of Contents
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(Exact
name of registrant as specified in its charter)
Nevada
88-0346310
(State
or other jurisdiction of
(IRS
Employer
incorporation
or organization)
Identification
Number)
375 Water Street, Suite 645,
Vancouver, British Columbia, V6B 5C6
(604)
453-4870
Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes þ o No o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,”“accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large
accelerated filer o
Accelerated
filer o
Non-accelerated
filer o (Do
not check if a smaller reporting company)
Smaller
reporting company þ
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
[ ]
Yes [ X
] No
APPLICABLE
ONLY TO CORPORATE ISSUERS
State the
number of shares outstanding of each of the issuer's classes of common equity,
as of the latest practicable date.
Management's
Discussion and Analysis of Financial Condition and Results of
Operations
4
Item
3.
Quantitative
and Qualitative Disclosures About Market Risk
18
Item
4T.
Controls
and Procedures
18
PART
II.
Other
Information
Item
1.
Legal
Proceedings
19
Item
1A.
Risk
Factors
19
Item
2.
Unregistered
Sales of Equity Securities and Use of Proceeds
19
Item
3.
Defaults
Upon Senior Securities
20
Item
4.
Submission
of Matters to a Vote of Security Holders
20
Item
5.
Other
Information
20
Item
6.
Exhibits
21
Signatures
22
Certifications
3
PART I
– FINANCIAL INFORMATION
Item 1: Financial
Statements.
The
response to Item 1 has been submitted as a separate section of this Report
beginning on page F-1.
Item 2: Management’s
discussion and analysis of financial condition and results of
operations
(a) Forward
Looking Statements
The
Company makes forward-looking statements in this report and may make such
statements in future filings with the Securities and Exchange Commission. The
Company may also make forward-looking statements in its press releases or other
public shareholder communications. Its forward-looking statements are subject to
risks and uncertainties and include information about its expectations and
possible or assumed future results of operations. When Management uses any of
the words “believes”, “expects”, “anticipates”, “estimates” or similar
expressions, it is making forward-looking statements.
To the
extent it is entitled, the Company claims the protection of the safe harbor for
forward-looking statements contained in the Private Securities Litigation Reform
Act of 1995 for all of its forward-looking statements. While
Management believes that our forward-looking statements are reasonable, you
should not place undue reliance on any such forward-looking statements, which
speak only as of the date made. Because these forward-looking
statements are based on estimates and assumptions that are subject to
significant business, economic and competitive uncertainties, many of which are
beyond Management’s control or are subject to change, actual results could be
materially different. Factors that might cause such a difference include,
without limitation, the following: the Company’s inability to generate
sufficient cash flows to meet its current liabilities, its potential inability
to retain qualified management, sales and customer service personnel, the
potential for an extended decline in sales, the possible failure of revenues to
offset additional costs associated with any changes in business model, the
potential lack of website acceptance, its potential inability to introduce new
products to the market, the potential loss of customer or supplier
relationships, the potential failure to receive or maintain necessary regulatory
approvals, the extent to which competition may negatively affect prices and
sales volumes or necessitate increased sales or marketing expenses, the timing
of and proceeds from the sale of restricted securities it holds and the other
risks and uncertainties set forth in this report.
Other
factors not currently anticipated by Management may also materially and
adversely affect our results of operations. Except as required by
applicable law, Management does not undertake any obligation to publicly release
any revisions which may be made to any forward-looking statements to reflect
events or circumstances occurring after the date of this report.
Readers
of this report should not rely solely on the forward-looking statements and
should consider all risks and uncertainties throughout this report, as well as
those discussed under “Item 1 Risk Factors” in our Annual Report on Form 10-KSB
for the year ended December 31, 2007.
The
following discussion should be read in conjunction with our interim consolidated
financial statements and their explanatory notes, which are attached as Exhibit
F-1.
(b) Business
Overview
Live
Current Media Inc., (formerly known as Communicate.com Inc.), (the “Company”)
changed its name on May 30, 2008 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. Effective August 4, 2008, the Company began trading under a
new symbol, “LIVC” (OTCBB: LIVC). The Company also appointed
Computershare Trust Company, N.A. as its new transfer agent and
registrar.
4
The
Company currently holds 98.2% (December 31, 2007 – 94.9%) of the outstanding
shares of its principal operating subsidiary, Domain Holdings, Inc. (“DHI”), an
Alberta company. During Q1 of 2008, DHI issued 40,086,645 shares to
the Company in exchange for a conversion of intercompany debt of
$3,000,000.
The
Company presently employs twenty-three full-time and seven part-time employees,
as well as five consultants. In addition to the above, the Company
plans to engage in arrangements with strategic partners and outside suppliers
where appropriate.
The
Company’s principal office is located at #645-375 Water Street, Vancouver,
British Columbia V6B 5C6. It also leases an office at the Pacific
NorthWest Trade Center, 800 Fifth Avenue, Suite 4100, Seattle, WA98104 for a
nominal amount per month.
Through
its majority-owned subsidiary, DHI, the Company builds consumer internet
experiences around its large portfolio of domain names. These domain
names span several consumer and business-to-business categories including health
& beauty (such as Perfume.com), sports and recreation (such as Cricket.com
and Boxing.com), travel (such as Brazil.com and Vietnam.com), and global trade
(importers.com). Management believes that it 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. Management has begun to exploit this traffic through the
construction of next generation consumer experiences, which they call
DestinationHubs™, at Perfume.com and Cricket.com. Over time, the
Company will build out additional DestinationHubs™ at several of their domain
names. The Company may also choose to sell select domain names to
strategic buyers.
The
Company also owns a number of .cn (China) domain names and a portfolio of second
and third tier .com domain names, such as shoppingbound.com, pharmacybound.com
and vietnambound.com. Management believes that the .cn domain names
could have significant value as the internet market in China
develops.
The
Company generates revenue by selling products online to consumers (eCommerce)
and by selling online advertising space to advertisers. Ecommerce
revenues are primarily derived from the sale of fragrance products to consumers
at Perfume.com. Advertising revenues are derived by offering “pay per
click” and display advertising on certain other websites in its
portfolio. Prior to November 12, 2007, the Company also sold travel
services through its majority-owned subsidiary FrequentTraveller.com Inc.
(“FT”). Due to poor operating results and cash flows, the Company’s
relationship with FT was terminated effective November 12, 2007. On
the same date, the Company entered into an Asset Purchase Agreement (“APA”) with
FT whereby the Company acquired all of the tangible and intangible assets
associated or used in connection with the operation of FT’s travel business,
exclusive of all cash and real property for a total consideration of (a) the
8,000,000 shares of FT owned by the Company; and (b) the cancellation of
$261,833 of debt owed by FT to the Company resulting in a gain on disposal of
the investment of $276,805. As such, the Company has acquired all
rights associated with the operation of the FrequentTraveller.com
website. As at November 12, 2007, FT is no longer a
subsidiary.
On March25, 2008, the Company and its wholly owned subsidiary, Communicate.com Delaware,
Inc. (“Delaware”) entered into an Agreement and Plan of Merger (the “Merger
Agreement”) with Entity, Inc., a Delaware corporation,
(“Auctomatic”). The Merger Agreement closed on May 22, 2008 (the
“Closing Date”). The surviving entity in the transaction, and our
subsidiary, Delaware, has had minimal operations in Q3 of 2008, but continues to
be a part of the Company’s strategic foundation for future
growth. The Auctomatic technology framework and toolset, as well as
the team of senior employees obtained in this transaction, have already helped
the Company in strengthening its eCommerce platform and enhancing its product
and technology capability.
Global
Cricket Venture; Development of Cricket.com
On April17, 2008, the Company signed a Memorandum of Understanding (“MOU” or “Original
MOU”) with the Board of Control for Cricket in India (“BCCI”) and the DLF Indian
Premier League (“IPL”) to build, operate and promote two cricket-related web
sites — IPLT20.com, the official web site of the IPL, and BCCI.tv, the official
web site of the BCCI. Pursuant to the MOU, the BCCI granted the
Company exclusive and non-exclusive rights to digital cricket-related content
(e.g. video, photos, etc.). The Company also gained rights to use
this content to launch Cricket.com, a global portal for cricket
enthusiasts. The MOU has a term of ten years and renewal rights for
an additional ten years. The ten-year agreement outlined in the MOU
includes extensive co-marketing and exclusive online content rights agreements
for the Company to build, launch and operate the official online destinations
for the BCCI and the IPL. The BCCI will be guaranteed on a combined basis a
minimum of US $3 million annually commencing in 2010 and the IPL US $2 million
annually commencing in 2010 through revenue sharing agreements including
percentages of advertising, sponsorship and merchandising
sales. Pursuant to the Original MOU, the parties agreed to negotiate
and enter into definitive agreements with further terms and conditions, which
the Company anticipates will be completed in the first half of
2009. The parties are currently operating, performing, and funding
obligations under the MOU.
On April18, 2008, the Company launched the IPLT20.com website in conjunction with the
inaugural IPL season. Consistent with a highly successful first
season for the league, the website saw extremely high levels of traffic and fan
engagement during the 44 day tournament. However, since the MOU was
signed just prior to the commencement of the league’s first season, revenues for
the first season were immaterial.
The
Company subsequently signed a Memorandum of Understanding on May 19, 2008
(“Venture MOU”) with Netlinkblue (“NLB”) to combine digital assets to support
the development of the IPL web activities through the formation of a new company
in Singapore (“Newco”). As contemplated by the Venture MOU, Newco was
incorporated in Singapore on June 10, 2008 and named Global Cricket Venture Pte.
Ltd. (“Global Cricket Venture”, or “GCV”). Pursuant to the Venture
MOU, GCV controls the right to live stream IPL matches over the internet and has
exclusive IPL-related global mobile rights in addition to the digital
cricket-related assets the Company obtained from BCCI. To date,
Global Cricket Venture has nominal assets and operations.
The
Company utilized a third party broker to negotiate the Venture MOU and agreed to
compensate the broker by way of an option over 6% of the shares of GCV from
shares owned exclusively by LCM Cricket Ventures. Assuming such
option is formally granted, if and when such option is exercised, the third
party has agreed to grant the Company all voting rights associated with the
shares.
Pursuant
to the Venture MOU, the parties are negotiating definitive agreements with
further terms and conditions which the Company anticipates will be completed in
the first half of 2009. The parties are currently operating,
performing and funding obligations under the Venture MOU, and GCV recently
appointed an experienced Chief Revenue Officer to drive the commercialization
and growth of GCV. In addition, Mr. Hampson and Mr. Melville serve on
the Board of Directors of GCV, and Mr. Melville is currently the acting Chief
Executive Officer of GCV.
On August8, 2008, the Company established a wholly-owned subsidiary in Singapore named
LCM Cricket Ventures Pte. Ltd. (“LCM Cricket Ventures”) which will support the
Company’s activities relating to cricket and the IPL. Pursuant to the
Venture MOU, the Company is entitled to a 40% equity interest in
GCV. On October 30, 2008, LCM Cricket Ventures was issued 50.05% of
the shares of GCV, however the Company anticipates that LCM Cricket Ventures’
ownership interest will be realigned in accordance with the intent of the
MOU. To date, LCM Cricket Ventures has nominal assets and limited
operations.
On
October 23, 2008, GCV reached an agreement with the BCCI to build, manage and
monetize the official website of the cricket Champions League Twenty20
(“Champions League”), for a period of 10 years. The official website
of the Champions League will provide an enriched digital experience featuring
video highlights, a live video scoreboard, mobile content, official photographs,
press releases, player interviews, schedules, statistics and
newsletters. Revenues generated from the website will be split evenly
between GCV and the Champions League. GCV is not required to pay any
minimum fees to BCCI in connection with the Champions League. The
inaugural Champions League Twenty20 will be held in India during December
2008.
6
The
Company has incurred $1.01 million of costs relating to initial performance of
its obligations under the MOUs with each of the BCCI and the IPL, and
establishing Global Cricket Venture with NLB. During Q3 of 2008,
these costs totaled $276,485 (Q2 of 2008 - $678,221; Q1 of 2008 - $55,317)
including, but not limited to, expenditures for business development, travel,
consulting, and salaries. There were no such costs in any period of
2007. Currently, GCV has not yet obtained any outside funding.
Therefore, all of these costs were expensed in the quarter ended September 30,2008 due to uncertaintly regarding reimbursement of these costs by the GCV as
previously anticipated.
The BCCI
and the IPL MOU requires the Company to make minimum payments to BCCI and the
IPL over the next 10 years as detailed in Note 15 in the Company’s interim
consolidated financial statements included in Exhibit F-1 to this
Report. The Company renegotiated the first minimum payments that were
due on October 1, 2008 in the amounts of $625,000 and $375,000
respectively. As a result, the payment owing to the BCCI was
decreased by $500,000 to $125,000. In addition, the payment of
$750,000 that will be due to the BCCI on October 1, 2009 was eliminated
entirely. The amounts due to the IPL have remained
unchanged. The payments due to the BCCI and the IPL for the October1, 2008 commitment, although negotiated to a lesser amount, have not been made
to date. Discussions are underway with both parties with regards to
the timing of such payments and payments will then be made
accordingly. Such payments may be subject to certain withholding or
other taxes which the Company may be required to gross up pursuant to the terms
of the MOU.
7
(c) Selected
Financial Data
The
following selected financial data was derived from the Company’s unaudited
interim consolidated financial statements for the quarter ended September 30,2008. The information set forth below should be read in conjunction
with the Company’s financial statements and related notes included elsewhere in
this report.
Overall,
combined sales in Q3 of 2008 totaled $1,954,684 versus $1,770,594 in Q3 of 2007,
an increase of 10.4%. However, Q3 of 2007 included significant revenues of
$142,992 from the Frequent Traveler (“FT”) relationship that was terminated in
November 2007. Without considering these revenues, the increase in
overall revenues in Q3 of 2008 was $327,082, or 20.1%, compared to Q3 of
2007. Most of this increase was driven by a large increase in sales
on Perfume.com as noted below. Overall, Health & Beauty eCommerce
product sales, consisting of Perfume.com sales, represented 99.0% of total
revenues in Q3 of 2008, compared to approximately 92.1% of total revenues in Q3
of 2007 not including any influence from the FT revenues.
Costs of
sales were $1,602,249 in Q3 of 2008 compared to $1,289,535 during Q3 of 2007, an
increase of 24.3%. The 2007 costs of sales included costs of sales
attributable to FT in the amount of $113,700. The increase of costs
of sales in Q3 of 2008 over Q3 of 2007 without the FT costs of sales was
36.2%. This increase is due to higher product and shipping costs in
Q3 of 2008 compared to Q3 of 2007.
Overall
gross margin in Q3 of 2008 was $352,435 or 18.0% compared to a gross margin of
$481,059 or 27.2% in Q3 of 2007. Without any influence from FT sales
and costs of sales, the gross margin in Q3 of 2007 was 27.8%. This
decrease in the overall gross margin from Q3 of 2007 is due to significantly
reduced advertising revenues which provide nearly 100% gross margins and
Management’s focus on more aggressive discounts to invest in growing revenues
and customers at Perfume.com, as discussed below.
9
Health
and Beauty eCommerce Sales
The
Company’s eCommerce sales are a result of selling consumable goods to customers
at Perfume.com.
Perfume.com
revenues increased 29.0% to $1,934,829 in Q3 of 2008 from $1,499,538 in Q3 of
2007. This was the fourth consecutive quarter with year-over-year revenue growth
of more than 27% for Perfume.com. Daily sales averaged $21,262 per
day in Q3 of 2008 compared to $16,478 per day in Q3 of 2007. Management believes
that the significant quarterly increases demonstrate continued strong potential
of this business segment. However, there is no certainty that such
results can be maintained throughout the rest of the year or continue into the
foreseeable future. Moreover, it is possible that due to the recent
decline in economic conditions, there may be a decrease in consumer spending on
discretionary items. Such a decrease may adversely affect the
Company’s revenues from Perfume.com over the short-term.
Costs of
shipping and purchases totaled $1,602,249 in Q3 of 2008 versus $1,175,835 in Q3
of 2007. This produced a gross margin of $332,580 or 17.2% in Q3 of 2008
compared to $323,703 or 21.6% in Q3 of 2007. Gross profit margin in Q3 2008
decreased compared to Q3 of 2007 primarily due to an increase in shipping costs
attributed to a significant rise in oil prices and more aggressive product
discounting to drive customer and revenue growth due to increasingly competitive
market conditions. Management anticipates that, subject to any
downturn in general economic conditions, it will maintain this profit margin
through 2008 and into 2009. Over the next several quarters,
Management intends to explore opportunities to introduce and implement more
robust supply chain capability which, if realized, should increase gross margins
by the end of 2010.
Health
and Beauty eCommerce product revenues and costs of sales in Q3 of 2008 remained
consistent compared to Q2 of 2008.
Other
eCommerce Sales
In Q1 of
2008, the Company ceased offering goods or services for sale on its non-Health
and Beauty websites as Management is revisiting the business models around those
websites. As a result, there has been no revenues generated on the
Company’s other eCommerce retail sites since the $455 that was earned in Q1 of
2008.
Comparable
quarterly results in Q3 of 2007 included only eCommerce service sales through
its subsidiary FT of $142,992 and FT costs of sales of $113,700. This
produced a gross margin of $29,292 or 20.5% in Q3 of 2007. In that
quarter, the travel operation incurred a net loss of $3,435, excluding the
minimum royalty of $37,500 to Domain Holdings Inc. Effective November12, 2007, the Company unwound its relationship with travel business subsidiary
FT pursuant to an Asset Purchase Agreement (“APA”) between the Company and FT as
noted above. FT had an accumulated deficit of $1,152,145 at November 12,2007. During 2007, there was no requirement to record any
non-controlling interest in the share of loss in FT.
Advertising
In Q3 of
2008, the Company generated advertising revenues of $19,855 compared to $128,064
in Q3 of 2007, a decrease of 84.5%. Management terminated its primary
advertising contract in early 2008 because its restrictive conditions limited
monetization in the medium and long term. Advertising revenues have
decreased every quarter in 2008 as a result. In Q3 of 2008,
advertising accounted for only 1.0% of total revenues, compared to 1.4% of total
revenues in Q2 of 2008, and 1.5% in Q1 of 2008. In Q3 of 2007,
advertising accounted for 7.9% of total revenues, not including any influence
from FT. Advertising revenues are expected to continue to account for
a small percentage of total revenues in the next few quarters as Management
investigates new monetization opportunities with vendors, and realigns to
increase advertising options available on the Company’s properties. In the
medium-term, Management expects advertising revenues to be an important part of
overall revenue.
Domain
Name Leases and Sales
In Q1 of
2008, the Company entered into an agreement with an unrelated third party for a
sales-type lease of surrey.com for $200,000CAD. The terms of the
lease agreement provide for five lease payments over a term of two
years. Title and rights to the domain name will be transferred to the
purchaser only when full payment is received. Payments received
pursuant to the agreement are forfeited if the contract is terminated or if
subsequent payments do not comply with the agreement. The present
value of the lease payments were reflected as revenues in Q1
2008. The investment in the sales-type lease was reflected on a net
basis after the receipt of the first lease payment.
10
The
Company has announced its intention to sell six of its non-core but highly
valuable dot-com domain names from the Company’s portfolio of more than 800
domains in order to provide the Company with additional working
capital. The Company retained a broker, Palo Alto-based Arbor
Advisors, LLC, on October 1, 2008 for this purpose. There were no
outright sales of domain names thus far in 2008 or during the 2007 fiscal
year. Management continues to evaluate expression of interest from
domain name buyers, and continues to look at acquiring certain other domain
names that would complement either the advertising or eCommerce
businesses.
General
and Administrative
In Q3 of
2008, the Company recorded total general and administrative expense of $758,647
or 38.8% of total sales as compared to $238,951 or 14.7% of total sales in Q3 of
2007, an increase of $519,696 or over 217%. This total includes corporate and
eCommerce related general and administrative costs. Total general and
administrative expenses in Q3 of 2008 were 9.7% higher than Q2 of 2008, which
were 9.3% higher than Q1 of 2008, which were in turn 38.0% higher than these
expenses in Q4 of 2007. Management expects general and administrative
expenses to decrease as a percentage of revenue as the eCommerce business
grows.
Corporate
general and administrative costs of $643,674 have increased over Q3 of 2007 by
$461,364. This was primarily due to payments made to the Company’s
current investor relations firm of $136,500 in cash and common stock valued at
approximately $100,000. In addition, the Company accrued the final
cash payment to its former investor relations firm of $8,250 and issued common
stock valued at $85,600. Other significant expenses include
approximately $83,000 in increased rent and overhead due to our new offices,
increased telecommunications for new staff and website related hosting costs,
and increased travel and office expenses due to increased growth, The
remainder of the increase in corporate general and administrative costs was a
result of an increase in legal fees of approximately $27,800 due to increased
corporate activity and SEC filings, and over $10,000 in increased insurance
policies and premiums. In total, these expenses accounted for 32.9%
of total revenues in Q3 of 2008, compared to 30.5% in Q2 of 2008, 25.0% in Q1 of
2008, and 11.2% in Q3 of 2007.
The
amounts for Q3 of 2008 have increased by $52,505, or 8.9%, over Q2 of 2008 due
primarily to the fact that the Company engaged its new investor relations firm
in May of 2008, incurring only two months of expenses in Q2 but three months of
expenses in Q3, resulting in increased investor relations costs of approximately
$55,500 in cash and $38,500 during the quarter, offset by a decrease in
quarterly accounting fees in Q3 of approximately $36,000.
As
disclosed in Item V, the Company anticipates that it may incur additional legal
expenses to comply with new disclosure and reporting requirements mandated by
the British Columbia Securities Commission (“BCSC”) for companies listed on the
OTCBB with a presence in British Columbia. These regulations were
effective as of September 15, 2008.
ECommerce
general and administrative costs in Q3 of 2008 increased by $58,332 over Q3 of
2007 primarily due to approximately $33,000 in consulting fees and related
travel expenses, as well as increased merchant fees generated on increased
sales. These expenses represented 5.9% of eCommerce sales in Q3 of
2008, compared to 5.3% of eCommerce sales in Q2 of 2008, 9.3% in Q1 of 2008, and
3.8% of eCommerce sales in Q3 of 2007, not including eCommerce revenues for
FT.com.
ECommerce
general and administrative expenses in Q3 increased by $14,478, or 14.4%,
compared to Q2 of 2008 primarily due to increases of $11,000 in travel expenses
and $7,000 in consulting fees, offset by a decrease in domain renewal fees of
approximately $4,600. Management believes these expense ratios are
reasonable given the increasingly competitive environment for eCommerce sales in
the United States and Management’s continued focus on growing the eCommerce
business throughout 2008 and into 2009. Management expects to
maintain eCommerce general and administrative costs below 10% of eCommerce
sales.
11
Management
Fees and Employee Salaries
In Q3 of
2008, the Company incurred total management fees and staff salaries of
$1,334,414 compared to $1,479,782 in Q2 of 2008 and $1,058,546 in Q1 of
2008. This amount includes stock based compensation of $549,257 in Q3
of 2008, $543,745 in Q2 of 2008, and $482,144 in Q1 of 2008. The
management fees and staff salaries expense in Q3 of 2008 and Q2 of 2008 also
include accrued amounts for performance bonuses payable to the management team
of $156,518 and $333,442 respectively. Excluding these amounts,
normalized management fees and employee salaries expense in Q3 of 2008 was
$628,639, in Q2 of 2008 was $602,595 and in Q1 of 2008 was
$576,402. This produced an increase of 4.3% in Q3 of 2008 over Q2 of
2008, and an increase of 4.5% in Q2 of 2008 over Q1 of 2008. This
increase was primarily due to the addition of senior employees through the
Auctomatic merger which closed on May 22, 2008, halfway through Q2 of
2008.
The
normalized expense in Q3 of 2008 increased $143,798 or 30.0% over Q3 of
2007. The addition of a new executive management team in late 2007
and early 2008, as well as some additional senior employees in 2008, contributed
to a larger expense overall in 2008. Compensation commensurate with
the caliber of the new management team as well as the addition of more employees
and consultants in marketing, technology, product management and customer
service have contributed significantly to this increase. This investment in the
future of the Company matches the quality of the assets.
Management
fees and staff salaries, excluding stock-based compensation and accrued bonuses,
represented 32.2% of total revenues in Q3 of 2008, 31.1% of in Q2 of 2008, 31.1%
in Q1 of 2008, and 29.8% in Q3 of 2007. Given the caliber of current
management, employees and consultants, it is reasonable to maintain salaries
expense at approximately 30 % of revenues.
Marketing
The
Company acquires internet traffic by pay-per-click, email and affiliate
marketing. In Q3 of 2008, the Company incurred total marketing expenses of
$104,374 (5.3% of total revenues), compared to $150,128 (7.8% of total revenues)
in Q2 of 2008, $175,751 (9.5% of total revenues) in Q1 of 2008 and $145,571
(8.9% of total revenues) in Q3 of 2007.
Included
in this total were corporate marketing expenses of $4,962 in Q3 of 2008,
compared to $20,243 in Q2 of 2008 related to public relations and press
releases, and $26,459 in Q1 of 2008 related to public relations around
repositioning the Company’s business.
ECommerce
marketing expenses in Q3 of 2008 were $99,412 or 5.1% of eCommerce sales,
compared to $129,885 or 6.8% of eCommerce sales in Q2 of 2008, $149,187 or 8.2%
of eCommerce sales in Q1 of 2008, and $145,571 or 9.7% of eCommerce sales in Q3
of 2007. These expenses have been decreasing steadily during 2008 due
to increased effective email marketing campaigns for
Perfume.com. 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.
The
Company’s websites’ search rankings currently perform adequately however
Management believes targeted keywords advertising at opportune times will bring
additional traffic to Perfume.com. Management believes that the more
strategic and measurable advertising expenditures were a contributing factor to
increased revenues in Q3 of 2008.
Other
Expenses
During
2008, the Company has incurred various unusual and one-time costs of
$683,547. During Q3 of 2008, such costs included $20,000 in financing
costs related to the Company’s discussions with various investment bankers to
raise capital. Financing costs during 2008 have been deferred to date
if those costs are directly identifiable with the raising of a round of
capital. However, the costs noted above included in “other expenses”
are costs relating to a transaction that is no longer being pursued, and
therefore the $20,000 was no longer directly identifiable with the raising of
capital and was expensed in the quarter.
12
During
the previous quarters of 2008 and Q4 of 2007, these types of unusual costs
related to restructuring, recruiting and relocating costs associated with
attracting the new management team, as well as winding up our relationship with
FT. There were no such costs in Q1, Q2 or Q3 of 2007.
(e) Liquidity
and Capital Resources
The
Company generates revenues from (1) the sale of third-party products and
services over the Internet; (2) "pay-per-click" advertising revenue; (3) selling
advertising on media rich websites with relevant content; and (4) the sale or
lease of domain name assets.
As at
September 30, 2008, the Company had current liabilities in excess of current
assets resulting in negative working capital of $2,281,798 compared to positive
working capital of $503,775 at June 30, 2008, $4,001,968 at March 31, 2008, and
$5,930,413 at December 31, 2007. During the three months ended September 30,2008, the Company had a net loss of $3,050,207 and a decrease in cash of
$1,095,196 compared to a net loss of $429,166 and an increase in cash of
$1,814,058 over the three month period ended September 30,2007. During the nine months ended September 30, 2008, the Company
had a net loss of $7,015,015 and a decrease in cash of $6,572,501 compared to a
net loss of $677,118 and an increase in cash of $1,965,765 for the same nine
month period of last year. These net losses included incorporation
and start up expenses for the Global Cricket Venture of $1,010,023 for the three
month period ended September 30, 2008, which were expensed in the quarter due
to uncertainty regarding reimbursement of these costs by the GCV as
previously anticipated. From the beginning of the fiscal year to
September 30, 2008, the Company has increased its accumulated deficit to
$9,540,693 from $2,525,678 and has stockholders’ equity of
$3,648,342.
The
decrease in cash for the three month period includes cash outlays that are
either unusual or non-operational in nature. During the quarter, cash
outlays included amounts paid in connection with the acquisition of Auctomatic
and payments of assumed liabilities pursuant to the merger agreement with
Auctomatic of $94,000 and $45,000 respectively, as well as deferred acquisition
costs of $50,000. In addition, $276,000 was paid during the quarter
related to Global Cricket Venture expenses incurred to perform under the MOUs
with BCCI, IPL, and NLB. Without these expenditures, cash decreased
due to operations by approximately $630,000, or $210,000 per month.
Operating
Activities
Operating
activities in the nine months ended September 30, 2008 resulted in cash outflows
of $4,193,802 after adjustments for non-cash items, the most significant of
which were the stock-based compensation expensed during the period of
$1,575,146, performance bonuses accrued in the amount of $489,960, the increase
in other accounts payable of $247,697, offsetting the gain from the sales-type
lease of a domain name of $168,206. In the nine months ended
September 30, 2007, cash outflows of $686,684 were primarily due to the loss of
the period.
Investing
Activities
Investing
activities during the nine months ended September 30, 2008 generated cash
outflows of $2,272,644, primarily due to cash consideration and related
acquisition costs of $1,530,047 pursuant to the Auctomatic merger, and
additional M&A costs of $320,264 relating to future potential
acquisitions. The Company also invested approximately $182,500 in the
purchase of property and equipment, mostly consisting of furniture and equipment
for our new office location, as well as $380,000 in website development.
Investing activities in the period also included proceeds of $140,540 from a
sales-type lease for surrey.com. During the nine months ended
September 30, 2007, cash from investing activities used $372,344 to purchase
“available for sale” securities, which were all subsequently sold during the
2007 fiscal year end.
Financing
Activities
Financing
activities in the nine months ended September 30, 2008 generated cash outflows
of $106,055 related to deferred financing costs incurred in connection with
Management's capital raising activities. In Q3 of 2007, financing
activities primarily consisted of over $3 million in issuances of common stock
to the CEO of the Company as well as a private placement that closed in early
October 2007.
13
Future
Operations
At
quarter end, the Company had negative working capital, and its last seven
reported quarters have experienced substantial losses. Management
expects to continue to incur losses in the coming quarters as planned general
and administrative and marketing expenditures increase to support growth and
drive increased revenues. The Company may also seek to explore new
business opportunities, including the building or acquisition of a distribution
center or warehouse in the United States to enhance its 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-strategic
domain name assets.
Management
is pursuing opportunities to increase cash flows, however there is no certainty
that these opportunities will generate sufficient cash flows to support the
Company’s activities in the future in view of changing market conditions,
technological innovations and legal and regulatory requirements. For
the remainder of 2008 and into 2009, Management expects to expend significant
funds as additional marketing costs, which it believes will translate into
higher revenue growth, as well as to fund costs related to the Global Cricket
Venture. There is no certainty that the profit margins the Company
may generate going forward, as well as any successful raising of working
capital, will be sufficient to offset the anticipated marketing, GCV costs, and
other expenditures and may result in net cash outflow for 2008 and
2009.
Management
has actively curtailed some operations and growth activities in an effort to
reduce costs and preserve cash on hand. Management has also
investigated options to sell some domain names in order to address short term
liquidity needs. As a result, the Company entered into an agreement
with Palo Alto-based Arbor Advisors, LLC on October 1, 2008 to sell six of its
non-core but highly valuable dot-com domain names from the Company’s portfolio
of more than 800 domains. Management anticipates that strategic sales
of these domain names, if successful, will provide the Company with additional
cash to meet its working capital and fund Cricket related expenditures and
general operating capital needs over the next 12 to 18 months. There
can be no assurances that any sales of domain names on terms acceptable to the
Company will occur.
The
interim consolidated financial statements have been prepared on a going concern
basis which assumes that the Company will be able to realize assets and
discharge liabilities in the normal course of business for the foreseeable
future. The Company's ability to continue as a going-concern is in
substantial doubt as it is dependent on continued financial support from its
investors, the ability of the Company to raise future debt or equity financings,
and the attainment of profitable operations to meet the Company's liabilities as
they become payable. The outcome of our operations and fundraising
efforts is dependant in part on factors and sources beyond the direct control of
the Company that cannot be predicted with certainty.. Access to
future debt or equity financing is not assured and Management may not be able to
enter into arrangements with financing sources on terms acceptable to the
Company, 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 the
Company be unable to continue as a going concern.
On or
about October 1, 2008, the Company was scheduled to make a payment to the BCCI
in the amount of $625,000 and a payment to the IPL in the amount of $375,000, in
connection with the Global Cricket Venture. Subsequent to quarter
end, the amount owing to the BCCI was renegotiated and decreased to
$125,000. In addition, the payment of $750,000 that will be due to
the BCCI on October 1, 2009 was eliminated entirely. The payments due
to the BCCI and the IPL for the October 1, 2008 commitment, although negotiated
to a lesser amount, have not been made to date. Discussions are
underway with both parties with regards to the timing of such payments and
payments will then be made accordingly. Such payments may be subject
to certain withholding or other taxes which the Company may be required to gross
up pursuant to the terms of the MOU.
If at any
time the Company is unable to make the required payments to the BCCI or the IPL,
and no extension or renegotiation of the payment terms can be arranged, the
Company may have to forfeit some or all of its rights to the cricket-related
digital content and may be exposed to potential liability for defaulting on its
payment. The Company cannot determine at this time the actual value
of such rights, only that the loss of such rights would impact negatively upon
the potential revenues from the Global Cricket Venture. In addition,
if the Company is unable to make the required payments, the Company faces
potential claims for breach, lack of performance and other damages which other
parties to the MOU may seek to enforce against the Company. The
Company does not concede that such claims would be enforceable or result in a
recovery against the Company. If these events were to occur, such
events would have a negative effect on the Company’s overall anticipated results
of operations and performance.
14
The
Company has no current plans to purchase any significant property and
equipment.
Off-Balance
Sheet Arrangements
As of
September 30, 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 the interim consolidated financial statements,
included as Exhibit F-1 to this Report. We do not engage in trading
activities involving non-exchange traded contracts.
(f) Application
of Critical Accounting Policies
Our
interim consolidated financial statements and accompanying notes are prepared in
accordance with United States generally accepted accounting
principles. Preparing financial statements requires Management to
make estimates and assumptions that affect the reported amounts of assets,
liabilities, revenue, and expenses. These estimates and assumptions are affected
by Management's application of accounting policies. We believe that
understanding the basis and nature of the estimates and assumptions involved
with the following aspects of our interim consolidated financial statements is
critical to an understanding of our operating results and financial
position.
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 shipment of products and determination that collection is
reasonably assured. The Company does not record inventory as an asset because
all products sold are delivered to the customer on a “just-in-time” basis by
inventory suppliers. All associated shipping and handling costs are
recorded as cost of goods sold.
Web
advertising revenue consists primarily of commissions earned from the referral
of visitors to the Company’s sites to other parties. The amount and
collectibility of these referral commissions is subject to uncertainty;
accordingly, revenues are recognized when the amount can be determined and
collectibility can be reasonably assured. In accordance with Emerging Issues
Task Force (“EITF”) 99-19, “Reporting Revenue Gross as a Principal versus Net as
an Agent”, the Company records web advertising revenue net of service
costs.
Until the
disposal of the Company’s shares in FrequentTraveller.com Inc., revenues from
the sales of travel products, including tours, airfares and hotel reservations,
where the Company acted as the merchant of record and had inventory risk, were
recorded on a gross basis. Customer deposits received prior to ticket issuance
or 30-days prior to travel were recorded as deferred revenue. Where the Company
did not act as the merchant of record and had no inventory risk, revenues were
recorded at the net amounts, without any associated cost of revenue in
accordance with EITF 99-19.
Revenue
from the sale of domain names, whose carrying values are recorded as intangible
assets, consists primarily of funds earned for the transfer of rights to domain
names that are currently in the Company’s control. Collectibility of revenues
generated is usually subject to a high level of uncertainty; accordingly
revenues are recognized only as received. There were no sales of
domain names thus far in 2008, or the fiscal year ended December 31,2007.
Revenue
from the sales-type leases of domain names, whose carrying values are recorded
as intangible assets, consists primarily of funds earned over a period of time
for the transfer of rights to domain names that are currently in the Company’s
control. Collectibility of these revenues generated are reasonably assured and
therefore accounted for as a sales-type lease in the period the transaction
occurs.
15
Stock-Based
Compensation
During
the third quarter of 2007, we implemented the following new critical accounting
policy related to stock-based compensation. Beginning July 1, 2007, we began
accounting for stock options under the provisions of Financial Accounting
Standards No. 123 (revised 2004), “Share-Based Payment” (“FAS 123(R)”), which
requires the recognition of the fair value of stock-based compensation. Under
the fair value recognition provisions for FAS 123(R), stock-based compensation
cost is estimated at the grant date based on the fair value of the awards
expected to vest and is recognized as expense ratably over the requisite service
period of the award. We have used the Black-Scholes valuation model to estimate
fair value of our stock-based awards which require various judgmental
assumptions including estimating price volatility and expected life. Our
computation of expected volatility is based on a combination of historic and
market-based implied volatility. In addition, we consider many factors when
estimating expected life, including types of awards and historical experience.
If any of these assumptions used in the Black-Scholes valuation model change
significantly, stock-based compensation expense may differ materially in the
future from what is recorded in the current period.
In August
2007, the Company’s board of directors approved a Stock Incentive Plan to make
available 5,000,000 shares of common stock to be awarded as restricted stock
awards or stock options, in the form of incentive stock options (“ISO”) or
non-qualified stock options to be granted to employees of the Company, and other
stock options to 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. The Company’s shareholders
approved the Stock Incentive Plan at the 2008 Annual General
Meeting.
The
Company accounts for equity instruments issued in exchange for the receipt of
goods or services from other than employees in accordance with SFAS No. 123(R)
and the conclusions reached by the EITF in Issue No. 96-18. Costs are
measured at the estimated fair market value of the consideration received or the
estimated fair value of the equity instruments issued, whichever is more
reliably measurable. The value of equity instruments issued for
consideration other than employee services is determined on the earliest of a
performance commitment or completion of performance by the provider of goods or
services as defined by EITF 96-18.
The
Company has adopted the provisions of EITF No. 00-2, "Accounting for Web Site
Development Costs," whereby costs incurred in the preliminary project phase are
expensed as incurred; costs incurred in the application development phase are
capitalized; and costs incurred in the post-implementation operating phase are
expensed as incurred. Website development costs are stated at cost
less accumulated amortization and are amortized using the straight-line method
over its estimated useful life. Upgrades and enhancements are
capitalized if they result in added functionality which enables the software to
perform tasks it was previously incapable of performing. The costs are related
to infrastructure development of various websites that the Company operates. In
previous periods, 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. Various websites reached the
post-implementation operating phase during Q2 and Q3 of 2008, and therefore the
Company began amortizing these costs during this quarter on a straight-line
basis over 36 months beginning in the month following the implementation of the
related websites.
Intangible
Assets
The
Company has adopted the provision of the SFAS No. 142, “Goodwill and Intangible
Assets”, which revises the accounting for purchased goodwill and intangible
assets. Under SFAS No. 142, goodwill and intangible assets with indefinite lives
are no longer amortized and are tested for impairment annually. The
determination of any impairment would include a comparison of estimated future
operating cash flows anticipated during the remaining life with the net carrying
value of the asset as well as a comparison of 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 September 30, 2008.
16
Goodwill
Goodwill
has been recorded as a result of the Auctomatic merger and it is reflected at
the amount originally recognized. Due to the current volatility and
uncertainty of global financial markets, there is a possibility that the
carrying values attributable to the Company’s goodwill may become
impaired. After performing step one of the impairment assessment
tests per FAS142, Management believes that there has been no impairment to
goodwill at this time. A formal impairment assessment will be
completed in connection with the preparation of the Company’s audited
consolidated financial statements as at December 31, 2008, with any adjustments
to the carrying values of goodwill being provided for at that time.
(g) Recent
Accounting Pronouncements
SFAS
163
In May,
2008, the FASB issued SFAS No. 163, Accounting for Financial Guarantee
Insurance Contracts. The new standard clarifies how FASB Statement No.
60, Accounting and Reporting
by Insurance Enterprises, applies to financial guarantee insurance
contracts issued by insurance enterprises, including the recognition and
measurement of premium revenue and claim liabilities. It also requires expanded
disclosures about financial guarantee insurance contracts. The Statement is
effective for financial statements issued for fiscal years beginning after
December 15, 2008, which would be the fiscal year beginning January 1, 2009. The
Company does not expect that SFAS No. 163 will have any impact on the Company’s
interim consolidated financial statements.
SFAS
162
In May,
2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted
Accounting Principles. The new standard is intended to improve financial
reporting by identifying a consistent framework, or hierarchy, for selecting
accounting principles to be used in preparing financial statements that are
presented in conformity with U.S. generally accepted accounting principles
(GAAP) for nongovernmental entities. This Statement is effective 60 days
following the SEC’s approval of the Public Company Accounting Oversight Board
amendments to AU Section 411, The Meaning of Present Fairly
in Conformity With Generally Accepted Accounting Principles. The
Company does not expect that this Statement will result in a change in current
practice.
SFAS
161
In
March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities , an amendment of SFAS No. 133
. SFAS No. 161 is intended to improve financial standards for
derivative instruments and hedging activities by requiring enhanced disclosures
to enable investors to better understand their effects on an entity's financial
position, financial performance and cash flows. Entities are required to provide
enhanced disclosures about: how and why an entity uses derivative instruments;
how derivative instruments and related hedged items are accounted for under SFAS
No. 133 and its related interpretations; and how derivative instruments and
related hedged items affect an entity's financial position, financial
performance and cash flows. SFAS No. 161 is effective for financial
statements issued for fiscal years and interim periods beginning after
November 15, 2008, which, for the Company, would be the fiscal year
beginning January 1, 2009. The Company is currently assessing the impact of SFAS
No. 161 on its financial position and results of operations.
SFAS
141R
In
December 2007, the FASB issued SFAS No. 141(revised 2007), Business Combinations
("141R"). SFAS No. 141R significantly changes the accounting for
business combinations in a number of areas including the treatment of contingent
consideration, preacquisition contingencies, transaction costs, in-process
research and development and restructuring costs. In addition, under SFAS
No. 141R, changes in an acquired entity's deferred tax assets and uncertain
tax positions after the measurement period will impact income tax expense. This
standard will change accounting treatment for business combinations on a
prospective basis. SFAS No. 141R is effective for fiscal years beginning
after December 15, 2008, which, for the Company, would be the fiscal year
beginning January 1, 2009. The Company is currently assessing the
impact of SFAS No. 141R on its financial position and results of
operations.
17
SFAS
160
In
December 2007, the FASB issued SFAS No. 160 “Noncontrolling Interests in
Consolidated Financial Statements”, and simultaneously revised SFAS 141
“Business Combinations”. This Statement applies prospectively to
business combinations for which the acquisition date is on or after the
beginning of the first annual reporting period beginning on or after December15, 2008, which, for the Company, would be the fiscal year beginning January 1,2009. An entity may not adopt the policy before the transitional
date. The Company is currently assessing the impact of SFAS No. 160
and the revision of SFAS 141 on its financial position and results of
operations.
SFAS
159
In
February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities". This Statement permits entities to
choose to measure many financial assets, financial liabilities, and certain
other items at fair value, with the objective of improving financial reporting
by mitigating volatility in reported earnings caused by measuring related assets
and liabilities differently without having to apply complex accounting
provisions. Most of the provisions of SFAS No. 159 apply only to entities that
elect the fair value option. The provisions of SFAS No. 159 were adopted January1, 2008. The Company elected the Fair Value Option for its financial assets and
liabilities; however, the adoption of SFAS No. 159 had no material impact on the
Company’s interim consolidated financial statements.
SFAS
157
In
September 2006, the FASB issued SFAS No. 157, "Fair Value Measures". This
Statement defines fair value, establishes a framework for measuring fair value
in generally accepted accounting principles (GAAP), expands disclosures about
fair value measurements, and applies under other accounting pronouncements that
require or permit fair value measurements. SFAS No. 157 does not require any new
fair value measurements. However, the FASB anticipates that for some entities,
the application of SFAS No. 157 will change current practice. The effective date
of SFAS No. 157 has been deferred on February 12, 2008 to become effective for
financial statements issued for fiscal years beginning after November 15, 2008,
which for the Company would be the fiscal year beginning January 1, 2009. The
Company is currently assessing the impact of SFAS No. 157 on its financial
position and results of operations.
Item
3: Quantitative and Qualitative
Disclosures about Market Risk
Not
required.
Item 4T: Controls and
Procedures.
Disclosure
Controls and Procedures
C.
Geoffrey Hampson, the Company’s Chief Executive Officer and Principal Financial
Officer has evaluated the effectiveness of the Company’s disclosure controls and
procedures (as such term is defined in Rules 13a-15 and 15d-15 under the
Securities Exchange Act of 1934 (the “Exchange Act”)) as of the end of the
period covered by this quarterly report (the “Evaluation
Date”). Based on such evaluation, he has concluded that, as of the
Evaluation Date, the Company’s disclosure controls and procedures are effective
in alerting the Company on a timely basis to material information required to be
included in its reports filed or submitted under the Exchange Act.
Changes
in Internal Controls
During
the quarter covered by this report, there were no changes in the Company’s
internal controls or, to the Company’s knowledge, in other factors that have
materially affected, or are reasonably likely to materially affect, these
controls and procedures subsequent to the date the Company carried out this
evaluation.
18
PART
II - OTHER INFORMATION
Item 1. Legal
Proceedings.
The
Company is not aware of any pending or threatened material legal proceedings
that arose during the quarter.
Item 1A. Risk
Factors.
Not
required.
Item 2. Unregistered Sales
of Equity Securities and Use of Proceeds.
During
the quarter of the fiscal year covered by this report, (i) the Company did not
modify the instruments defining the rights of its shareholders, and (ii) no
rights of any shareholders were limited or qualified by any other class of
securities.
During Q3
of 2008, the Company issued the following securities not registered under the
Securities Act of 1933, as amended (the “Securities Act”):
On August6, 2008, the Company issued 15,000 shares of common stock to its investor
relations firm as partial consideration for services rendered. The
shareholder took the shares for investment purposes without a view to
distribution and had access to information concerning our business and
prospects, as required by the Securities Act. In addition, there was
no general solicitation or advertising for the issuance of the
shares. The shareholder was permitted access to our management for
the purpose of acquiring investment information. Due to the
shareholder’s status as consultants and their dealings with companies similar to
ours, we deem the shareholder sophisticated for the purposes of Section 4(2) of
the Act.
On August25, 2008, the Company issued 33,000 shares of common stock to its former
investor relations firm as full consideration for services
rendered. The shareholder took the shares for investment purposes
without a view to distribution and had access to information concerning our
business and prospects, as required by the Securities Act. In
addition, there was no general solicitation or advertising for the issuance of
the shares. The shareholder was permitted access to our management
for the purpose of acquiring investment information. Due to the
shareholder’s status as consultants and their dealings with companies similar to
ours, we deem the shareholder sophisticated for the purposes of Section 4(2) of
the Act.
On August28, 2008, the Company issued 15,000 shares of common stock to its investor
relations firm as partial consideration for services rendered. The
shareholder took the shares for investment purposes without a view to
distribution and had access to information concerning our business and
prospects, as required by the Securities Act. In addition, there was
no general solicitation or advertising for the issuance of the
shares. The shareholder was permitted access to our management for
the purpose of acquiring investment information. Due to the
shareholder’s status as consultants and their dealings with companies similar to
ours, we deem the shareholder sophisticated for the purposes of Section 4(2) of
the Act.
Subsequent
to September 30, 2008, the Company issued the following securities not
registered under the Securities Act of 1933, as amended (the “Securities
Act”):
On
October 1, 2008, the Company issued 15,000 shares of common stock to its
investor relations firm as partial consideration for services
rendered. The shareholder took the shares for investment purposes
without a view to distribution and had access to information concerning our
business and prospects, as required by the Securities Act. In
addition, there was no general solicitation or advertising for the issuance of
the shares. The shareholder was permitted access to our management
for the purpose of acquiring investment information. Due to the
shareholder’s status as consultants and their dealings with companies similar to
ours, we deem the shareholder sophisticated for the purposes of Section 4(2) of
the Act.
19
On October31, 2008, the Company issued 15,000 shares of common stock to its investor
relations firm as partial consideration for services rendered. The
shareholder took the shares for investment purposes without a view to
distribution and had access to information concerning our business and
prospects, as required by the Securities Act. In addition, there was
no general solicitation or advertising for the issuance of the
shares. The shareholder was permitted access to our management for
the purpose of acquiring investment information. Due to the
shareholder’s status as consultants and their dealings with companies similar to
ours, we deem the shareholder sophisticated for the purposes of Section 4(2) of
the Act.
Item 3. Defaults Upon Senior
Securities.
During
the quarter of the fiscal year covered by this report, no material default has
occurred with respect to any indebtedness of the Company. Also,
during this quarter, no material arrearage in the payment of dividends has
occurred.
Item 4. Submission of
Matters to a Vote of Security Holders.
No matter
was submitted to a vote of security holders, through the solicitation of proxies
or otherwise, during the three months of the fiscal year covered by this
report.
Item 5. Other
Information.
During
the quarter of the fiscal year covered by this report, the Company reported all
information that was required to be disclosed in a report on Form
8-K.
Effective
September 15, 2008, the British Columbia Securities Commission (“BCSC”)
introduced BC Instrument 51-509 Issuers Quoted in the U.S. Over-the
Counter Markets (BCI 51-509). BCI 51-509
imposes new regulatory requirements for companies listed on the OTCBB with a
presence in British Columbia. As a result, the Company is now subject
to additional disclosure and reporting requirements in British
Columbia. These requirements are consistent with those of other
reporting issuers in British Columbia.
The
Company signed a letter of intent with Domain Strategies, Inc., a leading
internet development and management company, to jointly establish a new company
(“Newco”) for the purpose of building, managing and monetizing the Karate.com
domain name owned by the Company. The partnership with Domain
Strategies will provide management focus and resources to efficiently monetize
the domain name. The Company will contribute the domain name
Karate.com to Newco and will receive a 50% interest of the new company, plus a
distribution and liquidation preference of $500,000. The Board of
Directors of Newco will have equal representation from both partners with Domain
Strategies having primary responsibility for the management of day-to-day
operations including site design, employment relationships, vendors, customer
acquisition and maintenance and relationships with potential strategic
partners. If after three years from the date of formation, Newco has
not achieved the annual financial goals as set by management and approved by the
Board, the Company has the right to terminate its participation in Newco and
ownership of the domain name www.karate.com will
revert back to the Company. In the event the Company is the terminating party,
Domain Strategies will have the right but not the obligation to purchase the
Company’s interest in Newco, including the domain name www.karate.com for $1
million within 60 days of termination.
Section
302 Certification of Chief Executive Officer
31.2
Section
302 Certification of Principal Financial Officer
32.1
Section
906 Certificate of Chief Executive Officer
32.2
Section
906 Certificate of Principal Financial
Officer
21
SIGNATURES
In
accordance with the requirements of the Exchange Act, Registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
NOTE
1 – NATURE OF BUSINESS AND BASIS OF PRESENTATION
Nature
of business
On May30, 2008, Live Current Media Inc. (formerly Communicate.com Inc.) (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.
Through
its majority-owned subsidiary, Domain Holdings, Inc. (“DHI”), the Company builds
consumer Internet experiences around its large portfolio of domain
names. DHI’s current business strategy is to develop or to seek
partners to develop its domain names to include content, commerce and community
applications. DHI is currently actively developing websites on two
domain names; one that provides e-commerce for fragrance and
other health and beauty products, and another that will be a media rich consumer
experience on a sports related website where the revenue model is based on paid
advertising and sales of digital content and merchandise. DHI develops
content and sells advertising services on other domains held for future
development.
On March13, 2008, the Company incorporated a wholly owned subsidiary in the state of
Delaware, Communicate.com Delaware, Inc. (“Delaware”). The new
subsidiary has been incorporated in relation to the Auctomatic transaction.
Refer to Note 6. The Company’s other subsidiary, DHI, owns 100% of
0778229 B.C. Ltd. (“Importers”), Acadia Management Corp. (“Acadia”), and a
dormant company 612793 B.C. Ltd. (“612793”).
On August8, 2008, the Company also formed a wholly-owned subsidiary in Singapore, LCM
Cricket Ventures Pte. Ltd. (“LCM Cricket Ventures”).
As at
December 31, 2006, the Company owned 50.4% of the outstanding shares in
FrequentTraveller.com Inc. (“FT”), a Nevada private company incorporated on
October 29, 2002. FT was a full service travel agency that catered to
Internet-based customers seeking tours and other travel services. On
November 12, 2007, the Company disposed of its controlling interest in FT and at
the end of 2007 no longer had any ownership in FT. Refer to Note
4.
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 interim consolidated financial statements should
be read in conjunction with our Quarterly Report on Form 10-Q for the quarter
ended September 30, 2008.
Going
Concern
The
interim consolidated financial statements have been prepared on a going concern
basis which assumes that the Company will be able to realize assets and
discharge liabilities in the normal course of business for the foreseeable
future. The Company has generated a consolidated net loss of $3,050,207 for the
three months ended and $7,015,015 for the nine months ended September 30, 2008
and realized a negative cash flow from operating activities of $535,186 and
$4,193,802 for the three and nine months ended September 30, 2008
respectively. At September 30, 2008, the Company had negative working
capital of $2,281,798 (positive working capital of $5,930,413 at December 31,2007). There is an accumulated deficit of $9,540,693 (December 31,2007 - $2,525,678). However, the Company has maintained stockholders
equity of $3,648,342 (December 31, 2007 – $7,675,753).
The
Company's ability to continue as a going-concern is in substantial doubt as it
is dependent on the continued financial support from its investors, the ability
of the Company to raise equity financing and the attainment of profitable
operations and further share issuances to meet the Company's liabilities as they
become payable, including its commitments for the Global Cricket Venture as
disclosed in Note 5. The outcome of these matters is dependant
on factors outside of the Company’s control and cannot be predicted at this
time.
The
accompanying financial statements have been prepared on a going concern basis
which assumes that the Company will be able to realize assets and discharge
liabilities in the normal course of business for the foreseeable
future. These financial statements do not include any adjustments
relating to the recoverability or classification of assets or the amounts or
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern.
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The
following is a summary of significant accounting policies used in preparation of
these consolidated financial statements:
Principles
of consolidation
The
consolidated financial statements include the accounts of the Company, its
wholly owned subsidiary Delaware, its wholly-owned subsidiary LCM Cricket
Ventures, its 98.2% (December 31, 2007 - 94.9%) interest in its subsidiary DHI
and DHI’s wholly owned subsidiaries Importers, Acadia, and
612793. The comparative figures in 2007 include its 50.4% interest in
FT (from January 1, 2007 until the sale of the Company’s controlling interest in
FT on November 12, 2007). All significant intercompany balances and
transactions are eliminated on consolidation.
Revenue
recognition
Revenues,
and associated costs of goods sold, from the on-line sales of products,
currently consisting primarily of fragrances and other beauty products, are
recorded upon shipment of products and determination that collection is
reasonably assured. The Company does not record inventory as an asset because
all products sold are delivered to the customer on a “just-in-time” basis by
inventory suppliers. All associated shipping and handling costs are
recorded as cost of goods sold.
Web
advertising revenue consists primarily of commissions earned from the referral
of visitors to the Company’s sites to other parties. The amount and
collectibility of these referral commissions is subject to uncertainty;
accordingly, revenues are recognized when the amount can be determined and
collectibility can be reasonably assured. In accordance with Emerging Issues
Task Force (“EITF”) 99-19, “Reporting Revenue Gross as a Principal versus Net as
an Agent,”the Company records web advertising revenue net of service
costs.
Until the
disposal of the Company’s shares in FrequentTraveller.com Inc. on November 12,2007, revenues from the sales of travel products, including tours, airfares and
hotel reservations, where the Company acts as the merchant of record and has
inventory risk, were recorded on a gross basis. Customer deposits received prior
to ticket issuance or 30-days prior to travel were recorded as deferred revenue.
Where the Company did not act as the merchant of record and had no inventory
risk, revenues were recorded at the net amounts, without any associated cost of
revenue in accordance with EITF 99-19. See also Note 4.
Revenue
from the sale of domain names, whose carrying values are recorded as intangible
assets, consists primarily of funds earned for the transfer of rights to domain
names that are currently in the Company’s control. Collectibility of revenues
generated are usually subject to a high level of uncertainty; accordingly
revenues are recognized only as received. There have not been any
sales of domain names in 2008 or during the fiscal year ended December 31,2007.
Revenue
from the sales-type leases of domain names, whose carrying values are recorded
as intangible assets, consists primarily of funds earned over a period of time
for the transfer of rights to domain names that are currently in the Company’s
control. Collectibility of these revenues generated are reasonably assured and
therefore accounted for as a sales-type lease in the period the transaction
occurs. See also Note 11.
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 SFAS No. 52, “Foreign Currency
Translation”, the foreign currency financial statements of the Company’s
subsidiaries are translated into U.S. dollars. Monetary assets and
liabilities are translated using the foreign exchange rate that prevailed at the
balance sheet date. Revenue and expenses are translated at weighted
average rates of exchange during the year and stockholders’ equity accounts and
certain other historical cost balances are translated by using historical
exchange rates. Any resulting exchange gains and losses are presented
as cumulative foreign currency translation gains (losses) within other
accumulated comprehensive income (loss).
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.
NOTE 2 – SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (continued)
Comprehensive income
(loss)
Comprehensive
income (loss) includes all changes in equity except those resulting from
investments by owners and distributions to owners.
Loss
per share
Basic
loss per share is computed by dividing losses for the period by the weighted
average number of common shares outstanding for the period. Diluted
loss per share reflects the potential dilution of securities by including other
potential common stock, in the weighted average number of common shares
outstanding for a period and is not presented where the effect is
anti-dilutive.
Cash
and cash equivalents
The
company considers all highly liquid instruments, with original maturity dates of
three months or less at the time of issuance, to be cash
equivalents.
Deferred
Financing Costs
Costs
directly identifiable with the raising of capital are charged against the
related capital stock. Costs incurred to obtain debt financing are
deferred and amortized by a charge to interest expense over the term of the
related debt. Debt financing fees are amortized and included as part of
interest expense. During the period, financing costs were deferred
and no financing costs were amortized.
Deferred
Acquisition Costs
Deferred
acquisition costs are direct or incremental costs directly related to
acquisitions, and are deferred and added to the cost of the purchase. Only
costs that are directly related to proposed transactions, where completion is
considered more likely than not, are deferred. Once the Company ceases to
be engaged on a regular ongoing basis and it is not likely that activities will
resume, the costs are expensed.
Property & Equipment
These
assets are stated at cost. Minor additions and improvements are charged to
operations, and major additions are capitalized. Upon retirement, sale or other
disposition, the cost and accumulated depreciation are eliminated from the
accounts, and a gain or loss is included in operations.
Amortization
for equipment is computed using declining balance method at the following annual
rates:
Office Furniture and
Equipment
20%
Computer
Equipment
30%
Computer
Software
100%
Auction
Software
3 years
straight-line
Amortization
for leasehold improvements is computed on a straight-line method calculated over
the term of the lease. Auction software is amortized straight line
over the life of the asset. Other additions are amortized on a
half-year basis in the year of acquisition.
The
Company has adopted the provisions of EITF No. 00-2, "Accounting for Web Site
Development Costs," whereby costs incurred in the preliminary project phase are
expensed as incurred; costs incurred in the application development phase are
capitalized; and costs incurred in the post-implementation operating phase are
expensed as incurred. Website development costs are stated at cost
less accumulated amortization and are amortized using the straight-line method
over its estimated useful life. Upgrades and enhancements are
capitalized if they result in added functionality which enables the software to
perform tasks it was previously incapable of performing. The costs are related
to infrastructure development of various websites that the Company operates. In
previous periods, 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. Various websites reached the
post-implementation operating phase during Q2 and Q3 of 2008, and therefore the
Company began amortizing these costs during this quarter on a straight-line
basis over 36 months beginning in the month following the implementation of the
related websites. See also Note 8.
Intangible
assets
The
Company has adopted the provision of the SFAS No. 142, “Goodwill and Intangible
Assets”, which revises the accounting for purchased goodwill and intangible
assets. Under SFAS No. 142, goodwill and intangible assets with indefinite lives
are no longer amortized and are tested for impairment annually. The
determination of any impairment would include a comparison of estimated future
operating cash flows anticipated during the remaining life with the net carrying
value of the asset as well as a comparison of 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 September 30, 2008.
Goodwill
Goodwill
has been recorded as a result of the Auctomatic merger. It is
reflected at the amount originally recognized. See also Note
6. Due to the current volatility and uncertainty of global financial
markets, there is a possibility that the carrying values attributable to the
Company’s goodwill may become impaired. After performing step one of
the impairment assessment tests per FAS142, Management believes that there has
been no impairment to goodwill at this time. A formal impairment
assessment will be completed in connection with the preparation of the Company’s
audited consolidated financial statements as at December 31, 2008, with any
adjustments to the carrying values of goodwill being provided for at that
time.
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.
NOTE 2 – SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (continued)
Stock-based
compensation
During
the third quarter of 2007, the Company implemented the following new critical
accounting policy related to stock-based compensation. Beginning on July 1,2007, the Company began accounting for stock options under the provisions of
Financial Accounting Standards No. 123 (revised 2004), “Share-Based
Payment” (FAS 123(R)), which requires the recognition of the fair value of
stock-based compensation. Under the fair value recognition provisions for
FAS 123(R), stock-based compensation cost is estimated at the grant date
based on the fair value of the awards expected to vest and recognized as expense
ratably over the requisite service period of the award. The Company has used the
Black-Scholes valuation model to estimate fair value of its stock-based awards,
which requires various judgmental assumptions including estimating stock price
volatility and expected life. The Company’s computation of expected volatility
is based on a combination of historical and market-based volatility. In
addition, the Company considers many factors when estimating expected life,
including types of awards and historical experience. If any of the assumptions
used in the Black-Scholes valuation model change significantly, stock-based
compensation expense may differ materially in the future from that recorded in
the current period.
In August
2007, the Company’s board of directors approved an Incentive Stock Option Plan
to make available 5,000,000 incentive stock options (“ISO”) to be granted to
employees of the Company, and other stock options to be granted to employees,
officers, directors, consultants, independent contractors and advisors of the
Company, provided such consultants, independent contractors and advisors render
bona-fide services not in connection with the offer and sale of securities in a
capital-raising transaction or promotion of the Company’s
securities. See also Note 10.
The
Company accounts for equity instruments issued in exchange for the receipt of
goods or services from other than employees in accordance with SFAS No. 123R and
the conclusions reached by the EITF in Issue No. 96-18. Costs are measured
at the estimated fair market value of the consideration received or the
estimated fair value of the equity instruments issued, whichever is more
reliably measurable. The value of equity instruments issued for
consideration other than employee services is determined on the earliest of a
performance commitment or completion of performance by the provider of goods or
services as defined by EITF 96-18.
Recent
Accounting Pronouncements
SFAS
163
In May,
2008, the FASB issued SFAS No. 163, Accounting for Financial Guarantee
Insurance Contracts. The new standard clarifies how FASB Statement No.
60, Accounting and Reporting
by Insurance Enterprises, applies to financial guarantee insurance
contracts issued by insurance enterprises, including the recognition and
measurement of premium revenue and claim liabilities. It also requires expanded
disclosures about financial guarantee insurance contracts. The Statement is
effective for financial statements issued for fiscal years beginning after
December 15, 2008, which would be the fiscal year beginning January 1, 2009. The
Company does not expect that SFAS No. 163 will have any impact on the Company’s
interim consolidated financial statements.
SFAS
162
In May,
2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted
Accounting Principles. The new standard is intended to improve financial
reporting by identifying a consistent framework, or hierarchy, for selecting
accounting principles to be used in preparing financial statements that are
presented in conformity with U.S. generally accepted accounting principles
(GAAP) for nongovernmental entities. This Statement is effective 60 days
following the SEC’s approval of the Public Company Accounting Oversight Board
amendments to AU Section 411, The Meaning of Present Fairly
in Conformity With Generally Accepted Accounting Principles. The
Company does not expect that this Statement will result in a change in current
practice.
NOTE 2 – SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (continued)
Recent
Accounting Pronouncements (continued)
SFAS
161
In
March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities , an amendment of SFAS No. 133
. SFAS No. 161 is intended to improve financial standards for
derivative instruments and hedging activities by requiring enhanced disclosures
to enable investors to better understand their effects on an entity's financial
position, financial performance and cash flows. Entities are required to provide
enhanced disclosures about: how and why an entity uses derivative instruments;
how derivative instruments and related hedged items are accounted for under SFAS
No. 133 and its related interpretations; and how derivative instruments and
related hedged items affect an entity's financial position, financial
performance and cash flows. SFAS No. 161 is effective for financial
statements issued for fiscal years and interim periods beginning after
November 15, 2008, which, for the Company, would be the fiscal year
beginning January 1, 2009. The Company is currently assessing the impact of SFAS
No. 161 on its financial position and results of operations.
SFAS
141R
In
December 2007, the FASB issued SFAS No. 141(revised 2007), Business Combinations
("141R"). SFAS No. 141R significantly changes the accounting for
business combinations in a number of areas including the treatment of contingent
consideration, preacquisition contingencies, transaction costs, in-process
research and development and restructuring costs. In addition, under SFAS
No. 141R, changes in an acquired entity's deferred tax assets and uncertain
tax positions after the measurement period will impact income tax expense. This
standard will change accounting treatment for business combinations on a
prospective basis. SFAS No. 141R is effective for fiscal years beginning
after December 15, 2008, which, for the Company, would be the fiscal year
beginning January 1, 2009. The Company is currently assessing the
impact of SFAS No. 141R on its financial position and results of
operations.
SFAS
160
In
December 2007, the FASB issued SFAS No. 160 “Noncontrolling Interests in
Consolidated Financial Statements”, and simultaneously revised SFAS 141
“Business Combinations”. This Statement applies prospectively to
business combinations for which the acquisition date is on or after the
beginning of the first annual reporting period beginning on or after December15, 2008, which, for the Company, would be the fiscal year beginning January 1,2009. An entity may not adopt the policy before the transitional
date. The Company is currently assessing the impact of SFAS No. 160
and the revision of SFAS 141 on its financial position and results of
operations.
SFAS
159
In
February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities". This Statement permits entities to
choose to measure many financial assets, financial liabilities and certain other
items at fair value, with the objective of improving financial reporting by
mitigating volatility in reported earnings caused by measuring related assets
and liabilities differently without having to apply complex accounting
provisions. Most of the provisions of SFAS No. 159 apply only to entities that
elect the fair value option. The provisions of SFAS No. 159 were adopted January1, 2008. The Company elected the Fair Value Option for its financial assets and
liabilities; however, the adoption of SFAS No. 159 had no material impact on the
Company’s interim consolidated financial statements.
SFAS
157
In
September 2006, the FASB issued SFAS No. 157, "Fair Value Measures". This
Statement defines fair value, establishes a framework for measuring fair value
in generally accepted accounting principles (GAAP), expands disclosures about
fair value measurements, and applies under other accounting pronouncements that
require or permit fair value measurements. SFAS No. 157 does not require any new
fair value measurements. However, the FASB anticipates that for some entities,
the application of SFAS No. 157 will change current practice. The effective date
of SFAS No. 157 has been deferred on February 12, 2008 to become effective for
financial statements issued for fiscal years beginning after November 15, 2008,
which for the Company would be the fiscal year beginning January 1, 2009. The
Company is currently assessing the impact of SFAS No. 157 on its financial
position and results of operations.
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, and trade accounts
receivable. 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
The
following disclosure of the estimated fair value of financial instruments is
made in accordance with the requirements of SFAS No. 107. “Disclosures about
Fair Value of Financial Instruments.”The Company has determined the
estimated fair value amounts by using available market information and
appropriate valuation methodologies. The fair value of financial instruments
classified as current assets or liabilities, including cash and cash
equivalents, accounts receivable, accounts payable and accrued liabilities and
due to shareholders of Auctomatic are approximately equal to their carrying
value due to the short-term maturity of the instruments.
NOTE 4 – NON-CONTROLLING
INTEREST
The
Company currently holds 98.2% (December 31, 2007 – 94.9%) of its principal
operating subsidiary’s, DHI’s, outstanding shares. During Q1 2008,
DHI issued 40,086,645 shares to Live Current Media Inc. at fair value in
exchange for a conversion of Intercompany debt of $3,000,000, therefore diluting
the non-controlling interest by 3.3%. This conversion was accounted for using
the purchase method. There was no effect to the consolidated
financial statements in the nine months ended September 30, 2008 to the
non-controlling interest of DHI.
As of
December 31, 2006, the Company owned a 50.4% controlling interest in
FrequentTraveller.com Inc. (“FT”) a private Nevada corporation incorporated on
October 29, 2002. FT provided travel services to customers online and
by telephone to destinations encompassed by the geographic domain names owned by
the Company, pursuant to a domain lease agreement entered with FT, dated May 1,2005 (the “Domain Lease Agreement”). FT commenced operations in
November 2003. On November 12, 2007, the Company sold its remaining
50.4% shareholdings in FT via an Asset Purchase Agreement (“APA”). As
part of this agreement the Domain Lease Agreement was cancelled for nil
consideration, and all ties with FT were severed. Intercompany debt of $265,000
was cancelled and the rights to use the domain names were returned to the
Company. The Company assumed no liabilities of FT going-forward. The
resulting gain of $276,805 on the disposal of the subsidiary was booked as other
income. The following table summarizes the assets and liabilities foregone in
exchange for the Company’s shareholding.
On April17, 2008, the Company signed a Memorandum of Understanding (“MOU” or “Original
MOU”) with the Board of Control for Cricket in India (“BCCI”) and the DLF Indian
Premier League (“IPL”). The Company will be the exclusive online
provider of content for the BCCI and the IPL. The ten-year agreement
outlined in the MOU includes extensive co-marketing and exclusive online content
rights agreements for the Company to build, launch and operate the official
online destinations for the BCCI and the IPL. The BCCI will be guaranteed on a
combined basis a minimum of US $3 million annually and the IPL US $ 2 million
annually through revenue sharing agreements including percentages of
advertising, sponsorship and merchandising sales. The original
ten-year MOU with the BCCI and the IPL was subsequently expanded to include the
online and mobile live video streaming rights secured by Netlinkblue (“NLB”) as
detailed below. Pursuant to the Original MOU, the parties agreed to
negotiate and enter into definitive agreements with further terms and
conditions, which the Company anticipates will be completed in the first half of
2009. The parties are currently operating, performing, and funding
obligations under the MOU.
The
Company signed a separate MOU with NLB (“Venture MOU”) to create a venture
combining all of the digital assets secured independently by the Company and NLB
through the formation of a new company in Singapore (“Newco”). As
contemplated by the Venture MOU, Newco was incorporated in Singapore on June 10,2008 and named Global Cricket Venture Pte. Ltd. (“Global Cricket Venture” or
“GCV”). Pursuant to the Venture MOU with NLB, GCV controls the right
to live stream IPL matches over the internet and has exclusive IPL-related
global mobile rights in addition to the digital cricket-related assets
referenced above. The Company utilized a third party broker to
negotiate the Venture MOU and agreed to compensate the broker by way of an
option over 6% of the shares of GCV from shares owned exclusively by LCM Cricket
Ventures. Assuming such option is formally granted, if and when such
option is exercised, the third party has agreed to grant the Company all voting
rights associated with the shares. Pursuant to the Venture MOU, the
parties are negotiating definitive agreements with further terms and conditions,
which the Company anticipates will be completed in the first half of
2009. The parties are currently operating, performing, and funding
obligations under the Venture MOU. To date, Global Cricket Venture
has nominal assets and operations.
On August8, 2008, the Company formed a wholly-owned subsidiary in Singapore, LCM Cricket
Ventures Pte. Ltd. (“LCM Cricket Ventures”) which will support the Company’s
activities relating to cricket and the IPL. Pursuant to the Venture
MOU, the Company is entitled to a 40% equity interest in the GCV. On
October 30, 2008, as part of the formation process, the Company was issued
50.05% of the shares of GCV, however we anticipate that the ownership interest
will be realigned in accordance with the intent of the MOU. To date,
LCM Cricket Venture has nominal assets and limited
operations.
The
Company has incurred $1.01m of costs relating to initial performance of its
obligations under the MOUs with each of the BCCI and the IPL, and establishing
Global Cricket Venture with NLB. During Q3 of 2008, these
costs totaled $276,485 (Q2 of 2008 - $678,221; Q1 of 2008 - $55,317) relating to
but not limited to expenditures for business development, travel, consulting,
and salaries. There were no such costs in any period of
2007. Currently, GCV has not yet obtained outside funding.
Therefore, all of these costs were expensed in the quarter ended September 30,2008 due to uncertainty regarding reimbursement of these costs by the GCV as
previously anticipated.
On or
about October 1, 2008, the Company was scheduled to make payments to the BCCI
and the IPL in the amounts of $625,000 and $375,000, respectively, in connection
with the Global Cricket Venture. Subsequent to quarter end, the
commitments owing to the BCCI were renegotiated. The October 1, 2008
payment owing to the BCCI was decreased by $500,000 to $125,000. In
addition, the payment of $750,000 that will be due to the BCCI on October 1,2009 was eliminated entirely. The amounts due to the IPL have
remained unchanged. The payments due to the BCCI and the IPL for the
October 1, 2008 commitment, although negotiated to a lesser amount, have not
been made to date. Discussions are underway with both parties with
regards to the timing of such payments and payments will then be made
accordingly. Such payments may be subject to certain withholding or
other taxes which the Company may be required to gross up pursuant to the terms
of the MOU.
On March25, 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
Company believes that Auctomatic’s technology framework and toolset will
strengthen its commerce platform and Auctomatic’s team will dramatically enhance
the Company’s product and technology capability.
The
Merger Agreement closed on May 22, 2008 (the “Closing Date”). In
connection with the Merger Agreement, the stockholders of Auctomatic received in
total (i) $2,000,000 cash minus $153,305 in certain assumed liabilities and (ii)
1,000,007 shares of common stock of the Company (equal to $3,000,000 divided by
the lower of (a) $3.00 per share or (b) the closing price of the Company’s share
on the Over the Counter Bulletin Board on the business day immediately preceding
the Closing Date, which was also $3.00 per share) in exchange for all the issued
and outstanding shares of Auctomatic.
The
consideration was payable on the Closing Date as follows: (i) 340,001 shares, or
34%, of the common stock and (ii) $1,200,000 less $153,305 in assumed
liabilities. 246,402 shares of the common stock was issued and shall
be distributed in equal amounts to the Auctomatic shareholders on each of the
first, second and third anniversary of the Closing Date. The remaining $800,000
of the total Cash Consideration shall be distributed on the first anniversary of
the Closing Date. All amounts of cash and common stock shall be
distributed pro rata among the Auctomatic Stockholders. The distribution of the
remaining 413,604 shares of the common stock payable on the first, second and
third anniversary of the Closing Date to the Auctomatic founders is subject to
their continuing employment with the Company or a subsidiary on each
Distribution Date. See also Note 10.
At May22, 2008, the present value of the amounts payable in cash to shareholders of
Auctomatic on the first anniversary of the closing date was
$640,000. During Q3, the present value discount was accreted by
$56,600, leaving a present value remaining at September 30, 2008 of
$696,600.
Also at
June 30, 2008, $141,117 of cash owing at closing had yet to be paid to a number
of these shareholders. During Q3, all of these amounts owing with one
exception of $53,099 were paid to former Auctomatic shareholders. As
a result, at September 30, 2008, amounts payable to shareholders of Auctomatic
totaled $749,699.
To show
effect to the merger of Auctomatic and Delaware as if the merger had occurred on
January 1, 2008, the pro forma information for the nine months ended September30, 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. To show effect to the merger
of Auctomatic and Delaware as if the merger had occurred on January 1, 2007, the
comparative pro forma information for the nine months ended September 30, 2007
would have no effect to reported revenues, cumulative effect of accounting
changes, income before extraordinary items or net income.
Pursuant
to the merger agreement (refer to Note 6), the Company acquired computer
equipment and auction software valued at a cost of $7,663 and $925,000
respectively. These amounts are included in the September 30, 2008
table above.
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
September 30, 2008, there were 22,141,026 shares issued and
outstanding.
2008
In August
and September 2008, the Company issued 30,000 shares to an investor relations
firm that has been engaged to provide investor relations services to the
Company. 30,000 shares with a value of $57,254 were issued as partial
consideration for services rendered during the quarter and are reported as a
non-cash transaction on the consolidated statements of cash flows.
On August25, 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 them as part of
their agreement had a value of $85,682 and were issued as full consideration for
services rendered during the previous quarters and are reported as a non-cash
transaction on the consolidated statements of cash flows.
Also in
June 2008, the Company issued 45,000 shares to an investor relations firm that
has been engaged to provide investor relations services to the
Company. 30,000 shares with a value of $85,350 were issued as partial
consideration for services rendered during the second quarter and are reported
as a non-cash transaction on the consolidated statements of cash
flows. 15,000 shares with an estimated value of $42,300 based on the
June 30, 2008 stock price 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, the
difference between the estimated and actual values was adjusted to Additional
Paid-In Capital, and the amount is included on the consolidated statements of
cash flows.
The
Company also issued this firm 50,000 warrants in May 2008 and has expensed
$9,480 (Q3 of 2008 - $5,688; Q2 of 2008 - $3,792) in relation to the value of
the warrants at September 30, 2008. See also Note 10(e).
In June
2008, the Company issued 586,403 shares of common stock in relation to the May22, 2008 merger with Auctomatic. Of those total issued shares,
340,001 shares were distributed to the shareholders and 246,402 shares are being
held for future distribution in three equal installments on the next three
anniversary dates of the merger pursuant to the terms of the merger
agreement. The value of the stock consideration was added to the cash
consideration in our determination of the purchase price. See also
Note 6.
2007
On May24, 2007the Company issued 60,284 shares of common stock to management in lieu
of $59,078 of bonuses payable.
On June11, 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 (“CEO”) in exchange for $1,000,000
cash. See also Note 10(e).
During
September and October 2007 the Company accepted subscriptions from 11 accredited
investors pursuant to which the Company issued and sold 2,550,000 of the
Company’s shares of common stock, at a price of $2.00 per share for total gross
proceeds of $5,100,000 (the “Offering”). The shares were issued pursuant
to the subscriptions as follows: 1,000,000 shares for $1,999,956 net cash
proceeds were issued before September 30, 2007, and the balance of 1,550,000
shares for net cash proceeds of $3,099,944, were issued in October
2007. Pursuant to the terms of the Offering, the Company filed a
registration statement on Form SB-2 with the Securities and Exchange Commission
(the “Registration Statement”) before December 31, 2007 covering the resale of
the common stock (the “Registerable Securities”) sold. The Company is
further required to use its reasonable best efforts to maintain the Registration
Statement effective for a period of (i) two years or (ii) until such time as all
the Registerable Securities are eligible for sale under Rule 144k of the
Securities Act of 1933, as amended. The Offering was conducted in reliance
upon an exemption from registration under the Securities Act of 1933, as amended
(the "Securities Act"), including, without limitation, that under Section 506 of
Regulation D promulgated under the Securities Act. 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.
c)
Reserved
2008
The
Company has reserved 413,604 shares of common stock for future issuance and
distribution in relation to the May 22, 2008 merger with
Auctomatic. These shares are 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. See also Note 6.
d)
Stock
Options
The Board
of Directors and stockholders approved the 2007 Stock Incentive Plan and adopted
it August 21, 2007 (“the Plan”). The Company has reserved 5,000,000
shares of its common stock for issuance to directors, employees and consultants
under the Plan. The Plan is administered by the Board of
Directors. Vesting terms of the options range from immediately to
five years and no options will be exercisable for a period of more than ten
years.
On
September 11, 2007, the Company granted a total of 1,250,000 stock options
to purchase the Company’s common shares at an exercise price of $2.50 per
share to the following individuals:
The
Company valued the options to the CEO and directors using the Black Scholes
option pricing model using the following assumptions: no dividend yield;
expected volatility rate of 118.22%; a risk free interest rate of 4.07% - 4.11%
and an expected life of 3 years resulting in a value of $1.74-$1.78 per option
granted.
The
Company is valuing the options to the consultant at each reporting period under
FAS 123(R) for non-employees using the Black Scholes option pricing model using
the following assumptions: no dividend yield; expected volatility rate of
64.86%; a risk free interest rate of 2.28% and an expected life of 3 years
resulting in a value of $0.43 per option granted.
(ii)
On
October 1, 2007, the Company granted to its Chief Operating Officer
(“COO”) 1,500,000 options to purchase the Company’s common stock at a
price of $2.04 per share. The Company valued these 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 years resulting in a
value of $1.45 per option granted.
(iii)
On
January 1, 2008, the Company granted to its Chief Corporate Development
Officer (“CCDO”) 1,000,000 options to purchase the Company’s common stock
at a price of $2.06 per share. The Company valued these 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 years resulting in a
value of $1.05 per option granted.
(iv)
On
January 7, 2008, the Company granted to its Vice President, Finance (“VP
Finance”) 150,000 options to purchase the Company’s common stock at a
price of $1.98 per share. The Company valued these options
using the Black Scholes option pricing model using the following
assumptions: no dividend yield; expected volatility rate of 75.68%; risk
free interest rate of 2.76% and an expected life of 3 years resulting in a
value of $1.01 per option granted.
(v)
On
March 14, 2008, the Company granted to a director 100,000 options to
purchase the Company’s common stock at a price of $2.49 per
share. 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 years resulting in a value of $1.21 per option
granted.
(vi)
On
May 27, 2008, the Company granted to its Vice President, General Counsel
(“VP CC”) 125,000 options to purchase the Company’s common stock at a
price of $3.10 per share. The Company valued these options
using the Black Scholes option pricing model using the following
assumptions: no dividend yield; expected volatility rate of 68.19%; risk
free interest rate of 2.82% and an expected life of 3 years resulting in a
value of $1.45 per option granted.
(vii)
Between
January 1, 2008 and September 30, 2008, the Company granted to its
full-time corporate directors a total of 425,000 options to purchase the
Company’s common stock at a range of prices between $2.06 and $3.30 per
share. The Company valued these options using the Black Scholes
option pricing model using the following assumptions: no dividend yield;
expected volatility rate of between 68.22% and 75.66%; risk free interest
rates of between 2.23% and 3.07% and an expected life of 3 years resulting
in a value of between $1.05 and $1.66 per option
granted.
Between
January 1, 2008 and September 30, 2008, the Company granted to its
full-time employees a total of 285,000 options to purchase the Company’s
common stock at a range of prices between $2.06 and $3.10 per
share. The Company valued these options using the Black Scholes
option pricing model using the following assumptions: no dividend yield;
expected volatility rate of between 68.19% and 75.66%; risk free interest
rates of between 1.65% and 3.07% and an expected life of 3 years resulting
in a value of between $1.05 and $1.45 per option granted. In
the third quarter, 12,500 of these options have been
forfeited.
(ix)
Between
January 1, 2008 and September 30, 2008, the Company granted to consultants
a total of 70,000 options to purchase the Company’s common stock at prices
ranging from $2.06 to $2.49 per share. The Company is valuing
these options at each reporting period under FAS 123(R) for non-employees
using the Black Scholes option pricing model using the following
assumptions: no dividend yield; expected volatility rate of 64.86%; risk
free interest rates of 2.28% and an expected life of 3 years resulting in
a value of between $0.43 and $0.50 per option
granted.
All
of the
options noted in (i) to (viii) vest over three years and are exercisable for a
period of five years based on the date of grant. Due to the lack of
historical data, Management has not expected any forfeitures to occur as
approximately 95% of the options granted to date have been granted to senior
officers, senior employees and directors of the Company who are not expected to
leave in the near future. This is the first year of the Stock Option
Plan and this assumption will be reassessed and revalued on an annual
basis. At September 30, 2008, there had been forfeitures by full-time
employees of 12,500 options.
The fair
value of these options at September 30, 2008 of $6,940,925 (Q2 of 2008 -
$6,954,050, Q1 of 2008 - $6,183,100; December 31, 2007 - $4,396,000) will be
recognized on a straight-line basis over a vesting term of 3 years and
accordingly, an expense has been recognized in the three month period ended
September 30, 2008 of $549,257 (Nine month period ended September 30, 2008 -
$1,575,146; FYE 2007 - $428,028) and included in management fees and employee
salaries expense.
A summary
of the option activity under the 2007 Plan as of September 30, 2008, and changes
during the nine month period then ended is presented below:
On June30, 2008, the Company issued 50,000 common stock share purchase warrants to its
investor relations firm in connection with a services agreement with an exercise
price of $2.33. The warrants expire May 1, 2010. The
Company valued these options using the Black Scholes option pricing model using
the following assumptions: no dividend yield; expected volatility rate of
69.27%; risk free interest rate of 2.37% and an expected life of 2 years
resulting in a fair value of $0.91 per option granted.
2007
On June11, 2007, in connection with the issuance of 1,000,000 common shares to a
company owned and controlled by the Company’s Chief Executive Officer (“CEO”),
the Company also issued 1,000,000 common stock share purchase warrants with an
exercise price of $1.25. The warrants expire June 10,2009.
On
January 17, 2008, the Company entered into an agreement to lease Surrey.com to
an unrelated third party for CAD$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 $25,000CAD was due on January 17,2008 (the “Effective Date”), $45,000CAD was due 3 months after the Effective
Date, $80,000CAD is due 6 months after the Effective Date, $25,000CAD is due 1
year after the Effective Date, and $25,000CAD 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 Q1 of 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. Revenues of $168,206 were
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 as due to date according to the terms of the
agreement.
There
were no sales of domain names in 2008 or the 2007 fiscal year.
During Q3
of 2008, the Company incurred various restructuring costs. During the
period, such costs included $20,000 in costs related to engaging a firm to
pursue capital financing opportunities that was terminated subsequent to year
end. As a result, these financing costs are no longer considered
deferred and have been expensed in the period. There were no such
costs in Q3 of 2007.
NOTE
13 – INCOME TAXES
The
Company’s subsidiaries, DHI, Acadia, Importers, and 612793 are subject to
federal and provincial taxes in Canada. The Company, its subsidiaries
Delaware and FT (until the date of disposition of FT on November 12, 2007) are
subject to United States federal and state taxes.
The
Company adopted the provisions of FIN 48, on January 1, 2007. FIN 48 clarifies
the accounting for uncertainty in income taxes recognized in an enterprise’s
financial statements in accordance with FASB Statement 109, “Accounting for
Income Taxes”, and prescribes a recognition threshold and measurement process
for financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. FIN 48 also provides guidance on
derecognition, classification, interest and penalties, accounting in interim
periods, disclosure and transition. The Company and its subsidiaries are
subject to U.S. federal income tax and Canadian income tax, as well as
income tax of multiple state and local jurisdictions. Based on the Company’s
evaluation, the Company has concluded that there are no significant uncertain
tax positions requiring recognition in the Company’s financial statements. The
Company’s evaluation was performed for the tax years ended December 31, 2001,
2002, 2003, 2004, 2005, 2006 and 2007, as well as the quarters ended March 31,2008, June 30, 2008, and September 30, 2008, the tax years which remain subject
to examination by major tax jurisdictions as of September 30, 2008. 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.
As at the
last fiscal tax year December 31, 2007, the Company and its subsidiaries have
net operating loss carryforwards of approximately $2,507,000 that result in
deferred tax assets. These loss carryforwards will expire, if not
utilized, through 2027. The Company’s subsidiary DHI also has
approximately $1,592,000 in undepreciated capital costs relating to property and
equipment that have not been amortized for tax purposes. The
Company’s subsidiaries Acadia and Importers also have approximately $2,943,000
combined in undepreciated capital costs relating to intangible assets 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’s eCommerce operations have historically been conducted in three
business segments, Domain Leasing and Advertising, eCommerce Products and
eCommerce Services. The business segment of eCommerce services ended upon the
termination of the Company’s relationship with FT on November 12,2007. Revenues, operating profits and net identifiable assets by
business segments are as follows:
The
Company will also be responsible for common costs currently estimated to be
equal to approximately 75% of basic rent.
Cricket
Venture
The MOU
with the BCCI and the IPL requires the Company to pay both the BCCI and the IPL
minimum payments over the next ten years, beginning on October 1,2008. See also Note 5. Pursuant to the terms of the MOU,
the future minimum payments are listed in the table below.
Subsequent
to quarter end, the commitments owing to the BCCI were
renegotiated. The October 1, 2008 payment owing to the BCCI was
decreased by $500,000 to $125,000. In addition, the payment of
$750,000 that will be due to the BCCI on October 1, 2009 was eliminated
entirely. The amounts due to the IPL have remained
unchanged. Neither payment to the BCCI or the IPL for the October 1,2008 commitment has been made to date. Discussions are underway with
both parties with regards to the timing of such
payments and payments will then be made accordingly.
BCCI
USD$
IPL
USD$
TOTAL
USD
$
2008
125,000
375,000
500,000
2009
1,875,000
1,625,000
3,500,000
2010
3,000,000
2,000,000
5,000,000
2011
3,750,000
2,500,000
6,250,000
2012
3,000,000
2,000,000
5,000,000
2013
3,000,000
2,000,000
5,000,000
2014
3,000,000
2,000,000
5,000,000
2015
3,000,000
2,000,000
5,000,000
2016
3,000,000
2,000,000
5,000,000
2017
3,250,000
2,250,000
5,500,000
2018
1,750,000
1,250,000
3,000,000
Such
payments made be subject to certain withholding or other taxes which the Company
may be required to gross up pursuant to the terms of the MOU.
The
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 17 – SUBSEQUENT
EVENTS
On
October 1, 2008, the Company issued 15,000 shares to the investor relations firm
that has been engaged to provide investor relations services to the
Company.
On
October 8, 2008, the Company cancelled 300,000 shares of common stock that had
been pre-maturely issued in anticipation of a transaction that was never
consummated.
On
October 31, 2008, the Company issued 15,000 shares to the investor relations
firm that has been engaged to provide investor relations services to the
Company.
NOTE
18 – COMPARATIVE FIGURES
In order
to provide more relevant data in 2008, the Company has specifically identified
and reported eCommerce sales and costs of sales generated from the operation of
our Perfume.com and Body.com websites as “Health & Beauty eCommerce”, and
the eCommerce sales and costs of sales generated from the operation of our other
websites as “Other eCommerce”. Other eCommerce includes eCommerce
services generated from FT in 2007, which are NIL in 2008.
F-24
Dates Referenced Herein and Documents Incorporated by Reference
